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Market Maker Stock Picks new highs

Wednesday, February 8, 2017 18:04
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Market Maker Stock picks to new highs, these are what the market makers are doing.


UPS upgraded to buy from hold and $120 tgt on valuation


FB added to BofAML’s list of top investment ideas AAPL – China smartphone survey points to bullish trends, PO goes to $145. China iPhone installed base should drive strong growth. Our survey polled over 1000 respondents from various age groups, income levels, and cities in mainland China. iPhone loyalty remains strong with 82% of current iPhone owners planning to purchase another, and switcher rates continue to be robust


Homebuilders – initiated coverage on 11 U.S. homebuilders: buy in DHI ($38 tgt) and LEN ($56 tgt)…sell rated on KBH ($13 tgt) and TPH ($10 tgt)…neutral on CAA, LGIH, MTH, NVR, PHM, TOL and TMHC – Housing cycle still advancing, but we see growth slowing. We est. new home sales up 9% in 17 and 7% in 18 after growing 12% in 16 TWTR upgraded to buy from neutral with $25 tgt – Believe user growth and engagement has improved, especially in the US over the past several months, with a notable surge since Election Day


SPSC downgraded to hold from buy


GILD downgraded to neutral from buy and cut tgt to $76 from $87 – HCV guidance at $7.5B-$9B is considerably lower than consensus ($12B) and our estimates ($10B) – However, the stock is holding up at ~$69-$70/sh post close. This does not leave enough upside to justify recommending investors to accumulate at these levels INTU – We note that INTU shares have been volatile the last four years during tax season and this has been a great buying opportunity. We continue to want to own INTU shares for accelerating unit growth in QuickBooks / SB franchise MO & PM – There is greater speculation that MO will be bid for than for any other company currently. But we believe it’s fairly unlikely that PM will buy MO ARW – maintain sell – Q4 sales of $6.44B below consensus while EPS in line, helped by +$0.02 lower tax rate. Q1 outlook for sales slightly above consensus and EPS outlook below consensus


MCHP tgt raised to $95 from $80 MOS downgraded to OP from buy but raise tgt to $35 from $33


KORS tgt cut to $40 from $47 URBN tgt cut to $27 from $37


NOV upgraded to neutral from underperform and raise tgt to $40 MDLZ – raising our 2017 and 2018 EPS estimates back up to $2.11 and $2.33 (up $0.07 and $0.04) to account for a more benign f/x environment than we expected (only $0.03 of headwind). We raise our target price to $50 (from $48). GILD – lowering our TP from $93 to $79 based on lower than expected HCV guidance and higher than expected tax rate Growth likely through M&A (or deployment of cash) has to be the core of our thesis from here. If we assume Gilead acquires a company with $2B revenue potential by 2022, our valuation would be $85/share MCHP – reported F3Q and guided F4Q EPS well ABOVE driven by both better organic growth and higher ATML accretion. We are raising our FY17 and FY18 EPS to $3.89 and $4.55 from $3.60 and $4.00 vs. Street at $3.64 and $4.05 respectively, and our PT to $90 from $72 BWLD – stay Neutral, cut PT to $150 (from $165): 4Q suggests BWLD still has a long ways to go to regain stability and visibility in the business. Our fear is that 2017 guidance, calling for +1-2% SSS and a 10-30bps improvement in restaurant margins, could prove optimistic amidst a backdrop of rising labor costs, elevated wing costs, intense competition, and limited pricing power DPS – maintain our positive thesis that the company will continue to benefit from 1) the strength and ubiquity of the Dr Pepper brand, 2) growth of the Allied Brands portfolio and the now fully integrated Bai business, and 3) significant optionality from strong free cash flow and a healthy balance sheet – resume OP


Consumer finance – highlight Top Picks ALLY/DFS among the auto/card names, update our stock pitches on Buy-rated SYF and Hold-rated AXP, COF, and SC. We also provide a proprietary analysis of online search trends to show what’s really going on with credit card competition, along with other insights on balance transfer competition and rewards competition. We also discuss other topical themes for the card and auto names post 4Q – consumer finance at DBAB


PNC upgraded to buy from neutral and raise tgt to $143 from $121 – We see PNC as an underappreciated rate opportunity with operating leverage and the potential for an added benefit from liquidity deployment, excess capital returns and stronger-than-expected loan growth


COR downgraded – Coming into 4Q results, we are downgrading to neutral while raising our PT to $88 (from $79). In our view, COR remains one of the better companies in our universe – with double-digit growth prospects, sector leading ROICs, and a defensible long-term model predicated on eco-system development and performance sensitive interconnection demand DIS – maintain our Neutral rating and $118 price target on Disney shares. We arrive at our price target using separate values for the company’s Media Networks (Cable and Broadcast) and Consumer (Parks and Resorts, Studio and Consumer Products) businesses.


