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.
Shopify SHOP-NYSE
Outperform Price $1,555.10 on July 28
by Oppenheimer
We are raising our price target to $1,700 from $1,500 after Shopify reported strong second-quarter results. Highlights include: 1) two straight quarters of 70%-plus subscription solutions revenue growth; 2) strong management commentary on the demand outlook; and 3) revenue upside, leading to another quarter of 20%-plus operating margins.
On balance, growth and operating-margin improvements could show decelerating trends, as Shopify faces challenging comparisons from the second half of 2020. However, the second quarter’s robust growth and profit margins lend good support to our thesis that Shopify should be a core investment holding. The company is a generational technology disrupter in a large and underpenetrated digital-commerce opportunity, driven by Covid-19.
Stryker SYK-NYSE
Buy Price $268.35 on July 27
by Canaccord Genuity
Stryker posted a strong second quarter, proving out some of the positive anecdotal commentary we’ve heard regarding elective- procedure trends and hospital demand for capital equipment. Overall, our view continues to be that Stryker [which provides medical products and services] remains a compelling asset in the large-cap medtech arena and should be a core position for growth investors. Any short-term pullbacks will represent compelling buying opportunities, despite elevated overall industry valuations. Price target: $290.
Six Flags Entertainment SIX-NYSE
Outperform Price $42.06 on July 27
by William Blair
Six Flags is the largest regional theme-park operator in the world. It also has licensing agreements to assist in the development and management of Six Flags–branded theme parks outside North America.
Both second-quarter sales and earnings before interest, taxes, depreciation, and amortization, or Ebitda, significantly exceeded expectations, as attendance and per capita guest spending were well ahead of forecasts. Adjusted Ebitda was $170 million, compared with a $96 million loss a year ago.
While results continue to be affected by Covid-19, attendance trends show signs of recovery, with year-to-date visitations through July 25 sitting at 82% of 2019’s levels (and 89%, excluding prebooked group attendance, which has been significantly hurt by the pandemic). We continue to see Six Flags as a bounceback name in 2021 and 2022, as the company returns to baseline Ebitda of $530 million to $560 million a year.
AT&T T-NYSE
Sell Price $28.15 on July 23
by CFRA
We see 2.2% sales growth in 2021 and a 1.4% decline in 2022. We are seeing a recovery in the WarnerMedia segment, which grew 30.7% on higher subscription and ad revenue, supported by the return of the NBA and strength in news. In the [second quarter], the company reported 789,000 postpaid phone net adds and 174,000 prepaid net adds, supported by aggressive promotional activity and low churn. AT&T also has announced that it will sell its Vrio business unit to Grupo Werthein, resulting in a $4.6 billion impairment charge.
We see Ebitda margins of 30.7% to 31.4% in 2021 and 2022, down slightly from 31.8% in 2020. Margins will be hurt by higher programming costs and heavy promotional activity to retain wireless customers. AT&T has agreed to sell to TPG Capital a minority stake in its linear video business DirecTV, U-verse, and AT&T TV. The two parties will form a new company named DirecTV that will own and operate the video units. AT&T will receive $7.8 billion, which it will use to reduce debt, and will own 70% of the new company.
However, AT&T will still be saddled with a considerable amount of debt after the Time Warner spinoff, with limited options for additional asset sales, while its steep dividend cut could send income investors to the exits. AT&T plans to spin off its WarnerMedia segment and combine it with Discovery as a new company. AT&T will receive $43 billion, and shareholders will get stock representing 71% of the new company. But we are concerned that shareholders will be receiving stock in a new company that will have $58 billion in debt, while competing in a very crowded industry, which requires a substantial budget for new content. Our 12-month target on AT&T stock is $25.
Volkswagen VOW3.Germany
Outperform Price 203.85 euros on July 28
by RBC Capital Markets
Volkswagen reported adjusted second-quarter earnings before interest and taxes, or Ebit, of 6.55 billion euros, well ahead of the consensus forecast, driven by overall margins of 9.7%, the highest in its history. Automotive margins came in at 9.1%, aided by higher sales, especially in Western Europe, and strength in its luxury Audi and Porsche units. In addition, VW [for which American depositary shares trade over the counter under the symbols VWAGY, VWAPY, and VLKAF] raised its 2021 Ebit and free-cash-flow guidance. Our price target on the stock is €300.
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