The Morning Brief: Banks Cut Price Targets On a Hedge Fund Favorite
At least two investment banks cut their price target on hedge fund favorite Constellation Brands. UBS reduced its target from $170 to $162, noting the distributor of liquor and beer reported third-quarter results that came in below its expectations for organic growth and cash flow growth. The investment bank is also concerned about potential tax reform that could result in higher taxes for imports from Mexico, which would increase costs.
Credit Suisse cut its target price from $183 to $165, noting that tax savings enabled the company to beat earnings estimates even as “the list of risks grows.” The bank, which maintained its neutral rating, notes that investors are worried about the impact of proposed policy reforms under the incoming Trump administration, the need for increased investment to sustain growth, and the performance of Ballast Point, the craft brewer it bought in late 2015. Credit Suisse also cut its earnings estimate for this year.
Even so, the stock climbed 1.8 percent on Friday, to close at $149.44. At the end of the third quarter, the stock was a favorite among the Tiger crowd. Tiger Cub Lone Pine Capital was the fourth-largest shareholder, while fellow Cub Viking Global Investors was the tenth-largest investor. Among smaller Tiger-related funds, the stock was the largest long of Valinor Management and the second largest long of Miura Global Management and Samlyn Capital. In addition, Constellation is the eighth-largest individual long position of Melvin Capital Management, which does not have roots in Julian Robertson Jr.’s Tiger Management but rather Steven Cohen’s SAC Capital.
Credit Suisse raised its rating on hedge fund favorite Willis Towers Watson to outperform from neutral and lifted its price target from $137 to $143. In a note to clients, the bank says it is confident shares of the consulting firm can recover much of their 25 percent to 26 percent underperformance compared with two competitors in 2016. The bank also cites an “increasing ability” for the company to grow earnings through share repurchases, which it says “will become more clear as we get to the back half of 2017.”
It does not point out that at least two activist hedge fund firms are major shareholders and the types of investors that would aggressively push for buybacks and other stock-enhancing measures. They include ValueAct Capital Management, the third-largest shareholder, and JANA Partners. The stock rose 0.65 percent on Friday, to $126.78.
Adage Capital Partners disclosed it owns 1.35 million shares of Loxo Oncology, or 5.28 percent of the total shares. The Boston hedge fund firm made its filing in a 13G, meaning the investment in the company, which is trying to develop cancer treatment drugs, is passive.