ConocoPhillips Agrees to Acquire Concho Resources for $9.7 Billion

ConocoPhillips, an independent oil and gas exploration company, said it will acquire the U.S. shale oil producer Concho Resources in an all-stock transaction valued at $9.7 billion.

Under the terms of the deal, each share of Concho Resources common stock will be exchanged for a fixed ratio of 1.46 shares of ConocoPhillips common stock, representing a 15% premium to closing share prices on October 13, the company said.

“The 15% premium for the acquiree compares favourably with recent transactions, such as Devon’s merger with WPX, but is modest by historical standards. Until recently, we would have considered a premium of 20%-30% to be the norm for an exploration and production company takeover,” said Dave Meats, director at Morningstar.

“But the environment for E&Ps has deteriorated recently, following the pandemic-related collapse in crude prices. And for Concho specifically, the upcoming presidential election could be more of a threat than it is for most shale companies because Concho has much more exposure to federal land than its peers do,” Meats added.

The transaction is expected to close in the first quarter of 2021.

ConocoPhillips shares ended 3.16% lower at $32.7 on Monday; the stock is down about 50% so far this year. Concho Resources shares closed 2.75% lower at $47.26 on Monday; the stock is down about 46% so far this year

ConocoPhillips stock forecast

Twelve analysts forecast the average price in 12 months at $47.91 with a high forecast of $56.00 and a low forecast of $37.00. The average price target represents a 46.51% increase from the last price of $32.70. From those 12 equity analysts, 11 rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $47 with a high of $69 under a bull scenario and $23 under the worst-case scenario. Citigroup raised their stock price forecast to $39 from $37 and Truist Securities upped their price objective to $55 from $52.

Several other analysts have also recently commented on the stock. ConocoPhillips had its target price decreased by stock analysts at Bank of America to $46 from $50. The brokerage currently has a “neutral” rating on the energy producer’s stock. KeyCorp started coverage on ConocoPhillips, issuing an “overweight” rating and a $46.00 price objective for the company. At last, Raymond James raised their target price to $48 from $46 and gave the company an “outperform” rating.

Concho Resources stock forecast

Twelve analysts forecast the average price in 12 months at $67.73 with a high forecast of $79.00 and a low forecast of $55.00. The average price target represents a 43.31% increase from the last price of $47.26. From those 12 equity analysts, 11 rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $64 with a high of $81 under a bull scenario and $22 under the worst-case scenario. Citigroup lowered their stock price forecast to $67 from $72 and JP Morgan establishes December 2021 price target of $68 vs December 2020 price target of $65.

Several other analysts have also recently commented on the stock. Concho Resources had its target price dropped by Bank of America to $65 from $70. The firm presently has a “buy” rating on the oil and natural gas company’s stock. Mizuho downgraded Concho Resources from a “buy” rating to a “neutral” rating and boosted their price target for the company from $68 to $69.

Analyst Comments

“ConocoPhillips’ (COP) announced the acquisition of Concho Resources (CXO) fortifies the company’s leadership position within US energy. Pro-forma, a diverse portfolio of low-cost resource + ESG focus differentiates COP in lower growth, returns focused shale ‘era.’,” said Devin McDermott, equity and commodities Strategist at Morgan Stanley.

“ConocoPhillips checks all the boxes for sustained outperformance: excellent management, disciplined investment, and consistent return of cash coupled with high quality, low-cost portfolio that can deliver an attractive combination of FCF and growth.”

“Attractive value proposition even in the current commodity price environment with leverage to any rally in oil and with resiliency should price remain low. Strong balance sheet. While management received some investor pushback in 2019 for building an $8 billion strategic cash balance, that disciplined strategy is paying off in 2020 – creating financial and strategic flexibility,” McDermott added.

Upside and Downside Risks to ConocoPhillips

Upside: 1) Higher commodity prices. 2) Upside to Alaska resource discovery. 3) Better well performance in Lower 48 – highlighted by Morgan Stanley.

Downside: 1) Lower commodity prices. 2) Cost inflation. 3) Alaska discovery has less potential resources than expected. 4) Federal acreage exposure in Alaska. 5) Worse than expected well results in the Eagle Ford, Permian, and Bakken.

Upside and Downside Risks to Concho Resources

Upside: 1) Reduced operating and development costs. 2) Consistent execution. 3) Non-core divestitures, with cash returned to shareholders – highlighted by Morgan Stanley.

Downside: 1) Downside to Permian natural gas price differentials. 2) Elevated non-operated spending. 3) Regulation preventing development on Federal acreage.

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Halliburton Posts Fourth Straight Loss in Q3 as Oil Rout Drags Demand

Halliburton Co, one of the world’s largest providers of products and services to the energy industry, reported a loss for the fourth consecutive time in the third quarter as demand slowdown due to the COVID-19 pandemic and lower oil prices have hurt businesses.

The U.S. largest hydraulic fracturing provider reported a net loss of $17 million, or $0.02 per diluted share, for the third quarter of 2020. This compares to a net loss for the second quarter of 2020 of $1.7 billion, or $1.91 per diluted share. Adjusted net income for the third quarter of 2020, excluding severance and other charges, was $100 million, or $0.11 per diluted share.

Halliburton’s total revenue in the third quarter of 2020 was $3.0 billion, a 7% decrease from revenue of $3.2 billion in the second quarter of 2020, the company said.

At the time of writing, Halliburton shares traded 3.55% higher at $12.68 on Monday; however, the stock is down about 50% so far this year.

Its rival, Schlumberger reported a loss for the third consecutive time in the September quarter as a prolonged period of lower crude prices due to COVID-19 disruptions caused clients to suspend drilling activities.

Executive comments

“The pace of activity declines in the international markets is slowing, while the North America industry structure continues to improve, and activity is stabilizing. We have a strong international business, a lean North America operation, and an efficient capital deployment strategy, all enabled by continued adoption of leading digital technologies that benefit our customers and Halliburton,” said Jeff Miller, Chairman, President and CEO.

“We believe executing on our strategic priorities will boost our earnings power reset and free cash flow generation today and as we power into and win the eventual recovery,” concluded Miller.

Halliburton stock forecast

Seventeen analysts forecast the average price in 12 months at $15.28 with a high forecast of $22.50 and a low forecast of $11.50. The average price target represents a 21.80% increase from the last price of $12.55. From those 17 equity analysts, five rated “Buy”, 11 rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $14 with a high of $20 under a bull scenario and $4 under the worst-case scenario. Halliburton’s stock price forecast has been raised by equity research analysts at Cowen and Company to $20 from $19.

Several other analysts have also recently commented on the stock. BMO Capital Markets initiated coverage on Halliburton, issuing a “market perform” rating and a $14 price objective for the company. Goldman Sachs Group raised Halliburton from a “buy” rating to a “conviction buy” rating in August. HSBC increased their stock price forecast to $13.70 from $9.50 and gave the company a “hold” rating in July.

Analyst Comments

“Outsized exposure to deteriorating North America (NAm) markets impacts Halliburton’s results more meaningfully vs. less exposed peers, in our view, and we continue to see greater downside revision risk for those focused on this market. Few bullets left to offset deteriorating fundamentals: Halliburton is winding down a major cost-cutting program in NAm, which suggests to us its ability to further cut overhead as US activity trends lower is limited,” said Connor Lynagh, equity analyst at Morgan Stanley.

“We believe the company’s exposure to areas in high demand (i.e. Ventilators, Patient Monitoring, CT and X-Ray) puts the company in an attractive risk-reward positioning relative to other companies in our sector over the next 12 months.”

Upside and Downside Risks

Upside: 1) Signs of a bottom in NAm pressure pumping activity and pricing. 2) International contract awards. 3) Bolt-on M&A – highlighted by Morgan Stanley.

Downside: 1) Further pricing pressure and activity declines, particularly in Nam. 2) Undisciplined project bidding. 3) Failure to deliver on cost savings goals. 4) Commodity price/cyclical risk.

Check out FX Empire’s earnings calendar

Philips Posts Better-Than-Expected Third-Quarter Profit; Target Price EUR 56 in Best Case

Philips, a leading European electrical engineering group, reported better-than-anticipated core earnings in the third quarter of this year as the COVID-19 pandemic boosted demand for hospital equipment with comparable sales rising 10% to 4.98 billion euros in the quarter.

Dutch health technology company said its income from continuing operations increased to EUR 341 million, compared to EUR 211 million in Q3 2019. Adjusted EBITA margin increased to 15.4% of sales, compared to 12.4% of sales in Q3 2019.

Philips said its third-quarter income from operations improved to EUR 476 million, compared to EUR 320 million in Q3 2019. EPS from continuing operations (diluted) amounted to EUR 0.37; Adjusted EPS increased to EUR 0.60, compared to EUR 0.46 in Q3 2019. Operating cash flow improved to EUR 770 million, compared to EUR 356 million in Q3 2019. The market consensus for core earnings was 630 million euros, on 4.82 billion euros of sales.

