Alphabet, Meta and Boeing shares could rise and more analyst insight

Alphabet • GOOGL-Nasdaq

Buy • Price $122.21 on July 26

of Needham

Alphabet reported strong results for the second quarter of 2023, with revenue of $74.6 billion (up 7% year-over-year and 3% above our estimate), operating income of $21.8 billion. earnings per share at $1.44 (up 19% year-over-year and 14% above our estimate). Since the launch of ChatGPT in November 2022, we have been critical of Alphabet’s “product problem”.

OpenAI’s existential threat to Alphabet’s search business has awakened the sleeping giant, as evidenced by the fact that a) co-founder Sergey Brin is back working on generative artificial intelligence; b) the second quarter earnings call was held from London, home of Alphabet’s Deep Mind AI division; and c) 90% of CEO comments in the second quarter related to generative artificial intelligence. We raise our price target from $115 to $140.

Meta Platforms • META-Nasdaq

Buy • Price $119 on July 26

by UBS

We raise estimated 2024 GAAP earnings per stock at $19 (from $16.75) and bull case EPS at $20.21 (from $19.07) and our price target at $400 (from $335), largely based on higher EPS plus a one-time increase in target multiple to 21 times.

We now model ex-post currency ad revenue growth of 16% in the third quarter (up from 12% previously), 20% in the fourth quarter (up from 14% previously) and 18% growth in 2024 (up from 13% previously), supported by continued improvement in Reels adoption and monetization, other new ad formats, solid engagement growth and a healthier macro environment.

We see the Meta Connect event in September as a likely positive catalyst, with new generative AI product announcements helping to validate our optimism in the next leg of things.

Sherwin-Williams • SHW-NYSE

Surpass • Price $275.96 on July 25th

by Baird

While the recent path to volume/margin normalization has been bumpy, driven in part by enormous macroeconomic and supply chain complexity, the second quarter results (and a conservative outlook) are indicative of Sherwin’s ability to effectively raise prices and position the company for a multiquarter margin expansion phase – which has just begun.

For us, earnings power of $12-plus is realistic, noting that our raised $300 price target is based on 25 times the latter. Specifically, we note that lower commodity costs have begun to catalyze higher margins (Q2 2023 gross margins are at 46% versus the targeted range of 45%-48%), with healthy backlogs driving volume growth consistency through H1 2023 despite of weaker sales of existing homes.

Boeing

• BA-NYSE

Buy • Price $232.80 on July 27th

by BofA Securities

While we, along with the broader market, maintain some reservations about execution, it appears that the worst may be behind Boeing. We are currently in the midst of the post-Covid commercial recovery, with passenger demand returning to pre-pandemic levels. On the military side, both domestic and international demand continues to accelerate, with investment spending at new record highs.

As such, we are raising our price target to $300 from $225 on improved free cash flow expectations and upgrading Boeing to Buy from Neutral. We still expect some execution volatility at Boeing Defense, Space & Security, which has struggled to maintain the schedule for development programs.

RTX • RTX-NYSE

Buy • Price $84.24 on July 25th

by Vertical Research Partners

RTX (formerly Raytheon) reported its second-quarter results, with adjusted EPS of $1.29, coming in ahead of the consensus estimate of $1.18. The earnings call was dominated by the latest number discovered by the Pratt & Whitney unit with the GTF (airline) engine.

A quality issue with in-house powdered metal requires washers on the high-pressure turbine to be inspected sooner than expected. This means that 1,000 engines that fly on A320s have to go in for shop visits for the HPT to be inspected. While RTX has sized the 2023 cash impact at $500 million, it does not have all the information currently available to quantify the total cash impact.

With shares down 14% on July 25th, some investors are clearly throwing in the towel on RTX. While the recent GTF issue could be the last straw for some investors, we suspect the negative response is overblown (if that’s understandable). New engine families have reliability issues, while the aero supply chain problems are well known – the fact that this latest problem is internal probably makes it worse, but it has been discovered and should be fixed in the next year or so.

FS KKR Capital • FSK-NYSE

Buy • Price $20.16 on July 27th

by B. Riley Securities

We initiate coverage of FS KKR Capital (a business development company or BDC) with a Buy rating and $21 price target. We see the risk/reward profile as favoring reward given the deep price/net value discount that should likely limit downside, the supportive earnings backdrop, a 14% dividend yield based on expected dividends, an attractive capital structure and sufficient liquidity.

FS KKR is the second largest publicly traded BDC by market capitalization and by assets with a balance sheet of $16 billion. KKR Credit is responsible for FS KKR’s investment portfolio and is a subsidiary of KKR & Co., a global investment firm with USD 510 billion in assets under management.

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