Sales & Research (212) 425-7500 www.argusresearch.com February 12, 2018 D A I L Y R E S E A R C H C A L L P A C K Changes in Argus s Target EPS New Prev COST Costco Wholesale Corp $200.00 $188.00 HCA HCA Healthcare Inc $114.00 $97.00 PNM PNM Resources Inc $40.00 $47.00 SPG Simon Property Group Inc $190.00 $195.00 (Current Fiscal Year) New Prev ASH Ashland Global Holdings Inc $3.00 $3.30 COST Costco Wholesale Corp $7.00 $6.50 DNKN Dunkin' Brands Group Inc $2.60 $2.76 GT Goodyear Tire & Rubber Co $3.84 $3.68 HCA HCA Healthcare Inc $8.54 $7.92 NVDA NVIDIA Corp $6.21 $4.82 PRU Prudential Financial Inc $12.03 $11.24 SPG Simon Property Group Inc $11.98 $12.04 VSH Vishay Intertechnology, Inc. $1.51 $1.47 Argus Recommended Sector Weightings Industry Companies Mentioned on this Report ASH COST DNKN GT HCA NVDA PNM PRU SPG SYK VSH Ashland Global Holdings Inc Costco Wholesale Corp Dunkin' Brands Group Inc Goodyear Tire & Rubber Co HCA Healthcare Inc NVIDIA Corp PNM Resources Inc Prudential Financial Inc Simon Property Group Inc Stryker Corp Vishay Intertechnology, Inc. % by Mkt. Cap. Weighting Technology 24.1% Over-Weight Financial 14.9% Market-Weight Healthcare 14.2% Over-Weight Consumer Discretionary 12.6% Over-Weight Industrials 10.2% Market-Weight Consumer Staples 7.9% Under-Weight Energy 6.1% Over-Weight Basic Materials 3.0% Over-Weight Utility 2.7% Under-Weight Real Estate 2.6% Under-Weight Telecommunications 1.9% Market-Weight
Page 2 of 7 Ashland Global Holdings Inc (ASH) Reaffirming and $82 target PRICE $69.77 12 MO RATING TARGET PRICE $82.00 MARKET CAP (MIL) $4,341.70 ANALYST William Selesky $76.00 $74.00 $72.00 $70.00 $68.00 $66.00 On January 29, Ashland reported an adjusted fiscal 1Q18 net profit from continuing operations (for the period ending December 31, 2017) of $27 million or $0.42 per diluted share, down from $75 million or $1.16 per share in the prior-year quarter. EPS matched our estimate but missed the consensus estimate of $0.44. The lower earnings reflected the disposition of the Valvoline business, which was completed on May 12, 2017. We are lowering our FY18 EPS estimate to $3.00, at the midpoint of the revised guidance range, from $3.30. Our forecast is lower than 2017 due to the divestiture of Valvoline, but assumes modest revenue and earnings growth in the company's remaining businesses. We are maintaining our FY19 EPS estimate of $3.82, which implies year-over-year growth of 27% from our FY18 estimate. $64.00 Costco Wholesale Corp (COST) Raising target to $200 from $188 PRICE $180.72 12 MO RATING TARGET PRICE $200.00 MARKET CAP (MIL) $79,355.21 ANALYST Chris Graja $200.00 $195.00 $190.00 $185.00 $180.00 $175.00 We are raising our 12-month target price to $200 from $188. We are raising our FY18 EPS estimate to $7.00 from $6.50. Thirteen cents of the increase is a result of better-than-expected EPS in 1Q. Our estimate is on a GAAP basis. The GAAP consensus is $7.06 per share. The majority of the increase is a result of reducing our estimate of the tax rate for the remainder of the year. We are raising our FY19 EPS estimate to $7.65 from $7.05. This increase is almost entirely driven by a reduction in our estimate of the tax rate to 30% from 35.5%. We are modeling approximately 7% sales growth and we expect operating margin to increase by a few basis points to about 3.3%. $170.00 $165.00 $160.00 $155.00 The shares are trading at an enterprise value of 14.1-times trailing EBITDA, compared to a five-year average of about 13 and a peer average of 13.2-times. At an enterprise value of 14.5-times our EBITDA estimate for the next four quarters, which is the same multiple we used in our last note, the shares would be worth approximately $203.
