TheChek News Flow

Barrons weekend update: Cover story on ‘FAANG’ stocks; positive feature on GIS

* Cover story: The FAANG stocks—FB, AMZN, AAPL, NFLX, and GOOGL—have long been seen as a unified trade, but while they are each disrupters, investors are overlooking substantial differences in their business models; In the wake of Facebook’s data scandal, ignoring those differences could be a risky bet.

* Features: 1) Barron’s Top 100 Financial Advisors list is topped by Lyon Polk, Gregory Vaughan, and Andy Chase of Morgan Stanley Private Wealth Management; A list of the Top 50 Institutional Consultants is led by UBS Institutional Consulting, Retirement Benefits Group, and Graystone Consulting, Dobbs Group; 2) Master limited partnerships may have burned some investors, but the oil industry is rebuilding and rebounding, energy production is thriving, and MLP valuations appear cheap, making the investments worth another look; 3) Investors have good reason to remain cautious on Russia, which faces a host of sanctions; while equities could rebound, the country’s sovereign debt looks like a better, safer bet; 4) Positive on GIS: General Mills is among the bargains in the consumer staples sector, with sales trends improving, new product launches, and a potentially high payoff for niche brands such as Blue Buffalo; 5) Positive on DAL, GT, LNC, NAVI: Companies are in the bargain bin, but they don’t face obvious threats of structural decline, and don’t appear to be hitting cyclical peaks, at least not by Wall Street estimates.

* Tech Trader: Cautious on INTC, NVDA: Tension between the chipmakers and the world’s largest tech companies is set to grow as the latter increasingly embrace artificial intelligence, and decide—as FB has—to build their own chips tailored to their specific needs.

* Trader: Many investors are wondering if Treasury yields are rising in anticipation of better growth or accelerating inflation, and the market will continue to be volatile until the answer is clear; Despite threats from AMZN, NFLX, and others, the consumer-discretionary sector continues to perform well amid an economic recovery, and the sector looks attractive; Cautious on GE: Bulls were encouraged by the most recent earnings report, but the stock doesn’t look cheap, given operational and financial challenges not faced by rivals HON and UTX. Profile: Jim Barrineau, manager of the Hartford Schroders Emerging Markets Multi-Sector Bond fund, invests broadly across emerging market debt (top 10 issuers: Indonesia Treasury, Republic of Poland Government, Lebanon Government International, Petrobras Global Finance, Ukraine Government International, Ecuador Government International, Eskom Holdings SOC, Provincia de Buenos Aires, Republic of South Africa Government, Russian Federal).

* Interview: Tax policy expert Arthur Laffer discusses the ideal tax policy, universal basic income, and other elements of the Republican tax platform.

* Follow-Up: Positive on TPR: The parent of luxury goods maker Coach, its flagship brand, “has stitched together a strong recovery, with plenty of room for more growth.”

* European Trader: Cautious on Siemens Healthineers: The healthcare company spun off from Siemens “is promising on many counts, but some analysts don’t view the stock as a bargain.”

* Commodities: Oil prices have rallied so far this year amid OPEC’s efforts to erase a surplus, but “the market may soon face a shortage of crude that would support further price gains.”

* Streetwise: As Donald Trump’s tweets about companies such as AMZN show, politics is intruding on business as never before, and the trend will only grow.

Facebook and Apple Embody New Tech Divide

Apple became the largest public company in the world the old-fashioned way: charging lots of consumers lots of money. So it’s not surprising that its CEO, Tim Cook, would chafe as Facebook grew to challenge Apple’s supremacy without charging its users a dime.

In recent weeks, that tension has grown, as Cook and Apple (ticker: AAPL) sought to distance themselves from Facebook (FB) and the uproar over user data. In a television interview, Cook, hardly a rabble-rouser, accused Facebook of building a business based on an “invasion of privacy.”

“The truth is, we could make a ton of money if we monetized our customer—if our customer was our product,” Cook told MSNBC. “We’ve elected not to do that.”