Philips forecasts average annual comparable sales growth of 5-6% and said next year its comparable sales will deliver low-single-digit growth, driven by solid growth in Diagnosis & Treatment and Personal Health. The company expects an Adjusted EBITA margin improvement of 60-80 basis points on average annually from 2021, reaching the high teens for the Group by 2025.

Philips shares traded closed 3.62% higher at EUR41.5 on Friday; the stock is down about 3% so far this year. At the time of writing, it was trading 1.3% higher at EUR 42.84.

Executive comments

“We are excited to continue our journey to create further value by improving growth and profitability, while recognizing that we are in very uncertain times, and with the assumption that the world economy will return to growth next year,” said CEO Frans van Houten.

“The new targets are underpinned by our strategic imperatives to further improve customer and operational excellence, boost growth in our core businesses through geographical expansion and more customer partnerships and win with innovative solutions along the health continuum. Our strategy to transform care along the health continuum – from healthy living and prevention to diagnosis and treatment, telehealth and home care – strongly resonates with customers and has been further validated during the COVID-19 pandemic.”

Philips stock forecast

Eleven analysts forecast the average price in 12 months at EUR 47.74 with a high forecast of EUR 56.00 and a low forecast of EUR 38.60. The average price target represents a 14.61% increase from the last price of EUR 41.65. From those 11 equity analysts, eight rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of EUR 48 with a high of EUR 64 under a bull scenario and EUR 33 under the worst-case scenario. Koninklijke Philips has been given a EUR 47.50 price target by research analysts at Goldman Sachs Group. The brokerage presently has a “buy” rating on the stock.

Several other analysts have also recently commented on the stock. Barclays set a EUR 51 target price on shares of Koninklijke Philips and gave the company a “buy” rating. Sanford C. Bernstein set a EUR 52 price objective and gave the stock a “buy” rating. JPMorgan Chase & Co. set a EUR 38.60 price objective and gave the stock a “neutral” rating. Deutsche Bank set a EUR 54 price objective and gave the stock a “buy” rating.

Analyst Comments

“Order Book Momentum: acceleration in order book growth for the Connected Care business (Ventilators, Patient Monitoring) should offset COVID-19 related pressures in Personal Health; stabilising sales developments over the near term. Margin Recovery: Outsized orders in Connected Care should drive operational leverage, while cost management initiatives in Personal Health and Diagnosis & Treatment helps limit pressures on EBITA margin,” said Michael Jungling, equity analyst at Morgan Stanley.

“Valuation: we believe the company’s exposure to areas in high demand (i.e. Ventilators, Patient Monitoring, CT and X-Ray) puts the company in an attractive risk-reward positioning relative to other companies in our sector over the next 12 months.”

Upside and Downside Risks

Upside: 1) Product Launch Momentum: Momentum from on-going product launches and COVID-19 focused products drive topline growth and market share gains. 2) Online retail strategy: Growth in online consumer retail could accelerate organic growth, highlighted by Morgan Stanley.

Downside: 1) FX: EM currency volatility could be a source of headwinds on margins. 2) COVID-19: pressure on consumer and hospital budgets following a potential COVID-19 driven recession.

Check out FX Empire’s earnings calendar

Netflix Stock Price Forecast Raised to $630 at Morgan Stanley; $840 in Best Case Scenario

Morgan Stanley raised their stock price forecast on Netflix to $630 from $600, assigning an “Overweight” rating to the Internet television network’s stock and foresees short and long-term benefits to Netflix growth and earnings power due to the changes brought on by the COVID-19 pandemic.

The world’s leading streaming entertainment service company is set to report its third-quarter results on October 20. According to Zacks Research, Netflix forecasts Q3 earnings to be $2.09 per share, implying over 40% of year-over-year growth, but the Zacks consensus estimate was pegged at $2.12 per share. The Zacks consensus estimate for September quarter revenues was pegged at $6.38 billion, over 20% higher than a year earlier.

“Price increases as a lagging indicator… Our ‘Overweight’ thesis assumes Netflix has additional pricing power. We believe signals that Netflix looks for before raising prices are engagement growth and falling churn, trends that indicate an increase in “value” delivered to the consumer. Recent price increases in Australia and Canada, 2% and 4% of the estimated paid member base respectively, indicate to us that engagement levels and engagement growth rates are likely high and accelerating in these markets,” said Benjamin Swinburne, equity analyst at Morgan Stanley.

“We realize the 2019 rate adjustments led to slightly more elevated churn levels, particularly in the US, that sustained into subsequent quarters. However, we believe Netflix’s competitive moat is perhaps deeper than ever today. Production delays due to (the) COVID-19 have likely impacted its competitors more significantly than Netflix. Finally, given the size of the base business price increases create substantial long-term value.”

Netflix’s shares closed 2.05% lower at $530.79 on Friday; however, the stock is up over 60% so far this year.

Twenty-six analysts forecast the average price in 12 months at $564.83 with a high forecast of $670.00 and a low forecast of $220.00. The average price target represents a 6.41% increase from the last price of $530.79. From those 26, 19 analysts rated “Buy”, four rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $840 under a bull scenario and $400 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Netflix had its price objective lifted by KeyCorp to $634 from $590. They currently have an overweight rating on the Internet television network’s stock.

Pivotal Research boosted their stock price forecast on shares of Netflix to $650 from $600 and gave the stock a buy rating. Loop Capital raised their price objective to $600 from $500 and gave the company a buy rating.

“We believe share performance is highly dependent on increasing global membership scale. Proven success in the US and initial international markets provides a roadmap to success in emerging markets, and scale should allow Netflix (NFLX) to leverage content investments and drive margins,” Morgan Stanley’s Swinburne added.

“Higher global broadband penetration should increase the NFLX addressable market, driving member growth and providing further opportunity given NFLX’s global presence. Longer-term, we see the ability to drive ARPU growth, particularly given increased original programming traction.”

The success of programming drives increased subscriber growth and pricing increases lead to revenue upside, driving – were highlighted by Morgan Stanley as two major downside risks.

Pricing increases drive elevated churn, increased competition drives higher pricing for exclusive content lowering margins, challenges in newer markets negatively impacts member growth expectations, were the major downside risks.

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Schlumberger Posts Third Straight Loss in Q3 as Oil Rout Hurt Demand

Schlumberger, the world’s leading oilfield services provider, reported a loss for the third consecutive time in the September quarter as a prolonged period of lower crude prices due to COVID-19 disruptions caused clients to suspend drilling activities, sending it shares down about 1% on Friday.

Top oilfield services provider posted a net loss of $82 million, or 6 cents per share, in the July-September quarter. Excluding charges and credits, Schlumberger earned 16 cents per share on aggressive cost-cutting.

Schlumberger said its total revenue slumped 38% to $5.26 billion and revenue from North America declined to $1.16 billion, from $2.85 billion a year earlier.

At the time of writing, Schlumberger shares traded over 1% higher at $15.35 on Friday; the stock is down about 60% so far this year.

Executive comments

“International activity is steady following budgets resets completed in the third quarter,” Chief Executive Officer Olivier Le Peuch said in an earnings release.

“In North America, the conditions are set for continued momentum, with improving DUC well completion activity in US land and a modest drilling resumption in the US and Canada. International activity is steady following the budget resets completed in the third quarter and activity will be affected by the seasonal decline in the Northern Hemisphere, partly offset by muted year-end product and multiclient license sales,” Peuch added.

Schlumberger stock forecast

Fifteen analysts forecast the average price in 12 months at $23.33 with a high forecast of $28.00 and a low forecast of $17.50. The average price target represents a 47.85% increase from the last price of $15.78. From those 15 equity analysts, 11 rated “Buy”, four rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $25 with a high of $30 under a bull scenario and $10 under the worst-case scenario. Cowen and Company raised their stock price forecast to $30 from $29; BMO initiated with outperform rating and gave the price target of $21; Susquehanna lowered their price target to $20 from $24.

Several other analysts have also recently commented on the stock. HSBC raises target price to $19.2 from $18.1 in July. Schlumberger had its price objective lowered by analysts at Scotiabank to $21 from $23. The firm presently has a “sector outperform” rating on the oil and gas company’s stock. Citigroup raised Schlumberger from a “neutral” rating to a “buy” rating and increased their price objective to $26 from $20.

Analyst Comments

“Schlumberger’s (SLB) plan to refocus on its best businesses will likely be accelerated by the impending downturn, which can help it emerge in a far better position that it entered in. Strong position in the more-defensive int’l markets: SLB is heavily focused on the int’l markets, which will be more resilient than NAm (where SLB was already retreating) if upstream capex cuts play out as we expect,” said  Connor Lynagh, equity analyst at Morgan Stanley.

