Fall 2022 CER Publication

MESSAGE FROM EXECUTIVE BOARD

Cornell Equity Research is proud to announce a remarkable fall semester. With in-person meetings and increased engagement, our team is stronger than ever.

This semester, we recruited six new members, representing four of the undergraduate colleges at Cornell. The executive board has continued its central committees, ranging from publishing to recruiting. We welcomed an enhanced new member education program filled with internship panels, special speakers, and rigorous coursework. The executive board has also worked to design the organization’s first merchandise for all current members.

The publication this fall reflects the volatile financial markets this past year. The theme for the report is centered around drawings that illustrate this economic climate of high inflation. To combat the soaring prices, the Fed has been determined to keep hiking interest rates. As the financial markets price in the rate hikes, rumors of a potential recession circulate. Given these economic conditions, our team is thrilled to present our selected stocks for this semester. Thank you to the executive board, sector analysts, associates, alumni, and guest speakers for contributing to another successful and rewarding semester!

Gracelyn

Emily

Lavinia Burchielli

Emma

Andrew Grinzayd

Gerald Yavorsky Professional Development JuniorMember Liaison aeg264@cornell.edu gy54@cornell.edu

Raquel Kanner Women's Group Leader rk747@cornell.edu

Rating: Buy

Current Price: $37.19

Price Target: $33.39

Company Updates / News

● Revenue (LTM): $133.6B

● Market Cap: $156.19B

● Post-pandemic, the telecom industry is seeing an increased need to rapidly expand 5G and broadband offerings

Competitor Statistics from Q2 2022

Subscribers: 142.8 M

Revenue: $135.6 B

Subscribers: 110 M

Revenue: $80.1 B

Subscribers: 196.6 M

Revenue: $155.3 B

Verizon Communications Inc. (VZ)

Investment Thesis:

As the second largest mobile telephone service provider in the U.S., Verizon reigns within the telecom industry as one of the most prominent companies. Holding 142.8 million subscribers, the company remains second only to AT&T, but has developed plans to grow in relation to its competitors.

My buy recommendation reflects a belief that Verizon is performing better and with greater consistency than competitors like T-Mobile–which is currently undergoing a merger–while developing its 5G and phone plan offerings at a rapid rate that will only increase the company’s value.

Valuation on Comps Analysis:

My comps analysis on Verizon (VZ) has an implied share price of $33.39, with a current price trading at $37.19, indicating thatthe current stock price is overvalued. This comps analysis incorporated findings from T-Mobile, AT&T, and Comcast, in addition to Verizon, to help develop this argument.

Despite this assessment, however, most other researchers believe Verizon is undervalued, with Morningstar recently predictingan implied share price of around $59. These predictions are on the basis of Verizon catching up to its competitors in the 5G battle, and because of its limited growth in relation to competitors masking that Verizon has remained the most internally stable of the major providers. So, despite my comps analysis, I believe Verizon is a buy.

5G:

Verizon has recently launched 5G “Ultrawideband,” or UWB, whose mobile services use cutting-edge high frequency, mmWave spectrum technology. These 5G options provide increased speed for users and opportunities for innovation for the company.

As 5G continues to become more commonplace for phone network companies, experts expect 5G wireless to have a major role in the progress of manufacturing automation, cloud gaming, autonomous vehicles, drones, and remote health services. Verizon is continuing to develop its offerings even further, having recently partnered with Amazon Web Services and IBM to design 5G apps for the web-connected industrial devices.

Overview:

Verizon’s subscriber base grew at a steady rate, similarly to those of T-Mobile and AT&T, securing its place as the second largest provider in the U.S. This, combined with its increasing advances in 5G that are expected to roll out have culminated in a year of strong, steady growth that remained relatively out of the spotlight in 2022. This could lead to the company having more significant growth in the near future, outside of what is reflected in my comps analysis.

Verizon Share Price Over the Last 5 Years Compared to AT&T and T-Mobile

Source: Yahoo Finance Risk Potential

Competition with AT&T: In the second quarter of 2022,AT&T gained 813,000 postpaid phone net adds, which was the wireless segment’s strongest subscriber growth in a decade. It also had a phone churn of 0.75%, which was lower than that of Verizon’s at 0.81%. Further, AT&T consistently outperforms Verizon and other competitors in its subscriber base and in its total revenues. Verizon could risk continuing to fall further behind AT&T, and being stuck in a state of “treading water” without additional product innovations.

T-Mobile/Sprint Merger: T-Mobile recently underwenta merger with Sprint in 2020, and the two companies are still finalizing the pieces of that merger. While this merger allowed T-Mobile to grow to be a leader in the U.S. telecom industry, it also caused increased difficulties internally, as well as further customer service difficulties. Investors believe that while T-Mobile’s growth could pose a risk to Verizon, the company has an opportunity to outperform its competitors by remaining focused in its competitive strategy, without the hassles of the mergers.

Lower Prices on Prepaid Plans: Verizon recently unveileda trimmed down prepaid plan lineup. The company now sells a 15GB prepaid plan that starts at $45/mo. They also sell two unlimited plans which cost $60/mo or $70/mo with autopay, with all of these prices reduced since before. These new plans may attract more customers to the company, with more affordable unlimited options, potentially increasing overall value.

Rating: Sell

Current Price: $5.87

Price Target: $3.32

Company Updates / News

● Lumen eliminates its dividend, displeasing investors

● Comcast fails to increase broadband subscribers in Q2 2022

● Verizon, AT&T to delay some 5G development until mid-2023

Lumen Technologies (LUMN) Rebranding Can’t Recoup a Declining User Base

Investment Thesis:

Parent company CenturyLink’s stock price peaked in 2007, but even as it rebranded its most profitable business functions as Lumen Technologies in 2020, the stock has shown nothing but a steady crawl to the bottom, with a cumulative 57.59% decline.

My “sell” recommendation reflects a belief that Lumen shows no signs of stopping its decline in stock price long-term, due to declining subscribers, its recent sale of two business segments, and a stock buyback ineffective in fixing the stock’s core issues.

Valuation/Financial Modeling:

Competitor Statistics from Q3 2021

Subscribers: 4.5M Revenue: $18.5B

As of November 18th, 2022, Lumen Technologies (LUMN) is trading at $5.87. I believe that this equity is overvalued andexpected to decrease to $3.32 within six months. I arrived at this conclusionthrough a comps model, comparing eight different mid-cap telecom companies including Altice USA, Frontier Communications, and Cable One and using their multiples to guide my valuation of Lumen Technologies.

Subscriber stagnation:

Over the past few years, Lumen subscribers have stagnated in number and besides a slight 4% growth in Q4 of 2020, the trend shows no sign of recovery. Annual numbers show that average subscribers are 4.5M for both 2020 and 2021, showing no signs of further growth. and signaling a poor revenue forecast for the foreseeable future.

Overview:

Subscribers: 3.1M Revenue: $7.2B

In 2021, Lumen saw total assets increase from $57.9B to $59.4B and net debt decrease by $1.5B, reflecting Lumen’s commitment to reducing debt and expanding its assets. $2.1B was given to shareholders through dividends and stock repurchases, further showing a general priority to satisfying stockholders.

Subscribers: 500K Revenue: $12.9B

Despite competitors’ focus on 5G and mass market products, Lumen is still trying to shift its focus from its small and medium businesses segment to fully emphasize its mass markets division as of Q2 of 2022. Lumen’s slow entry into the mass market reflects CenturyLink’s weaknesses that persist even through the rebranding.

Victoria Gong | November 18, 2022

Lumen Technologies Cumulative Return on Common Shares compared to S&P 500 and S&P 500 Communications Services Sector*

*assuming (i) the investment of $100 on January 1, 2017, at closing prices on December 31, 2016 and (ii) reinvestment of dividends

Source: Capital IQ Risk Potential

Sale of Auxiliary Businesses: In 2021, Lumen announcedthe sale of two major business factions: its Latin America business to Stonepeak for $2.7B, nearly 9x the unit’s 2020 adjusted EBITDA; and its legacy ILEC telecom business to affiliates of Apollo Global for $7.5 billion at 5.5x the unit’s 2020 adjusted EBITDA. Although these sales look profitable by the books, the effects have yet to be reflected in Lumen’s financials. The Latin America sale was closed in August this year, but Lumen’s disappointing financial results in Q3 persisted despite the gains from the sale of their business.

Share buyback and historical dividends: As of November3, 2022, Lumen announced a $1.5B share buyback plan following disappointing Q3 results. They also announced that there would be no dividend for investors this year despite them being paid regularly, sending investors negative signals regarding the company’s financial health. However, given Lumen’s increasing debt, $1.5B is a huge cash drain and may leave the company with more potential liabilities than gains.

CEO Transition: New CEO Kate Johnson was officiallyappointed President and CEO as of September 13, 2022 after Former CEO Jeff Storey stepped down after 40 years. A former Microsoft executive, Johnson is focused on fiber rollout and may be essential to transforming Lumen from a telecoms company to a tech company. Though it may benefit Lumen in the long run, this goal’s very limited timeframe of the coming six months means that it will likely not be enough time for Johnson to enact significant changes that will bring up the stock price,

Sources: Lumen Technology Investor Relations | Fierce Telecom | Seeking Alpha | Statista | Capital IQ | CNBC

Rating: Buy

Current Price: $20.2

Price Target: $84.78

Company Updates / News

● November 16, 2022, Liberty Global to present at Morgan Stanley European TMT Conference

● Market capitalization: 9.17B

● Revenue LTM: 11.98B

Investment

Liberty Global plc (LBTY.A) A Global Telecom

Thesis:

Since Liberty Global’s listing in the New York Stock Exchange in 2013, the stock has grown more than 630%. Since then, Liberty Global has continuously expanded its footprint in the European as well as the U.S market, proving it to be a promising global telecom corporation.

My buy recommendation reflects a belief that Liberty Global will continue to perform well, given the continuous merger deals and and the synergies between the recent merger.

Valuation/Financial Modeling:

Competitor Statistics from 2021

As of November 18, Liberty Global plc (LBTY.A) is trading at$20.2. I believe that this equity is undervalued and expected to increase drastically to $84.78 within this year. I arrived at this conclusion by conducting a comparable company analysis with a 319.72% growth comparing 5 midcap companies including Globalstar, Inc., Cogent Communication and AST SpaceMobile. I also used the company’s performance history to guide my valuation.

Acquisitions:

Revenue: $68.4B

Liberty Global completed numerous strategic acquisitions in the last 3 years, strengthening its position in the international telecom industry. In April 2021, it completed acquiring 100% share capital of Sunrise Communications Group based in Switzerland. In June 2019, Telenet, Liberty Global’s sub-company, acquired De Vijver Media NV to expand its product on broadcasting and advertising services. In June 2019, Telenet acquired SFR BeLux to strengthen its broadband operations.

A Wide Range of Products:

Revenue: $5.7 B

Revenue: $11.6B

The company focuses on many areas: WiFi, internet services, video, mobile and telephony. With a cloud-based ecosystem “ONE Connect”, home users can benefit from “Connect App” gaining access to all of the firm’s services not restricted to “Connect Box” and “Intelligent WiFi”.

May Ton | November 18

Liberty Global Stock Price, June–November 2022:

Source: Capital IQ Risk Potential

Increasingly Competitive Market: Liberty Global operatedin a highly competitive market where products for mobile services and broadband internet are continuously innovated to accommodate the customer’s rising demands. Also, as the company operates outside the U.S in countries such as the Netherlands, Belgium, it faces competition from the main Internet providers in those countries. Given the development in wireless technologies such as 5G and FWA, they are creating more competitive challenges.

Exclusively Foreign External Operation Liberty Globalworks under a lot of foreign companies in countries ranging from Poland to the U.K, and is thus subject to each country’s economic rules and situation. This often exposes the company to foreign currency exchange risk. For example, the U.K departure from the EU in 2020 created a change in foreign currency exchange rates in the capital markets. This could potentially have an adverse effect on the company’s financial operations.

Sources: Liberty Global plc Investor Relations | Deloitte | Investors.com | Bloomberg | SEC.gov | Capital IQ | Financial Times

Rating: Buy

Current Price: $384.47

Price Target: $429.59

Company Updates / News

● Charter Communications announced a partnership with RingCentral to develop advanced high speed two new cloud communication offerings.

● Q3 reports show Charter is following through on its promise to expand rural broadband access with $525M spent on rural infrastructure construction.

Competitor Statistics from Q3 2022

Customers: 32 M Revenue: $13.55 B

Customers: 92.9 M

Revenue: $30.04 B

Charter Communications Inc. (CHTR)

Investment Thesis

Over the last few years, Charter Communications Inc. has seen its total revenue nearly double as daily life transitioned online during the COVID-19 pandemic. They have capitalized on this shift by rapidly expanding broadband services coast to coast. The pandemic emphasized the vital importance of the telecommunications industry, and based on the earnings reports from the industry leaders, this boost in online commerce is sticking around even as the imminence of COVID-19 fades.

Based on these factors I recommend Charter as a “buy”. Charter is targeting three significant areas in which to expand its market dominance. First, by expanding into rural communities to provide fiber optic service to over 1M new homes over the next few years. Second, by growing their Spectrum One program, which bundles “the nation’s fastest internet and Unlimited Spectrum Mobile.” And finally, by launching their new cloud communications software, jointly developed by Charter and tech company RingCentral.

Valuation:

As of November 18th, Charter Communications Inc. (CHTR) is trading at $384.47. I firmly believe that (CHTR) is undervaluedand, over the next two years, will reach a valuation of $429.59. I derivedthis valuation through a comparative company analysis with top competitors like AT&T and Verizon. In Q3, Charter demonstrated their confidence in its stock by repurchasing 5.8M shares of Charter Class A common stock for $2.6B. While Charter has yet to become a major player in fiber optic connection, it will soon be the sole high-speed carrier for millions of Americans.

Fiber Optics Expansion:

In 2021 Charter announced a $5B investment towards expanding high-speed broadband connection coast to coast. Q3 2022 saw $525 million dedicated towards this project. Communities that suffered the greatest during the pandemic were those without stable internet connections. This initiative will thrust Charter into the fiber optics foreground and significantly expand opportunities for rural regions to participate in a more virtual world.

RingCentral Partnership:

Charter Spectrum is breaking into the cloud communications market through its partnership with software company RingCentral. The two new products they are jointly launching, Spectrum Business Connect and Spectrum Enterprise Unified Communications, aims to be the most advanced conferencing platform on the market by integrating AI enhancements to help businesses run more efficiently.

Customers: 143 M Revenue: $34.24 B

Beau Gillam | November 18th, 2022

Beau Gillam | November 18th, 2022

Charter Communications Inc. (CHTR) Stock Price History

Source: Yahoo Finance Risk Potential

Competition: Charter Communications is trying to expandinto heavily contested markets, with Zoom already dominating the virtual conferencing space with its worldwide brand recognition built throughout the pandemic. Even with their recent advancements in AI integration, it will be an uphill battle to grow its Charter’s presence. They face similar challenges with their Spectrum One platform since 80% of consumers report already having a bundled telecom service.

Return To Work: According to a study published inHRDIVE, "90% of companies will require employees to return to the office." While Rutledge is confident that business will continue to be conducted primarily online, there are signs employees are ready to return to work in person. This would not bode well for Charter’s partnership with RingCentral, which is designed to facilitate remote interactions.