Page 3 of 7 Dunkin' Brands Group Inc (DNKN) Reaffirming with $68 target PRICE $58.57 12 MO RATING TARGET PRICE $68.00 MARKET CAP (MIL) $5,290.21 ANALYST John Staszak $70.00 $68.00 $66.00 $64.00 $62.00 $60.00 $58.00 We believe that DNKN has strong opportunities to expand its brand both in the U.S. and internationally, and that this distinguishes the company from most other restaurant chains in our coverage group. In addition, we expect the company's fully franchised business model, which provides a steady source of revenue with low capital requirements, to result in significant free cash flow going forward. Based on management's revised guidance, we are lowering our 2018 EPS estimate from $2.76 to $2.60 per share. For 2019, we are setting an estimate of $2.80 per share. Our long-term earnings growth rate estimate is now 9%, down from 13% previously. In 2018, management projects 1% comp growth at Dunkin' Donuts in the U.S, versus the consensus estimate of 0.9% and low to mid-single digit revenue growth. $56.00 Goodyear Tire & Rubber Co (GT) Recent selloff offers attractive entry point PRICE $29.99 12 MO RATING TARGET PRICE $36.00 MARKET CAP (MIL) $7,207.54 ANALYST David E. Coleman $36.00 $35.00 $34.00 On February 8, GT reported above-consensus 4Q earnings and revenue. However, the company lowered its 2020 operating income forecast due to rising raw material costs. We are raising our 2018 EPS forecast from $3.68 to $3.84 and initiating a 2019 estimate of $4.12. Our target price of $36 implies a P/E of 9.5-times our 2018 EPS forecast and a potential total return of 22% including the dividend. $33.00 $32.00 $31.00 $30.00 $29.00
Page 4 of 7 HCA Healthcare Inc (HCA) Reiterating and raising target to $114 PRICE $97.84 12 MO RATING TARGET PRICE $114.00 MARKET CAP (MIL) $34,253.00 ANALYST Jasper Hellweg $104.00 $100.00 $96.00 $92.00 $88.00 $84.00 $80.00 $76.00 On January 30, HCA posted diluted 4Q17 EPS of $1.30, down from $2.39 in 4Q16 and below the consensus of $1.87. The results included a noncash increase in the provision for income taxes of $301 million, or $0.83 per diluted share, related to the new U.S. tax law. We are raising our 2018 EPS estimate to $8.54 from $7.92 based on the company's strong guidance, including a lower projected tax rate of 25%, and expanding business over the past year. We are also initiating a 2019 EPS estimate of $9.26, implying 8.4% growth from our 2018 estimate. Our long-term earnings growth rate forecast is 11%. Along with its fourth-quarter results, HCA declared a quarterly cash dividend of $0.35 per share. This will be the company's first dividend since late 2012, when it made three special dividend payments totaling $6.50 per share. $72.00 Our revised target price of $114, raised from $97, implies a projected 2018 P/E of 13.3, just above the five-year average of 13.1, and a potential total return, including the dividend, of 20% from current levels. NVIDIA Corp (NVDA) Multi-industry momentum continues; reiterating target of $250 PRICE 12 MO RATING TARGET PRICE MARKET CAP (MIL) $232.08 $250.00 $140,640.48 NVidia posted fiscal 4Q18 results that typically blew away consensus expectations. NVidia is increasingly generating operating leverage on its growing revenue base, with gross margin and operating margins hitting new records and net income in excess of $1 billion. ANALYST James Kelleher $260.00 $240.00 $220.00 $200.00 $180.00 $160.00 NVDA has not been immune to the global stock correction, which means the stock is now trading at more attractive levels. NVDA is growing revenue, earnings and cash flow nearly fast enough to keep up with stock price; it is also growing those metrics much faster than peers. We recommend initiating or adding to positions on pullbacks such as at present. We are reiterating our rating to a 12-month target price of $250. $140.00
