FactSet Tops Q1 Earnings and Revenue Estimates; Reaffirms 2021 Outlook

FactSet, which provides financial analytics and services to the investment community worldwide, reported better-than-expected earnings in the first quarter, largely driven by higher sales of analytics and content & technology solutions.

The Norwalk-based software company said its earnings per share jumped over 11% over the past year to $2.88, beating market expectations of $2.75. FactSet revenue climbed about 6% to $388.2 million from the same period a year earlier, beating the Wall Street estimate of $387.3 million.

“Over the next five years, we expect FactSet to organically grow revenue in the mid-single-digit percent range. We expect growth in the firm’s analytics software offerings, data feeds, and wealth management to be faster than the firm’s average. We expect FactSet’s core desktop revenue to be flat or grow slightly as pressures on active asset manager budgets remain,” said Rajiv Bhatia, equity analyst at Morningstar.

“FactSet’s GAAP operating margin in fiscal 2019 was 30.5% and in 2020 fell to 29.4% due to non-recurring items. Looking ahead we expect operating margins in fiscal 2021 to be similar to the 30.5% seen in fiscal 2019 and improve to the 34%-35% range within five years. With FactSet’s strong cash position, we expect the company to look at acquisitions but valuations could prove challenging. Historically, FactSet’s operating margins have declined from acquisitions as the companies FactSet acquires are typically sub-scale,” Bhatia added.

FactSet forecasts organic ASV plus professional services to increase between $55 million and $85 million over fiscal 2020, GAAP revenue in the range of $1,570 million and $1,585 million and GAAP operating margin is expected to be in the range of 29.5% and 30.5%. The research company expects GAAP diluted EPS between $10.05 and $10.45 and adjusted diluted EPS in the range of $10.75 and $11.15.

FactSet shares closed 4.14% lower at $332.65 on Monday. However, the stock is up over 20% so far this year.

“What to do with FactSet shares: Hold on to what you own if you believe Annual Subscription Value (ASV) guidance is conservative and that the company can deliver on its multi-year investment initiative. Although execution at the company has been very good so far, we remain neutral due to valuation,” said Hamzah Mazari, equity analyst at Jefferies.

FactSet Stock Price Forecast

Nine analysts who offered stock ratings for FactSet Research in the last 3 months forecast the average price in 12 months at $313.57 with a high forecast of $350.00 and a low forecast of $269.00. The average price target represents a -5.74% decrease from the last price of $332.65. From those nine equity analysts, none rated “Buy”, five rated “Hold” and four rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $278 with a high of $413 under a bull scenario and $159 under the worst-case scenario. The firm currently has an “Underweight” rating on the financial data and software company’s stock.

“Annual Subscription Value (ASV) modestly decelerated in the quarter as some deals were pushed out. The guidance was maintained, which calls for a continued deceleration of ASV for F’21, as well as only 1% EPS growth at the midpoint. We raise our price target to $278 but remain UW as valuation is elevated on a growth-adjusted basis,” noted Toni Kaplan, equity analyst at Morgan Stanley.

Several other analysts have also recently commented on the stock. UBS raised the stock price forecast to $336 from $313. Deutsche Bank upped their price objective to $315 from $293 and gave the stock a “hold” rating in September. Wells Fargo & Company upped their price objective to $310 from $280 and gave the stock an “equal weight” rating. At last, Raymond James reaffirmed a “sell” rating on shares of FactSet Research Systems.

Analyst Comments

“We believe FactSet’s (FDS) multiple is at risk given our view that revenue growth does not accelerate and margin expansion stalls. We prefer other stocks in our Analytics coverage that offer better value on a growth-adjusted basis,” Morgan Stanley’s Kaplan.

“While we view FDS as being one of the least exposed to COVID-19 out of our Business Services coverage, market conditions could be challenged, leading to lower-than-normal growth. We assume a CAGR (’19-’24E) of 5% for revenues with adj. operating margins of 33% in 2024.”

Check out FX Empire’s earnings calendar

Tesla Shares Slump About 5% Ahead of Much-Anticipated Debuts into S&P 500

California-based high-performance electric vehicles manufacturer Tesla shares slumped about 5% ahead of the much-anticipated debut on the S&P 500 as fast-spreading newly mutated coronavirus in the UK dampened hopes of a quick recovery for the global economy.

Tesla shares slumped about 5% to $660.70 in pre-market trading on Monday. However, the stock is up about 700% so far this year.

“According to Silverblatt, Tesla’s addition to the S&P 500 led index-tracking funds to buy $90.3 billion of shares by the end of Friday’s session so that their portfolios reflected the index. The change is effective prior to the open of trading on Monday, S&P said earlier in December, and Tesla is replacing Apartment Investment and Management Co,” Reuters reported.

“Silverblatt said that for every $11.11 Tesla moves, the S&P 500 changes 1 point, while the S&P’s 2021 price/earnings ratio will rise to 22.6 from 22.3. Silverblatt added that the dividend yield for the S&P after Tesla’s inclusion would fall to 1.53% from 1.56%,” Reuters added.

Tesla Stock Price Forecast

Twenty-five analysts who offered stock ratings for Tesla in the last 3 months forecast the average price in 12 months at $417.76 with a high forecast of $750.00 and a low forecast of $60.00. The average price target represents a -36.54% decrease from the last price of $658.34. From those 25 equity analysts, seven rated “Buy”, eleven rated “Hold” and even rated “Sell”, according to Tipranks.

In November, Morgan Stanley gave a base target price of $540 with a high of $1,068 under a bull scenario and $250 under the worst-case scenario. The firm currently has an “Overweight” rating on the electric vehicle producer’s stock.

Several other analysts have also recently commented on the stock. Tesla had its target price increased by Barclays from $125 to $230 on Thursday. Wedbush raised the stock price forecast to $715 from $560.

Analyst Comments

“A double-fly-wheel. We believe Tesla can leverage its cost leadership in EVs to aggressively expand its user base… over time generating a higher % of revenue from recurring/high-margin services revenue. Services drives the upside. We forecast Tesla’s network services EBITDA as a % of total TSLA EBITDA to reach 12% by 2025, 19% by 2030 and 38% by 2040. Tesla Service revenue includes automated driving, infotainment, upgrades, supercharging, maintenance, telematics, etc,” noted Adam Jonas, equity analyst at Morgan Stanley.

“Valuation supportive vs. tech. Including Tesla Network Services, Energy & Insurance to our core auto forecasts, at $540 Tesla trades at 24x EV/EBITDA in 2025 and 5x 2025 sales. Reasonable vs. software & tech hardware comps,” Jonas added.

Nike Spikes to Record High on Strong Earnings Beat; Buy with Target Price $176

The world’s largest athletic footwear and apparel seller Nike’s shares surged to an all-time high in extended trading on Friday after the company reported better-than-expected earnings in the second quarter and upgraded their full-year sales forecast.

Nike said its revenue increased nearly 9% to $11.24 billion in the second quarter ended November 30, beating analysts’ consensus of $10.56 billion. The footwear company said its profit jumped 12% to $1.25 billion, or 78 cents per share, higher than the Wall Street estimate of 63 cents per share. The company’s digital sales jumped more than 80%.

“We attribute Nike’s ability to navigate the pandemic well to its large owned and third-party e-commerce (now more than 30% of sales), strong demand for athletic gear during the virus, and the global strength of its brand, the source of our wide-moat rating on the firm. We expect to raise our per share fair value estimate of $107 on Nike by a mid-single-digit percentage but rate its shares, which have soared to all-time highs, as overvalued,” said David Swartz, equity analyst at Morningstar.

Following this release, Nike’ shares jumped about 6% to an all-time high of $144.95 in extended trading on Friday; the stock is up over 35% so far this year.

“While Nike’s outlook for the holiday season and the rest of its fiscal year is clouded by the pandemic, its guidance for fiscal 2021 revenue growth in the low teens is in-line with our prior 13% forecast. Moreover, the apparent efficacy of the vaccines provides hope that store disruptions will abate within a few months,” Morningstar’s Swartz added.

Nike Stock Price Forecast

Twenty-eight analysts forecast the average price in 12 months at $151.61 with a high forecast of $174.00 and a low forecast of $115.00. The average price target represents a 10.44% increase from the last price of $137.28. All those 28 analysts, 26 rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $176 with a high of $325 under a bull-case scenario and $85 under the worst-case scenario. The firm currently has an “Overweight” rating on the athletic footwear and apparel company’s stock.

