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Here are the biggest calls on Wall Street on Monday:
J.P. Morgan said the maker of blue jeans is an iconic brand with strong management.
“We are initiating coverage of LEVI with an Overweight rating and $26 December 2019 price target. Importantly, we view the combination of a strong tenured management team led by CEO C. Bergh and brand heritage (>165 years history, inventors of the “Blue Jean”) as a competitive advantage in expanding to a global lifestyle brand through 5 profitable growth buckets (Women’s, Top’s, International, DTC, Value brands) while growing the overall “core” men’s denim category “at least” in line w/ the low-single-digit industry growth rate. Bottom’s up, our +6.6% modeled top-line growth through FY21 (< 10% trailing 2-year average) conservatively embeds high-single digit growth in non-core growth categories (a haircut to double-digit growth the past 3 years) and maintaining (not growing) the brand’s current 26% “core” men’s US bottom’s market share. In addition, we see continued margin levers driving upside to our +10% net income CAGR through FY21 (& management’s MSD top-line to HSD-LDD bottom-line algorithm) given supply chain, geographic, channel, and product mix accretion with the infrastructure investments laid for future growth (marketing/e-comm/Intl) and balance sheet optionality (license buybacks) incremental.”
Telsey said the company is on solid footing financially and has show a record of growth over the last 7 years.
“We are initiating coverage of LEVI with an Outperform rating and price target of $28. Following its privatization in 1985, we believe Levi Strauss & Co. (LS&Co.) has re-emerged into the public market in a position of strength for several reasons. First, the company has a proven track record of growth over the past seven years. In F2018, net revenues reach $5.57B representing a CAGR of 2.3%; operating income grew at a CAGR of 6.9%, resulting in 250 bps of margin expansion to 9.6% (unadjusted); and net income increased by a CAGR of 11.3%. Second, its financial position is solid, having reduced its leverage ratio from 3.8x in F2012 to 1.5x in the last fiscal year and over the past five years, cumulative FCF (before dividends) amounted to $1.1B for an average of $230MM per year. Third, the company’s global positioning is attractive with Levi’s having the highest brand awareness in the denim bottoms category. For perspective, Levi men’s has the market leadership position in 7 of 9 countries tracked, while women’s is the market share leader in 5 of the 9 countries. Fourth, the business model has become increasingly diversified over the past three years through distorted growth in Tops and the Women’s business as well as DTC and International expansion. And fifth, LS&Co.’s growth path has been, and should continue to be, driven by a bench of deep talent architected and led by President & CEO Charles (Chip) Bergh, who joined the company in September 2011 following a 28-year career at The Procter & Gamble Company.”
Goldman Sachs removed the bank from the conviction buy list due to the recent CEO departure and issues related to recent earnings.
“We downgrade WFC from Buy to Neutral and take it off the Americas Conviction list. The recent departure of Tim Sloan and questions over the time it will take to find a replacement, coupled with commentary on the 1Q19 earnings call around weaker than expected NII growth for 2019 has increased focus on its ability to meet near term and longer term financial targets.”
Editor’s note: This was call was made late Friday evening.
Goldman Sachs downgraded the stock primarily because of the company’s 2 percent outperformance over the last 6 months.
“We see Nokia as a leader in the CommTech space, but downgrade the shares to Sell in light of 2% outperformance in the last 6 months, while SME Direkt consensus EPS has been revised down 44% over that period. We believe there is scope for further downside to consensus, as our new estimates now factor in lower Networks revenues, a more conservative margin trajectory and more muted growth in the highly profitable Patents business. Our latest ests. are 9%/14% below 2019/20 Street ests. for EPS.”
Nomura said Dow has the strongest free cash flow in its coverage universe.
“Significant leverage to normalization in several key value chains (PE,MDI, silicones, and MMA). Don’t count on a big buyback in 2019, but DOW has the strongest FCF yield potential among cyclical names in our coverage in 2020 as restructuring costs decline.”
Oppenheimer said they view CVS Health as an opportunity for the long-term and think there will be drug-price “noise” from DC well into the future.
“We are downgrading CVS to Perform from Outperform and removing our $85 price target. Furthermore, we are introducing our 2019/2020 EPS estimates of $6.75/$7.09. After recently assuming coverage, we are looking to reset the bar on our CVS rating, as we view it as more of a long-term opportunity given the potential timeline to execute on its strategy and the near-term legacy business challenges. Furthermore, we expect the drug-price noise out of Washington to continue for the foreseeable future. Lastly, we note that we remain bullish on the overall managed care sector—particularly in light of the recent weakness in the group—but CVS’s exposure to the business is still quite modest, and we would prefer other names in the space right now.”
Bank of America believes Five Below will see further stock price appreciation from beating and raising its EPS.
“We are initiating on Five Below with a Buy rating and $150 price objective, 39x our F2020 EPS estimate of $3.84. Five Below is a rapidly growing value retailer offering a broad range of trend-right, high-quality merchandise for under $5 targeted at the teen and pre-teen customer. We believe FIVE will continue to beat and raise its EPS leading to further stock price appreciation. Our F2019 and F2020 EPS estimates of $3.06 and $3.84 are 1c below and 6c above consensus EPS. Management continues to find ways to drive outsized comp and earnings growth and we expect that to continue. We believe FIVE’s strategy of continuously reinvesting in its products to improve its offering will to drive low to mid-single digit comp growth through 2021. This, plus store growth should lead to +22% EPS CAGR through 2021 as FIVE leverages its superior merchandising relationships to offer on-trend products at great values.”
Longbow upgraded the stock saying they see a NAND cyclical recovery.
“We are upgrading the shares of Western Digital to BUY based on our view that 1) NAND fundamentals are bottoming and there is a line of sight to cyclical recovery; 2) industry NAND capex/production is likely to be further rationalized as industry profitability is under pressure; 3) 2H19 hard drive revenue and gross margin recovery does not appear to be fully contemplated by the Street and all of the above is creating an asymmetric risk/reward for the shares.”
