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.
MGM Resorts International
MGM-NYSE
Outperform Price $44.42 on Oct. 11
by Credit Suisse
We are upgrading MGM from Neutral to Outperform and raising our target price to $68 [from $33]. MGM has gone through a transformation, recently announcing four transactions, and we believe the market is not giving it full credit. Pro forma, we see three drivers of upside: 1) a simplified organization with a more attractive capital structure; 2) upside to numbers (our 2023 consolidated Ebitdar, or earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs, is $4.4 billion, versus the Street’s $3.4 billion); and 3) improving sentiment….[As a result of the transactions, including the sale of a 42% interest in MGM Growth Properties,] pro forma consolidated debt will go from $12.7 billion in 2021’s second quarter to $8.5 billion, and pro forma cash will go from $5.6 billion in second-quarter 2021 to $9 billion.
Valvoline VVV-NYSE
Overweight Price $34.75 on Oct. 12
by J.P. Morgan
Valvoline plans to separate its two businesses: a growing retail-services company serving the domestic quick oil-change markets and a slower-growing global products company with a large domestic do-it-yourself component. We value the global operation at seven to nine times Ebitda and the retail business at 12 to 15 times. We don’t think that the retail operation would be valued as highly as Sherwin-Williams [ticker: SHW] because of its lower market share, but more in the neighborhood of RPM [RPM] or Scotts [SMG] because of its comparable gross margin in the high 30% range. These ranges provide a target share-price range of $34 to $45, with $39 at the midpoint.
Verizon Communications VZ-NYSE
Buy Price $52.18 on Oct. 11
by Edward Jones
We believe Verizon is trading at an attractive price, relative to its long-term growth potential. Verizon has a strong strategic position in the wireless market, due to its high-quality network and market-leading share of U.S. subscribers. Verizon Wireless provides the majority of Verizon’s free cash flow and earnings. Wireless revenue growth had been constrained by the transition to unlimited-data plans. But Verizon Wireless has successfully migrated through this and is again growing its revenue, while aggressively upgrading its network with 5G technology. Verizon shares trade at about 10 times our 2021 earnings-per-share estimate, versus their five-year average of 12.
Marinemax HZO-NYSE
Outperform Price $47.66 on Oct. 13
by Raymond James
We are maintaining our Outperform rating, but reducing our target price from $67 to $63. While supply-chain constraints and low inventories are likely to limit near-term comp growth, the company is poised to continue to gain share in a marine market that should benefit from an influx of new boaters, with much of the recent margin improvement likely sustainable in the near term. We’re now including modest expected accretion in fiscal-year 2022 from the pending acquisition of Intrepid Powerboats, though this appears to be more than offset by the likely negative impact from continued low inventory on current sales. As a result, we’re reducing our EPS estimates by 10 cents in fiscal 2021 and 40 cents in fiscal 2022, to $6.45 and $6.35.
Charles River Laboratories CRL-NYSE
Overweight Price $408.03 on Oct. 12
by KeyBanc Capital Markets
The company has divested elements of its [gene-therapy manufacturing unit in Sweden] and research models and services businesses in Japan. These divestitures will be initially dilutive to EPS, but could raise up to $141 million of cash, improving CRL’s balance sheet and potentially allowing management to consider accretive acquisitions. We expect CRL to sustain 10%-plus organic revenue growth for the next few years, with 50-plus basis points [each equal to 1/100th of a percentage point] of annual operating margin expansion. Target price: $450.
First Republic Bank FRC-NYSE
Neutral Price $200.73 on Oct. 12
by Piper Sandler
First Republic reported third-quarter 2021 EPS of $1.91, though excluding modest securities gains, we put the core number at $1.90. This topped our estimate by three cents. Relative to our forecast, fee income was better than expected, mostly due to stronger wealth management revenue, though robust foreign-exchange fees also contributed. Assets under management and administration rose 4.5%. Growth trends remained very strong, with loans rising at a 17% annualized pace and deposits increasing at a very strong 32%. Offsetting the stronger revenue were higher expenses than we had forecasted. We expect the shares to slightly outperform the group today [Oct. 13], although the upside could be tempered by the stock’s high trading multiple [26.6 times our 2022 EPS forecast]. Target price: $210.
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