ViacomCBS Posts Better-Than-Expected Q2 Revenue on Robust Streaming Demand; Target Price $35

ViacomCBS Inc, an American diversified multinational mass media conglomerate, reported a better-than-anticipated revenue and profit in the second quarter, largely due to robust growth in streaming amid the COVID-19 pandemic, sending its shares up over 5%.

The mass media company said its affiliate revenue increased 2%, reflecting growth in station affiliation and retransmission fees, as well as subscription streaming revenue, which more than offset declines in pay-TV subscribers. However, its advertising revenue declined 27% year-over-year, driven by the adverse effects of COVID-19 on global advertising demand.

ViacomCBS U.S. pay streaming subscribers reached 16.2 million, up 74% year-over-year. That help boost streaming and digital video revenue to $489 million, up 25% year-over-year, driven by 52% growth in streaming subscription revenue.

ViacomCBS’ revenue declined 12% to $6.28 billion in the second quarter but exceeded the forecast of $6.27 billion, according to Refinitiv. On an adjusted basis, the company earned $1.25 per share, beating Wall Street estimates of $0.93 per share, according to IBES data, reported by Reuters.

At the time of writing, ViacomCBS’ shares traded over 5% higher at $27.35, still down about 40% so far this year.

ViacomCBS stock forecast

Sixteen analysts forecast the average price in 12 months at $28.23 with a high forecast of $45.00 and a low forecast of $17.00. The average price target represents an 8.58% increase from the last price of $26.00. From those 16, eight analysts rated ‘Buy’, seven analysts rated ‘Hold’ and one rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $25 with a high of $42 under a bull scenario and $8 under the worst-case scenario. They currently have an equal weight rating on the stock.

Several other equity analysts have also updated their stock outlook. UBS Group lowered their target price on ViacomCBS to $16 from $31 and set a neutral rating. Needham & Company LLC boosted their target price to $30 from $20 and gave the company a buy rating.

We think it is good to buy at the current level and target at least $35 in the short-term as 100-day Moving Average and 100-200-day MACD Oscillator signal a buying opportunity.

Analyst comment

“We believe ViacomCBS can use its greater scale to secure continued distribution and avoid a major pricing reset or lost distribution. However, even in the context of healthier than expected distribution revenues, traditional TV ad exposure and the rising need for investment could pressure margins. We see significant opportunity for the CBS broadcast network to drive upside from distribution revenues, as it remains a relatively under-monetized asset in the media ecosystem,” said Benjamin Swinburne, equity analyst at Morgan Stanley.

“Digital advertising through Pluto and AMS may be the answer to driving healthy ad growth but visibility is low. We continue to view Paramount as a scarce, valuable asset that could generate significant strategic interest,” the analyst added.

Upside and Downside risks

1) favourable distribution renewals or sub-trends supporting affiliate rev growth acceleration, 2) improved ratings, 3) healthy DTC sub growth, 4) improved film profitability, Morgan Stanley highlighted as upside risks to ViacomCBS.

1) unfavourable renewal or dropped carriage pressures affiliate rev growth, 2) macro trends or soft ratings trends weigh on ad growth, 3) DTC sub growth disappoints, 4) film underperformance pressures margins, were major downside risks.

Lufthansa Don’t Expect Air Travel Demand to Return to Pre-COVID-19 levels Before 2024; Sell With Target Price EUR 5

Lufthansa, the largest German airline company, said they do not forecast a return of air travel demand to pre-COVID-19 levels at least before 2024 after the company posted a quarterly operating loss of 1.7 billion euros in the second quarter despite significant cost reductions, sending its shares down about 2%.

The second-largest airline in Europe in terms of passengers carried said the collapse in demand for air travel due to the COVID-19 pandemic led to an 80% decline in revenue for the Lufthansa Group in the second quarter to 1.9 billion euros, from 9.6 billion euros a year earlier.

In the second quarter of this year, the German airline carried 1.7 million passengers, 96% fewer than in the previous year. Capacity fell by 95%.

Lufthansa’s posted a quarterly operating loss of 1.7 billion euros in the second quarter, worse than last year’s profit of 754 million euros, despite extensive cost reductions. Operating expenses were reduced by 59%, primarily through the introduction of short-time working for large parts of the workforce and the cancellation of non-essential expenditures.

At the time of writing, Lufthansa’s shares traded about 2% lower at 8.05 euros, still down over 50% so far this year.

Executive comments

“We are experiencing a caesura in global air traffic. We do not expect demand to return to pre-crisis levels before 2024. Especially for long-haul routes, there will be no quick recovery. We were able to counteract the effects of the coronavirus pandemic in the first half of the year with strict cost management as well as with the revenues from Lufthansa Technik and Lufthansa Cargo. And we are benefitting from the first signs of recovery on tourist routes, especially with our leisure travel offers of the Eurowings and Edelweiss brands. Nevertheless, we will not be spared a far-reaching restructuring of our business,” Carsten Spohr, Chairman of the Executive Board and CEO of Deutsche Lufthansa AG, said in a press release.

“We are convinced that the entire aviation industry must adapt to a new normal. The pandemic offers our industry a unique opportunity to recalibrate: to question the status quo and, instead of striving for “growth at any price”, to create value in a sustainable and responsible way.”

Lufthansa stock forecast

Morgan Stanley target price is 5 euros with a high of 14 euros under a bull scenario and zero under the worst-case scenario. Sanford C. Bernstein set a 10 euros price objective on Deutsche Lufthansa. The brokerage currently has a neutral rating on the stock.

Several other equity analysts have also updated their stock outlook. HSBC set a 5 euros price objective on Deutsche Lufthansa and gave the stock a sell rating. Oddo Bhf set a 9.50 euros price objective and gave the stock a sell rating. UBS Group set a 5.85 euros price objective and gave the stock a sell rating.

We think it is good to sell at the current level and target at least 5 euros in the short-term as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong selling opportunity.

The one listed on the U.S. stock exchange is expected to rise to $9.45 in 12 months, two analysts forecast, with a high forecast of $9.45 and a low forecast of $9.45. The average price target represents a -2.48% decrease from the last price of $9.69. Both recommended to ‘Sell’.

Analyst comment

“While we think Lufthansa has been quick in reducing costs and extending payment terms with suppliers, we think the loss generated by the Covid-19 pandemic (of c€6bn, on our base case estimates) will be difficult to absorb with free cash flow generation and is not yet fully discounted in the share price,” said Carolina Dores, equity analyst at Morgan Stanley.

“Lufthansa’s large owned fleet and diversified business mix (maintenance, freight and catering business) could give it better flexibility on balance sheet repair and self-help compared to AF-KLM; however, all businesses would be negatively affected by the pandemic and therefore we think much of its balance sheet repair flexibility has been constrained,” the analyst added.

Upside and Downside risks

A stronger recovery of demand once travel bans are lifted; Greater cost-cutting than we have anticipated; Faster market consolidation and, therefore, higher unit pricing environment, Morgan Stanley highlighted as upside risks to Lufthansa.

Failure to secure the German government’s stabilization loan; Higher cost of ramping up operations Delayed turnaround of Eurowings due to stronger competition in the group’s routes, were the major downside risks.

MetLife Q2 Adjusted Earnings Slump 43%; Top Analysts Recommend Hold

MetLife Inc, the largest global provider of insurance, annuities, and employee benefits program, reported that its second-quarter adjusted earnings slumped 43% due to falling premiums, fees and investment losses, sending its shares down about 5% pre-market trading on Thursday.

The U.S. insurer said its adjusted earnings of $758 million, or $0.83 per share, compared to adjusted earnings of $1.3 billion, or $1.38 per share in the second quarter of 2019. Adjusted earnings, excluding total notable items, of $758 million, or $0.83 per share, compared to adjusted earnings, excluding total notable items, of $1.4 billion, or $1.46 per share a year earlier.

The company’s net income fell to $68 million, or $0.07 per share, compared to $1.7 billion, or $1.77 per share in the second quarter of 2019. That was largely to decline in premiums and fees, falling 13% to $10.4 billion, from $12 billion a year ago.

MetLife’s net investment income was $4.1 billion, down 13% from the second quarter of 2019. Adjusted net investment income was $3.4 billion, down 24% from the prior-year period. The decline in net investment income was primarily driven by a loss in variable investment income, which reflects a one quarter reporting lag for private equity results.

On Wednesday, MetLife’s shares closed about 4% higher at $38.28 but on Thursday’s pre-market it’s down 4.65% to $36.50, still down over 25% so far this year.

Executive comments

“The decline in our private equity portfolio was squarely within our expectations. On underwriting, our well-diversified set of businesses provided meaningful offsets to increased claims from COVID-19. The quarter also demonstrated our ongoing commitment to consistent execution, which was evident in our strong cash generation and expense discipline,” said MetLife President and CEO Michel Khalaf.

