Stocks to Buy: GM, Wayfair, Six Flags, iHeart.

While sentiment on the stock has improved lately, we believe the market will be surprised by the degree of profit upside that the company is likely to generate in the coming periods. We believe the company is just on the cusp of entering a multiquarter period wherein it is likely to drive both sales and profit acceleration. This is likely to push its multiple back to at least its historical average of 1.2 times enterprise value/sales, if not higher vs. 1.0 times currently.

We raise our calender-2024 and ’25 Ebitda margin estimates to 3.9% and 5.0%, respectively (above consensus of 3.2% and 4.4%). At these levels, we see a nearly 2:1 upside/downside skew.

General Motors

• GM-NYSE

Outperform • Price $36.84 on Aug. 9

by RBC Capital Markets

A tour of GM’s Ultium Cells battery-cell factory showcased a one-of-a-kind facility that uses

LG
’s
know-how but operates as a single entity. Through vertical integration, GM should benefit from Inflation Reduction Act credits and lower battery costs long term.

We believe that GM and

Tesla

are the only truly vertically integrated original equipment manufacturers on electrification in North America.

Volkswagen

is vertically integrated in Europe. Ultium Cells appears to be a one-of-a kind joint venture that uses LG’s process know-how but operates as a single entity. We think this sets GM apart from its peers.

Near term, this could mean higher battery costs to absorb Ultium’s research-and development spending, but longer term, as the facilities scale, we could see battery cost come down faster versus OEMs buying cells directly from partners. Moreover, over a three-year period, the

Lordstown

facility alone, at max capacity (currently at 50%), could qualify for the $35 per kilowatt IRA credit ($1.4 billion).

Price target: $48.

Petrobras

• PBR-NYSE

Neutral • Price $14.03 on Aug. 3

by J.P. Morgan

We downgrade Petrobras to Neutral. The good news we expected has played out, and is likely priced in. We heard from new management on the three key pillars of value for Petrobras—capital discipline, pricing policy, and dividend policy. That, we believe, drove Petrobras shares to be one of the best performers in 2023, up 31% year to date.

We are less comfortable as we need to rely now on extraordinary dividends for Petrobras to stand out versus peers in terms of shareholder return. Price target: $14.50

United Parcel Service

• UPS-NYSE

In Line • Price $182.15on Aug. 8

by Evercore ISI

UPS reported adjusted second-quarter earnings per share of $2.54, coming in ahead of our $2.44 forecast and the average Street estimate of $2.49, despite a top-line shortfall of about $1 billion. The margin/EPS beat amid a greater-than-expected diversion of volume (one million packages/day) associated with the prolonged labor negotiations speaks to UPS’ cost management efforts and agility.

However, the updated full-year 2023 guidance points to ongoing challenges to volumes (macro as it relates to international and the clawback of lost share in domestic) as well as the impact of the higher labor inflation resulting from the new tentative Teamsters agreement. Price target: $185.

Six Flags Entertainment

• SIX-NYSE

Outperform • Price $22.85 on Aug. 10

by Oppenheimer

Six Flags reported second-quarter attendance increased 6% year over year to 7.1 million guests, while total guest spending per capita declined 5% year over year, on lower season-pass prices and reduced in-park spending due to the higher mix of season passes. While bad weather impacted attendance by 5%-6%, attendance has trended in the right direction and has generally bettered expectations. Price target: $35

iHeartMedia

• IHRT-Nasdaq

Buy • Price $3.74 on Aug. 9

by Guggenheim

We are updating our model and 2023 outlook for iHeart to reflect its second-quarter 2023 earnings and more-persistent advertising headwinds in second-half 2023, particularly at the Multiplatform Group.

IHeart reported second-quarter revenue and adjusted Ebitda forecasts of $920 million and $191 million, compared with our $905 million and $190 million forecasts. The company issued third-quarter guidance for revenue to be down mid-single digits and adjusted Ebitda of $195 million to $205 million.

Management continues to believe larger advertisers will come back in the second half, though we don’t believe there has been any inflection point to date. We are lowering our price target to $9 from $10.

Lions Gate Entertainment


• LGF.A-NYSE

Market Perform • Price $7.13 on Aug. 10

by Barrington Research

The company reiterated its fiscal-2024 guidance for operating income before depreciation and amortization to $400 million-450 million. The guidance includes roughly $595 million to 695 million generated by the studio business, which, due to the consolidation of the media networks business, involves a meaningful intercompany component.

Management provided additional details on the eOne [film and TV studio] acquisition announced last week, noting the attractive multiple at which the company was able to acquire the asset and its substantial library. The acquisition will tick leverage somewhat higher, though management sees synergy opportunities with the asset.

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