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.
Blackstone
BX-NYSE
Overweight • Price $87.83 on Jan. 23
by J.P. Morgan
We are upgrading Blackstone from Neutral to Overweight, with a December 2023 price target of $105. Investors are seemingly aware of the risks to Blackstone’s retail, real estate, and private-equity businesses, largely driven by higher inflation and interest rates.
However, we see a retail franchise positioned for stronger growth over the intermediate term; a real estate franchise with such good performance [that it should grow,] even if the asset class falls from favor; and an insurance operation that is adding layers of revenue and earnings growth for multiple years via credit and real estate debt investments. We see substantial fundraising, with fees kicking in this year and next.
While the economic outlook remains uncertain, Blackstone is particularly well positioned for a soft landing. [The company is] a good investment over the next 12 months.
General Dynamics
GD-NYSE
Outperform • Price $226.88 on Jan. 25
by RBC Capital Markets
GD anticipates 5% top-line growth in 2023, with all of the upside in the aerospace segment (Gulfstream), which has a strong backlog and bookings strength. However, the more modest outlook in marine, in particular, has weighed on sentiment.
We view the softness in the stock as a buying opportunity. We believe that execution at Gulfstream, as well as the potential for second-half evidence of a return to growth in the defense business, will be positive for sentiment. Price target: $280.
Union Pacific
UNP-NYSE
Neutral • Price $203.18 on Jan. 24
by UBS
Union Pacific stock fell 3.3% on Tuesday, which we believe reflects investor skepticism about Union Pacific’s ability to deliver on its 2023 targets of operating-ratio improvement and pricing above inflation. It faces a number of headwinds in 2023, including weakness and potential pricing pressure in domestic intermodal, lower revenue/car in coal (due to lower natural-gas prices), the need to continue adding head count to drive further rail-network improvement, and higher-than-normal cost inflation of 4%.
On the flip side, improvement in rail-network operation and/or better volume performance could provide support for the stock. Our $210 price target is based on applying an 18 times price/earnings ratio to our unchanged 2024 earnings-per-share estimate of $11.65.
Dow
DOW-NYSE
Neutral • Price $57.89 on Jan. 25
by Alembic Global Advisors
Dow reported fourth-quarter 2022 operating EPS of 46 cents, which missed the consensus estimate of 58 cents. The company also reported operating Ebitda [earnings before interest, taxes, depreciation, and amortization] of $1.26 billion, again missing the consensus estimate. Year-over-year volumes were down in all segments.
Management’s near-term qualitative guidance was mixed: While it sees initial positive signs from moderating inflation in the U.S., an improving outlook for energy in Europe, and the reopening in China, management continues to be prudent by implementing targeted actions focused on optimizing labor and service costs, reducing turnaround spending, and enhancing productivity. Our 12-month target price for the stock is $55.
Levi Strauss
& Co. LEVI-NYSE
Buy • Price $16.50 on Jan. 25
by Guggenheim Securities
After the market close today, Levi Strauss reported [fourth-quarter] net revenue of $1.59 billion, above our estimate of $1.57 billion, and adjusted diluted EPS of 34 cents, also above our 29 cents estimate.
While Levi’s international business was up 3%, [year over year, on a constant-currency basis] in the quarter, the company saw a mid-single digit decline in the U.S., following supply-chain challenges. The gross margin contracted to 55.8%, versus our 56.8% estimate, primarily due to foreign-exchange impacts and lower full-price sales. We believe that inventories peaked in the fourth quarter and anticipate that the company will normalize them by the end of 2023.
We are maintaining our fiscal ’23 EPS estimate of $1.40. and establishing a fiscal ’24 EPS estimate of $1.60. We maintain our Buy rating, as we believe that the Levi brand remains strong, well managed, and very healthy. We are maintaining our $22 price target.
Aurinia Pharmaceuticals
AUPH-Nasdaq
Buy • Price $8.21 on Jan. 24
by H.C. Wainwright
Yesterday, Aurinia announced that the U.S. Patent and Trademark Office had allowed a patent that refines the method of using Lupkynis [a treatment for lupus nephritis, a kidney disorder], and provides patent coverage that supplements Aurinia’s existing U.S. patent. Aurinia also announced that it had received a notice of intention to grant from the European Patent Office for a similar patent application.
In our view, the newly allowed patent represents an additional hurdle to potential challengers of the Lupkynis IP portfolio, along with the patent-challenge settlement with Sun Pharmaceuticals earlier this month. Stock-price target: $14.
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Credit: marketwatch.com