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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.
Winnebago Industries
WGO-NYSE
Outperform Price $68.23 on Feb. 4
by Wedbush Securities
We hosted a virtual road show and investor call with Winnebago CEO Mike Happe, Chief Financial Officer Bryan Hughes, and head of investor relations Steve Stuber. Management reiterated the positive commentary coming out of the company’s first-quarter earnings call, including a continuation of red-hot trends across the business. Winnebago and other recreational vehicle manufacturers will be playing catch-up for quite some time [to meet demand]. While fiscal-2021 upside is limited, due to product availability constraints, this gives us even greater confidence that our well-above-consensus estimates are within reach.
The RV industry continued to run in the 20% to 30% growth range through November (the most recently available data), and management has not seen a meaningful slowdown. In the absence of an economic, political, or pandemic-related collapse, management doesn’t anticipate a near-term breakdown of this trend. Beyond 2021, management continues to be quite optimistic, given secular and demographic trends that were favorable prior to the pandemic and have been supercharged over the past 11 months.
Industry estimates suggest that the mix of new customers approached 50% of total sales in 2020, versus 20% to 25% in a normal year. Management sees this as just the first wave of new buyers. And many existing RV owners were limited last year in their ability to replace/upgrade their units. This also creates incremental demand. We are raising our 12-month price target to $77, from $70.
Corning
GLW-NYSE
Buy Price $35.23 on Jan. 27
by Bank of America Securities
Corning reported fiscal fourth-quarter revenue and earnings of $3.3 billion and 52 cents a share, above the consensus estimates of $3.17 billion and 48 cents. Our Buy rating is based on glass supply and demand remaining in balance, and glass price declines remaining moderate (post Covid-19). Corning has a strong capital-return program. Increased adoption of Gorilla Glass in other end markets (automobiles), growth of fiber-to-the-home, and [vehicle] gas-particulate filters should be catalysts. Corning continues to have a more-than 50% share of the LCD glass market and has a competitive cost structure. Our price target moves from $40 a share to $44, based on 23 times estimated calendar-2022 earnings per share of $1.95.
PPG
PPG-NYSE
Buy Price $131.91 on Feb. 4
by Fermium Research
This morning, PPG reached yet another definitive agreement to acquire the Finnish paint company
Tikkurila
[ticker: TIK1V.Finland] for 34 euros [$40.72] a share, an 8.8% premium to the recent bid by Dutch rival
Akzo Nobel
[AKZA], and a 36% increase from PPG’s initial offer. To help justify this additional premium, PPG declared that it had uncovered additional synergies during the course of its due diligence. We can readily understand if investors’ initial view is one of surprise, given PPG’s history of discipline, though with the plethora of bidders, perhaps Tikkurila is really worth it. Tikkurila announced today that its 2020 sales had reached €582 million, up 3%, year over year, and just shy of consensus €586 million expectations.
PPG already had to increase its initial bid after facing a competitive offer from Hempel. It was a simple decision for Tikkurila’s board to accept this offer, as a transaction with PPG is less complex than one with Akzo, which would require divestitures.
In exchange for the latest offer, PPG receives an increase in a potential breakup fee from Tikkurila, as well as an acceleration in the timeline to close, with March in the picture or at the beginning of the second quarter, to allow PPG to reap the benefit from the second-quarter/third-quarter coatings season. Price target: $158, 20 times our 2022 EPS estimate.
Emerson Electric
EMR-NYSE
Overweight Price $83.68 on Feb. 3
by J.P.Morgan
Emerson Electric’s fiscal first-quarter print materially beat expectations; it was the best all-around result so far this season, including guidance that was raised by more than the beat. We are raising our price target to $95 (versus $85 on Dec. 21), and that’s conservative. In addition, restructuring savings are reading through. The bottom line is that the quest for $4 in annual EPS, which started as far back as 2012, is coming squarely into view.
CDK Global
CDK-Nasdaq
Outperform Price $52.21 on Feb. 4
by Barrington Research
CDK [which provides software for auto, truck, agricultural-equipment, power-boat, and other dealers] reports fiscal second-quarter results on Monday, Feb. 8, after the market close. Our estimates, which include the impact from the pending sale of CDK’s international business unit, are for revenue of $410 million, adjusted earnings of 61 cents a share, and adjusted Ebitda of $154 million. We view the divestiture as very positive for shareholder value, as it focuses the company on its higher-return North American operations. Our price target on Emerson stock is $72.
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