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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.
Boeing
BA-NYSE
Buy Price $149.52 on May 28
by Benchmark
Yesterday, Boeing announced the restart of 737-MAX production, following a four-month halt. The company had outlined on its first-quarter earnings call that it anticipated beginning 737-MAX production at low rates in the second quarter, with deliveries potentially to begin in the third, along with return to service then. Production is gradually expected to increase to 31 a month by late 2021. Boeing’s approximately 450 grounded 737-MAXs provide liquid finished inventory that can efficiently fill the ambiguous fits/starts of an airline recovery. The plan to ramp up 737 production will flex (up or down), based on the number of inventoried 737-MAXs accepted by airlines. Our $180 price target is based on eight times our fiscal year 2022 price/free cash flow estimate.
J.M. Smucker SJM-NYSE
Sell Price $110.11 on May 28
by Guggenheim
Ahead of the company’s fourth-quarter results, expected on June 4, we reiterate our negative thesis, predicated on our view that the company’s longer-term ability to generate competitive top-line growth is limited, especially relative to other food peers.
While Smucker is a short-term beneficiary of pantry stocking and higher at-home consumption in the U.S., which is more than offsetting steep food-service declines during the coronavirus pandemic, we expect the elevated growth rates–mostly in coffee and center-store grocery staples–to decelerate meaningfully into its fiscal first quarter (as is already visible in the May retail sales trends). Management recently provided updated fiscal 2020 guidance that includes sales declines of 1% (from -3%), with EPS “to exceed the high end” of the prior $8.10 to $8.30 range. We do not expect the company to provide fiscal 2021 guidance when it releases 4Q results. On a positive note, SJM recently announced the appointment of John Brasse as chief operating office. We think this shows management’s willingness to recognize its own weaknesses and to identify the areas of the business that require closer attention. Price target: $96 [down from $98].
Independent Bank Group
IBTX-Nasdaq
Outperform Price $34.55 on May 26
by Raymond James
We are upgrading IBTX to Outperform from Market Perform and establishing a $41 price target, following the announcement that its pending merger of equals with
Texas Capital Bancshares
[ticker: TCBI] has been terminated.
With growing speculation in recent weeks driving a significant widening of the arbitrage spread, coupled with the financial and economic impacts from the Covid-19 pandemic, we aren’t surprised to see both sides mutually agree to terminate the transaction. (The $115 million termination fee will NOT be paid by either side.) In turn, we believe IBTX shares should revert back to trading at multiples similar to predeal levels on a price/tangible book value basis. We view risk-reward positively, as our stand-alone model projects solid relative pretax, preprovision earnings and profitability trends and notably less credit risk [than would have been the case if the merger had occurred].
Alexion Pharmaceuticals
ALXN-Nasdaq
Outperform Price $106.14 on May 28
by Wedbush
On Wednesday, new documents were posted in the [patent dispute] between Alexion and
Amgen
(AMGN), related to ALXN’s Soliris, that indicate a potential settlement was reached ahead of oral arguments. [Soliris is used to treat myasthenia gravis, a neuromuscular disorder, and blood ailments.] We checked in with Alexion, which wouldn’t comment on the matter. But the U.S. Patent Trial and Appeal Board would still need to dismiss the proceedings, even with a settlement in place. With PTAB legally mandated to issue a ruling by August, time is tight to finalize an agreement. We maintain our Outperform rating on ALXN, with a 12-month price target of $120.
General Motors
GM-NYSE
Buy Price $27.48 on May 27
by Bank of America Securities
While GM’s vehicle replacement rate is among the lowest in the industry, this reflects a different investment strategy than peers, specifically toward launching niche, lower-volume electric vehicles, versus the traditional refreshing of high-volume models. We expect GM to introduce more than 10 new electric vehicles in the U.S. over the next four model years, making the company a leader in alternative powertrains.
Our price objective of $45 is based on an EV/Ebitdap [enterprise value/earnings before interest, taxes, depreciation, amortization, and pension income] multiple of roughly five times, on a blended average of our 2021 and 2022 estimates, which is at the higher end of the company’s (three to six times) historical range. We believe this valuation is deserved because the core business is being well-managed, while GM’s accelerating focus on future-proofing its business [by focusing on electric cars, autonomous vehicles, and vehicle connectivity] may provide upside.
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