10 Companies to Watch

Q4 2022

by Rebecca Penty

Illustrations by Fromm Studio

Following our list of 50 Companies to Watch in January and a third-quarter update in July, we’re back with 10 specifically for the fourth quarter based on scenarios from Bloomberg Intelligence analysts. The companies in the spotlight span sectors and regions and are part of a larger group of high-confidence Focus Ideas that BI analysts identify on an ongoing basis. Each scenario outlines important catalysts coming in the next few months that support our case.

For more information on BI please visit www.bloomberg.com/bi

Energy

Aker BP

Forecast ☀️
Buoyant energy markets are helping the Norwegian North Sea oil producer’s cash flows and allowing it to increase its dividend, which looks set to exceed expectations. —Will Hares
Data Sheet
Market value $18B
Sales, last 12 months $8B
Expected 2023 revenue growth, consensus 20%
CEO Karl Hersvik
Legal name Aker BP ASA
Triggers
Aker BP illustration

Elevated Brent crude prices and a significant acquisition earlier this year should propel rising free cash flow and a higher return to shareholders.

Bloomberg Intelligence expects the company’s 2023 dividend to beat consensus by about 15%, and this could be further enhanced by a special one-time payout.
Calendar
The first step toward the dividend boost could come during Aker’s third-quarter earnings release in late October.
An important field, Johan Sverdrup Phase 2, is scheduled to come onstream during the fourth quarter.
Beverages

Brown-Forman

Forecast ☀️
With bars and restaurants thriving again, the maker of Jack Daniel’s is poised to deliver some positive earnings surprises. —Ken Shea
Data Sheet
Market value $32B
Sales, last 12 months $4B
Expected 2023 revenue growth, consensus 5%
President/CEO Lawson Whiting
Legal name Brown-Forman Corp.
Triggers
Brown-Forman illustration

Brown-Forman stands to benefit from recovering traffic in clubs and pubs, where people tend to buy more premium spirits.

BI’s analysis points to fiscal 2023 sales beating the consensus estimate by 6%, driving a 15% EPS surprise.
Calendar
Sales of away-from-home alcoholic beverages should accelerate in the third and fourth quarters of 2022 to high-single-digit growth, up from 5% in the second quarter.
Fertilizers

CF Industries

Forecast ☀️
Fertilizer prices have surged to record levels and are likely to remain elevated, spurring stronger-than-anticipated profits for CF Industries and other low-cost producers. —Alexis Maxwell
Data Sheet
Market value $19B
Sales, last 12 months $10B
Expected 2023 revenue growth, consensus -18%
President/CEO Tony Will
Legal name CF Industries Holdings Inc.
Triggers
CF Industries illustration

CF Industries, one of the two largest US-based ammonia producers, looks to gain from global supply shortages, especially in Europe.

Consensus estimates appear to underappreciate CF’s opportunity, with many analysts predicting ammonia prices will fall in 2023 despite shortages stemming from Russia’s war in Ukraine.
Calendar
In the later months of this year, demand in the Southern Hemisphere—particularly from Brazil—will start to fuel price increases.
Sales volumes for US fertilizers in the fourth quarter should be robust, thanks to autumn planting and constrained imports.
Utilities

China Gas

Forecast ☁️
A cost squeeze is putting the Chinese utility’s earnings at risk. —Henik Fung
Data Sheet
Market value $6B
Sales, last 12 months $11B
Expected 2023 revenue growth, consensus 16%
Chairman/Co-President/Managing Director Liu Ming Hui
Legal name China Gas Holdings Ltd.
Triggers
China Gas illustration

The consensus for China Gas seems focused on demand recovering and retail volumes growing, but selling prices remain stagnant and feedstock costs are soaring.

BI sees about 1 yuan (14¢) in earnings per share for fiscal 2023, vs. a consensus estimate of about 1.5 yuan.
Calendar
Results for the first half of fiscal 2023, to be announced in November, should highlight the price/cost implications for China Gas’s profitability.
Industrials

Emerson

Forecast ☀️
Sustained robust energy markets play to the electrical equipment maker’s advantages. —Karen Ubelhart
Data Sheet
Market value $44B
Sales, last 12 months $19B
Expected 2023 revenue growth, consensus 5%
President/CEO Surendralal Lal Karsanbhai
Legal name Emerson Electric Co.
Triggers
Emerson illustration

Emerson’s industrial automation business will benefit from high energy prices, offering additional revenue that will give a welcome boost to the company’s multiyear financial restructuring.