Liquidity: Regardless of the quality of a company'sproduct, there is an inherent risk associated with having extremely low liquidity. Charter's current ratio is a meager 0.29, which means it can only pay off 29% of its short-term liabilities. In comparison, the median current ratio for US-based publicly traded companies is 1.94, nearly seven times Charters. Even though Charter's reputation, size, and credit rating would allow for some leniency, if the markets were to suddenly turn around, Charter may have problems satisfying its liability obligations.

Sources: Charter Communications Inc. Investor Relations | Investor.com | The Wall Street Journal | Yahoo Finance | Consumer Reports | AT&T Investor Relations| HRDIVE | Capital IQ | Verizon Investor Relations

Grinzayd | November 18th, 2022

Rating: Buy

Current Price: $3.41

Price Target: $5.17

Company Updates / News

● Following the death of former CFO Gustavo Arnal, the Board of Directors voted unanimously to continue the tenure of CEO Sue Gove.

● Fears of an inflation-related recession in late 2022 have not impacted the consumer retail industry, as consumer spending remained high throughout Q3.

Competitor Statistics from Q3 2022

Investment Thesis

Bed Bath & Beyond Inc. (BBBY)

Over the last few years, Bed Bath & Beyond Inc. has struggled with maintaining profit margins, finding new opportunities for growth, and ultimately maintaining its once dominant market share within the consumer good and retail space. Emerging out of the COVID-19 pandemic having shuttered approximately 21% of all retail locations and shedding thousands of jobs, change was finally on the horizon as executive turnover initiated a complete overhaul in leadership, including members of the Board, the CEO, and CFO, as well as numerous c-suite positions. This brought in a wave of fresh new ideas to reform Bed Bath & Beyond and pivot the once-dying brand into a slim yet profitable enterprise.

Under CEO Sue Gove, Bed Bath & Beyond has focused on three primary avenues on its path to profitability. First, shuttering and selling off unprofitable assets both with regards to brands and physical store locations, then investing heavily in a revitalized online and in-person customer experience, and finally finding opportunities for expansion into markets that are parallel and logical to the existing Bed Bath & Beyond brand.

Valuation:

As of November 18th, Bed Bath & Beyond Inc. (BBBY) is trading at$3.41. I believe that this equity is undervalued and expected to increase to $5.17 within the next three years. I arrived at this conclusion by conducting a comparative company analysis with Bed Bath & Beyond Inc.’s competitors including Kohl’s Inc. and J.C. Penny Inc. Additionally, due to the nature of the stock being driven by “meme interest” I did research and analysis into the surrounding virality of the equity, and thus developing a better understanding of the probability of a breakout beyond a fundamental economic assessment.

Financial Restructuring:

Financial restructuring has played a critical role in how Bed Bath & Beyond has attempted to create a path to profitability, with CEO Sue Gove characterizing the new strategy as “embracing a straight-forward, back-to-basics philosophy that focuses on better serving our customers, driving growth, and delivering business returns.” This has included the raising of a $1.13 billion asset-backed revolving credit facility, a commitment to reducing SG&A by approximately $250 million in fiscal 2022, and the closure of approximately 150 lower-producing Bed Bath & Beyond banner stores.

Equity Virality:

Bed Bath & Beyond has experienced moments of virality throughout 2020-2022, including five instances of at least a 75% appreciation in stock price while rapidly oscillating primarily as a result of online discussion.

Andrew

Bed Bath & Beyond Inc. 5-year Stock Price

Source: Yahoo Finance Risk Potential

Bankruptcy: Bed Bath & Beyond is at a financial andeconomic inflection point in the company’s history, meaning it can either be salvaged and steered into a positive direction or eventually be sold for pennies on the dollar (think Toys’ R’ Us, Blockbuster, etc). While it is impossible to predict the long-term success of the company at this point, the continued risk of failure is present and amicable, and something that must be accounted for and considered when making investment decisions in the organization.

Instability: Consistent c-suite and executive turnover,while can be viewed as a critical act of reforming an organization, can bring long-term instability as competing visions and financial directions will pull a company at the seams. With a new CEO and a change of the board who is actively altering the traditional investment philosophy of Bed Bath & Beyond, there is an inherent risk that the new direction results in further business failure that only cements a lack of investor confidence in the leadership team and further reflects itself in the value of the equity.

“Black Swan” Disruptions: Whether it be the inflationeconomy of the post-pandemic world or the ongoing Ukraine-Russia conflict, unprecedented and unpredictable “black swan” events can have a sizable dent for any company, much less one in the reformative phase of its life-like Bed Bath & Beyond, Inc is. Investors should focus less on the probability of the events themselves occurring (as they are virtually impossible to predict), and an independent analysis of Bed Bath & Beyond should be made regarding resiliency given an unprecedented economic downtown (looking at company liquidity, analyzing market resilience, etc).

Sources: Bed Bath & Beyond Inc. Investor Relations | Investor.com | The Washington Post | Yahoo Finance | KeyCorp Investor Relations | Huntington Bancorp Investor Relations | Bloomberg | Capital IQ | Financial Times

Andrew Grinzayd | November 18th, 2022

Rating: Buy

Current Price: $5.38

Price Target: $11.45

Company Updates / News

● Student Loan Moratorium extended until end of year.

● Recently had lower than expected losses during a tough year.

● Added nearly 424,000 new members the past year, raising the total to 4.7 million members.

SoFi Technologies, Inc (SOFI) Beating Expectations in the Downturn

Investment Thesis

SoFi Technologies, Inc (SOFI) has grown into one of the largest personal loan financiers as well as providing multiple non-lending products to its customer. It has recently become the primary sponsor of theLos Angeles Rams stadium as it has continued to grow since its inception in 2011.

My buy recommendation reflects a belief that SoFi will continue to perform well, as it continues to weather the downturn in the economy as well as it pivots to new ventures.

Valuation/Financial Modeling

Competitor Statistics from Q3 2022

As of November 18th, SoFi Technologies, Inc (SOFI) is trading at$5.58. I believe that this equity is undervalued and expected to increase to $11.45 within this year. I arrived at this conclusion by conducting a DCF analysis with a 4% growth, 10% operating margin, and a WACC of 3.19% across 5 years. I used these assumptions based off of historical data and an optimistic view given SoFi’s performance history.

Pivot of Business

Members: 4.7 M

Revenue: $1.36 B

Due to the student loan moratorium and forgiveness program implemented by the Biden administration, SoFi has been forced to pivot its business away from solely relying on debt and loan refinancing. One of the biggest moves they made was the acquisition of Golden Pacific Bancorp, which has allowed the company to both establish a banking charter and also the ability to expand its business.

This pivot has allowed the companyto better weatherthe current downturn of the economy as well as any coming recessions. SoFi has continued to have stellar growth by pivoting with the banking charter venture as well as becoming a one-stop shop for all of their members needs.

Members: 20.1 M

Revenue: $1.04 B

Membership Growth

As the company has begun to shift towards what CEO Anthony Noto has described as a “one-stop shop for financial services product”, membership has increased dramatically year over year. This year, it has grown 61% to 4.7 million members.

Members: 4.0 M

Revenue: $1.24 B

This has been a consistent trend as the company has only been growing membership as a tool for expansion. As SoFi shifts away from a primarily student loan financier, it has only increased its potential to grow as it grows into more financial services areas.

Stock Price Monthly Change of SoFi and Top Two Competitors

Source: Yahoo Finance Risk Potential

Student Loan Forgiveness One of the biggest piecesof the Biden administration’s agenda has been focusing on student loans. SoFihas seen itsshares drop 61% since the announcement that the student loan moratorium was extended until the end of 2022. It remains to be seen how manystudent loans willbe forgiven and when payments will begin again as this has become a key political issue for the Democratic party.

Interest Rates SoFi primarily focuses on lendingservices, so its business operations are extremely sensitive to changes in the interest rates and recessions. The Federal Reserve has shown no sign of slowing down its interest rates hikes, which could put the economy into to recession in the coming years. More recently, there were better than expected retail earning which could lead the Federal Reserve to continue its interest rates hikes in the coming months.

Sources: SoFi Investor Relations | Investors.com | Yahoo Finance | Wall Street Journal | New York Times | LendingTree Investor Relations | Lending Club Investor Relations | Bloomberg | SEC.gov | Capital IQ | Financial Times

Rating: Sell

Current Price: $45.32

Price Target: $36.79

Company Updates / News

● Market Cap: 183.31 B

● PE Ratio: 15.85

● 52 Week High: 64.29

● 52 Week Low: 38.60

● Cisco recently announced a $600M restructuring plan associated with layoffs and restructuring of its businesses

Investment Thesis:

Competitor Statistics

2022

Cisco (CSCO) Bridge to Possible

Since Cisco’s listing on the New York Stock Exchange on February 16, 1990, the stock has largely continued to improve. Having grown to one of the largest technology companies, Cisco reliably provides computer networking products to many companies and consumers.

My sell recommendation stems from a number of recent global challenges, posing threats to Cisco’s growth with revenue declining steadily due to international conflict and supply-chain disruption

Valuation/Financial Modeling:

As of November 16th, Cisco (CSCO) is trading at$45.32.I believe that this equity is overvalued and expected to decrease to $36.79 within this year. I arrived at this conclusion by conducting a comparative analysis using 5 companies with similar financial data within the same industry. I ultimately used an EV/Revenue approach to make the final determination.

Cisco Umbrella: Cisco Umbrella is cloud-delivered enterprise network security which provides users with a first line of defense against cybersecurity threats. The Umbrella roaming client is designed to frequently detect changes in a computer's networking configuration. Each day, the Cisco Umbrella global network processes over 250 billion recursive Domain Name System (DNS) requests cementing it as one of the largest networks globally. Additionally, a newer technology called Anycast Routing helps Cisco maintain widespread availability, and is a main driver for growth at Cisco.

Competitive and Effective Services: Cisco’s competitive advantage comes from the unique nature of the products it offers to customers. With state-of-the-art products, Cisco has taken a step further against competitors and fully transitioned customer services online, which ensures that customer needs, queries, and concerns can be addressed quickly.

Further is the fact that Cisco uses cutting-edge technology in the development of its products resulting in the ability to sell at cheaper prices and undercut competitors. Using Anycast Routing also allows the company to easily scale their cloud security service globally by adding more data centers and servers, with no extra involvement needed from users and added flexibility and capacity capabilities.

Anika Mittle| November 15, 2022

Anika Mittle| November 15, 2022

Growth Percentage for Cisco and its Main Competitors

Source: Yahoo Finance

Risk Potential

International Conflict: In March, Cisco halted itsbusiness operations in Russia and Belarus due to Russia's invasion of Ukraine. This decision ultimately cost the company roughly $200 million in quarterly revenue according to the earnings release. Cisco has also said it will communicate directly with customers, partners, and vendors “to settle [its] financial matters, including refunding prepaid service and software arrangements, to the extent permissible under applicable laws and regulations.”

Supply-Chain Shortages: Supply chain risk managementis critical for Cisco Systems because it relies on outsourced manufacturing for more than 99% of the products it delivers, of which most are configured-to-order. In response to COVID-19, China's shutdown of Shanghai–the country's largest shipping port–stopped Cisco from receiving hundreds of critical components. As a result, CEO Chuck Robbins reported that Cisco's inability to obtain power supply components out of China prevented the company from manufacturing around 11,000 printed circuit board assemblies. The missing parts had a $300 million impact on revenue.

Cyber Attacks: Recently, Cisco announced that thecompany was the victim of a cyberattack that targeted its corporate IT infrastructure. Cisco Talos, the company’s threat intelligence arm, found that an employee’s credentials were compromised after the attacker took control of a personal Google account in which the individual’s credentials were stored and synchronized. Although some files were compromised and published, Cisco stated that no ransomware had been found, that it managed to block further attempts to access its network beyond the initial breach, and that it has ramped up its defenses to prevent further such incidents.

Sources: Cisco Umbrella | Yahoo Finance | Bloomberg| Capital IQ | Cisco Investor Relations | Financial Times | Yahoo Finance | Market Watch

Rating: Sell

Current Price: $115.43

Price Target: $106.71

Company Updates / News

● Missed 2022 Q3 projections

● Broadcom’s acquisition of VMware is currently on hold due to regulator process

● VMware announced an advanced partnership with HPE to further commit to the digital transformation of the Cloud experience

● SEC fined VMware $8mm due to “misleading investors”

● VMware ranked #1 in IT automation and configuration management by global firm

Competitor Statistics

from Q3 2021

(NOW): $392.26

Revenue: $6.9B

(WDAY): $164.61

Revenue: $5.7 B (HP): $47.19 Revenue: $42.8B

Investment Thesis:

VMware Inc. (VMW) Turbulent Tech Market

VMWare Inc. has proven to be a strong standalone business since it successfully completed its spin-off from Dell. The company has maintained a consistent level of revenue and net income during this period of uncertainty.

While the business model remains unchanged, I believe the lack of support from investors in the tech industry will cause the stock price to dip in the coming months.

Valuation/Financial Modeling:

As of November 18th, VMware Inc. (VMW) is trading at$115.43. I believe that this equity is overvalued and expected to decrease to $106.71 within the next 12 months. I arrived at this conclusion by conducting a comparable company analysis (COMPS). I found five other comparable companies with similar financial data within the same industry and ultimately used an EV/EBITDA multiple to reach the share price.

Acquisitions:

A key part of the company’s business strategy to remain relevant is to acquire other competitive companies and add their products and services to their offerings. Most recently Mesh7 in 2021. This business model allows them to offer end-to-end products all in one place.

On the other hand, Broadcom reached a $61 billion deal to acquire VMware. This was announced in May of 2022 and has been under review by both European and United States courts. Broadcom has said that they expect the deal to close in late 2023.

Booming Market:

In 2022 Q2, VMware has seen a 15% increase in YOY revenue. This is mainly supported by higher subscription and SaaS sales. This reflects the market trend of companies transitioning their business to cloud-based services. Again, this is ideal positioning for VMware because they offer all the essential needs of companies from security to cloud services to networking.

Total spending on cloud services is near $500 billion globally, up 20% YOY. This pattern is not expected to end anytime soon with increasingly more business being handled virtually. VMware is strategically placed to take advantage of new business opportunities due to its excellent track record of customer satisfaction and commitment to bringing new and improved technologies to market.

VMW Stock Price, Last Six Months:

Source: Yahoo Finance Risk Potential

Missed High Expectations: virtual takeover have been missed by a long shot. While there is still an undoubtedly strong demand, it is not at the level that was anticipated. This bear market trend can be seen in the tech-heavy NASDAQ, which is down almost 30% from its peak almost a year ago. Similar firms have announced major layoffs and it would not be out of the picture for VMware to follow suit.

Inflation: hot topic issue being addressed by both the FED and elected officials it will still have negative short-term and long-term impacts on the company. Unless there is a parallel increase in pricing for customers, increasing labor costs to general expense increases will negatively impact the company’s bottom line.

Merger Completion: give generous amounts of synergies and new business capabilities to both firms. It is still under review by two separate courts that can veto it because of monopoly laws. This would effectively eliminate planned projects and synergies and negatively impact projections for the company for years to come.