Added Cook: “We’ve never believed that these detailed profiles of people, that have incredibly deep personal information that is patched together from several sources, should exist.”

Facebook CEO Mark Zuckerberg, who proved his composure during two days of congressional grilling, was less patient when it came to Cook’s criticism. We’re “not just serving rich people…you need to have something that people can afford,” Zuckerberg said about Apple. He called Cook’s comments “extremely glib and not at all aligned with the truth.”

Welcome to tech’s great divide. For several years now, investors have talked about FANG—Facebook, Amazon.com (AMZN), Netflix (NFLX), and Google-parent Alphabet (GOOGL)—or FAANG (adding Apple) as a unified trade, a way to play the latest tech trends.

The companies are all similar in that they use technology in disruptive ways, but investors have generally overlooked substantial differences in their business models. As changes loom, ignoring those differences is a risky bet.

It’s not just personal sniping between rival CEOs. There are real differences between direct-to-consumer revenue models and ad-driven data models. Or, in a nutshell: Apple versus Facebook.

The divide has been amplified by the Facebook controversy, but the fault lines have been widening for years, as tech firms turned to advertising revenue to scale their businesses. Silicon Valley never got fully comfortable with that deal.

“The odd thing to me—as someone who has worked on Madison Avenue—is that most of Silicon Valley has always brushed under the rug the fact that Madison Avenue is the center of its commercial activity,” says Brian Wieser, an analyst with Pivotal Research Group, who spent eight years forecasting the global advertising economy at Magna Global, and currently has one of the few Facebook Sell ratings on Wall Street.

But after the outcry over Cambridge Analytica’s harvesting of personal data, the reality can no longer be ignored. Facebook and Google are advertising companies that don’t sell to consumers, while Apple, Amazon, and Netflix have spent years building direct connections to customers. The free frontier of Silicon Valley is now vulnerable to regulation, while the subscription model may be more stable and attractive.

To highlight the divide, we looked at how much revenue Big Tech players receive from advertising. Earlier this month, Zuckerberg repeatedly reminded his congressional questioners that Facebook doesn’t sell data to advertisers. The well-honed response is technically accurate, but Facebook is set to sell over $50 billion in ads this year, specifically because of its user data.

The same applies to Google. Data—and the ability to target viewers—is the main ingredient separating Big Tech from the traditional publishing and media companies.

As the risk of regulation mounts, advertising exposure should be a good proxy for which companies are most vulnerable among big tech. At the top of the list is Facebook. Last year, 98% of its revenue came from advertising. Snap (SNAP) came in at 97%, with Google-parent Alphabet and Twitter (TWTR), both at 86%.

We pulled the data with the help of Sentieo, a financial data platform. Not all tech firms break out their ad revenue as a separate segment, but the companies routinely disclose their ad dependence in the risk-factor section of annual reports. Those risk factors, while often full of worst-case scenarios, hold valuable data for investors.

Apple, Netflix, and Dropbox (DBX) have minimal, if any, ad exposure, and they don’t mention ad revenue in their risk section. Amazon is one to watch, given its growing ad business. So far, the company doesn’t address the ad risk, either.

Ad-free Netflix is the best performing stock in the Standard & Poor’s 500 index this year. After a banner earnings report last week, Netflix shares are up 71% in 2018. Strong subscriptions are the cause, but it doesn’t hurt that Netflix has skated worry-free as Facebook got dragged through the mud. Facebook shares are down 5.8% on the year.

Last week, during Netflix’s quarterly conference call, CEO Reed Hastings took a victory lap for the company’s ad-free model: “I’m very glad that we built this business to not be advertising supported, but to be subscription. We’re very different from an ad-supported business….So I think we’re substantially inoculated from the other issues that are happening in the industry, and that’s great.”

That line is unlikely to go over well at Facebook headquarters in Menlo Park, Calif. Hastings sits on Facebook’s board of directors; the great tech divide may soon play out live in Facebook’s boardroom.