BI’s scenario points to above-consensus sales and profit margins, with an earnings surprise of almost 10% in fiscal 2023.
Calendar
The company could raise its long-term targets in its fiscal fourth-quarter 2022 earnings release in November.
Pet food

Freshpet

Forecast ☀️
The maker of food for cats and dogs is riding growth in the pet economy with a major expansion. —Diana Rosero-Pena
Data Sheet
Market value $2B
Sales, last 12 months $0.5B
Expected 2023 revenue growth, consensus 29%
CEO Billy Cyr
Legal name   Freshpet Inc.
Triggers
Freshpet illustration

Freshpet’s new operation in Ennis, Texas, is set to increase the company’s capacity sixfold by 2025, helping it meet demand from pet owners keen to adopt its fresh, refrigerated food for their canine and feline friends.

Management’s goal of $1.25 billion in sales for 2025 may be too modest; a BI analysis suggests the company can achieve this two years earlier.
Calendar
The first phase of the Ennis plant—the key to Freshpet’s expansion—starts operations in the fourth quarter.
Management may favorably revise its 2025 sales target by yearend.
Biotech

Idorsia

Forecast ☁️
The biotech company’s new sleeping pill may not be as dreamy as some investors expect. —Michael Shah
Data Sheet
Market value $2B
Sales, last 12 months $45M
Expected 2023 revenue growth, consensus 191%
CEO/Managing Director/Founder Dr. Jean-Paul Clozel
Legal name Idorsia Ltd.
Triggers
Idorsia illustration

Idorsia’s Quviviq is the best available insomnia therapy, but the consensus estimate suggesting its sales will be double those of a rival product from Merck & Co. looks too aggressive.

BI’s analysis points to 2022 revenue of about 30 million Swiss francs ($30.4 million) for Quviviq, but the consensus is expecting as much as 70 million Swiss francs.
Calendar
Executives will provide an update on Quviviq’s launch trajectory on an earnings call in October.
Internet

Meta

Forecast ☁️
Increased competition and rising costs are putting the social media giant’s profitability at risk more than the market appears to appreciate. —Mandeep Singh
Data Sheet
Market value $366B
Sales, last 12 months $119B
Expected 2023 revenue growth, consensus 10%
Chairman/CEO/Co-Founder Mark Zuckerberg
Legal name Meta Platforms Inc.
Triggers
Meta illustration

Following changes in Apple’s iOS pricing and policies, Meta’s core advertising growth is slowing just as operational costs are rising because of increased spending at its Reality Labs unit.

Estimates for Meta’s key gross profit margin could be revised downward by as much as 10 percentage points for 2023, based on BI’s analysis.
Calendar
Impressions growth—a measure of time spent on the platform—looks set to slow to about 5% in the second half of the year, from a three-year average of 25%.
Meta’s 2022 gross profit is likely to be dragged down by ad-pricing declines of 20% or more in its iOS segment.
Chemicals

Rongsheng

Forecast ☀️
The Chinese plastic maker is ramping up production with new facilities that should increase the company’s market share. —Horace Chan
Data Sheet
Market value $19B
Sales, last 12 months $37B
Expected 2023 revenue growth, consensus 13%
Chairman Li Shuirong
Legal name Rongsheng Petrochemical Co.
Triggers
Rongsheng illustration

Rongsheng is tripling its exposure to higher-end ethylene-vinyl acetate (EVA) plastics with two additional ethylene crackers.

Given the recent premium pricing for higher-end plastics, Rongsheng’s new facilities could boost its net profit 8% above 2021 levels, yet its stock is trading in line with key peers with less ambitious expansion plans.
Calendar
The third-quarter earnings being announced in October should show rising volumes from the new ethylene cracker plants.
News of the increase in production should be evident in the fourth quarter.
Banks

UniCredit

Forecast ☀️
Worries are mounting that European bank credit quality will falter, but for the Italian lender those fears look overblown. —Jon Tyce
Data Sheet
Market value $20B
Sales, last 12 months $21B
Expected 2023 revenue growth, consensus 1%
CEO Andrea Orcel
Legal name UniCredit SpA
Triggers
UniCredit illustration

UniCredit’s depressed valuation, suggesting a significant increase in bad debts, appears too cautious given asset quality trends, net interest income growth, and its strong capital buffer.

BI believes the consensus estimate of loan loss provisions for 2023 could be more than 20% too high.
Calendar
Loan loss provisions should remain low—and management’s confidence should remain high—in the third-quarter results that will be released in late October.

Market value as of Sept. 29, 2022

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