MetLife stock forecast

Five analysts forecast the average price in 12 months at $44.50 with a high forecast of $45.00 and a low forecast of $44.00. The average price target represents a 16.25% increase from the last price of $38.28. From those five, five analysts rated ‘Buy’, none analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $44 with a high of $51 under a bull scenario and $29 under the worst-case scenario. Evercore ISI raised its target price to $38 from $35 and JP Morgan upped it to $60 from $59.

Several other equity analysts have also updated their stock outlook. Royal Bank of Canada increased their price objective on shares of Metlife to $44 from $42 and gave the company an “outperform” rating. Wells Fargo & Co lowered their price objective on shares of Metlife to $44 from $59.00 and set an “overweight” rating.

We think it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator signal a mild selling opportunity.

Analyst comment

“Following its retail separation, the company is committed to profitable growth while also simplify its operations to reduce earnings volatility. Given these moves, the investment thesis for MetLife now revolves around capital management and free cash flow generation, growth in international operations, and expense reduction initiatives,” said Nigel Dally, equity analyst at Morgan Stanley.

“We believe MetLife has the ability to continue its solid execution in its various businesses. More importantly, the solid results over the past several quarters were not driven by a single division, with MetLife Holdings, US, and International all contributing to solid earnings performance,” he added.

Upside and Downside risks

Group benefits continue to perform above expectations; Interest rates increase notably, alleviate some earnings pressure; Acceleration of capital deployment plans International business grows faster than expected, Morgan Stanley highlighted as upside risks to MetLife.

Adverse currency moves; Sharply increased competition in the group benefits business; Geopolitical uncertainties outside of the U.S.; Surprise below the line charges, was the major downside risks.

Walt Disney Q3 Revenue Slumps Over 40% as COVID-19 Pandemic Bites; Target Price $80 in Worst-Case Scenario

Walt Disney Co, a family entertainment company, said its net income declined sharply in the third fiscal quarter that ended in June due to the COVID-19 pandemic that shut down parks, sporting events, resorts and movie theatres, but saw a rise in Disney+ streaming subscribers to 60.5 million.

The world’s leading producers and providers of entertainment and information said its diluted earnings per share from continuing operations for the quarter was a loss of $2.61 compared to income of $0.79 in the prior-year quarter. EPS from continuing operations for the nine months ended in June was a loss of $1.17 compared to income of $5.97 in the prior-year period.

Disney said its operating income at the movie studio plunged over 15% to $668 million. Overall revenue slumped more than 40% to $11.78 billion. Net loss from continuing operations was $4.72 billion, or $2.61 per share, in the third quarter ended in June, worse from a net profit of $1.43 billion, or 79 cents per share, the same period a year ago.

“As expected, Disney’s fiscal third quarter was hit hard by the pandemic as revenue at the parks and studio segments were down 85% and 55%, respectively. While some parks have reopened, we still expect minimal revenue in the fiscal fourth quarter due to limited capacity and surges in cases in local markets,” said Neil Macker, senior equity analyst at Morningstar.

“Disney+ remains a bright spot as the service now has over 60 million subscribers, with launches planned in Northern Europe, Latin America, and now Indonesiabefore end of the calendar year. Despite the COVID-19-related revenue drop, the long-term outlook is positive as Disney continues to expand its direct relationships with consumers around the world. We maintain our wide moat and our $127 fair value estimate,” Macker added.

The most significant impact in the current quarter from the COVID-19 was an approximately $3.5 billion adverse impact on operating income. The Disney+ streaming paying subscribers rose to 60.5 million, from 54.5 million as of May 4.

Executive comments

“Despite the ongoing challenges of the pandemic, we’ve continued to build on the incredible success of Disney+ as we grow our global direct-to-consumer businesses,” Bob Chapek, Chief Executive Officer said in a press release.

“The global reach of our full portfolio of direct-to-consumer services now exceeds an astounding 100 million paid subscriptions – a significant milestone and a reaffirmation of our DTC strategy, which we view as key to the future growth of our company.”

“The majority of businesses worldwide have experienced unprecedented disruption as a result of the pandemic. Most of our businesses were shut down, and this had a huge impact. What we plan to do is invest even more in our content in order to keep that machine cranked and going,” Disney‘s Chapek told analysts, reported by Reuters.

Walt Disney stock forecast

Twenty-one analysts forecast the average price in 12 months at $120.38 with a high forecast of $146.00 and a low forecast of $85.00. The average price target represents a 2.63% increase from the last price of $117.29. From those 21, seven analysts rated ‘Buy’, 12 analysts rated ‘Hold’ and two rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $135 with a high of $165 under a bull scenario and $80 under the worst-case scenario. Several other equity analysts have also updated their stock outlook.

Walt Disney had its target price lifted by analysts at Guggenheim from to $123 $115.00. The firm currently has a “neutral” rating on the entertainment giant’s stock. SunTrust Banks raised their price objective on shares to $160 from $110 and gave the stock a “hold” rating. We think it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator signal a mild selling opportunity.

Analyst comment

“Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long term content monetization opportunities,” said Benjamin Swinburne, equity analyst at Morgan Stanley.

“During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak US Parks revenues in FY22,” he added.

Upside and Downside risks

Accelerated OTT adoption drives higher DTC revenues and faster profitability; Distribution renewals lead to favourable pricing acceleration; Film success drives strong franchise monetization, Morgan Stanley highlighted as upside risks to Disney.

Macro econ weakness; Acceleration in pay-TV cord-cutting remains a risk, given DIS exposure to pay-TV revenues; Franchise fatigue could pressure box office, lower Consumer Products monetization, were the major downside risks.

KKR Posts Flat Q2 Earnings, Assets Under Management Jump 8% to $222 Billion; Target Price $40

KKR & Co Inc, an American global investment company that manages multiple alternative asset classes, reported that its second-quarter after-tax distributable earnings per adjusted remained flat compared to last year and net income surged 36% to $698.6 million, sending its shares up over 2%.

U.S. private equity firm said its after-tax distributable earnings per adjusted share of $0.39 for the second quarter of 2020 are flat compared to the second quarter of 2019. Revenue for the quarter ended June rose to $1,332.0 million compared to $1,179.9 million last year.

The leading global investment firm said its revenues for the six months were $330.5 million compared to $2,367.3 million in Q2 2019. The decrease is primarily driven by mark-to-market net carried interest losses in the current period due to economic and market impacts of COVID-19 and a decrease in transaction fees.

U.S. private equity firm said its new capital raised in the quarter was $16 billion, a record quarterly figure for KKR, driven by fundraising across Asia Private Equity, Asia Infrastructure, Core Plus Real Estate and Dislocation strategies, the company said.

KKR said its assets under management and fee-paying assets under management rose 8% and 6% to $222 billion and $160 billion, respectively, over the last 12 months.

At the time of writing, KKR & Co shares were trading 2% higher at $36.49, up over 25% so far this year.

KKR & Co stock forecast

Thirteen analysts forecast the average price in 12 months at $37.38 with a high forecast of $41.00 and a low forecast of $30.00. The average price target represents a 3.89% increase from the last price of $35.98. From those 13, ten analyst rated ‘Buy’, three analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $35 with a high of $55 under a bull scenario and $15 under the worst-case scenario. Credit Suisse raised its price target to $34 from $33.

Several other equity analysts have also updated their stock outlook. Citigroup raised the target price to $40 from $37.5. KKR & Co had its target price upped by Deutsche Bank to $32 from $31. KWB raised their target price to $41 from $34, Evercore ISI raised its target price to $38 from $34 and Jefferies upped it to $36 from $33.

We think it is good to buy at the current level and target at least $40 in the short-term as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.

Analyst comment

“While we see an attractive organic asset growth trajectory, we also see a recessionary backdrop that raises the risk to KKR’s fee-related earnings growth story if fundraising slows, transaction fees stall, and costs don’t flex as performance fees and investment income decline,” said Michael Cyprys, equity analyst at Morgan Stanley.

“Recessionary backdrop raises the risk of balance sheet marks and limited book value growth that could dampen prior ROE generation of mid-teens to 20%+. C-corp structure (as of July 1, 2018 ) with no K-1s should help expand the investor base over time,” he added.

Upside and Downside risks

Faster deployment with greater opportunity set; Accelerated portfolio exit activity; Stronger fundraising boosted by seeding of new strategies and Better balance sheet marks than feared, Morgan Stanley highlighted as upside risks to KKR & Co.

Deeper recession that leads to weaker investment returns, balance sheet markdowns and delays harvesting of investments pressuring earnings and increased political and regulatory scrutiny of PE business model, were the major downside risks.

Continental Resources Posts a Net Loss of $239.3 Million in Q2 Due to COVID-19 Slowdown

Continental Resources Inc, an American petroleum and natural gas exploration and production company, reported a net loss of $239.3 million in the second quarter as the COVID-19 pandemic cut fuel demand and hammered oil prices, sending its shares down about 1% in after-hours trading.