“Dividend cut alleviates liquidity concerns: We now think SLB’s balance sheet is on firm footing – FCF covers dividends through our 2022 forecast horizon, and in what we would view as an extreme case where it could not refinance, it could cover 2020-22 debt maturities with current liquidity.”

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Ford Motor Q3 China Sales Rise 25%, Biggest Jump Since 2016; Target Price $10 in Best Case

Ford Motor Co, an American multinational automaker, said its vehicle sales climbed 25% in the third quarter of this year, the biggest year-over-year increase since 2016, as demand gradually recovered from the COVID-19 pandemic slowdown in the world’s second-largest economy.

Ford and its joint ventures, Changan Ford, JMC and Ford Lio-Ho, sold 164,352 vehicles in Greater China in the third quarter. Sales of Ford, Lincoln and JMC brand vehicles achieved year-over-year growth of 12.5%, 64.8% and 38.3%, respectively, the company said.

Ford Motor shares closed 0.66% higher at $7.62 on Thursday; however, the stock is down about 20% so far this year.

Executive comments

“Ford is strengthening its sales momentum in China by building on growing consumer preference for our iconic brand and favourable product mix of luxury and near-premium utility vehicles,” said Anning Chen, president and CEO of Ford China.

“Our localization strategy to produce in China world-class Ford and Lincoln vehicles, including the newly launched Ford Explorer, Lincoln Corsair and Lincoln Aviator, has further enhanced our competitiveness in delivering the best products and services that Chinese consumers are looking for.”

Ford Motor stock forecast

Twelve analysts forecast the average price in 12 months at $8.03 with a high forecast of $10.00 and a low forecast of $4.90. The average price target represents a 5.38% increase from the last price of $7.62. From those 12 equity analysts, four rated “Buy”, seven rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $8 with a high of $12 under a bull scenario and $4 under the worst-case scenario. The investment bank gave the company an “overweight” rating. Deutsche Bank raised their stock price forecast to $9 from $8 and Benchmark introduces a price target of $10.

Several other analysts have also recently commented on the stock. Barclays lifted their price target on Ford Motor to $7 from $4 and gave the stock an “equal weight” rating in July. Nomura reiterated a “sell” rating in August. Citigroup increased their target price on shares of Ford Motor from $5.50 to $7.50 and gave the stock a “neutral” rating. At last, UBS Group increased their price target on Ford Motor to $6.70 from $4.30 and gave the stock a “neutral” rating.

Analyst view

“Auto market recovery in China – which happens to be Ford’s second-largest market- positions the firm well. The company’s efforts to strengthen product line-up, with more customer-centric products and focus on customer experiences are likely to have yielded results. These measures along with improving economic conditions in China are likely to continue the sales growth in the country, going forward,” noted equity analysts at Zacks Research.

“Ford’s focus on SUVs and trucks along with EV launches are likely to boost its long-term prospects. (But) Depressed demand for vehicles amid weak consumer confidence and elevated leverage is likely to dent Ford’s sales and earnings in the near future,” Zacks Research added.

Upside and Downside Risks

Upside: 1) More detail around restructuring actions. 2) Positive share gains in pickups, Ford’s strongest segment 3) Decomplexification actions. 4) Launch execution. 5) Further announcements around EVs or AVs – highlighted Morgan Stanley.

Downside: 1) US SAAR resiliency (2020 base case 14.0MM). 2) Further COVID-19 impacts. 3) The F-150 pickup truck loses market share. 4) Slowdown in key oil-dependent end markets. 5) Launch / Warranty issues continue to remain a problem.

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PNC Financial Third Quarter Profits Swell as Loan Provisions Shrink; Target Price $138 in Best Case

PNC Financial Services Group Inc, an American bank holding company and financial services corporation, said its profit rose in the third quarter, largely driven by a lower provision for credit losses and higher noninterest income.

The company said its net income from continuing operations was $1.5 billion, an increase of $2.3 billion driven by a lower provision for credit losses and higher noninterest income. Total revenue increased 5% to $4.3 billion, an increase of $205 million.

“Expenses were well-controlled again in 3Q, a story that looks to continue. With its substantial excess capital position, PNC is expected to take advantage of opportunities to add to its franchise, but time will tell what might come available. We raise our ’21 EPS est. to $8.25 (from $7.15) but ’22 moves to $9.75 (from $10.45), mostly on charge-off/provision timing but with higher PPNR,” said Ken Usdin, equity analyst at Jefferies.

The diversified financial services organization reported a net interest income of $2.5 billion decreased $43 million, or 2%, as lower yields on loans and securities and a decline in loan balances more than offset the benefit of lower rates on deposits and borrowings.

PNC Financial reported that its net interest margin decreased 13 basis points to 2.39% reflecting the impact of higher balances held with the Federal Reserve Bank and lower yields on loans and securities partially offset by lower rates on deposits and borrowings.

At the time of writing, PNC Financial shares traded 0.30% higher at $109.01 on Thursday; however, the stock is down about 30% so far this year.

Executive comments

“PNC delivered solid third-quarter results against the backdrop of a continuing uncertain economy. Noninterest income increased, expenses were well managed, and we continued to generate positive operating leverage. Deposits grew while loans declined as a result of lower commercial loan utilization rates, despite growth in loan commitments,” said Bill Demchak, PNC Chairman, President and Chief Executive Officer.

“Our provision for credit losses was significantly less than last quarter, reflecting stable reserve levels. We continue to execute on our strategic priorities, including ongoing investments in our national expansion and digital offerings. We have substantial capital and liquidity flexibility and remain well-positioned to take advantage of potential investment opportunities to enhance shareholder value.”

PNC Financial stock forecast

Twelve analysts forecast the average price in 12 months at $117.64 with a high forecast of $138.00 and a low forecast of $83.00. The average price target represents a 7.95% increase from the last price of $108.98. From those 12 equity analysts, five rated “Buy”, five rated “Hold” and two rated “Sell”, according to Tipranks.

Morgan Stanley target price is $109 with a high of $154 under a bull scenario and $79 under the worst-case scenario. PNC Financial Services Group had its price objective raised by equities researchers at Credit Suisse Group to $117 from $115. The brokerage currently has a “neutral” rating on the financial services provider’s stock.

Several other analysts have also recently commented on the stock. Keefe, Bruyette & Woods cut shares of PNC Financial Services Group to a “market perform” rating from an “outperform” rating and decreased their price target to $127 from $130. Oppenheimer reissued a “hold” rating. JP Morgan Chase & Co. raised their price objective to $120 from $110 and gave the company an “overweight” rating. Zacks Investment Research cut shares from a “hold” rating to a “sell” rating and set a $118 price objective on the stock.

Analyst Comments

“PNC generated $6B in capital from sale of BLK stake. What’s next? Bank M&A is now a key debate for the stock, especially as excess capital and liquidity pressures returns near term. We stay on the sideline as shares already largely reflect the value creation we believe an accretive deal could deliver. PNC going national with multiple initiatives. Middle market C&I expansion well underway, includes 8 new markets in 2017-2019 and 2 additional markets in 2020,” said Betsy Graseck, equity analyst at Morgan Stanley.

“Funded by national retail digital strategy. M&A could accelerate this growth. Excess capital provides valuable hedge, giving PNC optionality regardless of the economic environment,” Graseck added.

Upside and Downside Risks

Upside: 1) Accretive acquisition completed sooner than anticipated. 2) Economic growth rebounds in 2H20. 3) Long end rates rise faster than expected. 4) Lower than expected credit losses – highlighted Morgan Stanley.

Downside: 1) PNC sits on excess capital for longer than expected. 2) Macro environment remains challenging through 2021. 3) Higher than expected credit deterioration. 4) 10-year yield below expectations. 5) Loan growth decelerates.

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TSMC Q3 Net Profit Jumps 36% on Strong Demand, Forecasts 2020 Revenue to Climb Over 30%

Taiwan Semiconductor Manufacturing Co Ltd (TSMC), a dedicated integrated circuit foundry company, reported that its third-quarter net profit climbed 36% and revenue increased about 30% on solid demand for high-end chips.

The world’s largest contract chipmaker reported consolidated revenue of TWD 356.43 billion, net income of TWD 137.31 billion, and diluted earnings per share of TWD 5.30 (US$0.90 per ADR unit) for the third quarter ended September 30, 2020.

Year-over-year, third-quarter revenue increased 21.6% while net income and diluted EPS both increased 35.9%. Compared to the second quarter of 2020, third-quarter results represented a 14.7% increase in revenue and a 13.6% increase in net income, the company said.

In USD, third-quarter revenue was $12.14 billion, which increased 29.2% year-over-year and increased 16.9% from the previous quarter. Gross margin for the quarter was 53.4%, operating margin was 42.1%, and net profit margin was 38.5%.

