Morgan Stanley Thinks Broadcom Is Undervalued – Barron’s


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. Many of the reports may be obtained through Thomson Reuters at thomson.com/financial. Some of the reports’ issuers have provided, or hope to provide, investment-banking or other services to the companies being analyzed.


Broadcom



AVGO 3.7495897604200854%



Broadcom Ltd.


U.S.: Nasdaq


USD252.9


9.14
3.7495897604200854%



/Date(1509138000282-0500)/


Volume (Delayed 15m)
:
4166462



AFTER HOURS



USD253


0.1
0.039541320680110716%


Volume (Delayed 15m)
:
308868




P/E Ratio
246.39516757599375

Market Cap
102827271331.222


Dividend Yield
1.6132858837485171%

Rev. per Employee
1078220









More quote details and news »


• AVGO-Nasdaq
Overweight • Price $244.50 on Oct. 25
by Morgan Stanley

The company develops and produces digital and mixed-signal semiconductors in four broadly defined markets: wired infrastructure, wireless communications, storage, and “other,” including optics, power generation, and industrial applications.

We believe that a new focus on cash returns adds to an already strong story of growth and margin expansion and should drive a rerating in the earnings multiple along with an Overweight rating on the shares. We also expect an update on its dividend, where we expect at least a 50% increase. In our base-case scenario, we see a price target of $290, with a 16.5 times 2018 estimate on our ModelWare base earnings per share of $17.55, with 8.2% revenue growth in calendar-year 2018 on continued momentum in its wireless business and good growth in networking.

Above-average growth, strong free cash flow, market leadership in key businesses, and consistently high profitability are not reflected in the current price/earnings ratio of 14.5 times on the calendar-2018 estimated EPS.


InterContinental Exchange



ICE -0.19814052735863436%



Intercontinental Exchange Inc.


U.S.: NYSE


USD65.48


-0.13
-0.19814052735863436%



/Date(1509138015663-0500)/


Volume (Delayed 15m)
:
5222714



AFTER HOURS



USD65.48



%


Volume (Delayed 15m)
:
20050




P/E Ratio
24.22224688343876

Market Cap
38534522368.5983


Dividend Yield
1.2217470983506413%

Rev. per Employee
1072460









More quote details and news »


• ICE-NYSE
Buy • Price $65.24 on Oct. 24
by Sandler O’Neill

The operator of exchanges and clearinghouses for commodity and financial markets is acquiring BondPoint for $400 million in cash from tech-enabled market maker and liquidity provider


Virtu Financial



VIRT -3.389830508474576%



Virtu Financial Inc.


U.S.: Nasdaq


USD14.25


-0.5
-3.389830508474576%



/Date(1509138000124-0500)/


Volume (Delayed 15m)
:
893769



AFTER HOURS



USD14.25



%


Volume (Delayed 15m)
:
123072




P/E Ratio
30.40324301258801

Market Cap
2642895939.68701


Dividend Yield
6.7368421052631575%

Rev. per Employee
4241410









More quote details and news »


(VIRT). BondPoint is predominantly a retail fixed-income platform for corporates and municipal bonds, with volumes rising 40% in 2016. For ICE, the acquisition will build out its fixed distribution network and add to the NYSE Bond & ICE Credit trading platforms. Through a competitive bidding process, the $400 million sale price was at the high-end of the range we estimated for the former Virtu Financial/KCG platform. The deal is due to close in first-quarter 2018.

ICE also announced that it had taken a 4.7% strategic stake in Euroclear for 275 million euros (about $320 million). Euroclear is the largest international central securities depository in Europe and provides posttrade settlement, depository, and related services for cross-border transactions across asset classes. We expect that ICE views the acquisition as a key vantage point from which to monitor the evolving European market infrastructure landscape, especially with looming regulatory changes. ICE expects to have one board seat on Euroclear.

We expect ICE to pay the purchase price for its BondPoint acquisition and Euroclear investment out of its revolving credit facility and, through organic capital generation, pay down the debt. We don’t expect ICE’s buyback program to be impacted by these announcements. We model a $1 billion buyback program both in 2018 and 2019 for ICE.

We are maintaining our 2017/18/19 earnings-per-share estimates of $2.93/$3.60/$3.96, respectively. Note that our 2018/2019 EPS estimates assume that the U.S. federal corporate tax rate is reduced to 25%. Excluding the impact of the lower expected tax rate, our 2018/19 EPS estimates are $3.27/$3.59, respectively. Our price target of $78 is based on a 20-times multiple of our 2019 EPS estimate.

