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.
Tesla
• TSLA-Nasdaq
Overweight • Price $254.50 on Dec. 21
by Morgan Stanley
In our opinion, Tesla is far more than an auto company. Of our $380 price target, our valuation of the “core” auto business is $86/share, leaving 77% of our target derived by network services, mobility, third-party battery/full self-driving licensing, energy, and insurance.
We receive significant pushback from our clients for including nonauto revenue streams in our valuation. Our Overweight thesis is highly dependent upon these business lines becoming far greater drivers of earnings with clear milestones/proof points backed by accompanying financial disclosure.
From a fiscal-2023 base, we forecast Tesla earnings per share grow at a 27% compound annual growth rate through fiscal 2030, achieving $5/share in late fiscal 2025, $10/share in late fiscal 2027, and $15/share by mid fiscal 2029. While it’s important to factor in near-term/real-time headwinds into fiscal 2024, we believe it is also important and reasonable to consider the long-term potential of the products and services being commercialized by the company.
Walmart
• WMT-NYSE
Outperform • Price $156.41 on Dec. 27
by TD Cowen
We hosted meetings with Walmart’s senior vice president and head of investor relations, Stephanie Wissink, who has an extensive background in strategy, finance, marketing, and public markets analysis. We are most excited by Walmart’s advancements as a technology company—which drives higher margin growth through both digital advertising (Walmart Connect) and marketplaces (we estimate 70%-plus margins in both businesses).
Furthermore, we model 20% digital advertising growth next year. We also believe that the company is well positioned to achieve management’s multiyear 4% net sales growth algorithm, composed of: 2% Walmart U.S. and Sam’s Club, 1% international, and 1% alternative value streams such as marketplace and digital advertising. Price target: $188.
Harmonic
• HLIT-Nasdaq
Buy • Price $12.55 on Dec. 28
by Rosenblatt Securities
An activist investor, Ancora Advisors, a top 10 holder, announced a campaign urging the company to quickly divest the video business and use the proceeds for a stepped up buyback. Consistent with Ancora’s demands, we believe that a sale of the video business could be announced in conjunction with fourth-quarter earnings, if not before.
We also believe that management plans to use a significant portion of the proceeds to buy back stock. On a conservative basis, we believe that the video business is worth $125 million to $150 million. The sale of the video business will transform Harmonic into a pure play on next-generation broadband.
By our numbers, the revenue growth rate of the company from 2022 through 2025 more than doubles from 13% to 27%, and the growth rate of adjusted Ebitda goes from 27% to 46%, making a clear argument for multiple expansion. Price target: $18.
Spotify Technology
• SPOT-NYSE
Buy • Price $188.71 on Dec. 21
by Guggenheim
We are refining our 2024 quarterly Spotify model to reflect seasonality of subscriber additions and gross margin expansion. Our overall operating and financial assumptions for full-year 2024 are largely unchanged, while we trim our first-quarter 2024 gross margin estimate to 26.2% to better account for typical trends.
We have lowered our fourth-quarter 2023 and first-half 2024 free-cash-flow estimates to better reflect cash-related severance charges related to recently announced head-count reductions. We expect a minimum positive impact to annual operating profit of 320 million to 350 million euros related to announced staffing changes and expect the company to remain diligently focused on efficient operations and a path to stronger profit and free-cash-flow growth. This is reflected in our above-consensus operating profit forecasts for 2024 and beyond. Price target: $220.
Avista
• AVA-NYSE
Buy • Price $35.87 on Dec. 29
by Siebert Williams Shank
Shares of Avista [an electricity and natural-gas utility] continue to be perplexing, as they have declined 19.1% year to date. While 2023 earnings have been constrained somewhat by poor hydroelectric conditions, we are still expecting EPS growth of roughly 10% in 2023 and 12% in 2024. Recent regulatory outcomes in all key jurisdictions bode well for the company’s 2024 earnings.
At an indicated dividend yield of 5.13%, Avista shares are trading at relative yield premiums to bonds and peer utility stocks that appear excessive. The company’s fundamental backdrop has been steadily improving, and we expect 2024 to represent significant opportunity for better momentum. Price target: $50.
CarMax
• KMX-NYSE
Underweight • Price $78.55 on Dec. 23
by J.P.Morgan
CarMax’s fiscal third-quarter results were an upside surprise, driven by a larger-than-expected reduction in loss allowance within the CarMax auto finance business, while the core retail operation was also slightly better than JPM estimates.
We had expected loss reserves to move lower gradually through calendar 2025-26, though we now pull forward the trajectory in our estimates, driving our CAF assumptions higher.
Our fiscal-2026/calendar-2025 estimates remain unchanged as core retail profit assumptions move lower. Our fiscal fourth quarter/fiscal 2025/fiscal 2026 EPS are now $0.45/$3.25/$4.10, versus $0.50/$3.05/$4.10 prior. Our December 2024 end price target remains unchanged at $60.
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