Sources: VMware. Investor Relations | Deloitte | Investors.com | CFRA Equity Research | fool.com | Yahoo Finance | ServiceNow Investor Relations | Workday Investor Relations | Bloomberg | SEC.gov | Capital IQ | Financial Times

Rating: Buy

Current Price: 122.43

Price Target: 172.86

Company Updates / News

● Metaverse could contribute more than $3 trillion alone to the global GDP by 2031

● META Quest plans to allow viewers to watch the 2022 World Cup in Virtual Reality

● Meta released improved privacy updates to Instagram and Facebook this month to increase online safety for teenagers

Competitor Statistics from Q3 2021

Investment Thesis:

META Platforms Inc. (META) Big Investments, Big Losses

With 2.5 billion monthly active users, META Platforms Inc. (META) is the world's largest online social network. It is the parent company to almost every popular social media platform, most notably Facebook, Instagram, messenger, and whatsapp.

My buy recommendation reflects my belief that META’s long term investment in the metaverse has large upside. Additionally, their monopoly in the social media space shows no signs of slowing growth, which results in a steady stream of ad revenue.

Valuation/Financial Modeling:

As of December 5th, META Platforms Inc. (META) is trading at $122.43. While in the short term I believe that this equity is undervalued and expected to drop to $110.45 by the end of the year, based on their poor earnings report from last quarter. However, I believe that in the long term this equity is expected to increase to $172.86 within the next 5 years.

I arrived at this conclusion by first conducting a DCF analysis with a 3.98% growth, 9.7% operating margin, and a WACC of 3.19% across 5 years given historical performance and an optimistic view of the size and potential of META.

Increasing Users

Since 2012, Facebook has seen an increase in active users every year with the lowest recorded growth rate of users in 2021-2022. Even with this lower growth rate, other platforms like Instagram and Messenger are making up for Meta’s overall user popularity, having seen massive increases in their user quantities every quarter. More users across Meta platforms leads to a direct increase in ad revenue across the board.

High Revenues to Return

Meta is an incredibly strong player in the social media space alone, not to mention other technological ventures. The drop in Meta’s revenues are often due to cutting back on advertisements and higher fixed costs in the current economic downturn. However, given its stability and dominant presence in the market, Meta’s revenues can expect to return to baseline with more favorable economic forces in the future. Additionally, Meta has invested large amounts into their Virtual Reality program. While it is reporting massive losses, these losses continue to shrink each quarter, which in turn aids overall revenue. As a novel technology with great potential, VR could soon turn more profitable for Meta.

Trend in Quantity of Active Facebook Users

Risk Potential

Metaverse: Since 2019, Meta has invested $36 billioninto its Virtual Reality development. Since then, this investment has only caused losses, with Meta reporting a $3.67 billion loss in Q3 alone. This investment has made investors worried about heavy spending and long-term focus within the company.

Apple: In the Spring of 2021 Apple overhauled IOSprivacy settings, allowing users to opt out of activity tracking while using iPhone apps. For Meta, whose revenue comes largely (~90%) from ad revenue and user data, this change turned out to be extremely costly. They are still adjusting to this change, and it will be some time until their information capabilities return to the same level as before.

New Competitors: With the impactful introduction ofTikTok into the social media market, other platforms have needed to adjust to combat their new competitor’s rapid growth. With only 2% of teenagers consistently using Facebook, trailing Snapchat, TikTok, and YouTube, Meta is facing an existential threat to its relevance. While Meta platforms have attempted to compete by adding Instagram and Facebook “Reels”, the threat of TikTok’s continuous and massive growth will continue to put massive pressure on Meta to evolve in the future

Rating: Buy

Current Price: $147.64

Price Target: $179.53

Company Updates / News

● Market Cap: 133.49 B

● PE Ratio: 16.64

● Since releasing its Q3 earnings over a month ago, shares have increased by 13.9%, exceeding predicted expectations by the S&P 500

● IBM recently unveiled the world's largest quantum computer at 433 qubits, tripling the size of competitor computers, revolutionize several industry verticals and characterizing IBM as a technological leader

Competitor Statistics from Q3 2022

Revenue: $16.2B

International Business Machines (IBM)

Let’s Create

Investment Thesis:

Since IBM’s listing on the New York Stock Exchange in 1962 at $11.34, the stock price has grown more than 1300%. Since then, IBM has been solidified as one of the leading companies in the Information Technology industry, operating in over 170 countries and employing over 345,000 individuals. My buy recommendation reflects a belief that IBM will continue to perform well given the increasing demand for hybrid cloud platforms and the popularity of cybersecurity in the market.

Valuation/Financial Modeling:

As of November 18th, International Business Machines (IBM) is trading at $147.64. I believe that this equity is undervaluedand expected to increase to $179.53 within this year. I arrived at this conclusionby conducting a DCF analysis with a 1.5% perpetuity growth rate, 9.33% operating margin, and a WACC of 4.5% across 1 year. I used these assumptions based on historical data and an optimistic view given IBM’s performance history.

High Cloud Adoption Rate:

IBM is a leader in its cloud computing services, introducing this new sector of the corporation in 2011. Cloud computing is the on-demand availability of computer system resources without manual user management, specifically focusing on the bandwidth of a computing device and its data storage. Large clouds – data centers that contain large amounts of information – are often distributed across various locations, but IBM combines its powerful infrastructure into handling critical information. This global cloud computing market is projected to grow from $480.04 billion in 2022 to $1712.44 billion by 2029, at a CAGR of 19.9% in the forecast period.

Because IBM additionally works with a large international customer base, there is an immense and exciting potential for cloud computing to store data around the world and not just within specific regions. In addition, through the acquisition of Red Hat, there is an increased potential for industry agility and business continuity.

Robust Partner Ecosystem:

IBM’s investment in a variety of partner channels builds the strong ecosystem of its products and service offerings, strengthening R&D capabilities, enhancing the ability to deliver innovative solutions to clients, and extending its technology portfolio’s value. Just last year, the Hybrid Cloud Ecosystem was created to address the $1.2 trillion hybrid-cloud opportunity, and in just three months since its establishment, over 30 partners have joined the secure financial services ecosystem, as one example of this ecosystem’s strength and overall success.

IBM Growth Rate Among Mature Competition

Source: Yahoo Finance Risk Potential

Legal Liabilities of Data Security:In any technologycompany, data security is always one topic of major concern, where IBM’s data center is a key component to the security of client networks. Due to the importance of protecting the security of its thousands of clients, there is the potential for exposure to legal liabilities. While IBM has addressed data security concerns and continues to with new technological developments, there are currently numerous lawsuits IBM is involved with regarding security breaches on its databases.

Mature Competition: Many of IBM’s key competitorsare other leaders in the Information Technology sector, where these rivals make use of their lower-cost product and service offerings to gain market share. As a result, IBM is frequently faced with the threat of competitors that have the ability to lower their prices, offering aggressive pricing structures to clients. However, IBM is frequently characterized as a technology company of innovation, and as the technology market grows, IBM will have many chances to innovate and outperform competitors.

Imitable Offerings: Due to IBM’s mature competitionand its challenges in lowering its prices, another risk of investment IBM faces relates to the offerings IBM offers. IBM’s product line is fairly vast, addressing the needs of its large customer base. However, as a result of IBM’s limited offering scope, these products and services have the ability to be imitated and replicated by competitors, those that are leaders in the same industry. IBM’s cloud computing, for example, has been challenged by Amazon Web Services and Microsoft Azure, providing very similar offerings at a greatly discounted price.

Sources: Yahoo Finance | Fortune | IBM.com | Bloomberg | SEC.gov | Capital IQ | Financial Times

Rating: Sell

Current Price: $148.04

Price Target: $105.83

Company Updates / News

● Parker Harris, Salesforce’s CTO and Co-Founder, sold nearly 50,000 shares in a recently released SEC filing

● Gavin Peterson, the Chief Strategy Officer, announced his departure from Salesforce in November 2022

● Over 1,000 employees in the San Francisco office were laid off in November 2022

● Co-CEO Bret Taylor stepped down in December 2022

CRM Competitor Statistics from Q2 2022

Salesforce (CRM) Cloud Leader is Facing a Fall from the Sky

Investment Thesis: Salesforce was founded during the height of the dotcom era in February 1999 and has continued to grow ever since. As a leader in the Customer Relationship Management (CRM) industry, over 150,000 corporate clients rely on the open-source cloud platform to optimize sales and operate accounts.

My sell recommendation is based on recent troubling actions by management, shifts in the industry’s dominant leaders, and the impending recession. Analysis of these factors indicate that faltering product quality and company culture will devalue the stock.

Valuation/Financial Modeling:

As of November 18th, Salesforce (CRM) is trading at$148.04. This equity is overvalued and expected to decrease to $105.83 withinthe next year. This conclusion was derived from a Comparable Companies analysis. The companies used to forecast the valuation were SAP, Oracle, and HubSpot. Using historical data and the higher end of the EV/EBITDA multiple calculation, it is evident that Salesforce is severely overvalued in the market.

Thought Leader: Salesforce has been a driver of growth and innovation in the cloud computing and CRM industries; this has afforded management to craft opportunities for expansion. In 2009, the company launched its venture capital division and in 2019, Salesforce acquired Tableau: a leading data visualization platform. These serve to showcase that Salesforce is dedicated to continually diversifying its revenue streams, acquiring talent, and long-term sustainability.

Corp. customers: 150,000 Revenue: $7.72B

In September 2022, Salesforce forecasted a favorable total addressable market from 2022 to 2026. By Q4 2026, its revenue from its five arms (sales, service, digital, platform, and data) will be nearly $300 billion and will experience a 13% CAGR in each line of business.

Adaptability:

Corp. customers: 13,000 Revenue: $3.13B

The cloud computing industry has always been at the forefront of lowering fixed costs as Salesforce and Oracle revolutionized the licensing pricing model. This enhanced ability to adapt to change has allowed Salesforce to prevail in cost efficiency in the post-COVID working era.

In November 2022, Salesforce announced it plans to rent one-third of its iconic Salesforce tower in San Francisco as employees embrace working from home. As the tech industry continues to evolve, Salesforce has shown it can adapt with relative ease.

Salesforce’s Continued Fall from Grace

Source: Bloomberg Terminal

Risk Potential

Recession: Economists and Wall Street leaders havepredicted that the American economy will likely plunge into a recession within the next year, and that industries will be impacted across the board. In the technology space, companies are looking to lower costs leading to a massive wave of employee layoffs. This week alone, Salesforce laid off over 1,000 workers in its San Francisco office with only two month severance packages, marking the beginning of internal cost efficiency efforts The low packages may be a larger signal of financial instability and without this personnel, the quality of Salesforce’s product offerings may begin to suffer.

Customer Retention: The cloud management industry–specificallyCRM and ERP offerings–is projected to see exponential growth through 2030; however, new monopolistic conglomerates will likely overtake Salesforce’s historic dominance. Amazon and Microsoft have also expanded into this space, both offering a wider array of products. These new entrants are extremely attractive to corporations and there is a high risk of Salesforce clients shifting their business towards these new competitors.

Troubling Executive Suite: Recent actions by leadersat Salesforce signal that there is little trust in the future economic and strategic viability of the company. The Chief Strategy Officer resigned and the Chief Technology Officer, who is also a co-founder, has sold a relatively large number of shares. These cues may signal that leaders do not necessarily believe that the company will succeed through the recession.

Sources: Salesforce Investor Relations | Forbes | Microsoft Investor Relations | Ameriprise Financial | SAP Investor Relations | Yahoo Finance | SEC.gov | Bloomberg | San Francisco Business Times | Capital IQ | Wall Street Journal

Sarah Boyle | December 5, 2022

Rating: BUY

Current Price: $168.74

Price Target: $201.83

Company Updates/News

● Market Capitalization: $100.57 B

● 363 aircraft deliveries in 2022 as of October 31st compared to 340 deliveries in 2021

● The Southeast Asia aviation market is increasing as travel restrictions are easing

● $7.2 trillion in Boeing airplane deliveries is forecasted over the next 20 years

Statistics

2021

Investment Thesis:

The Boeing Company (BA) Demand for Planes Expected to Soar

Boeing, a multinational aerospace company, designs and manufactures commercial airplanes and defense and space systems. Operating under four business units: Commercial Airplanes; Defense, Space & Security (BDS); Global Services (BGS); and Capital Corporation. Boeing develops a wide range of products from commercial jetlines, aircrafts, missiles, bombers, rockets, satellites, and spacecrafts. Since its founding in 1916, Boeing has grown to become the world’s largest aerospace company and the US’s largest manufacturing exporter, operating in more than 150 countries. Although it is still recovering from its market cap drop at the onset of the COVID-19 pandemic, Boeing is bouncing back.

My buy recommendation reflects the belief that Boeing’s share price will increase in the long run as global travel surpasses pre-pandemic levels and the demand for air cargo increases.

Valuation:

As of November 9th, Boeing (BA) shares are trading at$168.74. I believe that this equity is undervalued and expected to increase to $201.83 within the next year. I arrived at this conclusion by conducting a Comparable Company Analysis, comparing Garmin to Raytheon Technologies Corporation, General Dynamics Corporation, Lockheed Martin Corporation, Airbus SE, and BAE Systems plc, and using the EV / Revenue valuation multiples.

Airline Travel:

Travel is almost back to pre-pandemic levels. Domestically, the US experienced an increase in travel this fall compared to pre-pandemic levels. European travel is down only 14%. Recently, major destinations like Japan, Hong Kong, and Taiwan, lifted their border restrictions. Although, business travel and international travel are still lagging behind. One of the biggest hindrances to air travel is China’s ongoing Zero-Covid policy, although Bloomberg predicts that these restrictions might be eased soon. Boasting an impressive list of customers, including Delta Air Lines, American Airlines, Southwest Airlines, and United Airlines, Boeing will increase supply as these airlines place orders as demand for air travel increases.

Air Cargo:

Air cargo as a transportation method is expected to grow globally over $100 billion over the next five years, a 5.8% annual growth rate. These projections are quite stable, as the air cargo industry isn’t as susceptible to major events like the airline industry is. For example, airlines experienced dramatic decreases in revenues with the pandemic, while air cargo companies experienced increases. Boeing estimates that it will produce 2,795 freighter deliveries over the next 20 years in order to keep up with the demand.

Boeing Aircraft Orders

Source:

Statista Risk Potential

737 Max Crashes: Two Boeing 737 Max planes crashedin October 2018 and March 2019, killing 347 people. After the first crash, it was reported that the CEO at the time, Dennis Muilenburg, knew of the safety issue but allowed for the continued use of the model. So, when the second 737 Max crashed just five months later, this caused public outrage as well as a wave of lawsuits. This has already cost Boeing over $20 billion, and outstanding claims that are to be reviewed next year will likely increase this sum. Furthermore, in light of these incidents, the US Congress passed stricter legislation on the Federal Aviation Administration safety approvals. These reforms have not only increased the cost of getting an aircraft certified, but they also delay the process.

