These reports, excerpted and edited by Barron’s, were issued recently by investment and research firms. The reports are a sampling of analysts’ thinking; they should not be considered the views or recommendations of Barron’s. Some of the reports’ issuers have provided, or hope to provide, investment banking or other services to the companies being analyzed.
Buy Price $3,421.37 on Dec. 23
by Monness Crespi Hardt
After a strong stock performance in 2020, Amazon has trailed 2021’s healthy market rally. However, we believe that the company’s fortunes are poised to change in 2022. Amazon is uniquely positioned to exit this crisis as one of the biggest beneficiaries of accelerated digital transformation….Our $4,500 stock-price target is based on an enterprise value-to-revenue ratio of 4.3 times our calendar 2022 estimate. Although this is above the average over the past six years, we believe that the company’s e-commerce growth path is very attractive, with Amazon Web Services, digital media, advertising, Alexa, and more. Moreover, the company has started to deliver more-attractive profit trends over the past couple of years. However, as Amazon continues to aggressively invest back into its business to grow at a rapid rate, its profitability is well below its long-term potential. Therefore, we believe traditional price/earnings metrics aren’t applicable, and neither are other profit metrics. Thus, we value the stock on an enterprise value-to-revenue ratio.
Winnebago Industries WGO-NYSE
Overweight Price $71.85 on Dec. 27
by Baird
We are bullish on the recreational-vehicle space, and highlight Winnebago as a focus idea. Winnebago trades barely above prepandemic levels, even though the pandemic created more lifelong RVers and wiped out dealer inventory. Meanwhile, Winnebago brands have gained share, and management has added significantly to earnings power through margin improvements, smart acquisitions, and share buybacks. With the shares trading under 10 times our cycle-neutral scenario, we would be aggressive in small-cap value portfolios. [Another RV maker,]
Thor Industries [ticker: THO] also stands out as oversold, although a recent buyback authorization might be the needed antidote to the deep pessimism surrounding the name.
Peloton Interactive PTON-Nasdaq
Market Perform Price $36.71 on Dec. 27
by Raymond James
We believe that December-quarter and fiscal-2022 guidance are likely to prove aggressive. While Peloton has done a number of things to drive demand, including lowering original bike pricing to $1,495 (via a $400 cut at the end of August), relaunching Peloton Tread, and significantly increasing advertising, our analysis of search data continues to show a meaningful year-over-year slowdown and less of a sequential increase than we have seen in the past few years. We continue to believe that significant demand was pulled forward during the pandemic. As such, sales aren’t seeing the typical seasonality we would expect. We maintain our Market Perform rating, given signs of softening demand, increasing costs (e.g., supply chain), and our view that risk/reward is balanced at current levels. Using our updated sum-of-parts analysis, we estimate a fair value of $38 for the stock (with a bear case of $27 and bull case of $51).
Costco Wholesale COST-Nasdaq
Neutral Price $550.37 on Dec. 23
by Guggenheim
Costco continues to have several near- to intermediate-term potential catalysts, although it’s unclear how much is priced in, given the shares’ 50% appreciation over the past year (versus the S&P 500 index’s 26.5%), and 18% in the past three months (versus SPY’s 6%). Specifically, we believe that December core comps should return to double-digit territory, driven by broad-based strength across most categories. Second-quarter sales and Ebitda [earnings before interest, taxes, depreciation, and amortization] could, once again, top consensus expectations. However, with the shares trading at 23 times calendar-2022 Ebitda, we remain Neutral.
Applied Materials AMAT-Nasdaq
Strong Buy (5 stars) Price $155.49 on Dec. 23 by CFRA
Our Strong Buy reflects our view of improving fundamentals, coupled with a valuation in line with peers’ when a premium is warranted. We think demand continues to be driven by foundry/logic technology transitions, as well as memory-capacity growth, benefiting purchases for tools in areas [that command] greater dollar content in its [semiconductor-equipment] business. We see Applied Materials’ services business benefiting from a growing installed base and higher demand for trailing node geometries, and we like its exposure to recurring-based revenue. We also see upside to estimates, driven by foundry/logic capacity expansions evident in
Intel’s [INTC] capex guidance ($25 billion to $28 billion in 2022, versus $18 billion to $19 billion in 2021), and
Samsung Electronics’ [005930.Korea] plan to triple its foundry capacity by 2026.
We see Applied Materials’ sales rising 14% in fiscal 2022 (October) and 5% in fiscal 2023 after a 34% increase in fiscal 2021. In Semiconductor Systems (which declined 3% in fourth-quarter 2021), we see demand led by foundry/logic customers and higher investments at trailing technology nodes. We think revenue from Applied Global Services (up 6.5% in the fourth quarter) has further upside, with an ongoing shift toward subscriptions, which represent about 60% of segment revenue. Applied Materials’ display business (down 3.2% in the fourth quarter) is seeing more modest growth, aided by rising mobile adoption for OLED in 5G/foldable displays.
SyscoSYY-NYSE
Buy Price $76.65 on Dec. 23
by Edward Jones
Sysco is one of the leaders in the food-service industry in North America, and has exposure to international markets. Sysco has viewed the turmoil caused by Covid-19 the past two years as an opportunity to restructure its sales operations, invest more in digital tools, increase its services to customers, and even to make a recent acquisition. Because of these efforts, along with restaurants having largely reopened, Sysco is emerging from the pandemic a much stronger company. We believe that it can take significant market share from smaller competitors that didn’t make operational improvements like Sysco’s. Restaurant demand for its products could remain volatile, due to economies in different stages of reopening and input costs increasing. However, Sysco is often partially immune to shorter-term cost inflation impacts. It can pass much of its higher food costs on to customers, but it also may cause them to opt for lower-cost, less-profitable items. Supply shortages and finding and hiring qualified employees in a tight labor market probably don’t help, either. But, eventually, cost and labor concerns should resolve themselves, allowing Sysco’s business improvements to shine through.
Chart Industries GTLS-Nasdaq
Buy Price $166.42 on Dec. 29
by Benchmark
Chart Industries has been awarded more than $120 million of orders for four liquefaction projects (hydrogen and small-scale liquid natural gas). We estimate this means that fourth-quarter 2021 orders will be at least $400 million, compared with our $352 million estimate and the $350 million FactSet consensus. Chart also announced releases on engineering work (limited notice to proceed) on two of the big LNG export terminal projects expected to proceed to final investment decision in 2022. Engineering work typically precedes the decision to move forward with full construction. We expect Chart to receive a full notice to proceed, or NTP, for Venture Global Plaquemines Phase 1 shortly. Our full-year 2022 order outlook also includes a $350 million order for
Tellurian [TELL] Driftwood Phase 1 and a $375 million order for
Cheniere [LNG] Corpus Christi Stage 3.
However, Chart continues to face near-term headwinds from rising material costs and supply-chain disruption. Accordingly, we see some downside risk to diluted estimated fourth-quarter 2021 earnings (FactSet consensus: 73 cents a share) and our 2022 estimate, which is 7% below consensus. However, our 2023 diluted EPS estimate is 15% above consensus, driven by expected big LNG awards and specialty products growth. We believe that Venture Global’s Dec. 2 announcement that it will invest more than $10 billion to develop a fourth LNG export facility increases the chance it also will proceed with Plaquemines Phase 2. This would be incremental to our and Street expectations. Price target: $206.
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