“Continental Resources’ 2Q showed dramatically lower EBITDAX than expected with oil vols -9%< consensus as more activity was deferred than expected, particularly in the more oil-prone Bakken. Cash flow is effectively deferred into 2H as Continental Resources guides to 10% higher production vs. cons. D&C maintenance capex is guided to $1.2 billion for 2021, roughly $200 million higher than our prior model but still be FCF generative at $40/bbl,” said David Deckelbaum, equity analyst at Cowen.

Continental Resources shares closed 2.02% higher at $17.64 on Monday, still down about 50% since the beginning of 2020.

The Company reported a net loss of $239.3 million, or $0.66 per diluted share, for the quarter ended June 30, 2020. In second-quarter 2020, typically excluded items in aggregate represented a decrease of $16.4 million, or $0.05 per diluted share, in Continental’s reported net loss. Adjusted net loss for the second quarter of 2020 was $255.7 million, or $0.71 per diluted share.

The largest producer in North Dakota’s Bakken basin said during the second quarter, approximately 55% of the company’s operated oil volumes were shut-in, or approximately 7.8 MMBo. In the second quarter of 2020, total energy production averaged 202,815 Boepd, oil production averaged 95,174 Bopd and natural gas production averaged 645.8 MMcfpd.

Executives’ comments

“By deferring volumes in the second quarter of 2020, we expect to generate an estimated $90 million in incremental cash flow from operations at $40 WTI. Combined with our strong asset position and unmatched shareholder alignment, we believe Continental’s equity reflects an uncommon value,” said Bill Berry, Chief Executive Officer.

“While our debt increased modestly due to the pandemic, it has not changed our long-term strategy to continue focusing on debt reduction, with a total debt target of $5.4 billion to $5.5 billion by year-end 2020,” said John Hart, Chief Financial Officer.

Continental Resources stock forecast

Sixteen analysts forecast the average price in 12 months at $16.50 with a high forecast of $23.00 and a low forecast of $12.00. The average price target represents a -6.46% decrease from the last price of $17.64. From those 16, one analyst rated ‘Buy’, ten analysts rated ‘Hold’ and five rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $8 with a high of $19 under a bull scenario and $1 under the worst-case scenario. Cowen and company gave the price target of $13.5.

Several other equity analysts have also updated their stock outlook. Piper Sandler raised target price to $14 from $4. Continental Resources had its target price upped by Citigroup to $18 from $13. The firm currently has a neutral rating on the oil and natural gas company’s stock. TD Securities raised its target price to $14.50 from $13.50 and gave the stock a hold rating.

We think it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator signal a mild selling opportunity.

Analyst comment

“Higher relative exposure to low oil prices. Lack of hedges offers outsized exposure should oil prices recover, though weighs on the cash flow profile in our base case. Low oil prices weigh on net asset valuation. On our commodity price deck of $42.50, CLR’s net asset value suggests intrinsic downside from current trading levels,” said Devin McDermott, equity analyst and commodities strategist at Morgan Stanley.

“Premium not warranted. CLR is trading at a premium to Permian peers, which we believe is unwarranted given its asset base, lack of downside protection, and elevated leverage,” he added.

Clorox Sales Up 22% in June Quarter Amid COVID-19 Panic-Buying; Target Price $256

Clorox, a $9 billion market cap consumer products company, reported that its sales surged 22% in the June quarter, including double-digit growth across all reportable segments as people spent more time cleaning and disinfecting their homes due to the COVID-19 pandemic, sending its shares up over 1% pre-market trading.

Clorox said it delivered earnings of $310 million, or $2.41 diluted EPS in the fourth quarter, which ended June 30, 2020, compared to $241 million, or $1.88 diluted EPS, the same quarter a year earlier, representing a 28% increase in diluted earnings per share. The company’s fourth-quarter gross margin increased 170 basis points to 46.8% from 45.1% in the year-ago quarter.

The board of directors of the Clorox Company also announced that, effective Sept. 14, 2020, Linda Rendle will be promoted to chief executive officer and elected to the company’s board of directors. Benno Dorer will continue serving as the board’s executive chair.

Clorox shares closed 2.27% higher at $236.51 on Friday, increased more than 50% since the beginning of 2020.

Clorox stock forecast

Nine analysts forecast the average price in 12 months at $202.89 with a high forecast of $256.00 and a low forecast of $164.00. The average price target represents a -14.22% decrease from the last price of $236.51. From those nine, three analysts rated ‘Buy’, four analysts rated ‘Hold’ and three rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $193 with a high of $259 under a bull scenario and $145 under the worst-case scenario. Deutsche Bank raised its target price to $223 from $174. Several other equity analysts have also updated their stock outlook. Clorox had its price target raised by investment analysts at JPMorgan Chase & Co. to $235 from $203. BofA Global Research raised price objective to $235 from $215.

We think it is good to buy at the current level with a target of $256 as 100-day Moving Average and 100-200-day MACD Oscillator signal a mild buying opportunity.

Analyst comment

“Structural Long-term Topline Challenges Relative to HPC Peers: While CLX’s near-term topline is likely to be robustly supported by a COVID-related demand boost for cleaning products (we project +17.5% for 2H20e, driven by the 25% of CLX’s business related to cleaning), we believe that longer-term, Clorox remains over-indexed to low-growth product categories, with high exposure to the US,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“Valuation Too High: We view CLX valuation of 20.5x CY21e EV/EBITDA and 30x CY21e P/E as too high (in comparison to PG at 23x CY21e P/E) considering limited LT EPS growth and strategic potential relative to peers post a beneficial COVID impact,” he added.

Upside and Downside Risks

Topline and margin upside from improved pricing, longer-lasting COVID-related demand impact, better than expected volume, declining commodity costs, successful innovation driving recaptured shelf space, consolidation potential, and cost-cutting, Morgan Stanley highlighted as upside risks to Clorox.

Pricing doesn’t take hold, worsening volumes, higher than expected commodity inflation, heightened competition from private label, Morgan Stanley highlighted as downside risks.

Marathon Petroleum to Sell Speedway for $21 billion to 7-Eleven; Target Price $48

Marathon Petroleum, an American petroleum refining, marketing, and transportation company, announced that it has entered into an agreement with 7-Eleven, a wholly-owned indirect subsidiary of Seven & i Holdings, to sell its Speedway gas stations in the United States for $21 billion in cash.

The $21 billion valuation represents a significant value unlock. The 100% cash transaction immediately captures value for MPC shareholders relative to potential valuation risks of other alternatives, the company said.

“We estimate a 17% equity valuation uplift from the transaction with proceeds evenly going to buybacks and debt, though that allocation will not be decided until deal close. Rating and price target under review,” said Jason Gabelman, equity analyst at Cowen.

“We expect MPC to target net debt at <1x mid-cycle EBITDA post-sale. We estimate $2.2 billion mid-cycle refining EBITDA plus $2.2 billion distributions from the MLP. This could mean $7.5 billion of sale proceeds go to debt paydown with the remainder to share buybacks, though one could argue the stable distributions from the MLP mean a higher debt multiple. The equity value change until deal close will impact how many shares will ultimately be repurchased and could be a driver of value creation from this sale.”

The deal is expected to result in after-tax cash proceeds of approximately $16.5 billion. Marathon Petroleum expects to use the proceeds to both repay debt to protect its investment-grade credit profile and return capital to shareholders.

The deal is anticipated to close in the first quarter of next year, subject to customary closing conditions and regulatory approvals. 7-Eleven said the agreement will help bring the total number of stores in the world’s biggest economy and Canada to nearly 14,000.

“We think this is a positive outcome for Marathon Petroleum, with the company receiving a price that’s above expectations (which we peg at ~$17-18 billion pre-tax), crystallizing Speedway value immediately, and bringing in more cash for greater financial flexibility (vs. a spin),” said Benny Wong, equity analyst at Morgan Stanley.

Following this deal, Seven & i shares fell more than 8% to JPY 2937.5 on Monday, the biggest one-day drop since March. Marathon Petroleum shares rose 0.5% to $38.38 in after-hours trading.

Executive comment

“This transaction marks a milestone on the strategic priorities we outlined earlier this year,” Michael J. Hennigan, president and chief executive officer said a press release.

“Our announcement crystalizes the significant value of the Speedway business, creates certainty around value realization and delivers on our commitment to unlock the value of our assets.  At the same time, the establishment of a long-term strategic relationship with 7-Eleven creates opportunities to improve our commercial performance.”

Marathon Petroleum stock forecast

Eleven analysts forecast the average price in 12 months at $47.09 with a high forecast of $61.00 and a low forecast of $38.00. The average price target represents a 23.27% increase from the last price of $38.20. From those 11, nine analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Marathon Petroleum had its price target trimmed by Scotiabank to $48 from $51 The firm currently has a sector outperform rating on the oil and gas company’s stock. Mizuho lowered its price target to $52 from $54. Jefferies cuts target price to $48 from $50.

