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.
Overweight Price $121.15 on Jan. 26
by Piper Sandler
We are reiterating our Overweight rating on American Express following the company’s recent conference call. Management outlined two scenarios for 2021. We think the $7 in earnings-per-share scenario is close to a base case. We view the $5 EPS scenario as overly pessimistic for the macro environment and credit quality. While we recognize that the pandemic will continue to create challenges in areas like corporate travel, we believe that distribution of vaccines should enable a recovery in consumer travel and entertainment spending. We are lowering our 2021 EPS estimates to $6.50 from $6.67, but our 2022 estimate remains $8.85. We are maintaining our price target of $133, based on 20 times our 2021 EPS estimate.
Kansas City Southern
Outperform Price $217.58 on Jan. 25
by Evercore ISI
Kansas City Southern posted fourth-quarter EPS of $1.89 (excluding one-time items), falling just short of our $1.90 estimate and the average Street forecast of $1.92. A prolonged teachers strike that shut down a mainline in Mexico, plus elevated casualty costs (the highest in at least 15 years), hurt quarterly results, but were anomalous and temporary, and the railroad enters 2021 with robust growth prospects.
Indeed, management unveiled two-year guidance that confirms investor enthusiasm. The important parameters include: EPS of $9-plus in 2021 and $10.50 to $11 in 2022, representing industry-leading growth of 29%-plus and 17% to 22%; free cash flow of roughly $700 million this year and next; and double-digit top-line growth this year.
We are raising our 2021 earnings estimate to $9.01 a share from $8.67 and our 2022 forecast to $10.58 from $9.83. Our new 12-month price target is $243 (up from $225).
Buy Price $79.15 on Jan. 27
VF reported fiscal third-quarter earnings above expectations. Revenues were $2.97 billion, equaling our estimate, and adjusted earnings were 93 cents a share versus our 71 cents. Our fiscal-2021 EPS estimate of $1.30 and fiscal-2022 estimated EPS of $2.95 remain unchanged. While these results and the short-term outlook remain relatively cloudy, hindered by lockdowns and store closures in California and throughout Europe, as well as inventory constraints due to the company’s conservative posture early in the pandemic, we believe that the VF brand clothing portfolio remains healthy.
Active and Outdoor categories continue to outpace the overall apparel industry, and The North Face, Vans, Timberland, and Supreme remain well positioned. We remain optimistic that the addition of Supreme provides a clear avenue of growth and will create significant shareholder value. We believe that the stock’s risk-reward ratio is attractive. We would be buyers, and our price target remains $100 (34 times our unchanged fiscal 2022 EPS estimate of $2.95).
Outperform Price $524.86 on Jan. 27
by Raymond James
We maintain our Outperform rating on MarketAxess following fourth-quarter results. We view MarketAxess [which runs a global bond-trading platform] as a unique, long-tailed secular growth story. In addition, we view the spike in credit-market volatility during early 2020 as a catalyst for sustained market-share gains. Lastly, we believe that the electronification of bond trading, combined with robust issuance activity, should drive healthy industrywide volume growth.
MarketAxess’ valuation has clearly reached lofty levels, but we believe that it is justified by continued very strong momentum. Our target price of $599 is based on a blended average of a discounted cash flow analysis and a price/earnings–derived fair value estimate. Our P/E fair value estimate incorporates a 60 times multiple, consistent with MarketAxess’ one-year average.
Outperform Price $19.08 on Jan. 25
We view Rackspace as one of the few pure-play stocks to invest in enterprise public- cloud adoption. Rackspace provides standardized, but customizable, software-based services to move applications to the cloud and manage them there. This automated software platform has been built over 20 years and can now support the three major public cloud providers, as well as private cloud and managed services.
The company has revenue momentum entering 2021 (through bookings growth), and we believe that Street estimates are too low. Revenue growth should improve to 12%-14% versus the Street’s 9% estimate. Public cloud is growing over 30% annually and is 30% of revenue, with lower churn, and should be 50% in three years. Rackspace’s free-cash-flow margins are expanding, and debt/Ebitda [earnings before interest, taxes, depreciation, and amortization] are declining.
We are initiating coverage with a $28 price target, or about 11 times our 2021 Ebitda estimate, which is conservative.
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