International Instability: As an international company,Boeing relies on foreign countries, both as suppliers and customers. Non-US customers accounted for 37% of Boeing’s revenues last year. Business is dependent upon world events and could be negatively affected when conflicts and political instability arises. For example, Boeing relies heavily on Russia for certain metals. In the midst of the Russian invasion of Ukraine, the US has significantly limited its Russian imports, potentially affecting how Boeing obtains these metals. Moreover, since Boeing is an American company, it must comply with American regulatory requirements. In 2018, for example, during the US-China trade war, significant tariff increases were imposed. This caused China to reduce American imports, hurting Boeing as China is Boeing’s second-largest market behind the US. Such conflict and political events can arise at any time and unexpectedly reduce Boeing’s revenues.

Nature of Contracts:A great deal of estimation goesinto projecting the cost of a project. These projects come with a lot of variability, including supply-chain costs and labor costs, causing potentially inaccurate estimates. This is a problem when dealing with fixed-price contracts. Almost 70% of all contracts that fell under Boeing’s BDS and BGS segments were fixed-price contracts. Although this can be beneficial if the company improves upon efficiency and completes the project in a cheaper and/or quicker manner, it can also bring about major financial losses if time and/or resources are underestimated. For example, in 2018, Boeing won three Pentagon fixed-price contracts. Because of unexpected interruptions and supply-chain issues, the company has lost over $1.5 billion, and continues to lose more by the day as they continue to work on the unfinished projects.

Adelyn

Rating: Hold

Current Price: $478.67

Price Target: $443.44

Company Updates / News

● Germany becomes the ninth foreign country to join the F-35 Lighting II Global Team in December

● Lockheed Martin, Microsoft Announce Landmark Agreement

On Classified Cloud, Advanced Technologies For Department Of Defense

Competitor Statistics from Q3 2022

Revenue: $16.58 B

Revenue: $16.95 B

Revenue: $8.97.B

Lockheed Martin Co. (NYSE: LMT) Rocketing Prices, Still Worth a Hold

Investment Thesis:

Since the merging of Lockheed Corporation and Martin Marietta on March 15, 1995, the stock has grown more than 1508.81%. Since then, Lockheed Martin Co. has grown into one of the largest aerospace companies in the world with worldwide interests. My hold recommendation is based on the fact that despite the stock’s overvaluation, Lockheed Martin’s stable growth as well as its stable backing of revenue by the U.S. Government.

Valuation:

As of November 18th, T-Mobile (TMUS) is trading at$478.67. According to the EV/EBITDA valuation multiple, the fair value of Lockheed Martin per share is $430.74. Although the stock is currentlyovervalued by a difference of $47.93, considering the company's rates of growthand its stable source of net sales (The U.S. Government), the stocks of Lockheed Martin were rated as a hold.

F-35 Lightning II, (JSF):

The F-35 Lightning II is currently developed by Lockheed Martin, and it leads the international supply chain for fighter aircrafts. Lockheed Martin claims that the F-35 Lightning II is the most advanced fighter jet in the world, currently serving as the backbone of allied airpower for over thirteen nations.

The Lockheed Martin X-35 won out against Boeing’s X-32 to be chosen as the main model to be supplied for the Joint Strike Fighter (JSF) program, which is intended to replace a wide range of existing fighter, strike, and ground attack aircrafts for eight nations (U.S., U.K., Italy, Canada, Australia, the Netherlands, Denmark, Norway). Apart from these countries Belgium, Finland, Germany, Israel, South Korea, Japan, Singapore, and Switzerland have purchased these aircrafts.

Competitive Advantage:

Lockheed Martin produces a unique asset that is nearly irreplaceable, providing a long term, stable competitive advantage. Their innovative company mindset has set them apart from their competitors, developing innovative technologies such as augmented reality combat training software, autonomous war vehicles, and of course, the F-35. As the largest military defense contractor in the world, Lockheed Martin has an array of competitive advantages, including a monopoly on government defense spending, inseparable lobbying and congressional ties, an immunity from market forces, as well as unparalleled technology and human capital. Lastly, their focus and expertise on space exploration and communications systems puts them in a favorable position to dominate the coming frontier.

Alexander

Share Price Growth of Lockheed Martin and Comparable Companies:

Source: Yahoo Finance Risk Potential

F-35 Production: The F-35 program constitutes a largeportion of Lockheed Martin’s net sales. The program represented 27% of Lockheed’s revenue in 2021. The company explained that due to the program’s inherent size and complexity, they anticipate that it will be under continual review. Spending cuts and delays in orders will negatively impact a considerable portion of their business. Lockheed also mentioned that supply complications due to ramifications of the COVID pandemic may hinder the program’s operations.

Provision Changes for R&D Expenditures: Beginningin 2022, companies no longer have the ability to deduct R&D expenditures immediately. They are required to spread out the deductions over five years instead. This could lead to reduced cash flow and increased tax rates for companies. Lockheed Martin cautions that if these provisions are not changed, it could take $500 million of its cash from operations in 2022.

Sources: T-Mobile Investor Relations | Deloitte | Investors.com | CFRA Equity Research | fool.com | Yahoo Finance |

Alexander Chung | November 2022

Rating: Buy

Current Price: $159.09

Price Target: $177.49

Company Updates / News

● Waste industry has outperformed the overall market over the past 5 years due to increased waste output and expansion into new markets through M&A

● Waste Management (WM) came out with quarterly earnings of $1.56 per share, beating consensus estimates

Competitor Statistics from Q3 2022

Investment Thesis:

Waste Management (WM) Recycling is Overrated

Since being listed on the New York Stock Exchange in 1971, Waste Management has pursued an aggressive acquisition process and has become America's leading provider of waste management services, operating 260 landfill sites and 340 compacting stations.

I recommend a buy for Waste Management at $159.09 with a price target of $177.49, implying an 11.6% upside based on Urbanization & Increasing Waste Trends, Expansion into Recycling & Renewable Energy, and a continued aggressive acquisition strategy.

Valuation:

As of November 17th, WM is trading at $159.09. I believethis equity is undervalued and expected to increase to $177.49 witha two-year investment horizon. I arrived at this conclusion by conducting a DCF analysis with a 2.3% growth, a 15.55x EV/EBITDA Exit, and a WACC of 5.55% across five years. I used these assumptions based on historical data and an optimistic view given Waste Management’s performance history.

Urbanization & Increasing Waste Trends::

Revenue: $5.07B

Construction and demolition sectors account for 30-35%of total US waste. Since America is short more than 5M homes due to labor shortages, supply chain issues, the growing work-from-home trend, and younger first-time home-buying population, we can expect increasing housing demand. Thus, cities around the country are increasing spending on building new homes, and we can expect heightened demand for waste removal.

WM has the largest waste-carrying capacity operating with a fleet of 26,000 trucks. It also possesses the most transfer stations in the industry that compact trash to increase density of waste being transported. These factors allow WM to have the most cost-effective waste transportation to fully take advantage over these industry trends.

Revenue: $3.6 B

Revenue: $1.9B

Expansion Into Recycling & Renewable Energy:

As consumer-packaged goods companies continue to set aggressive recycling goals, Waste Management has kept its recycling capabilities on par with packaging changes. By 2023, Waste Management plans to outfit 95% of its recycling facilities with updated recycling technology. The company announced that it expects to invest $800 million in recycling infrastructure over the next four years. Investments will target accelerating automation in its current single-stream facilities and expanding its recycling footprint in underserved markets.

Expected Returns on Investment:

Source: WM Investor Presentations

Risk Potential

Supply Chain & Distribution Issues: China’s NationalSword Program restricts imports of recycled products, causing collected materials to stagnate. Further, unprocessed recycled materials typically exported no longer are delivered to the historically largest market. This is mitigated by WM’s priority on other revenue lines. WM’s main business is collection and landfill, at 60% and 21% of revenue, respectively. Recycling is only 8% of revenue, so profits from other services will offset the volatility of recycling commodities.

Dependency on Natural Gas: 53% of WM’s truck fleetsuse natural gas for fuel, which is subject to increased sensitivity to prices and hurts operating profits. Also, a lack of natural gas infrastructure in the US and Canada demands capital investments from WM in fleet logistics. However, WM has a sustainable competitive advantage as they allocated $550 million in capital to renewable energy growth. Further, operating costs decrease from vehicle efficiency and WM extracts natural gas from its landfills, with 13,000 gallons daily—enough to power 300 vehicles a day.

Public & Private Competition: Governmental servicesand private waste management companies compete for necessary contracts with municipalities and counties. Competitors with large national accounts can afford to set lower prices and cost strategies which poses a risk to WM. This is mitigated because as a major player, WM can influence contract pricing. Revenue increases are forecasted to more than cover operational cost increases, expanding EBITDA margins. Lastly, post-pandemic market growth in commercial and housing increases demand for all revenue segments.

Sources: WM Investor Relations | Capital IQ |Investors.com | CFRA Equity Research | Yahoo Finance | Bloomberg | SEC.gov | WSJ| Financial Times

Rating: Hold

Current Price: 102.28

Price Target: 98.96

Company Updates / News

● P/E: 41.08

● EPS: 2.37

● Market Cap: 127,915B

● Positive Quarter Three results in light of FY 2021 volatility

● Experimenting with increased remote service options to fulfill prescriptions

Competitor Statistics from Q3 2022

Investment Thesis:

CVS Health Corporation (CVS) The Long-Term CVS Plan

Since CVS’ listing in the New York Stock Exchange in 1984, the stock has grown steadily, with a steep uptick following the Global Financial Crisis of 2008, a fall in recent years, and a recovery that rivals its earlier ascent. CVS has grown to be one of the largest healthcare companies, providing service to over 50 million customers.

My hold recommendation reflects a belief that CVS will continue to perform well, given its hybrid services and rising revenues.

Valuation/Financial Modeling:

As of December 5th, CVS (NYSE: CVS) is trading at$102.28. I believe that this equity is undervalued and expected to increase to $98.96 within this next year. I arrived at this conclusion by conducting a comparable companies analysis. I used these assumptions based on historical data and an optimistic view given CVS performance history.

Exceeding Expectations:

CVS Health Corporation

Customers: 98.3 M

Revenue: $314,343 MM

CVS has recently beaten out analyst expectations for three quarters in a row now, with revenues rising 10% year-over-year in the latest earnings report. That has caused CVS to up its outlook for the next fiscal year. This change is reflected in the company acquisition activity, as CVS has recently purchased telehealth care company Signify. This signals CVS’ intent to compete in an increasingly tight healthcare industry. Additionally, earlier this year CVS reported that it had reached 44 million unique digital customers, a sign of the company’s continued ability to expand in the post-COVID-19 fiscal environment,

UnitedHealth Group Incorporated

Customers: 147 M

Revenue: $315,118 MM

CVS is a company with many divisions and businesses. Despite being beat out in customers served on a client-basis by competitors UnitedHealth Group Incorporated and Cigna Corporation, it currently retains the advantage of its Minute Clinic arm, which reaches 50 million customers annually in in-person visits.

Overview:

In 2022, through three quarters, CVS saw total assets remain steady from a total of $232,999 million to $231,212 million and total liabilities increase from $157,618 million to $169,201 million, reflecting the recent merger activity and growth operations.

Cigna Corporation

Customers: 190 M

Revenue: $180,026 MM

CVS Quarterly Net Income March 2021 - September 2022

Consistent growth in net income over the past few quarters has allowed CVS to invest its earnings into growth opportunities such as acquiring Signify (units: mm).

Source: Capital IQ

Risk Potential

Opioid Settlement: CVS recently made an agreementto pay $5 billion over the next decade to settle opioid claims. This is in lieu with many other health care companies, Walgreens and Walmart included, also facing lawsuits over their direct and indirect involvements in America’s opioid crisis. Regulatory and compliance risks will persist for CVS in the near future, and investors should be aware of the increasing pressure lawmakers have applied to the industry.

Response to Competition: CVS’ stock price history,as noted earlier, was on a steady incline until 2016. The reasons for this, as argued by several commentators, was competitor M&A activity and the loss of contracts with the U.S. military. The nature of the healthcare industry is such that customers often get swept in varying directions when M&A activity occurs, thus CVS will need to match such M&A activity amidst activity from rivals or continue to make their services compelling enough to stay on.

High Debt: CVS, by comparison to its competitors,has significantly higher levels of debt—double that of Cigna Corporation ($25,000 million). This makes for a degree of inflexibility in terms of growth given the interest expenses CVS must fulfill in order to remain operating. CVS’ several areas of growth opportunities should ease investors, but the company’s debt is worth being cognizant of.

Sources: CVS Investor Relations | Capital IQ | Foxbusiness.com | Fiercehealthcare.com |Yahoo Finance | CNBC.com | UnitedHealth Group Incorporated Investor Relations | Cigna Corporation Investor Relations

Rating: Buy

Current Price: $76.50

Price Target: $80.45

Company Updates / News

● Market Cap: $18.81 billion

● P/E Ratio: 15.12

● EPS: 5.06

● In early November, Hologic announced that it was awarded $19 million from the Biomedical Advanced Research and Development Authority (BARDA) to support its R&D efforts for its COVID molecular tests.

● Earlier in 2022, Hologic’s Project Health Equality partnered with Promise Fund of Florida to increase access to care for underserved women with cervical and breast cancers, uterine fibroids and abnormal uterine bleeding.

Competitor Statistics

For Q4 2022

Stock Price: $76.50

Market Cap: $18.81B

Stock Price: $87.69 Market Cap: $5.79B

Stock Price: $106.23 Market Cap: $22.29B

Hologic, Inc. (HOLX)

Investment Thesis: Hologic, Inc. is a developer, manufacturer, and supplier of premium diagnostic products, medical systems, and surgical products. The company focuses primarily on women’s health with business units in breast health, gynecologic health, and sexual health. My buy recommendation reflects my belief that Hologic is emerging out of the pandemic as a company well-equipped to expand its product offerings and broaden its women’s health initiatives.

Valuation:

As of December 4, Hologic (HOLX) is trading at$76.50.I believe that this equity is currently undervalued and expected to increase to $80.45 within this year. I arrived at this conclusion by conducting a comparable companies analysis. I chose to give Hologic a buy rating based off historical data and an optimistic view given the company’s strong growth potential.

Pioneer in the Women’s Health Movement: Even though Hologic has maintained a strong position amongst its competitors, its commitment to championing women’s health is what differentiates the company from its competitors. For instance, Hologic created a Global Women’s Health Index that works to measure women’s experiences with healthcare. The index’s findings are then used to raise international awareness of the importance of women’s health to our society.

Hologic also leads an initiative called Project Health Equality, which strives to provide underserved women with access to superior breast and cervical cancer screening technology. The project partners with nonprofit organizations that can help make a meaningful difference for women of color. Having strong social initiatives puts Hologic at the forefront of the women empowerment movement, which will help expand the company’s customer outreach and further build on its mission.

Strong Potential for Growth from Acquisitions:

Hologic used its increased cash flows from the pandemic to focus more on inorganic growth through recent acquisitions. For instance, the company signed an agreement to acquire Bolder Surgical for $160 million back in 2021. Bolder’s capabilities in the surgical devices space helped to diversify Hologic’s portfolio and expand the company’s product opportunities.

Hologic’s strategic acquisitions put it in a perfect position for long-term growth. While the company is well known for its public initiatives in women’s health, having strong growth in its surgical space can put Hologic at the forefront of surgical technology products. Recently, Bolder was recognized for its CoolSeal device, which improves surgical efficiency by reducing the need for multiple instruments. Finding an opportunity to improve outcomes for patients using innovative technology primes Hologic for greater success in the post-pandemic world.

