Inside the Market’s roundup of some of today’s key analyst actions
Several research houses Monday began coverage on Robinhood Markets Inc. (HOOD-Q), the free U.S. trading app that was at the centre of the meme-driven retail investor frenzy earlier this year.
At least 11 analysts initiated coverage, of which seven gave it a buy rating. Four gave the stock a hold rating.
Robinhood began trading on July 29, but the stock wasn’t widely coverage by analysts until now due to restrictions placed on Wall Street firms that were involved in the company’s financing.
Citi analyst Jason Bazinet assigned a “buy” rating and a US$63 price target. “The firm has enjoyed early success penetrating the less affluent segment of the U.S. brokerage market,” Mr. Bazinet commented. “We see slowing growth ahead and risk of regulatory headwinds. However, the former is likely embedded in consensus estimates. And, the latter is unlikely to be material in our view.”
Goldman Sachs analyst Will Nance initiated coverage with a “neutral” rating - the equivalent of a hold - and a US$56 price target.
He’s a little more cautious due to uncertainly over how sustainable current retail trading levels are; also, issues over payment for order flow have him concerned.
But overall he’s seeing a lot of positives:
“We believe HOOD is well positioned to continue to see best-in-class user growth, leveraging its innovative referral program and strong word-of-mouth customer acquisition. In addition, we expect HOOD to increasingly focus on cross-selling its already considerable user base with additional financial services products, driving ARPU expansion over time and boosting growth in both the top line and AUC. While we expect cross-selling to be a multi-year initiative, in the near term we see 1) its IPO access product and 2) its fully paid securities lending product as somewhat nearer-term catalysts, while its cash management and crypto initiatives should provide further runway over time,” Nance said in a note.
Mizuho Securities analyst Dan Dolev gave Robinhood an ethusiastic “buy” rating and US$68 price target. “With its 22.5 million active users and fetching 50% of all new retail US accounts, we view Robinhood not as a meme stock phenomenon, but as a singularity that captures Generation Z’s zeitgeist. Critics argue that HOOD bears outsized risk due to elevated options trading and user ‘herd mentality’. We disagree. Our research shows that the differences between HOOD’s mix of options and non-S&P stocks vs. peers are less dramatic than feared,” Mr. Dolev said.
Piper Sandler analyst Richard Repetto gave Robinhood a “neutral” rating and US$47 price target. He commented, “We believe HOOD is an industry leader revolutionizing the eBrokerage space, democratizing finance, and making investing available to the masses. We expect HOOD will be a continued beneficiary of its strong brand recognition among younger investors, built through an effective, incentive-driven client acquisition model.”
Dividend growth investors may want to take note: tobacco giant Altria Group Inc. (MO-N) is likely to hike its payout this week. That’s according to Stifel analyst Christopher Growe, who notes Altria’s board of directors will undertake its usual review of the dividend at its late summer meeting.
The company is scheduled to declare its dividend on Aug. 26.
“You can ‘set your watch’ to the regularity of Altria’s dividend increases and we do not believe 2021 will be any different,” Mr. Growe said. “We expect a roughly 6% increase in the dividend rate – we believe the quarterly dividend will grow to $0.91, or $3.64 on an annual basis, reaching a 78% payout ratio (on FY21 EPS). We estimate 6% EPS growth in 2021, just over 6% EPS growth over the next four quarters, and a dividend payout ratio just below 80% (target). We believe this strong dividend payout and consistent EPS growth outlook provide the backdrop for supporting upside for the shares from here.”
He reiterated a “buy” rating and US$56 target price. “The Altria shares maintain a discount valuation, just 8x EBITDA, which we believe does not properly account for its growth, the consistency of its growth, its dominant market share positions in its categories, and the return of capital to shareholders,” he added.
DA Davidson analyst Linda Bolton Weiser is feeling more upbeat on Spin Master Corp. (TOY-T) following surprisingly strong second-quarter financial results - but she is maintaining a “neutral” rating for now, believing shares are fairly valued. Her price target went up to C$50 from $39.
