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.
Crocs — CROX-Nasdaq Strong Buy — Price $104.03 on Jan. 9 by Raymond James Crocs preannounced better-than-expected fourth-quarter results and provided new 2024 guidance that was in line with Street revenue estimates. We also hosted a group meeting with management, including CEO Andrew Rees, CFO Anne Mehlman, and SVP of Investor Relations/Strategy Erinn Murphy.
The Crocs brand (75% of revenue) has momentum and we think can deliver in-line to better-than-guided growth in 2024 on strong brand heat, new innovation, and international strength, especially in Asia. [Shoe line] Heydude’s growth in the fourth quarter was less-bad-than-expected, giving us confidence that Crocs has a good handle on guiding conservatively; Heydude revenue will decline in the first half of 2024 (as planned), but a better second half should drive flat-to-modest growth in 2024.
Despite near-term headwinds, we see Heydude benefiting from better product segmentation and early-stage international expansion. New 2024 Ebit margin guide of 25% (versus 27% in 2023) reflects higher selling, general, and administrative expenses, which we believe has wiggle room for more control. Target price: $120.
Juniper Networks — JNPR-NYSE In Line — Price $36.66 on Jan. 9 by EvercoreWe are lowering our rating on Juniper to In Line from Outperform after the announcement that Hewlett Packard Enterprise will acquire Juniper at a price of $40/share. The $14 billion price tag values Juniper around 2.5 times sales and 17 times forward 12 months price/earnings — reasonable in our opinion, though clearly the multiples are lower post-synergy.
Fundamentally, we think networking is likely to remain more muted through calendar-year 2024, as Juniper and others go through some period of inventory digestion and backlog normalization. Structurally, we think Juniper’s enterprise segment remains well positioned to disrupt the campus market over the next several years, a dynamic that we think HPE’s sales and go-to-market scale can help accelerate.
Net/net: We think the secular tailwinds and share gain narrative on enterprise remains strong. Weakness in cloud and service provider appears more a cyclical than secular issue, implying that we should see a return to more steady/predictable sales growth and margin expansion in second-half 2024 and beyond. Shifting to In Line rating but adjusting our target to $40, consistent with the deal price.
JPMorgan Chase — JPM-NYSE Buy — Price $172 on Jan. 8 by Deutsche Bank Research We are upgrading JPMorgan Chase to Buy from Hold. JPMorgan was the best-performing bank stock we covered in 2023, so it feels late to upgrade the stock now. However, shares should benefit from upside to net interest income guidance (versus downside risk at peers), good leverage to a pickup in capital markets revenue, and strong capital and loan loss reserve levels. And while we wouldn’t argue that JPMorgan shares are cheap, they also aren’t expensive at 11.5 times our 2024 estimates, or just a slight premium to the broader group multiple of 11 times.
On several occasions, management has noted that JPMorgan (and the broader banking industry) is overearning on net interest income, given little repricing of consumer deposits to date. JPMorgan has suggested that $80 billion of net interest income may be a more reasonable medium run rate than the $88 billion expected in 2023.
However, we expect management to increase the $80 billion, potentially to $84 billion. Price target: $190
KB Home — KBH-NYSE Buy — Price $63.20 on Jan. 10 by UBS In our view, KB Home executed well during a quarter that featured mortgage rates spiking to over 8% at the peak in October. Management noted a meaningful acceleration in demand during the first five weeks of fiscal 2024’s first quarter, driven by the retreat in mortgage rates, improving buyer sentiment, and extremely tight existing-home inventory. KB Home’s financial outlook was generally in line/slightly above UBS’ and the consensus, although the company did trim its fiscal-2024 home sales revenue expectation.
While we view the slight downward revision as prudent, given lower-than-expected fiscal-year fourth-quarter orders and a still uncertain macro, we believe upside to revenue and margins could exist if interest rates trend lower and/or cycle times further improve. We raise our estimate for fiscal-2024 earnings per share from $7.30 to $7.80. We raise our price target from $78 to $82, still based on roughly 10 times our fiscal-2025 EPS.
CrowdStrike — CRWD-Nasdaq Overweight — Price $247.46 on Jan. 5 by J.P. Morgan CrowdStrike [a cybersecurity company] was the best-performing stock in our coverage universe in 2023, up 142% compared with our coverage average, up 69%, and the S&P 500 index’s gain at 24%.
While the stock may seem expensive on the surface, it trades relatively in line with its peers on a growth-adjusted basis, and we think growth and fundamentals could push the stock meaningfully higher over the next few years. We continue to view CrowdStrike as one of the best-positioned platforms within our coverage to benefit from ongoing demand across the security software landscape.
While we see a favorable setup for growth over the next few years, we think it is the margin story that remains underappreciated and expect the market will continue to favor stocks of companies that deliver profitable growth. We are increasing our price target to $300.
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