M12 BARRON’S October 21, 2019
Research Reports
HowAnalystsSizeUpCompanies
Thesereports,excerptedandeditedbyBarron’s,wereissuedrecentlybyinvestment
and research firms. The reports are a sampling of analysts’ thinking; they should
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issuers have provided, or hope to provide, investment-banking or other services to
the companies being analyzed.
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Datadog• DDOG-Nasdaq
Overweight • Price $35.67 on Oct. 11
by J.P. Morgan
Over the past 10 years, we have seen an
increasing amount of enterprise computing
workloads shifting to the public cloud. Now,
we are seeing enterprises putting more
mission-critical applications in the cloud.
That requires technology to monitor for
problems, and Datadog has developed the
market-leading solution for this. We see
Datadog as the best-positioned to capture
not only the biggest share of infrastructure
monitoring, but also the opportunity from
companies [seeking] a single monitoring
vendor. This year, we expect Datadog to
generate $328.7 million in revenue, repre-
senting a growth rate of 65.9%. That alone
puts Datadog in rarefied company...with
peers like Zoom and Crowdstrike, under-
pinning our Overweight rating. Our Decem-
ber 2020 price target of $45 is based on our
10-year discounted cash-flow analysis.
Toll Brothers• TOL-NYSE
Neutral • Price $39.47 on Oct. 14
by Susquehanna Financial Group
Toll Brothers has outperformed the SPX
by 300 basis points, year to date, and at 10
times 2020 earnings per share, the shares
are at their historical average forward
price/earnings. We are lowering estimates
for both 2019 and 2020, as we taper our
outlook for sales-pace improvement and
operating leverage through next year.
Based on our current earnings outlook,
we’d look to become constructive again in
the mid- to lower $30s.
Bank of America• BAC-NYSE
Buy • Price $29.73 on Oct. 16
by The Buckingham Research Group
We reiterate our Buy rating and $35 target
following third-quarter 2019 EPS of 56
cents, versus our 51 cents estimate and the
consensus 54 cents. Excluding the previ-
ously announced $2.1 billion charge for exit-
ing a joint venture with First Data, EPS
was 75 cents, up 14%, year over year. Look-
ing ahead, we see signs of improving
growth, which can help offset the pressure
from lower interest rates. Average loans in
the business segments accelerated to +6%
Y/Y versus 4% in second-quarter 2019,
while average deposit growth of 4% was
solid. Consumer and investment-banking
fees also showed upside. At 9.6 times our
2020 estimated EPS, with a sizable capital
return (8.5% drop in the diluted share
count), and a top-tier consumer franchise,
we see Bank of America as undervalued.
Cathay General Bancorp
- CATY-Nasdaq
Hold • Price $34.85 on Oct. 17
by Sandler O’Neill Partners
Cathay reported third-quarter earnings of
91 cents a share, but backing out a $2.2 mil-
lion adjustment to a tax provision, we put
core EPS at 94 cents. Balance-sheet growth
was roughly as expected, with both loans
and deposits rising at a mid-single-digit
pace. The reported margin held fairly
steady, due to a nice interest-rate recovery,
though the core margin posted another
sharp decline. Capital levels remained
strong, despite a larger balance sheet and
modest share repurchases. Lastly, profit-
ability was strong, with return on assets at
1.65% and return on equity at 13%.
Following the conference call, we made
several minor adjustments to our outlook,
notably a thinner net interest margin. Our
2019 EPS estimate is unchanged at $3.49,
but our 2020 estimate is 15 cents lower, at
$3.35. Our 12-month price target is $37.
Recro Pharma• REPH-Nasdaq
Overweight (Volatile)•Price $11.52 on Oct. 16
by Stephens
Initiation of coverage: With a profitable
contract development and manufacturing
organization (CDMO) buried in a specialty
pharmaceutical company, Recro presents a
unique opportunity. We believe that its
CDMO assets are underappreciated by the
market, despite world-class customers, end-
to-end capabilities, industry-leading mar-
gins, and strong revenue growth.