TWLO – maintain our Market Outperform rating on Twilio and raise our price target to $37 from $35 after the company reported strong 4Q16 results yesterday GILD – cut tgt to $74 from $91 – reported Q4 results that exceeded consensus expectations, but then guided to HCV and total revenue that was substantially below consensus, and even below our bearish estimate


GM – reported solid overall 4Q operating earnings which tracked nearly in line with JPM and roughly in line with consensus; however, despite the mostly in-line quarter, GM shares fell -4.7% Tuesday, vs. the S&P flat, on concerns that earnings had peaked, and as consensus continues to not reflect the 2017 y/y EPS growth embedded in management guidance. We believe GM EPS has not peaked and continue to forecast stronger results in 2017 vs. 2016


ITGR – Raising price target on ITGR to $49 from $40. We view current levels as attractive as we are increasingly confident the bottom is in. We are becoming more comfortable in ITGR’s potential for reasonable sales growth and margin expansion PNRA – Reiterate Overweight rating on PNRA following the Co.’s 4Q16 report. We believe 4Q SRS was better than feared and FY17 guidance could prove conservative.


CAH – Following the quarter we are more positive; believe that buy-side economics for generics are stabilizing, sell-side pressures are now accounted for in F2017 guidance, and brand inflation seems to be in-line with expectations. We are impressed with CAH’s ability to keep SG&A costs under control, and performance in the Medical Division was well ahead of our expectations


FMC upgraded to buy and establishing a 12-month target price of $70 as 2H16 results point to stabilization of LATAM Ag operations implying a strong 2H17 that will more than compensate for the weak start to the year reflected in 1Q17 guidance and mostly discounted in yesterday’s sell-off


TLLP downgraded to neutral from buy MNK – announced another beat and introduced in-line 2017 guidance. We still view MNK as undervalued but also think it may take a transformative deal to propel shares forward near-term. We reiterate our Buy rating and $69 PT URBN – We are further reducing our below consensus estimates and lowering our PT to $26 (from $27) to reflect the 4Q sales miss and potential topline and margin pressure in 1H17 MCHP – With continued acquisition synergies L-T GM/OM guidance was raised to 60%/36%. We are raising our estimates and our PT goes to $72. While MCHP is executing well under CEO Steve Sanghi, we believe at ~16-17x P/E stock is fairly valued ZG – While we like Zillow’s scale, moats, management team, and product innovation, we believe the valuation at current levels imply a balanced risk/reward profile. We reiterate our Neutral rating, but lowering our price target to $33 as we bring our EBITDA estimates down TWTR – believe that our/Street estimates are reasonable, and could see some upside given the strong online ad market in 4Q. However, we remain concerned about user growth, share loss to Instagram, and management turnover


CHD – EW & Raise PT to $49 from $45 – believe valuation reflects stronger EPS growth than peers, and CHD’s potential to use its balance sheet to drive EPS accretion. Our price target moves up +9% to $49 from $45 prior, based on our higher EPS estimates and a higher multiple of 24 times CY18 EPS with better than expected organic sales growth. RACE – Raising Target to $72 from $68. Ferrari beat our expectations for 4Q16 with €0.55 EPS and shipments of 2,214- 2017 Guide was around 5% higher than expected KORS – Lower PT to $43 from $52 – In-line 3Q, but a ~23% 4Q EPS guide down and lack of near- and long-term earnings visibility keep us Equal-weight. Our confidence in our reduced earnings forecasts is lower than was previously the case, but depressed valuation (10x FY17 EPS) and a ~12% FCF yield likely provide some downside support. MDLZ – Lower PT to $48 from $49 – Q4’s $0.02 EPS miss reflected softer org sales growth (+0.6%) and EBIT margin (14.4% vs. consensus 15.5%), but was not materially weaker than muted expectations. We remain OW, and while reducing our PT slightly to $48 see 2017/18e EPS largely unchanged with continued +LDD momentum. BWLD – Lower PT to $165 from $175 – A big top & bottom line miss, even against low expectations, driven by poor sales, esp in Dec. Unit growth cut and exploring modest refranchising (10% of company stores) are steps in right direction, but not enough yet to reframe investor view on the name. BWLD in our eyes is still a stock with significant potential, but unlocking that potential may require more than a few tweaks around the margin TCS – UW & Lower PT to $3.5 from $5 – TCS’ Q3 EPS of $0.11 were in-line with expectations, though the complexion was subpar.


