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.
Outperform Price $112.20 on Nov. 5
We are upgrading Lowe’s to Outperform from Neutral, and raising the target price to $129 from $114. We believe that Lowe’s offers a compelling risk/reward. While we see less upside to the third quarter (total comps below consensus and earnings per share only in line), Lowe’s relative valuation versus its closest peer is near its trough level, industry demand is improving (modestly), and there are multiple sales/margin levers ahead.
We downgraded the home-improvement space just over a year ago on concerns over slowing home-price appreciation and rising interest rates, which we expected to pressure comps. That largely played out, with weaker trends over that period. But rates have reversed, providing a second wind.
While we don’t see demand returning to pre-2018 levels, our work suggests that demand is gradually improving.
(HD) stock is embedding that. Lowe’s is not.
Sell Price $13.67 on Nov. 6
In the wake of CenturyLink climbing 41% (versus the S&P 500 index’s 9%) since late May and having paid 50 cents of dividends in that same period, we are moving back to a Sell rating from Neutral, despite the risk that second-half 2019 trends may appear encouraging…or may not. While we have recently been concerned with being overly negative, comments and results from
[VZ] provide the catalyst today to reaffirm our negative stance on the macro and developing trends in wireline. Our price target is based on a five times earnings before interest, taxes, depreciation, and amortization, or Ebitda, multiple, which some may even find generous, based on industry trends. Price target: $10.
Outperform Price $44.79 on Nov. 1
by RBC Capital Markets
Altria put up a solid quarter, showing the bears that the company can realize significant pricing and [cigarette volume] improvement. The company was also clear that the dividend is very secure. However, the controversy is now over what the company’s 5% to 8% EPS compound annual growth rate, or CAGR, through 2022 implies about 2020 EPS. We believe that 5% is the right assumption to use for 2020.
The past 12 months have been challenging for Altria, with the rapid rise of vapor and the dramatic shift in consumer and regulatory stances on the category. There is increasing uncertainty in the tobacco category, looking forward. However, Altria is making all of the right decisions to position itself to lead the category profit pool. Price target: $68.
Career Education CECO-Nasdaq
Outperform Price $14.90 on Nov. 7
by Barrington Research
Revenues in the third quarter, ended on Sept. 30, increased 6.4%, to $155 million, from $145.7 million last year, better than our estimate of $148 million and the FactSet consensus of $146.7 million, with both [Career Education] universities contributing to growth, driven by a 6.1% increase in student enrollment, the third consecutive quarter of growth.
Adjusted operating income, excluding a previously announced $7.1 million legal-settlement charge, increased 31.7%, to $34 million, from $25.8 million last year, above our estimate and the FactSet consensus, both of which were at $26.7 million, and management’s guidance range of $26 million to 27 million. Adjusted EPS increased 32%, to 33 cents, from 25 cents last year, topping our estimate and the FactSet consensus, both of which were at 25 cents.
For full-year 2019, total University Group new student enrollment is expected to increase by approximately 12% to 13%, above management’s prior guidance calling for 8% to 10% growth.
We are reiterating our Outperform investment rating and our 12-month price target of $26.
Two Harbors Investment
Buy Price $14.20 on Nov. 6
by Maxim Group
In a volatile quarter for mortgage real estate investment trusts, Two Harbors had very strong results.
We raise our price target to $16 from $15, due to higher book value. Our new price target equates to 1.09 times book value (versus 1.06 previously), in line with the average price/book value multiple of the highest-valued hybrid mortgage REITs.
Two Harbors remains our top mortgage REIT pick, because of 1) its best-in-class, long-term interest-rate risk management, including use of mortgage servicing rights, or MSRs; 2) its attractive dividend yield (currently 11.3%); and 3) its long-term record of preserving book value.
Two Harbors has demonstrated the best risk management of any mortgage REIT over the long term.
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