Page 5 of 7 PNM Resources Inc (PNM) Lowering target price and 2018 EPS estimate PRICE $35.00 12 MO RATING TARGET PRICE $40.00 MARKET CAP (MIL) $2,787.88 ANALYST Gary Hovis $46.00 $44.00 $42.00 We are reaffirming our rating on PNM Resources Inc., but lowering our target price to $40 from $47. We are lowering our 2018 EPS estimate to $1.76 from $1.81. We believe that PNM Resources has the potential to generate total annual returns for shareholders of 6%-7% over the next four to five years. In view of its solid finances and strong growth in cash flow, we expect the company to generate more than 70% of its funding needs from internal sources through at least 2019. $40.00 $38.00 $36.00 $34.00 $32.00 Prudential Financial Inc (PRU) Tops consensus in fourth quarter PRICE $106.04 12 MO RATING TARGET PRICE $125.00 MARKET CAP (MIL) $44,960.96 ANALYST Jacob Kilstein $120.00 $118.00 $116.00 $114.00 $112.00 $110.00 On February 7, Prudential posted 4Q17 adjusted operating EPS of $2.69, up from $2.46 a year earlier. The result beat our estimate of $2.53 and the consensus estimate of $2.64. On February 6, Treasury Secretary Steven Mnuchin told the House Financial Services Committee that regulators would reconsider Prudential's SIFI designation in the 'near future this year.' His comments, together with the Financial Stability Oversight Committee (FSOC) removal of AIG's designation as a SIFI, suggest that Prudential could receive the same treatment, which would be a catalyst for the shares. We are raising our 2018 EPS estimate to $12.03 from $11.24, based on continued business growth and a lower tax rate than we previously expected. We are also setting a 2019 estimate of $12.70. Our EPS assumptions imply an ROE of 13.0% over the next two years. $108.00 PRU shares trade at a discount to peers and appear attractive given the company's above-peer-average dividend yield and ROE. Our target price of $125 implies a multiple of 10.4-times projected 2017 earnings, in line with the peer average.
Page 6 of 7 Simon Property Group Inc (SPG) Lowering target by $5 to $190 PRICE $157.20 12 MO RATING TARGET PRICE $190.00 MARKET CAP (MIL) $50,354.74 ANALYST Jacob Kilstein $162.61 $162.61 $162.60 $162.60 $162.60 $162.59 $162.59 $162.58 $162.58 Our revised target reflects our lower 2018 FFO estimate and investors' increasingly negative view of mall-based retailers. We think that this negative sentiment, driven by the rapid growth of online sales, is affecting the SPG stock price more than fundamental sales, NOI, and FFO growth. The closing of department stores may be a positive change for Simon, which is re-leasing department store space to multiple higher-paying tenants, including restaurants. We note that department store anchor tenants, such as J.C. Penney, Macy's, and Sears, pay $6 per square foot, while nonanchors pay $51. We are lowering our 2018 EPS estimate to $11.98 per share from $12.04. We are establishing a 2019 estimate at $12.49. Our revised target of $190 implies a multiple of 15.9-times our 2018 FFO per share estimate. We believe this is reasonable based on the company's above-average growth prospects, premium properties, and solid development pipeline. Stryker Corp (SYK) Reaffirming with $185 target PRICE $151.22 12 MO RATING TARGET PRICE $185.00 MARKET CAP (MIL) $56,653.37 ANALYST David Toung $172.00 $168.00 $164.00 $160.00 $156.00 $152.00 $148.00 $144.00 $140.00 Stryker is using its Mako robotics-assisted system for orthopedic surgery to boost sales of knee implants and to gain market share from competitors. In 4Q17, the company installed 35 Mako units worldwide, including 24 in the U.S. This brings the total installed base of Mako units to 493, including 412 in the U.S. In all, some 42,500 knee procedures were carried out using the Mako system in 2017, up from 22,000 in 2016. Stryker reported strong 4Q17 results on January 30. Adjusted EPS rose 10.1% to $1.96 and matched the consensus estimate. Net sales came to $3.471 billion, up 10.0% on a reported basis and 8.7% operationally. We are maintaining our 2018 adjusted EPS estimate of $7.15, and setting a 2019 estimate of $7.75. $136.00
