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.
Spotify Technology -- SPOT-NYSE Buy -- $419.39 on Nov. 13 by Deutsche Bank Spotify posted a strong third-quarter print with gross margins that once again came in well above expectations, as flow-through from the recent price increases more than offset weakness in ad-supported, driving gross margins to 31.1%, about 90 basis points ahead of our and the Street's estimate of 30.2%.
As unit economics inflect positively (with the company guiding to another 70 bps of quarter-over-quarter margin expansion for the fourth quarter), we think the bear thesis around structural margin constraints associated with the business model should continue to fade.
Beyond gross margins, top-of-funnel weakness looks to have been reversed, removing an overhang on the stock, as the outlook for fourth-quarter monthly active users came in four million ahead of Street estimates heading into the print. Price target: $500.
Sphere Entertainment -- SPHR-NYSE Outperform -- $40.96 on Nov. 12 by Wolfe Research Sphere Experience revenue is improving sooner than expected, but Sphere Entertainment stock traded down 7% after management extended the MSG Networks debt negotiations again and sounded noncommittal about the time to achieve another deal to develop a new Sphere. We believe that the new communication strategy is entirely appropriate and that today's selling is the result of Sphere's thin float and recent popularity, with investors optimizing for fourth-quarter 2024. Bigger picture (and only slightly so), the Abu Dhabi deal reinforced our analysis that Spheres drive 20%-plus return on invested capital for developers, all while a third Sphere isn't priced into the stock. Price target: $60.
Pure Storage -- PSTG-NYSE Outperform -- $52.63 on Nov. 12 by Oppenheimer We are initiating coverage of Pure Storage with an Outperform rating and a $70 price target, which is based on 6.3 times our calendar-year 2025 (fiscal-year 2026) enterprise value/sales estimate. Our bullish stance is predicated upon our view that Pure Storage is 1) a beneficiary of rising creation and storage of unstructured data that are used to build and deliver artificial-intelligence applications; 2) a long-term share gainer in the all-flash array, or AFA, market, where it has a technological advantage; and 3) a leading provider of storage-as-a-service, or STaaS, offerings, and will benefit from the industry shift to as-a-service platforms. We believe that these drivers will result in strong new customer additions, existing customer expansion activity, and continued operating margin improvement.
CAVA Group -- CAVA-NYSE Outperform -- $145.03 on Nov. 13 by William Blair CAVA Group's third quarter once again easily beat expectations on all key metrics including comps, revenue, unit-level margin, and adjusted Ebitda (13% ahead of consensus). With rising brand awareness, strong menu innovation, and a host of initiatives, CAVA is at a clear tipping point as the leader of fast-casual Mediterranean, as illustrated by rapidly rising average unit volumes that have reached $2.8 million. Same-store sales rose 18.1% versus our/consensus projections of 12% to 13% and included an acceleration to a 12.9% traffic gain from 9.5% last quarter -- easily ahead of our high-single-digit projection and marking CAVA's strongest traffic gain in a year and a half -- while average ticket rose 5.2%. Sales momentum remained broad-based with healthy trends across vintages, geographies, formats (urban/suburban), and household income cohorts. With 21% growth in CAVA units and healthy new unit volumes that have continued to exceed expectations, total sales grew 39% (versus our/consensus projections of 33%).
Rivian Automotive -- RIVN-Nasdaq Outperform -- $10.58 on Nov. 13 by Wedbush Last night, Rivian and Volkswagen Group announced the launch of their joint venture with an upsized deal of up to $5.8 billion (originally $5 billion). Through this flagship JV, the companies plan to bring next-generation electrical architecture and best-in-class software tech for both companies' future electric vehicles by leveraging Rivian's electrical architecture and software tech stack, enabling the launch of Rivian's R2 in first-half 2026 and supporting the expected launch of Volkswagen Group's first models as early as 2027.
These investments help balance part of lower future costs identified during technical feasibility tests while sharing costs for the inclusion of select Volkswagen models. The joint venture will operate as an independent company headed by Wassym Bensaid (Rivian) and Carsten Helbing (Volkswagen), with developers and software engineers from both companies joining the JV.
We maintain our Outperform rating and $20 price target.
Mastercard -- MA-NYSE Buy -- $522.94 on Nov. 13 by Seaport Research Partners At its investor day, Mastercard clearly outlined its still-substantial opportunity across Consumer, Commercial, and Services going forward. The financial targets for 2025-27 seemed fairly in line with what we had anticipated, and appear not only achievable but also likely to leave room for upside.
Bottom line: Mastercard is poised to continue to deliver solid financial performance over the next three years, with numerous drivers (both macro and idiosyncratic) that can propel its revenue/earnings per share higher from here. Price target: $521.
To be considered for this section, material should be sent to Research@barrons.com.
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 15, 2024 20:46 ET (01:46 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments