Research Reports — Barron’s

/ / Energy /

How Analysts Size Up Companies Edited by 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. Exxon Mobil — XOM-NYSE Overweight — Price $117.75 on May 14 by Morgan Stanley Following the close of the Pioneer Natural Resources acquisition on May 3, we are resuming coverage of Exxon Mobil at Overweight. The company’s scale and integration across the energy, chemicals, and emerging low-carbon value chains support sustainable competitive advantages, above-average growth, and a differentiated value proposition within the energy sector and the broader market. While the stock has outperformed year to date, it still trades at a 55% discount to the broader market, nearly double […]

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Lululemon Faces Rising Competition From Younger Brands Including Alo, Vuori

/ / Consumer Discretionary /

Lululemon’s competition from younger brands is underappreciated by investors as the athleisure maker also contends with slowing North American growth and softer foot traffic, say analysts at Jefferies in a research note. Web visit data suggests competitors Alo and Vuori are drawing more interest from shoppers over the past several months, say the analysts. They add that a survey they conducted earlier this year highlighted that Lululemon’s brand momentum could be peaking at the same time competition from Alo and Vuori is rising. The analysts also say that about 94% of Alo U.S. locations are within a half mile of a Lululemon store, and several of Alo’s upcoming openings are located in the same shopping complexes as Lululemon locations.

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CFRA Lifts View On Shares Of Fedex Corporation To Hold From Sell

/ / Industrials /

Our 12-month target price remains $261, a 12x multiple of projected FY 25 (May) EPS, in line with FDX’s historical forward average. We keep our FY 24 EPS estimate at $17.78 and FY 25’s at $21.72. Our upgrade is on valuation, with shares down almost 10% since reporting FQ3 earnings in late March 2024. We think a broader macroeconomic recovery is not yet in the making, as U.S. Manufacturing PMI data continues to wobble with the April reading of 49.2, which is a downtick from March’s 50.3. In the meantime, we think FDX (like many in the Air Freight & Logistics space) is focusing on cost controls to boost margins. Shares yield 2.0%; based on our FY 25 EPS estimate, we calculate a dividend payout ratio of 23%, which we see as very manageable. We think the key inflection point to watch will be volume growth in Express, which has

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CFRA Keeps Hold Opinion On Shares Of Target Corporation

/ / Consumer Discretionary /

TGT will report FQ1 2025 results on May 22. Sales will likely remain pressured (we forecast -3.3% comp sales) before returning to low-single-digit growth in FQ2 2025, as comps will get much easier due to the lapping of the prior year’s Pride merchandise backlash. While sales upside will likely be limited by continued discretionary spending weakness, we are positive on TGT’s recent efforts to refresh merchandise and introduce more value, including new private label brands (e.g., Dealworthy, Figmint). TGT’s new membership program (Target Circle 360), which was launched on April 7, provides a new revenue stream and should drive incremental wallet share by leveraging Target Circle’s over 100M members. We see gross margin expansion from favorable freight, lower markdowns (inventory was -12% Y/Y in FQ4), and stabilizing shrink, but operating margin expansion will likely be limited due to sales deleveraging and higher wages. It is unlikely that TGT will return

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Applied Materials Faces China Hurdles, ‘Strong Offsetting Tailwinds’ After Fiscal Q2 Tops Consensus, Morgan Stanley Says

/ / Technology /

Applied Materials (AMAT) faces the prospect of softer China demand and “strong offsetting tailwinds” in logic chips and advanced semiconductor packaging after fiscal Q2 results topped consensus, Morgan Stanley said Friday in a note. “At the risk of sounding like a broken record, we do believe the company that China will trend back toward the more traditional 30% of revenue from the current 43%,” the note said. “We remain on the cautious side of that; a region that is less than 5% of the global manufacturing footprint in foundry and memory driving over 40% of equipment sales and driving growth in trailing edge ICAP revenues higher during the worst analog inventory correction in 30 years, has unsustainable elements that make us cautious,” Morgan Stanley said. Still, “several trends are likely to prove strong offsetting tailwinds as the company has positioned themselves well in advanced logic and advanced packaging,” the note

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Salesforce’s Seasonally Soft Q1 Offset by Bullish Outlook on GenAI Business, Morgan Stanley Says

/ / Technology /

Salesforce’ (CRM) upcoming fiscal Q1 results are unlikely to spur excitement as it is usually a seasonally soft quarter, and with foreign exchange headwinds and weak prints from front-office peers tempering expectations, Morgan Stanley said in a report Friday. But the firm said the near-term caution is being offset by its “increasingly bullish” medium-term outlook for Salesforce amid increasing demand for generative AI capabilities. Morgan Stanley said it expects the currency headwind to modestly increase throughout the rest of the fiscal year, and does not anticipate any near-term topline boost from the company’s generative AI adoption at this stage. “Q1s historically do not support much upward revisions to full year guidance,” it said. However, the firm said Salesforce looks “well positioned to expose GenAI capabilities within their sticky workflow to the large customer base.” “Salesforce’s position as a front office application vendor should position the company in the right place

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Walmart Growth Incentives ‘Are Hitting Stride’, 6 Analysts Explore Q1 Earnings