We also reiterate our Buy rating.


Express Scripts Holding



ESRX 5.531987103342949%



Express Scripts Holding Co.


U.S.: Nasdaq


USD62.19


3.26
5.531987103342949%



/Date(1509138000204-0500)/


Volume (Delayed 15m)
:
9026195



AFTER HOURS



USD62.19



%


Volume (Delayed 15m)
:
59915




P/E Ratio
10.245469522240526

Market Cap
35222735211.585


Dividend Yield
N/A

Rev. per Employee
3890800









More quote details and news »


• ESRX-Nasdaq
Buy • Price $58.85 on Oct. 24
by Maxim Group

We continue to be buyers of the big pharmacy benefits-management company after it reported mixed third-quarter 2017 results, and tweaked full-year 2017 adjusted EPS guidance slightly upward. Despite health-benefits company


Anthem



ANTM 2.1410274998791747%



Anthem Inc.


U.S.: NYSE


USD211.34


4.43
2.1410274998791747%



/Date(1509138187470-0500)/


Volume (Delayed 15m)
:
1979743



AFTER HOURS



USD212.12


0.78
0.3690735308034447%


Volume (Delayed 15m)
:
239763




P/E Ratio
19.10849909584087

Market Cap
54263865910.2991


Dividend Yield
1.324879341345699%

Rev. per Employee
1681560









More quote details and news »


(ticker: ANTM) confirming that it will not renew its expiring contract with Express Scripts, we believe that the rest of its business remains strong, as evidenced by its 95%-plus retention rate. We also view the pending acquisition of privately held health-care-management company eviCore as positive, since it provides entry into an additional segment of the health-care market and will diversify Express Scripts’ service offerings. Most of the bad news surrounding Express Scripts is already baked into the stock, as evidenced by its trough P/E levels. That said, we think the shares are undervalued by investors because they fail to appreciate its cash-flow generation, position in the marketplace, and staying power.

Express Scripts shares currently trade at 9.8 times and 7.7 times our 2018 GAAP EPS and adjusted cash EPS estimates, respectively, compared with the peer averages of 29 times and 15.5 times, respectively.

Our 12-month price target of $78 is derived using a 10-year discounted-cash-flow analysis (with a 10% discount rate), and implies shares trading at 10.2 times our 2018 adjusted cash EPS estimate of $7.68.


CBS

• CBS-NYSE
Outperform • Price $56.94 on Oct. 24
by Barrington Research

CBS filed an exchange offer—in which securities are offered instead of cash—that outlined final steps to effect the complete formal separation of the CBS Radio business from the parent company.

When the transaction to combine CBS Radio with industry leader


Entercom Communications



ETM -0.4444444444444444%



Entercom Communications Corp. Cl A


U.S.: NYSE


USD11.2


-0.05
-0.4444444444444444%



/Date(1509138121231-0500)/


Volume (Delayed 15m)
:
954701



AFTER HOURS



USD11.2



%


Volume (Delayed 15m)
:
3099




P/E Ratio
24.88888888888889

Market Cap
436290750.628216


Dividend Yield
2.6785714285714284%

Rev. per Employee
164811









More quote details and news »


(ETM) was announced about a year ago, the proposed schedule called for completion of the transaction in the second half of 2017. New specifics indicate that the target date will be achieved. Importantly, radio has been a relatively small operation within CBS, even though CBS Radio itself is one of the largest companies in the broadcast radio sector.

The transaction will merge the radio operations of CBS into a new company owned jointly by shareholders of CBS and Entercom. CBS commenced the exchange offer on Oct. 19 of up to 101,407,494 shares of CBS Radio owned by CBS for shares of its Class B shares, employing the enticement of an 8% discount. If an insufficient number of shares are tendered, the remaining holdings will be spun off following the initial tender process. The price will be determined by averaging the prices of shares sold on several dates, ending on Nov. 16.

Interestingly, CBS’ goal of reduced dependence on ad revenue is now essentially accomplished. Management did not intend to eliminate advertising from its revenue mix, but it did want to increase the share of revenues from sources with less inherent volatility, including retransmission dollars, reverse compensation, and syndication of an increasing programming base. As it happens, current pressures on ad-revenue trends are impacting ad dollars in the second half of 2017.


RPC



RES 2.3154215814766275%



RPC Inc.