Even oft-troubled Uber has found the moral high ground in Facebook’s struggles.

We contacted the companies cited in this article. Some declined to comment, while others didn’t want to speak on the record.

It makes no sense that Apple and Facebook would emerge as the primary adversaries in the privacy debate.

Facebook is a social-media behemoth built on accumulating as many members as possible—and it has done a phenomenal job, with 2.13 billion monthly active users. It’s a scale play built on the lowest possible barriers to entry for its users. The trade-off is an ad-heavy business that generated $40.65 billion last year and a projected $55 billion this year. Altogether, Facebook generates just $26 per year per user.

Apple is on the opposite side of the spectrum. There are no specific user metrics for the company, but Barron’s recently estimated that the company has 900 million customers. Based on an estimated $262 billion in revenue this year, we get Apple per user revenue of $291, or roughly 11 times Facebook’s average.

Facebook and Apple Embody New Tech Divide

More than 60% of Apple’s sales come from sales of the iPhone, which had an average selling price of $796 last year.

Perhaps partially to justify its high prices, Apple has made privacy a sales pitch for its products. In a letter to customers in 2014, Cook hailed the efficacy of creating a “great customer experience” but not at the “expense of privacy.”

And before his death, Apple CEO Steve Jobs directed his animus at Facebook and Google. “Privacy means people know what they’re signing up for, in plain English and repeatedly,” Jobs told tech journalists Walt Mossberg and Kara Swisher in 2010. “Ask them. Ask them every time. Make them tell you to stop asking them if they get tired of your asking them. Let them know precisely what you’re going to do with their data.”

Given lawmakers’ recent questions to Zuckerberg about Facebook’s complicated terms of service, Jobs—no surprise— sounded prescient.

Now, amid the Facebook controversy, Cook & Co. see an opportunity to gain leverage against a competitor, says Scott Brazina, chief marketing officer of Impact Radius, a digital marketing firm.

“Apple is in a uniquely powerful position to take the high road on this”—especially in the current news cycle, Brazina says. “Consumers are getting desensitized to hacks and breaches, yes, but the pendulum is swinging back to the Apple model. Security is job one.”

Zuckerberg and Facebook didn’t take us up on our request to discuss the topic, but Zuckerberg hasn’t hidden his disdain for Apple’s mission. “I think it’s important that we don’t all get Stockholm Syndrome and let the companies that work hard to charge you more convince you that they actually care more about you,” Zuckerberg said in his recent Cook response. “Because that sounds ridiculous to me.”

And in 2014, Zuckerberg told Time magazine, “A frustration I have is that a lot of people increasingly seem to equate an advertising business model with somehow being out of alignment with your customers. I think it’s the most ridiculous concept. What, you think because you’re paying Apple that you’re somehow in alignment with them? If you were in alignment with them, then they’d make their products a lot cheaper.”

Zuckerberg and Chief Operating Officer Sheryl Sandberg have both hinted at the possibility of a paid version of Facebook, potentially free of ads. On the surface, it wouldn’t cost consumers much. If Facebook makes $26 a year per user, that could theoretically be more than offset by a monthly payment of $3.

But that has not been the model for Zuckerberg, who has made worldwide access a company mission. And globally, plenty of people can’t afford $3 a month.

Early on, as Facebook became an ad behemoth, few blinked at privacy concerns.

“Facebook is locked into Web 2.0 (circa 2008), thinking that advertising is the only way,” says Joel Vincent, chief marketing officer at cloud start-up Zededa. “Their systems are locked and optimized for that business model.”

Facebook and Apple Embody New Tech Divide

The problem is that the model now looks outdated: Consumer trust in Facebook’s ability to protect privacy and safeguard data has plunged from 79% in 2017 to a recent 27%, according to a survey of 3,000 people by the Ponemon Institute, a research firm.

When Zuckerberg was pressed by members of Congress this month on whether he would consider changing Facebook’s business model, he refused to answer the question. “Congressman, this is a complex issue that I think deserves more than a one-word answer,” Zuckerberg said.