Recro is beginning to focus on its contract
development and manufacturing organiza-
tion. Recro has also been evaluating split-
ting the businesses into two companies. We
think this would unlock the value of the
CDMO business. Our $14 price target as-
cribes zero value to Recro’s Acute business,
and assumes a multiple of 10.5 times ad-
justed earnings before interest, taxes, de-
preciation, and amortization for the CDMO
business alone.
IBM• IBM-NYSE
Outperform • Price $135 on Oct. 17
by Evercore ISI
IBM reported a modest EPS beat on
slightly softer revenues in its September
quarter ($18 billion/$2.68 versus Street at
$18.2 billion/$2.66), though much of the
EPS upside was driven by a lower-than-
expected tax rate at 0%....We understand
the bull and bear perspectives on the
stock. Our Outperform rating is predi-
cated on an attractive risk/reward ratio,
especially if the integration of Red Hat is
going well. We see upside potential to-
ward $200, versus downside risk to $110.
With about a 5% dividend yield, this is a
name worth owning into 2020.
INSIDER TRANSACTIONS RATIO
0
10
20
30
40
50
60
O N D J F M A M J J A SO
Ratio of Insiders Sales to Buys. Readings under 12:1 are Bullish. Those over 20:1 are Bearish.
The total top20 sales and buys are 146, 758 ,404 and 22, 589 ,006 respectively; Source: Thomson Reuters
Bearish
Bullish
Ratio = 6
INSIDER TRANSACTIONS: Recent Filings
Purchases
$ Val
Company/Symbol Insiders Shares (000's)Cardlytics CDLX 1 196,672 6,812
Viela Bio VIE 1 336,091 6,488Ngm Biopharmaceuticals NGM 2 312,344 3,234
Stitch Fix SFIX 1 150,000 3,124Assured Guaranty Ltd AGO 1 34,900 1,589Verrica Pharmaceuticals VRCA 1 20,886 300
Century Bancorp CNBKA 1 1,812 159
Tailored Brands TLRD 3 40,369 156Ovid Therapeutics OVID 1 60,000 150Hersha Hospitality Trust HT 2 7,142 99Emmaus Life Sciences EMMA 2 30,100 78Independence Contract Drilling ICD 4 84,986 75
Athenex ATNX 1 6,000 61Syndax Pharmaceuticals SNDX 1 11,000 59Catalyst Pharmaceuticals CPRX 1 10,000 47Landec LNDC 1 5,000 47York Water YORW 14 782 32
Concert Pharmaceuticals CNCE 1 5,000 30
Super League Gaming SLGG 1 6,608 26Cymabay Therapeutics CBAY 1 5,000 22Sales
$ Val
Company/Symbol Insiders Shares (000's)Grocery Outlet GO 5 721,443 23,497
Ringcentral RNG 1 87,500 15,173
Foundation Building Materials FBM 1 712,500 11,598Facebook FB 1 55,000 9,926Garmin Ltd GRMN 1 98,347 8,594Okta OKTA 2 70,000 8,160American Tower AMT 1 31,669 7,174
Cdw CDW 2 57,300 7,086Servicenow NOW 2 23,563 6,348Acadia Pharmaceuticals ACAD 1 150,000 6,023Haemonetics HAE 3 47,424 5,861American Software AMSWA 8 367,890 5,538
Lam Research LRCX 1 20,000 4,800
Anterix ATEX 1 115,000 4,658Vmware VMW 1 26,899 4,206Alnylam Pharmaceuticals ALNY 1 49,456 3,929
Cargurus CARG 3 127,780 3,767W W Grainger GWW 1 11,716 3,581
Chemed CHE 1 8,223 3,437Udr UDR 3 70,000 3,402Aninsiderisanyofficer,directororownerof10%ormoreofaclassofacompany'ssecurities.Inmostcases,aninsidermustreportanytradeto
theSECwithintwobusinessdays.ThetableshighlightcompaniesthatfiledwiththeSECthroughlastWednesday.Thetablesdonotinclude
pension-planoremployeestock-optionactivity,tradesbybeneficialownersof10%ormore,tradesunder$2pershareortradesunder100
shares.The"Purchases"columnincludesonlyopen-marketandprivatepurchases;the"Sales"columnincludesonlyopen-marketandprivatesales,
andexcludestradesprecededbyoptionexerciseinthe12monthspriortothereportedevent. Source:ThomsonReuters