Spin Master on Aug. 4 reported second quarter revenue of $391-million, a rise of 39% and above the consensus expectation of $345-million. Earnings per share of 40 cents was double the consensus view and represented much improvement from a 9-cent loss in the year-earlier quarter.
Global shipments rose 20%, thanks in part of retailers restocking. Margins improved and Spin Master raised its revenue growth guidance to mid-teens from low-double digits due to higher entertainment and digital games revenue.
The analyst saw a number of industry trends going forward that will support the stock price and financial results.
“Trends expected to drive toy industry growth in 2H21: (1) Economic recovery (child tax credit, lower unemployment in the U.S.); (2) kids being back in school driving new product word-of-mouth; (3) parents needing to keep kids occupied as hybrid work options continue; (4) early holiday promotions by retailers as they comp earlier promos last year; and (5) a more extended holiday selling season, with consumers back in stores this year. TOY’s DC licensed line should have strong growth in 2022, driven by four movies (Batman in March, Black Adam in mid-year, and Flash and Aquaman in 2H22),” she said in a note.
TD Securities analyst Vince Valentini nudged up his price targets on both BCE Inc. (BCE-T) and Telus Corp. (T-T) while tweaking his risk assessments on both stocks to a more favourable level.
BCE’s target price went to $70 from $67 while Telus’s target was raised to $33 from $31. He has “buy” ratings on both stocks, but his risk assessments have been changed to “low” from “medium” thanks to steadily growing dividends and yields that remain well above government bonds.
“We have been arguing for some time that Canada’s incumbent telcos should and could experience an upward re-rating at some point, owing to the undervaluation of their long-life spectrum, fiber, and tower assets relative to other categories of infrastructure equities,” the analyst said in a note to clients. “Growth is nice, but merely having assets that should generate predictable cash flow for the next several decades is attractive to investors, in our view, when interest rates remain comfortably below 2%.
“Consequently, with TELUS and BCE approaching new all-time highs (on share price as well as EV/EBITDA multiples, we do not want to back away from our bullish view on the stocks, and we are instead increasing our base-case target multiples for wireless EBITDA. We are not changing our forecasts today, and there has been no specific news or event recently that gives us more clarity on the pacing and magnitude of 5G-related revenue gains. But we remain confident that these powerful new networks, which leverage both the fixed-line fibre assets and the wireless assets at TELUS/BCE, will generate material incremental revenue and cash flow over the next decade (including FCF and not just EBITDA, given that generational capex investments should dissipate). We believe that visibility into this growth runway will improve significantly over the next 12-18 months as new spectrum and 5G equipment get deployed.”
CAE Inc. (CAE-T) shares have fallen nearly 12 per cent since Aug. 10 as fears grow that the Delta variant will slow the recovery in air traffic. CIBC analyst Kevin Chiang believes this makes for a good entry point opportunity for investors who have an eye on the medium to longer term and want to take advantage of the flight simulator maker’s earnings growth trajectory.
Global commercial flights as of Aug. 20 are down 9 per cent compared to just four weeks ago, Mr. Chiang noted. Global weekly airline capacity ended on Aug. 16 is down 8 per cent compared to capacity ending on July 19. The impact is being felt on the share prices of airlines, with the XAL Airline Index down 8 per cent since Aug. 10.
But the analyst notes that business jet travel remains resilient, with the number of those flights growing in July from June. Within CAE’s Civil segment, business aviation accounts for about 50 per cent of its training. “CAE is not just tied to commercial flying,” he pointed out.
“CAE is trading at 11.5x forward EBITDA versus the S&P Aerospace & Defense Index at 13.1x. We view this as a good entry point given its long-term growth pipeline across its segments, recurring revenue stream, competitive positioning, and strong operating leverage as revenue continues to recover,” Mr. Chiang said in a note.
He has an “outperformer” rating on the stock.
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