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.
Biohaven Pharmaceutical Holding BHVN-NYSE
Buy Price $117.53 on July 9
by Mizuho Securities
We recently hosted a series of investor meetings with Biohaven management, including CEO Vlad Coric. Biohaven shares have had a large move in recent weeks, especially after the company preannounced a second-quarter sales beat for Nurtec ODT [a drug that can prevent or treat migraine headaches]. Our meetings focused primarily on Nurtec, but investors also asked about Biohaven’s pipeline. We remain cautious on verdiperstat and troriluzole. [Verdiperstat is a potential treatment for multiple system atrophy and amyotrophic lateral sclerosis. Troriluzole is a treatment for initial indications in spinocerebellar ataxia, Alzheimer’s disease, and obsessive-compulsive disorder.] However, we believe that investors’ expectations of the pipeline are very low, setting up an attractive risk/reward ahead of coming data readouts. We are increasing our price target on the stock to $134 from $92.
Underperform Price $547.95 on July 14
Netflix has a considerable first-mover advantage, with nearly 210 million global subscribers. This figure, however, belies the fact that it is approaching market saturation in North America, with the streaming service’s nearly 75 million members constituting about 60% of all households. Netflix must continue to produce new content to retain existing subscribers, and must renew licensed content to attract new subscribers. Its opportunities overseas remain compelling, and should support high-single-digit-percentage user growth for the foreseeable future. Assuming that Netflix can expand its content spending at a slower rate than its revenue growth, it is reasonable to give the company credit for roughly $1 billion in annual free-cash-flow growth for the balance of the decade, starting at break-even in 2021 and rising to $1.4 billion in 2022. That would bring 2030 FCF to roughly $9.4 billion.
However, discounting that figure back at the 10-year Treasury yield (1.61%) and applying an optimistic 20 times multiple (5% FCF yield) gets us to an enterprise value of $163 billion, far below Netflix’s current enterprise value. Based on this, we reiterate our 12-month price objective of $342. While it’s possible that Netflix [which is scheduled to report second-quarter results after the market close on July 20] could grow free cash flow faster by curtailing content spending, competition for new subscribers will limit its ability to do so.
Nova Measuring Instruments NVMI-Nasdaq
Buy Price $97.35 on July 13
Nova Measuring just held its 2021 analyst day and released a new target model that stipulates annual revenue of $500 million and quarterly non-GAAP earnings per share of $1 a share by 2024. We believe that Nova’s profitability targets are conservative, but management appears to have embedded an aggressive research-and-development investment plan that is likely to support top-line growth. The company, which has a strong foothold in the semiconductor foundry and memory markets, is consistently focused on developing new technologies for chip manufacturing. It holds about a 70% share of the integrated optical critical dimension market. [OCD spectroscopy measures chip designs, down to nanometers.] One of Nova’s customers is Taiwan Semiconductor Manufacturing [ticker: TSMC], which is expected to spend at a consistently high level in 2020-22.
We are raising our 12-month price target on Nova shares to $110, based on 33 times the expected $4 earnings in 2024, discounted back by two years at a weighted average cost of capital of 9.4%.
TPI Composites TPIC-Nasdaq
Buy Price $42.96 on July 14
by Seaport Research Partners
We are initiating coverage of TPI [which makes blades for wind turbines] with a Buy rating, a price target of $67, and 2021 and 2022 adjusted projections of $125 million and $175 million for earnings before interest, taxes, depreciation, and amortization, respectively. TPI is the best “pick and shovel” play on the continued construction of onshore wind power outside China, which should expand at a compound annual rate of 8.1% for 2021-25. And management is positioning the company to move into the offshore wind market, with a first award likely next year.
Whole Earth Brands FREE-Nasdaq
Buy Price $12.83 on July 14
by Canaccord Genuity
We are initiating coverage with a $20 price target. The stock is attractive, based on a valuation well below the peer average and a solid long-term growth outlook, underpinned by substantial exposure to the global market for alternatives to refined sugar. Born out of a special purpose acquisition company in 2020, Whole Earth has seven families of brands. Combined, they reach more than 100 countries and address powerful consumer-driven trends centered largely on “better for you” foods. As consumers retreat from sugar consumption, Whole Earth appears poised for mid-single digit long-term revenue growth.
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