New Nielsen Bull Projects 'Very Strong Margin Expansion'

Baird upgraded the global information and data measurement company Nielsen N.V. Ordinary Shares NLSN, citing a trio of factors.

The Analyst

Baird analyst Jeffrey Meuler upgraded shares of Nielsen from Neutral to Outperform with a $41 price target. 

The Thesis

The stock's depressed valuation as well as investor sentiment toward the stock will improve over time, Meuler said in a Monday note. (See the analyst's track record here.) 

The optimism is based on signs of stabilization in Nielsen's "Buy-Developed" segment, sustained solid growth in "Watch" and good growth in "Buy-Developing," the analyst said. 

"We also feel materially better regarding significant and continued improvement to Watch measurement capabilities and increasing market adoption," Meuler said. 

Expectations for the Buy segment — which accounts for 27 percent of Nielsen's 2018 adjusted EBITDA and 49 percent of revenue — look achievable, according to Baird. This is due to clients in developed markets appearing to be in the middle-to-later stages of making service-level adjustments; aggressive investments beginning to pay off; and the outperformance of emerging markets, Meuler said. 

Nielsen is committed to driving strong margin expansion in 2019 and 2020, with the company's 2020 adjusted EBITDA margin estimated at 35 percent, up from 30.2 percent in 2018, according to Baird. 

"Management's commitment to driving meaningful expansion, coupled with level of investment embedded in 2018 guidance —following already heavy investment in Watch measurement capabilities and Connected System — and underlying incremental margins give confidence in very strong margin expansion in 2019/2020," Meuler said. 

The Price Action

Nielsen shares are down over 15 percent over the past year. The stock was up 0.58 percent at $36.21 in Monday morning trading. 

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