Hologic OHLC and Stock Volume Over the Last Five Years

Source: Yahoo Finance Risk Potential

Acquisitions Carry Great Amounts of Risk:Althoughacquisitions provide strong opportunities for long term growth, they also provide a great amount of financial risk for the company. If the acquired companies have any sort of bad press or downturns, this could make the deal unprofitable for Hologic and cause the company to lose revenues. Furthermore, focusing on inorganic growth also carries a risk of not having synergies. Having to expand Hologic’s product offerings through various other companies may cause clashes within its operations and culture.

Concerns With Future Growth After COVID: Even thoughHologic has maintained a steady stream of revenue throughout the pandemic due to its breakthrough COVID tests, it saw a decrease in sales in its Breast Health and GYN Surgical sectors. As the pandemic subsides, investors are questioning whether Hologic can still outperform expectations. Since the company has recently been focusing on improving and diversifying its surgical sectors with more innovative technology, there is a risk that these efforts may not maintain the growth that Hologic had during the pandemic. If Hologic cannot continue to maintain a steady stream of revenue, the company’s image and financial stability could be jeopardized.

Medical Device Industry is Very Saturated: The globalmedical devices market size was valued at $489 billion in 2021 and is projected to grow from $495.46 billion in 2022 to $718.92 billion by 2029, which exhibits a CAGR of around 5.5%. The growing demand for medical devices in the midst of increasing surgical and diagnostic procedures has led to the market becoming very saturated and competitive. Success in the medical device industry centers around having the most innovative technology, which requires a massive investment into R&D. Therefore, Hologic carries a consistent risk of falling behind the technological trends.

Sources: Hologic Investor Relations | Bloomberg | Markets Insider | Capital IQ | Seeking Alpha | Global Women’s Health Index | Yahoo Finance

Rating: Cautious Buy

Current Price: $248.01

Price Target: $350.00

Company Updates / News

● 3/8/22: Shockwave Medical named to Fast Company’s “Most Innovative Company” List

● 3/31/22: Announces global launch of new peripheral intravascular lithotripsy catheter

● 5/23/22: Obtains regulatory approval in China for Intravascular Lithotripsy

● 11/16/22: Publishes inaugural ESG report demonstrating CSR and sustainability initiatives

Competitor Statistics from LTM

Investment Thesis:

Shockwave Medical, Inc. (SWAV) The First of Many Innovations

Shockwave Medical is a relatively new medical technology company that has already seen major growth in price from under $50 three years ago to consistently being listed at over $200 today. With one major product already bringing increased profit margins, the company has shown it can succeed and that it has plenty of room to grow.

My Cautious Buy position reflects my belief that the company is headed in the right direction for major gains but still needs to exhibit a wider influence in the market of medical technology before finding greater success.

Valuation/Financial Modeling:

As of November 18th, Shockwave Medical (SWAV) is trading at$248.01. I believe that this equity is slightly undervalued and expected to increase to $350.00 by the end of next year. I arrived at thisconclusion by conducting a Comparable Company Analysis and noting the young age of the stock and its recent spikes in price spurred by new, higher revenue streams. As revenue streams will stabilize, the current P/E ratio of 101.82 should fall, further stabilizing the stock and increasing its value.

Intravascular Lithotripsy Catheter:

Net Income: $88.03 M

The newfound success and growth of Shockwave Medical can largely be attributed to its new Intravascular Lithotripsy Catheter used to treat cardiovascular calcium. Adapted from treatment for kidney stones, the device can more safely and less invasively combat one of the many precursors for complications from heart disease, including but not limited to heart attacks.

Overview:

Net Income: $(30.51) M

In 2022, Shockwave Medical saw an increase in EBITDA to nearly $100M after not having seen a positive value in the previous three years. Net Income has also reached a positive mark, suggesting the company is moving in the right direction. Its new catheter is spurring the bulk of this growth, and should continue to bring in positive revenue streams in the near future.

However, the company will need more big wins in different areas of medical technology if it is to truly emerge as a key provider in the industry.

Net Income: $412.63 M

Net Income: $61.73 M

Stock Price Growth with Competitors:

Source: Yahoo Finance Risk Potential

Lack of Diversification in Product Portfolio:ShockwaveMedical has moved ahead of competitors Penumbra and Inari Medical in terms of Net Income, but remains behind Teleflex and Merit Medical Systems. Outside of its innovative catheter, the company has few large products driving growth, while the two companies it is trying to catch exhibit better diversification in other medical areas, such as surgical equipment and dialysis products.

A Large Uphill Battle: The medical devices and healthcareindustries in the US are filled with big name players such as Pfizer, Inc. and Medtronic that are constantly racing to develop the latest technology. With larger funds to devote to R&D, it may be difficult for the up-and-coming Shockwave Medical to keep pace with these larger firms. While it may be advantageous from this perspective to focus on one or two specific areas (such as cardiovascular health), that could leave the company exposed, as previously mentioned.

Market Uncertainty due to COVID-19: The COVID-19 pandemicsaw a forced stop on many elective surgeries. Since then, many consumers have been hesitant to seek access to healthcare when not in a dire situation. While this trend has shown some signs of reversal, the pandemic added a previously inexperienced level of volatility in the demand for medical and surgical technology.

Sources: Shockwave Medical Investor Relations | Yahoo Finance | Capital IQ | US Food and Drug Administration | Teleflex, Inc. Investor Relations | Merit Medical Systems, Inc. Investor Relations | Fortune Business Insights

Rating: Moderate Buy

Current Price: $517.19

Price Target: $595

Company Updates / News

● UnitedHealth Group and Change merger is being appealed by the DOJ

● UnitedHealth Group’s Board of Directors authorized a quarterly cash dividend of $1.65 per share

● YoY Revenue Growth: 12.82%

● EPS YoY Growth: 28%

● Return on Equity: 23.4%

● Beta: 0.73

Competitor Statistics from Q3 2021

Revenue:$315B

Revenue: $314B

Revenue: $180B

UnitedHealth Group Inc. (UNH)

A Reliable Blue-Chip with Consistent Growth

Investment Thesis: UnitedHealth Group Incorporated is a managed healthcare and insurance company, and the largest healthcare company by revenue. It had four major segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx.

Due to consistent, stable growth, as well as solid fundamental financials, I rate UNH as a “moderate buy,” reflecting that purchasers may be paying a slight premium for this dependability.

Growth:

For the US healthcare industry as a whole, spending is projected to grow at a rate of anywhere between 5 to 15% CAGR over the next several years.

UNH as a company has also seen growth, both as a result of growth in membership and growth within their Optum segment. UNH reported Q3 revenues of $315 billion, the largest out of any competitors, and a 12.82% increase in YoY revenue growth. This revenue growth is compared to CVS’s 10.69%, Cigna’s 5.65%, and Elevance Health’s 14.47% growth. UNH also has the largest net income margin percentage: 6.17%, compared to CVS’s 1%, Cigna’s 3.67%, and Elevance’s 4.05%. Within just their Optum unit specifically, UNH reported 34% revenue growth.

For Q3, UNH also reported adjusted net earnings of $5.79 per share, a 28% YoY increase, and consistent with their trend of EPS growth over the past several years.

Financials:

In addition to growth in revenue, net income margin %, and EPS, UNH has other indicators of solid financial health.

As of 9/30, UNH’s Debt to Equity (D/E) ratio was .587, indicating a very healthy capacity to repay debts. In comparison, CVS, Cigna, and Elevance reported D/E’s of 1, .711, and .665. With a Return on Assets of 7%, UNH shows strong profitability in relation to its total assets. Comparatively, CVS, Cigna, and Elevance reported 4%, 3.4%, and 5.6%. Return on Equity (ROE) indicates how well a company is managing investments provided by shareholders. UNH has an ROE of 23.4%, compared to CVS’s 4.44%, Cigna’s 14.7%, and Elevance Health’s 17.2%.

UNH also has a beta of .73, indicating a low volatility.

Revenue: $153B

Meghan O’Leary | 11/21/22

Healthcare Companies Revenue and Profits:

Source: FIERCE Healthcare

Risk Potential: Liquidity: With a working capital ratio, or currentratio, of .8, and a quick ratio of .7, UNH may be a little low on liquidity; however, UNH’s liquidity ratios are on par with their competitors (With CVS reporting .9 and .6, Cigna’s .7 and .6, and Elevance Health’s 1.3 and 1.2, respectively).

Overvaluation: A slightly higher Price to Sales ratio(1.51) and Price to Earnings ratio (24.8) compared to peers may indicate that UNH is slightly overvalued; however, this likely just reflects consumer’s confidence in UNH and expectations of continued growth.

Slowed Growth in

Medicare Advantage and supplemental Medicare

(Medigap) plans: UNH partially relies on membership growth in Medicare Advantage and supplemental Medicare plans, but recent forecasts predict just 5% annual growth in the overall health insurance market through 2028, and is highly sensitive to insurance eligibility and policy changes.

Antitrust Concerns: In early October, UNH announcedits successful acquisition of Change Healthcare, after a judge denied the U.S. Justice Department's attempt to stop the acquisition on anti-trust concerns. However, an appeal has recently been filed.

Sources: S&P Capital IQ | UnitedHealth Group | McKinsey| Investors.com | fool.com | Yahoo Finance | FIERCE Healthcare

Lemonade, Inc.(LMND)

Rating: Sell

Current Price: $20.00

Price Target: $17.95

Company Updates / News

● 52-Week High: $62.63

● 52-Week Low: $15.99

● Market Cap: $1.49B

● LTM Revenue: $209M

● LTM EBITDA: ($287M)

● LTM N/I: ($304M)

● Net Debt: ($188M)

● 3Q FCF: ($194M)

● Investments: $836M

Competitor Statistics from Q3 2022

Investment Thesis:

Lemonade, Inc is the leading insurtech company offering renters’, homeowners’, car, pet, and term life insurance to consumers through their mobile app. The company primarily operates in the United States, although they also offer some products in Germany, the Netherlands, France, and the United Kingdom. Even though Lemonade is the leading insurtech provider, they are still a relative newcomer to the industry. The company was founded in 2015 and joined the NYSE in mid-2020, following an aggressive growth stage. However, numerous headwinds now present themselves, decreasing my confidence in its ability to sustain high levels of growth. Within the next year, I anticipate earnings regression, supporting my sell recommendation.

Valuation/Financial Modeling:

As of November 19th, Lemonade (NYSE: LMND) is trading at$20.00. I believe that this equity is overvalued and can be expected to decrease to $17.95 within the next 12 months. I arrived at thisconclusion by conducting a Comps analysis, comparing Lemonade’s financial history to its primary competitors. My model suggests over 10% downside over the 12 months.

Market Cap: $1.49B

LTM Revenue: $209M

Strategic Partnership with Chewy: Earlier in 2022, Lemonade announced a strategic partnership with Chewy, a leading destination for pet parents in the United States. The goal of this partnership is to leverage Lemonade’s existing technologies to offer Lemonade Pet to Chewy’s customers. Lemonade’s pet insurance plan provides diagnostics, procedures, and medication coverage for dogs and cats. Chewy was decided as the strategic partner due to their extensive market reach, as they have a customer base of 20 million pet parents.

Market Cap: $6.64B

LTM Revenue: $10.1B

Lemonade expects to see gains from this investment. Chewy’s revenue share compensation will be primarily paid out in the form of equity over the term of the contract. This contract aligns with Lemonade’s new strategic business strategies because Chewy will be incentivized to drive sales of Lemonade Pet to deliver long-term growth with minimal cash burn from Lemonade.

Market Cap: $16.1B

LTM Revenue: $1.65B

International Expansion: In 3Q 2022, Lemonade launched its “Contents” insurance product in the United Kingdom. This product is similar to the company’s American renters product, but it has been altered to accommodate differences in the market and legal system of the United Kingdom. The “Contents” product stands out in the competitive landscape in the United Kingdom due to the instant, transparent, and personalized nature of its plans. “Contents” is the fourth product to be launched outside the United States, showcasing the company’s desire to capitalize on opportunities in an international setting.

Prior Year Stock Performance of Lemonade and Key Competitors

Source: Google Finance

Risk Potential

Metromile Acquisition: Metromile is a California-basedtechnology company that offers pay-per-mile car insurance. In 2Q 2022, Lemonade purchased Metromile at a valuation of $150M. The purpose of this acquisition was to supplement the new Lemonade Car product with Metromile’s unique pay-per-mile service. While Lemonade can expect some synergies from this acquisition, they will be more than offset by a growing loss ratio. In insurance, the loss ratio is the ratio between claims and administration costs to the carrier divided by total premiums earned. As a result of this transaction, it is projected Lemonade will add upwards of 5% to its loss ratio. Compared to 2021, Lemonade’s net loss ratio went from 81% to 105%, meaning they now pay out more in claims than they take in. For reference, the insurance industry targets a loss ratio between 40-60%. While the Metromile acquisition has the potential to lift Lemonade from its poor performance over the past year, early indications suggest the transaction will have a more deleterious impact that burns cash at an increasing and unsustainable rate.

Climate Events: The rate of catastrophic (CAT) eventsin insurance has been on the rise in recent years, driven primarily by the effects of climate change. A CAT event is an insurance term used to highlight major weather and natural disaster events. These events are particularly impactful for insurance companies because claim payouts bunch up in short periods, often leaving companies strapped for cash. Larger providers with sizable reserves can weather the storm, so to speak. However, for smaller providers such as Lemonade, CAT events can have enormous adverse impacts. With quarterly policy premiums of $50M and policy benefits paid out over $55M, Lemonade has already begun tapping into cash reserves of only $225M, a comparatively small figure in the insurance industry. These figures do not consider the full impacts of Hurricane Ian. If these CAT events continue increasing in frequency in the coming years, smaller insurance players such as Lemonade might lack the financial resources to meet their policy obligations.

Sources: S&P Capital IQ | TIKR Terminal |Lemonade Investor Relations | Yahoo Finance | Google Finance | CFI | Investopedia

East West Bancorp (EWBC)

Rating: Hold

Current Price: $67.23

Price Target: $75.13

Company Updates / News

● Douglas Paul Krause, the Vice Chairman at East West Bancorp reported selling 5,000 shares of EWBC on November 15, 2022.

● EWBC reports a record net interest income of $552 million in Q3 2022.

Investment Thesis:

East West Bancorp (EWBC) is a bank holding company and the parent company of East West Bank. EWBC primarily focuses on markets within the United States and Greater China offering both retail and commercial banking services. Since its IPO in March of 1999, EWBC’s stock price has risen as high as $72.66 in May of 2016. In EWBC’s executive summary, they emphasize that all of their forward-looking statements on their performance may be hindered by changes and forecasts in the global economy, uncertainty in geopolitics, and changes in laws or the regulatory environment.

My hold recommendation reflects a belief that EastWest Bancorp has greater growth opportunities compared to competitors and a stronger balance sheet in the face of uncertain economic performance. However, based upon my concerns with the volatility of the global market and uncertainty with geopolitical tensions globally, I believe EWBC may have an unstable future and I would recommend holding East West Bancorp stock.

Valuation:

As of November 18, East West Bancorp (EWBC) is trading at$67.23. I believe that this equity is slightly underpriced as I have valued it at $75.13 this year.