Several other equity analysts have also updated their stock outlook. Jefferies Financial Group increased their target price on shares of Marathon Petroleum to $48.00 from $50.00. Morgan Stanley target price is $48 with a high of $60 under a bull scenario and $28 under the worst-case scenario. We think it is good to hold for now as 100-day Moving Average signals a mild selling opportunity.

Analyst comment

“Marathon Petroleum offers multiple ways to win. We expect MPC to benefit from the overall decline in crude prices, although we caution refined product demand risk could weigh on valuation. That said, the stock offers idiosyncratic upside as the company is undergoing a strategic review to unlock discounted value, which includes spinning out Speedway,” Morgan Stanley’s Wong said.

“We see a SoTP upside to ~$50/shr. Our SoTP is as follows: we assign $24/shr to retail, $21/shr to midstream, and $24/shr to refining. Adjusted for assets/liabilities, net debt, and synergies, our SoTP suggests a ~$51/shr valuation (>47% upside),” he added.

Upside and Downside Risks

Oil prices stay depressed or decline further; Successful spin-off of Speedway retail fuel business; Potential separation of MPLX and conversion to a C-Corp; Material widening of sweet-sour differentials, Morgan Stanley highlighted as upside risks to Marathon Petroleum.

Demand risk and Sweet-sour differentials narrow materially are two major downside risks.

Positives to Outweigh Negatives, Constructive on Stocks and Other Risk Assets: Fidelity’s Timmer

The direction in which the stock market may head is not as clear as it was at the end of March as some things are working in favour of stocks going up and also against them; however, the positives continue to outweigh the negatives, said Fidelity’s Global Asset Allocation Division director of global macro, Jurrien Timmer, who remains constructive on stocks and other risk assets in general.

So far, the deadly virus has infected more than 18 million people in over 210 countries and killed nearly 700 thousand, wherein the United States is the worst hit. Despite that, stocks continue to act as if we have already beaten the COVID-19, the infectious disease caused by the most recently discovered coronavirus.

The S&P 500 index has gained 50% since hitting a three-year low on March 23 of 2191.86, largely spurred by the Federal Reserve’s massive stimulus and COVID-19 vaccine optimism. However, the year is already halfway through and now it rests with the stock market to prove that it was right about a sharp V-shaped rebound in economic growth.

Since nearly all the country’s economic activity has been suspended since late March amid rising concerns about the spread of the coronavirus disease, federal governments and central banks around the world has spent trillions of dollars trying to help restart the economy and provide some relief to the financial markets.

That stimulus has given the initial impetus to stock as liquidity increased in the debt markets and volatility subdued in several markets. However, the long-term impact of these massive stimuli on the economy and the financial markets is unknown. The S&P 500 ended 1% higher at 3271.12 on Friday, just 122.4 points below its all-time high of 3,393.52 registered on February 19.

The COVID-19 related collapse in earnings will be reversed slowly as the economy re-opens and the recovery matures into expansion in 2021, causing a full recovery in the market to the February highs by the end of this year. The S&P 500 stock index to hit 3,400 By the end of this year and 3,600 next year; earnings to also rebound in 2021, according to Mizuho Securities.

Empirically, big price gains, combined with a large retracement after a fall amid strength in market broadness – a trend that can be seen in the S&P 500 today, has always led to a start of a bull market.

“If there ever was a pivotal moment for making a call on which direction the next 10% or 25% move will be for the S&P 500, now is it, I believe. A few months ago, it seemed to me, it was a relatively simple call, at least based on the study of market history. The stock market typically rallies after the type of historic selling climax experienced in late March, and this time has not been any different so far. But after a 46% rally (which never produced a retest) I think it’s much more of a toss-up now,” said Fidelity’s Global Asset Allocation Division director of global macro, Jurrien Timmer.

On the positives, Fidelity’s Timmer said:

“On the plus side, the economy has bottomed and is recovering, with earnings growth following along. Earnings season is looking good so far, with 85% of companies beating estimates by an average of 15 percentage points. It’s still early days for earnings season with 181 companies reporting, and the differences between estimates and reported earnings are unusually large given how little guidance there has been on the earnings front. The policy response has been another plus, of course. The Fed is keeping its foot on the monetary gas pedal, and more fiscal relief may be on the way as well, as transfer payments threaten to dry up. The promise that the Fed and Treasury (and their global counterparts) can build a bridge across the COVID-19 abyss and on to the other side of this pandemic has been an important factor behind the market’s powerful rally,” Fidelity’s Timmer said.

“The tape (momentum and breadth) has been another plus for the US market. The sentiment picture is another positive. Finally, on the plus side, there appear to be a number of potential positive developments underway in terms of COVID-19 treatments and vaccines. This prospect, along with the Fed, have put a floor under the market, including the more economically sensitive ‘reopen’ sectors,” he added.

On the negatives, Fidelity’s Timmer said

“COVID-19 continues to burn its way through sections of the U.S. and the world, and this is causing some states to delay or reverse their reopening plans. As a result, some of the high-frequency economic indicators are suggesting that the economy is starting to stall out following the initially strong V-shaped recovery. The longer the recovery gets dragged out, the greater the risk that this V could turn into a U or L, and that the liquidity crisis that the Fed was able to mitigate will turn into a solvency crisis not unlike 2008,” Fidelity’s Timmer said.

“The risk is not that the economy will not recover, just that it won’t recover back to its full potential. If the economy recovers, but only to say 70% of what it was pre-COVID, then it will be a long slog back to normal. Right now, the stock market seems to be priced for something quicker. On top of this we have a pivotal election in a few months, bringing with it various potential policy outcomes, which could eventually affect corporate taxes and U.S.-China relations,” he added.

“A well-diversified portfolio of both growth stocks and deep value stocks (especially emerging market and non-US developed), gold and Treasury Inflation-Protected Securities (TIPS), and long-duration bonds. A portfolio similar to this, in my view, is pretty close to an all-weather portfolio,” he concluded.

Facebook Q2 Revenue Surges 11% Despite COVID-19 Crisis; Target Price $300

Facebook Inc, the world’s largest online social network, reported revenue growth of 11% in the second quarter despite ongoing COVID-19 pandemic and advertising boycott on social media platforms, sending its shares up over 6% pre-market on Friday.

The social media conglomerate said its revenue rose to $18.7 billion in the second quarter, with a net income of $5.2 billion, or $1.80 per share.

That is despite several companies, including UnileverStarbucksCoca-ColaHonda and others, have signed for an advertising boycott of social media platforms including Facebook and Twitter in June. Ben & Jerry’s, Verizon Wireless and Eddie Bauer have also joined the race to pause advertisements for July.

Advertisement sales, the primary source of Facebook’s revenue, jumped 10% to $18.3 billion in the second quarter ended June 30. Facebook’s monthly active users increased 12% year-over-year to 2.70 billion and headcount was 52,534, an increase of 32% year-over-year.

“Due to the strong second-quarter numbers, we have increased our projections for this year and 2021 which resulted in a $265 fair value estimate, up from $245. We recommend waiting for a wider margin of safety before investing in this wide-moat and high uncertainty name,” said Ali Mogharabi, senior equity analyst at Morningstar.

Facebook forecasts its full quarter year-over-year ad revenue growth rate for the third quarter of 2020 will be roughly similar to its July performance and total expenses in the range of $52-55 billion this year, narrowed slightly from the prior range of $52-56 billion. This year’s capital expenditures are anticipated at nearly $16 billion.

Facebook’s shares rose over 6% to $248.8 pre-market on Friday. It has risen over 14% so far in 2020, registering its biggest quarterly rise of more than 35% in the June quarter.

“Facebook 2Q20 results beat on Rev/Op Inc./EPS, as user and engagement strength led to an adv. rebound in May/June vs. April’s flattish levels. FB expects 3Q20 adv revenue +10% y/y (vs. our +9% y/y pre-print estimate). The midpoint of FY20 opex guide was lowered; FY20 capex guide is a bit higher as data center construction resumes. We raised estimate, price target to $290 vs. $280, maintain Outperform. FB shares +7% AH,” said John Blackledge, equity analyst at Cowen.

Facebook stock forecast

Thirty analysts forecast the average price in 12 months at $268.31 with a high forecast of $320.00 and a low forecast of $220.00. The average price target represents a 14.42% increase from the last price of $234.50. From those 30, 27 analysts rated ‘Buy’, three analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Just after the earnings result, Credit Suisse upped its target price to $315 from $305; JP Morgan raised its target price to $300 from $290; Cowen and Company raised target price to $290 from $280; RBC raised target price to $290 from $280 and Canaccord Genuity raised it to $290 from $275. Morgan Stanley target price is $285 with a high of $340 under a bull scenario and $200 under the worst-case scenario.

We think it is good to buy at the current level and target at least $300 in the short-term and $400 in a best-case scenario as 100-day Moving Average signals a strong buying opportunity.

Analyst comment

“Monetization Potential: We are positive on FB’s monetization roll-out of Instagram as well as FB’s ability to continue to innovate and improve its monetization (Canvas Ads, Dynamic Ads, video). Combined with the high and growing engagement we see monetization upside going forward, Brian Nowak, equity analyst at Morgan Stanley noted.

