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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.
Morgan Stanley
MS-NYSE
Buy Price $51.35 on July 16
by UBS
Morgan Stanley reported second-quarter earnings of $1.96 per share, beating our $1.21 estimate and the consensus $1.12. Results included a higher-than-expected tax rate, so core results were even stronger than the headline print.
Trading revenues were remarkably strong, while credit costs reflect less stress. Equities revenues were $2.62 billion (up 23% year over year). Fixed-income revenues were $3.03 billion (up 168%). And investment-banking revenues overall were $2.05 billion (up 39%), with both debt and equity underwriting stronger than expected.
The pretax margin in the wealth management segment was 24.4%, above our 23.8% estimate. Segment revenues were $4.68 billion, as deposit and loan growth partially offset lower rates. We expect the outlook for net interest income to improve, given this resilience. Our $52 price target is tied to estimated year-one dilution from Morgan Stanley’s acquisition of
E* Trade Financial.
We’re valuing the combined entity at roughly 10 times our estimated pro forma earnings per share of $5.12 in 2021.
Lakeland Industries
LAKE-Nasdaq
Buy Price $21.54 on July 16
by Benchmark
We recently hosted investor meetings with Lakeland’s management, which reinforced our belief that the company [which makes garments to protect workers from fires, hazardous chemicals, and diseases] is capitalizing on Covid-19 with a long-term focus.
►Lakeland is experiencing strong demand for its personal protective equipment. Additionally, as industrial companies reopen, higher-margin products are slowly being returned to the mix. Lakeland was able to redirect and ramp up production and secure raw materials ahead of the competition, due to in-house manufacturing and direct relationships with its supply chain. It didn’t run out of raw materials and continued at peak production.
The company has rolled out a new enterprise resource planning system [tying together various business activities, including inventory management] in the U.S., representing roughly half of revenues. This system has been invaluable during the pandemic for redirecting resources and managing operations.
►Lakeland Industries has a significant cash balance of $23 million. We estimate that it will generate $17 million of free cash flow through its fiscal-2022 year, positioning it for expansion and targeted acquisitions. The company has no debt and a $12.5 million untapped credit line. Our price target of $31 is 15 times fiscal-2022 estimated Ebitda [earnings before interest, taxes, depreciation, and amortization], in line with peers.
Alcoa
AA-NYSE
Neutral Price $12.69 on July 15
by BofA Securities
Second-quarter adjusted Ebitda of $168 million was on the high end of the most recent $155 million to $170 million guidance, which included $17 million of costs to restart the Bécancour smelter.
Strong bauxite volume contributed to the beat. However, alumina’s Ebitda fell to $88 million from the first quarter’s $193 million on lower prices, while aluminum Ebitda fell by $34 million, versus the first quarter’s gain of $62 million, also on weaker prices. For the third quarter, management’s guidance includes bauxite Ebitda down by $5 million and alumina down by $15 million. Aluminum is expected to benefit by $10 million from lower alumina costs.
While management touted the second quarter’s strong $211 million free cash flow, we expect [a $259 million cash flow hit] in the third quarter, due to rising commodity prices, a $44 million payment to address Australian tax issues, and separate $150 million tax payment guidance. We are staying at Neutral on the stock, with a $13 price objective.
IMAX
IMAX-NYSE
Outperform Price $12.83 on July 16
by Macquarie Research
Before the market open, IMAX and IMAX China announced a partnership with China’s Wanda Films to upgrade 10 screens to IMAX’s Laser technology at Wanda’s top-grossing theaters and install 10 systems at new locations. Wanda is China’s top exhibitor by attendance and market share. We believe that the deal is worth 3% upside to the stock. Using the same math, the entire IMAX backlog of 553 systems (including planned upgrades), as of the first quarter, is worth about $8 a share. Our 12-month price target on IMAX shares is $18.
Whirlpool
WHR-NYSE
Market Perform Price $142.63 on July 16
by Raymond James
U.S. wholesale major appliance shipments improved in June, versus May, but were flat, year over year. Heavy channel inventories and difficult underlying demand could make for a bumpy second half. Our second-quarter model for Whirlpool assumes North American sales down 17% Y/Y (in dollars, not units), whereas consensus is minus 22%. Every incremental point of Whirlpool’s North American sales dollar growth equates to about eight cents in EPS, assuming a 20% to 25% variable margin on volume. Our current adjusted second-quarter EPS estimate is 56 cents a share (Street: 78 cents).
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