How Analysts Size Up Companies
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.
Deere -- DE-NYSE Hold -- $467.05 on Feb. 4 by Jefferies China announced retaliatory tariffs on U.S. goods totaling $14 billion in annual sales. Strangely, the tariffs primarily target farm equipment in addition to passenger cars and light trucks. We note that just 6% of Deere's annual sales go to Asia, Africa, and the Middle East in total, and we estimate exports from the U.S. to China at about 1% at most.
Of equal interest, China did not add additional tariffs to crop commodity exports....More important is China's impact on crop prices, as it is still the fourth-largest market for U.S. ag commodity exports. So far, we expect the China tariff announcement to have a negligible impact on Deere. Target price: $510.
Spotify Technology -- SPOT-NYSE Outperform -- $607.92 on Feb. 4 by Raymond James We reiterate our Outperform rating and raise our price target to $650 after Spotify put up another above-expectations quarter. Top of funnel was very strong, aided by the fourth-quarter Wrapped campaign and gains as certain competitors in developing markets stepped back. Gross margins were also well ahead of expectations.
While Spotify did not get into specifics on its new Universal Music Group deal, the company did point to expectations for year-over-year gross margin growth in fiscal 2025, suggesting that the removal of the bundling benefit in the deal will have significant offsets that are likely beneficial to both parties.
Along those lines, Spotify expressed confidence in a number of important growth vectors in 2025, including product (video podcasts, super-Premium tier) and pricing leverage, all while keeping costs in check. While the pace of margin benefits in 2025 may be a bit atypical, given the timing of certain launches/initiatives, the business is still set up well to continue its momentum on balance for the year, and we remain optimistic on its outlook.
Chevron -- CVX-NYSE Hold -- $149.34 on Feb. 4 by Truist While Chevron continues to boost production, upcoming Permian growth is likely to be less than we have seen in prior quarters as capital spend slightly decreased. However, notable upside could be seen as Tengizchevroil projects [in Kazakhstan] begin to deliver material free cash flow. A revised overall capital spend plan is likely to be laid out after the May hearing, when a decision will be made by an international arbitration panel on whether Chevron is allowed to acquire Hess. We are lowering our price target to $160 from $164.
Cummins -- CMI-NYSE Buy -- $348.21 on Feb. 4 by Jefferies Cummins reported a better-than-expected operating result on higher-than-expected sales, particularly in Power Generation. Margins were also slightly better than expected (mostly Distribution and Components). Guidance for 2025 implies a wide range of earnings per share of about $21.50 to $25 by our math, as compared with current consensus of $22.27. Cummins announced a $312 million reorganization charge at Accelera, although no details were provided. Accelera Ebitda losses for 2025 are projected at $452 million, similar to 2024.
The market outlook for North American truck (flat to down 10%) compares similarly with Paccar's and Volvo's nearly flat forecasts, with heavy duty expected to decline 0% to 10% and medium duty down 5% to 15%. Price target: $435.
Expand Energy -- EXE-Nasdaq Strong Buy -- $102.70 on Feb. 4 by Raymond James Expand Energy marks our latest initiation, coming in from the top-rope as the largest U.S. natural-gas producer in the wake of the Chesapeake Energy/Southwestern Energy merger. The company is headquartered in Oklahoma City with assets across multiple U.S. gas basins, focused primarily on the Haynesville in Louisiana and the Marcellus in Appalachia.
The company is poised for capital-efficient growth (even at its scale), given the significant investment in drilled but uncompleted, or DUC, wells and deferred turn in-lines, or TILs, during a depressed price environment over the past few years. The investment in building those DUCs and deferred TILs provides Expand Energy with the flexibility to push on the growth accelerator whenever it desires. The company's extensive portfolio lands it with multiple decades of viable inventory and peer-leading growth in free cash flow.
Given these factors, we are initiating coverage of Expand Energy with a Strong Buy rating and $135 target price.
Palantir Technologies -- PLTR-Nasdaq Buy -- $102 on Feb. 4 by BofA Securities With the artificial-intelligence market becoming more crowded with more commoditized solutions, we think that Palantir's value proposition is only becoming more pronounced. Palantir's focus on operationalizing data, establishing high-fidelity digital enterprise-twins, and accelerating decision-making is a winning formula.
We expect further market value being awarded to the artificial-intelligence value-adders vs. commodity distributors, and we stand firmly behind the proposition that Palantir will remain a value adder. We raise our price objective to $125 from $90 as growth is set to meaningfully accelerate.
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February 07, 2025 21:30 ET (02:30 GMT)
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