EWBC’s Global Presence

EWBC has the ability and licenses to operate in China, which gives EWBC a unique set of growth opportunities among U.S. regional banks. EWBC’s licenses allow the bank’s subsidiary, East West Bank (China) Limited to open branches, make loans, collect deposits, and facilitate credit lines in China which account for nearly $2 billion of EWBC’s $160 billion total consolidated assets. EWBC also operates branches in Hong Kong and has stated its goal is to grow “its cross-border client base between the U.S. and China, helping U.S.-based businesses expand in China, and helping companies based in China pursue opportunities in the U.S.

Select Positive Financial Metrics and Future Strategy:

In the comparable analysis model, I created with East West Bancorp and four other comparable companies (Signature Bank, Western Alliance Bancorp, Comerica Inc, and Webster Financial Corp) I have found EWBC to have comparable revenue growth among competitors of similar sizes. Additionally, when comparing metrics like Return on Assets to elite financial institutions like Goldman Sachs and Equity Research Analysts estimate EWBC will nearly double these firms’ ROA than these firms at 1.6%. Along with these financial metrics which showcase EWBC’s position among similar competitors, EWBC has been taking the necessary steps to position itself in uncertain global markets. EWBC has been increasing its Tier 1 capital, the primary funding mechanism of the bank, which is projected to be $6.2 billion EOY 22 and increase by $1 billion each of the next two years.

EWBC and competitors Q3 Net Interest Income

Data Source: Yahoo Finance

Risk Potential

Market Uncertainty

As mentioned in the Executive Summary of East West Bancorp’s 2021 10K Statement, the performance of EWBC is highly correlated with the performance of the overall global market. This means that contractionary monetary policy or moves globally can easily harm on EWBC’s balance sheet.

Geopolitical Tensions

In a similar vein to market uncertainty, rising geopolitical tensions from the Russian invasion of Ukraine and protests and lockdowns in China concerning freedom of speech and COVID-19 policies could hurt on EWBC’s balance sheet. While EWBC’s presence in China gives them a unique edge compared to other regional banks, uncertainty in China can lead to a decrease in economic activity and loss for EWBC in the country.

Sources: East West Bancorp Investor Relations | Nasdaq.com | atom.finance | Goldman Sachs Investor Relations | Signature Bank Investor Relations | Comerica Inc Investor Relations | Bloomberg | SEC.gov | Bloomberg| Financial Times

Rating: Hold

Current Price: $150.7

Price Target: $169

Company Updates / News

● Amex’s lack of diversified markets hurts its earnings

● Rising Co-Branding costs increase expenses

● Investment in tech jobs within Amex

Investment Thesis:

Competitor Statistics from Q3 2022

AUM: $7.79 B

AUM: $5.76 B

American Express

Amex’s strong focus on affluent individuals and its niche market selection is both its biggest hedge against recessionary fears as well as its core cause of the lack of competitive volume in terms of merchant acceptance around the United States. Its CEO Stephen Squeri and its well-structured management is core to its development in the coming months, and years as it faces slower growth.

My hold recommendation reflects my belief that Amex may continue to struggle in the short term due to potential lower consumption levels and declines in travel if recessionary signs continue to develop. I believe that while Amex may be impacted by such macroeconomic conditions, its attractive valuation, slow but steady growth and investment in technology will help it recover over the long term.

Valuation/Financial Modeling:

As of November 28th, Amex is trading at $150.7. I believe that its shares are undervalued and are expected to increase to $169 within 24 months or less depending on the state of the economy. I developed this conclusion by conducting a DCF analysis with 1.8%, growth, 15.02% operating margin, and a WACC of 8.46% across 5 years. I used historical data and assumptions based on my personal belief that Amex’s brand power and ability to develop a greater competitive advantage will help its growth over the long term.

Resilience Against Recessions?:

Unlike American Express’s competitors, Mastercard and Visa, its market caters to high-net-worth individuals. Thus fears of an incoming recession may not be as much of a blow to earnings for Amex, relative to other credit card companies. The same idea has applied to rising inflation rates where consumers and customers are less impacted by volatile macroeconomic environments. Although true, Amex’s reliance and ties to air-travel rewards and co-partnerships may severely hurt earnings if a potential recession impacts connected industries such as airlines and travel.

Tech Investment:

Many of Amex’s peers have had a deeper focus on technology-integrated systems for credit cards. Although true, Amex has slowly re-positioned itself to compete against its competitors through greater rewards and restructuring by its CEO Squeri. Recently American Express indicated hiring of over 1500 technology hires, despite many firms cutting employees. This has the potential to translate into great merchant acceptance in the United States.

Siddhant Dahiya | November 28, 2022 American Express vs. Competitors:

Source: Yahoo Finance Risk Potential

Lack of diversification:American Express’s businessmodel involves a closed-loop network that doesn't allow it to collaborate with fintech corporations or create a new flow of capital. While companies like Visa have “Visa-Direct” which is partnered with PayPal and other means of growth engines, American Express solely relies on their current systems. Its core businesses rely on its core consumers and small-merchant businesses. Its premium card fees are usually relatively low-margin businesses and highly-capital intensive. In this manner, Amex has suffered by not having a strong enough competitive advantage against the technology-enabled card businesses of Visa and Mastercard. Similarly, 70 percent of Amex’s income before tax is derived from the United States and thus the economic downturn in the US is extremely harmful to its earning potential.

Growth: American Express’s management released expectationsof revenue growth to exceed 23-25 percent in 2022 and 10 percent in 2024 due to recovery from COVID and greater consumption. Although true, historical earnings have structural problems and have not exceeded expectations. Expenses are increasingly high, including a 60 percent increase in marketing expenditures in the last three years and a 38 percent increase in rewards. Similarly, it is hard to create services that can be offered to issuing banks that provide credit to merchants because they are directly competing with card companies.

Sources: Seeking-Alpha | American Express. Equity Research | CFRA Equity Research | Wall Street Journal | Yahoo Finance |Macro Trends Insight | Bloomberg | Capital IQ | Financial Times

Rating: Hold

Current Price: $66.49

Price Target: $77.07

Company Updates / News

52-Week High: $77.13

52-Week Low: $26.05 Mkt-Cap: 64.76 Billion Beta 5y: 1.85 P/E: $7.77

Competitor Statistics from Q3 2022

Share Price: $71.25 Revenue: $36.33B

Share Price: $34.04 Revenue: $220.87B

Share Price: $113.95 Revenue: $389.392B

Occidental Petroleum (NYSE: OXY) Potential For More?

Investment Thesis:

Occidental Petroleum Corp. (NYSE: OXY) is an American international oil and gas corporation. Occidental Petroleum has often at times seemed to be the little brother to companies such as Exon and Shell. However, with the recent surge in oil prices this year, Occidental stock rose by 103% in the first half of 2022.

My hold recommendation holds to the idea that Occidental's short-term revenues are based on the volatile gas and oil market. If the economy slides into the recession that many are predicting, the stock will likely decrease in price. However, the stock also has some real upside, as Occidental is looking to expand into renewable energy for a new revenue stream. Additionally, they completed the 4th largest oil/gas acquisition in 2019 with Warren Buffets’ backing. Both point to the potential for more.

Valuation/Financial Modeling:

As of November 18, Occidental Petroleum (OXY) is trading at71.25. I believe that this equity is undervalued and expected to increase to 77.07 this year. I arrived at this conclusion by conducting a Comps analysis with 5 other companies in the industry of similar size and magnitude.

Diverse Suite of Energy Products:

While many Oil and Gas Companies are specialized and undiversified, Occidental Petroleum operates in three separate divisions. First, it has an Oil and Gas exploration division. Next, it has a Chemical segment based on the production of basic chemicals. Third, it has a Marketing and Midstream segment that specializes in the storage, trade, and transportation of natural gas, oil, and carbon. These three different streams of revenue give the company a competitive edge over the competition.

Green Energy Ventures:

Occidental Energy is identified as only one in 3 oil companies that have taken steps to reduce their emissions going forward. Occidental Petroleum is in the process of creating technologies to reduce and eliminate carbon emissions from its chemical and gas operations. If these plans come to fruition the company may potentially be able to ride the green energy wave.

Isaac Sosnoff | November 2022

Isaac Sosnoff | November 2022

Yearly Price Against Competitors:

Source: Yahoo Finance Risk Potential

Falling Oil and Gas Prices: This stock's rapid riseis due to the boom in the oil and gas industry. As government regulations start to lower the price of oil and gas. If oil prices continue to fall, the revenue of Occidental petroleum will also fall. This means that while in the short run the company has a lot of upside potential, volatile oil and gas prices may cause the company's long-run future to be in doubt.

ESG

Concerns

and

Controversies:

Occidental Petroleumoperates in the oil and gas sector, exposing itself to many environmental and sustainability concerns. It has an ESG risk rating of 46.3, which puts it in the severe category. This means that the company is exposed to high-level ESG risks and is not necessarily handling them well. This ESG rating is a concern in the long run, as the company has a history of environmental disasters. As we saw with the BP Oil Spill in 2010, these events can tank a stock. In the long run, Occidental must address these issues, as if they are left to ferment, bad things can happen, which could lead to a loss of investment.

Sources: Investors.com | Yahoo Finance | OXY Investor Relations | Bloomberg | SEC.gov | Capital IQ | Financial Times

Rating: Buy

Current Price: $90.01

Price Target: $100

Company Updates / News

● Market cap: $5621.78

● EBITDA: 393.6

● Revenue: $745 M

● DOE is aiming to implement a program to invest $1B into geothermal energy in rural environments

● European refineries oversupplied oil amid fears of shortages due to the Russian crisis

Competitor Statistics from Q3 2022

Investment Thesis:

Ormat Technologies (ORA) Heating Up the Industry

Ormat Technologies has been experiencing consistent growth over the last decade, with revenues increasing from $436 million to $586 million from 2016 to 2021 and gross margins increasing by 43% in the same period. Since then, more emphasis has been placed on innovative, sustainable energy solutions, and being the second-largest geothermal energy owner and operator in the world puts Ormat in a meaningful position to continue its domination of the industry.

My buy recommendation reflects a belief that Ormat Technologies will continue to perform well, given the rising popularity of 5G and the synergies between the recent merger.

Valuation/Financial Modeling:

As of November 17th, Ormat Technologies (ORA) is trading at$90.01. I believe that this equity is undervalued and the stock will be worth $92.90 this year. I arrived at this conclusion by conducting a DCF analysis with a discount rate of 4% across 5 years. I used these assumptions based on historical data and an optimistic view given Ormat’s performance history.

Innovation:

Ormat has based its production around sustainability; in particular, producing electricity while boasting net-zero carbon emission and nitrogen oxide output. This ambitious framework is built upon technologically advanced power plants capable of drilling into geothermal reservoirs, harnessing the molten fluids to be converted into electricity, and tapping into the heat energy without the need for fossil fuels.

Revenue: $745 M

Currently, Ormat has gained experience in designing, building, and providing electricity in over 30 countries and is in the process of expanding its presence even more, having opened its first geothermal plant in California in 2020.

Overview:

Revenue: $8.8 B

Revenue: $6.7 B

In February 2022, Russia started a war with Ukraine, prompting international sanctions to be placed on Russia and an embargo on Russian products, including one of their main exports, oil. As a result, there has been a shortage of gas and high oil prices throughout 2022 in the United States and abroad.

However, as a market leader in the renewable energy sector, Ormat Technologies was in a unique position to expand itsoutreach and capitalize on the lack of availability of gas products. The company’s propensity to leave its mark is shown through its revenue growth of $0.663 B in 2021 to $0.720 B in September 2022, a 10.47% increase.

ORA vs. Competitors:

Source: Yahoo Finance

Risk Potential

Debt: Ormat Technologies has a concerningly high debtvalue on its balance sheet. In 2021, the company’s net debt was $1.03 billion and gross debt was $1.43 billion. While the company was valued at $3.87 billion in the same year and is therefore capable of taking on the debt, should the number continue to rise in the coming years, it could result in dilution.

Location-Specific: Ormat Technologies has a presencein over 30 countries. However, the scale in which they can build their power plants and develop their presence in these countries is limited since geothermal energy relies on reservoirs beneath the Earth. There is no way to create geothermal power from places that do not have these reservoirs, so Ormat can only be as efficient as possible where the reservoirs are present.

Cost: The main reason for the hesitation to switchto sustainable energy in most cases is the high cost associated with it, whether it be solar, wind, or geothermal. On average, geothermal power plants cost between $2 and $7 million to have 1 megawatt of capacity. This perhaps factors into Ormat’s current debt problems, so the cost is likely to shrink long term when the plants have been established and are producing.

Sources: Ormat Technologies | macrotrends.net | Capital IQ | Yahoo Finance| nasdaq.com | twi-global.com | seekingalpha.com | energy.gov |investor.ormat.com|

Anthony Lopardo | Nov 2022

Rating: Buy

Current Price: $35.59

Price Target: $47.00

Company Updates / News

● Dec 1, 2022 - NOG announces closing of core northern Delaware basin bolt-on acquisition

● Nov 10, 2022 - NOG beats Q3 earnings expectations with revenue exceeding analyst expectations by 28%

Competitor Statistics from Q3 2021

Revenue: $534.0mm

Revenue: $835.9mm

Northern Oil and Gas Inc. (NOG) An Energy Land Grab

Investment Thesis:

Northern Oil and Gas Inc. has grown more than 60% since its uplisting from the NYSE American to the NYSE on February 17, 2022. Since its founding in 2006, it has become the leading non-operated working interest franchise in the premier shale basins across the United States.

My buy recommendation reflects a belief that Northern Oil and Gas will continue to perform well and despite geopolitical and macroeconomic uncertainty in the year ahead, they’ve also been given a clear mandate to secure supply in the short term while transitioning to cleaner energy in the long term.

Valuation/Financial Modeling:

As of November 18th, Northern Oil & Gas Inc. (NOG) is trading at$35.46. I believe that this equity is undervalued and expected to increase to $47.00 within the next twelve months. I arrived at this conclusion by conducting a DCF analysis with a 2.5% growth, a 10% operating margin, and a WACC of 3.38% across 5 years. I used these assumptions based on historical data and an optimistic view given Northern Oil & Gas Inc.’s performance history.

Acquisition:

NOG has a flexible capital allocation structure which has allowed it to increase its borrowing capacity. It currently has a borrowing base of $1.3 billion and $500.0 million in senior convertible notes which it is looking to expand going forward. NOG also uses a non-operated model, which allows it to focus on increasing free cash flows rather than growth. With this structure NOG closed two new acquisitions this year, one being the Williston Basin which now comprises 57% of production output. The company has three additional acquisitions pending, which are expected to yield an additional annual cash flow from operations of $255.0mm

Overview:

In Q3 2022, NOG saw total assets increase from $1.24 billion in Q3 2021 to $2.47 billion in Q3 2022. Liabilities increased accordingly from $1.24 billion in Q3 2021 to $2.47 billion in Q3 2022, reflecting significant acquisition activity. NOG reported exceptional growth with adjusted EBITDA of $292.4 mm in 2023, up 115% YoY.

