Jefferies Makes Another Huge 2017 Change to Franchise List Portfolio
Lee Jackson
Many of the top firms we cover here at 24/7 Wall St. are tweaking their high conviction stocks lists for 2017, and many are trying to take into account macro changes that could make a difference this year, such as higher inflation, a stronger dollar and rising interest rates. In addition, many are also trying to factor in positives like lower nominal tax rates and less of the ever burdensome regulations that some feel have stifled business.
In a new research report, Jefferies analysts are out with their second big change for 2017. They add Textron Inc. (TXT), a leading aerospace and defense stock, to the Jefferies Franchise Picks list.
This stock joins the Franchise Picks list despite a weaker quarter, and Jefferies views the company as a true growth stock to buy for 2017. Textron is a multi-industrial conglomerate that has the following operating segments:
Bell comprises Bell Helicopter and Textron Systems.
Industrial Products manufactures machinery and equipment for golf/turf, wire and cable installation systems, plastic fuel tanks (Kautex), pumps, gears and gearboxes.
Textron Financial is a commercial lending operation that primarily provides equipment financing.
The analysts point out that the company has a very solid new product pipeline, and they feel the company is demonstrating that new products are the superior solution to combating tough end markets. The new product pipeline includes the Scorpion, Longitude, Denali, Hemisphere, V-280 and V-247.
Textron investors are paid a small 0.16% dividend. The Jefferies price target for the stock is $60. The Wall Street consensus target price is listed at $52.50. The stock ended last week at $48.68 a share.
We also screened the Franchise Picks portfolio for the top telecom and technology companies, and these three look like outstanding stocks to pick up now.
The search giant continues to expand, and it is even working on a driverless car now. Alphabet Inc. (GOOGL) provides online advertising services in the United States, the United Kingdom and rest of the world. It offers performance and brand advertising services, and it operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.
The Google segment also sells hardware products, comprising Chromecast, Chromebooks and Nexus. The Other Bets segment includes businesses such as Access/Google Fiber, Calico, Nest, Verily, GV, Google Capital, X and other initiatives.
Some were initially disappointed when the Google-parent posted fourth-quarter earnings per Class A share, adjusted and excluding items, that fell short of the consensus estimate from Thomson Reuters. But revenues of about $26 billion topped expectations, and the company remains a sector leader.
Jefferies has a $1,000 price target for the stock, and the consensus target is $968.55. The shares closed on Friday at $845.03.
NVIDIA
This top chip maker reported strong earnings all last year, and the picture continues to grow brighter. NVIDIA Corp. (NVDA) is one of the leaders when it comes to supplying graphics processing technology for the 3D graphics market, including desktop graphics processors and gaming consoles.
NVIDIA is also moving into visual computing chips for cars, mobile devices and supercomputers. The company has been able to use its ability to leverage past investments, with a more controlled spending structure ahead on unified, which enables strong cash flow that is allowing a focus on capital return, which is currently estimated to be $1 billion next year.
Top analysts feel the stock is maturing to a platform company from a pure chip company, and Jefferies sees the stock continuing to benefit from four secular trends: virtual reality, PC gaming, chips in the automobile industry and graphic processing units (GPUs) in the cloud. Tesla announced that the company's GPUs will power its deep learning system in every Tesla car. If Tesla is successful, many top analysts feel that every major auto maker will have similar capability.
NVIDIA reported incredible quarterly numbers in November, and forward guidance also came in to the upside. Revenues beat consensus estimates by 19%. Core gaming grew 62%, but data center grew 193% and autos grew 61%, and the latter two now account for 18% of growth, a significant amount but a number that could get much bigger. Some analysts estimate earnings of $5 per share in three years.
Jefferies has a gigantic $115 price target and the consensus target is listed at $91.91. The stock closed on Friday at $111.77 a share.
T-Mobile
Top Wall Street and Jefferies analysts believe this carrier should be bought on an increasing cash flow and valuation thesis. T-Mobile US Inc. (TMUS) provides mobile communications services in the United States, Puerto Rico and the U.S. Virgin Islands. It offers voice, messaging and data services in the postpaid, prepaid and wholesale markets. It also provides wireless devices, including smartphones, tablets and other mobile communication devices, as well as accessories that are manufactured by various suppliers.
The company offers services, devices and accessories under the T-Mobile and MetroPCS brands through its owned and operated retail stores, as well as through its websites. T-Mobile also sells its devices and accessories to dealers and other third-party distributors for resale through independent third-party retail outlets and websites. It serves approximately 63 million customers.
Top analysts think the network investment appears well positioned as churn has stabilized. The company announced recently that from here on out its T-Mobile One plan will be the only one sold to new customers and it will encourage existing users to switch to it. While the plan does have some options, it's basically a flat-rate, unlimited plan with a price guarantee.
The $59 Jefferies price target compares with the consensus target of $61.00. Note that Jefferies is waiting on earnings to adjust its price target. Shares of T-Mobile ended trading last Friday at $62.42 apiece.
2017 is almost a month old, and fourth-quarter earnings are almost through. The additions and subtractions to the high conviction stock offerings from the top firms on Wall Street are coming faster now. We will be keeping a close eye to see what other firms make changes.
