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.
Fastly FSLY-NYSE
Strong Buy • Price $11.60 on July 13
by Raymond James
We maintain our Strong Buy rating ahead of second-quarter results. Our proprietary tracking tool is once again predicting that Fastly’s quarterly revenue will beat guidance. While May traffic trends were in line directionally with our assumptions, the June traffic data came in notably stronger than we anticipated. Fastly [whose cloud-based platform enables developers to create, secure, and run applications and websites] trades around four times our new 2023 estimated enterprise value/revenue estimate, a premium to its peers’ about three times. We maintain our $35 price target, which is based on around 10 times our 2023 EV/revenue multiple, versus the company’s 200-day moving average of about eight times.
Delta Air Lines DAL-NYSE
Buy • Price $29.70 on July 13
by Seaport Research Partners
There’s a lot of choppiness in the operating environment for airlines, though we’re walking away from Delta’s second-quarter earnings release concluding that the company remains a compelling multiyear earnings-per-share story, but that the stock is unlikely to work near term until operational challenges and recession risk recede. We’re trimming our valuation despite our higher 2022 EPS [estimate], given elevated 2023 macro risk; hence our revised $44 price target (versus a prior $56). That’s based on the shares trading at seven times (versus a prior nine times) our 2023 EPS [forecast]. At 4.7 times our depressed 2023 EPS [estimate], the stock is very attractive and is now trading well below the $32.82 price at the time of our Sept 2020 initiation, 33% off its 52-week high. However, we don’t expect the shares to rerate until investors get comfortable ruling out a recession. Management [says that] structural changes in Delta’s business model would likely leave it profitable [even in a recession]. And, based on the fare search data we track, we can’t help but conclude that the supply/demand dynamic will remain tight for as far as we can see.
Netflix NFLX-Nasdaq
Sell • Price $176.56 on July 13
by Benchmark
We remain cautious on Netflix and anticipate an extended timeline before AVOD [ad-based video on demand] emerges as an unqualified positive, despite the surprise emergence of Microsoft [ticker: MSFT] as its ad tech and sales partner. Nonetheless, Netflix’s first-party (behavioral) and zero-party (voluntarily given) data are increasingly valuable, as marketers, ad agencies, and media companies look to complement and sometimes displace third-party [data providers]. Netflix may have favored a partner not housing a streaming competitor akin to YouTube or Peacock, while Microsoft may have been pliable on the deal’s terms to advance its ad-tech ambitions. Price target: $157.
Fastenal FAST-Nasdaq
Hold • Price $49.99 on July 12
by Edward Jones
Industrial and manufacturing activity are the biggest drivers of Fastenal’s business. While growth in key end-markets (manufacturing, construction) has been improving, sales could still be impacted in the near term, due to issues such as supply-chain disruptions. We believe that the company’s share performance will be aligned with that of its industrial peers. Overall, Fastenal [which distributes fasteners and other industrial and construction products] continues to focus on new sales initiatives and cost controls, which should help provide sales growth, while maintaining profitability. Fastenal trades at about 25 times our 2023 earnings estimate, its historical average. In our view, the shares are appropriately valued for long-term investors, given our growth estimates.
Essential Utilities WTRG-NYSE
Buy • Price $46.26 on July 13
by Janney
Essential Utilities’ Aqua Pennsylvania subsidiary has been selected by the board of the Bucks County Water & Sewer Authority to advance to more definitive discussions regarding the sale of BCWSA’s wastewater assets, for which Aqua Pennsylvania has offered more than $1.1 billion. The authority provides service to approximately 75,000 households, mostly in Bucks County. The award was conditioned upon several items, including a final vote by the BCWSA board. Aqua Pennsylvania already serves approximately 1.5 million people in 32 counties throughout the state. [The deal would help] Essential Utilities continue to build its large pipeline of potential acquisitions in Pennsylvania, including Delcora ($267.5 million) and Chester Water Authority (perhaps $300 million to $400 million). Like BCWSA, these are in suburban counties around Philadelphia.
We will not be modeling these transactions until closing dates are announced, but the bias in terms of earnings is decidedly upward. We reiterate our Buy rating and $70 fair value on WTRG shares, based on a price/earnings ratio of 37 times our 2023 EPS estimate of $1.91.
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