“Reiterate bullish outlook on Nike’s faster 1H21 snapback & mgmt’s accelerated L-T plan. Valuation exceeds historical highs, but out-year revenue forecasts maybe $1-3B+ too low, implying underestimated earnings power. Positive EPS revisions could continue to drive the stock higher; lift PT to $176,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. Barclays raised the target price to $174 from $150. BTIG upped the stock price forecast to $162 from $152. Jefferies increased the price objective to $140 from $117. Credit Suisse raised the target price to $162 from $160. JP Morgan upped the target price to $170 from $146. Piper Sandler increased the stock price forecast to $168 from $153.

We think it is good to buy at the current level and target $176 as 100-day Moving Average, and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst Comments

“Nike is in the early innings of transition from a wholesaler to a DTC brand. Success would make it one of few to benefit from the shift to eComm (~15% of ‘20 sales). Its DTC business (~33% of ‘20 sales) should ignite its next phase of margin-accretive revenue growth, driving a 28%+ 5Y EPS CAGR,” Morgan Stanley’s Kimberly Greenberger added.

“Nike also stands to benefit from advancing global consumer activewear demand (due to the WFH-induced preference for comfort-oriented apparel/footwear and increased focus on health & wellness). Nike’s strategic portfolio decisions, tech investments, and supply chain innovation also creates LT competitive advantages, and are further supported by an industry-leading balance sheet.”

Upside and Downside Risks

Risks to Upside: 1) Faster global activewear market growth. 2) Faster 2H20 wholesale restart. 3) DTC strategy acceleration Market share gains. 4) Supply chain innovation. 5) Sustainable NA segment growth. 6) Better-than-feared COVID-19 impact/potential recession – highlighted by Morgan Stanley.

Risks to Downside: 1) Tariff risk. 2) Competitive risk (ADS). 3) China/international macroeconomic slowdown. 4) NA declines. 5) FX headwinds. 6) ESG mismanagement. 7) Worse-than-feared COVID-19 impact/potential recession.

Check out FX Empire’s earnings calendar

Earnings to Watch in Holiday-Shortened Week: Heico, Carnival, CarMax, Cintas and Weibo in Focus

Monday (December 21)

IN THE SPOTLIGHT: HEICO, CARNIVAL

HEICOHeico, an aerospace and electronics company, is expected to report a profit of $0.42 in the fourth quarter, down from $0.62 per share seen in the same quarter a year ago. The Hollywood, Florida-based company will post a more than 20% decline in revenue to $414.782 million from $ 541.53 million a year ago.

CARNIVALCarnival, the world’s largest cruise ship operator, is expected to report a loss for the third consecutive time in the fourth quarter. The Miami, Florida-based company’s revenue will plunge ​nearly 100% to $142.09 million from $4.78 billion posted in the same period a year ago. Carnival is expected to report a loss of $1.86 per share, worse compared to a profit of 62 cents per share registered in the same quarter last year.

“We think the cruise industry will be one of the slowest sub-sectors to recover from the COVID-19. Cruising needs just not international travel to return, but ports to reopen, authorities to permit cruising, and the return of customer confidence,” said Jamie Rollo, equity analyst at Morgan Stanley.

“We expect cruising to resume in January 2021, and only expect FY19 EBITDA to return in FY24 given historically CCL has lacked pricing power, and EPS to take even longer given dilution of share issues and higher interest expense. We see debt doubling in FY21 vs FY19 due to operating losses and high capex commitments, and leverage looks high at 4-5x even in FY23-24e, so we see a risk more equity might need to be raised,” Rollo added.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 21

Ticker Company EPS Forecast
HEI Heico $0.42
CUK Carnival -$1.84
CCL Carnival -$1.84
GCTAY Siemens Gamesa ADR $0.01
CCL Carnival -£1.39

Tuesday (December 22)

IN THE SPOTLIGHT: CARMAX, CINTAS

CARMAX: CarMax, America’s largest used-car retailer and a Fortune 500 company, is expected to report a profit of $1.14 per share in the fourth quarter, up from $1.04 per share reported in the same quarter a year ago. Revenues are expected to be $5 billion, rising more than 4% from the year-ago quarter.

William Blair upgraded their earnings per share forecasts to $1.29 for Q4 2021, up from the previous $1.26. The Chicago-based investment bank also forecasts FY2023 earnings at $6.15 EPS.

“Based on historical & current data, we expect to see strength in used car sales as we move forward, particularly given the shortage of new car inventory, manufacturers pulling back on incentives, and potential tailwinds from de-urbanization, mass transit, ride-sharing, and travel. We expect Carmax to successfully execute their Omnichannel strategy, providing both online and physical dealer options to the consumer,” said Adam Jonas, equity analyst at Morgan Stanley.

“Carmax has consistently generated profitability and has one of the strong balance sheets amongst the dealers. Long term, we estimate strong growth in same-store sales along new store openings, allowing Carmax to achieve operating leverage, with upside from the omnichannel rollout,” Jonas added.

CINTAS: Mason-based corporate uniform maker Cintas is expected to report a profit of $2.17 per share in the second quarter fiscal 2021, lower than $2.27 per share reported in the same quarter a year ago. Revenue is forecast to decline to $1.75 billion from $1.84 billion.

“We expect COVID-19 to have an impact on CTAS, with the duration and lasting economic impact a key driver of the stock. Despite excellent execution and a strong track record of revenue growth and capital allocation, Cintas remains a cyclical company; we think risk-reward skews to the downside given the stock’s elevated multiple and the potential for uniform employment to remain muted especially if small businesses close,” said Toni Kaplan, equity analyst at Morgan Stanley.

“MS economists are forecasting an extended period of lower employment and CTAS’ top-line growth could become challenged if labour growth stays under pressure,” Kaplan added.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 22

Ticker Company EPS Forecast
KMX CarMax $1.14
NEOG Neogen $0.31
CTAS Cintas $2.17
ACI AltaGas Canada $0.41
HOCPY Hoya Corp $0.74

Wednesday (December 23)

Ticker Company EPS Forecast
PAYX Paychex $0.66
AUOTY AU Optronics $0.09

Thursday (December 24)

Ticker Company EPS Forecast
ASEKY Aisin Seiki Co $0.42
RLAY Relay Therapeutics Inc. -$0.32

December 25-January 1

IN THE SPOTLIGHT: WEIBO

No major earnings scheduled for release during this period. However, Chinese microblogging website Weibo Corporation will announce its unaudited financial results for the third quarter of 2020 before the market opens on Monday, December 28, 2020.

China’s biggest social media platforms Weibo is expected to report a profit of 61 cents​ per share according to the mean Refinitiv estimate from twelve analysts. Wall Street expects results to range from 57 cents to ​65 cents per share, Reuters reported.

“Weibo is affected by macro and competitive headwinds that have been pressuring other online ad platforms, including Baidu, iQIYI and Sohu, which could linger – it may take time to recover. We think the structural challenge from ad inventory increase across the industry will be hard to mitigate in the near term,” said Alex Ko, equity analyst at Morgan Stanley.

“We await more visibility on ad demand recovery and Weibo’s monetization progress amid healthy user momentum. Our price target implies 15x P/E on our 2021 non-GAAP EPS forecast vs. the historical trough of 12x, given earnings growth trajectory,” Ko added.

Philips to Acquire US-Based Cardiac Care BioTelemetry for $2.8 Billion; Target Price €52 in Best Case

Dutch multinational conglomerate Philips announced to acquire a U.S.-based remote cardiac monitoring and diagnostic company BioTelemetry in a deal worth $2.8 billion in an attempt to scale up its remote care products business.

This deal is a strong fit with Philips’ strategy to transform the delivery of healthcare: combination of Philips’ leading patient monitoring position in the hospital with BioTelemetry’s leading cardiac diagnostics and monitoring position outside the hospital, the company said in the statement.

“We have always been very optimistic about connected care. With COVID-19 we have seen an acceleration of the demand and we think this acquisition fits perfectly in this era where remote patient monitoring will become ever more important,” Chief Executive Frans van Houten said.

BioTelemetry business is expected to deliver double-digit growth and improve its Adjusted EBITA margin to over 20% by 2025; acquisition will be sales growth and adjusted EBITA margin accretive for Philips in 2021, Philips added.

At the time of writing, Philips’ shares traded 2.07% higher at $44.94 on Friday; the stock is up over 5% so far this year.

Philips Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at €48.84 with a high forecast of €52.00 and a low forecast of €39.40. The average price target represents a 10.98% increase from the last price of €44.01. All those ten analysts, eight rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of €50 with a high of €67 under a bull-case scenario and €34 under the worst-case scenario. The firm currently has an “Overweight” rating on the health technology company’s stock.

Several other analysts have also upgraded their stock outlook. Philips has been given a €51 price objective by investment analysts at Barclays. The brokerage presently has a “buy” rating on the stock. Kepler Capital Markets set a €44 price objective and gave the stock a “neutral” rating. Berenberg Bank set a €49.00 target price and gave the stock a “buy” rating. At last, UBS Group set a €50 target price and gave the stock a “buy” rating.

