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.
First Citizens BancShares
• FCNCA-Nasdaq
Outperform • Price $1,290.13 on Oct. 5
by Wedbush
We’re initiating coverage of First Citizens with an Outperform rating and a $1,700 price target. Once a small but high-performing Southeastern-focused bank, First Citizens has quadrupled in size over the past 18 months owing to two high-profile acquisitions: CIT Group and the failed Silicon Valley Bank.
We believe First Citizens is in a strong position to benefit from its recent deals, particularly when the innovation economy stabilizes, and should generate solid growth as a result of its increased scale, with now over $200 billion in assets.
We expect the venture capital business to continue to be under pressure over the next few quarters, but we believe SVB’s discounted price built in a sufficient margin of error that may lead to volatile results as the VC market recalibration stabilizes.
In addition to the accretion benefits that should come with the successful integration of the CIT and SVB acquisitions, we also like the company’s solid capital base, its legacy community banking business, strong credit quality, and owner-operator mind-set of the Holding family ownership, which stands at 28% economic interest and 51% voting interest.
Fluor
• FLR-NYSE
Buy • Price $34.62 on Oct. 4
by UBS
We are upgrading Fluor to Buy from Neutral. We think investors underappreciate Fluor’s potential as it continues its turnaround. It has reached an inflection point on legacy risk concerns and is close to returning to more-normalized margins or better after several subpar years, while cash flow adds further upside.
We expect adjusted Ebitda to grow 41% from 2023 to 2025, driven by 160 basis points of segment margin expansion. We believe potentially favorable resolutions in negotiations, noncore asset divestment, and other cash supportive actions could add about $5 per share of cash to the balance sheet.
We see the year ahead as proof that the turnaround will translate into higher and normalized earnings. The stock has had a nice run from the bottom, but the prices have fairly reflected the risks to date; we think the stock price today reflects the company today, but not its potential over the next one to two years. Price target: $47.
Krispy Kreme
• DNUT-Nasdaq
Buy • Price $12.43 on Oct. 3
by Truist Securities
Krispy Kreme announced that it is seeking strategic alternatives for its Insomnia Cookies to “unlock shareholder value and focus on its core strategy of producing, selling and distributing fresh doughnuts daily.”
Insomnia operates over 250 small bakeries, mostly in college towns and urban centers, selling and delivering warm cookies in under 30 minutes. It expects to generate $230 million of sales in 2023, 13.5% of total sales for the company.
This announcement is a bit of a head-scratcher for us. Insomnia and the core Krispy Kreme are run separately, so we are not sure how divesting the business will meaningfully improve the focus on the core.
Second, Insomnia has been accretive to the Krispy Kreme’s top line growth rate. As with any growth stock, we believe investors are much more focused on top line growth vs. earnings per share or cash on hand, so we are not sure how a divestiture would “enhance shareholder value.”
To be clear, we continue to like the core Krispy Kreme story and its ability to take share of the indulgent snack category over the next few years. Price target: $20.
DT Midstream
• DTM-NYSE
Buy • Price $51.64 on Oct. 3
by Stifel
We are initiating coverage of DT Midstream [operator of natural-gas pipelines and storage] with a Buy rating and $60 target price. We view this as a lower risk way to play the growth in natural gas volumes as liquefied nature gas continues to grow. DT Midstream is focused in the Northeast and the Haynesville basin, where 75%-plus of its revenues are generated from fixed fees, with many contracts having minimum volume commitments.
In 2024, we believe DT Midstream will become free cash flow positive and will grow into 2025, providing increased opportunities to lower leverage or return additional capital to shareholders. The current dividend is 2.4 times covered, so growth expectations of 5%-plus seem reasonable.
Lastly, DT Midstream is pursuing its first carbon capture and storage project, which could reach a final investment decision in the first half of 2024 and, if approved, should be additive to the investment thesis and cash flows.
Cinemark Holdings
• CNK-NYSE
Buy • Price $18.68 on Oct. 6
by Benchmark
We are revising our third-quarter projections upward as box office results have surpassed our initial forecasts. Our confidence in Cinemark’s complete recovery from the pandemic remains unwavering, and we’re optimistic about sustained growth.
We anticipate a swift resolution to the Hollywood actor strike, followed by a renewed emphasis on outstanding growth driven by captivating film offerings and diverse content like concerts and sports. We’ve raised our sales estimate to $833 million, outperforming the expected $783 million. We foresee an adjusted Ebitda of $180 million, with a 21.6% margin, surpassing the consensus of $153 million at 19.6%. This surge is due to more attendees and cost-efficiency….
Taylor Swift’s upcoming concert film is breaking presale records at Cinemark, with demand 10 times higher than any past event film. It’s projected to earn $100 million to $125 million its opening weekend. Price target: $22.
To be considered for this section, material should be sent to [email protected].
Read the full article here