Revenue: $549.8mm

Percent Change in Daily Share Price - Energy Companies vs. S&P 500

Source: CapIQ Risk Potential

Recessionary Risk:

The economic outlook is weak going forward which can cause challenges for NOG as demand decreases. Even if its properties can maintain expected production rates, demand from the downstream industry is expected to weaken. Notably, US-headquartered refiners are not expected to increase core refining capacity as they prioritize financial health, optimize operations, and convert refineries to produce renewable fuels.

Geopolitical Tension:

Reductions in Russian spot sales of gas to Europe in late 2021 contributed to an energy crunch and record natural gas prices in the EU. There is continued speculation that fighting in Ukraine and the impact of new sanctions will disrupt much larger volumes of gas, keeping prices high.

Global Decarbonization:

The tension between governments’ balancing of long-term clean energy goals and the short-term needs of their citizens will make the road to energy transition extremely bumpy. Additionally, environmental, and social activists are putting increasing pressure on industry leaders based on the pollution and climate change impacts they believe the industry is responsible for.

Sources: KPMG|Northern Oil|Deloitte| The Wall Street Journal

Anthony Lopardo | Nov 2022

Rating: Buy

Current Price: $83.60

Price Target: $90.00

Company Updates / News

● During the past year of government support for renewables, analysts have noticed NextEra insiders investing millions in the stock – a sign of confidence in the face further pushes to cut carbon emissions

● This past month, NextEra acquired a sizable stake in a renewables portfolio including investments in battery and energy storage assets

Competitor Statistics from Q3 2021

Investment Thesis:

Revenue: $6.72 Billion

Market Cap: $166.1 Billion

Revenue: $5.23 Billion

Market Cap: $23.6 Billion

Revenue: $5.39 Billion

Market Cap: $29.8 Billion

Next Era Energy (NEE) Playing Both Sides

To Win

The largest electric utility company by market capitalization, NextEra’s 40-year tenure on the New York Stock Exchange has seen its stock grow over 100% in the last 5 years alone. Serving millions of customers between the US and Canada with its many affiliates, NextEra leads the charge as the world’s largest generator of renewable energy – though not necessarily as a champion of environmentalism.

My buy recommendation reflects faith in NextEra’s pattern of expansion in non-renewable energy markets combined with and strongly bolstered by its success and adaptation in a crucial moment for clean energy.

Valuation/Financial Modeling:

As of November 20th, NEE is trading at$83.60, whichI believe to raise to at least$90.00 in the next twelve months. Through acomparative analysis against numerous utility competitors including Edison International and American Electric Power, Next Era at first appears overvalued with multiples (particularly P/E) far above competitors even given conservative growth estimates. However, these multiples more likely reflect investors’ great expectations for the company given its estimate-smashing third quarter and a supportive Biden administration pushing to cut carbon emissions globally.

Economic Support for Renewables:

The passing of the Inflation Reduction Act and its $369B subsidy to expand renewable energy production – along with other international tax credits and equipment discounts – has driven down production costs as much as 33% in the case of solar energy. This 10-year plan for economic support for the historically costly renewables sector will “drive clean energy growth for the next two decades,” said NextEra’s CEO John Ketchum while unveiling plans to scale up “big time” this past September. While many energy companies are consequently witnessing boosts in stock price, Ketchum claims NextEra is uniquely positioned to capitalize on these long-term benefits due to their “100 Gigawatt head start in development potential,” firmly backed by their expansive existing infrastructure.

Flexible Investments: While a formidable giant in renewable production, NextEra is still dominating in its roots with recent acquisitions of natural-gas assets from Energy Power Partners Fund I and North American Sustainable Energy Fund, worth over $1B and expected to have very high returns. NextEra then plans to convert such assets to bolster its development of renewable gas production, maintaining a strong lead in both halves of the divided energy sector. It continues to continue this plan with $85B-95B of similar investments before 2025.

Weekly Trading Volume of NEE & Competitors, 2020 – Present

Risk Potential

Recession Worries: With the potential of being overvaluedwith its current multiples, NextEra investors may be too optimistic about recent economic boosts to clean energy. Despite NEE’s strong rebound post COVID-19, there remains the worry that utility companies’ outlooks do not factor in significant setbacks to expansion due to high material costs and supply chain issues.

Natural Disaster: As is the case with any large utilitiescompany, NextEra faces perpetual danger to its widespread infrastructure by way of hurricanes, fires, and other liabilities found in the American southeast. Most recently in the wake of Hurricane Ian, NextEra reported an estimated $1.1B cost to its customers after the institution of a fast-tracked recovery plan. While NextEra has been able to successfully deflect these costs, there remains an ever-present risk of unexpected and substantial costs in an industry where availability to utilities directly affects stock prices.

Debt: Many sources point to NextEra’s balance sheetas its chief source of risk with ~$60B of debt towering over $1-2B of cash and equivalents. Despite revenue increases in recent years, NextEra’s total sales have stagnated, if not having decreased at times simultaneously. This leads to a risky mixture of underwhelming cash flow and high debt, no matter how successful NextEra’s recent ventures have been.

Sources: NextEra Investor Relations | Nasdaq | Investors.com | Yahoo Finance | Investors Observer | Utility Dive | Simply Wall Street | SEC.gov | Capital IQ | Financial Times

Rating: Buy

Current Price: $72.48

Price Target: $90.77

Company Updates / News

● Market Cap: 195.80B

● P/E: 35.18

● EPS: 2.06

● 52 Week High: 58.38

● 52 Week Low: 97.47

● In December 2022, L'Oréal launched a new Product Impact Labeling system to showcase the environmental impact of products in the push for greater sustainability within the beauty industry.

Competitor Statistics

from 10K 2021

Revenue: $32.28B

Investment Thesis:

L'Oréal (LRLCY) Cosmetics Giant Role Model?

L'Oréal S.A. (LRLCY) is the world's largest cosmetics company with headquarters in Clichy, France. The French personal care company manufactures a variety of products, including skin care, make-up, perfume, hair care, and even sun protection. L'Oréal maintains a large portfolio including various companies such as Maybelline New York, Lancôme, Garnier, and NYX Cosmetics.

My buy recommendation reflects a belief that L'Oréal is currently undervalued and will continue to perform well over the next year, given its strong insulation against inflation and expanding operating margins.

Valuation/Financial Modeling:

As of November 23rd, L'Oréal S.A. (LRLCY) is trading at$72.48. I believe that this equity is undervalued and expected to increase to $90.77 this year. I arrived at this conclusion by conducting a Comparable Company Analysis against top competitors, including Estée Lauder Companies Inc. (EL) and Unilever (UL). Based on the model, I recommend a buy as the equity price is expected to increase.

Insulation Against Inflation:

L'Oréal maintains strong insulation from today’s inflation and rising interest rates. As a powerful cosmetics company, L'Oréal’s pricing power is usually retained within inflationary markets. During periods of high prices, customers, especially the more affluent ones, have generally remained loyal to the L'Oréal brand, instead of buying cheaper products.

In May, CEO Nicolas Hieronimus stated that inflation has had no impact on the company’s performance thus far. On the other hand, top competitor Estée Lauder Companies cited inflation as a significant hindrance within their most recent earnings reports.

Revenue: $14.29B

Expanding Operating Margins:

Revenue: $52.44B

As the biggest cosmetics company in the world, L'Oréal has the ability to maintain higher operating margins than the majority of its top competitors. Analysts expect L'Oréal's total operating margin to steadily remain at 19.1% this year and increase to 19.5% in 2023. Contrarily, competitors Coty and Revlon concluded 2021 with the significantly lower operating margins of 8.8% and 5%, respectively. Furthermore, L'Oréal’s earnings per share is predicted to increase 23% this year and rise another 8% in 2023.

Burchielli | November 2022

Daily Share Price Performance of $LRLCY, $EL, and $UL:

Source: Yahoo Finance

Risk Potential

Animal Testing Concerns: Over time, customers havebeen more concerned with purchasing cruelty-free products within the beauty industry. Despite claiming to not test any products on animals, L'Oreal has yet to officially adopt a company-wide policy against animal testing. As a result, the cosmetics company was placed on PETA's “do test” list, indicating the company has been using animal testing for many years.

Airbrushing within

Ad Campaigns: In recent years,L'Oréal was found guilty of using airbrushing within their ad campaigns. The ads showcased famous celebrities, such as Julia Roberts, promoting products with airbrushed skin. This controversial fact led to a lawsuit against L'Oréal as customers claimed the company used false advertising. The ad featuring Julia Roberts suggested that if shoppers used the product, their skin would look like the airbrushed skin of the actress in the photo. As this notion would be impossible, the ad arguably raised body image and self-confidence issues among women.

High Valuation: Although L'Oréal is a profitable cosmeticscompany, it is important to note that its business valuation is relatively high compared to other companies. L'Oréal trades at 31 times forward earnings, whereas top competitor Estée Lauder Companies trades at 29 times forward earnings. Even rival Coty trades at a lower value of 17 times forward earnings. L'Oréal’s higher valuation could limit the company’s upside potential this year as investors generally deter away from pricier growth stocks.

Sources: L'Oréal Groupe | Capital IQ | Yahoo Finance | Investors.com | fool.com |Bloomberg | The Wall Street Journal

Lavinia

Rating: Buy

Current Price: $232.13

Price Target: $241.30

Company Updates / News

● Announced multiple rounds of pricing actions which may drive sales growth in 2022-23, given historically strong pricing power

● Key reportable segments (% of FY21 sales):

oNorth American Confectionary - 86%

oNorth American Salty Snacks - 6%

oInternational - 8%

● In Dec 2021, HSY acquired Dot’s Pretzels for $1.2 billion, growing its salty snacks portfolio.

Competitor Statistics from Q3 2022

Market Cap: $48.23B

Revenue: $8.97B

Market Cap: $88.3B

Revenue: $30.5B

Market Cap: $14.6B

Revenue: $8.4B

The Hershey Company (HSY) Beat Earnings and Sweet Outlook

Investment Thesis:

Founded in 1894, The Hershey Company is a confectionary company that manufactures and engages in the market of chocolate and non-chocolate confectionary and snacks.

My buy recommendation reflects a belief that The Hershey Company’s shares are undervalued given its tremendous growth, capacity expansion, product line expansion, and significant inorganic growth investments.

Valuation/Financial Modeling:

As of November 21st, Hershey Company (HSY) is trading at$232.13. I believe this equity is undervalued and expected to increase to $241.30 within this year. I arrived at this conclusion using comparable company analysis and a forward P/E of 18x for a broader peer set and 23x for a closer peer set. The comparable companies notably include Mondelez International, Campbell Soup Co., Conagra Brands, Inc., General Mills, and Kellogg Co.

Tremendous Growth & Capacity Expansion:

Hershey saw 16% YoY revenue growth to $2.7 Billion in the past quarter ended Oct 2022, the momentum I believe will carry over in the near term given chocolate’s ‘affordable luxury’ classification. Said category gains significant benefits from little exposure to private labels, given that consumers have close to no alternatives to national brands. Additionally, Hershey’s planned price hike in 2023 and decision to shift focus away from international markets to the American market, where it boasts a 46% market share, suggests robust top-line growth opportunity. Lastly, the North American Confectionary segment (~90% of sales) plans on capitalizing on the growing demand in the U.S. chocolate market, with multiple capacity expansions and three new Reese’s lines underway.

Pushing Into High-Growth, Low-Sugar Confectionary:

While health-conscious consumers in the U.S. confectionary market demand better-for-you products, less than 10% of sales are generated from this growing segment. Capitalizing on said growth, Hershey’s has explored major R&D and M&A investments, acquiring Lily’s Sweets in June 2021, a low-sugar confectionery that introduced zero-sugar versions of Hershey’s and Reese’s products. With American Sugar Refining Group (ASR Group), Hershey’s also made a Series B investment in Bonumose, a startup focusing on plant-based food ingredients.

Additionally, Hershey’s acquisition of Dot’s pretzels further diversified its salty snack portfolio, which is currently its fastest growing segment as of Q3 2022 at ~21% - with momentum carrying over the past two quarters.

HSY v. Major Competitors Stock Chart (1Y)

Source: S&P Capital IQ

Risk Potential

Competitive Market Risk: Hershey's has a growing riskpotential, given the extreme competitiveness in the salty snacks market, making it an uphill battle to grow margins. Tough competition persists across national brand giants such as Snyder-Lance, U.S.'s leading pretzel company, and Pepsi's Frito Lay, U.S.'s leading puffed and extruded corn snacks company.

Asset Liquidity & Interest Rate Risks: Having engagedin heavy M&A activity, Hershey’s is under a major debt burden which severely impairs any future inorganic growth opportunities for the company. Further, the company brings forward a current ratio of 0.79 and a quick ratio of 0.45, indicating that it cannot currently pay back its current liabilities.

Major Headwinds in 2023: While Hershey’s recent fundamentaltrends have beat expectations, the firm may experience major headwinds, including continued inflationary pressures (e.g., raw materials, packaging, transportation, labor, third-party fees, etc.), greater price elasticities, reduced fixed cost absorption, and increased SG&A investments.

Sources: HSY Investor Presentation | FactSet | WSJ | Bloomberg | SEC.gov | Capital IQ | Financial Times

Rating: Buy

Current Price: $64.99

Price Target: $77.78

Company Updates / News

● Market Capitalization: $88.75B

● P/E: 27.9

● EPS: $3.32

● Mondelez reported strong Q3 Earnings with net revenue increasing by 8.1%

● Inflation spurred higher-income shoppers to consume more Mondelez brands

● Mondelez closed its Clif Bar and Ricolino acquisitions which are an integral part of its growth strategy Competitor Statistics

2022

Mondelez International (MDLZ) A Global Snacking Powerhouse

Investment Thesis:

Mondelez International, Inc. is one of the largest snack and confectionary companies in the world. It has produced famous snack brands like Cadbury, Oreo, Trident and Toblerone. With a market cap of $88.7B, it has a huge presence in 5 product categories - biscuits, chocolates, gum & candy, beverages and grocery.

My buy recommendation reflects a belief that Mondelez International will continue to perform well, given its recent mergers and its robust growth strategy focused on filling geographic white spaces and expanding into adjacent snack categories.

Valuation/Financial Modeling:

As of November 17th, Mondelez International (MDLZ) is trading at$64.99. I believe that this share is undervalued and expected to increase to $77.78 within this year. I arrived at this conclusion by conducting a Comps analysis in which I compared Mondelez International to its main competitors which are Kellogg’s, Kraft Heinz, General Mills and the Hershey Co.

Filling Geographic White Space:

Over 70% of Mondelez’s revenue comes from outside the US, with emerging markets specifically in Latin America. To fill this geographic white space, Mondelez acquired Ricolino, a leading confectionary company in Mexico for $1.3B. This will allow Mondelez to expand its presence in the high priority Mexico market to accelerate growth and sales in core snacking categories. This acquisition will double the size of Mondelez’s business in Mexico and triple its routes to markets.

Diversified Portfolio and Expansion to Adjacent

Categories:

Mondelez has an extremely diverse portfolio, having brands ranging from chocolate and candy to cheese and beverages. And it has acquired a number of different companies to diversify even further and increase its presence in categories adjacent to snacks. It acquired Chipita, a European company in the croissants and baked goods space in Jan 2022 to expand into the bakery and pastries market. This acquisition will also allow Mondelez to capitalize on Chipita’s distribution network capabilities in Europe. Similarly, Mondelez also announced the acquisition of Clif Bar, the US’s leading nutritional energy bar company to further diversify and expand its snack business

Ahana Shrestha | November 2022

Share Price for Mondelez and its Main Competitors:

Source: Yahoo Finance

Risk Potential

Susceptible to Global Instability: Mondelez is anextremely global company with majority of its revenue coming from over 150 different countries around the world. However, this big international presence also means Mondelez is at risk of volatile foreign currency movements. These currency movements have the potential to negatively impact net revenues by nearly 3% and adjusted EPS by 17 cents in 2022.

