Broker tips: Spirent Communications, Carnival
Analysts at Canaccord Genuity initiated their coverage of Spirent Communications at a 'buy' with a 175.0p target price for the company's shares, arguing it was an "attractive" play on the upcoming deployment of 5G wireless technology.
The transition to 400G ethernet and its "promising" cybresecurity arm further buttressed the investment case.
According to analyst Kai Korschelt, the firm was set to enjoy a "material acceleration" in revenue growth to the high single digits, resulting in margins growing to 18% by 2020 and a 23% CAGR in earnings per share between 2018 and 2020.
"Early signs of improving demand are already visible at Spirent’s global peers, which have seen marked order and revenue improvements recently," he argued.
He also highlighted the scope for continued consolidation in the T&M sector and the company's attractions vis-a-vis potential private equity suitors.
"Spirent's strong balance sheet and cash generation coupled with modest valuation ahead of a new growth cycle are attractive merits vis a vis a private equity industry that needs to spend record amounts of 'dry powder'.
"Should M&A interest materialise at historic deal multiples, we could see ~33% to ~44% upside to the shares."
Trading on a 2019 price-to-earnings multiple of 15.7, the shares were also trading at an "undeserved" discount to global peers on 19.3.
"Recovering top line growth coupled with earnings upgrades should in our view drive a re-rating at least towards peer group levels. Our 175p target price is based on a peer multiple (161p) and a DCF (190p) and implies 35% upside."
Analysts at Shore Capital reiterated their 'hold' rating and 4,735p target price on travel and leisure outfit Carnival on Friday, noting that although the firm's third-quarter results were "slightly ahead of guidance", fuel and FX headwinds had continued to weigh on earnings.
Shore Cap noted that how Carnival's cumulative bookings for the first half of 2019 were said to be "ahead at prices in line with last year" with yield growth expected to slow further throughout the half.
"The key to the investment case is whether the industry can continue to deliver robust yield growth against the backdrop of accelerating capacity growth," said Shore Capital analyst Greg Johnson.
"Based on circa 2% annual yield growth over the medium term, we see fair value of £52/share. We retain our 'hold' stance viewing a price of £42/share, which would be discounting 0-1% annual yield progression, as an attractive entry level."
With a net capacity growth of 4.7%, unit cost growth of 1% and a 21c drag from FX/fuel, the broker forecast $4.42 for Carnival's full-year 2019 EPS - a $0.10 drop on its prior estimate due to a higher than previously expected drag from FX and fuel.
Shore Cap also called out tough comparatives in the earlier part of the year, especially after the twelve-month mark since a devastating set of hurricanes ravaged the Caribbean.