Analyst Comments

“Improving growth profile: New FY21-25 targets of +5-6% comparable sales growth imply an acceleration from the historical CAGR of +4%. Margin Recovery: Improvement in mix across the business drives higher 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 a durable growth recovery in the capital equipment market and consumer demand for Personal Health, puts the company in an attractive risk-reward positioning relative to other companies in our sector over the next 12 months,” Jungling added.

Upside and Downside Risks

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

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

FedEx Earnings Beat Wall Street Estimates But Weak Ground Margins Hurt Shares

FedEx, the world’s leading express delivery company, reported better-than-expected earnings in the second quarter of the fiscal year 2021, but the Memphis-based delivery services company’s ground margins were less impressive than the previous quarter, sending its shares down about 4% in extended trading on Thursday.

The U.S. delivery firm said its fiscal second quarter ended November 30 adjusted net income rose to $1.30 billion, or $4.83 per share, from $660 million, or $2.51 per share from the same period a year ago. That was better than the Wall Street consensus estimate of $$3.93 per shares. The company’s revenue jumped 19% to $20.6 billion, again beating analysts’ expectations of $19.5 billion.

However, ground results were much lower-than-anticipated. Although margin improved 110 basis points y/y to 7.5%, it was the third-lowest ever, following the troughs of fiscal second quarter and third quarter of 2020.

Following this, FedEx’s shares declined about 4% to $281.75 in extended trading on Thursday after closing 1.19% higher at $292.26. The U.S. delivery firm’s stock has almost doubled – rising around 95% – so far this year.

“Ground’s margin fell short of our expectations and probably consensus. We think that’s partly because of unusually high “peak prep” costs (including pulling forward payments to ISP-drivers and significant sorting-headcount additions), along with pandemic related inefficiencies. We think the shares could see some selling pressure at market open on December 18 due to Ground’s margin performance,  which wasn’t bad but likely didn’t demonstrate the incremental operating leverage from volume growth that investors were looking for following the impressive fiscal first-quarter showing,” noted Matthew Young, equity analyst at Morningstar.

“We don’t expect to materially alter our $210 fair value, save for a potential slight increase from the time value of money and raising our top-line forecast, partly offset by lowering our near-term Ground EBIT-margin estimates. Following a surge in recent months, the shares are moderately overvalued. FedEx should continue to generate greater returns on its substantial network investment, but we think investor expectations have effectively set the bar a bit high in terms of long-term free cash flow growth,” Young added.

FedEx Stock Price Forecast

Eleven equity analysts forecast the average price in 12 months at $338.73 with a high forecast of $380.00 and a low forecast of $281.00. The average price target represents a 15.90% increase from the last price of $292.26. All those 11 analysts rated “Buy”, according to Tipranks.

Morgan Stanley gave the base target price of $250 with a high of $400 under a bull-case scenario and $100 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the express delivery company’s stock.

Several other analysts have also upgraded their stock outlook. FedEx had its price objective raised by Cowen to $335 from $328. They currently have an outperform rating on the shipping service provider’s stock. Wells Fargo & Company lifted their price target to $331 from $286 and gave the stock an overweight rating. Raymond James lifted their price target to $280 from $165 and gave the stock an outperform rating. At last, Sanford C. Bernstein reaffirmed a buy rating and issued a $308 price target.

We think it is good to buy at the current level and target $330 as 100-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst Comments

“FedEx’s modest F2Q beat likely falls short of a high bar that current valuation/expectations have set for the Parcels. Questions will be raised about toughening comps, the sustainability of Express momentum, and the surprising weakness in Ground margins as the search for a normalized EPS level continues,” said Ravi Shanker, equity analyst at Morgan Stanley.

“We see EBIT growth through YE of FY21 driven by both margin improvement and vol. driven rev. growth which is helped by limited Airfreight capacity and an eCommerce surge, though yields are mixed. We continue to see secular threats to Parcel and remain sceptical that these trends will be sustainable but believe that until there is evidence of a reversal in earnings momentum, the stock can trade at its historical multiple (14x PE) on current EPS,” Shanker added.

Upside and Downside Risks

Risks to Upside: 1) Variable cost structure better positions FDX vs. UPS in a secular battle for B2C and in choppy macro. 2)  Cost-cutting efforts should support improved returns. 3) Investor sentiment is low, multiple has reset lower – highlighted by Morgan Stanley.

Risks to Downside: 1) As one of the international trade-exposed companies we cover, FDX is exposed to macro/tariff risks. 2) After the breakup with AMZN, FDX is reliant on others for eCommerce growth. 3) Potential USPS reform.

Check out FX Empire’s earnings calendar

NICE To Hit Record High of $334 on Robust Growth Opportunity in Cloud; $589 in Best Case

NICE’s shares could hit a fresh record high of $334, surging more than 30% from the last price, according to Morgan Stanley analysts, who said a substantial growth opportunity is still in front of the company, translating to at least 20% cloud growth through 2023.

Last month, NICE Systems reported revenue of $410 million in the third quarter, up 6.1% from the same period last year. Revenue from cloud activities rose 33.9% to $202 million while sales of products and services dipped 32% and 5.2% respectively. The software provider reported diluted EPS came in at $1.41 versus $1.30 last year, 8% growth year-over-year.

“A market-leading cloud contact center business looks poised to sustain 20%+ growth as large enterprises accelerate the shift to cloud. Against this backdrop, NICE looks undervalued when compared to FIVN & RNG using a SoTP analysis, creating an attractive opportunity at current levels. Upgrade to Overweight,” said Sanjit Singh, equity analyst at Morgan Stanley.

“With respect to NICE’s cloud opportunity, we note that: 1) just 19% of agent seats are deployed in the cloud today suggesting that majority of the market opportunity still lies ahead, 2) the current pandemic has heightened the need for flexibility and agility which we believe is causing the large enterprise market to accelerate plans to transition their operations to the cloud, and 3) NICE is well-positioned to take a significant share of seats in the larger enterprise market given its market leadership position in CCaaS with over 500K agents on CXOne and with more than 85% of Fortune 100 and 25K customers overall.”

NICE’s shares surged closed 2.4% higher at $256.08 on Wednesday; the stock is up about 50% so far this year.

Morgan Stanley gave a target price of $589 under a bull-case scenario and $180 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Jefferies lifted their target price to $285 from $265 and gave the stock a “buy” rating. Oppenheimer lifted their target price to $250 from $230 and gave the stock an “outperform” rating.

In addition, JP Morgan upgraded shares from an “underweight” rating to a “neutral” rating and lifted their target price to $261 from $210. Rosenblatt Securities lifted their target price to $290 from $265 and gave the stock a “buy” rating.

Eleven equity analysts forecast the average price in 12 months at $280.73 with a high forecast of $334.00 and a low forecast of $246.00. The average price target represents a 9.63% increase from the last price of $256.08. From those 11 analysts, eight rated “Buy”, three rated “Hold” and none “Sell”, according to Tipranks.

“Since acquiring InContact in November 2016, NICE has emerged as one of the leading players in the fast-growing Contact Center as a Service (CCaaS) market which has helped the company sustain 28% CAGR in its cloud business since 2017 including 31% YoY thru first three quarters of 2020,” said Sanjit Singh, equity analyst at Morgan Stanley.

“With the cloud now set to represent the majority of the business, we are Overweight shares as we believe that a substantial growth opportunity is still in front of the company translating to at least 20%+ cloud growth thru 2023 and that NICE’s cloud business is substantially undervalued relative to its CCaaS peers such as FIVN and RNG,” Singh added.

Homebuilder Lennar’s Shares Rise on Earnings Beat; Target Price $89

Miami-based home construction company Lennar reported better-than-expected earnings in the fourth quarter, largely driven by rising housing demand due to record low mortgage rates amid the COVID-19 pandemic, sending its shares up about 4% in extended trading on Wednesday.

The largest home construction company in the United States said its net earnings in 2020 were $882.8 million in the fourth quarter ended November 30, 2020, or $2.82 per diluted share, compared to $674.3 million, or $2.13 per diluted share in the fourth quarter of 2019. That was higher than the market expectations of $2.35 per share.

Revenue dipped to $6.83 billion, from $6.97 billion a year earlier, better than the Wall Street consensus estimate of $6.65 billion.

Lennar forecasts financial services operating earnings between $110 million – $115 million in the first quarter of 2021 and $400 million – $425 million in the fiscal year 2021.

