Jefferies Makes Huge New Stock Addition to Franchise Picks List

Investing

Published: September 26, 2016 8:35 am

Last Updated: January 13, 2020 3:10 am

With earnings for the third quarter on deck, and the fourth quarter of 2016 almost underway, many of the top companies we follow on Wall Street are making some changes to the lists of their high conviction stock picks for clients. With the market bursting through to new all-time highs, it makes sense to examine the lists and make some changes as the rest of the year could have additional volatility as the political cycle could prove to be very volatile component.

In a recent research note, the analysts at Jefferies make a big move by adding a top technology company, Computer Sciences Corp. (NYSE: CSC), to the firm’s well-respected Franchise Picks list of stocks to Buy. The company is expected to complete a merger with Hewlett Packard Enterprise Co. (NYSE: HPE) next March.

CSC provides innovative next-generation technology services and solutions that leverage deep industry expertise, global scale, technology independence and an extensive partner community. The company serves leading commercial and international public sector organizations throughout the world.

The Jefferies team thinks the merger could be 102% accretive to the year one earnings per share for the newly combined company, and they had this to say in the research report:

As we approach the March 2017 close date, we expect the shares could rally, and see catalysts even sooner, including: Hewlett Packard Enterprise to file Form 10 post the October 31st fiscal year end and the Computer Sciences Analyst Day in early 2017. Stock trades at about 7.7x our new company earnings-per-share estimates, we believe there could be upside to our cost synergy estimates.

CSC shareholders are paid a 1.07% dividend. The Jefferies price target for the stock is $63, and the Wall Street consensus target is much lower at $52.30. The shares closed near that level on Friday at $51.57.

In addition, here are the three top-yielding stocks in the Franchise List portfolio:

AbbVie

This stock is one of the top global pharmaceutical stocks picks across Wall Street. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries.

One of the biggest concerns with AbbVie is what eventually might happen with anti-inflammatory therapy Humira, which generated $14 billion in sales in fiscal 2015. That was the most any drug has recorded during a single year and represents a gigantic part of the company’s overall earnings. The problem is that biosimilars and generics are itching to enter the market with Amgen leading the charge, and some Wall Street analysts project that AbbVie may have a difficult time stopping that trend.

Back in May, the patent board instituted Coherus BioSciences’ Inter Partes Review against the Humira ‘135 patent. The outcome of the review is expected in 12 months. While most analysts remain positive on Humira duration, the expected litigation uncertainty could continue to create an overhang on the stock, which does give investors chances to pick up shares lower.

AbbVie investors are paid an outstanding 3.51% dividend. Jefferies has a $90 price target for the stock, and the Wall Street consensus target is posted at $71.28. Shares closed Friday at $64.98.

Boeing

This top aerospace industrial is still down over 10% since the beginning of the year, and we recently noted it has been the worst performing Dow Jones Industrial Average stock this year. Boeing Co. (NYSE: BA), together with its subsidiaries, designs, develops, manufactures, sells, services and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems and services worldwide. The company operates in five segments: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support, and Boeing Capital.

Top Wall Street analysts have increased confidence in continuing good demand, and they note that the company has made announcements in the past that support the thesis that the productivity and margins will continue to improve. 787 execution is good as the company works through the backlog, and cash flow looks to be strong with 787 deliveries and C-17 orders. Some Wall Street analysts also point to continued lower oil prices as a bullish indicator for the top carriers who are Boeing’s big customers.

Boeing investors are paid a very solid 3.31% dividend. The Jefferies price target is set at $165, well above the consensus target of $148.53. The stock closed trading on Friday at $131.78 a share.

Ingersoll-Rand

This is one of the many top companies that restructured and is now based in Ireland. Ingersoll-Rand PLC (NYSE: IR) is another top industrial stock to buy and, with the housing market continuing to grow, the company’s wide range of portfolio products should continue to sell well. Many on Wall Street also see the stock as a good play on the replacement, upgrade and, ultimately, growth in the commercial and residential air conditioning markets. Trends in these markets have been highly correlated with overall commercial construction and are thus earlier in the cycle.

Ingersoll Rand has an outstanding portfolio of global brands and holds leading market share in all major product lines. The geographic and industrial diversity coupled with a large installed product base provides solid growth opportunities for the company within service, spare parts and replacement revenue streams.

Ingersoll-Rand investors are paid a 2% dividend. The Jefferies price objective is $75, and consensus price target is posted at $74.63. Shares closed on Friday at $64.65.

Four companies in four very different sectors that all offer liquidity, a degree of safety and solid dividends that should continue to rise. All are trading well below 52-week highs and look like good additions to long-term growth portfolios.

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