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.
Chesapeake Energy CHK-Nasdaq
Overweight Price $43.55 on Feb. 17
by Wells Fargo
Following its emergence from Chapter 11 last week, a revamped Chesapeake Energy offers investors differentiated cash flow versus peers still transitioning to Shale 3.0 [a catchphrase for frackers’ drive to fund operations from cash flow, rather than from borrowing or capital raises]. Management will need time to establish a solid Shale 3.0 track record that investors can believe in. The story has other challenges, which include a declining production profile, material (though improved) midstream commitments, and a disadvantaged hedge profile in 2021 and 2022. That stated, the stock trades at a significant discount to peers and has a clear line of sight to a debt-free balance sheet. We initiate with a $58 price target.
Upwork UPWK-Nasdaq
Buy Price $56.77 on Feb. 16
by BTIG
With shares of Upwork [a freelancing platform] up a strong 64%, year to date, investors will be closely scrutinizing the company’s fourth-quarter performance and first- quarter guidance when it reports earnings on Feb. 23. In our Jan. 6 update we highlighted that our tracking suggested Upwork’s fourth-quarter performance looked good, relative to revenue guidance. We have observed more bullish data since then, as we have tracked a notable acceleration in job listings. We believe this acceleration is above typical seasonality and positions Upwork well to guide above our first-quarter 2021 estimates. We now look for gross services volume of $2.95 billion and $3.55 billion in fiscal-year 2021 and 2022, respectively, up from our prior estimates of $2.93 billion and $3.49 billion. Our revenue estimates for fiscal 2021 and 2022 climb to $437 million and $520 million from $434 million and $513 million. Based on our new estimates and target multiple, we are raising our price target to $68 from $42.
Henry Schein HSIC-Nasdaq
Outperform Price $64.87 on Feb. 17
by Barrington Research
Henry Schein delivered $1 a share in [fourth-quarter] non-GAAP earnings per share from continuing operations, versus last year’s 97 cents. Our estimate was 93 cents; the consensus was 99 cents. Total revenue of $3.17 billion easily exceeded our estimate of $2.85 billion. The consensus estimate was $2.88 billion. We are increasing our price target to $80 from $72. While dental patient traffic remains well below pre-Covid levels, the company has continued to deliver results via incremental personal protective equipment, or PPE, and other Covid-19-related business. Our new price target is 12.5 times our fiscal-2021 adjusted estimate of earnings before interest, taxes, depreciation, and amortization.
Wells Fargo WFC-NYSE
Neutral Price $36.59 on Feb. 17
by J.P. Morgan
We are upgrading Wells Fargo to Neutral from Underweight, following news reports that the Fed has accepted the company’s plan to overhaul its risk management and compliance, a critical step on the path to eventually lifting the company’s asset cap; news reports indicate that the cap is expected to be lifted by the Fed in 2022. However, we believe Wells’ valuation is appropriate after factoring in the potential earnings benefit from lifting of the asset cap, plus sizable cost savings from restructuring. There is still much uncertainty about the bank’s earnings run rate and profitability once the restructuring is completed.
Merck MRK-NYSE
Buy Price $75 on Feb. 12
by CFRA
On Jan. 25, we cut our view on Merck to Buy from Strong Buy, due to its unsuccessful Covid-19 vaccine development efforts, which will result in increased costs, negatively impacting profitability. Yet, long term, we see a favorable patent setup, with no key brands losing marketing exclusivity until 2022, and Merck’s growth engine, [cancer drug] Keytruda, on patent until 2028.
We also welcome Merck’s decision to spin off its women’s health, legacy brands, and biosimilars into a new company (Organon), enabling faster growth. Based on our estimates, the transaction is expected to generate $1.5 billion in operating efficiency by 2024. Our 12-month $90 target on Merck stock is 12.9 times our 2022 EPS estimate, a discount to the company’s 10-year forward price/earnings ratio.
CommScope Holding COMM-Nasdaq
Market Perform Price $14.53 on Feb. 17
by Raymond James
We maintain our Market Perform rating on [network specialist] CommScope, following a fourth-quarter report including light sales, better earnings per share, and still no guidance. Citing its CEO transition, CommScope won’t provide guidance for perhaps two more quarters while it undertakes a strategic review. Investor hopes have risen on prospects for restructuring and divestitures, yet the majority of revenue remains challenged. After a good run in the stock, a lack of catalysts, and consensus estimates that we think will decline, an intraday pullback makes sense. We remain on the sidelines.
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