“Investing from Position of Strength to Drive Faster Long-Term Growth: We are modelling 11% GAAP opex (excl. one-time items) growth in 2020, implying an incremental $5 billion in opex. Our base case model implies opex per employee moderates in ’20 while FB hiring remains roughly flat on an absolute basis. We believe FB will grow EPS at a 14% CAGR (2019-2022),” he added.

Amazon.com Posts Record Q2 Profit Amid COVID-19 Pandemic; Buy with Target Price of $3500

Amazon.com, the world’s largest online retailer, reported that its profit hit an all-time high in the second quarter as online sales surged amid the COVID-19 pandemic, sending its shares up 5% to $3,204.60 in after-hours trade on Thursday.

The multinational technology company based in Seattle said its net sales rose 40% to $88.9 billion in the second quarter, compared with $63.4 billion a year earlier. The company’s online store sales surged nearly 48% to $45.89 billion its second quarter ended June 30, 2020.

Net income surged to $5.2 billion in the second quarter, or $10.30 per diluted share, from $2.6 billion, or $5.22 per diluted share, in second-quarter 2019. Operating income increased to $5.8 billion in the quarter-end on June 30, from $3.1 billion in the same period last year.

“We are reiterating our BUY rating for Amazon.com, while increasing our price target to$3,800 from $2,625. Our new price target is based on our updated discounted cash flow model, including our long-term adj. EBITDA margin forecast 22.0% (unchanged) versus 15.4% in 2019,” said Tom Forte, senior research analyst at D.A. Davidson.

“COVID-19 has been like injecting Amazon with a growth hormone and is driving sales expansion in ways that even the rollout of one-day Prime shipping was not able to. The company indicated it expects $2 billion of incremental spending to combat COVID-19 in 3Q 2020, down from more than $4 billion in 2Q 2020. As we expected and consistent with the CIO survey led by our colleague, Andrew Nowinski, its cloud computing sales growth decelerated in the quarter to 29.0% from 32.8%,” he added.

Amazon’s shares rose over 70% so far in 2020, registering its biggest quarterly rise of more than 40% in the June quarter.

On the third quarter 2020 guidance, Amazon.com forecast its net sales between $87.0 billion and $93.0 billion, or to grow between 24% and 33% compared with third-quarter 2019 and operating income is anticipated between $2.0 billion and $5.0 billion.

“First, U.S. retail inflecting as Amazon.com drives surging e-commerce, Second, this is global too as bottom-up work leads us to raise int’l retail, Third, expect ad revs upside, Fourth, Amazon.com adding record high-margin dollar growth, creating a path to $95 billion of ’22 EBITDA even with investment. Top pick; Bull case to $4,200,” said Brian Nowak, equity analyst at Morgan Stanley.

Executive comment

“As expected, we spent over $4 billion on incremental COVID-19-related costs in the quarter to help keep employees safe and deliver products to customers in this time of high demand—purchasing personal protective equipment, increasing cleaning of our facilities, following new safety process paths, adding new backup family care benefits, and paying a special thank you bonus of over $500 million to front-line employees and delivery partners,” Jeff Bezos, Amazon founder and CEO said in a press release.

“We’ve created over 175,000 new jobs since March and are in the process of bringing 125,000 of these employees into regular, full-time positions. And third-party sales again grew faster this quarter than Amazon’s first-party sales. Lastly, even in this unpredictable time, we injected significant money into the economy this quarter, investing over $9 billion in capital projects, including fulfilment, transportation, and AWS,” he added.

Amazon.com stock forecast

Thirty-eight analysts forecast the average price in 12 months at $3,242.66 with a high forecast of $3,800.00 and a low forecast of $2,162.00. The average price target represents a 6.25% increase from the last price of $3,051.88. From those 38, 36 analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Just after the earnings result, Keybanc upped its target price to $3,500 from $3,285; Canaccord Genuity raised its target price to $3800 from $3300 and BMO raised target price to $3500 from $2850. Morgan Stanley target price is $3,450 with a high of $4,200 under a bull scenario and $2,200 under the worst-case scenario.

Earlier this month, Suntrust Robinson raised the target price to $3,400 from $2,700, Deutsche Bank raised the target price to $3333 from $2750 and Wedbush raised the target price to $3,050 from $2,750.

We think it is good to buy at the current level and target at least $3,500 in the short-term and $4,000 in a best-case scenario as 100-day Moving Average signals a strong buying opportunity.

Analyst comment

“We went to a Buy from Neutral Rating in June at about 2600 and about 30% upside at the time. The stock has quickly hit our target with strong results. The max PE we use is 65X for conviction. Even though Amazon and other stocks have traded much higher than that, that’s our max. So keeping PE constant and factoring in the EPS upside (even though there’s a ton of upside coming) we’re moving to Neutral now that valuation wise our risk/reward is more even rather than upside,” said Chaim Siegel from Elazar Advisors.

“Retail trends accelerated. AWS revenues slowed but two-quarters of margin acceleration helps our EPS model. We have a big EPS upside if you scroll through our model. Still, at fair value, we’re moving to Neutral Rating.”

General Electric Q2 Loss Widens; Target Price $3 in a Worst-Case Scenario

General Electric Co, a globally diversified technology and financial services company, reported a wider-than-anticipated quarterly loss of $2.2 billion in the second quarter, compared to a loss of $61 million during the same period a year ago, as coronavirus wrecked its aviation business, sending its shares down over 4%.

Following this release, the Boston-based industrial conglomerate’s shares closed down 4.35% at $6.59 on Wednesday, down over 40% year-to-date.

General Electric’s revenue declined 24% year-on-year to $17.7 billion in the second quarter and reported a cash outflow of $2.1 billion from industrial operations. The company also suffered a 44% decline in revenues in its aviation business.

“Narrow-moat-rated General Electric had a difficult second quarter. That was expected. GE’s higher-margin businesses within aviation, healthcare, and gas power were more heavily impacted by coronavirus and were down three times relative to the rest of GE Industrial. While we arguably overly anticipated the revenue pressures, we failed to fully appreciate the magnitude of difficulties management faces in excising fixed costs from GE’s business. To that end, we cut our fair value estimate by about 6.5% to $9.90 (from$10.60 previously), said Joshua Aguilar, equity analyst at Morningstar.

“We now expect adjusted EPS of $0.05 for full-year 2020, $0.47 in 2021, and $0.71 in 2022, as well as industrial free cash flow burn of just over negative $2billion for 2020. Our valuation implies a value of roughly 21 times our 2021 earnings expectations.  Given the unique challenges in the commercial aerospace industry, we encourage investors to look out to next year’s earnings, despite the clear level of macroeconomic uncertainty (which should be appropriately built into an investor’s margin of safety).”

Executive comment

“Our earnings performance was impacted by the ongoing impact of COVID-19 on our businesses, but Industrial free cash flow was better than our expectations and previously communicated range. We made faster progress on elements within our control, including our targeted cost and cash preservation actions,” said GE Chairman and CEO H. Lawrence Culp.

“We’re working through a still-difficult COVID-19 environment, and while it’s too early to predict the trajectory for the recovery of commercial aviation, we continue to plan for a prolonged return to prior levels of activity. Still, based on what we see today and the actions we’ve taken, sequential improvement in earnings and cash in the second half of the year is achievable. We expect to return to positive Industrial free cash flow in 2021. We are accelerating our transformation to make GE stronger and drive long-term, profitable growth.”

General Electric stock forecast

Eleven analysts forecast the average price in 12 months at $8.22 with a high forecast of $11.00 and a low forecast of $5.00. The average price target represents a 24.73% increase from the last price of $6.59. From those 11, five analysts rated ‘Buy’, six analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Deutsche Bank lowered its target price to $6.51 from $7.4, while UBS raised its target price to $8.5 from $8. Morgan Stanley target price is $8 with a high of $13 under a bull scenario and $3 under the worst-case scenario.

We think it is good to sell at the current level and target at least $5 in the short-term and $3 in a worst-case scenario as 100-day Moving Average signals a strong selling opportunity.

Analyst comment

“While we view Aviation as a best-in-class franchise and see long-term upside on shop visits growth, we see a scenario where engines are cannibalized for available flight hours through 2021 and that maintenance gets deferred until 2022,” Joshua Pokrzywinski, equity analyst at Morgan Stanley said.

“Tail risks from Power, pension, and Long-Term Care are declining as 2021 brings a wall of cash and strong improvement in risk/reward. We see a clear path to ~2.0x Industrial Net-Debt/Ebitda in 2020, and as cash flow ramps in 2021 and beyond, we see a broadening set of strategic opportunities,” he added.

Buy PayPal; Target Price $210 in Base-Case and $240 Under Most Bullish Scenario

PayPal Holding Inc, a leading global payments platform, reported that its second-quarter profit surged 86%, the strongest quarterly performance in the company’s history, largely due to a solid rise in e-commerce transactions and new active accounts, sending its shares up about 5% in extended trading after hitting all-time high earlier in the day.