Apple, Netflix, and others are happy to talk up their ad-free business models now, but some of this has come about by accident. In 2010—the same year that Jobs praised privacy to Mossberg and Swisher—Apple began a mobile advertising network called iAd, touting $60 million in commitments from “leading global brands.” In the announcement, Jobs sounded almost envious of Facebook’s growing success: “iAds will reach millions of iPhone and iPod touch users—a highly desirable demographic for advertisers.”

Apple shut down the network in 2016. A company representative declined to discuss the reason.

It’s possible that Apple’s product culture got in the way. “They were trying to bend advertising to Apple’s will, and it didn’t work,” Pivotal’s Wieser says.

To be sure, digital advertising remains a powerful business, and few on Wall Street seem worried about Facebook’s prospects. In fact, analyst estimates for Facebook’s revenue have actually headed higher since the start of the year.

Ultimately, consumers will decide this debate. And there, too, Facebook’s problems might be exaggerated. The #deleteFacebook movement has faded on Twitter, and in terms of number of tweets, it never reached the peak of #deleteUber, despite Facebook’s far larger user base.

But the boardroom debates over Silicon Valley’s business models are just getting started. At the earliest stages, venture capitalists and entrepreneurs in the Valley are assessing the new climate.

“It is a question that every VC asks: What are you going to do about privacy?” says Prashant Fonseka, a principal at CrunchFund, a venture-capital firm in San Francisco.

“From 2013 to 2016, the tech community assumed consumers didn’t care about privacy anymore,” he says. “We thought all data would eventually be in the public sphere.”

That utopian notion has been undone by the Cambridge Analytica scandal. Now, tech companies are scrambling to adapt. Exuberant tech investors will have to adjust alongside them.

On its own, a valuation that low isn’t necessarily a promising sign. Sometimes it’s a signal that a company faces deep structural challenges, and sometimes it means its profits could be near a cyclical peak. For example, Viacom (ticker: VIAB), at 7.4 times earnings, owns a badly slumping movie studio, Paramount Pictures, and cable-television networks that skew young, such as Comedy Central, Nickelodeon, and MTV. The young are a valuable audience to advertisers, but they have also deserted TV for the internet, causing ratings to crater.

Micron Technology (MU), the cheapest stock in the S&P 500, at 4.7 times forward earnings projections, has the other problem. Its earnings per share, which last peaked around $3 four years ago, are expected to top $10 this fiscal year through August. But key memory prices have begun falling on higher production, and analysts expect earnings for Micron to fall in coming years.

We looked over remaining companies in the half-price bin for ones that don’t face obvious threats of structural decline, and don’t appear to be hitting cyclical peaks—at least not judging by Wall Street estimates.

Delta Air Lines (DAL) made the list, just barely, at 8.6 times earnings. The pessimistic valuation is surely owed to the sector’s long history of booms, followed by capacity increases, price wars, and busts. But consolidation has left only a handful of key players, and Delta faces less competition in key markets than some of its peers. Beyond this year, Wall Street predicts the company’s EPS will rise 22% cumulatively, by 2020.

In a Friday note, Morgan Stanley analyst Rajeev Lalwani called Delta’s valuation “just too low,” and argued that shares should trade at 11 times earnings. His price target of $72 implies 30% upside.

Goodyear Tire & Rubber (GT) made the valuation cutoff, at 7.3 times earnings, and so did General Motors (GM), at 5.9 times. We’ll call GM a company at a cyclical peak, because vehicle sales in the key North America market have stopped rising, although forward estimates suggest a plateauing of earnings, not a plunge.

Goodyear might be a different story. It’s benefiting from a shift among car makers toward trucks, because tires for those are particularly profitable. It also makes money from replacement tires, two-thirds of which it distributes itself to big retailers and wholesale clubs, and one-third of which it sells through independent distributors to smaller outlets.

Goodyear recently announced a joint venture with Bridgestone (5108.Japan), called TireHub, with the goal of handling more of its own distribution, thereby improving profit margins. After this year, EPS is projected to rise at mid-teen percentages in 2019 and 2020.

