Bed Bath & Beyond Partnership With Kroger Looks Interesting. But the Stock Has Left Reality Behind.
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.
Activision Blizzard ATVI-Nasdaq
Overweight Price $77.67 on Nov. 2
by J.P. Morgan
Activision shares are down following the company’s third-quarter earnings report. Investors are undoubtedly focused on the pipeline, and commentary from management that it is planning a later launch than anticipated for Overwatch 2 and Diablo 4, which was partly attributed to competition for talent and leadership changes….For now, we model the titles in 2023, which leaves our earnings per share for that year unchanged at $4.60, implying nice upside to the stock price over the next 12 months, even applying multiples toward the lower end of the historical range. The shares, we think, have some downside protection, as well, trading at 16 times this year’s guided EPS, after adding back net cash. The delayed and uncertain pipeline, though, does push back the timeline for the stock, which, absent any updates, lacks a catalyst ahead of the Diablo Immortal launch in the first half of 2022. While we expect that Activision may remain range-bound for the near term, the still-attractive risk/reward keeps us at Overweight. Price target: $100.
Sealed Air
SEE-NYSE
Overweight Price $61.96 on Nov. 3
by BMO Capital Markets
CEO Ted Doheny’s focus on automation is gaining traction, driven by tight labor markets and Covid issues at customer sites. The initiative started pre-Covid, but Covid has been an accelerant. Sealed Air’s sales in automation are 20%-plus year to date. It will be a multiyear process for larger sites to redesign/retool, but is apt to create a multiyear tailwind for Sealed Air. The third quarter did see margin compression from inputs/logistics, but less than we expected. Price/cost pivoted positive in September..…We think the medium-term story around Sealed Air is breaking positive. They’re executing well and returning value to shareholders. We’re raising our rating to Outperform from Market Perform and our target price to $70 from $62. Our valuation is based on an 11.7 times multiple of fiscal-2022 Ebitda.
Wingstop WING-Nasdaq
Buy Price $151.48 on Nov. 3
by Stifel
We see the pullback in Wingstop as a buying opportunity for the following reasons: 1) fourth-quarter same-restaurant sales outlook is better than investors expect; 2) advertising fund projected to grow by 25% to 30% in 2022; 3) potential for all-time high chicken prices to revert toward the long-term trend line in 2022, providing a margin tailwind; 4) best-in-class unit economics (4 to 1 sales-to-investment ratio) should lead to accelerating unit growth; 5) international development success likely to create “stacking S-curve” for growth. We expect shares to recover as investors digest the short-term issues and evaluate the company’s sustainable growth prospects. Accordingly, we have left our 2022 EPS estimate of $1.80 and 12-month price target of $175 unchanged.
Bed Bath & Beyond BBBY-Nasdaq
Underweight Price $21.58 on Nov. 3
by Wells Fargo
With Bed Bath & Beyond shares up 60% this week, we reiterate our Underweight rating, as we believe shares have temporarily disconnected from economic reality. Per last night’s release, October trends remain in line with September, suggesting November results need to sharply re-accelerate to match Bed Bath’s ambitious third-quarter outlook. Bed Bath also announced that it’s pulling forward $400 million of share buybacks in the second half, but at today’s $22 stock price, we calculate fiscal-2022 accretion of just 15%. While Bed Bath’s Kroger partnership and marketplace-model pivot could one day prove interesting, details today are thin, there is no proof of concept, and we ultimately view the announcement as noise to overshadow an otherwise challenged fundamental outlook. All in all, we suggest longs take profits. Price target: $14.
Roku ROKU-Nasdaq
Outperform Price $313.66 on Nov. 4
by Oppenheimer
We are decreasing our price target to $400 from $480 on lower comp valuations, but maintain our Outperform rating, as third- and fourth-quarter guidance highlighted continued advertising momentum in the face of global supply-chain headwinds. While third-quarter platform revenue increased 51% year over year, 4% ahead of Street, active accounts missed for the third consecutive quarter on supply-chain headwinds and continued impact of fiscal-2020 pull-forward. Fourth-quarter revenue/gross profits guided 6%/10% below Street on TV shortages and concern of reduced ad demand. However, we believe that revenue guidance is conservative, with checks suggesting increased budget shift from Linear to CTV. Fiscal-2022 account adds are expected to be similar to fiscal 2019, or more normal patterns. While the pace of international expansion remains in question, at 18 times estimated 2022 gross profits, Roku appears attractive versus high-growth advertising peers.
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