Publisher Houghton Mifflin Harcourt Has Upside Potential: Citi

Houghton Mifflin Harcourt’s management could be looking at possible M&A activities or announce a new return of capital strategy, so Citi analysts increased their target price to $29.

Citi’s report dated April 13, 2015 also raised the target price and estimates for Walgreens Boots Alliance.

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Citi maintains a Buy on Houghton Mifflin Harcourt

Jason B Bazinet of Citi anticipates Houghton Mifflin Harcourt’s management may announce M&A or a new return of capital strategy. He notes under the M&A scenario, if HMH pursued M&A, a Scholastic or Kaplan acquisition is possible. Though the analyst doesn’t envisage any material upside from Kaplan, he believes a Scholastic acquisition would result in a $30 equity value. Moreover, the analyst anticipates an 80% chance of this deal coming to fruition.

Under a return of capital scenario, the analyst believes the upside is limited, as even an aggressive repurchase program would only add ~$1 to Citi’s $23 target price. Jason pegged Houghton Mifflin Harcourt’s target price at $29 after considering fully-taxed FCF, estimated cash on hand. He also noted a possible upside catalyst, as the company will hold an Analyst Day on May 12, 2015.

As part of its Morning Call Highlights, Citi compared Williams-Sonoma to Wayfair. In its Head-to-Head series, Citi analysts prefer Williams-Sonoma as it is taking market share with a proven and profitable model compared to Wayfair, which will not likely have positive adjusted EBITDA until 2017. Moreover, the analysts point out that Williams-Sonoma has a greater ability to support shares through buybacks and a market level dividend yield of 1.9%.

Kate McSharne of Citi reiterated her Buy rating on Williams-Sonoma, Inc., as the company would be benefited from a stronger housing market and market share gains.

Citi trims PT on FIS

Ashwin Shirvaikar of Citi points out that Fidelity National Info Services was negatively impacted by various factors including restated segments, discontinued contract, and contract cost over-run. However, the analyst believes the May 4th investor day would facilitate FIS stock to stabilize, though it could be 1-2 quarters before new catalysts emerge. The analyst reaffirmed a “Buy” rating on FIS partly due to the expected exaggerated stock impact and possible opportunities relating to new guidance by 3Q15/4Q15. However, the analyst trimmed his target price to $71 based on his lower estimates.

Donald Fandetti of Citi initiated coverage on Goldman Sachs BDC with a “Buy” rating and pegged the target price at $23. The analyst notes the business development company invests primarily in senior secured loans, though also opportunistically invests in unsecured/equity and investment funds / vehicles as well.

Taking a closer look at US dollar’s appreciation, Tobias M Levkovich of Citi notes the dollar generally hasn’t determined stock price direction for the broad market, but there is some correlation with large and small caps, though the relationship is not consistent. The analyst points out that when reviewing the Top 25 companies with exposure to Asia or Europe, some clearer connection to currency moves can be noted. However, Levkovich points out that over the past five years, the dollar’s moves haven’t had the intended effects.