The digital payment service company said its second-quarter net income surged to $1.53 billion, or $1.29 per share, compared to $823 million, or 69 cents per share, the same period a year ago. Revenue jumped 25% to $5.26 billion.

PayPal anticipated the trends to continue and forecast earnings per share for 2020 to rise nearly 25% on more than 20% revenue growth.

“The COVID-19 induced shift to digital is providing significant tailwinds to PayPal’s business –with record 2Q results meaningfully exceeding expectations across the board. Importantly, we believe the increases in key business drivers are sustainable. We expect the stock to be strong on July 30,” said George Mihalos, equity analyst at Cowen.

PayPal said its added 21.3 million NNAs, bringing total active accounts to 346 million accounts, up 21%. The digital payment service company processed $222 billion in payments, up 29% on a spot basis and 30% foreign exchange. Merchant Services volume grew 28% and Venmo processed approximately $37 billion in TPV, growing 52%.

“We remain overweight on PayPal as secular e-com tailwinds, coupled with greater habituation opportunity in a post-COVID-19 environment, should allow the company to grow volumes above the rate of e-com (ex-Amazon). With greater profitability on the horizon, we see an opportunity for compounding 20%+ earnings growth,” said James Faucette, equity analyst at Morgan Stanley.

Executives’ comments

“In the midst of the COVID-19 pandemic, digital payments have become more important and essential than ever. Our record performance in the second quarter – our strongest quarter ever – reaffirms the relevance of PayPal in the unfolding digital future. We’re committed to supporting our consumers and merchants as they work to safely navigate this new reality,” said President and CEO Dan Schulman.

“Our second-quarter performance highlights the benefits of PayPal’s diversification and scale, and our resulting earnings power. We delivered 25% revenue growth on a currency-neutral basis, 49% growth in non-GAAP earnings per share, and generated $2.2 billion in free cash flow,” said CFO and EVP Global Customer Operations John Rainey.

PayPal stock forecast

Several equity research firms upgraded their PayPal’s stock outlook just after the result. RBC raised its target price to $212 from $192; Jefferies raised its target price to $230 from $210; Credit Suisse upped its price objective to $205 from $190; Piper Sandler raised its target price to $228 from $210. Canaccord Genuity raised it to $218 from $190. Morgan Stanley target price is $206 with a high of $239 under a bull scenario and $105 under the worst-case scenario.

We think it is good to buy at the current level and target at least $210 in the short-term and $240 in a best-case scenario as 100-day Moving Average signals a strong buying opportunity.

On the other hand, thirty-three analysts forecast the average price in 12 months at $184.14 with a high forecast of $215.00 and a low forecast of $132.00. The average price target represents a -0.25% decrease from the last price of $184.60. From those 33, 27 analysts rated ‘Buy’, six analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Analysts’ comments

“PayPal, one of our top OWs, is the preferred digital wallet option for non-Amazon merchants, as evidenced by its online acceptance lead vs. other digital wallets and industry-low attrition. PayPal’s efforts to offer a seamless and secure checkout experience ties its TPV growth rate with the secular growth of eCommerce,” Morgan Stanley’s Faucette.

“As consumers increase their habitual use of PayPal, the company should grow its TPV at or above the rate of eCommerce (ex-Amazon). Venmo and partnership monetization should offer additional TPV and revenue growth, while operating leverage from its scale support 20%+ earnings growth over the medium term, despite near-term headwinds from eBay and macro impacts,” he added.

“Estimates move higher for ’20 and ’21; PT to $230. We raise our estimates to account for the momentum in the business and the updated outlook for 3Q/FY20. FY20 EPS goes to $3.68 (from $3.24) and our 2021 EPS moves to $4.34. PT increases to $230, reflecting better growth and wider margins; equal to 53x our ’21 estimate,” said John Hecht, equity analyst at Jefferies.

Upside and Downside Risks

Faster eCommerce (ex-Amazon) growth; Greater usage in existing markets and greater adoption in new markets; Faster margin expansion; Accretive acquisitions; Traction in Venmo monetization/new partnerships, Morgan Stanley highlighted as upside risks to PayPal.

A slowdown of eCommerce growth (ex-Amazon); Underperformance at eBay or faster conversion of volumes to eBay’s managed platform; Other market players with leads in offline could gain traction online, Morgan Stanley highlighted as downside risks.

Anthem Q2 Profit Doubles Amid COVID-19 Slowdown; Buy With Target Price of $310

Anthem Inc, one of the largest health benefits companies in the United States, reported that its second-quarter profit almost doubled as the ongoing COVID-19 pandemic halted less urgent health care procedures.

U.S. health insurer said its second-quarter net income climbed to $2.28 billion, or $8.91a share, compared to $1.14 billion, or $4.36 per share same period a year ago. Total revenue climbed to $29.3 billion from $25.47 billion. Adjusted net income was $9.20 per share.

The benefit expense ratio was 77.9% in the second quarter ended June 30, a decrease of 880 basis points from 86.7% in the prior-year quarter. The decrease was primarily driven by the deferral of healthcare utilization due to the COVID-19 pandemic, and to a lesser extent, the return of the health insurance tax in 2020, the company said.

Anthem stock last closed 0.5% higher at $265.23, recovered nearly 50% from March 23 low of $171.33.

“Why we are neutral longer-term: At a high level, we believe managed care organizations (MCOs) could trade sideways over the next few months. We think four factors could keep a lid on near-term stock performance 1) don’t expect investors will get paid for very high 2Q results, 2) we remain guarded that Commercial Group disenrollment could accelerate, 3) we see trading risk around a Phase 4 stimulus bill, and 4) we see election risk where Biden’s surge in the polls brings with it a louder discussion of a corporate tax rate hike to 28% from 21% ~negatively impacting managed care organization EPS by 8-9%. HOLD, Price Target $281 ~ 11.6x PE,” noted analysts Jefferies.

Anthem stock forecast

Eleven analysts forecast the average price in 12 months at $337.82 with a high forecast of $423.00 and a low forecast of $281.00. The average price target represents a 27.37% increase from the last price of $265.23. From those 11, eight analysts rated ‘Buy’, three analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $423 with a high of $533 under a bull scenario and $245 under the worst-case scenario. SVB Leerink raised its target price to $325; Jefferies raised its target price to $281 from $271; Stephens upped its price objective to $330 from $310. In May, Suntrust Robinson raised its target price to $320 from $280.

We think it is good to buy at the current level and target at least $310 in the short-term and $420 in a best-case scenario as 100-day Moving Average signals a buying opportunity.

Analyst comment

“Anthem is the largest commercial player with 17% market share and second-largest player in Medicaid and exchanges. Under the helm of new CEO Gail Boudreaux Anthem has been focused on improving its commercial business profitability and gaining share in Medicare Advantage marketplace (from current 5%),” noted Ricky Goldwasser, equity analyst at Morgan Stanley.

“Insourcing of PBM is accretive to earnings and positions Anthem to more effectively compete in the marketplace,” she added.

Visa Q3 Profit Plunges 23% as Consumers Cut Spending Amid COVID-19 Crisis; Target Price $210

Visa Inc, the world’s largest card payment company, reported that its quarterly profit plunged 23% in the third quarter of fiscal 2020 as large-scale layoffs due to the lockdowns, aimed at limiting the spread of coronavirus, dented consumer spending.

The global technology payment company, which has a presence in more than 200 countries, said in the quarter ended June 30, its net income fell to $2.4 billion, or $1.07 per share, compared to $3.10 billion, or $1.37 per share, seen a year earlier.

Just after the result, Visa shares fell about 2% after market hours, closed 0.1% lower at $196.74 on Tuesday. So far, the deadly virus has infected more than 16.57 million people in 210 countries and killed over 650 thousand.

“Visa’s F3Q20 results were slightly ahead of our expectations, but positive US volume trends seem to flatten vs. late June as we had feared. Cross-border volumes have stabilized but remain under pressure – a trend we expect will continue through FY20. We expect the stock to be range-bound near term,” said George Mihalos, equity analyst at Cowen.

Visa’s payments volume for the three months ended June 30, 2020, decreased 10% over the prior year on a constant-dollar basis and total processed transactions, which represent transactions processed by Visa, were 30.7 billion, a 13% decrease over the prior year.

The company said its cross-border volume excluding transactions within Europe, which drive their international transaction revenues, declined 47% on a constant-dollar basis. Including cross-border transactions within Europe, the decline on a constant-dollar basis was 37% in the quarter. Net revenues fell 17% to $4.8 billion.

“Domestic recovery appears to have stalled and no sign of a bounce in cross-border in updated volumes through July 21st. The uptrend in domestic volumes has stalled July MTD, with growth rates showing modest deceleration relative to the start of the month likely the result of recently tightened COVID-related restrictions in several key states,” said Trevor Williams, equity analyst at Jefferies, who gave a price target of $185.