Taiwan-based multinational semiconductor contract manufacturing and design company said it forecast 2020 revenue to jump more than 30%, higher than the previous prediction of more than 20% rise. TSMC forecast fourth-quarter revenue of between $12.4 billion and $12.7 billion, upgraded from $10.4 billion registered a year earlier.

On the NYSE, TSMC shares closed 1.16% lower at $88.60 on Wednesday; however, the stock is up over 50% so far this year.

Executive comments

“Our third-quarter business benefitted from the strong demand for our advanced technologies and speciality technology solutions, driven by 5G smartphones, HPC and IoT-related applications,” said Wendell Huang, VP and Chief Financial Officer of TSMC.

“Moving into the fourth quarter of 2020, we expect our sequential growth to be supported by strong demand for our industry-leading 5-nanometer technology, driven by 5G smartphone launches and HPC-related applications.”

TSMC stock forecast and analyst comments

Morgan Stanley target price is TWD 498 with a high of TWD 541 under a bull scenario and $119 under the worst-case scenario. TSMC’s stock price forecast was raised by Susquehanna to $55 from $40.

For the one listed on the NYSE, five analysts forecast the average price in 12 months at $55.00 with a high forecast of $55.00 and a low forecast of $55.00. The average price target represents a -37.92% decrease from the last price of $88.60. From those five equity analysts, four rated “Buy”, none rated “Hold” and one rated “Sell”, according to Tipranks.

“Revenue shortfall from HiSilicon restriction is likely to be compensated by other customers’ share gains, which reflects TSMC’s technology leadership in the foundry industry. Despite the recent share price rally, we still see risk-reward skewed to the upside thanks to key secular trends in, such as 5G, AI, and high-performance computing benefiting TSMC,” said Charlie Chan, equity analyst at Morgan Stanley.

“CPU outsourcing from x86 vendors presents incremental upside, thanks to TSMC’s cutting edge technology. Amid an uncertain macro environment, TSMC’s cash-flow generating ability should allow it to pay out at least NT$10 DPS annually, which makes it a relatively defensive global tech stock with strong downside support,” Chan added.

Upside and Downside Risks

Upside: 1) Advanced logic demand is faster than expected, given accelerated growth in semi content per box. 2) Macro situation improves, fueling stronger end demand. 3) Samsung and Intel in leading-edge can’t compete with TSMC – highlighted Morgan Stanley.

Downside: 1) Advanced logic demand is slower than expected, given stagnant growth in semi content per box. 2) Macro situation weakens, hurting end demand. 3) Samsung and Intel compete in high-end logic.

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Goldman Sachs Q3 Net Revenue Jumps 30% to 10.78 Billion; Target Price $326 in Best Case

Goldman Sachs Group Inc, an American multinational investment bank, reported a better-than-expected profit and revenue in the third quarter as businesses recovered from the COVID-19 pandemic after a sharp decrease in the second quarter, sending its shares up about 3% in pre-market trading on Wednesday.

The Wall Street trading powerhouse reported that its net revenue jumped 30% to $10.78 billion, beating market estimates of $9.5 billion, and net earnings of $3.62 billion for the third quarter which ended on Sept 30. Net revenues were $32.82 billion and net earnings were $5.20 billion for the first nine months of 2020, the company said.

Diluted earnings per common share (EPS) was $9.68 for the third quarter of 2020, doubled than the market consensus of $5.57 per share, compared with $4.79 for the third quarter of 2019 and $0.53 for the second quarter of 2020, and was $13.34 for the first nine months of 2020 compared with $16.32 for the first nine months of 2019.

Goldman Sachs said its annualized return on average common shareholders’ equity (ROE) was 17.5% for the third quarter of 2020 and 8.0% for the first nine months of 2020. Annualized return on average tangible common shareholders’ equity was 18.6% for the third quarter of 2020 and 8.5% for the first nine months of 2020.

At the time of writing, Goldman Sachs’ shares traded 0.79% higher at $212.48 on Wednesday; however, the stock is down about 8% so far this year.

Executive comments

“Our ability to serve clients who are navigating a very uncertain environment drove strong performance across the franchise, building off a strong first half of the year. As our clients begin to emerge from the tough economy brought on by the pandemic, we are well-positioned to help them recover and grow, particularly given market share gains we’ve achieved this year,” said David M. Solomon, Chairman and Chief Executive Officer.

Goldman Sachs stock forecast

Fifteen analysts forecast the average price in 12 months at $250.64 with a high forecast of $326.00 and a low forecast of $200.00. The average price target represents an 18.01% increase from the last price of $212.38. From those 15 equity analysts, ten rated “Buy”, five rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $208 with a high of $295 under a bull scenario and $119 under the worst-case scenario. Goldman Sachs stock prices were raised by JMP Securities to $280 from $275 and BofA Global Research upped their price objective to $246 from $240.

Other equity analysts also recently updated their stock outlook. Deutsche Bank raised the price target to $230 from $227 and UBS increased their stock rating to buy from neutral, raising the target price to $245 from $220.

Analyst Comments

“We expect a strong finish to 2020, with 2H20 revenues up 9% y/y as stronger capital markets drive an earnings beat in 3Q, and the uncertainty/volatility around the election drive a strong backdrop for 4Q. That said, we remain Equal-Weight GS with a one-year time horizon as market volatility and the urgency around capital raising activity (both equity and debt) subside in 2021. We expect total revenues decline 9% y/y in 2021, driven by weaker trading revenues,” said Betsy Graseck, equity analyst at Morgan Stanley.

“Stock is trading at 0.8x 2021 BVPS, reflecting the 9-10% ROE we expect in 2021/2022. Over time, we expect GS can drive some multiple expansion as management executes on its multi-year strategic shift towards higher recurring revenues,” Graseck added.

Upside and Downside Risks

Upside: 1) Quick and sustained economic / capital markets rebound. 2) Strong trading environment and market share gains. 3) Strategic changes drive revenue/EPS growth sooner than expected. 4) Faster expense reduction. 5) 1MDB issue resolved quickly – highlighted Morgan Stanley.

Downside: 1) Markets decline sharply and IBD activity stalls through 2021. 2) Higher loan losses in consumer loan books. Energy prices decline further. 3) Strategic changes take longer to execute.

Check out FX Empire’s earnings calendar

CBD Prices Weighed Down by Rising Supply in 2020; Industry has Huge Growth Potential

According to Leafreport, over two-thirds of brands slashed their prices this year to some degree. The report also said CBD prices plunged 17% in 2020 from last year, except prices for pet edibles which surged 44%.

Moreover, the decline in prices for hemp biomass, falling production costs and firms’ aim to reach low-income household amid rising jobless rate due to the ongoing COVID-19 pandemic have also contributed to this year’s drop.

Indeed, owner of CBD company Kind Lab, Angela Arena in an interview with Leafreport, said that one of the most significant reasons for CBD’s steady price decline in 2020 is that more hemp suppliers have entered the market since the passage of the 2018 Farm Bill legalized hemp cultivation. With the increased access to hemp, more and more CBD brands were able to enter the market.

Kind Lab’s Arena further stated that “prices were so high because the supply was so low, but we’re starting to see that drop, especially as people get creative and find ways to produce lower-cost products and introduce those into the market, it’s going to become a lot more price competitive,” noted Leafreport.

According to Hemp Benchmarks, an overall price of hemp CBD biomass plunged about 80% from April last year to April 2020 – dropped to $8.1 per pound from $38.0 per pound.

There are other factors that influence the pricing decision of a CBD product – the underlying costs associated with certain certifications, quality testing with third-party and merchant fees that factor into the sale of the product at clinics and online.

“A good way to make sure a CBD product is worth the money is to check how it is advertised. It’s always worth checking if the label says USDA Organic certified and if the brand publishes their certificates of third-party analysis (COAs) on their website. Also, as Terwilliger notes, look for a little orange stamp that says U.S. Hemp Authority Certified. This third-party organization evaluates the transparency of a brand’s testing protocol, quality manual, marketing, and more,” Leafreport added.

Investment in Emerging Cannabis Industry

Cannabis is an emerging industry and is subject to regulatory headwinds. Although the industry is still emerging, legal cannabis has gone through multiple iterations. The business started as a flower-based market aimed at catering to the needs of stoners and thereafter, blossomed to a more retail-centric market that experimented with multiple edibles, beverages and concentrates.

Most recently, the cannabis industry has further widened its reach to target a broad base of the audience whose main aim is not to get intoxicated but rather to be cured of some form of the diseases.

While over half of the population is in favour of new the legalization, only a few states have thus far legalized cannabis for recreational use and the product remains illegal at the federal level.

Much work and changes are still required to occur for this industry to realize its full potential.

