We are moving MKS Instruments (MKSI) to Sell. With the lifting of the election overhang and news of a promising COVID-19 vaccine, and with MKSI shares touching our 130 price target, we are taking this opportunity to sell the shares.
We don’t see any imminent problems with MKS, particularly given their favorable earnings report last week. However, we see little justification for raising our price target.
Based on mid-day prices, MKSI shares have produced a 13% price return since our new coverage began on June 30. SELL.
We are moving Voya (VOYA) to Sell following its earnings report last week and its stock surge today.
Our view on Voya has dimmed. We are disappointed in the chronically low quality of its earnings. Their practice of running above-industry-norms amounts of charges through their income statement essentially suggests that investors should ignore these higher charges. Yet, even when ignoring these charges, the company didn’t meet consensus expectations in the current quarter. Its guidance for the fourth quarter, while higher than estimates, could similarly be subject to so many adjustments as to make the results meaningless.
If we lose confidence in the earnings, we lose confidence in the valuation. The consensus estimate for 2020 fell to $3.01 due to the weak third quarter. Estimates for 2021 fell to $5.94 by two cents, not a meaningful number except that we now lack confidence in what that estimate actually means. On this murky 2021 estimate, the valuation of 9.2x becomes problematic.
The paltry 1.2% dividend yield provides little incentive to hold the shares. While Voya has several appealing traits – it is well capitalized and migrating toward a capital-light model, which should allow more share repurchases – these aren’t enough to offset the low earnings quality. We see little risk in its delayed sale of the life insurance book, but if this deal isn’t completed, Voya would be tainted.
We don’t see any imminent risk, but see no reason to linger, either. Based on mid-day prices, the shares have produced a 17% total return since our new coverage began on June 30. SELL.
We are also moving TOTAL (TOT) to a Sell. The Hold-rated company saw its share price surge nearly 16% in mid-day trading, approaching our 43 price target. Total is doing many things right, but also is heavily exposed to commodity oil prices. The dividend is very appealing, but perhaps half of it (we think if they needed to cut it, they would cut it in half, not fully suspend it) is at risk should oil prices stay below $40 (Brent). Today, even with the encouraging COVID-19 vaccine news, Brent oil prices rebounded to only $42.50 or so – not much margin for error.
Based on mid-day prices, the shares have produced a sizeable 40% loss since the initial recommendation in September 2018. While possible, we don’t see the shares having a high-enough chance of returning to the 60 price range in the foreseeable future to merit a continued Hold rating. Since our new coverage began on June 30, the shares have produced a flat total return. SELL.