Following this release, Lennar’s shares surged about 4% to $77.09 in extended trading on Wednesday after closing 0.56% higher at $74.29. The homebuilder’s stock is up over 30% so far this year.

Analyst Comments

“4Q20 results are encouraging as Lennar (LEN) is achieving a sales pace above guidance as well as realizing pricing power, leading to expanded margin. Lennar ramped upstarts in the quarter, increasing +28% YoY in an effort to make up for production lost earlier in the year due to the pandemic, and to feed still-significant incoming demand,” said Carl E. Reichard, equity analyst at BTIG.

“FY21 guidance looks especially good; the midpoint of LEN’s delivery range is +8% above our estimate and GM is 80 bps ahead of what we modelled. The 1Q21 guidance has orders 18% above our estimate and GM 210 bps ahead, although closings are a little light (2% below our estimate). All in, this was a notably strong quarter, with an exceptionally robust outlook, and we expect shares to perform well tomorrow,” E. Reichard added.

Lennar Stock Price Forecast

Six equity analysts forecast the average price in 12 months at $89.60 with a high forecast of $94.00 and a low forecast of $77.00. The average price target represents a 20.61% increase from the last price of $74.29. From those six analysts, three rated “Buy”, three rated “Hold” and none “Sell”, according to Tipranks.

Lennar had its price target upped by Wedbush from $81.00 to $86.00. They currently have an outperform rating on the construction company’s stock. UBS initiated with a “Neutral” rating and target price of $77. Truist Securities raised the price target to $93 from $62. Bank of America boosted their price objective to $90 from $80 and gave the company a neutral rating. Zacks Investment Research upgraded to a buy rating from hold and set a $81 price objective.

We think it is good to buy at the current level and target $89 in the long-term as 150-day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity.

Check out FX Empire’s earnings calendar

Aphria, Tilray Will Merge to Become World’s Biggest Cannabis Giant

One of the world’s largest cannabis companies, Aphria will merge its operations with its business rival Tilray Inc, creating the biggest giant in the fast-growing cannabis sector, according to Bloomberg news.

This deal will create a new company with an equity value of about C$4.8 billion ($3.8 billion), according to a statement and interviews with the Tilray and Aphria chief executive officers. The new company will trade under Tilray’s ticker on the Nasdaq, and Aphria shareholders will own 62% of Tilray’s stock under the terms of the transaction, reported by Bloomberg.

“We see a strong strategic rationale for the company, as the combined company (rumoured to keep the Tilray name with Aphria CEO Irwin Simon at the helm) would have nearly 20% share of the Canadian THC market and could rationalize production facilities. As such, although the estimated $100 million of cost synergies represents a relatively high 11% of combined costs and overhead expenses, we think it could be achievable. This is further bolstered by Tilray’s relatively bloated cost structure,” said Kristoffer Inton, director at Morningstar.

“Details are all based in news reports, so they warrant some caution that official terms could be different. The rumoured terms would have Aphria owning 60% of the combined company. Based on our fair value estimates, Aphria shareholders should control closer to 70%, signalling that Tilray shareholders are getting better economics. Even based on pre-rumour share prices, Aphria shareholders should control at least 65%,” Inton added.

Tilray’s shares surged over 20% to $9.65 in pre-market trading on Wednesday. However, the stock is down over 50% so far this year. Aphria soared over 7% to $8.73.

“I realized that Aphria needed to expand out of Canada, and merging with Tilray was a great answer because it’s a U.S.-domiciled business with great international assets,” said Aphria Chief Executive Officer Irwin Simon, who will be chairman and CEO of the combined group told Bloomberg.

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.

Lululemon Athletica Could Hit Record High of $404 on Improved Outlook; $500 in Best Case

Lululemon Athletica’s shares could hit a fresh record high of $404, representing a more than 13% increase from the last price, on compelling long-term growth opportunities and the apparel retailer’s advantaged positioning in a COVID-19 affected world.

Last week, the healthy lifestyle inspired athletic apparel company for yoga said its net revenue for the third quarter of the fiscal year 2020 increased 22% $1.1 billion and net income for the period rose to $143.6 million. Lululemon reported adjusted earnings of $1.16 per share, beating the Wall Street consensus estimate of 88 cents and surged over 20% from earnings of 96 cents in the same quarter last year.

“While overall this (Q3) was a solid beat with better FQ4 top-line guidance, the stock is flat to slightly down in the after-market, likely due to elevated expectations more than anything else. In our view, Lululemon Athletica (LULU) is successfully taking share and is poised to continue doing so in FQ4,” said Camilo Lyon, equity analyst at BTIG.

“As we look to next year, we see LULU benefiting from the reopening of its retail stores of which many were closed for effectively half of 2020 as well as from continued secular tailwinds both in category (athletic) and channel (digital), while prepping for category extensions(footwear coming in 2023) on which LULU is well positioned to optimize. We reiterate our BUY rating and raise our price target to $453,” Lyon added.

In November, while almost all of the company’s retail locations have remained open, it has experienced some temporary closures and is currently operating with tighter capacity restrictions in certain markets.

Lululemon Athletica’s shares closed 1.05% higher at $356.07 on Tuesday; the stock is up over 50% so far this year.

Lululemon Athletica Stock Price Forecast

Seventeen equity analysts forecast the average price in 12 months at $404.82 with a high forecast of $500.00 and a low forecast of $275.00. The average price target represents a 13.69% increase from the last price of $356.07. From those 17 analysts, 13 rated “Buy”, four rated “Hold” and none “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $381 with a high of $481 under a bull-case scenario and $125 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the apparel retailer’s stock.

“We raise our price target to $381 (up from prior $356) on an improved near and medium-term outlook. We update our model for the significant 3Q20 beat ($1.16 vs. Street 87c), and improve our 4Q20 expectations on raised guidance and encouraging 4QTD trends (revised 4Q20 EPS $2.48 vs. $2.39 prior). This lifts our 2020e EPS to $4.59 from $4.21 prior (vs. Street at $4.56). We also improve our medium-term forecast on a better-than-expected 2020e base year, resulting in a 9% average increase to our annual 2021e-2025e EPS estimates,” noted Kimberly Greenberger, equity analyst at Morgan Stanley.

“We also slightly raise our terminal EBIT margin expectations across cases (base 24.0% to 25.0%, bull 26.0% to 27.0%, and bear 22.0% to 23.0%). All in, these changes increase our price target, which represents the average of our DCF-derived base and bull cases, to $381 from $356 prior. Our bull case, base case, and bear case increase to $481, $281, and $125, respectively (vs. $449, $262, and $117 prior). Our price target equates to 56x 2021e P/E, at the high end of LULU’s L5Y range (19-56x).”

Several other analysts have also upgraded their stock outlook. Lululemon Athletica had its price target raised by Deutsche Bank to $402 from $396. They currently have a buy rating on the apparel retailer’s stock. Bank of America reissued a buy rating and issued a $390 target price. Stifel Nicolaus boosted their target price to $445 from $365 and gave the company a buy rating. At last, Citigroup boosted their target price to $400 from $340.

Analyst Comments

“Expanded eComm capabilities, improved supply chain, better inventory management, and product initiatives led to enviable ’18-’19 performance and a robust return to pre-COVID-19 levels in 3Q20, making +mid-high-teens comps seem normal. Still, current valuation appears extreme, so we stay Equal-weight,” Morgan Stanley’s Greenberger added.

“Compelling long term and post-COVID-19 growth opportunity driven by three factors: international expansion (maybe less evident in ‘20e given COVID-19 outbreak), digital growth, and product innovation. Lululemon Athletica (LULU) dominates the NA athletic yoga apparel category due to its unique brand positioning and fashionable products, and its athleisure focus is further advantaged in a COVID-19 affected world.”

Upside and Downside Risks

Risks to Upside: 1) Faster global activewear market growth. 2) Innovation strategy traction/acceleration Market share gains. 3) Successful international expansion. 4) Ongoing outsized comp strength. 5) Better-than-feared COVID-19 impact/potential recession – highlighted by Morgan Stanley.

Risks to Downside: 1) Competitive risk. 2) Global athleisure trend slowdown. 3) Limited international expansion/brand traction. 4) FX volatility. 5) Slowing comp. 6) Worse-than-feared COVID-19 impact/potential recession.

Check out FX Empire’s earnings calendar

Eli Lilly to Buy Prevail Therapeutics in $1.04 Billion Deal, Shares Soar

Indianapolis-based pharmaceutical company Eli Lilly announced to acquire a biotechnology company Prevail Therapeutics in a deal worth $1.04 billion to expand its business in gene therapy, sending its shares up over 3% on Tuesday.

According to the deal, Lilly will commence a tender offer to acquire all outstanding shares of Prevail Therapeutics Inc. for a purchase price of $22.50 per share in cash. The deal is expected to close in the first quarter of 2021.