“Interestingly, while card-present growth has remained largely flat relative to 2H June, card not present growth (ex-Travel) has decelerated modestly from early in July, though as stayed in a fairly consistent band of +30-40% y/y growth since early June. Cross-border growth remains depressed excluding intra-Europe transactions, down more than 40% y/y MTD in July, which marks a slight deceleration relative to trends in early June.”

Executive comment

“We continue to focus on managing our business for the medium and long-term despite the challenges of the global pandemic. In the quarter, we were pleased to see strong growth in areas that are strategically important, including eCommerce, tap to pay, new flows and value-added services. We remain committed to our strategy and are thoughtfully investing to fuel Visa’s future performance,” said Chairman and Chief Executive Officer Alfred F. Kelly.

Visa stock forecast

Nineteen analysts forecast the average price in 12 months at $211.58 with a high forecast of $247.00 and a low forecast of $188.00. The average price target represents a 7.54% increase from the last price of $196.74. From those 19, 17 analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $203 with a high of $277 under a bull scenario and $137 under the worst-case scenario. Evercore ISI raised its target price to $247 from $226; Piper Sandler raised the price target to $206 from $200 and Compass Point raised its target price to $230 from $200.

Several other equity researches have also recently upgraded their stock outlook. Wells Fargo raised the target price to $220 from $205, Citigroup raised the target price to $227 from $223, JP Morgan raised it to $203 from $182. Barclays raised it to $220 from $209 and RBC raised it to $247 from $212.

We think it is good to buy at the current level and target at least $210 in the short-term and $250 in a best-case scenario as 50-day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity.

Analyst comment

“Visa is on of our preferred stocks, as it is a key beneficiary of resilient global consumer spend growth, the ongoing shift from cash to electronic payments, and broadening merchant acceptance. Global Personal Consumption Expenditure and secular growth drivers should support high-single digit volume growth and low double-digit revenue growth in the near-to-medium term,” noted James Faucette, equity analyst at Morgan Stanley.

“The threat of disruption from new entrants is fairly low given Visa’s competitive cost structure and moat. Continued investment in longer-term initiatives (faster payments, P2P, B2B) and partnerships continue to increase its TAM and offer an opportunity for compounding double-digit earnings growth for the foreseeable future,” he added.

McDonald’s Q2 Global Sales Slump Nearly 24% as COVID-19 Pandemic Bites; Target Price $209

McDonald’s Corp, one of the world’s largest American fast-food chain, reported that its global sales plunged about 24% in the second quarter as restaurants were closed due to the COVID-19 pandemic, sending its shares down about 2% pre-market.

So far, the deadly virus has infected more than 16.57 million people in 210 countries and killed over 650 thousand, wherein the United States is the worst hit, leading the global foodservice retailer to halt reopening of its U.S. restaurants for 21 days early this month.

The leading global foodservice retailer, McDonald’s has over 36000 restaurants in more than 100 countries around the world, said its second-quarter same-store sales worldwide plunged about 24% and declined nearly 9% in the United States, where it operates more than a third of its restaurants.

The company’s revenue fell 30.5% to $3.76 billion, net income fell 68% to $483.8 million. McDonald’s said about Substantially all restaurants were operating drive-thru, delivery, and/or take-away with a limited menu.

Just after the announcement, McDonald’s shares dipped about 2% to $198.50.

Executive comment

“Our strong drive-thru presence and the investments we’ve made in delivery and digital over the past few years have served us well through these uncertain times,” said chief executive officer Chris Kempczinski said.

“We saw continued improvement in our results throughout the second quarter as markets reopened around the world. We’re confident that the strong foundation we’ve built, combined with the unique advantages of our System, position us well to continue operating successfully during this pandemic and emerge even stronger.”

McDonald’s stock forecast

Twenty-four analysts forecast the average price in 12 months at $209.09 with a high forecast of $230.00 and a low forecast of $178.00. The average price target represents a 3.90% increase from the last price of $201.25. From those 24, 20 analysts rated ‘Buy’, four analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $207 with a high of $255 under a bull scenario and $143 under the worst-case scenario. Evercore ISI raised its target price to $210 from $200; Keybanc raised the price target to $215 from $200 while Independent Research lowered its target price to $190 from $195; rated ‘Hold’.

Several other equity researches have also recently upgraded their stock outlook. BMO raised the target price to $220 from $215, Suntrust Robinson raised the target price to $208 from $195, Jefferies raised it to $220 from $208. Cowen and Company raised it to $210 from $208, Piper Sandler raised the target price to $190 from $170 and Stifel raised it to $182 from $175.

Analyst comment

“Best-in-class asset quality, scale in advertising, other areas = structural advantages. Experience of Future (EOTF) reimages enable digital and delivery sales. MCD spends materially more on reimaging than average peers. ROIC rising, capex to fall, and FCF and return of capital to accelerate post ’19, after accounting for COVID-19 disruption,” noted John Glass, equity analyst at Morgan Stanley.

“Refranchising to 95% mostly complete, with operating margins in the mid-40% range, improved FCF and lower earnings volatility. Defensive stock, both in terms of fundamentals and low stock price volatility; better positioned for uncertain demand environment,” he added.

Virtus Investment Partners’ 2021 EBITDA Estimate Increased to $253 Million; Target Price $159: Morgan Stanley

Virtus Investment Partners Inc’s 2021 earnings before interest, taxes, depreciation and amortization (EBITDA) forecast was increased by 40% to $253 million on the back of strong second-quarter earnings and recently announced a partnership with Allianz Global Investors, said Morgan Stanley analysts, who also upgraded their price target to $159 from $133.

Early this month, Virtus, a financial advisory and consulting firm, which offers mutual, closed-end funds, managed accounts and related services, announced a strategic partnership with Allianz Global Investors (AGI) that will add $24 billion of assets, which is expected to close by year-end.

“Acquisitions in recent years (SGA and Ridgeworth) bolster scale but lack of consistent M&A execution and inconsistent organic growth likely weigh on the valuation multiple Recent partnership with AGI highly accretive and no upfront cash payment minimizes downside risks, but outflows likely worsen the Pro-forma flow trajectory,” Michael J. Cyprys, equity analyst at Morgan Stanley said.

“Top 5 strategies represent 50% of mutual fund AUM. Relatively smaller AUM size at $109 billion (as of June 30, 2020) relative to other multi-affiliate managers. Combined this leaves Virtus prone to concentration risk and outsized exposure to idiosyncratic events. High retail skew (currently 63% of AUM) could mute improving flows given growth challenges in the channel,” Cyprys added.

Five analysts forecast the average price in 12 months at $149.40 with a high forecast of $185.00 and a low forecast of $105.00. The average price target represents a 7.77% increase from the last price of $138.63. From those five, three analysts rated ‘Buy’, two rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

On Monday, Virtus Investment Partners shares closed nearly 4% higher at $138.63, up about 14% so far this year.

Morgan Stanley target price is $219 under a bull scenario and $54 under the worst-case scenario. Several other equity researches have also recently upgraded their stock outlook.

The financial advisory and consulting firm, Virtus Investment Partners, had its price objective upped by analysts at Barclays to $170 from $150. Barclays ‘s target price would indicate a potential upside of 27.08% from the stock’s previous close. Bank of America raised its price target to $154.00 from $140.00 and gave the company a “buy” rating.

“Balanced risk/reward profile (+58% bull/-61% bear) keeps us Equal-weight with $159 price target for +15% upside. PT increase of +20% can be attributed to 40% uplift to EBITDA, partially offset by higher leverage as VRTS is assuming $250 million of contingent liability (based on our assumptions of a purchase multiple 2.75x revenues). Our price target is based on a target multiple of 5.8x EV/2021e EBITDA, which is a slight -3% degradation from 6.0x previously,” Morgan Stanley’s Cyprys added.

“While we view the AGI partnership as meaningfully earnings accretive, we note that outflows from AGI funds (-9% annualized outflow year-to-date and -6% in 2019) are likely to weigh on VRTS’s organic growth trajectory (VRTS inflected strongly to +11% org growth in 2Q20). Further, the acquisition could also accelerate fee rate degradation over time, as AGI funds add to the existing mix. We look for stabilizing/improving outflows as AGI leverages VRTS’s strong U.S. retail distribution to get more positive.”

Albertsons Q1 Sales Jump Over 25%; Buy With Target Price of $24

Albertsons Cos Inc, an American grocery company founded and headquartered in Idaho, reported that its sales jumped over 25% in the first quarter as digital sales surged 276% largely driven by home deliveries during the coronavirus pandemic, sending its shares up over 2% pre-market.

Sales and other revenue increased 21.4% to $22.8 billion during the 16 weeks in the first quarter of fiscal 2020, compared to $18.7 billion a year earlier. That increase was driven by the company’s 26.5% increase in identical sales, which benefited from a 276% jump in digital sales and an increase in store sales, both largely driven by the COVID-19 pandemic, the U.S. grocer said.