U.S.: NYSE


USD23.42


0.53
2.3154215814766275%



/Date(1509138093244-0500)/


Volume (Delayed 15m)
:
1484509



AFTER HOURS



USD23.42



%


Volume (Delayed 15m)
:
487




P/E Ratio
61.63157894736842

Market Cap
5090383973.797


Dividend Yield
1.1955593509820666%

Rev. per Employee
555570









More quote details and news »


• RES-NYSE
Equal Weight • Price $22.23 on Oct. 24
by Barclays

The oilfield-services company reported $138 million adjusted Ebitda, topping $136 million consensus but below our estimated $142 million—a Street-high target. Total revenue of $456 million came in light versus our $461 million, but RPC posted impressive 42% Ebit incrementals despite labor and raw-materials inflation. Well-services company SPN highlighted supply-chain tightness in the Permian yesterday. What’s more, RPC noted that it has indications of strong customer activity for the remainder of 2017 and into 2018. It alluded to the previous 100,000 hydraulic horsepower order for early 2018 delivery and added that it has activated substantially all of its previously idled equipment.

RPC declared a seven cents per share special dividend and reinstated its seven cents per share regular dividend (for a 1.3% yield). We thought the board would possibly repeat its six cents per share third-quarter 2017 special dividend, but apparently it wasn’t ready to reinstate a regular dividend— and may go instead with a positive surprise. Also, RPC repurchased 727,000 shares during third-quarter 2017, bringing year-to-date buybacks to over one million shares.

RPC also noted that the dividends are a “tangible way to reward our shareholders,” adding that the company retains a strong balance sheet with a net cash position and will continue to maintain its “ability to pursue strategic opportunities.”

RPC’s target price stands at $19.


Interpublic Group



IPG -2.478929102627665%



Interpublic Group of Cos.


U.S.: NYSE


USD19.67


-0.5
-2.478929102627665%



/Date(1509138120530-0500)/


Volume (Delayed 15m)
:
7957570



AFTER HOURS



USD19.67



%


Volume (Delayed 15m)
:
76512




P/E Ratio
13.659722222222221

Market Cap
7643939232.52937


Dividend Yield
3.6603965429588206%

Rev. per Employee
156745









More quote details and news »


• IPG-NYSE
Buy • Price $19.81 on Oct. 24
by Gabelli & Co.

New York–based Interpublic is a leading ad-agency holding company, providing advertising and marketing services to major corporate clients through its ad-agency groups, including McCann Worldgroup, Mullen Lowe and Foote, and Cone & Belding. The company also operates marketing-services firms such as Jack Morton, Octagon, Weber Shandwick, and GolinHarris. We now estimate that IPG will earn about $1.37 per share on approximately $7.74 billion of revenues in 2017.

On Oct. 24, the company lowered its 2017 organic-revenue-growth guidance to a range of 1% to 2% from the low end of a 3% to 4% range. With lower organic growth, IPG reduced its margin-improvement target to 40 basis points from 50 bps. Our earnings estimate for 2017 is $1.37 per share.

With the decline in IPG stock, shares trade at 8.1 times our lower 2017 estimated Ebitda and 7.5 times 2018 projections. We calculate a 2018 private-market value of $26 per share and see that figure rising to $33 per share in 2020. Target price: $26.


JetBlue Airways



JBLU -1.0719754977029097%



JetBlue Airways Corp.


U.S.: Nasdaq


USD19.38


-0.21
-1.0719754977029097%



/Date(1509138000396-0500)/


Volume (Delayed 15m)
:
4914581



AFTER HOURS



USD19.28


-0.1
-0.5159958720330238%


Volume (Delayed 15m)
:
750088




P/E Ratio
9.989690721649485

Market Cap
6374140157.32321


Dividend Yield
N/A

Rev. per Employee
374878









More quote details and news »


• JBLU-Nasdaq
Outperform • Price $20.62 on Oct. 24
by Imperial Capital

The passenger airline reported revenues of $6.9 billion, Ebitdar of 1.6 billion, and EPS of $1.96 for the latest 12 months ended on Sept. 30. And, as of that date, the company holds $814 million in cash and cash equivalents, and $2 billion of long-term debt.

We are maintaining our Outperform rating and one-year price target of $31. Our target price is 50% above the recent share price. We are lowering our fourth-quarter 2017 EPS to 31 cents from 35, while maintaining our fiscal-year 2017 EPS estimate of $1.75, and our fiscal-year 2018 EPS estimate of $2. The fiscal-year 2018 estimate assumes capacity increases of 6% versus 5% previously. RASM (passenger revenue per available seat mile) increases 2%; CASM (cost per available seat mile, not counting fuel) is unchanged at 1.5%.

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