Following this announcement, Prevail shares surged about 90% to as high as $23.08.

Moreover, Eli Lilly forecasts next year’s revenue between $26.5-$28 billion and sales of nearly $1-$2 billion from its COVID-19 treatments. That would be largely driven by strong financial and operational performance in 2021, highlighted by volume-based revenue growth, operating margin expansion, pipeline advancements and solid cash flow.

Earnings per share (EPS) for 2021 are expected to be between $7.25 to $7.90 on a reported basis and $7.75 to $8.40 on a non-GAAP basis.

“Lilly issued 2021 revenue guidance 3% above and EPS in-line with consensus due to higher-than-expected R&D spending. Excluding COVID-19 therapy revenues, which are short duration, core revenue guidance is 3% above consensus,” said David Risinger, equity analyst at Morgan Stanley.

At the time of writing, Eli Lilly’s shares traded 3.01% higher at $162.67 on Tuesday; the stock is up over 20% so far this year.

Eli Lilly Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $172.80 with a high forecast of $200.00 and a low forecast of $144.00. The average price target represents a 7.08% increase from the last price of $161.38. From those 10 analysts, seven rated “Buy”, three rated “Hold” and none “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $170 with a high of $207 under a bull-case scenario and $121 under the worst-case scenario. The firm currently has an “Overweight” rating on the pharmaceutical’s stock.

Several other analysts have also upgraded their stock outlook. Guggenheim raised the stock price forecast to $183 from $178; Berenberg upped the target price to $150 from $144; Mizuho lowered the price objective to $156 from $164. Truist began coverage on Eli Lilly and set a “buy” rating and a $180 price objective. At last, JP Morgan boosted their price objective and to $200 from $190 and gave the stock an “overweight” rating.

Analyst Comments

“We are Overweight Eli Lilly shares as we believe consensus underappreciates Lilly’s long-term revenue and EPS growth potential. We project 2020e-2025e CAGR revenue +8% and EPS +14%. We see upside potential for pipeline candidate tirzepatide’s “trifecta” opportunity in diabetes, obesity, and cardiovascular health,” Morgan Stanley’s said Risinger added.

“Pipeline newsflow on diabetes and Alzheimer’s candidates could drive stock upside/downside, but we view Eli Lilly’s Alzheimer’s pipeline as an inexpensive call option. Lilly could pursue additional tuck-in transactions to enhance long-term growth prospects.”

Upside and Downside Risks

Risks to Upside: Upside risks are financial results above expectations, positive pipeline news (e.g. tirzepatide for diabetes and Alzheimer’s-related newsflow), competing products disappoint, and compelling external action- highlighted by Morgan Stanley.

Risks to Downside: Financials miss, pipeline disappoints (e.g. tirzepatide), negative Alzheimer’s newsflow, competing drugs surprise on the upside, and Democratic election sweep causes drug pricing concerns.

Strong Fundamental Case Emerging for AGCO; Morgan Stanley Revised Target Price to $122

Morgan Stanley raised their stock price forecast on AGCO to $122 from $195, assigning an “Overweight” rating and said they see a strong fundamental case emerging for the agricultural equipment manufacturer as top-line acceleration is complemented by upside to margin estimates and an attractive valuation paradigm.

The industrial products company reported an EPS of $2.09 per share in the third quarter, way above the market consensus estimate of $0.97 per share. That was the third time AGCO had surpassed the Wall Street consensus estimates over the last four quarters.

“We expect AGCO’s revenue growth to accelerate in 2021 on the back of accelerating industry demand trends in both North America and Europe. Tangible progress towards AGCO’s 10% margin target is also underappreciated and not embedded in consensus numbers. We are raising our FY21/FY22 EPS estimates by 10-12% on the back of these dynamics. Our FY21/22 operating margin estimates are 60-70bps above consensus and our FY21/22 EPS stand 10% above consensus for both years. Further, AGCO screens favourably on a relative basis vs. both the market multiple and Ag Equipment peers,” noted Courtney Yakavonis, equity analyst at Morgan Stanley.

“As positive revisions begin to materialize in 2021, we expect the valuation gap to the market to close. Our $122 price target is based on 16.2x FY22 EPS, which represents a 20% discount to our equity strategy team’s target market multiple of 20.25x. AGCO also currently trades at a 20% discount to DE vs. its historical discount of 0%, but our price target still embeds similar discount vs. our Deere & Co. (DE) target multiple, presenting upside to our base case valuation if the gap to DE converges,” Yakavonis added.

Morgan Stanley gave a target price of $165 under a bull-case scenario and $54 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. AGCO had its price objective boosted by Credit Suisse Group to $89 from $79. Credit Suisse Group currently has a neutral rating on the industrial products company’s stock. Barclays raised to an equal weight rating from an underweight and lifted their stock price forecast to $92 from $58.

In addition, BMO Capital Markets lifted their price objective to $110 from $90 and gave the company an outperform rating. Deutsche Bank raised their target price to $92 from $78 and gave the company a hold rating. At last, JP Morgan upped to an overweight rating from a neutral rating and set a $97 price objective.

Thirteen analysts forecast the average price in 12 months at $100.50 with a high forecast of $114.00 and a low forecast of $89.00. The average price target represents a 12.87% increase from the last price of $89.04. From those 13 analysts, nine rated “Buy”, four rated “Hold” and none rated “Sell”, according to Tipranks.

AGCO’s shares closed 0.70% lower at $89.04 on Monday. However, the stock is up over 15% so far this year.

“As a pure-play on ag equipment, AGCO has exposure to broad-based swings in grain prices, as well as the North American replacement cycle, though less so than peers. Ag Equipment remains our favourite Machinery end market for 2021, with double-digit end-market growth across both NA and EU Ag Equipment – AGCO remains the purest play on this theme,” Morgan Stanley’s Yakavonis added.

“We remain optimistic on share gains associated with recent efforts to standardize equipment across geographies, with the company’s IDEAL Combine roll out also likely to result in tangible share gains. We are increasingly seeing evidence of more sustained margin improvement and top-line outperformance vs. AGCO’s primary end markets,”

Pharmaceutical Giant AstraZeneca’s Shares Slump Over 9% on $39 Billion Alexion Acquisition Deal

AstraZeneca’s shares slumped more than 9% on Monday after the global pharmaceuticals company announced over the weekend to acquire Alexion Pharmaceuticals for $39 billion or $175 per share in cash and stock.

That would be the biggest deal ever for the UK-based global pharmaceuticals company, but the company’s relative shortage of cash raised eyebrows.

According to the deal, Alexion shareholders will receive $60 in cash and nearly $115 worth of equity per share. The acquisition is expected to close in the third quarter of next year, and upon completion, Alexion shareholders will own c.15% of the combined company, AstraZeneca said in the statement.

“We expect it will take time for investors to digest the possible merits of the $39 billion cash-stock Alexion acquisition. There is a strategic rationale and valuation is reasonable, in our view, but the debate will likely focus on the sustainability of Alexion’s key C5i franchise and the significant boost to cash flow generation but slightly diluted pro-forma growth profile,” noted Peter Welford, equity analyst at Jefferies.

“We estimate +15% EPS accretion 2022-24E, with pro-forma +10% sales and +16.5% EPS CAGR 2021-25E,” Welford added.

AstraZeneca’s shares plunged to an eight-month low of GBX 7410 on Monday; the stock is up about 2% so far this year.

Analyst Comments

“A concern is what this deal tells us about AstraZeneca’s view of its own business, particularly beyond 2024-25 (we model through 2025), when Brilinta and Forxiga lose patents, and Tagrisso could see competition (although AstraZeneca stated it believes analyst consensus for both AstraZeneca and Alexion is conservative). But great companies don’t sit still; they adapt and evolve, as AstraZeneca is doing with this transaction,” said Steve Scala, equity analyst at Cowen and Company.

“The sustainability of the Alexion franchise is another risk, but we believe the concern is overblown as most sales will be transferred from Soliris to Ultomiris by the time Soliris biosimilars launch. On the branded side, no branded competitor has produced a profile as good as Ultomiris, so we think competitors will have an uphill battle taking share. Lastly, AstraZeneca would appear limited in its flexibility to do additional, sizable M&A anytime soon,” Scala added.

AstraZeneca Stock Price Forecast

Fourteen equity analysts forecast the average price in 12 months at 9,163.33p with a high forecast of 12,000p and a low forecast of 6,400p. The average price target represents an 18.80% increase from the last price of 7,713p. From those 14 analysts, nine rated “Buy”, four rated “Hold” and one “Sell”, according to Tipranks.