Lincoln National (LNC) collects more than half its earnings from annuities, which are insurance products that can be used for savings and income generation. Those come in two main forms: fixed rate, where the returns are known in advance, and variable, where returns are generally linked to the stock market. Variable annuities have been in decline for so long that it’s unclear whether they will ever regain favor. Even more worrisome is that last year, industrywide fixed-annuity sales declined for the first time since 2010.

Yet Lincoln’s EPS is expected to rise by 8% to 11% this year and each of the two following years. Rising interest rates could help reverse a long margin squeeze for Lincoln. A strong stock market has increased management fees. And a long runway for workers entering retirement could support demand for savings products. Stock buybacks could help, too: Lincoln National has reduced its share count by 18% since 2013.

There’s a dark cloud over Navient (NAVI), the country’s largest student-loan servicer, which was split off in 2014 from SLM (SLM), commonly known as Sallie Mae. Shares of Navient have fallen 18% in a year, and traded recently at seven times projected 2018 earnings. Student debt has more than doubled from a decade ago, to over $1.4 trillion as of last fall. Investors fear a default crisis. A January report by the Brookings Institution predicts that by 2024, default rates for students who took out federal loans in 2004 will rise to nearly 40%. For comparison, the delinquency rate for single-family mortgages peaked at just under 12% in 2010.

Still, at the current price, contrarians should have a look. The Brookings study concluded that “the main problem isn’t high levels of debt per student (in fact, defaults are lower among those who borrow more, since this typically indicates higher levels of college attainment), but rather the low earnings of dropout and for-profit students, who have high rates of default even on relatively small debts.”

Navient’s earnings are for the moment dominated by a run-off portfolio of federally guaranteed loans, which means its potential losses on those loans is limited, and its cash flow is robust. Until last year, Navient spent richly to buy back its shares. It has suspended buybacks to shore up excess capital through the end of this year, which is when a noncompete agreement with Sallie Mae for private student-loan originations expires.

After that, Navient will be able to grow its loan book, using what recent data have shown about where risk lurks for student lenders. It is also growing fees in other businesses, like payment processing for state and local governments and hospitals. Earnings have stalled in recent years, but are seen growing at a single-digit yearly pace through 2020. Over the long term, shares could creep closer to Sallie Mae’s valuation of 12 times earnings. Meanwhile, Navient pays a 4.8% dividend yield.

The recent allied air raid on Syria may not do much to deter Russia’s client there, Bashar al-Assad. But the U.S. financial sanctions that preceded it hit Russian securities like a bombshell.

The VanEck Vectors Russia exchange-traded fund (ticker: RSX) has dropped by more than six percentage points since the Treasury Department’s April 6 announcement. The ruble is down 5.3% against the dollar, and yields on Moscow sovereign bonds have risen by almost half a percentage point. This despite a relief rally since April 16, when Donald Trump nixed his United Nations Ambassador Nikki Haley’s promise to pile on yet more sanctions.

Investors have good reason to remain cautious on Russia. The latest sanctions stretch wider and deeper than the measures the U.S. and European Union imposed after the Kremlin’s 2014 invasions of Ukraine. The sanctions list back then focused on close cronies of President Vladimir Putin and state-controlled companies like Sberbank Rossia (SBRCY) and oil giant Rosneft (ROSN.UK). The companies were barred from tapping Western long-term capital, and buying certain kinds of drilling equipment, but could otherwise operate normally around the globe. Barron’s named Sberbank one our favorite emerging market stocks for 2017 based on rising oil prices and the expectation for better relations with the U.S.; the shares have since risen 31% (“Our 2017 Picks: Russia’s Sberbank and Mexico’s Cemex,” Dec. 17, 2016).

A rebound of that size from a steep decline could happen again, but Russia’s sovereign debt looks like a better, safer bet than the country’s equities right now.

