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.
Synaptics SYNA-Nasdaq
Buy Price $82.53 on Dec. 22
by Needham
Synaptics is our top pick for 2021, with over 50%-plus potential upside, due to a large disconnect between the company’s fundamentals and what we believe to be a justified valuation for those fundamentals.
Synaptics’ gross margin is projected to exceed 50% next quarter, but its shares are valued at just over 10 times our fiscal-year 2022 non-GAAP EPS estimate, a 60% discount to other chip companies with 50% gross margins. We believe that recent acquisitions of Broadcom’s wireless IoT [Internet of Things] business and of DisplayLink [a leader in high-performance video compression] have transformed Synaptics’ business and will produce higher margins, while simultaneously opening new markets and creating opportunities for cost synergies. We look for the IoT business to have opportunities in the edge computing, wireless connectivity, and USB-C categories. In the mobile phone business, Synaptics dominates the high-margin OLED [organic light-emitting diode] touch controller market, winning virtually every new design by major handset manufacturers. We believe that the company’s overall Apple business will stabilize at roughly $360 million to $370 million per year.
Our stock price target is $130, based on a P/E multiple of 16 times our fiscal 2022 earnings estimate of $8 a share.
Wesco International WCC-NYSE
Outperform Price $73.97 on Dec. 15
by RBC Capital Markets
Wesco [an electrical and industrial supply company] is paying down $500 million in debt next month. That should save the company about $20 million in annual interest expense and be accretive to 2021 EPS. The paydown should not be a major surprise, though it was quicker than we were anticipating. Wesco also disclosed that fourth-quarter [business] trends were tracking down about 3%, year over year, in line with expectations.
We are updating our estimates, raising our price target, and continue to be positive on the ongoing value creation at the company. Wesco will redeem its entire $500 million of 5.375% senior notes due 2021 on Jan. 14. This should add roughly 5% to 2021 EPS. We are raising our EPS estimate from $6.30 to $6.60, and our stock price target by $18, to $97.
Halliburton HAL-NYSE
Sell Price $20.14 on Dec. 16
by Edward Jones
Halliburton’s outlook remains challenged; we intend to drop coverage of the company on Dec. 31, to focus on other investment ideas with better long-term potential. We see the oil-price environment remaining challenged by oversupply and weak demand. The ability of oilfield-services companies like Halliburton to generate cash flow relies on commodity prices, and we remain concerned about the potential stress to its financial position should they remain weak for a prolonged period. We prefer obtaining energy exposure through the integrated oil, storage and transportation, and refining subsectors.
Square SQ-NYSE
Buy Price $235.45 on Dec. 21
by BTIG
We are reiterating our Buy rating, while raising our price target to $295 (from $220) based on 8 times the company’s fiscal 2023 estimated enterprise value/revenue of $18.9 billion. We believe the extraordinary growth of Square’s Cash App during the Covid-19 pandemic has demonstrated its relevance to large underserved groups whose needs only increased during the crisis: the tens of millions of unbanked consumers in the U.S., the small- and medium-size businesses struggling to survive amidst pandemic-driven restrictions, and people seeking an easy way to buy Bitcoin at a time when interest in the cryptocurrency has taken off. What we find particularly exciting about the foundation that Square has built with the Cash App’s estimated 35 million monthly average users is the opportunity it has created for the company to increase engagement and monetization, in the U.S. and abroad.
Cerence CRNC-Nasdaq
Outperform Price $102.23 on Dec. 22
by Wedbush
Based on recent momentum in the field and more design wins during the December quarter, we have an increased confidence in the CRNC story and its automotive opportunity. We believe the company is in a strong position to further penetrate original equipment manufacturers heading into 2021. Cerence is a leader in automotive speech, as the company has built significant market share of 80%-plus with over 1,000 patents and is installed in over 300 million vehicles. While in the near term the company’s fundamentals could be negatively impacted, given Covid-19 headwinds and a softer macro, we believe the stage is set for Cerence to experience a strong recovery into year-end, with clear momentum into 2021 as auto sales rebound and new design wins are launched.
Investors continue to have worries about tech giants like Alphabet’s (ticker: GOOGL) Google and Amazon.com (AMZN) taking over the auto speech industry/in-car experience, but Cerence offers a white-label solution that doesn’t take ownership of the data, a key differentiator. Price target: $120.
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