/ / Consumer Discretionary /

Shares of Walmart Inc (NYSE:WMT) reported better-than-expected results for its first quarter. The results came amid an exciting earnings season. Here are some key analyst takeaways. Bank of America analyst Robert Ohmes maintained a Buy rating, while raising the price target from $67 to $75. KeyBanc Capital Markets analyst Bradley Thomas reiterated an Overweight rating, while lifting the price target from $63 to $75. BMO Capital Markets analyst Kelly Bania reaffirmed an Outperform rating, while raising the price target from $65 to $75. Telsey analyst Joseph Feldman reiterated an Outperform rating, while raising the price target from $68 to $70. Roth Capital Partners analyst Bill Kirk maintained a Buy rating, while lifting the price target from $69 to $71. JPMorgan analyst Christopher Horvers reaffirmed a Neutral rating on the stock. Check out other analyst stock ratings. BofA Securities: Walmart has momentum “across all income cohorts.” “Delivery is now larger than pickup for

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Boeing’s Dividend Will Be Back One Day, But Not Likely Soon

/ / Industrials /

Boeing’s CEO Dave Calhoun is asked at the company’s annual shareholder meeting if it would restore the dividend, suspended in 2020. Calhoun says Boeing first needs to regain financial stability, which it hopes to do by 2025 or 2026, and pay down debt. “That day will come,” he says. “We all look forward to it.”

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Salesforce First Quarter Likely Has Fewer Catalysts to Be Excited About, Morgan Stanley Says

/ / Technology /

Salesforce (CRM) likely has fewer catalysts heading into fiscal first-quarter results despite stable demand, though the software maker appears to be in a “solid” position ahead of generative artificial intelligence product adoption in the medium term, Morgan Stanley said Friday. The company is scheduled to release first-quarter results May 29. Morgan Stanley expects earnings of $2.40 a share on revenue of about $9.07 billion. Wall Street is looking for $2.38 and $9.16 billion, respectively, according to the brokerage. Salesforce performed above its large-cap software peers over the past three months, aided by a first-ever dividend, increased repurchases and upward revisions to estimates, Morgan Stanley said in a note. However, its more recent performance has “softened” following a report on a potential Informatica (INFA) takeover, while many of its front-office software peers have logged weaker-than-projected quarterly results amid a softer demand backdrop, the brokerage said. Last month, cloud data management company

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CFRA Lifts View On Shares Of Lockheed Martin To Strong Buy From Hold

/ / Industrials /

Our 12-month target price of $557, raised by $100, reflects a 19.5x multiple applied to our 2025 EPS estimate. The applied multiple is above LMT’s historical forward average, but defendable, in our view, as we think Department of Defense spending on munitions will accelerate over the medium term due to ongoing conflicts in Ukraine, Gaza, and the potential threat from a more aggressive China. We keep our 2024 EPS estimate at $26.29 and raise 2025’s by $0.86 to $28.58. Shares of LMT have underperformed year-to-date, up just 2.6% versus a peer average gain of 6.8% and the S&P 500, up 7.5%. We think the earliest key catalyst is likely a 2025 Appropriations bill by Congress, which we think has a good probability of being deferred until 2025, as defense hawks may be able to drive improved spending levels. Shares yield 2.7%, and we estimate a 2025 payout ratio of 44%,

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Microsoft Positioned Well in AI Realm, RBC Says

/ / Technology /

Microsoft’s (MSFT) trajectory for growth and leading position in artificial intelligence is encouraging, RBC Capital Markets said in a note Friday. “Microsoft continues to invest aggressively in AI, given the market opportunity and its early leadership,” RBC said. This strategy contrasts with Microsoft’s previous approach to cloud computing when it was competing with Amazon.com’s (AMZN) Amazon Web Services. Despite expected increases in capital expenditures that could impact profit margins, Microsoft is viewed as aligning with market demand and actively seeking to mitigate costs, RBC said. “Advances like GPT-4o, which is more efficient, and Maia (custom AI silicon) will help drive down the cost curve.” Additionally, cloud computing and Copilot feature show promise, while security and gaming also have growth opportunities. Microsoft’s strategic focus on software/services in gaming aims to enhance margins and reduce cyclicality. The company believes customers will build their own AI models, not just from scratch, but fine-tune

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CFRA Keeps Buy Opinion On Class B Shares Of Berkshire Hathaway Inc.

/ / Financials /

Berkshire just disclosed in its latest SEC holdings filing that the stock it has been confidentially building an equity position in is property-casualty insurer Chubb Ltd (CB 253 ****). Berkshire disclosed that it owns some 25.9 million CB shares, worth about $6.6 billion, making the CB position a top-ten holding for Berkshire. Our view of CB is positive as well, and we believe the shares are undervalued versus peers. We expect CB shares to open higher tomorrow morning (May 16), as investors react to this news and speculate whether Berkshire will keep an equity stake in CB or pursue an outright acquisition. BRK’s current equity stake gives the firm exposure to one of the best performing financial sector subgroups at a below-peer valuation. We can’t speculate whether Berkshire would pursue an outright acquisition of CB, but we note their business mixes are highly complementary.

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