In part that’s because of the uncertainties surrounding the new sanctions. The 2018 version includes two private-sector billionaires whose business careers antedate Putin, Oleg Deripaska and Viktor Vekselberg. And it classified them, and three public companies they own, as “specially designated nationals.” That means no financial institution that operates in the U.S. can have dealings with them—a distinction previously reserved for Iranian politicians or Latin American drug cartel leaders. Deripaska-controlled Rusal, the world’s No. 2 aluminum producer, is facing imminent debt default as a result.

What’s spooking analysts is that Deripaska and Vekselberg seem no closer to Putin’s military aggression than many other so-called oligarchs who control broad swathes of Russian industry. So Washington’s opaque judgments could create the next Rusal more or less anywhere at any time. “I find it hard to anticipate what comes next, along with the rest of the market,” says David Aserkoff, equity strategist for emerging Europe at JPMorgan.

Legislation passed by Congress last summer specifically requires Treasury’s Office of Foreign Assets Control, and the intelligence agencies supporting it, to consider oligarchs as potential sanctions objects, says Elizabeth Rosenberg, an ex-sanctions official now at the Center for a New American Security. The Washington establishment has warmed to this task despite President Trump’s bouts of Russophilism. “It’s a target-rich environment,” she says. “There’s a broad array of rich Russians that could go on the list.” That adds a new risk factor to Russian stocks and corporate bonds.

On the other hand, Russia is much better armored against financial attack than four years ago. Russian companies, cut off from Western lending after 2014, have slashed foreign liabilities by some $250 billion, says Jan Dehn, head of research at emerging markets specialist Ashmore Investment. The ruble has lost nearly half its value since then, swelling the coffers of commodity exporters who earn in dollars. Oil prices are firming rather than plunging, as they were in the second half of 2014. Aggressive central bank action has cut inflation to post-Soviet lows around 2.5%. “Russia is in a dramatically stronger position than in 2014,” Dehn says. “They’ve weaned themselves off foreign financing so much they’re basically immune.”

Analysts divide on how to approach Russian stocks against this background. Vladimir Osakovskiy, chief Russia economist for Bank of America Merrill Lynch, says steer clear. “Any exposure to Russian equities could be quite devastating,” he says. “You never know which company could be affected next.” Dehn also advises against playing the sanctions version of Russian roulette.

JPMorgan’s Aserkoff is a contrarian bull. “Medium to longer term, the story is that Russian stocks will return to the positive fundamentals,” he says. “We are expecting Russia to outperform emerging markets over coming weeks and months.”

Investors should be on more solid ground with Russian sovereign bonds, which ironically seem better protected than private companies from sanctions provoked by actions of the Russian state. Limiting the trade in another nation’s obligations has a nuclear-option quality that makes deployment highly unlikely, says William Courtney, who formerly headed the National Security Council’s Russia team and who is now a RAND fellow. “The U.S. Treasury and Secretary [Steven] Mnuchin have made it clear that sanctions on sovereign debt can have unintended consequences for bond markets,” he says.

That leaves the underlying credit story, which is that Putin has been obsessed with macroeconomic probity since his scarring experience renegotiating Russia’s Soviet-era debt in the early 2000s. If the Kremlin didn’t default in 2014, it won’t default now. Yet yields on its Eurobonds are in the 5.2% range—about the same as those of its less-proven ex-subject, Azerbaijan—while ruble bonds known as OFZs pay around 7.5%. Ashmore’s Dehn recommends a bet on these, given the support the ruble should get from rising oil abroad and vanishing inflation at home. Servicing on overall Russian debt (see table) will decline in the next year or so.

Buying emerging market bonds isn’t straightforward for retail investors. But Moscow-based Da Vinci Capital launched a London-based exchange-traded fund in February, the ITI Funds Russia-Focused USD Eurobond UCITS fund (RUSB.UK). Or you could try the Raiffeisen Bond Fund RU fund, which is listed in Moscow (RAIFBND.Russia). Moscow’s credit isn’t more solid than Washington’s yet, but it’s more solid than it might seem.

