Barclays (BCS) has published its equity outlook for 2012. The report is dated December 13, and written by Stuart Linde and his equity research team. Barclays has carefully handpicked their top US Internet & Media / Power & Utilities / Services / Telecommunications stocks for 2012 keeping in mind a difficult year ahead.
Barclays' 3 top buys from the US Internet & Media industry include:
Google Inc. (GOOG) is in the internet and media space with a market cap of $202.74 Billion. GOOG is currently priced at $625.96 per share but Barclays projected a target share price of $730.00 per share. Barclays is bullish on GOOG because of the following three catalysts: 1) its dominant position in search, which continues to benefit from both strong pricing and volume growth; 2) strong exposure to mobile via its Android platform, and 3) increased traction with its display initiatives, driven by YouTube, the content network, and the Ad Exchange. Barclays rates the stock as overweight and the sector as positive. Google is the second most popular among hedge funds at the end of September (see the 10 most popular stocks).
Liberty Global, Inc. (LBTYA) is in the cable & satellite sector and has a market cap of $10.94 Billion. LBTYA’s current price per share is $39.58 whereas Barclays' estimated target price per share is at $48.00. With less aggressive competition from telecom providers and lower exposure to content cost inflation, LBTYA is more profitable than U.S. multi-service operators, with adjusted EBITDA margins of around 50% compared to 35-40% in the U.S. Barclays' $48 price target is based on 6.2x which is approximately two turns below the current trading multiples of current cable companies.
Walt Disney Co. (DIS) is in the media industry with a market cap of $63.45 Billion. DIS’s current price per share is $35.32 and Barclays expects this share price to stand at $44.00. Barclays highlighted 3 favorable business operations that should see revenue growth: 1) ESPN is best positioned to compete in sports programming and is benefitting from the rising value of sports content; 2) the Parks business is finally showing signs of operating leverage and pricing is returning to more normalized levels; and 3) Disney’s digital strategy is the most progressive in Media. Barclays rates the stock as overweight and the sector as neutral. Mason Hawkins is the most bullish fund manager about DIS with a $1 billion position at the end of September.
Barclays' top 2 buys from the US Power & Utilities industry include:
Calpine Corp. (CPN) is the only pure-play spark spread generator in power space and currently has a market cap of $7.40 Billion. CPN’s current share price of $15.16 is expected to swell to a target share price of $18.00, according to Barclays. There are two main reasons Barclays likes this stock: 1) its primary exposure to Texas and California power markets (70% EBITDA); and 2) discipline to use excess cash flow to repurchase stock ($300 million current program). CPN also has the newest and best fleet of combined cycle gas plants in the industry which should reach optimum margins in the coming years. Barclays rates the stock as overweight and the sector neutral.
OGE Energy Corp. (OGE) is a top-performing regulated electric utility with a market cap of $5.29 Billion. The current share price is $54.24, however Barclays' estimated target share price is $59.00. OGE operates in the most profitable basin in the U.S. and this represents approximately 25% (net income) of the overall business. OGE is strategically located in rich natural gas liquids basins. The company’s gathering and processing capacity is projected to grow 65% over the next two years, through the expansion and addition of new processing facilities. Barclays rates the stock as overweight and the sector positive.
Barclays' 2 top buys from the US Services industry include:
Dun & Bradstreet Corp. (DNB) is a player in the business and information services space with a market cap of $3.44 Billion. The company’s current share price is $70.77 and Barclays' projected target price per share is $82.00. DNB expects its first new product (DNBi Portfolio Manager) in December/January – in time for the renewal season. It will also be the first product developed in the new Ireland application center. With a staff of 200+ at this center, we would expect to see a lot more in the coming year. Barclays' $82 price target is based on 13.0x P/E multiple, whereas historically, DNB has traded at 15x.
Ecolab Inc. (ECL) is the leading global provider of cleaning and sanitizing products and services. ECL’s market cap is $12.70 Billion. ECL’s current share price is $54.72 and Barclays' estimated target price per share is $62.00. Ecolab has also proven highly defensive, as is illustrated by its strong performance during the 2008-2009 recession (revenue fell only slightly, EPS grew throughout). Barclays also sees ‘offensive’ factors in ECL such as the Nalco acquisition, $1 billion of expected 2012 share repurchases, margin benefits from the European restructuring, and easier raw material comparisons. As a result, Barclays expects roughly 20% y/y EPS growth in 2012-2013, acceleration from the 13% CAGR over the last several years. For these reasons Barclays has rated the stock as overweight.
Barclays' top buy from the US Telecommunications industry include:
SBA Communications Corp. (SBAC) is a telecommunication service provider and has a market cap of $4.37 Billion. The company’s current share price is $39.96 and Barclays' estimated target price per share is $49.00. Barclays expects tower revenue growth to benefit from rapid wireless data growth (boosting volume) adding to the already formidable 9% organic growth ambitions. Expectations are that SBAC should easily attain the 9% organic growth target given continued aggressive high-speed-data rollouts by Verizon (VZ), AT&T (T), and increasingly by Sprint (S), with potential upside from players such as DISH, cable companies, or a public safety networks. Billionaire Howard Marks' Oaktree Capital had $134 million in SBAC at the end of September.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.