Supply Chain Constraints: Increased input cost inflationhas negatively affected Mondelez’s supply chain, especially with regards to transportation, energy and packaging. The Russia-Ukraine war has further exacerbated these problems by increasing the cost of essential goods like energy, wheat and oil for Mondelez. Similarly, Mondelez continues to face supply chain bottlenecks due to labor shortages at third parties.

High Debt: Mondelez’s debt for the quarter endingSeptember 2022 was $21.7B, a 8.05% increase YoY. Over the past 5 years, its debt to equity ratio has increased from 73% to 81.2% and is expected to further increase as Mondelez continues to acquire other companies. Its debt is also not well-covered by operating cash flow, with cash accounting for only 18.2% of Mondelez’s debt.

Sources: Mondelez International | Bloomberg | The Wall Street Journal | Capital IQ | Yahoo Finance | Investors.com

Rating: Sell

Current Price: $102.87

Price Target: $58.90

Company Updates / News

● Market Cap: $6.79B

● P/E Ratio: 14.34x

● 52 Week High: $135.99

● 52 Week Low: $82.23

● Q2 2022 Reports 5% Revenue Growth and 13% in Constant Currency

● Next Great Chapter: Accelerate, their three-year growth strategy, is underway

● Ralph’s Coffee launched a new Miami location

Competitor Statistics

from Q3 2021

Revenue: $5.87B

Ralph Lauren (RL) The Classic American Investment

Investment Thesis:

As Ralph Lauren celebrates its 25th anniversary ofits IPO on June 12, 1997, the stock has grown more than 220%. Ralph Lauren is a global leader for affordable luxury in their timeless Americana style. The brand caters to both men and women and offers a large variety of items from apparel to home furnishing.

My sell recommendation reflects a belief that Ralph Lauren will not continue to perform well, given their newfound partnership with Fortnite which contradicts their timeless legacy status and lack of innovation in their designs.

Valuation/Financial Modeling:

As of November 18th, Ralph Lauren (RL) is tradingat $135.99. I believe that this equity is overvalued and expected to decrease to $58.90 within this year. I arrived at this conclusion by conducting a comparable company analysis using companies with equity values spanning from $6.6B to $12B.

Increased Storefronts:

The Ralph Lauren experience is not only limited to apparel, home goods, etc. They have expanded into unique consumer experiences through their Ralph’s Coffee and the Polo Bar.

In addition, the company has drawn up an updated strategic plan which includes opening 250 more stores within the coming three years in North America, Europe, and Asian Pacific. Placing these stores strategically in cities, especially North America, will help break into these markets.

Collaborations:

Embarking on creative partnerships will help Ralph Lauren launch its brand to a wider audience. Notable collaborations include becoming the official outfitters for Team USA in 2022 and a capsule collection released with Historically Black College-Universities. These collaborations enhance the brand’s Americana image as it continues to celebrate the American experience.

Their presence has also entered the metaverse through an exclusive partnership with Zepeto and Fortnite. The Ralph Lauren apparel has been reimagined for the growing online world which will engage younger audiences.

Kathey Chen | November 18, 2022

Revenue Over the Years

Source: Yahoo Finance

Risk Potential

Design Plagiarism: Ralph Lauren has recently comeunder controversy after the wife of Mexico’s president, Beatrix Gutiérrez, accused the fashion label of cultural appropriation of indigenous designs. Ralph Lauren has since then apologized. Yet, there have been other reported cases of Ralph Lauren designs being plagiarized from smaller independent designers such as Zang Toi which may taint the integrity and respect for the brand.

Risky Brand Partnership: After Ralph Lauren left variousoff-price wholesale and low-end department stores in which they considered “brand-dilutive”; the company is trying to return to the branding of a higher tier luxury brand. Therefore, it may be risky to enter some online spaces which may affect the perception of the prestigiousness of their brand. As a brand that places emphasis on their classic and recognizable polo logo, the company redesigned their iconic logo for their collaboration with Fortnite.

Anti-Americanism: Since Ralph Lauren’s brand is ubiquitouswith Americana, rising political tensions may lead to consumers avoiding supporting or participating in American fashions. This may pose a risk to markets outside of the United States, especially since China holds the largest percent of global consumer spending on luxury goods.

Kathey Chen | November 18, 2022

Sources: Ralph Lauren Corporate| Deloitte | Investors.com | Investor Ralph Lauren | fool.com | Yahoo Finance | BBC | New York Times | Bloomberg | SEC.gov | Capital IQ | Financial Times

Rating: Hold

Current Price: $162.88

Price Target: $171.75

Company Updates / News

● Market Cap: $74.97B

● Beta: 1.02

● EPS: 8.83

● PE Ratio: 18.45

● 52 Week High: $254.87

● 52 Week Low: $137.16

● Target’s Q3 earnings miss expectations

● Profit margin decreased 5.8% from Q3 last year which was driven by higher expenses

● The retail industry faces headwinds due to anticipation of a recession and high inflation

Competitor Statistics

from Q3 2022

EV/EBITDA: 10.77 Revenue: $26.52B

Investment Thesis:

Target Corporation (TGT) Missed the Bullseye

Target is a general merchandise retailer with 1,948 stores across all 50 U.S. states. The brand offers food, apparel, accessories, home décor products, electronics, toys, seasonal offerings, and beauty & household essentials. Target also provides in-store amenities, such as Target Optical and Starbucks. The company relies on both in-store sales and digital channels. The brand aims to deliver affordability, differentiate itself, create an engaging shopping experience, and leverage their scale to benefit business, people, and the planet. However, Target has been struggling to maintain its profitability in recent quarters. My hold recommendation reflects the belief that although there are many challenges due to the macroeconomic environment and recent rises in theft, there are opportunities for Target to perform in line with the market as the holiday season approaches and the company has plans to grow.

Valuation/Financial Modeling:

As of November 20th, 2022, Target Corporation wastrading at $162.88 per share. I believe that this equity is fairly valued and will increase slightly to $171.75 within the current year. I conducted a Discounted Cash Flow Analysis with a terminal growth rate of 3.70% and a cost of equity of 9.61% across 10 years to arrive at this valuation. My assumptions are based upon Target’s historical data and an optimistic view of Target’s future performance.

Expansion:

Target recently announced a plan to invest up to $5 billion to grow its operations. The company intends to open about 30 new stores in the next fiscal year and remodel current stores. Additionally, Target is working to improve digital experiences, fulfillment capabilities and supply chain capacity. The new store openings will enable Target to reach a wider customer base across diverse communities.As same store sales is a primary growth driver, investments in technology—such as Roundel which optimizes advertising placements on Target.com—willcontribute to growth in e-commerce sales and add an estimated $2 billion in value within the next few years. Target’s long term growth plan will simplify and gain efficiencies across its business, representing a savings opportunity of up to $3 billion by 2025.

Lipstick Effect:

EV/EBITDA: 17.97 Revenue: $152.8B

EV/EBITDA: 18.05 Revenue: $12.17B

The breakdown of Target’s sales by product category in FY 21 were Beauty & Household Essentials (26%), Home Furnishings & Decor (19%), Food & Beverage (19%), Hardlines (18%), Apparel & Accessories (17%), and Other (1%). Unlike competitors such as Walmart, whose majority of sales are from consumer staple product categories, Target’s sales are predominantly discretionary products. Economic downturn leads to consumers trading big splurges in spending for smaller indulgences. As the US economy shrank in the firstquarter, lipstick sales increased by 48% from last year. The lipstick effect is a driverof growth for Target as over a quarter of sales come from Beauty & Household Essentials. Therefore, Target can benefit from consumers electing to buy less expensive beauty products, such as lipstick, opposed to big ticket items like spa treatments. Although Target is seeing decreased consumer demand, Beauty and Household Essentials remain strong.

Alexa Cooper| November 20, 2022

Target vs Walmart Monthly Share Price (YTD)

Source: S&P Capital IQ

Risk Potential

Organized Crime:

Target has reported that it has lost over $400 million in gross profit, year to date, to organized crime. It is likely that Target will lose $600 million in revenue due to theft by the end of the year. There has been a 26.5% increase in organized retail crime in 2022. Retailers must work with law enforcement and the government to find solutions to this industry wide problem.

Excess Inventory:

Profits may continue to take a short-term hit, as Target aims to clear excess products by offering discounts on merchandise. Many consumers changed their spending habits due to the high inflation levels which left Target with an inventory surplus. The high levels of inventory hurt business as the supply chain and store team must manage overly crowded warehouses and store displays.

Economic Uncertainty:

Target’s earnings are negatively impacted by the overall economic outlook. As customers refrain from making unnecessary trips to the store, they are less likely to make unplanned purchases, which accounts for nearly 21% of the company’s revenue. The current 8% inflation rate makes many items in stores unaffordable for the average consumer. Additionally, rising interest rates will further decrease consumer spending.

Sources: Corporate.target.com| NY Times | Barrons| CFRA Equity Research| Yahoo Finance | Corporate.walmart.com | Investors.tjx.com | Capital IQ | Robinhood

Rating: Hold

Current Price: $180.19

Price Target: $53.97

Company Updates / News

● Market Cap: $545.991 B

● P/E Ratio: 54.40

● In November 2022, Tesla, Inc. confirmed that it will be integrating Apple Music into its music player

● Tesla, Inc. reportedly placed a massive order of next-gen self-driving chips with Taiwan’s TSMC at the end of November 2022

Investment Thesis:

Tesla, Inc. (TSLA) Building a Sustainable Future

Tesla, Inc. (TSLA) is an American automotive and clean energy company based in Austin, Texas. Most popular for their electric vehicles, they also design and manufacture battery energy storage for home and grid-scale use, solar panels, and solar roof tiles.

My hold recommendation reflects a belief that Tesla, Inc. will continue to be a dominant EV automobile and technology company due to its first-mover advantage and consistent revenue growth, although given the rise in competition and Tesla’s premium prices, it will be a long-term hold.

Valuation/Financial Modeling:

As of November 18th, 2022, Tesla, Inc. is tradingat $180.19. I believe that this equity is overvalued and expected to decrease to $53.97.I arrived at this conclusion by conducting a Company Comps analysis with a 1.8% projected revenue growth. Some of their competitors, such as Mercedes-Benz show impressive valuations, although much of their revenue is from automobiles that are not EVs. Thus, despite Tesla, Inc. being seemingly overvalued, it will continue to maintain a strong following due to its primary focus on EVs and technological innovation.

Tesla Insurance:

Tesla, Inc. offers insurance based on real-time driving behavior and is currently available for Model S, Model, 3, Model X, and Model Y owners. While this is a unique service, it is only available in eleven U.S. states. The service uses a safety rating score, which begins at a baseline of 90, to determine a monthly premium for its vehicles. The highest premium sits at $130/month – $1,560 per year.

This service provides a revenue growth opportunity for TSLA. If 100% of 2021 U.S. sales were converted as insurance customers, it would have generated $471.12 million in revenue. This is only possible if TSLA insurance becomes available in all states.

Full-Self-Driving Capabilities: Tesla, Inc. is known for its advanced autopilot driver assistance system. It assists with steering, accelerating, braking, collision warning, and blind-spot monitoring — the most burdensome aspects of driving. Although, they also offer ‘Full-Self Driving’ capability (FSD) which offers even more advanced driver assistance features and puts TSLA ahead of competitors. Furthermore, this is subscription based, which ensures long-term revenue.

Alia Piccinni | November 18, 2022

Source: Capital IQ

Risk Potential

Threat of Competition:TSLA has a first-mover advantagein the EV marker. They were the leader for EVs. Now, TSLA faces a growing slate of competitors such as Mercedes-Benz, General Motors, Ford, and NIO who are disrupting TSLA’s EV market dominance. As EV demand rises, consumers are looking further than TSLA.

High Prices: TSLA cars themselves are relatively expensivecompared to their competitors; TSLA’s advanced technology comes at a premium price. Tesla Insurance and Autopilot packages, which provide TSLA with a competitive advantage, are subscription-based causing consumers who want these features to pay a monthly premium. Thus, these high subscription prices for enhanced features are only being used by consumers who can afford them–putting TSLA in a luxury category that makes them obtainable to only select consumers.

Poor Labor Standards: TSLA has a history of dangerousworking standards, incurring over $236,000 in fines for OSHA violations from 2014 – 2018. The opening of TSLA’s Gigafactory in Austin, TX, brought similar claims from employees who are suing over wage theft and dangerous conditions. This is worrisome for TSLA because the Gigafactory was built to solve the company’s battery crisis, but if employees are being treated poorly, there is a risk of decreased productivity. Additionally, consumers may opt for EV companies with better labor standards.

Sources: Tesla | Investors.com | fool.com | Yahoo Finance| Bloomberg | Capital IQ

Alia Piccinni | November 18, 2022 Tesla’s Total-Revenue Growth

SECTOR ANALYSTS FALL 2022

May Ton Telecommunications ct528@cornell.edu

Andrew Grinzayd Meme Stocks aeg264@cornell.edu

Jeremy Herring Information Technology jdh363@cornell.edu

Lavinia Burchielli Industrials lb742@cornell.edu

JP Spak Healthcare jps434@cornell.edu

Declan Beran Financials djb384@cornell.edu

Raheem Amany Energy rba52@cornell.edu

Subharghya Das Consumer Staples sd559@cornell.edu

Alexa Cooper

Consumer Discretionary arc245@cornell.edu

ASSOCIATES FALL 2022

Vikas Reddy Victoria Gong May Ton vkr8@cornell.edu vxg3@cornell.edu ct528@cornell.edu

Beau Gillam Andrew Grinzayd Daniel Nieto bbg35@cornell.edu aeg264@cornell.edu djn66@cornell.edu

Anika Mittle

Jeremy Herring Liam Ardrey am3336@cornell.edu jdh363@cornell.edu wa62@cornell.edu

Raquel Kanner Sarah Boyle

Adelyn Carney rk747@cornell.edusab463@cornell.eduac964@cornell.edu

Alexander Chung GrantTravis Rory Sheppard ac2487@cornell.edu gt325@cornell.edurps238@cornell.edu

Kaitlyn Lau JP Spak Meghan O'Leary kl737@cornell.edu jps434@cornell.edu mco56@cornell.edu

Jack Rebillard Declan Beran

Siddhant Dahiya jar575@cornell.edu djb384@cornell.edu sd542@cornell.edu

Isaac Sosnoff

RaheemAmany

Anthony Lopardo ias42@cornell.edu rba52@cornell.edu al835@cornell.edu

Benjamin Luckow Lavinia Burchielli

Subharghya Das bjl93@cornell.edu lb742@cornell.edu sd559@cornell.edu

Ahana Shrestha Kathey Chen Alexa Cooper acs298@cornell.edu kc837@cornell.eduarc245@cornell.edu Alia Piccinni ajp325@cornell.edu