Page 7 of 7 Vishay Intertechnology, Inc. (VSH) Strong order trends; reiterating $28 target PRICE 12 MO RATING TARGET PRICE MARKET CAP (MIL) $17.65 $28.00 $2,327.59 Vishay Intertechnology reported another solid quarter of double-digit sales growth in 4Q17, while non-gaap EPS more than doubled. Although revenue topped consensus expectations, the shares have come down sharply in the February correction. ANALYST James Kelleher $24.00 $23.00 $22.00 $21.00 Given still solid fundamentals, the drop in the stock creates an attractive entry point, in our view. Orders in the year's final quarter were particularly strong, with Vishay recording a book-to-bill ratio of 1.28, and the demand outlook remains robust for 2018. $20.00 $19.00 $18.00 Argus Research Co. (ARC) is an independent investment research provider whose parent company, Argus Investors Counsel, Inc. ( AIC), is registered with the U.S. Securities and Exchange Commission. Argus Investors Counsel is a subsidiary of The Argus Research Group, Inc. Neither The Argus Research Group nor any affiliate is a member of the FINRA or the SIPC. Argus Research is not a registered broker dealer and does not have investment banking operations. The Argus trademark, service mark and logo are the intellectual property of The Argus Research Group, Inc. The information contained in this research report is produced and copyrighted by Argus Research Co., and any unauthorized use, duplication, redistribution or disclosure is prohibited by law and can result in prosecution. The content of this report may be derived from Argus research reports, notes, or analyses. The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Argus makes no representation as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. This report is not an offer to sell or a solicitation of an offer to buy any security. The information and material presented in this report are for general information only and do not specifically address individual investment objectives, financial situations or the particular needs of any specific person who may receive this report. Investing in any security or investment strategies discussed may not be suitable for you and it is recommended that you consult an independent investment advisor. Nothing in this report constitutes individual investment, legal or tax advice. Argus may issue or may have issued other reports that are inconsistent with or may reach different conclusions than those represented in this report, and all opinions are reflective of judgments made on the original date of publication. Argus is under no obligation to ensure that other reports are brought to the attention of any recipient of this report. Argus shall accept no liability for any loss arising from the use of this report, nor shall Argus treat all recipients of this report as customers simply by virtue of their receipt of this material. Investments involve risk and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance. Argus has provided independent research since 1934. Argus officers, employees, agents and/or affiliates may have positions in stocks discussed in this report. No Argus officers, employees, agents and/or affiliates may serve as officers or directors of covered companies, or may own more than one percent of a covered company s stock. Argus Investors Counsel (AIC), a portfolio management business based in Stamford, Connecticut, is a customer of Argus Research Co. (ARC), based in New York. Argus Investors Counsel pays Argus Research Co. for research used in the management of the AIC core equity strategy and model portfolio and UIT products, and has the same access to Argus Research Co. reports as other customers. However, clients and prospective clients should note that Argus Investors Counsel and Argus Research Co., as units of The Argus Research Group, have certain employees in common, including those with both research and portfolio management responsibilities, and that Argus Research Co. employees participate in the management and marketing of the AIC core equity strategy and UIT and model portfolio products.