“If you are considering investing in a U.S. company that is connected to the cannabis industry, be aware that cannabis-related companies may be at risk of federal and/or state criminal prosecution. The Department of Treasury has issued guidance that The Controlled Substances Act (“CSA”) makes it illegal under U.S. federal law to manufacture, distribute, or dispense cannabis and cannabis-related products. Many states impose and enforce similar prohibitions. Notwithstanding the federal ban, however, many U.S. states and the District of Columbia have legalized certain cannabis-related activities,” said Eric Assaraf of Cowen and Company.

Based on Jefferies Virtual Cannabis Summit, which hosted over 200 investors on Oct 7-8, the first point of the panel discussion was the Cannabidiol market size in the United States. There was a range of different estimates but the panellists were largely consistent about their growth predictions for the industry post-COVID-19, expecting it to grow at CAGR of 20%-25% over the next five years on a conservative basis and 30%-40%, when speaking optimistically.

The panellists were also on the same page when discussing the end uses of Cannabidiol which are quite profuse and span across personal use goods, medical products and CPG products. The CBD penetration right now is only 15% of households and therefore there is a big untapped opportunity for the industry to capitalize on, Jefferies added.

BlackRock Shares Surge on Better-Than-Expected Q3 Earnings; Target Price $665

BlackRock Inc, the world’s largest investment management firm, reported a better-than-expected profit in the third quarter as the recovery in financial markets boosted its asset value to $7.81 trillion, sending its shares up about 4% on Tuesday.

The global investment manager said its net income rose 27% to $1.42 billion, or $9.22 per share, in the third quarter, from $1.12 billion, or $7.15 per share, a year earlier. Analysts had expected earnings of $7.80 per share, according to IBES data from Refinitiv, Reuters reported.

“BlackRock’s strong 3Q20 results were underscored by an impressive performance fee beat and resilient organic growth across fixed income, active equities, and alternatives. We have accordingly increased our estimates to reflect slightly higher AUM levels and increased performance fees. Momentum across the business appears strong with positive growth coming from all regions and asset classes,” said Daniel T. Fannon, equity analyst at Jefferies.

“We are increasing our 4Q20 EPS to $8.71from $8.27 and, thus, our 2020 EPS to $32.35 from $30.37. This is primarily a result of a stronger revenue (increasing 2020 from $13,656M to $14,197M) as EOP AUM came in slightly higher than expected, and we also modestly raised our performance fee outlook for 4Q20,” Fannon added.

The New York-based company reported a net inflow of $129 billion in the third quarter, up from $100 billion in the prior quarter. More than half of BlackRock’s long-term inflows were driven by clients in Europe and Asia.

Following this release, BlackRock’s shares closed 3.91% higher at $638.96 on Tuesday; the stock is up about 30% so far this year.

Executive comments

“BlackRock generated $129 billion of total net inflows in the third quarter, representing 9% annualized organic base fee growth. Our diverse platform saw inflows across all asset classes, investment styles and regions. Notably, more than 50% of long-term flows were driven by clients in Europe and Asia,” said Laurence D. Fink, Chairman and CEO at BlackRock.

“Our results are a validation of our globally integrated asset management and technology business model, which allows us to consistently invest and evolve ahead of client needs. Each of our strategic investment areas, including iShares ETFs, alternatives and technology, continue to grow, while strong investment performance has driven positive active flows over the last year.”

BlackRock stock forecast

Ten analysts forecast the average price in 12 months at $664.89 with a high forecast of $707.00 and a low forecast of $620.00. The average price target represents a 4.06% increase from the last price of $638.96. From those ten equity analysts, nine rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $750 with a high of $1,140 under a bull scenario and $339 under the worst-case scenario. KBW raised their target price on BlackRock to $654 from $635; Jefferies upped their stock price forecast to $727 from $663; Evercore ISI raised their target price to $705 from $675.

Other equity analysts also recently updated their stock outlook. Credit Suisse increased their price objective to $702 from $682; JP Morgan raised the target price to $707 from $662; UBS upped their stock price forecast to $680 from $645; Citigroup raised their price objective to $690 from $685; BofA Global Research increased their stock price forecast to $700 from $675; Deutsche Bank raised the price objective to $661 from $654; Wells Fargo raised the target price to $655 from $645.

Analyst Comments

“We believe BlackRock (BLK) is best positioned on the asset mgmt barbell given leading iShares ETF platform, multi-asset & alts combined with technology/Aladdin offerings that should drive 10% EPS CAGR (2020-22e) via 5% avg LT organic growth & continued op margin expansion,” said Michael Cyprys, equity analyst at Morgan Stanley.

“We see further growth ahead for Alts, iShares, international penetration, and the institutional market in the US. We expect the premium to widen as BLK takes a share in the midst of market dislocation and executes on improving organic revenue growth trajectory,” Cyprys added.

Upside and Downside Risks

Upside: 1) Growth in highly scalable iShares franchise driving margin expansion and strong EPS growth. 2) Further growth in tech & high fee products such as alts, active equities, and multi-asset – highlighted by Morgan Stanley.

Downside: 1) Market share loss in ETFs; lack of positive op leverage in declining markets. 2) Worse than expected base fee pressure through pricing initiatives or mix shift. 3) Greater regulatory scrutiny; liquidity challenges in products.

Check out FX Empire’s earnings calendar

Johnson & Johnson Q3 Sales Grow 1.7%, Upgrades 2020 Profit Forecast

Johnson & Johnson, one of the world’s largest and most comprehensive manufacturers of healthcare products, reported a 1.7% increase in the third-quarter sales to $21.1 billion on rising demand for its cancer drugs despite the estimated negative impact of the COVID-19 pandemic.

The company, which is well-known for consumer products like Band-Aids, said its EPS increased 101.5% to $1.33 in the third quarter of 2020 and adjusted EPS rose 3.8% to $2.20.

Johnson & Johnson forecast full-year 2020 adjusted profit between $7.95 to $8.05 per share, improved from its prior range of $7.75 to $7.95 per share.

Profit more than doubled to $3.55 billion in Q3, from a year earlier when the company had recorded “other expenses” of $4.21 billion. On an adjusted basis, the company earned $2.20 per share, beating analysts’ estimates of $1.98 per share, according to IBES data from Refinitiv, Reuters reported.

This comes just after the company said that it has paused clinical trials of its coronavirus vaccine candidate due to an unexplained illness in a study participant.

Johnson & Johnson’s shares fell about 2% to $149.15 in pre-market trading on Tuesday; however, the stock is up about 4% so far this year.

Executive comments

“Our third-quarter results reflect solid performance and positive trends across Johnson & Johnson, powered by better-than-expected procedure recovery in Medical Devices, growth in Consumer Health, and continued strength in Pharmaceuticals,” said Alex Gorsky, Chairman and Chief Executive Officer.

“Our world-class R&D team is working tirelessly to advance the Phase 3 trials of our COVID-19 vaccine and to uphold the highest standards of transparency, safety and efficacy; while other dedicated teams provide ongoing support to hospitals and patients as they return to sites of care, and ensure patients and consumers have the medicines and products they need. This resilient mindset, combined with our strategic capabilities and execution excellence, increase our optimism for continued recovery in 2020 and strong momentum entering into 2021.”

Johnson & Johnson stock forecast and analyst comments

Eight analysts forecast the average price in 12 months at $167.25 with a high forecast of $175.00 and a low forecast of $158.00. The average price target represents a 10.15% increase from the last price of $151.84. All those eight equity analysts rated “Buy”, none rated “Hold” or “Sell”, according to Tipranks.

Morgan Stanley target price is $170 with a high of $204 under a bull scenario and $110 under the worst-case scenario. SVB Leerink reiterated an “outperform” rating on shares of Johnson & Johnson in July. Zacks Investment Research lowered shares of Johnson & Johnson from a “hold” rating to a “sell” rating and set a $150 price target. Stifel Nicolaus lowered from a “buy” rating to a “hold” rating. Bank of America reissued a “buy” rating. At last, Credit Suisse Group reissued a “buy” rating on shares of Johnson & Johnson in September.

“Litigation liability has been more than reflected in Johnson & Johnson (J&J) shares, in our view, creating a meaningful valuation disconnect vs. the S&P. Pharma-driven acceleration is poised to drive the multiple higher in 2020 led by blockbuster franchises, pipeline launches and easing comparables,” said Michael Cyprys, equity analyst at Morgan Stanley.

“Momentum in MD&D and Consumer segments should drive a more balanced growth profile which is less reliant on Pharma.”

Upside and Downside Risks

Upside: 1) Pharmaceutical growth accelerates to HSD sustainability. 2) Opioid and talc litigations are settled. 3) MD&D growth accelerates – highlighted by Morgan Stanley.

