Read us and find out Warren Buffett’s Top 5 holdings price targets
The top 5 of Warren Buffett's portfolio is comprised of : Apple ; Bank of America ; American Express ; Coca-Cola ; Kraft Heinz.
Apple
Apple is a prominent provider of consumer computing devices, including the iPhone, iPad tablets, Mac computers, and wearables.
Our Buy opinion reflects our view of AAPL’s ecosystem, high customer retention rates, and expanding addressable market in Services/Wearables. We see stable replacement cycles from 5G expansion and robust free cash flow aiding growth initiatives/shareholder return. While we see near-term upside potential to forward consensus estimates, we believe it will largely come from hardware, which is not as highly valued to investors as Services. We think AAPL’s pipeline remains attractive (e.g., AR glasses, Apple car, health care, shift towards hardware as a service) while Huawei issues create a better competitive landscape. We see the 2021 fall iPhone lineup looking similar to 2020’s (4 devices at same starting point).
Our target of $160 is based on a P/E of 30.8x our FY 22 EPS estimate of $5.20, above peers. We believe an aging and growing installed base of 1 billion-plus phones will allow AAPL to see growth through FY 22 and support greater penetration for Services. As of the date of this note, the company is listed at $ 124.61
Bank of America
One of the largest U.S.-based financial holding companies, with a presence in consumer and commercial banking, investment banking, trading, and wealth management.
We have a modest growth outlook for BAC’s leading franchises in community banking, small business loans, and consumer card and loans. Credit loan volumes may not fully recover in 2021 for consumer and small business until the government stimulus is fully used. The bank is highly dependent on higher loan volumes in consumer and commercial units to increase service fee income and boost net interest income (NII). BAC states a 100 bps increase from a rising yield curve and modest loan growth would equate to a NII benefit of $1.0B by Q4 2021. Our target is $40 using a forward P/E of 13.1x our 2021 earnings estimate and wider risk premium than the 5- year historic average at 12.0x, given our view BAC’s performance could benefit from select macro drivers. In Q2 2021, BAC expects reserves to move lower with less credit risk to those industries affected by Covid-19. As of the date of this note, the company is listed at $ 42.39
American Express
AXP is a financial services company offering charge and credit card products as well as travel-related services to consumers and businesses around the world.
Our Hold opinion is reflective of our view that AXP is by far the “best of breed” among credit card operators and we think AXP is positioned better than peers with 75% of revenue from fees compared to peers’ 20%. However, we think AXP will not be immune to the dramatic slowdown in spending. We think travel and entertainment spending by corporations are likely not to return to pre-Covid levels for one to three years. Although AXP is positioning 2021 as a “transition year,” we see shares as increasingly pricing in a return-to-normal scenario faster than what we estimate.Our target price of $150 is equal to 22.3x our 2021 EPS estimate and 16.9x our 2022 EPS estimate, which we view as closer to normal earnings powers. This is higher than AXP's 10-year historical average of 14.5x and higher than the peer average of 9.6x given AXP's superior credit quality and higher growth. As of the date of this note, the company is listed at $ 160.13
Coca-Cola
The world's largest soft drink company, The Coca-Cola Company also has a sizable fruit juice business.
Our Hold opinion reflects a number of positive and negative considerations. On the negative side, we think uncertainty regarding the outcome of KO’s tax case is likely to act as a lingering overhang and ultimate resolution might not come until late 2021 or early 2022. On the positive side are the impact of cost cuts, KO’s attractive dividend yield, and a view that two major headwinds should reverse in 2021: currency and on-premise sales. KO’s is lowbeta, more defensive name with a strong balance sheet. The biggest near-term swing factor will likely be on-premise sales (about 40% of KO’s volume). Our target price of $54 reflects a ‘22 P/E of 22.5x, a discount to its 5-year mean forward P/E of 23.7x. Despite unfavorable secular domestic soft drink trends, we see valuation supported by long-term growth in emerging markets and stronger demand for non-cola beverages, particularly AHA and Topo Chico hard seltzer, developed with Molson Coors and launching in the first half of 2021. As of the date of this note, the company is listed at $ 55.29
Kraft Heinz
Kraft Heinz was formed following a July 2015 merger and is one of the largest consumer packaged food & beverage companies based on revenues and profits.
Our Hold opinion follows the Q1 results. We believe the company is making the right steps to transform its business and set itself up for stronger growth, evidenced by a major reorganizational shift, large portfolio divestitures, and targeted investments in emerging markets and high-growth categories. That said, KHC shares have outperformed peers thus far in 2021 and now trading at a more reasonable valuation. We are also keeping an eye on cost inflation, which has been a major topic across the industry over the past few months. KHC seems confident its costs will only grow in the mid-single digit range for 2021 and be managed through productivity savings and pricing actions. Our target of $43 is 15.5x our 2021 EPS estimate of $2.78 and in line with KHC’s packaged food peer group. As of the date of this note, the company is listed at $ 43.59
Bonus : Moody’s Corporation
Moody's is a leading provider of global credit ratings, financial data, analytics, and research.
Our Sell opinion is based on our view that shares are not fully discounting a slowdown in revenue and a full credit market cycle. After a strong environment of global debt issuances, we see an inflection point as debt issuance volumes slow due to debt-saturated corporations and demand that has been pulled forward. We think issuance could contract by mid-single digits or higher in 2021 as we see the surge in 2020 as largely one-time in nature due to Covid-19 and Fed support. Corporate debt ratios are at all-time highs and we think M&A activity may slow and defaults will rise. Our target of $230 is based on our DCF analysis that assumes mid-single digit revenue growth and moderately expanding margins. This is equal to a forward P/E ratio of 21.2x our 2022 estimate and MCO's 10-year historical average of 21.3x. We note this is lower than peers such as SPGI, but believe it is warranted given SPGI has higher recurring revenue. As of the date of this note, the company is listed at $ 335.35
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