Here are the biggest calls on Wall Street Thursday
"Over the last decade AB InBev's EBIT margin has grown by 475bps as the company has piled on high margin acquisitions and extracted synergies... If we exclude this M&A and associated synergies we estimate that underlying organic margins would have fallen by 275bps over the same period, a difference of 750bps... We're not saying there's anything wrong with this: AB InBev's the best acquirer and integrator of businesses that we know, and here's the evidence... Nonetheless, in the absence of further transformational acquisitions – which we think unlikely owing to a combination of high leverage and likely anti-trust objections – we don't expect incremental margin growth..."
"We are launching coverage of Five Below with a rating of Outperform and a 12-18-month price target of $140... By most accounts, the domestic retail landscape is mature and increasingly disrupted, as a proliferation of eCommerce and other digital technologies has empowered consumers and upended historical competitive parameters... FIVE has thwarted and is likely to continue to thwart unfavorable trends within the sector... It operates a unique and defensible small-store format and enjoys significant opportunity for further, outsized unit expansion, for the foreseeable future. Improving brand recognition and a superior merchandising acumen position FIVE to capture share as other, less well-positioned operators falter... In our view, investors are apt to continue to pay up for industry-leading sales and EPS growth prospects..."
"Supported by a strong brand and Coca-Cola distribution, Monster has grown at a +9% CAGR domestically since 2013 and its International business to $1bn in revenues in a decade... Growth has been self-funded (debt-free)... Monster's opportunity remains robust, while cash-flow contribution to its pristine balance sheet should drive a sizable cash return... We initiate with an Outperform rating and $78 target..."
"We initiate coverage of Constellation Brands with an Outperform rating and $230 target price... We believe Constellation should deliver a 6% top-line CAGR for the next three years, with free cash flow (FCF) growing 58% in the same period (16% CAGR), the highest in consumer staples... A struggling wine segment, slowing yet on-plan beer segment, and uncertainty around the Canopy deal led to shares falling 24% in 12 months and a P/E multiple contraction to a five-year low... STZ shares trade at a 20% discount (NTM P/E basis) to the group, nearly all of which have slower growth..."
"We initiate on Colgate-Palmolive with an Underperform rating and $55 target price... Colgate has leading market share globally in the growing oral care category (expected blended categories 4-6% 5-year CAGR)... Our Underperform rating reflects market share losses over time and our view that the company's recent earnings rebase may be insufficient or investments may take more time to reverse trends in a changing consumer goods landscape..."
"We believe PepsiCo is a high-quality business, with a commanding presence in global snacks and a well-balanced beverage portfolio... However, a heavy need to invest—over a multi-year period—just to stay in place underscores a struggling beverage business and a snacking business with limited upside and growing competitive threat... We initiate coverage with an Underperform rating and $100 price target..."
"ANF delivered a top and bottom-line 4Q beat w/ $1.35 adjusted EPS 21 cents above the Street driven by +3% SSS (> Street +1.3%) and +64bps gross margin expansion...Looking ahead, management's line item guidance points to an initial FY19 EPS outlook of ~$1.50 on our model math or ~40% above the Street based on low-single-digit same store- sales, +2-4% sales growth, gross margin up slightly, and Opex up 2%... Near-term, mgmt. guided 1Q same-store-sales Flat to +2% with gross margin rate up slightly noting inventory "clean and current" into 1Q at both brands... Upgrade to neutral raising our Dec '19 price target to $27 or 4x our adjusted FY20 EBITDA..."
"Specifically, we lower TOL to Underweight from Neutral, as we point to our below average fundamental outlook featuring 2019 order growth of -13% and 2020 gross margin contraction of 50 bps (driven by less higher-margin CA closings), vs. our average estimate for its larger-cap peers of -2% and flat, respectively. By contrast, we point to TOL's only modest discount vs. its peers against our FY19E EPS and roughly in-line valuation against our FY20E..."