Downside: 1) Litigation overhang persists / legal liabilities are greater than anticipated. 2) Pharma pipeline is unable to offset biosimilar and competitive risks. 3) COVID-19 impact to MD&D is more severe. 4) Turnarounds in Consumer and MD&D fail to materialize or slower than expected.

Check out FX Empire’s earnings calendar

Morgan Stanley Initiates Coverage on StepStone With Overweight Rating and Target Price at $33

Morgan Stanley analyst Michael J. Cyprys started coverage on shares of StepStone Group with “Overweight” rating and target price of $33 and said the global private markets investment firm is an attractive play on structural growth in private markets, with sticky fee revenue, access to fast-growing end markets and an ability to expand margins.

“We see industry-leading organic growth supported by secular tailwinds, with the opportunity for margin expansion. StepStone is a private markets investment firm that provides customized investment solutions, advisory, and data services for its clients. We view StepStone’s core competency as an allocator that connects large pools of institutional capital to an extensive network of private markets funds,” Cyprys added.

StepStone’s shares closed 3.17% lower at $26.21 on Monday; however, the stock is up about 6% since the investment firm’s shares started trading on the Nasdaq Global Select Market on Sept. 16.

Five analysts forecast the average price in 12 months at $29.00 with a high forecast of $33.00 and a low forecast of $26.00. The average price target represents a 10.64% increase from the last price of $26.21. From those five, two analysts rated “Buy”, thee rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $55 under a bull scenario and $14 under the worst-case scenario.

Other equity analysts also recently updated their stock outlook. Goldman Sachs Group initiated coverage on StepStone Group in a research report on Monday. They set a “neutral” rating and a $26 price objective for the company.  JPMorgan Chase & Co. started coverage on StepStone Group. They issued a “neutral” rating and a $29 price target for the company.

UBS Group began coverage on StepStone Group. They issued a “buy” rating and a $30 price target on the stock. At last, Barclays began coverage on shares of StepStone Group. They set an “equal weight” rating for the company.

“Compelling structural growth story in private markets… We see 19% client asset CAGR driving 23% EPS CAGR in FY21-24 that’s not priced in,” said Michael Cyprys, equity analyst at Morgan Stanley.

“Many avenues for growth to surprise to the upside and drive upward revisions to estimates, supported by STEP’s global footprint, broad-scale, deep industry relationships and customized solutions that can drive new products, new clients and increased wallet share among existing clients. High-quality earnings supported by a sticky customer base and skew to recurring management fees with limited mark to market risk, resulting in greater revenue consistency.”

Upside risks: 1) Successful fundraising of SMAs, larger successor commingled funds, and newer products/strategies. 2) Growth in new retail/HNW channel. 3) Monetization of tech capabilities – highlighted by Morgan Stanley.

Downside risks: 1) Deeper recession leads to weaker investment performance, delaying performance fee realization and slowing AUM growth. 2) Higher than expected costs. 3) Inability to influence minority-owned businesses. 4) Greater regulatory scrutiny of PE.

Twilio Shares Surge on News of Segment Acquisition; Target Price $375 in Best Case

Twilio Inc, a cloud-based communications platform-as-a-service company, said it would acquire the market-leading customer data platform Segment for about $3.2 billion in an all-stock deal, sending its shares up over 9% in pre-market trading on Monday.

The transaction will accelerate Twilio’s growth with a combined total addressable market of $79 billion, bringing Twilio one step closer to achieving the company’s vision of becoming the world’s leading customer engagement platform trusted by developers and companies globally, the cloud communications platform provider said.

“We believe the pairing could result in a game-changing opportunity for Twilio (TWLO). Segment is a leading independent Customer Data Platform and could act as a catalyst for TWLO to enter the ring with CRM and ADBE for the battle for Customer 360,” said J. Derrick Wood, equity analyst at Cowen and Company, who gave a price target of $350.

The deal is expected to close in the fourth quarter of 2020. Morgan Stanley & Co. LLC is serving as exclusive financial advisor to Twilio and Cooley LLP as legal advisor. Qatalyst Partners is serving as exclusive financial advisor to Segment and Goodwin Procter LLP as legal advisor.

Following this announcement, Twilio’s shares surged over 9% in pre-market trading on Monday, trading 2.7% higher at $321.54. The stock is up over 220% so far this year.

Twilio stock forecast

Twenty-two analysts forecast the average price in 12 months at $313.75 with a high forecast of $375.00 and a low forecast of $225.00. The average price target represents a -1.17% decrease from the last price of $317.46. From those 22, 18 analysts rated “Buy”, four rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $270 with a high of $370 under a bull scenario and $200 under the worst-case scenario. The gave an “overweight” rating. Twilio had its price target increased by Argus to $330 from $310. Royal Bank of Canada boosted their price objective on Twilio to $375 from $320.

Other equity analysts also recently updated their stock outlook. Canaccord Genuity boosted their price objective on Twilio to $310 from $215.00 and gave the company a “buy” rating. Robert W. Baird lifted their target price to $340 from $315 and gave the company an “outperform” rating.

Analyst view

“A top-quality asset in our communications software framework. B2C communications has long needed an overhaul, which TWLO is able to provide. COVID-19 can act as an investment accelerant. Gating item to growing today remains how many customers have developers, which could be helped by expanding SI relationships. TWLO’s competitive moat growing. Applications product growth can improve overall margins,” said Meta A Marshall, equity analyst at Morgan Stanley.

“TWLO has seen a meaningful uptick in valuation as COVID-19 led to an acceleration in need for digital communication channels. This outweighed previous concerns over reduced travel/hospitality revenue and long-term growth profile. While enthusiasm is high for the remainder of 2020, concerns around COVID-19 activity in 2020 creating difficult comps in 2021 are weighing on investors’ minds.”

Upside and Downside Risks

Upside: 1) Management breaks out applications growth metrics, drives higher margins. 2) Major SI partner added. 3) New use cases like contact tracing, education and telehealth expand TAM meaningfully – highlighted by Morgan Stanley.

Downside: 1) COVID impact is short-lived, volume falters and investors discount reoccurring vs recurring revenue. 2) Use cases fail to expand, challenges net expansion. 3) Investors put a larger premium on margins.

Link Shares Jump 27% on Pacific Equity, Carlyle Group Takeover Proposal

Link Administration Holdings Ltd, an Australia-based provider of services in superannuation administration industry, said it has received a conditional A$2.76 billion proposal from a consortium comprising Pacific Equity Partners, Carlyle Group to acquire 100% of the stake, sending its shares up 27% to A$5.1 on Monday.

The non-binding offer of A$5.20 a share is at a 30.3% premium to the shareholder registry firm’s last closing price and has the support of Perpetual Ltd, which owns 9.7% of the company, Reuters reported.

The Link Group Board will consider the Proposal, including obtaining advice from its financial and legal advisers. Shareholders do not need to take any action in relation to the Proposal. It should be noted that there is no certainty that the discussions with the Consortium will result in any transaction, the company said.

Link Group has appointed Macquarie Capital and UBS as its financial advisers and Herbert Smith Freehills as its legal adviser.

At the time of writing, Link Administration’s shares traded 24.56% higher at A$4.97 on Monday; however, the stock is down over 15% so far this year.

Link Administration stock forecast and Analyst views

The seven analysts offering 12-month price targets for Link Administration Holdings Ltd have a median target of A$4.38, with a high estimate of A$5.10 and a low estimate of A$3.40, according to FT.

Morgan Stanley target price is A$3.55 with a high of A$5.35 under a bull scenario and A$1.5 under the worst-case scenario. Morgan Stanley said DCF weighted 10% bull, 60% base, 30% bear – skew reflects headwinds in Super business, risks of further margin and operational headwinds in Fund Admin, PES not building sufficient scale in the near term. Key assumptions: 11.5% cost of equity, 3% terminal growth.

“The offer values Link Administration (LNK) at 30% premium to last close and implies 24.5x / 19.3x P/E on FY21E / FY22E on our forecasts. The offer is a ~20% discount to LNK’s IPO price of A$6.37 and a ~15% discount to LNK’s ~A$6 share price just prior to the 1H20 result and pre COVID. Perpetual holds ~9.65% of LNK and has stated it intends to vote in favour of the offer of at least A$5.20. We currently value LNK at A$3.40 in our blended price target. In our SOTP valuation, we value LNK’s stake in PEXA at A$1.54 EV per share. Our bull case valuation for LNK is A$5.35. We note LNK has a new CEO assuming the role on November 2, 2020. LNK is also in the process of acquiring the PES loan management business, with that deal under review by the Irish regulator,” said Andrei Stadnik, equity analysts at Morgan Stanley.

“We think the consensus is missing the multi-year headwinds in Super. Valuation looks too high vs peers. Gearing is above the target, though PEXA distribution proceeds could help. Fund admin growth is likely to take longer but retains potential. UK mortgage servicing is slower than the U.S. Asset and non-performing loan servicing remain a longer-term growth option,” Stadnik added.

