Energy
Tuesday, June 7th, 2022 12:48 pm EDT
We’re updating a handful of price targets in the portfolio to reflect recent earnings reports, comments from company executives, and general market multiple compression. Cisco Systems (CSCO): We are reducing our price target to $56 per share , representing about 15 to 16 times fiscal 2023 earnings estimates. We are comfortable giving CSCO a small premium to its five-year average because the makeup of the company is much different now than what it was five years ago. The significant change relates to the company’s transformation into more software and subscription sales. We place more value on software and subscription sales because they tend to be higher in margin relative to hardware, and the recurring nature of subscriptions adds a layer of predictability. Also, the record value of Cisco’s backlog suggests it will have a strong fiscal year 2023, if, of course, the supply chain cooperates. Energy stocks: We are increasing our price targets on Coterra Energy (CTRA), Chevron (CVX), Devon Energy (DVN) and Pioneer Natural Resources (PXD) because oil and natural gas price have remained elevated, and these stocks still screen attractive on a free cash flow basis. Remember these companies are staying disciplined and focusing on maximizing cash flow generation and returning that cash to shareholders through large dividends and steady buybacks. We are increasing our price target on CTRA to $40 per share, DVN to $82, PXD to $300, and nudging CVX up to $185 . Disney (DIS): We are lowering our price target to $140 per share , representing about 25x fiscal 2023 earnings per share estimates. Despite the big change to our price target, our bullish view about the company has not wavered. We still think the margin performance of the theme parks business — the profit engine of the company — is underappreciated. We also think upside to second half of the year Disney+ subscriber additions is possible thanks to its robust content slate of new shows and movies. Marvell Technology (MRVL): We are lowering our price target to $85 per share to reflect lower group multiples on semiconductor stocks. Even though we are lowering our price target Tuesday, we want to reiterate that Marvell’s quarterly results were great and its 88% sales exposure to data infrastructure projects means its business is much more secular growing and less cyclical compared to other chip makers who have big cellphone and PC businesses. Eli Lilly (LLY): We are increasing our price target to $350 per share as long-term estimates for tirzepatide have moved higher following the Food and Drug Administration recently approving the treatment in Type 2 diabetes, and the full phase three obesity data on the drug that was presented on this past weekend. Although our new price target puts LLY at an even heftier premium to its peers, we think it’s justified based on how big of a sales opportunity tizepatide will be. The strength of Lilly’s pipeline and new launches, as well as management’s track record of expanding margins are also factors. (Jim Cramer’s Charitable Trust is long CSCO, CTRA, DVN, PXD, CVX, DIS, MRVL and LLY . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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