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.
General Motors
• GM-NYSE
Outperform • Price $32 on Nov. 29
by Wedbush
General Motors provided an update to its business and gave further guidance on the company’s trajectory looking forward now with the United Auto Workers’ debacle period fully out of the way. With clarity on labor costs and production back on track, the company is returning to its capital allocation framework by repurchasing $10 billion of common stock through an accelerated share repurchase program, raising its common stock dividend by 33% starting in 2024 and reinstating it fiscal-year 2023 earnings guidance.
Ultimately, while not the most ideal situation for the company amid the largest electric-vehicle transformation for a company seen this decade, we believe GM has now taken back the reins on this situation with a clear vision forward and remain confident in the company’s trajectory heading into fiscal 2024 with profitability and EV production the two largest focuses looking forward.
Price target: $46.
Shopify
• SHOP-NYSE
Hold • Price $73.51 on Nov. 29
by Benchmark
Shopify’s impressive Black Friday Cyber Monday sales performance suggests near 7%-plus upside to fourth-quarter consensus gross merchandise value. With the holiday trade now rearview, focus shifts to first-half expectations and specifically the first-quarter GMV bar, which now looks about 400 basis points higher quarter over quarter vs. last year. Our direct to consumer data checks suggest Shopify’s fourth-quarter sales results quarter to date were led by merchants stretching discounts by as much as 20%-plus more than last year, while subsequently seeing Y/Y return on ad spend contraction.
Net-net, we don’t see sustainable merchant and consumer spend activity entering estimated first-half 2024 and remain sidelined with a Hold rating.
Phillips 66
• PSX-NYSE
Overweight • Price $118 on Nov. 28
by Wells Fargo
Elliott Investment Management sent a public letter to the Phillips 66 board revealing its $1 billion position in the company and seeking the appointment of two directors with refining-operating experience to the board. An activist shareholder can be a positive catalyst for shareholders. This assumes the simultaneous investment announcement and six-page action letter prods Phillips’ board and management to take actions they otherwise might not. It also assumes these actions create a positive and sustainable equity uplift. Our positive outlook and top pick stance are based on Phillips’ goals, but these may be enhanced by Elliott’s target letter. Target price: $143.
Ulta Beauty
• ULTA-Nasdaq
Buy • Price $425.99 on Nov. 30
by UBS
Between Ulta’s third-quarter financial results and its transparent and direct commentary on its conference call, the event addressed many of the key debates and concerns that have been hovering over the stock. Now, we think the shares can work in an uninterrupted way for a while. The print showed that demand for beauty remains strong. Ulta’s 5.9% traffic increase was among the best in the sector during the period. Plus, Ulta generated an 8% increase in its loyalty program members. We believe this is a favorable leading indicator. The setup for the stock into 2024 looks quite appealing, as Ulta articulated confidence that it can maintain its algo next year (adjusting for the extra week). Plus, it has set a conservative bar for the fourth quarter, further sustaining the upward earnings revision cycle. Price target: $575.
RBC Bearings
• RBC-NYSE
Buy • Price $242.24 on Nov. 29
by BofA Global Research
We upgrade our rating to Buy from Underperform to reflect stronger Ebitda margins and lower dilution impact from 2024 convertibles (about 7% vs. prior 14%). We expect significant margin expansion in both Aerospace & Defense and industrials as highly profitable volumes ramp up.
Ahead of the October 2024 mandatory preferred stock conversion, management highlighted that the move would dilute earnings per share by about 5% (net of the dividend payout). This is about half of the impact we previously estimated. Thus, we increase our 2024-26 estimates and our price objective to $280 from $230.
Chevron
• CVX-NYSE
Overweight • Price $143.60 on Nov. 30
by Wells Fargo
We remain positive on Chevron and maintain our Overweight rating and $197 price target. For various reasons, 2023 has presented idiosyncratic and sector challenges to Chevron.
We expect 2024 to be more “normal” for Chevron and deliver on upside potential….Chevron’s pending acquisition of Hess (expected to close in first-half 2024) and its leading position in Guyana came under pressure on Nov. 29, amid reports of Venezuela and Brazil potentially placing troops along their respective borders. Venezuela has disputed its border with Guyana border for nearly 200 years, despite several international agreements settling the border on its current lines. Geopolitics is part of the business.
We expect this to be more smoke than fire….Consistent with prior statements, Chevron could be interested in acquiring the other 50% of the CPChem joint venture at an acceptable valuation. We estimate a valuation range for 50% of CPChem of $6.8 billion to $8.4 billion. Adding more Chems would balance Chevron’s more oil-heavy portfolio.
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