Upside and Downside Risks

Upside: 1) Share gain in Super admin market or benefits from fund consolidation. 2) Stronger growth in UK mortgage servicing/EU asset servicing. 3) Earlier or larger than expected PEXA distribution proceeds. – highlighted by Morgan Stanley.

Downside: 1) Major fund admin client contracts not renewed or outsourcing scope is narrowed. 2) Acceleration of Super account consolidation. 3) ERS results in significant account inactivation. 4) Adverse FCA findings re Woodford.

Domino’s Pizza Shares Plunge on Lower Profits But Analysts Optimistic on Outlook; Target Price $435

Domino’s Pizza, the largest pizza company in the world based on global retail sales, reported that its global retail sales rose 14.4% in the third quarter and same-store sales grew 17.5% in the United States as consumers ordered more pizzas during the COVID-19 pandemic, but weaker-than-expected profit pushed shares down over 10% in last two trading days of the previous week.

The largest pizza chain in the world said its revenues increased $146.9 million, or 17.9%, in the third quarter of 2020. This increase was primarily due to higher U.S. retail sales resulting from same-store sales growth and an increase in store counts during the trailing four quarters, resulting in the higher supply chain, U.S. franchise and U.S. Company-owned stores revenues.

“We expect the brand’s strong sales performance to continue, as consumers continue to gravitate toward Domino’s menu innovation, value proposition, and strong digital ordering infrastructure (still 75% of sales). We are raising our 4Q20 domestic same-store sales to 14% from 10% relative to 8% Consensus Metrix, remain above consensus in 2021 with our 2.2% vs consensus of 1.8%,” said Andrew M. Charles, equity analyst at Cowen and Company.

“We expect U.S. and Int’l comp strength to continue, while elevated supply chain & company stores costs are transitory. Mgmt is reviewing prior targets for 25,000 stores by 2025, an issue that is timing related as the goal was made pre-COVID, rather than capability, which creates some controversy. However, we believe this presents an opportunity for DPZ to deploy the $327M repurchase authorization.”

However, Domino’s diluted EPS was $2.49 for the third quarter of 2020, lowered than the market expectation of $2.79, but better than $2.05 in the prior-year quarter. That lower-than-expected profit on was largely due to surge pandemic-related costs – general and administrative costs rose 9.5% and commodity costs also rose 3.8%.

That pushed Domino’s shares down over 10% in the last two trading days of the previous week. Domino’s Pizza’s shares closed 2.5% lower to $390.95 on Friday; however, the stock is up over 30% so far this year.

Domino’s net income increased $12.8 million, or 14.8%, in the third quarter of 2020. This increase was primarily driven by higher income from operations resulting from increased U.S. franchise revenues as well as higher supply chain volumes, partially offset by higher variable performance-based compensation expense as well as COVID-related costs, including additional compensation and enhanced sick pay for frontline workers.

Domino’s Pizza stock forecast

Twenty-five analysts forecast the average price in 12 months at $435.32 with a high forecast of $500.00 and a low forecast of $380.00. The average price target represents an 11.35% increase from the last price of $390.95. From those 25, 16 analysts rated “Buy”, nine rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $446 with a high of $575 under a bull scenario and $318 under the worst-case scenario. Domino’s Pizza had its target price cut by Barclays to $390 from $345. Cfra upgraded shares from a hold rating to a buy rating and boosted their price target for the company to $450 from $400 in July.

Other equity analysts also recently updated their stock outlook. Robert W. Baird boosted their price target to $450 from $440 and gave the company an outperform rating. Longbow Research reaffirmed a buy rating and issued a $441 price. At last, Jefferies Financial Group lifted their price objective to $405 from $385 and gave the stock a hold rating.

Analyst view

“Weaker than expected flow through on a strong top-line quarter a near term setback, but costs likely transitory. Unit growth set back by closures, COVID-19, but this too is likely temporary; lowering 20/21 modestly to reflect these realties; rolling price target to ’22, and largely unchanged at $446,” said John Glass, equity analysts at Morgan Stanley.

“Delivery momentum supporting best in class system sales and unit growth in a still fragmented category; advantaged category in 2020 with Covid-19 disruption. Well-positioned in key US market: Technology leadership, data-driven investment and marketing decisions are hallmarks of the brand. Carry out market represents incremental growth. Sustainable competitive advantages vs aggregators on value, the delivery speed which could become more visible in ’20 and ’21. Strong cash flow generation, stable franchise income stream and international business are partially offset by a price competitive category & high leverage,” Glass added.

Upside and Downside Risks

Upside: 1) SSS growth returns to historical levels as DPZ wins vs competition. 2) Strong int’l sales as EMs grow in importance. 3) Fading delivery aggregator pressures. 4) Faster COVID-19 recovery, greater share gains/unit growth – highlighted by Morgan Stanley.

Downside: 1) Irrational aggregator discounting perpetuates. 2) Key markets fall into economic recessions; greater COVID-19 impact (including on cost side). 3) Domestic fortressing cannibalizes sales.

Check out FX Empire’s earnings calendar

IBM Price Target Raised to $140 at Morgan Stanley, $180 in Best Case Scenario

Morgan Stanley analyst Katy L. Huberty raised her price target on IBM to $140 from $128, assigning an “Equal-weight” rating to the stock and said the world’s largest computer firm is making bolder moves by reducing dependency on legacy businesses and accelerating investment but there is still work to do.

American multinational technology company announced the tax-free spin-off of its Managed Infrastructure Services business, which is expected to be completed by the end of next year. Managed Infrastructure Services represents the majority of GTS, excluding the IBM Public Cloud and Technical Support Services businesses. The deal will create NewCo, a managed infrastructure services company with $19B TTM revenue that will focus on IT infrastructure modernization.

“Our SOTP reflects 15% upside, but we are cautious about recognizing this near-term. Without full transparency into the balance sheet and cost breakouts, we ran an initial SOTP based on EV/Sales to provide a preliminary view that points to $151/share valuation. We value each of IBM’s sub-segments separately based on a range of industry peers. Our analysis also credits IBM with unlocking an incremental $2.5B of revenue that was previously recorded in internal transactions, adding $5/share to valuation,” added Huberty, who also gave a price target of $180 in a best-case scenario.

“This aligns with a disclosure from the conference call for $19B NewCo revenue and $59B RemainCo revenue over the last 12 months, totalling $78B compared to a reported $75.5B. We include only operating cash and debt in our analysis given financing debt is supported by financing assets. Our updated PT of $140 (from $128 previously) blends our prior EV/FCF sales valuation and SOTP (50/50) to give partial credit to unlocking value in the SOTP given the spin announcement and increased focus on portfolio optimization.”

IBM’s shares rose 0.16% higher at $131.49 in pre-market trading on Friday; however, the stock is down about 2% so far this year.

Several other equity analysts have also updated their stock outlook. Independent Research raised their target price to $135.00 from $131.00 but rated hold; Credit Suisse upped their stock price forecast to $161 from $155. Citigroup boosted their target price on IBM to $140 from $120 and gave the company a “neutral” rating. JP Morgan Chase & Co. boosted their target price to $148 from $135 and gave the company a “neutral” rating.

Thirteen analysts forecast the average price in 12 months at $141.55 with a high forecast of $155.00 and a low forecast of $115.00. The average price target represents a 7.65% increase from the last price of $131.49. From those 13 equity analysts, five rated ‘Buy’, seven rated ‘Hold’ and one rated ‘Sell’, according to Tipranks.

“The spin of Infrastructure Services is a step in the right direction to drive sustainable revenue growth, but our conviction is reduced due to cautious results from our AlphaWise CIO surveys pointing to Services and AI most at risk of spending cuts and lower spending intentions with IBM following the Red Hat deal,” Morgan Stanley’s Huberty said.

“Near-term, we expect greater recurring revenue to pressure performance versus peers as IT spending rebounds off recent lows. Despite valuation below Services and Software peers, near-term macro factors and lack of conviction around IBM’s ability to stabilize revenue in the medium to long-term keep us Equal-weight.”

Upside risks: 1) Short-lived recession followed by pent up demand. 2) More material divestitures or M&A to accelerate growth. 3) IT spend upside, esp. Cloud & Cognitive, tied to Data Era projects. 4) Faster execution & upside on RHT synergies – highlighted by Morgan Stanley.

Downside risks: 1) Slowing GDP & IT spend drive sustained revenue declines. 2) Failure to monetize investments. 3) aaS growth stalls as mgmt focuses on margins. 4) Accelerated cloud cannibalization in core markets.

