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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.
Cal-Maine Foods CALM-Nasdaq
Overweight (Volatile) Price $37.39 on March 17
by Stephens
We are upgrading Cal-Maine to Overweight from equal weight and raising our price target to $47 from $45. Cal-Maine [the largest producer and distributor of eggs in the U.S.] is a best operator in an industry essential to the food chain. It operates with minimal debt and has weathered numerous economic cycles, utilizing challenging times as an opportunity to further consolidate its industry.
Cal-Maine is very well positioned in the current environment. Its price-to-book [valuation is] about a half-turn below its 10-year average and just 0.2 times above the low seen in the last recession. Estimates are likely bottoming, as significant pessimism is being modeled in due to a prolonged oversupply [of eggs], and the operating environment is in the early stages of improvement on the back of moderating supply growth and a pickup in retail demand, as consumers shift toward food-at-home consumption.
Baxter International BAX-NYSE
Outperform Price $80.51 on March 18
by Raymond James
Baxter [a supplier of medical products and services] is taking appropriate steps to address customer needs as the Covid-19 pandemic expands. Baxter is seeing demand for IV solutions, antibiotics, and [other items], while its renal-care business remains stable. Manufacturing operations are running at planned levels, while supply-chain [problem] mitigation efforts are in place. The balance sheet is strong, as cash levels have been bolstered. Price target: $90.
H&R Block
HRB-NYSE
Neutral Price $17.37 on March 18
by BTIG
H&R Block this morning disclosed that it was withdrawing the fiscal-2020 financial guidance it had provided on March 5, after U.S. Treasury Secretary [Steven] Mnuchin yesterday announced that, in response to the coronavirus pandemic, the Treasury would allow deferral of tax payments by individuals and corporations of up to $1 million owed to the IRS for 90 days after the April 15 deadline.
▪While Mnuchin’s announcement pertained to federal payments, H&R Block noted that many states have also allowed for deferral of tax payments due to the advent of the coronavirus. The Treasury secretary, who noted that taxpayers will not be subject to interest and penalties during the 90-day deferral period, encouraged taxpayers able to do so to file their taxes by April 15, insofar as many would be eligible for refunds.
▪H&R Block management had reiterated fiscal-2020 guidance for revenue growth of 1.5% to 3.5% and for its full-year margin, based on earnings before interest, taxes, depreciation, and amortization, of 24% to 26%. The company typically generates over 80% of its annual revenue and over 100% of its annual earnings during its fiscal fourth quarter, which overlaps with tax season. Our estimates for H&R Block are under review.
Alibaba Holding BABA-NYSE
Buy Price $178.85 on March 16
by BofA Securities
We are shifting some weights [in our international portfolio], given the current market volatility. We increase our 4.5% weight in Alibaba to 6%, as we believe that it [the Amazon.com of China] has positive secular drivers in e-commerce and cloud computing.
Sage Therapeutics SA
GE-Nasdaq
Outperform Price $28.80 on March 16
by RBC Capital Markets
Sage Therapeutics shares are down 60% in the past month, owing to lack of clarity on lead drug 217’s path forward, coupled with macro weakness on pandemic concerns. Although we acknowledge some uncertainties, we believe that the downside has been excessive. The promise that 217 [a treatment for depression and other disorders] has shown in earlier trials, [along with] Sage’s underappreciated drug platform, create multiple shots [toward its] goal for achieving more than $2.5 billion in annual revenues, which the company’s current market cap of about $1.8 billion doesn’t appear to reflect. At current levels, the most bearish scenarios are already baked in, and we see the reward/risk skewed to the upside on any progress with 217 or the rest of the company’s product pipeline.
We lower our price target to $60 from $73, but upgrade Sage to Outperform from Sector Perform and add a speculative risk qualifier to our rating.
JOYY YY-Nasdaq
Buy Price $42.74 on March 17
by Benchmark
JOYY, formerly YY, doesn’t expect a negative impact on its YY Live and Bigo [social-media and streaming platforms] from the coronavirus outbreak. We are turning more positive on [China-based] JOYY’s overseas expansion, driven by healthy user growth and increasing monetization [of its services].
That said, we expect JOYY’s margins to remain under pressure, due to a potential step-up in YY Live investments. JOYY is trading at a single-digit earnings multiple, and we view it as a value play for longer-term investors. We maintain our Buy rating, but lower our price target to $78 from $90.
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