UBS Investment Research published a report entitled “US Research” on December 30, 2011. It isn’t publicly available, but we will summarize its main points. The report lists their top stock ideas for 2012. In this article, we will discuss their most-preferred and least preferred stock ideas for the Communications sector. Here are their 4 bullish stock picks:
Comcast Corporation (CMCSA) provides entertainment, information and communications products and services both in the U.S. and globally. UBS has given the company a buy rating because it believes that Comcast has an opportunity to improve its performance. The company is set to receive $2.3 billion in pretax proceeds from its ownership of SpectrumCo, giving it the ability to repurchase a great number of shares. UBS also believes that Comcast is set to achieve solid cable results for 2012. Shares of the company are currently trading at $24.7 per share and are expected to reach a price target of $30. According to UBS, Comcast has the lowest leverage among its peers.
American Tower Corporation (AMT) operates as a wireless and broadcast communications infrastructure company. UBS expects that the company’s revenue growth will accelerate in 2012 due to the changes in network plans by Sprint (S), AT&T (T), and Verizon (VZ). The company is also going to operate as a REIT from January 3, 2012. UBS expects the company to receive an inflow of $1.2 billion once American Tower Corporation becomes part of the FTSE FNER Index. American Tower Corporation is also expected to see a double-digit free-cash-flow growth over the coming years. Shares of the company are currently trading around $60 and are expected to go north of $63 per share.
CBS Corporation (CBS) operates as a mass media company both in the U.S. and globally. UBS has given the company a buy rating and has also picked it as the best pick in the media space for 2012. With expectations of average premiums in the scatter market and strong ratings in primetime, the company is set to outperform its peers in 2012. CBS is expecting to curtail costs and aggressively repurchase shares in 2012. Shares of the company are currently trading near its 52-week high at $27.8 per share and are expected to reach a price target of $30. The company returned 43% in 2011.
Google Inc. (GOOG) maintains an index of websites and other online content. UBS has given Google a buy rating because it gives the best long-term exposure to secular growth trends. The company’s mobile, display advertising and social businesses are accelerating. UBS is also of the opinion that the company’s stock is still cheap. Google’s businesses have huge potential such as its investment in the multi-billion dollar mobile phone market through Android and the potential of Google+ to emerge in today’s markets. Shares of Google are currently trading at $650 per share, and are expected to reach a price target of $800, indicating a potential upside of 23% in share price. Google is currently trading at 13x the earnings per share estimate of 2012. The company generated returns of around 8% in 2011. Ken Fisher’s Fisher Asset Management had $363 million invested in Google at the end of September.
UBS is bearish about the following stocks:
Sprint Nextel Corporation (S) offers wireless and wireline communications products and services. The company has been given a neutral rating by UBS as the company is expected to generate free-cash-flow losses of $5 billion due to its LTE expansion project. The company is also expected to sell millions of iPhones with unlimited data plans. Due to the restraint on 4G network, Sprint is dependent on Clearwire to provide additional 4G capacity. Shares of Sprint are currently trading around $2 per share and are expected to reach a price target of $2.75. The company is trading at 6.3x the 2012 enterprise value to EBITDA which is above its peers. David Einhorn had $224 million in Sprint shares at the end of the third quarter.
Windstream Corporation (WIN) provides communications and technology solutions. UBS has given the company a neutral rating. Windstream is currently trying to integrate multiple acquisitions and UBS is cautious of the operating and capital intensity these acquisitions bring to the business model. The dividend payout ratio is expected to be driven higher by the pressure put on EBITDA and free-cash-flow. Shares of the company are currently trading at $11.7 per share and are expected to reach a price target of $12, by the end of 2012. The company is trading above its peers at 6.7x the 2012 enterprise value to EBITDA ratio.
The New York Times Co. (NYT) operates as a diversified media company. It is the least-preferred pick for UBS in the Media space. With the shift of advertising from print to online, UBS expects that the company’s print will bear the brunt of this movement. UBS also expects the company’s national advertising to see a slowdown in 2012. Shares of the company are currently trading at $7.80 per share and are expected to go south of $7 by the end of 2012. Valueact Capital had $41 million invested in New York Times shares at the end of September.
THQ Inc. (THQI) develops, publishes and distributes a variety of interactive entertainment software. UBS has given the company a neutral rating due to the increased challenges it faces in a rapidly changing industry. The company’s new games are not yet a huge success, as consumers focus a disproportionate level of spending on other titles. THQ’s titles have seen a decline over the last few years, and UBS does not expect the company’s stock to rise further. Shares of the company are currently trading at $0.75 and are expected to reach a price target of $1 per share. The company is trading at 24x the 2012 earnings per share estimate by UBS.
Disclosure: I am long NYT.