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.
Peloton Interactive PTON-Nasdaq
Buy Price $31.86 on Dec. 11
Heading into the holiday season and coming off our recent meetings with management, we take this opportunity to reiterate some of the key themes/opportunities for Peloton going forward—increasing consumer adoption/brand awareness against a large global addressable opportunity, hardware and subscriber growth with improving conversion (driven in part by Peloton’s new Home Trial initiative), momentum in international markets, and a path to profitability driven by leverage on fixed content and marketing costs on a growing subscriber base. While we make no changes to our forward estimates, we increasingly see the potential that management guidance/Street estimates may prove conservative for the holiday quarter and into calendar-year 2020. We reiterate our Buy rating and raise our price target to $40 from $30.
Outperform Price $212 on Dec. 11
We are upgrading Home Depot from Neutral to Outperform; While we are early, we believe that HD offers an attractive risk/reward now after its recent pullback (-11% since third-quarter results), and yesterday’s guidance reset, with optionality on improving external and internal drivers in fiscal year 2020. Beyond that, we firmly believe in this team and the initiatives aimed to expand its reach to new customer segments and categories, while leveraging its stores, building a differentiated omnichannel and digital experience, and creating the fastest delivery network that will widen its moat over time. Initial reads from these efforts seem positive.
Overweight Price $86.59 on Dec. 11
We hosted a small group of investors at Starbucks headquarters, headlined by CEO Kevin Johnson, Chief Financial Officer Pat Grismer, and Vice President, Investor Relations Durga Doraisamy. Overall, we sensed a high degree of confidence that the “growth at scale” agenda is working in the near and medium term, meeting if not exceeding sales and margin objectives. No formal update to model, but we believe that U.S. comps are 5%-plus and that China results are at least within 1% to 3% of expectations. We expect much of this sales momentum to continue, and expect our/Street numbers to trend up through the year. We’re upgrading Starbucks shares to Overweight, following our July 29 downgrade to Neutral, which was the first time we had not held an Overweight rating on the name for 15-plus years. Our new $94 target is based on 27 times calendar-year 2021 earnings per share of $3.47.
Jack in the Box
Buy Price $77.62 on Dec. 11
After the close, Jack in the Box announced that it had hired an executive search firm to assist in identifying an individual to succeed Chairman and CEO Lenny Comma. The company did not provide an expected timeline, but stated that Comma will remain with the company during the search. Admittedly, the timing is odd, since Comma spoke at an investor conference last week expressing enthusiasm about upcoming menu innovation and operational improvements. The announcement will probably fuel the bear narrative that sales trends have deteriorated, indicating that the company’s plans are not working, so the board succumbed to franchisee and/or shareholder pressure. And, while it is possible that near-term performance has worsened, we do not believe that the bear narrative is accurate. Our understanding is that Comma initiated the decision and intends to effect a smooth transition; moreover, franchise relations are improving. We remain Buy-rated because many of the upcoming menu items and operational improvements will lead to sustained positive momentum. We argue that the current valuation (11 times enterprise value/Ebitda versus the highly franchised average of 18 times) already reflects uncertainty about the outlook.
Equal-Weight/Volatile Price $13.79 on Dec. 10 by Stephens
We initiate coverage of Navient with an Equal-Weight/Volatile rating. Our target is $17 per share. Navient is the third student lender we cover, alongside Sallie Mae (SLM, Overweight/Volatile) and Discover (DFS, Equal-Weight/Volatile).
Navient shares are adequately priced for future cash flows coming from the runoff of Navient’s portfolio of government guaranteed student loans. We think that the stock also appropriately values Navient’s smaller platforms of private student lending and payments/collections.
We do see two risks: politics and growth initiatives, which have diverted cash flow away from capital return toward acquisitions. On a growth basis, we would prefer to own Sallie Mae over Navient.
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