As Berkshire Hathaway Inc. (NYSE:BRK.A) and NVIDIA Corporation (NASDAQ:NVDA) host their investor days, analysts from Bank of America/Merrill Lynch outline what to watch for in each.
Berkshire Hathaway Inc.
Analyst Peter Quinn of Merrill Lynch weighs in on Berkshire Hathaway following the company’s annual investor conference, which focused on potential strategic actions. While the analyst remains neutral on the energy sector at large, he is bearish on Berkshire Hathaway Energy.
The analyst praises Buffet’s iconic financial giant, noting that it has the “most diversified” and “largest” asset portfolio in the US electric utility industry. Quinn notes two factors that separate the company from its peers. First, Berkshire Hathaway Energy is nearly 90% owned by Berkshire Hathaway Inc.
Second, the company pays “zero common dividends” as opposed to its peers “with common dividend payout ratios typically between 50% and 65%.” This means that on one hand, “Berkshire Hathaway Inc. provides substantial financial and intellectual resources to BRKHEC,” but on the flip side, “in the current low-interest-rate environment which benefits utility asset and common stock valuations, BRKHEC does not have a publicly-traded currency which could be used for acquisitions.” As a result, the company financed its last two large acquisitions nearly entirely with debt, according to Quinn.
Regardless of Berkshire Hathaway’s exceptions, the analyst remains neutral on U.S. electric utilities, pointing to “credit spreads” that are “fairly valued to their respective high-quality peers.”
The analyst reiterates an Underweight rating on Berkshire Hathaway Energy due to “tight credit spreads” and “relatively aggressive” financial metrics, pointing to 5.4x net debt/EBITDA.
According to TipRanks, both analysts who have rated the company in the last 3 months are bullish on the stock with an average 12-month price target of $239,750, marking a 11% potential upside from current levels.
Ahead of Nvidia’s analyst day today Merrill Lynch analyst Vivek Arya weighs in on the technology company, highlighting key debates going into the meeting surrounding PC gaming and the automobile segment, among others.
Nvidia’s PC gaming market is strong, with contributed to 60% of the company’s 2016 sales and increased 37% year-over-year. However, analysts debate if this growth is sustainable. Arya offers, “We assume deceleration to 8%-10% CAGR, mostly on continued mix expansion partly driven by VR and 4K upgrades.”
The company’s auto segment has also seen massive growth, with its sales increasing 75% year-over-year. Going forward, the analyst models 3 year “CAGR of 20% that could prove conservative given a 20-25mn car win pipeline and content expansion towards $100.” However, Arya contends, “there is increasing competition from traditional (NXPI, Infineon, TXN) and new players such as QCOM.”
Overall, going into the analyst day, Vivek Arya reiterates a Buy rating on Nvidia thanks to the company’s “leveragable technology platform,” “consistent execution,” and “strong balance sheet.” The analyst has a price target of $38, marking a 6% potential upside from current levels.
According to TipRanks, Arya has a 53% success rate recommending stocks with a 12.7% average return per rating. Out of the analysts polled in the last 3 months, 6 are bullish on NVDA, 1 is bearish, and 9 are neutral. The average 12-month price target between these 16 analysts is $33.69, marking a 5% downside from current levels.