Betting on a More Efficient Bank of New York Mellon

Bank of New York Mellon BK-NYSEBuyPrice $51.91 on March 16by Seaport Research PartnersWe recently sat down with Roman Regelman, CEO of asset servicing and head of digital at BK, and Frank La Salla, CEO of issuer services. Combined, they are responsible for BK’s largest business segment—securities services, which generated 45% of total revenue last year. Overall, management seemed confident that it will be able to continue recent organic growth momentum, reflecting both payback on significant investments, as well as accelerated outsourcing of complex front-to-back services that provide greater fees. Recent investments in tech and operations should also begin to drive improving efficiencies at BK and help securities services close its pretax margin gap with peers (estimated at about 4%). The stock, at nine times 2023 estimated EPS versus a long-term average of 12, seems to have been oversold in the recent market correction. While the decline in equity markets will negatively impact asset management and custody fees, Bank of New York Mellon’s more diversified business mix and less equity exposure versus peers should help soften the impact. Moreover, with [more Federal Reserve] rate hikes expected, net interest income should [rise]. Price target: $72.

Ralph Lauren RL-NYSEOverweightPrice $114 on March 16by J.P. MorganAt six times our calendar year 2023 estimated Ebitda [earnings before interest, taxes, depreciation, and amortization]—about 25% below the clothing company’s prepandemic multiple—we upgrade RL to Overweight. The [stock market’s recent] pullback has provided an opportunity to own a company with a multiyear mid-teens(+) margin profile, a reset distribution mode, and a [strong] revenue-recovery opportunity. The $1.4 billion in net cash on its balance sheet offers an opportunity for a 30% reduction in the stock float over the next two years. Our December 2022 price target is $142.

Apple APPL-NasdaqOutperformPrice $155.09 on March 15by Evercore ISIFoxconn[ticker: 2354.Taiwan], the biggest assembler of iPhones, has ramped back production at its Shenzhen, China, site after having to shut it on March 14 due to the Covid outbreak in Shenzhen, according to news outlets. Foxconn has stated that it is following local rules that allow businesses to operate if they set up a self-contained bubble-like environment and keep workers inside. While we suspect that the site is operating at limited capacity, it’s important to note that it accounts for only 20%-25% of iPhone production. Apple’s main production site in Zhengzhou hasn’t been affected. In addition, the shutdown is occurring during a time when seasonal demand is lower, which should mitigate any impact, and Foxconn has implemented mitigation plans to shift production to other sites to limit disruption. We maintain our $210 price target.

GoDaddyGDDY-NYSEOutperformPrice $78.31 on March 14by WedbushGoogle has announced that it will move Google Domains, its domain-registrar business, out of beta and into general availability in 26 countries. Investors are concerned about the impact this could have on GoDaddy’s domain business, but we don’t expect a material impact in the near term. GoDaddy is a significantly larger player in domain registration, with Google having a significantly smaller share, and we expect that to continue to be the case. GoDaddy’s brand is synonymous with domain registration, and that brand recognition is vital for top-of-funnel traffic and bringing businesses to GoDaddy over competitors for domain-registration needs. We maintain our $100 price target on the stock.

Coterra EnergyCTRA NYSEOverweightPrice $25.63 on March 11by Wells FargoCoterra remains one of our top picks in the U.S. energy exploration-and-production sector, as we see it delivering on the three C’s that we view as differentiators for E&P stocks in 2022: capital discipline, cash margins, and cash returns. We expect management to focus on Coterra’s compelling investment case for yield-seeking investors, while investors are likely to focus on the sustainability of its “shale 3.0” business model. Price target: $37.

WilliamsCos.WMB-NYSEBuyPrice $31.26 on March 16by Mizuho Securities USAWMB has rapidly bolstered its presence in the [Haynesville, Texas, natural-gas area], with plans to grow production on its Upstream joint venture acreage 15 times by the end of 2022, a proposal for a Louisiana project to take gas downstream to Transco and to liquefied natural-gas export docks, and the $950 million acquisition of Quantum Energy Partners’ Trace Midstream gas-gathering systems. WMB’s moves should help diversify it away from Northeast natural-gas markets, where pipeline constraints should eventually slow its growth. We are raising our price target to $35, from $33.

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