Marcos Brindicci | Reuters
Here are the biggest calls on Wall Street on Tuesday:
Morgan Stanley upgraded Coca-Cola to ‘overweight’ from ‘equal-weight’
Morgan Stanley said the beverage giant’s growth prospects are not reflected in the current valuation.
“We believe Coke has morphed into a structurally higher topline growth company vs. CPG peers. Surprisingly, despite clear historical proof, this is not being recognized in valuation at what we see as an unfair discount to peers. While the market has compressed Coke’s relative multiple vs. peers recently after below consensus 2019 EPS guidance and with short-term topline growth rebounding to a greater extent at mega-cap peers, this provides a compelling buying opportunity in our minds. First, below consensus 2019 guidance was due to FX or below the profit line items that in our minds should have little valuation impact. Second, Coke’s more modest recent topline growth rebound than mega-cap peers is more than explained by comparisons, with two yr avg KO underlying sales growth actually accelerating. We see higher LT topline growth at Coke than peers as comparisons normalize, with our raised ~5% LT topline growth forecast today (from 4%) due to our analysis of building pricing power, the benefit from favorable strategy changes, and rebounding CPG emerging markets trends. “
Read more about this call here.
Baird initiated TJX Companies as ‘outperform’
Baird said the company has a “consistent track record of execution.”
“We’re initiating coverage of TJX with an Outperform rating and $63 price target. We believe TJX can sustain at least +MSD-HSD% EPS growth longer term supported by +LSD-MSD% comps (healthy consumer backdrop, structural shifts favoring off-price, category expansion), unit growth, and steady buybacks, partially offset by modest margin pressure (labor/freight). Valuation reflects generally positive market sentiment but doesn’t look stretched, in our view, given potential for comp upside and easing margin pressures (especially 2H) and the company’s track record of consistent execution—supporting attractive risk/reward at current-levels. “
Baird initiated Ross Stores as ‘outperform’
Baird said Ross is a “high-quality/growth” retailer that trades at a “reasonable valuation.”
“We’re initiating coverage of ROST with an Outperform rating and $108 price target. There is a lot to like about this off-price retailer: strong management (experienced, pristine execution), consistent comp growth (+3% comps or better over the past decade), healthy margins (navigating the inflationary cost environment), and a robust earnings growth (+HSD%-LDD%) and FCF outlook. While recent executive turnover adds a risk factor, we see a deep bench and believe shares offer a good “deal” for investors shopping for a high-quality/growth retailer trading at reasonable valuation.”
Credit Suisse upgraded Tyson Foods to ‘outperform’ from ‘neutral’
Credit Suisse said Tyson‘s stock price does not reflect the potential for higher chicken, beef, and pork prices from the outbreak of African Swine Fever.
“We are raising our FY 20 EPS estimate to $6.80 compared to consensus of $6.62, upgrading to Outperform, and raising our target price to $96/share. Consensus estimates already factor in stronger Chicken margins based on a rebound in the U.S. supply-demand cycle domestically. However, we do not think they fully account for the upside to chicken, beef, and pork prices from the outbreak of African Swine Fever.”
Susquehanna upgraded Deckers to ‘positive’ from ‘neutral’
Susquehanna said it had confidence that Deckers‘ HOKA brand is showing “accelerating momentum.”
“Recent checks indicate HOKA’s momentum is accelerating faster than we previously anticipated. UGG is well positioned heading into FY20, as cleanup efforts overseas should be in the rearview by fall ’19 and product allocation/segmentation strategies are continuing to evolve. Operational efficiencies and improved inventory discipline should continue to result in operating leverage. We are raising our FY20 and FY21 EPS estimates by $0.33 (+8.9%) and $0.34 (+3.8%), respectively, and our price target from $161 to $169.”
J.P. Morgan downgraded Deere to ‘underweight’ from ‘neutral’
J.P. Morgan said it sees “rapidly deteriorating” fundamentals in U.S. agriculture.
“We are downgrading DE to Underweight as a result of the rapidly deteriorating fundamentals in US agriculture. Additionally, we are upgrading AGCO to Overweight; given its limited exposure to the US row crop sector, the recent sell-off is overdone, in our view, and provides a decent entry point. Beyond tariffs (which have weighed on US soybean exports in 2018/19 TD, down 27% YoY), Chinese import demand for soybeans is likely to decline significantly as it deals with a ~30% reduction in its hog herd following the outbreak of African swine fever (ASF). Brazil and Argentina combined have produced close to record soybean and corn crops this season, while US dollar strength remains a headwind for US competitiveness on the global market. Furthermore, the Midwest is off to a very slow start in 2019/20; potential yield losses from delayed planting are weighing on sentiment ( “yields trumped prices” for the past few years). Overall, this is a perfect storm for US farmers and the fundamentals for DE are now skewed to the downside, in our view.”
Read more about this call here.
Berenberg initiated Live Nation as ‘buy’
Berenberg said the company is in a leading market share position in both concerts and ticketing.
“Live Nation is a vertically integrated live entertainment company. It is the largest producer of live events globally, with nearly 35k events and 93m fans as of 2018. The company also owns leading live event ticketing platform, Ticketmaster, which sold over 480m tickets in 2018. In our view, Live Nation’s leading position is enforced by significant barriers to entry and should benefit from favorable industry supply/demand dynamics, which we believe will support growth of its higher margin onsite and advertising businesses. “
SunTrust initiated Conagra Brands as ‘buy’
SunTrust said the trend for packaged foods finally looks “stable.”
“The past few years have been challenging for packaged food companies to put it mildly. This underperformance has been driven by weak volume trends in center of the store categories, hyper-promotional pricing, and limited reinvestment in businesses. In our opinion, this trend has finally flipped driven by; 1) leadership changes at the majority of the major players, 2) favorable pricing, and 3) the Millennial generation pivoting from a headwind to a tailwind for the category. In our view, a strong category is a positive for CAG and if sentiment does turn positive the recent multiple expansion in the category should stick. “