Healthineers? It sounds like a couple of Mouseketeers grew up and launched a start-up to disrupt the health-care industry.

The oft-criticized name, merging the words “health” and “engineers,” actually belongs to a unit of German industrial conglomerate Siemens (ticker: SIE.Germany) that had a successful trading debut last month. It’s similar to Walt Disney’s “imagineers” moniker for some of its employees.

While shares in Siemens Healthineers (SHL.Germany) have danced higher so far, investors might not want to bet that big gains will continue. This company’s business—health-care technology—is promising on many counts, but some analysts don’t view the stock as a bargain.

Analysts say Royal Philips (PHIA.Netherlands) looks like the best competitor to compare Healthineers against. The Dutch company gets about 66% of its revenue from health-care equipment and services, with its lighting, baby bottles, and other products having a smaller impact on the top line. Other rivals include General Electric’s (GE) health-care business, Toshiba (6502.Japan), Hitachi (6501.Japan), and Abbott Laboratories (ABT).

Healthineers deserves a premium to Philips, argue Morgan Stanley analysts led by Ben Uglow, because it boasts higher profit margins and stronger cash flow.

However, Healthineers shares already command a richer price by some metrics to Philips, which doesn’t suggest it has lots of room to run. The stock trades at around 23 times forward-year estimated earnings to Philips’ 20.

A fair value for Healthineers shares is around 34 euros ($42), says Landesbank Baden-Württemberg analyst Volker Stoll. That’s just a little above the stock’s recent print of €33. Expecting only a moderate rally, the LBBW analyst puts a Hold rating on the stock in a recent note.

A key Healthineers product category—its Atellica platform that provides in-vitro diagnostics, or IVD, for blood and other medical samples—is causing some consternation among some investors and analysts. “The equity story and valuation are very much focused on a potential recovery of Healthineers’s IVD business,” say the Morgan Stanley analysts, and that “will primarily be a function of the success of the new Atellica platform.” Some skeptics reportedly fret that five prior Healthineers diagnostics platforms gave up market share, while others note would-be customers face relatively high switching costs.

Equinet Bank analyst Zafer Ruzgar, who has an Accumulate rating on Healthineers shares, praises Atellica in a recent note as a “highly efficient, automated, and flexible platform” that could drive “accelerating growth” for the company. But his price target of €35.50 doesn’t suggest a monster rally for the stock, but rather a 12-month gain of about 8%.

Siemens publicly listed Healthineers as part of its push to chop away at its sprawl, saying the business will have more “entrepreneurial flexibility” now that it’s standing on its own. Siemens raised $5.2 billion with the mid-March listing in Frankfurt, selling a 15% stake, and remains the majority shareholder.

Shares were priced at €28, in the lower half of an expected range of €26 to €31, fostering chatter about lowballing to ensure interest in the offering. The stock popped after its debut to nearly €36, then pulled back in early April.

To be sure, bulls point to valuation metrics that are more favorable to the company, such as EV/Ebitda (enterprise value to earnings before interest, taxes, depreciation, and amortization). They also highlight an encouraging backdrop for the company, whose market cap is about $41 billion. Huge parts of the world are graying and paying up for high-tech medical services. Emerging markets are increasingly buying big-ticket equipment. Chronic conditions are on the rise.

But the growth story could already be baked into the stock, while the challenges may not be.

In European markets last week, the main equity indexes largely gained and pared year-to-date declines. Traders focused on upbeat earnings, as concerns tied to the Syrian conflict and Chinese trade seemed to fade.

“As geopolitical tensions surrounding Syria have just gone off the boil, the market is looking to get back to trading off fundamentals, rather than knee-jerk news flow,” wrote Richard Perry, a U.K.-based analyst at Hantec Markets, in a note during the week. “Trade tensions rumble on in the background and are also a key factor to keep in mind.” The Stoxx Europe 600 notched a weekly gain of 0.7%, leaving it lower by 1.9% for the year.