AstraZeneca received a GBX 9,900 price objective from equities researchers at Morgan Stanley. The firm currently has a “buy” rating on the biopharmaceutical company’s stock. UBS Group set a GBX 7,500 price target and gave the stock a “neutral” rating. Credit Suisse Group set a GBX 9,500  target price and gave the stock a “buy” rating. Jefferies Financial Group set a GBX 8,500 target price and gave the stock a “neutral” rating.

Games Giant Electronic Arts to Acquire Codemasters for $1.2 Billion; Target Price $150

Electronic Arts, one of the world’s largest video game publishers, announced to acquire the UK-based game developer and publisher Codemasters for $1.2 billion and the deal is expected to be completed in the first quarter of next year.

According to the deal, Codemasters’ shareholders will be entitled to receive 604 pence or $7.98 in cash, a premium of more than 13% to the last trading price.

“Video Games’ COVID-19 boost will outlive the pandemic, we believe, with a larger TAM and better digital margins.  This effect boosted stocks globally but the avg >100% YTD gains and 76% re-rating in Pan-European stocks tops the pile,” said Ken Rumph, equity analyst at Jefferies.

“With another 3% post-vaccine increase, we find valuations unsustainable as growth generally slows in 2021. UK stocks were Brexit havens. We cut PDX, FDEV from Buy to Hold; CDR, TM17 from Hold to U/P. Accelerating UBI, KWS remain Buys,” Rumph added.

Electronic Arts’ shares closed 0.83% higher at $135.80 on Friday; the stock is up over 26% so far this year.

Electronic Arts Stock Price Forecast

Seventeen equity analysts forecast the average price in 12 months at $144.28 with a high forecast of $165.00 and a low forecast of $124.00. The average price target represents a 6.24% increase from the last price of $135.80. From those 17 analysts, eight rated “Buy”, nine rated “Hold” and none “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $140 with a high of $150 under a bull-case scenario and $110 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the world’s largest video game publishers’ stock.

Several other analysts have also upgraded their stock outlook. Electronic Arts had its target price cut by investment analysts at Wells Fargo & Company to $145 from $155. The brokerage currently has an “equal weight” rating on the game software company’s stock. MKM Partners boosted their price objective to $160 from $144. Needham & Company LLC boosted their price objective to $165 from $150 and gave the stock a “buy” rating.

In addition, Ascendiant Capital raised the stock price forecast to $167 from $165; Evercore ISI initiated with inline rating and $135 price target; Truist Securities lowered the price objective to $138 from $153 and Benchmark upped the target price to $163.

Analyst Comments

“Shift to digital is a secular tailwind as full game downloads have 20% higher margins than physical disc sales and extra digital content has even higher margins. We forecast full game downloads to increase over the next 5 years and extra digital content to increase as well resulting in gross margin expansion,” said Brian Nowak, equity analyst at Morgan Stanley.

“Room exists for further margin expansion in R&D and Sales and Marketing as EA benefits from the shift to digital and is able to better target its gamer audience,” Nowak added.

Check 3 Video Game Stocks Worth Playing

Earnings to Watch Next Week: Lennar, FedEx, Darden Restaurants and Nike in Focus

Earnings Calendar For The Week Of December 14

Monday (December 14)

No major earnings scheduled for release.

However, it is worth noting HEXO Corp, a Canada-based company that creates and distributes products to serve the Canadian cannabis market, will release its financial results for the fiscal first quarter 2021 on Monday before the stock market opens.

Hexo earnings will provide a direction for the emerging cannabis industry. Failing to grow on earnings and revenue after consolidation, will lead to a worse stock dilution scenario for the company. Hexo’s statement will test market sentiments on Monday for the higher-risk, higher-reward cannabis sector.

Tuesday (December 15)

Ticker Company EPS Forecast
SHB Shaftesbury -£1.52
NDSN Nordson $1.53
HOCPY Hoya Corp $0.74

 

Wednesday (December 16)

IN THE SPOTLIGHT: LENNAR

LENNAR: Lennar, a home construction and real estate company, is expected to report a profit of $2.35 in the fourth quarter, up from $2.13 per share seen in the same quarter a year ago, which would indicate a positive year-over-year growth rate of more than 11%.

According to Zacks Research, equity strategists forecasts full-year earnings of $7.46 per share for the current financial year, with EPS estimates between $7.39 to $7.53. For the next financial year, strategists expect the company will post earnings of $7.97 per share, with EPS estimates between $6.30 to $9.42.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 16

Ticker Company EPS Forecast
TTC Toro $0.49
ABM ABM Industries $0.70
MLHR Herman Miller $0.57
MU Micron Technology $0.70
AUOTY AU Optronics $0.09

 

Thursday (December 17)

IN THE SPOTLIGHT: FEDEX

FedEx, the world’s leading express delivery company, is expected to report a profit of $3.93 in the second quarter, down from the previous $4.87. The company has a decent earnings history as its bottom line outshined the consensus mark in two of the trailing four quarters and missed the same in the remaining two. The average beat is 37.7%, according to Zacks Investment Research.

The continued surge in e-commerce demand during the current coronavirus-ravaged times is likely to have boosted revenues in the to-be-reported quarter. With the pandemic largely restricting people to their homes, the need for door-to-door delivery of essentials during this unprecedented crisis is rising, according to Zacks Investment Research.

“E-commerce trends remain robust, which should support results, but the bar is much higher too. All eyes will be on two major areas: (1) more evidence of the breaking wave that could set up a challenging F2H21/2022 and (2) what is peak season going to look like as we have even less visibility than usual,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“We expect a beat for F2Q21 vs. current consensus. We are modelling EPS of $4.09 (adj for TNT integration costs), 10% above cons. of $3.73. Our FY21 EPS of $17.80 is slightly below our prior est. of $18.08 but is 12% above cons. of $15.89 (all adj. for TNT integration costs for comparability). The main drivers of the beat are a continued strong pricing environment in Express International esp. in Freight as well as more a more spread out peak season in Ground as retailers attempt to avoid service breakdowns and surcharges. This will benefit volume and F2Q results at the cost of pricing and F3Q results, in our view,” Shanker added.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 17

Ticker Company EPS Forecast
WB Weibo $0.62
ACN Accenture $2.05
GIS General Mills $0.97
JBL Jabil Circuit $1.27
SAFM Sanderson Farms -$0.03
WOR Worthington Industries $0.69
RLAY Relay Therapeutics Inc. -$0.32
ASEKY Aisin Seiki Co $0.42

 

Friday (December 18)

IN THE SPOTLIGHT: DARDEN RESTAURANTS

Darden, which operates full-service restaurants in the United States and Canada, is expected to report a profit of $0.71 in the second quarter, up from the previous $0.56. The Orlando-based multi-brand restaurant operator has set its Q2 2021 pre-market guidance at 0.65-0.75 EPS.

“Darden will report 2Q21 (November) results on December 18th, before market open. We model adjusted EPS of $0.68, below the midpoint of $0.65 to $0.75 guidance and$0.73 consensus, though our below-consensus positioning is not purposeful. Compared to consensus, we model lower restaurant-level margins of 18.9% vs 19.4% Consensus Metrix, which is partially offset by our lower G&A estimate,” said Andrew M. Charles, equity analyst at Cowen and Company.

“We model a revenue decline of 17.5%, which compares to the guidance of -18% total revenue and Consensus Metrix -17.1% and contemplates Olive Garden and Longhorn same-store sales -15% and -10% vs Consensus Metrix -16% and -11%, respectively. At the time of the1Q21 earnings release, Darden indicated that the company was running modestly ahead of-18% guidance and the guidance contemplated 100 bps of headwind from the Thanksgiving calendar shift. We believe what looked like conservative sales guidance when issued in September now looks fair. Indeed, we point to the stability of sales suggested by industry data from September through November, commentary from Mr. Manocha around dining rooms restrictions helping to transfer sales to off-premise channels, and Darden’s lack of third-party delivery availability amid November’s rise in COVID-19 cases/dining room capacity restrictions,” M. Charles added.

IN THE SPOTLIGHT: NIKE

Nike, the largest seller of athletic footwear and apparel in the world, is expected to report a profit of $0.62 in the second quarter, down from the previous $0.95.

“A faster North America wholesale restart, transitory GM benefits, SG&A control, & lean inventory suggest 2Q upside. Valuation nears highs, but Nike’s more promising revenue and margin outlook post-COVID-19 should continue to drive the stock higher. Lift price target to $165,” noted Kimberly Greenberger, equity analyst at Morgan Stanley.

