With earnings for the third-quarter finally slowing down, analysts and strategists on Wall Street also are starting to get some color from companies not only on the fourth quarter, but for 2016 as well. The bottom line for investors, a timid Federal Reserve may push out the first interest rate hike to March, but high multiples may be less and less tolerated.
Each week we cover the new value calls from the analysts at Jefferies, and increasingly some of the calls may look surprising, as some solid big blue chips companies are becoming so cheap on a multiple basis they are ending up in the value arena. This is the best of both worlds for investors, when large cap growth companies become inexpensive enough to have a value call.
Here are four of this week’s value stocks to buy from Jefferies. All are rated Buy.
This old-school large cap tech stock is very reasonable valuation-wise, but it turned in earnings recently that missed Wall Street estimates again. Oracle Corp. (NASDAQ: ORCL) trades at 13.9 times estimated 2016 earnings, and still provides solid free cash flow yield. Oracle plans to make almost all of its services available via the Internet, as the database-software company changes its business model to fit a new competitive landscape. Around 65% of Oracle’s products are available on the cloud today, and that is expected to climb to 95% by the end of this year.
The stock is down almost 15% so far this year, and many on Wall Street expect version 2 of the 12c database to drive an Exadata product cycle, and simply don’t believe that’s sufficiently discounted in the stock. Some firms did lower the near-term cash flow because of the cost of the very aggressive move to the cloud, but they are boosting long-term growth metrics. Jefferies analysts attended the recent OpenWorld conference and Oracle’s analysts day and came away impressed and also noted that the 12C database version 2 has been released in beta form.
Oracle investors receive a 1.54% dividend. The Jefferies price target for the stock is $50, and the Thomson/First Call consensus target is $44.09. Shares closed Monday at $39.75.
Jefferies believes shares of this carrier should be bought on any near-term weakness. T-Mobile US Inc.’s (NYSE: TMUS) advanced nationwide 4G LTE network delivers outstanding wireless experiences to approximately 59 million customers through its subsidiaries and operates its flagship brands, T-Mobile and MetroPCS. While T-Mobile had preannounced solid subscriber trends, it delivered mediocre third-quarter earnings and the stock sold off 6%.
Jefferies feels this is the dip investors need to take advantage of. The analysts think that the forward guidance may end up being very conservative, and trading at a low five times 2016 enterprise value/EBITDA, the stock offers a compelling entry point at current levels. The current trading area is a bottom the stock has tested numerous times since the spring.
The Jefferies price target is $45, and the consensus target is $46.61. The shares closed Monday at $38.29.