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.
Las Vegas Sands
Overweight Price $64.95 on March 2
Las Vegas Sands announced that it has entered into definitive agreements to sell its Las Vegas Strip real estate and operations for $6.25 billion. This is a great price, higher than the $3.7 billion in our sum-of-the-parts-valuation, which, before any tax consequence (which are unclear and may depend on the use of proceeds), would add $2.5 billion, or $3.31 per share, of incremental equity value. Relative to 2019 earnings before interest, taxes, depreciation, and amortization of $487 million, this represents a multiple of 12.8 times and, relative to our 2022 Ebitda estimate of $371 million, a multiple of 16.8 times. Both are rich, relative to normalized Ebitda (2019), as well as still-in-recovery-mode Ebitda (2022). Even if we assume that Las Vegas Sands completely supports the operation’s rent through 2023 (as part of its contractual guarantee under certain financial performance criteria), one can look at the purchase price as $5.75 billion. As such, we don’t think that Las Vegas Sands left any value on the table.
Buy Price $20.45 on March 3
Wendy’s fourth-quarter sales, earnings per share, and Ebitda were in line with our estimate, but fell short of the Street’s mean estimates. The company’s 2021 outlook was in line with our and Street estimates, with system sales growth projected in the mid-single digits in 2022. The shares are under pressure because of the fourth-quarter miss. The company’s breakfast initiative (targeting 30% sales growth in 2021) and expanding international units (by 10%-plus in 2021) are working. However, these initiatives [haven’t yet created] the virtuous cycle of growth that investors are finding in companies increasing scale through meaningful unit expansion. We believe that Wendy’s can trade to the mid-$20s range with the current growth drivers, but we continue to believe that it should look outside its organic growth plans for meaningful, compounding sales/Ebitda growth.
iHeart Media IHRT-Nasdaq
Outperform Price $15.34 on March 3
by Barrington Research
The company [has solidified its position] as the largest commercial podcast producer and created a significant revenue opportunity. Podcast revenue gains of over 100% helped to drive 53% growth in the fourth quarter for the company’s digital operations. Continued growth in advertiser demand can fuel revenue and profit growth. Price target: $17
Outperform Price $91.09 on March 3
by RBC Capital Markets
Micron preannounced positive earnings—not a surprise, given the significant rise in DRAM spot pricing over the past month. Historically, DRAM spot pricing and Micron stock have had an 80%-plus correlation, and the company’s recent hike in guidance also suggests that we’re in a supply-constrained environment.
While specifics related to the guidance raise haven’t been disclosed, we think that additional details will highlight: 1) hyperscale spending, 2) work-from-home trends, and 3) limited ability to mass-produce chips to meet demand. Overall, we remain convinced that cyclicals will outperform seculars in 2021 and view this positive preannouncement as yet another proof of this dynamic. We’re raising our price target to $110 from $95.
Strong Buy Price $$13.34 on Feb. 26
Our Strong Buy opinion is supported by Cleveland-Cliffs’ competitive advantage in producing iron-ore pellets and steel in North America.
We like the company’s capital projects aimed at diversifying its product mix to serve electric arc furnaces. Cleveland-Cliffs announced an expanded scope for its Toledo hot-briquetted iron facility, increasing its capacity to 1.9 million metric tons, up from 1.6 million. We think this capital project will generate strong returns.
In addition, Cleveland-Cliffs’ acquisitions of AKS and AM USA should both be accretive to earnings per share and free cash flow in 2021 and beyond. These acquisitions strengthen Cleveland-Cliffs’ competitive position in several of its markets, especially automotive. Our 12-month target price on the stock is $25.
Academy Sports + Outdoors AS
Buy Price $25.17 on Feb. 17
by BofA Securities
Our $30 price objective is based on 12 times our calendar 2022 GAAP earnings estimate of $2.50 a share, in line with the average price/earnings ratio for the athletic/sporting goods retail group, given that: Academy’s long-term EPS compound annual growth rate is in line to slightly above the group’s 13% average (and we see significant earnings upside, relative to conservative projections); Academy offers a broad range of high-demand “solitary leisure” merchandise; and its value-oriented assortment should benefit as millennials enter their household-formation years.
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