“Further, despite Nike’s valuation nearing the upper end of its historical range (37x 2022e consensus P/E vs. 19-38x historical range) as well as its impressive YTD stock run (+35% vs. S&P 500 +14% as of 12/4), we see room for additional share price appreciation on 1) positive EPS revisions on potential upside surprise to the upcoming quarter as well as against management’s seemingly conservative full year (May-21 year) guidance (as outlined in our four key points below), 2) Nike’s relevant exposure to activewear, one of the fastest-growing footwear & apparel categories, a trend which has only been accelerated by COVID-19, and should remain an ongoing tailwind, and 3) Nike’s accelerated shift to its DTC channel, and in particular eCommerce, which should enhance its long-term revenue, margin, and EPS growth,” Greenberger added.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 18

Ticker Company EPS Forecast
DRI Darden Restaurants $0.71
NKE Nike $0.62
CUK Carnival -$1.88
CCL Carnival -$1.88
CCL Carnival -£1.43

 

Chipmaker Broadcom Posts Strong Earnings Despite Weak Enterprise Demand; Target Price $456

Chipmaker and software infrastructure supplier Broadcom reported better-than-expected earnings in the last quarter of the fiscal year 2020, largely driven by solid demand for networking and wireless products but warned that its enterprise demand remained weak.

The semiconductor manufacturer said its non-GAAP diluted earnings per share came in at $6.35 on revenue of $6.47 billion, a surge of 12% year-over-year, beating Wall Street estimate of $6.25 per share on revenue of $6.43 billion.

The global semiconductor leader forecasts first-quarter revenue of nearly $6.6 billion and adjusted EBITDA of about $3.9 billion, or 59% of projected revenue.

“Broadcom (AVGO) beat and raised based on continued strength in networking and broadband and expected ramp in wireless. AVGO expects 50% YY growth in wireless with seasonal peak January quarter,” said Mark Lipacis, equity analyst at Jefferies.

“Semiconductor, Broadband, and Industrial are all expected to grow at least double digits YY. The dividend yield of 3.5% is highest in our coverage universe, and we think it provides downside support to the stock. Reiterate Buy,” Lipacis added.

Broadcom’s shares dipped 1.47% to $404 in pre-market trading on Friday. However, the stock is up about 30% so far this year.

Executive Comments

“Despite the challenges presented by the ongoing pandemic and macroeconomic uncertainties, we achieved record profitability, generating $11.6 billion of free cash flow in fiscal 2020,” said Tom Krause, CFO of Broadcom Inc.

“As a result, we are raising our target common stock dividend by 11% to $3.60 per share per quarter for the fiscal year 2021,” Krause added.

Broadcom Stock Price Forecast

Twelve equity analysts forecast the average price in 12 months at $456.36 with a high forecast of $490.00 and a low forecast of $400.00. The average price target represents an 11.30% increase from the last price of $410.04. From those 12 analysts, ten rated “Buy”, two rated “Hold” and none “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $495 with a high of $588 under a bull-case scenario and $351 under the worst-case scenario. The firm currently has an “Overweight” rating on the semiconductor manufacturer’s stock.

“We increased our price target from $440 to $495, reflecting higher estimates and rolling forward to 2022. Our target multiple of 19X (including stock-based comp) is unchanged and represents a considerable discount to large-cap semis like Texas Instruments and Qualcomm trading at mid to upper 20s P/E multiples, which could prove unwarranted. At the same time, this is a tricky part of the cycle for Broadcom and the semi industry. Notably, supply chain tightness and extending lead times could lead to inventory accumulation, which will need to be monitored closely in 2021,” said Craig Hettenbach, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. Bernstein raised the stock price forecast to $450 from $400; Rosenblatt Securities raised the target price to $470 from $430; Deutsche Bank upped the price objective to $475 from $450; Truist Securities increased the target price to $464 from $411; Mizuho raised the stock price forecast to $460 from $425.

In addition, Jefferies upgraded the price objective to $470 from $420; JP Morgan upped the price target to $500 from $420; RBC raised the target price to $450 from $410; Cowen and Company increased the stock target forecast to $415 from $350; Piper Sandler upped the target price to $440 from $400.

Analyst Comments

“We are ‘Overweight’ on Broadcom (AVGO) and expect a reversal in stock performance after meaningfully lagging the past 2 years. While sentiment on the CA deal has gradually improved, investors are negative on the Symantec acquisition. This creates a low bar, and we think AVGO will be able to execute on synergies and wring out value in Symantec,” Morgan Stanley’s Weiss.

“We are more positive than investors on the 3 key segments of endpoint, DLP and web proxy. If AVGO is able to execute in software it would add to what we view as a very compelling franchise in semis (65% weighted market share across 50% of revenue in duopoly structures), creating a diversified, highly profitable and cash generative business.”

Upside and Downside Risks

Risks to Upside: 1) Broadcom executes successfully on its software strategy. 2) New product cycles in cloud. 3) The company’s valuation multiple re-rates after lagging semis over the past few years – highlighted by Morgan Stanley.

Risks to Downside: 1) Customer concentration in wireless. 2) Execution on the Symantec acquisition. 3) High levels of debt, with net leverage of ~3X.

Check out FX Empire’s earnings calendar

Oracle Earnings Beat Wall Street Estimates; Buy with Target Price $64

Oracle, an American multinational computer technology corporation, reported better-than-expected earnings in the second quarter of the fiscal year 2021, largely driven by a surge in sales of software licensing and cloud product due to extended work from home in response to the COVID-19 pandemic.

One of the largest vendors in the enterprise IT market said its net income increased to $2.44 billion, or 80 cents per share, in the quarter ended November 30, up from $2.31 billion, or 69 cents per share, seen in the same period last year.

Excluding items, the company reported EPS of $1.06 per share, beating Wall Street estimate of $1 per share. In addition, total revenues increased 2% to $9.8 billion, beating market expectations of $9.79 billion.

“Oracle reported second-quarter fiscal 2021 results beating CapIQ consensus estimates for revenue and adjusted earnings per share. Notably, on the earnings call, however, was Chairman Larry Ellison’s comments on how Oracle’s supply fell short of demand as a result of Oracle’s lack of capacity in Oracle Cloud Infrastructure, or OCI, which is Oracle’s infrastructure as services, or IaaS, offering,” said Julie Bhusal Sharma, equity analyst at Morningstar.

“While demand for Oracle’s IaaS is encouraging, Oracle’s inability to forecast such demand is not, and we expect overall demand for OCI to still fall short of what demand is for more robust IaaS competitors like AWS and Azure. Considering the quarter’s results and third-quarter outlook roughly in line with our former expectations, we are maintaining our fair value estimate of $53 per share for Oracle. With shares hardly moving around its $60 per share market price after hours, we would recommend waiting for a pullback before committing capital to the wide-moat name,” Sharma added.

Oracle’s shares closed 0.42% lower at $59.48 on Thursday. However, the stock is up over 12% so far this year.

Oracle Stock Price Forecast

Fourteen equity analysts forecast the average price in 12 months at $64.75 with a high forecast of $71.00 and a low forecast of $57.00. The average price target represents an 8.86% increase from the last price of $59.48. From those 14 analysts, four rated “Buy”, ten rated “Hold” and none “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $67 with a high of $84 under a bull-case scenario and $45 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the multinational computer technology corporation’s stock.

“Our new price target of $67 is based on a 14x multiple applied to our CY22 EPS estimate of $4.83. Our old price target of $62 was based on 14x multiple applied to our prior $4.51 CY21 EPS estimate,” said Keith Weiss, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. Barclays raised the stock price forecast to $66 from $62; RBC upped the target price to $71 from $68; Piper Sandler increased the price objective to $57 from $50; JP Morgan raised the price target to $68 from $61; Credit Suisse upped the target price to $67 from $66.

Analyst Comments

“Oracle’s current low valuation at 13x CY22e EPS reflects its slower growth rate compared to peers. Despite potential opportunities within existing database customers and cloud-based ERP applications, offsets from waning businesses mean 2021 likely lacks the catalysts for the positive inflection in revenue growth investors would need to see to drive multiples higher,” Morgan Stanley’s Weiss.

“We see 15% EPS growth in FY21 and 6% in FY22, driven by an aggressive pace of share buybacks. However, cc revenue growth is 2%, in a software sector filled with strong secular growth stories, and just 2% operating income growth points to Oracle potentially reaching peak margins, leaving us Equal weight at our $67 price target.”

Upside and Downside Risks

Risks to Upside: 1) Stronger adoption of Autonomous Database offering drives positive YoY growth in License revenues. 2) Accelerated adoption of Fusion Apps – highlighted by Morgan Stanley.

Risks to Downside: 1) Disruptive technologies in the data management market. 2) Rapid migration towards SaaS-based subscription application model hurts near-term optics due to ratable revenue recognition. 3) Strong competition from other secular Cloud application vendors.

