Jefferies Makes Another Big Summer Change to Its Franchise Picks List

August 8, 2016 by 247lee

With the second-quarter earnings reporting almost over, and the second half of 2016 well underway, many of the top firms 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 due to the political cycle.

In a recent research note, the analysts at Jefferies made a big move by adding Ball Corp. (NYSE: BLL), a top consumer goods company in packaging and containers, to the firm’s well-respected Franchise Picks list of stocks to buy. Here we cover this new addition, and the company it replaced, and we also screened the Franchise Picks list for the highest dividend-paying stocks in the group.

Ball was added to the list and Jefferies sees it as a solid defensive play. With pro-forma sales of approximately $11 billion in 2015, Ball is a leading global supplier of metal packaging products, primarily for the beverage and food industries. In beverage cans, Ball produces roughly 100 billion units globally, with the leading market position in every major geographic area it serves. Ball also has a long-standing Aerospace and Technologies segment.

The company posted very solid second-quarter numbers that beat Wall Street estimates, and Jefferies also feels there’s upside to the company’s 2017 free-cash-flow guidance. Some on Wall Street think Ball can have as much as $1 billion in free cash flow by 2019.

The stock has been on fire as short sellers have raced to get out. Stronger than expected packaging growth drove the earnings surprises, and the contracted backlog has grown to more than $1 billion by the end of the second quarter.

WestRock Co. (NYSE: WRK) is the company removed from the Franchise Picks list, but is still a favorite at Jefferies and stays Buy rated. The old Rock-Tenn and MeadWestvaco have merged to become the second-largest U.S. packaging company, valued at $10.7 billion, trailing only International Paper with a market capitalization of just under $15 billion.

WestRock trades with a more than 10% free-cash-flow yield, and owing to demand resiliency and lower spending, the Jefferies team believes cash flow can hold up even in a tougher economic environment. They also think that the stock could continue its march off lows, if containerboard prices hold, which they have for the time being.

Ball shareholders are paid a small 0.66% dividend. The Jefferies price target for the stock is $94, and the Wall Street consensus target is $82.88. Shares closed last Friday at $79.15.

WestRock investors receive a very tempting 3.4% dividend. Jefferies has a $53 price target, but the consensus target is $70.56. Shares ended last week at $44.08.

Here are three of the top dividend plays on the Franchise Picks list.

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.

The patent board recently 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.

AbbVie investors receive a 3.52% dividend. The Jefferies price target is $90. The consensus target is posted at $70.17 Shares closed most recently at $64.72.

Boeing

This top aerospace industrial is still down over 10% since the beginning of the 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 receive a 3.28% dividend. The $165 Jefferies price target is well above the consensus target of $148.28 and the most recent close at $133.01.

Coach

This consumer discretionary stock is fighting its way back after getting annihilated last year. Coach Inc. (NYSE: COH) is a leading New York design house of modern luxury accessories and lifestyle brands. The Coach brand was established in New York City in 1941 and has a rich heritage of pairing exceptional leathers and materials with innovative design.

Coach products are sold worldwide through Coach stores, select department stores and specialty stores, and through company’s website. In 2015, Coach acquired Stuart Weitzman, a global leader in designer footwear, sold in more than 70 countries.

The stock was a favorite for years before getting absolutely hammered in 2015, but it has fought its way back. With the dollar strength fading, many analysts are more positive on the company.

Coach investors receive a 3.2% dividend. The Jefferies price target is $50, and the consensus target is $43.22. Shares closed Friday at 42.03.

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While the stress from the Brexit vote is long gone, other factors like the political season and the global macro situation could keep investors nervous. Solid, dividend-paying stocks make sense for the last half of this year, and the new addition to the list makes for a good consumer holding.