Advanced Micro Devices to Acquire Rival Xilinx for Over $30 Billion; Target price $120 in Best Case

American chipmaker Advanced Micro Devices (AMD) is in advanced talks to acquire its rival semiconductor manufacturing company Xilinx in a deal that could be worth over $30 billion, the Wall Street Journal reported, citing people familiar with the matter.

According to the WSJ, both the chipmakers are discussing a deal that could come together as early as next week. However, there is no assurance that they will for sure ink the deal.

AMD’s shares fell 2.5% to $84.33 in pre-market trading on Friday; however, the stock is up about 90% so far this year.

Advanced Micro Devices (AMD) stock forecast

Twenty-five analysts forecast the average price in 12 months at $83.78 with a high forecast of $120.00 and a low forecast of $62.00. The average price target represents a -3.16% decrease from the last price of $86.51 From those 25, 12 analysts rated “Buy”, 12 rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley target price is $73 with a high of $95 under a bull scenario and $39 under the worst-case scenario. Jefferies boosted their stock price forecast on Advanced Micro Devices to $100 from $95. Deutsche Bank boosted their target price on Advanced Micro Devices to $70 from $50 and gave the company a “hold” rating in July.

Other equity analysts also recently updated their stock outlook. In July, Barclays boosted their target price on Advanced Micro Devices from $50 to $55 and gave the company an “equal weight” rating. At last, Royal Bank of Canada boosted their target price to $84 from $71.

Analyst view

“Advanced Micro Devices (AMD) continues to execute on its product roadmap while Intel experiences process technology delays on 10nm server and supply shortages at the low end of the PC market,” said Joseph Moore, equity analysts at Morgan Stanley.

Zen drives further share gains for AMD, as we estimate the company gaining share in desktop, notebook and server processors in 2020 and 2021. We model Computing and Graphics revenue of $5.9bn (up 25.9% y/y) and Enterprise, Embedded and Semi-Custom revenue of $3bn (up 46.5% y/y).”

Upside and Downside Risks

Upside: 1) PC and Zen server share gain accelerates as Zen adoption picks up; Intel’s competitive response at 10nm is less impressive than expected. 2) Console cycle turns out to be stronger than expected – highlighted by Morgan Stanley.

Downside: 1) Intel’s server CPUs for 2020 (Cooper Lake in 1H on 14nm and Ice Lake in 2H on 10nm) stifle AMD’s momentum and allow it to regain share. 2) AMD loses graphics share to NVIDIA. 3) Console cycle underperforms expectations.

Morgan Stanley to Acquire Eaton Vance for About $7 Billion; Target Price $68 in Best Case

Morgan Stanley, an American multinational investment bank and financial services company, said on Thursday that it will acquire a leading provider of advanced investment strategies and wealth management solutions Eaton Vance for about $7 billion.

Under the terms of the deal, Eaton Vance shareholders will get $28.25 per share in cash and 0.5833x of Morgan Stanley common stock, representing a total consideration of nearly $56.50 per share. Based on the $56.50 per share, the aggregate consideration paid to holders of Eaton Vance’s common stock will consist of approximately 50% cash and 50% Morgan Stanley common stock.

The deal also contains an election procedure allowing each Eaton Vance shareholder to seek all cash or all stock, subject to a proration and adjustment mechanism. In addition, Eaton Vance common shareholders will receive a one-time special cash dividend of $4.25 per share to be paid pre-closing by Eaton Vance to Eaton Vance common shareholders from existing balance sheet resources.

The deal is anticipated expected to close in the second quarter of next year.

At the time of writing, Morgan Stanley’s shares traded 1.12% higher at $49.26 on Thursday; however, the stock is down about 4% so far this year.

Executives’ comments

“Eaton Vance is a perfect fit for Morgan Stanley,” said James P. Gorman, Chairman and Chief Executive Officer of Morgan Stanley. “This transaction further advances our strategic transformation by continuing to add more fee-based revenues to complement our world-class investment banking and institutional securities franchise. With the addition of Eaton Vance, Morgan Stanley will oversee $4.4 trillion of client assets and AUM across its Wealth Management and Investment Management segments.”

“Over many years, Eaton Vance has delivered above-market growth by aligning our business with leading trends in asset management,” said Thomas E. Faust, Jr., Chief Executive Officer of Eaton Vance. “By joining Morgan Stanley, we will be able to further accelerate our growth by building upon our common values and strengths, which are focused on our commitment to investment excellence, innovation and client service. Bringing Eaton Vance’s leading brands and capabilities under Morgan Stanley creates a uniquely powerful set of investment solutions to serve both institutional and retail clients in the U.S. and internationally.”

Morgan Stanley stock forecast

Thirteen analysts forecast the average price in 12 months at $57.62 with a high forecast of $68.00 and a low forecast of $45.00. The average price target represents a 17.45% increase from the last price of $49.06. From those 13, nine analysts rated “Buy”, four rated “Hold” and none rated “Sell”, according to Tipranks.

Deutsche Bank raised their price target to $53 from $49; Citigroup upped their stock price forecast to $58 from $56; UBS raised the target price to $57 from $52; Berenberg increased their target price to $45 from $36; Oppenheimer raised their target price to $66 from $60; D.A. Davidson upped the target price to $64 from $58 and BMO raised the target price to $68 from $65.

Other equity analysts also recently updated their stock outlook. Piper Sandler raised the target price to $51 from $48; KBW raised their target price to $58 from $53; Evercore ISI upped their target price to $59 from $54; RBC upped their stock price forecast to $55 from $50. At last, Credit Suisse increased their stock price forecast to $58 from $46.

Analyst view

“Morgan Stanley’s focus on less capital-market dependent operations and planned buyout of E*Trade will support profitability. Steady capital deployments reflect its strong balance sheet position,” said equity analysts at Zacks Research, who also gave a price target of $50.

“(But) Uncertainty about the performance of the capital markets remains a major concern for Morgan Stanley. Persistently increasing expenses are expected to hurt the bottom line to an extent in the near term.”

Givaudan Q3 Sales Grow 3.1% on Strong Demand; Target Price CHF 4500 in Best Case

Givaudan, the global leader in the creation of fragrances and flavours, said its sales rose 3.1% on a like-for-like basis in the July-September quarter, supported by strong demand for household, health and personal care products during the COVID-19 pandemic.

In the first nine months of 2020 Givaudan recorded sales of CHF 4,790 million, an increase of 3.7% on a like-for-like basis and 2.7% in Swiss francs. Fragrance and beauty sales were CHF 2,199 million, an increase of 4.5% on a like-for-like basis and an increase of 5.3% in Swiss francs, the company said.

Flavour and fragrance maker further reported that its taste and wellbeing sales were CHF 2,591 million, an increase of 3.1% on a like-for-like basis and an increase of 0.6% in Swiss francs.

Givaudan’s shares closed 1.31% higher at CHF 4,033 on Wednesday; the stock is up over 30% so far this year.

Givaudan stock forecast

Ten analysts forecast the average price in 12 months at SFr.3,717.89 with a high forecast of SFr.4,500 and a low forecast of SFr.2,760. The average price target represents a -7.52% decrease from the last price of SFr.4,020 From those 10, four analysts rated “Buy”, three rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley target price is CHF 3,265 with a high of CHF 4,950 under a bull scenario and CHF 2,800 under the worst-case scenario. UBS raised their target price to CHF 4450 from CHF 3900; Deutsche Bank upped their stock price forecast to CHF 3900 from CHF 3100.

Other equity analysts also recently updated their stock outlook. Berenberg upgraded rating to buy from hold, raised their target price to CHF 4,500 from CHF 3,650; Baader Helvea upgraded their target price to CHF 4,000 from CHF 3,070 and Citigroup raised their price target to CHF 4001 from CHF 1700.

Analyst view

“Valuation stands at all-highs, on c.25x FY20e EBITDA and 40x P/E. That said, our valuation work (including long-term growth models) points to a fair value of CHF 3,265 per share, equivalent to 25x EV/EBITDA, thereby reflecting Givaudan’s compounder growth characteristics and management track record,” said Lisa De Neve, equity analyst at Morgan Stanley.

“While long-term prospects look solid, with industry consolidation set to continue, in the near term we see risks from (1) EM market pressures, (2) consumer downtrading, (3) channel de-stocking and (4) slower innovation pipeline. Looking forward, solid LFL growth and high EPS growth look set to continue, although this hinges to a degree on accretion from M&A.”

Upside and Downside risks

Upside: 1) Continued relative preference for defensive exposure vs cyclicals. 2) Lower-for-longer Swiss bond yields. 3) Margins expand above expectations due to raw material deflation. 4) Value-accretive M&A– highlighted by Morgan Stanley.

Downside: 1) Deterioration in consumer sentiment, structural changes in consumer patterns. 2) Expensive acquisitions and capital intensity increasing further. 3) Raw material inflation and FX. 4) EM slowdown.