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Morgan Stanley Raises Walt Disney’s Target Price to $175 Ahead of Investor Day 2020 Event

Morgan Stanley raised their stock price forecast on Walt Disney to $175 from $160, assigning an “Overweight” rating and said the entertainment company will lay out a vision for a more substantial streaming business, increasing investment spending and long-term targets in its Investor Day 2020 on December 10.

“Walt Disney (DIS) shares are up over 25% since November 1st, driven primarily by positive vaccine news and the implications for Parks, TV & Film production and distribution, and live sports. We now see our forecast for US Parks losses of -$2.9bn in F2021 and a return to prior peak OI in F2023 as potentially conservative. Recently disclosed reductions in headcount may further reduce losses even in the first half of fiscal 2021,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“The reduced risk of Parks disruption beyond expectations is helpful to shares and helps support our $175 price target (8x our FY25 DTC revs discounted back + 16x calendar ’22E core EPS). We note the S&P is now trading at roughly 22x fwd. EPS,” Swinburne added.

Early last month, the entertainment giant reported its first annual loss in over 40 years, however, the quarterly result was better-than-expected. Disney reported fiscal fourth-quarter losses of $710 million, or 39 cents a share, its second consecutive quarterly loss on a GAAP basis. For the full fiscal year, Disney recorded a GAAP net loss of $2.83 billion.

Morgan Stanley gave a target price of $220 under a bull-case scenario and $115 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Credit Suisse raised the target price to $178 from $146. JP Morgan upped the price objective to $170 from $160. Citigroup increased the stock price forecast to $175 from $150 and UBS raised the target price to $155 from $126.

In addition, Walt Disney had its price objective lifted by Goldman Sachs to $156 from $142. The firm currently has a buy rating on the entertainment giant’s stock. Deutsche Bank raised shares to a buy rating from hold and boosted its target price to $163 from $128.

Twenty analysts forecast the average price in 12 months at $163.89 with a high forecast of $182.00 and a low forecast of $136.00. The average price target represents a 6.13% increase from the last price of $154.43. From those 20 analysts, 17 rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Walt Disney’s shares closed 0.48% higher at $154.43 on Wednesday; the stock is up about 7% so far this year.

“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. 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 FY23,” Morgan Stanley’s Swinburne added.

“We now expect Disney Plus to end F25 with 145mm paid subscribers with revenues of nearly $11bn in FY25. Our Hulu, ESPN Plus, and Star assumptions are broadly unchanged leading to 250mm total streaming subscribers by 2025 generating over $33bn in revenues. Fiscal 2020 DTC losses came in at $3.3bn, below the original implied guidance for $3.5-4bn by our estimates, with much stronger customer growth partially offset by Disney leaning in on marketing. For fiscal 2021, we increase our estimate of DTC losses to $4-4.5bn and forecast profitability on DTC in 2024E.”

British Online Supermarket Ocado Upgrades Annual Earnings Forecast; Target Price GBX 2,450

Ocado Group, the world’s largest online pure-player grocery supermarket, upgraded their annual earnings prediction for the second straight time in just two months, largely driven by a surge in demand for food delivery services amid the COVID-19 pandemic.

The British online supermarket expects EBITDA of more than 70 million pounds, up from a forecast of over 60 million pounds made last month. If realized, that would be a more than 60% surge in EBITDA from 2018-19’s 43.3 million pounds.

“With three new warehouses opening in 2021 which will ultimately give us 40% more capacity to our business, we look forward to being able to offer more slots to existing customers while welcoming new customers to Ocado and showing them what we can offer,” said Melanie Smith, Ocado Retail’s Chief Executive Officer.

At the time of writing, Ocado’s shares traded 3.23% lower at GBX 2250.77 on Thursday. However, the stock is up over 75% so far this year.

“Ocado Group’s (OCDO) Q4 sales confirmed strong UK gains but accelerated online market share losses. Another bump up in FY EBITDA expectations is entirely linked to the smooth redistribution of UK online slot demand across the week. As OCDO outlines in its outlook for 20/21, next year’s profit outlook will largely depend on a non-time delivery of additional capacity and a lack of reversal of this year’s consumer behaviour,” said James Grzinic, equity analyst at Jefferies.

Ocado Stock Price Forecast

Seven equity analysts forecast the average price in 12 months at 2,447.50p with a high forecast of 3,455.84p and a low forecast of 1,742.09p. The average price target represents a 10.87% increase from the last price of 2,207.51p. All those seven analysts, three rated “Buy”, four rated “Hold” and none “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of GBX 1,820 with a high of GBX 2,836 under a bull-case scenario and GBX 1,219 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the online supermarket’s stock.

“We derive our price target from a DCF-based SOTP. We value the Retail business at c.508p. We value the remaining solutions business at c.944p, of which Kroger (477p). We include additional contract wins in our Base Case to the value of 300p. The remainder is cash and deferred consideration from M&S. Values are determined using DCFs (WACC 7.5%),” noted Maria-Laura Adurno, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. Ocado Group had its price objective increased by Berenberg Bank to GBX 2,530 from GBX 2,430. The brokerage currently has a buy rating on the stock. Peel Hunt raised the target price to GBX 2,800 from GBX 2,490. Citigroup reiterated a buy rating and set a GBX 2,900 target price.

Analyst Comments

“We would expect the comment around the guidance upgrade to be taken positively by the market rather than focus on the fact that, sequentially, there has been a softening in basket size as well as Retail revenue growth. Online penetration in food retail is c.7.8% (pre-COVID-19 outbreak) in the UK and it is one of the most advanced markets. Ocado benefits from increasing penetration through its Retail and Solutions businesses,” Morgan Stanley’s Adurno added.

“Best-in-class tech suggests upside from additional capacity on existing contracts and new contracts. There is competition on the micro fulfilment side. Limited near-term catalysts, execution risk. Current valuation captures part of the upside (prospective contracts and acceleration in existing ones).”

Upside and Downside Risks

Risks to Upside: Ocado signs additional large international contracts, the greater scale from new contracts helps drive profitability for the whole group. With respect to existing contracts, partners ramp-up faster – highlighted by Morgan Stanley.

Risks to Downside: Execution risks as the company struggles to keep up with newly committed capacity, resulting in downsizing of existing contracts. The slow pace in getting new contracts, which are also smaller in size.

Amphenol to Buy MTS Systems for $1.7 Billion; Target Price $157

Amphenol Corp, a leading manufacturer of high-speed specialty cables, said it will buy a global supplier of test systems and industrial position sensors MTS Systems for $58.50 per share in cash, or $1.7 billion, including debt and liabilities.

The deal is expected to close by the middle of next year.

On the other hand, Jefferies Financial Group analyst D. Kelley forecasts that the electronics maker will post earnings per share of $0.97 for Q1 2021, up from their prior estimate of $0.89. The New York-based investment bank forecasts Q4 2021 earnings at $1.19 EPS, FY2021 earnings at $4.37 EPS and FY2022 earnings at $4.81 EPS.

Amphenol’s shares closed 0.61% higher at $133.24 on Tuesday; the stock is up over 20% so far this year.

Amphenol Stock Price Forecast

Eight equity analysts forecast the average price in 12 months at $128.14 with a high forecast of $157.00 and a low forecast of $115.00. The average price target represents a -3.83% decrease from the last price of $133.24. All those eight analysts, four rated “Buy”, four rated “Hold” and none “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $105 with a high of $154 under a bull-case scenario and $83 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the electronic and fiber optic producer’s stock.

Several other analysts have also upgraded their stock outlook. Jefferies raised the stock price forecast to $157 from $138; Goldman Sachs increased the target price to $141 from $125; Baird upped the price objective to $128 from $127; Cowen and Company raised the target price to $130 from $115; UBS increased the price target to $138 from $133.

Analyst Comments

“We are Equal-weight Amphenol (APH). The company is a strong operator and grows in the mid-single digits organically and high single digits, including M&A. Amphenol’s share in connectors has increased to the low teens from 5% a decade ago,” noted Craig Hettenbach, equity analyst at Morgan Stanley.

“Furthermore, in the last 5 years, the company has built up a business in sensors (5% of sales), which should keep its growth engine humming. We view APH as an attractive compounder, although the near-term risk/reward looks balanced,” Hettenbach added.

Upside and Downside Risks

Upside Risks: 1) Greater revenue and EPS accretion from M&A. 2) Rebound in global auto production. 3) Increased growth in the $150 billion sensor market – highlighted by Morgan Stanley.

Downside Risks: 1) Any execution missteps on M&A. 2) A potential slowdown in demand in the data center and medical after outsized growth. 3) Competition in smartphones.