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.
Brinker International EAT-NYSE
Outperform Price $46.65 on Oct. 15
by BMO Research
We upgrade Brinker to Outperform and raise our price target to $65, which implies about 40% upside. Brinker’s postpandemic earnings per share could reach $5-plus. The timing somewhat depends on the shape of the pandemic from here, but our EPS estimate implies meaningful upside to the consensus forecast beyond fiscal-year 2021 for Brinker [parent of the Chili’s Grill & Bar and Maggiano’s Little Italy casual restaurant chains]. Our $65 price target is based on a projected 8.5-9.0 times earnings before interest, taxes, depreciation, and amortization, or Ebitda, on the about $475 million to $500 million embedded in our EPS assumption, given improved top-line and margin prospects.
UnitedHealth Group UNH-NYSE
Strong Buy Price $325.85 on Oct. 15
by Raymond James
We raise our stock price target by $5, to $355, following third-quarter results that once again beat across the board. Management raised its 2020 adjusted EPS outlook by 23 cents, to a range of $16.50 to $16.75 at the midpoint. We believe the implied fourth-quarter 2020 adjusted EPS estimate of $2.27 (Street: $2.63) is likely conservative. [Health insurance] utilization, up from record lows in the second quarter, sits at about 95% of normalized levels, with physician services below that baseline, outpatient surgery right around 95%, and inpatient surgeries trending closer to normalized levels.
PNC Financial Services Group PNC-NYSE
Outperform Price $110.35 on Oct. 14
by Evercore ISI
We are raising our 2020 EPS estimate for PNC from $3.19 a share to $5.64, to reflect the company’s third-quarter earnings beat, as well as better noninterest income, lower expenses, and lower loan-loss provisions. We are raising our 2021 and 2022 EPS estimates from $6.47 and $5.58 to $7.47 and $9.58.
Fundamental pressures persist (particularly, weak loan demand and low rates), and the reinvestment of capital freed up from the sale of PNC’s big stake in BlackRock [ticker: BLK] remains in a holding pattern.
However, the bank’s ability to continue to produce positive operating leverage is helping mitigate bottom-line pressure. Additionally, PNC’s credit discipline and very well-capitalized balance sheet position it as a port in the storm. As the macro backdrop ultimately improves, PNC will be well positioned due to its competitive heft, information technology/infrastructure investments, and capital flexibility. Our price target is $128.
Albertsons ACI-NYSE
Buy (four out of a possible five stars) Price: $14.26 on Oct. 9
by CFRA
We like Albertsons for its compelling product mix (more fresh items versus its supermarket rival Kroger [KR] and strong private-label brands), improving margin profile (its Ebitda margin gap to Kroger has been closed), and greater exposure to states and cities with more Covid-19-related restrictions, which benefit food-at-home demand.
Since Albertsons went public in June 2020, the shares are down nearly 15%, likely due to rising competition in the e-commerce space from Walmart [WMT] and Amazon.com [AMZN]. Despite these risks, we view the shares as undervalued, as they trade at the lowest forward price/earnings ratio among their peers.
In fiscal 2020, we see gross margins widening to 29% (from 28.2% in fiscal 2019) and adjusted earnings before interest and taxes, or Ebit, margins expanding to 3.1% (from 2.2%). The majority of this growth should be from heightened food-at-home demand, due to the Covid-19 pandemic. However, we also attribute a portion of this improvement to Albertsons expected $1 billion in run-rate cost savings by the end of fiscal 2022.
Our 12-month stock price target of $17 is 11 times our fiscal 2021 EPS estimate and a discount to Kroger, which trades at a forward P/E ratio of about 13 times. Our forecast implies about a 30% total shareholder return over the next 12 months.
Mesoblast MESO-Nasdaq
Buy Price $12.01 on Oct. 13
by DawsonJames Securities
Mesoblast announced today that the randomized controlled Phase 3 trial of remestemcel-L in ventilator-dependent patients with acute respiratory distress syndrome, or ARDS, due to Covid-19 infection, has surpassed 50% enrollment. The randomized, double-blind, controlled trial’s primary [aim is to determine whether there is a meaningful] reduction in 30-day mortality, relative to maximal care. ARDS continues to be the primary cause of death in Covid-19 patients.
The trial is enrolling up to 300 ventilator-dependent patients with moderate to severe ARDS. It aims to confirm findings from a pilot study at New York’s Mount Sinai Hospital this year. In that study, nine of 12 ventilator-dependent patients (75%) were discharged from the hospital in a median of 10 days after receiving two intravenous doses of remestemcel-L within five days.
Valuation of Mesoblast’s stock is complex. Our price target is $20.
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Why Brinker International Shares Look Tasty - Barron's
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