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.
Buy • Price $72.39 on May 10
by Seaport Research Partners
Kellogg produced a strong first quarter. Strong European operations, excellent emerging market sales growth, and [improved] price realization overcame some cereal softness in North America. Revenue guidance was raised for 2022, from 3% to 4%, but all other key metrics, including operating profit growth, adjusted earnings-per-share growth and cash-flow generation remained unchanged. Volumes declined 5.7% in the quarter, but approximately half of that shortfall was related to U.S. cereal inventory shortages.
Beginning in the second half, U.S. cereal should begin making positive contributions to sales growth. However, Kellogg’s U.S. cereal plant strike, combined with a fire in its Memphis facility, will continue penalizing sales and earnings growth in the quarter.
But Kellogg’s global organic sales growth was improving before the pandemic, and Kellogg should be one of the medium- to long-term winners. It is emerging from the pandemic with more customers, a higher market share in key categories, significantly improved cash flow, and reduced leverage ratios. And the stock is cheap, relative to its peers’. We are raising our stock-price target, from $76 to $82.
Hold • Price $16.33 on May 11
Wendy’s reported weaker-than-expected first-quarter results, with domestic comps and its restaurant margin well below estimates, driven by a softer breakfast [business] and significant commodity (high teens) and labor (midteens) inflation. The cadence of margin performance improved, with additional pricing [gains] anticipated in the second quarter that should minimize the impact on full-year results. The company reiterated its full-year guidance, anticipating an improving comp trend in the second quarter.
While we were pleased with the trends in the international business and the healthy pace of net unit growth, the guidance could be aggressive if [higher] pricing weighs on traffic more than currently anticipated or critical sales-building initiatives (e.g., breakfast, digital) are less effective. Price target: $20, down from $25 previously.
Neutral • Price $61.65 on May 10
by J.P. Morgan
Wynn Resorts reported first-quarter total property-level earnings before interest, taxes, depreciation, and amortization, or Ebitda, of $177.6 million, above our and the Street’s respective $159.6 million and $175.2 million estimates. Wynn’s properties in Macau generated an Ebitda loss of $5.5 million. In Las Vegas, revenue of $441.2 million and adjusted Ebitda of $159.4 million were above our $427 million and $140 million estimates.
We remain Neutral on the shares, as we see better values elsewhere in our coverage universe, but current levels may be attractive for patient (dare we say brave) value-oriented investors. December price target: $78, down from a previous $102.
Four Stars (out of five) • Price $9.57 on May 5
Low—currently negative—[inflation-adjusted] interest rates’ impact on ING’s earnings are likely to weigh on the minds of investors for the foreseeable future. While understandable, as net interest income contributed 77% of its revenue for 2020, this is unfortunate. [The Dutch banking company] is more than a play on European interest rates. ING’s strong deposit franchises in its core markets is its greatest competitive advantage. This is obscured in the current rate environment. ING has surplus capital, which could boost shareholder returns.
The highly concentrated Dutch banking system is one of Europe’s most attractive. The top three Dutch banks hold upward of 90% of accounts, with ING the market leader at 40%. Its market leadership translated into a return on equity of 24% for its Dutch banking operations in fiscal 2019, versus the 6% of the consolidated euro-zone banking system, as calculated by the European Central Bank. Fair value for the stock: $15.60.
Outperform • Price $43.82 on May 11
by William Blair
Yeti’s first-quarter revenue grew 19%, ahead of the company’s implied guidance and our and Street expectations, on double-digit growth across all product categories and sales channels—translating into a three-year compound annual growth rate of 24% for revenue. Direct-to-consumer sales rose to 53% of total sales (from 51%), with investments in Yeti’s e-commerce business continuing to pay dividends.
Yeti, [which specializes in insulated containers for food and beverages], launched its redesigned mobile-first website in April, with promising early results. Corporate sales continue to perform well, with strong repeat purchases, allowing Yeti to create a more predictable order pipeline. The company’s retail stores are performing well, and at least two should be added in 2022. The stock’s valuation is compelling at an enterprise value/Ebitda reading of 10 times our 2022 estimate. We believe that the company has an opportunity to build a global lifestyle brand.
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