Solventum (SOLV) $62.75
Two Wall Street firms Wells Fargo and Morgan Stanley have similar advice to what I gave about Solventum in my earlier post. Growth concerns will keep the stock flat.
It’s a wait-and-watch story.
Here’s the Barron’s link.
https://www.barrons.com/articles/solventum-stock-price-3m-spinoff-4f6025e7?mod=md_stockoverview_news
Disney (DIS) $122 Hold
Disney bounced back strongly in the last 12 months gaining 28% and 50% from its October now, a commendable rise reflecting the efforts of management to turn it around.
Going forward total revenues should be muted around 4 to 5% after the last three years gain of 8%. Entertainment and sports are slow growers, theme parks grew a lot after the pandemic ended, but won’t have that tailwind on a higher base.
Streaming while plateauing in the US will grow abroad, but the sluggish growth will not allow for major price increases. Besides Netflix and Prime, they should be the 3rd survivor, WSJ research indicated that there was resistance beyond 3 subscriptions per home.
Disney used to have over 20% operating margins, now they are like 10-11%, ESPN weakness, theme park shutdowns during the pandemic and all the expense of streaming really killed margins, but they are turning it around and the Dec quarter showed improvement.
Earnings will grow around 13% – that’s the biggest positive, the brand value is tremendous and Disney will carry a premium multiple.
Valuation – Disney is already priced at 26x earnings, twice its growth rate, mainly because of the 28% gain in the past year. I would expect at least a 22-24 multiple of FY 2027 earnings of $7- that’s about $160-$170 per share, three years out, that’s a 10% return per year from the current price.
A good hold if 10% a year is good enough, I wouldn’t add more unless there is a major drop in price or a big improvement in strategy.
HDFC Bank (HDB) $55 – Hold
Its merger with HDFC decreases overall operating margins and valuation multiples a little bit; earlier it was one of India’s fastest growing banks mostly on consumer and retail strengths, now we have a giant which is less nimble and owns a lot of wholesale slower earning assets.
However, there are a lot of benefits such as cross selling and the combined entity gains from HDFC’s strong exposure to mortgages, which will continue to grow fast in India.
It’s expensive at 19x earnings, which is pretty high for a bank and for one with mid single digit growth. Overall HDB has returned 7-9% in the last 5 years, which is not bad, but given India’s great growth story it is much lower than even the Indian market (Sensex and Nifty)
I would take a second look below $50; let’s see another quarter of how the merger pans out.
I compared it with ICICI Bank (IBN), which has actually done a lot better as a return on Investment, however that too is expensive right now around $24.36, and could be worth buying if it came down about 10-15%.
Banks are cyclicals, don’t tend to outperform and are not usually fast growers, so entry prices are important.