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 historical levels, despite offering a 50% higher growth rate than the S&P 500 index and two times that of energy peers. In addition, we see 16% upside to Exxon’s 2025 consensus free cash flow per share at flat oil ($80 a barrel WTI). Our $145 price target implies 25% upside.
First Solar — FSLR-Nasdaq Buy — Price $191.93 on May 16 by Guggenheim We hosted a conversation with First Solar’s Chief Financial Officer Alex Bradley earlier this week. First Solar, in our view, is increasingly well positioned to benefit as the U.S. and potential trade partners, including India and Western Europe, seek to insulate themselves from the tsunami of government-subsidized Chinese solar module supply. We also think there may be upside to margins that isn’t yet reflected in consensus expectations, as the company continues to drive technology improvements through its manufacturing process that should be incremental to average selling prices. And we think that First Solar should be able to maintain good backlog and visibility over time, even if current multiyear lead times can’t reasonably be sustained.
We believe that as more time passes, it should increasingly become apparent to investors that First Solar really is in a position to earn $32 per share by 2026, and to sustain that level of earnings power going forward. The stock, in our view, isn’t even close to reasonably reflecting that outcome. We are reiterating our $356 price target and Buy recommendation.
SLM Corp. — SLM-Nasdaq Outperform — Price $22.10 on May 16 by Wedbush We hosted investor meetings yesterday with Sallie Mae’s Pete Graham, chief financial officer, and Melissa Bronaugh, head of investor relations. We came away from the meetings optimistic, as progress is being made on multiple fronts.
Key takeaways include: 1) credit quality is improving and we expect will continue to improve toward healthy prepandemic levels; 2) loan sales and share repurchase strategy should continue through the completion of the Current Expected Credit Losses [accounting standard] phase-in period in January 2025, with additional flexibility occurring for fiscal 2025 in terms of balancing share repurchases with balance-sheet growth; and 3) origination activity could benefit more meaningfully during peak season in the third quarter owing to the exit of a key competitor.
Netflix — NFLX-Nasdaq Buy — Price $613.52 on May 15 by UBS Netflix announced a new deal with the National Football League to air Christmas Day games. The package includes at least one game over the next three years with two games on the schedule for 2024.
Along with the recent World Wrestling Entertainment deal, we believe that the addition of NFL rights provides another lever to drive engagement, enhance pricing power, and scale the company’s ad business (while presenting another source of leakage for marquee programming out the traditional TV ecosystem). The move is Netflix’s biggest yet in securing Tier 1 sports rights, a positive read for the rights marketplace in our view.
Our $685 price target is based on 22 times forward Ebitda and 31 times free cash flow.
Home Depot — HD-NYSE Outperform — Price $340.50 on May 14 by Baird Home Depot continues to execute its plan and to “control the controllables” amid the stubbornly challenging macro for home improvement. Stagnant housing turnover, average-unit-retail, or AUR, pressure and a “wonky” onset to the spring season kept comps in negative territory during first quarter, but prospects for sequential improvement from here (including easing AUR headwinds) seem reasonable. The magnitude and slope of recovery remain up for debate, but we are staying involved, with the trend line likely higher and shares trading at a slight premium to the market.
We are raising estimates and maintaining our Outperform rating. Price target: $390.
Under Armour — UA-NYSE Buy — Price $6.71 on May 17 by BMO Capital Markets Under Armour straddles an interesting investor fence; it doesn’t trade like a growth stock but is nonetheless generally judged against revenue, likely because management has continually emphasized it. Accordingly, we believe that today’s discussion about brand elevation by revenue contraction “achieving more by doing less” (echoing our long-stated “sell less, charge more”) should shift the discussion from struggling growth story to undervalued brand turnaround.
While turns take time (and execution), we believe that this is positive for long-term brand (and P&L) health, suggesting upside for Under Armour’s underearning and undervalued business. Target price: $10.
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