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.
Expectations were high heading into Shopify’s seasonally strong holiday print, and Shopify did not disappoint—the business is firing on all cylinders.
Shopify’s initial guidance for 2020 pointed to heightened levels of investment. Given the number of areas where Shopify is expanding—international, up-market, fulfillment, brand, finance, etc.—the incremental investment is defensible for now.
At some point, investors are going to hold Shopify accountable for delivering growth and profits. Until then, a lack of profitability will make Shopify shares brittle, meaning that if we get a sentiment shift away from “growth at any price” [GARP], this stock, given its valuation, is likely to be disproportionately affected.
So, with Shopify shares trading at about 30 times 2020 estimated revenue, the operative question is, what to do now? Given our deep-seated bias for GARP-oriented investing, the short answer is that we’re getting nervous up here. Given the monster run that Shopify has had, our Buy thesis is starting to wear thin. We’re not making any change to our rating, as we continue to think that growth investors should have at least some exposure to Shopify. For now, Shopify remains a Buy, but be forewarned that our view of risk/reward, based simply on valuation, is starting to skew more toward the former. Price target: $600.
Quotient Tech
nologyQUOT-NYSE
Buy Price $10.85 on Feb. 13
by Dougherty & Co.
Quotient [which provides digital media and promotional services] delivered again in the fourth quarter, posting revenue of $118.5 million and $11.5 million in adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, exceeding the high end of guidance.
Total revenue grew 11%, year over year, with Media (47% of total) growing 12%, and Promotions (53% of total) up 9%, after four consecutive quarters of year-over-year declines. And, reversing six quarters of sequential declines, gross margins were 44.3%, up from 43.6% in the third quarter, but still below last year’s 48.5%.
The company is executing on its plan to drive 500 to 600 basis points [five to six percentage points] of gross margin improvement by year end, part of which comes from a shift in revenue recognition of some Media business from a gross to net basis. This accounting change removes roughly $35 million in revenue, meaning that management’s full-year guidance, which implies 12% Y/Y revenue growth at the midpoint, would actually be 20% on an apples-to-apples basis, displaying an acceleration in the business. Price target: $14.
Pfizer
PFE-NYSE
Outperform • Price $38.14 on Jan. 29
by RBC Capital Markets
Pfizer sentiment is largely negative, and a mixed fourth quarter pulled back recent gains. However, the stock is still outperforming its peers, year to date. Street numbers (ex-Upjohn) are moving higher, and our bull case is unchanged. [Pfizer is spinning off Upjohn, its off-patent branded and generic-drug unit, which will merge with
Mylan
(MYL) to create a new company.]
The biggest takeaway from the fourth quarter is that the 2020 ex-Upjohn bar has been raised, it has further upside, and the five-year growth outlook is unchanged. We expect Street forecasts to push higher; our bull case and our thesis remain linked to more upward revisions from here.
In our view, Pfizer is still one of the best growth stories in pharma at a 6%/11% revenue/earnings per share compound annual growth rate through 2025. Price target: $46.
CN RailwayCNR.Canada, CNI-NYSE
Outperform Price $123.47 on Jan. 28
by BMO Capital Markets
CN Railway offers a robust revenue growth outlook, starting in the second half of 2020, and, with an abnormally high capital spending cycle behind it, it should deliver margin improvement and materially stronger free cash flow over the coming two to three years. We are raising our price target to C$135 from C$130.
Lithia Motors
LAD-NYSE
Buy Price $130.87 on Feb. 13
by Benchmark Research
Lithia Motors’ fourth-quarter 2019 earnings of $2.95 per share (excluding one-time items) compared with $2.57 in the year-earlier period and our estimate of $3.06.
Performance was mixed, variable gross margin was an all-time high, and same-store growth in parts and services was at the high end of its dealer comp group. Lithia reported 2019 earnings of $11.76 per share (excluding unusual items), up from $9.98 in 2018.
We have reduced our 2020 estimate to $12.50 per share from $12.75 to reflect an increase in the expected tax accrual. We expect earnings of $13 per share in 2021.
We have reduced our price target to $170 per share from $185. But we rate Lithia Motors a Buy.
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