Gross profit margin increased to 29.8% during the first quarter of fiscal 2020 compared to 28.0% during the first quarter of fiscal 2019. Net income was $586.2 million during the first quarter of fiscal 2020 compared to net income of $49.0 million during the first quarter of fiscal 2019.

At the time of writing, Albertsons shares were trading 2% higher at $16.11, up nearly 4% since it began trading publicly on June 26, 2020.

Executive comment

“We generated strong financial performance in the first quarter, including robust cash flow and enhanced liquidity, which support our continued investment to benefit our associates, customers, communities and stockholders,” said Chief Executive Officer Vivek Sankaran.

“We have accelerated our digital and e-commerce strategy to adapt to market conditions.”

Albertsons stock forecast

Sixteen analysts forecast the average price in 12 months at $19.57 with a high forecast of $26.00 and a low forecast of $15.00. The average price target represents a 21.48% increase from the last price of $16.11. From those 16, 13 analysts rated ‘Buy’, three rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $15 with a high of $24 under a bull scenario and $6 under the worst-case scenario. Several other equity researches have also recently upgraded their stock outlook for Albertsons. BofA Global Research initiates with buy, $22 price objective; BMO initiates with outperform rating and $18 target price.

Telsey Advisory Group initiates with outperform, $26 target price; Deutsche Bank initiates coverage with buy rating and $21 price target and JP Morgan initiates with overweight rating and $19 target price. We think it is good to buy at the current level and target at least $24 in the short-term.

Analyst view

“Albertsons is one of the largest conventional food retailers with entrenched positioning in its markets & recently stabilized performance post-Safeway. We lean cautious on the outlook as ACI is more of a #2 player, consumer perception is mixed, studies show pricing gaps vs. peers, and we anticipate margin pressure from e-comm and intensifying competition,” said Simeon Gutman equity analyst at Morgan Stanley.

“The stock is discounting stable market share (~2.25% IDs), limited margin expansion, modest EPS growth (+MSD%), and its material pension exposure. We agree with these assumptions. COVID-19 disruption is driving a meaningful acceleration in ID sales & profitability in 2020. ACI is well positioned to benefit from secular share shift to Food at Home.”

Upside and Downside Risks

COVID-19 provides meaningful ID sales/EBITDA uplift with secular Food at Home shift; Sales initiatives and improving value perception drive share gains; Margins expand due to productivity initiatives driving MSD/HSD EBITDA/EPS growth, Morgan Stanley highlighted as upside risks to Albertsons.

COVID-19 uplifts fade by 2021 with no longer-term uplift; ACI cedes share and initiatives fail to improve loyalty; Margins contract driven by competition and e-comm, Morgan Stanley highlighted as downside risks.

Moderna Receives Additional $472 Million from BARDA for COVID-19 Vaccine; Target Price $90

Moderna Inc, an American biotech company focused on drug discovery, said that the U.S. government’s Biomedical Advanced Research and Development Authority (BARDA) has committed an additional $472 million in funding to support scaling up of manufacturing and clinical development of its novel coronavirus vaccine.

That additional commitment would support late-stage clinical development including the expanded Phase 3 study of the Company’s mRNA vaccine candidate (mRNA-1273) against COVID-19.

The total value of the award is now approximately $955 million from the BARDA, including $483 million which the U.S.-based drugmaker received in April.

Moderna said it remains on track to be able to deliver approximately 500 million doses per year and possibly up to 1 billion doses per year, beginning in 2021 from the company’s internal U.S. manufacturing site and strategic collaboration with Lonza.

Britain’s AstraZeneca Plc, Novavax Inc and Pfizer Inc, have also received funding from BARDA to support the rapid development of vaccines to prevent COVID‑19.

Executive comment

“Encouraged by the Phase 1 data, we believe that our mRNA vaccine may aid in addressing the COVID-19 pandemic and preventing future outbreaks. We thank BARDA for this continued commitment to mRNA-1273, our vaccine candidate against COVID-19,” said Chief Executive Officer Stéphane Bancel.

Moderna stock forecast

Seventeen analysts forecast the average price in 12 months at $91.87 with a high forecast of $134.00 and a low forecast of $65.00. The average price target represents a 25.49% increase from the last price of $73.21. From those 17, 13 analysts rated ‘Buy’, four rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $90 with a high of $279 under a bull scenario and $7 under the worst-case scenario. Several other equity researches have also recently upgraded their stock outlook for Moderna. SVB Leerink initiates with market perform, $65 price target; JP Morgan lowered its rating to ‘Neutral’ from ‘Overweight’, raised target price to $89 from $60 and downgraded shares on valuation. Moderna had its target price raised by Piper Sandler to $134 from $100.

We think it is good to buy at the current level and target at least $90 in the short-term and $112 in a bull-case scenario as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“We are Overweight Moderna. The company has taken an industrialized approach to developing mRNA based therapeutics and has rapidly generated a broad pipeline of 21 programs, 11 of which have entered clinical development. We believe Moderna’s mRNA drug development platform is more diversified and scalable compared with competitors, and is validated through broad partnerships with Merck and AstraZeneca,” said Matthew Harrison equity analyst at Morgan Stanley.

“The COVID-19 vaccine programs provide a significant acceleration of the path to commercialization and validation of the Moderna platform. We are positive on the early data and look forward to the progress. We see vaccines and rare diseases as the key valuation drivers of the company. We derive our PT from a DCF based on our forecasts of Moderna’s mRNA based product candidates through 2040E. We use a 12.5% discount rate and a 2% terminal growth rate.

Upside and Downside Risks

Meeting timelines and continuing to expand a diversified pipeline; Supporting clinical data across several modalities; Launch vaccines in multiple indications including CMV and COVID-19, Morgan Stanley highlighted as upside risks to Moderna.

Efficacy and/or safety concerns cause investors to write-off subsequent readouts across additional modalities. Delays in Moderna’s ability to generate significant clinical data. Stronger than expected competitor data, Morgan Stanley highlighted as downside risks.

Apple to Outperform Q2 Estimates; Forecast Revenue and EPS of $55.1 Billion and $2.18: Morgan Stanley

Apple Inc, the world’s largest technology company by revenue, could outperform its second-quarter earning result consensus estimates on the back of better-than-expected hardware sell-in, according to Morgan Stanley analysts, who also forecast revenue and EPS of $55.1 billion and $2.18, respectively.

The California-based technology giant will release its second-quarter earnings result on Thursday, July 30, after the market close.

“June quarter results likely to outperform consensus estimates on the back of better than expected hardware sell-in. We currently forecast June quarter revenue and EPS of $55.1B and $2.18, 7% and 8% above current consensus estimates, respectively, on the back of stronger than expected intra-quarter data points across nearly all Product segments. We currently forecast $24.1B and $4.9B of iPhone and iPad revenue, respectively, in the June quarter vs. consensus of $22.4B and $4.9B,” Katy L. Huberty, equity analyst at Morgan Stanley said.

“We currently forecast June quarter Services revenue of $13.4B (+16.7% Y/Y), 1% above the consensus estimate of $13.2B (+15% Y/Y) and nearly 5 points higher than our original June quarter Services forecast largely due to record results from the App Store, which we estimate grew 30% Y/Y in the June quarter, the fastest quarterly growth in 3 years, as consumers remained at home for much of the quarte,” Huberty added.

Thirty-three analysts forecast the average price in 12 months at $367.45 with a high forecast of $450.00 and a low forecast of $250.00. The average price target represents a -0.81% decrease from the last price of $370.46. From those 33, 25 analysts rated ‘Buy’, six rated ‘Hold’ and two rated ‘Sell’, according to Tipranks.

Apple had its price objective upped by stock analysts at Wells Fargo to $420 from $400. Canaccord Genuity raised the target price to $444 from $310; BofA Global Research raised price objective to $410 from $390 and Needham raised its target price to $450 from $350. We also expect it is good to buy at the current level and target at least $420 as 50-day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity.

“Our $419 price target is sum-of-the-parts driven. We apply a 5.0x EV/Sales multiple on Apple’s mature hardware business (iPhone, iPad and Mac), a 4.9x EV/Sales multiple on Apple’s ‘Wearables, Home and Accessories’ business and a 7.7x EV/Sales multiple on Apple’s Services business, in-line with their respective peer groups. This results in an implied 5.5x target FY21 EV/Sales multiple and a 26.5x target FY21 P/E multiple,” Morgan Stanley’s Huberty added.

Positive FY21 consensus estimate revisions from 5G iPhone cycle; New product launches outperform expectations; Services growth accelerates more than we forecast and pent-up demand, Morgan Stanley highlighted as upside risks to Apple.

Weak global consumer spending on the heels of COVID-19 pandemic; Slower than expected ramp in new 5G iPhone production delays fall iPhone launch; Stiffer smartphone competition; Increased regulation, particularly around App Store, Morgan Stanley highlighted as downside risks.