DIS tgt raised to $120 from $110


TREE init OP and $129 tgt RATE init OP and $14 tgt


SPSC downgraded to sector weight form OW TWLO – raise tgt to $40 from $36 – recommend growth investors continue building a core position in TWLO after strong results and guidance that reinforce its large market opportunity. The core base business is growing over 70% and is 92% of sales. A slight profit during Q4 was unexpected and hints at the longer-term operating profit potential of this usage based model, which carries a lower gross margin IDTI – Near term, we have greater confidence in Purley, where IDTI should (1) gain share and (2) increase content by 20%-30%; auto/industrials, sensing interconnect and data center should be long-term growth drivers; while Purley sets up to be a strong upgrade cycle, we see momentum continuing through DDR5 and Tinsley; IDTI endorses F2018 expectations and sees $1 billion in revenue by 2020 Cloud – Mounting evidence that 2017 is shaping up to be another solid investment cycle also bodes well for the three largest cloud platforms, Microsoft (MSFT), Amazon (AMZN) and Salesforce (CRM), as well as the data center REITs, including CoreSite Realty (COR), DuPont Fabros Technology (DFT), CyrusOne (CONE), Digital Realty Trust (DLR), Equinix (EQIX) and QTS Realty Trust (QTS). Within IT infrastructure, the two stocks with the highest cloud exposure are Arista Networks (ANET) and Super Micro Computer (SMCI).


NTGR downgraded to MP from OP following Q4 results saying shares have surpassed his previous $55 price target and results and guidance do not provide a catalyst


VMC – results and guidance missed expectations, saying that “transitory issues” negatively affected the company’s results; thinks that the company’s business in California and Texas is improving, while it could benefit from a federal infrastructure bill; says buy on weakness


THO upgraded to OP from neutral and raises their tgt to $120 from $105 – now seven years into a remarkable RV cycle, firm still sees an opportunity for investors to get ahead of a strong RV season; see LT upside to margin and like the chances that tax reform will boost consumer demand and corporate profits


NGL downgraded to hold from buy


MDLZ downgraded to neutral from positive


EMR upgraded to neutral from sell and raise tgt to $64 from $51 MNK – said Mallinckrodt reported good Q1 results; acknowledged concerns surrounding Acthar and current debt levels, along with management comments regarding a decline in its generics business for the foreseeable future, but believes the concerns are already priced into the shares


TTWO – Take-Two has consistently delivered upside to guidance and consensus, making its shares attractive over the near term. Red Dead Redemption 2’s launch positions it to deliver profits for the foreseeable future, but we are unwilling to recommend shares due to an unclear long-term release slate KORS – Our FY18 estimate sits below management’s initial guidance commentary as we believe risk skews to the downside. Valuation provides some level of downside support, keeping us NEUTRAL, but we view P/E expansion as unlikely, until investors have more confidence in the EPS stabilizing ULTI – We expect ULTI’s mid-20% growth outlook to be sustained by long-term share gains against a large TAM from payroll outsourcers and legacy HCM systems. We would accumulate at the current level (6x EV/ FTM revenue), historically a low-water mark for ULTI DXTR – continues efforts to expand MicroCutter adoption and reported MicroCutter Product Sales results that reflect notable sequential improvement; however, the company will need to raise capital or sell the company over the next few months; Lowering PT to $3.50; OP rated


CQP/LNG initiated with outperform as both contain a positive and unique risk/reward profile PANW – view cons ests as underestimating the impact of refreshed product rev as we believe FY17 est reply 0% new product rev growth GILD – touch year ahead in HCV, growth story unclear, see little to drive upside, maintain mkt perform and reducing value range to $63-68 ETE/ETP/SXL – Dakota Pipeline finally approved, positive for ETE family and other related parties (Enbridge and Marathon), should take ~ 90 to bring into services


CETV – remain positive on Buy-rated Central European Media (CETV) moving into tomorrow’s pre-market ESTCE earnings release. CME’s attractive organic growth is complemented by a visible deleveraging path and potential M&A activity CSL – With sustainable underlying revenue and margin growth, the company is driving strong free cash flow and improving ROIC. We continue to rate CSL shares Buy with a price target of $130 MOBL – While MOBL team has been executing better, we maintain our Hold rating and $4 price target as competitive dynamics remain intense and new products/Win10 catalyst need to be further assessed BLKB – reiterating our Buy rating and $78 price target on Blackbaud (BLKB) ahead of the company’s 4Q earnings report on Thursday morning. While we expect slight upside to consensus estimates, a greater emphasis will likely be placed on management’s outlook for FY17

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