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Kevin Plank, CEO, Under Armour
Here are the biggest calls on Wall Street on Friday:
J.P. Morgan upgraded Under Armour to ‘overweight’ from ‘neutral’
J.P. Morgan upgraded the stock after positive meetings with management.
“We hosted HQ meetings in Baltimore with CEO Kevin Plank, COO/President Patrik Frisk, CFO David Bergman and Chief Digital Officer Paul Fipps. The clear tone from the top was ‘controlled confidence’ in the brand direction with disciplined FY20 global top and bottom-line growth acceleration driven by the combination of Product, Innovation, and Marketing following management’s 3-year strategic “shrink phase” complete exiting FY19 post 50% SKU rationalization, 24% inventory reduction, and 30% vendor base consolidation (& SG&A right-sizing w/ 700 job cuts). Said differently, since our September Upgrade to Neutral and 12/12 Analyst Day – UAA’s re-structured management bench has “repositioned the global foundation” for multi-year gross margin expansion with inventory re-alignment the historical global brand sector lead indicator (+189bps next 4 quarter global brand average) with expense base right-sizing initiatives accelerating into FY20, and $92B “focused-performer” athletic channel in a ‘very healthy’ position today.”
Nomura Instinet lowered its price target on Apple to $175 from $180
Nomura said U.S.-China trade tensions are a “near-term negative” for the stock.
“The renewal of China trade tensions are a likely near-term negative for Apple. We reduce our FY19 estimates out of trade caution. The record low 1Q upgrade rates at US operators also suppress our optimism for a long-term recovery in replacement rates, which weighs on FY20 estimates. We lower our target to $175.”
Read more about this call here.
B. Riley FBR upgraded Foot Locker to ‘buy’ from ‘neutral’
B. Riley FBR said it sees “improving trends” in the company’s footwear business.
“We are upgrading Foot Locker from Neutral to Buy and raising our price target from $62 to $73. Our upgrade is driven by improving trends in FL’s core footwear business, as well as in their international channels. Our store checks have shown a significant pullback in promotions since 1H18 which we believe reflects on-trend product from both FL’s core partners and smaller more casual/fashion oriented brands. In a challenging retail environment, we believe FL has done an excellent job of re-aligning their store fleet and creating an in-store experience that is relevant to their customers. “
Jefferies initiated Wayfair as ‘buy’
Jefferies said the e-commerce seller of home goods would see international growth that will surprise to the “upside.”
“The 40B customer interactions flowing between Wayfair‘s marketplace & logistics network let it capitalize on an attractive home category. Our web analytics show new peaks in non-domestic site traffic share, which is correlated with segment revs, so int’l trajectory is solid. Ongoing leverage should materialize from productive ad tech, and our survey indicates more viral social media usage could be powerful. Initiate Buy, $192 PT. Bull case shows ~50% upside. “
Wedbush added Electronic Arts to the ‘best ideas list’
Wedbush said the company’s game lineup this year appears to be “outstanding.”
“We expect EA to deliver material upside to its FY:20 guidance for net bookings and EPS, driven by Apex Legends and a game lineup this year that appears outstanding. We expect a string of near-term catalysts, including updates on Apex MAUs, game reveals at the E3 Expo in June, greater detail on the market expansion potential for services like Google Stadia, and continuing growth of EA’s sports business. Our price target of $122 reflects a P/E multiple of 20x our FY:21 EPS estimate (at the low end of EA’s historical 20 – 30x P/E range) plus $15 per share in net cash, compared to current valuation of around 16x the consensus FY:21 EPS estimate. “
Wedbush added Tempur Sealy to the ‘best ideas list’
Wedbush said the bedding and mattress maker has “earnings upside” in 2019 and 2020.
“We’re adding OUTPERFORM-rated TPX to our BIL based on strong core business momentum pointing to earnings upside in 2019 and 2020 and an increasing likelihood that the company rekindles a supply relationship with Mattress Firm (MFRM). We forecast the core business to deliver $468m of EBITDA in 2019 (vs. consensus $470m) and $520m in 2020 (vs. consensus $509m), with more upside than downside risk, driven by momentum in Tempur-Pedic, improving performance in Sealy and cost headwinds turning to tailwinds (i.e., commodities, variable compensation, R&D, launch costs). At the same time, we see a high probability that a deal with MFRM will occur within the next few months, adding $100m+ incremental run-rate EBITDA. A deal with Mattress Firm is not fully factored in as TPX trades at only 8.5x a potential $620m in total run-rate EBITDA. TPX would trade at $85 if the company earned $620m at a 10.5x historical average multiple—representing a 34% premium to the current price. “
Bank of America upgraded Philip Morris to ‘neutral’ from ‘underperform’
Bank of America said after the company’s recent results that it is more comfortable with its margin expansion growth.
“Lifting EPS estimates and PO from $81 to $94. We have refined our model post results given added detail from its recent 1Q results, 10-Q filing and annual shareholders meeting. As a result, we now have more comfort regarding PM‘s guidance of margin expansion this year and the increased likelihood of margin expansion going forward as per unit costs for RRP commercialization eases. Our new 2019/2020/2021 EPS estimates are $5.19/$5.66/$6.23 (vs. $5.12/$5.52/$6.03 previously). We are boosting our PO from $81 (previously based on 2020E EPS of $5.52 and a P/E of 14.7x) to $94 based on PM‘s 10Yr average PE of 16.4x our new 2020 EPS of $5.66 plus $1.70/share in value for its Canadian unit (which is currently under creditor protection due to a lawsuit). We value its CAD unit at a conservative 6.5x 2018 EPS of 26c, which is in line with MO’s valuation in 2003 when litigation threatened MSA payments to the states. We believe that this takes into account NT challenges, underlying combustible profit growth, and its LT growth prospects. “
