European Equities: A Week in Review – 25/09/20

The Majors

It was a particularly bearish week for the European majors in the week ending 25th September. The CAC40 and DAX30 slid by 4.99% and by 4.93% respectively, with the EuroStoxx600, falling by 3.60%.

Another banking scandal, a fresh spike in new COVID-19 cases, geopolitics, and economic data left the majors deep in the red.

The Stats

It was a relatively busy week on the Eurozone economic calendar.

Key stats included consumer and business confidence figures and prelim private sector PMIs for September.

Eurozone and German consumer confidence saw marginal improvements but not enough to impress. From Germany, business confidence also improved, while coming up short of forecasts.

Key in the week, however, was the prelim PMIs.

While manufacturing sector activity picked up in September, service sector activity slumped, raising concerns over the economic recovery.

France, Germany, and the Eurozone saw a contraction in the services sector. Partially offset by a pickup in manufacturing sector activity, private sector activity stalled in the Eurozone at the end of the quarter.

The Eurozone’s services PMI fell from 50.5 to 47.6, with the composite PMI declining from 51.9 to 50.1.

With the stats raising some red flags, the spike in new COVID-19 cases across Europe also weighed on risk sentiment. Concerns over the possible need to reintroduce lockdown measures left riskier assets in the deep red for the week.

From the U.S

It was a relatively quiet week. Key stats included the durable goods and core durable orders, weekly jobless claims, and September’s prelim private sector PMIs.

The stats were skewed to the negative, adding downward pressure on the majors later in the week.

While manufacturing sector activity picked up in September, service sector growth slowed at the end of the quarter. While steering clear of the 50 mark, the marginal fall in the services PMI was a red flag mid-week.

On Thursday, the jobless claims figures also disappointed. In the week ending 18th September, initial jobless claims came in at 870k, which was up from 866k in the week prior.

At the end of the week, durable goods and core durable goods orders delivered more disappointing numbers.

Durable goods orders and core durable goods orders both increased by 0.4% in August, falling well short of expectations.

While the stats provided direction in the week, central bank commentary also garnered plenty of attention.

FED Chair Powell delivered testimony through the 1st half of the week, calling for support from all levels of government. Powell also stated that plenty of uncertainty remains, with the containment of COVID-19 key to a sustainable economic recovery.

The Market Movers

From the DAX, it was a particularly bearish week for the auto sector. BMW and Volkswagen slid by 5.94% and by 5.47% to lead the way down. Continental and Daimler saw more modest losses of 0.42% and 2.33% respectively.

It was an even more bearish week for the banking sector. Commerzbank and Deutsche Bank tumbled by 10.71% and by 10.69% respectively.

From the CAC, things were not much better for the banks. BNP Paribas and Soc Gen tumbled by 12.57% and by 13.70% respectively, with Credit Agricole sliding by 11.60%.

For the banking sector, yet another scandal rocked bank stocks across the major exchanges. HSBC and Standard Chartered were among the banks that were in the news for the wrong reasons.

The French auto sector also struggled in the week. Peugeot and Renault ended the week down by 1.87% and by 4.73% respectively.

Air France-KLM was among the worst performers, however, tumbling by 19.1%, with Airbus down by 12.51%.

Rising new COVID-19 cases weighed heavily on travel stocks in the week, as concerns over the possible reintroduction of lockdown measures weighed.

On the VIX Index

It was back into the green for the week ending 25th September. Partially reversing a 3.87% fall from the week prior, the VIX rose by 2.13% to end the week at 26.38.

A 4th weekly loss for the S&P500 delivered the upside for VIX in the week.

For the week ending 25th September, the S&P500 and the Dow ended the week down by 0.63% and by 1.75% respectively. The NASDAQ ended the week up by 1.11%, with a 2.26% rally on Friday delivering the upside.

The Week Ahead

It’s a busy week ahead on the Eurozone economic calendar.

Through the 1st half of the week, prelim inflation figures are due out of France, Spain, Germany, and the Eurozone.

Following market concerns over deflationary pressures last time around, expect the numbers to influence.

Alongside Eurozone prelim inflation figures on Wednesday, German and French consumer spending and German unemployment figures will also influence.

The focus will then shift to September manufacturing PMIs for Italy and Spain. Finalized PMIs for France, Germany, and the Eurozone are also due out.

Barring deviation from prelim numbers, expect Italy and the Eurozone’s PMIs to have the greatest impact on Thursday.

Economic data from the U.S and from China will also provide direction in the week.

U.S consumer confidence, finalized GDP numbers, weekly jobless claims, ISM Manufacturing PMI and nonfarm payrolls, and the U.S unemployment rate are due out.

From China, September’s private sector PMIs on Thursday will also influence market risk appetite. The market’s favored Caixin Manufacturing PMI will have the greatest impact.

Away from the economic calendar, COVID-19 news, Brexit, and U.S-China chatter will also need monitoring.

Morgan Stanley Raised Darden’s Price Target to $112 from $71

American multi-brand restaurant operator, Darden’s price target was raised to $112 from $71 with ‘Equal-weight’ stock rating, according to Morgan Stanley equity analyst John Glass, who also upgraded their EPS estimates to $4.68/$6.35 for the next two fiscal years.

On Thursday, Darden Restaurants reported total sales of $1.53 billion, a decrease of 28.4% driven by negative blended same-restaurant sales of 29.0% and partially offset by the addition of 14 net new restaurants. Reported diluted net earnings per share from continuing operations of $0.28 as compared to last year’s reported diluted net earnings per share of $1.38.

Darden reported adjusted diluted net earnings per share from continuing operations of $0.56, after excluding $0.28 related to corporate restructuring costs, as compared to reported diluted net earnings per share of $1.38.

The Company forecasts fiscal 2021 total sales of approximately 82% of prior year and EBITDA of $200 to $215 million.

“Best in class casual dining operator with a strong brand portfolio. As the largest CDR operator, DRI has substantial scale advantages in shared services which can be levered in a post-COVID environment by improving margins and gaining market share. Lead brand Olive Garden (50% of sales) garners top consumer scores, and its comp sales have historically outpaced the industry,” Morgan Stanley’s John Glass added.

“Acquisition of Cheddar’s has been more challenging than initially expected, though still provides longer-term growth potential. Industry uncertainty and relatively fairly valued shares, in our view, drive our EW rating weighed against DRI’s strong sales track record and operational leadership.”

At the time of writing, Darden stock traded 0.18% lower at $97.13 on Friday; however, the stock is down 10% so far this year.

Several other equity analysts have also updated their stock outlook. UBS raised their target price to $109 from $100; Wells Fargo upped their target price to $104 from $91; BofA Global Research upgraded their stock price forecast to $115 from $100; Truist Securities raised price target to $128 from $100; Stephens upped target price to $115 from $98; Guggenheim upgraded their stock price forecast to $133 from $119 and JP Morgan raised their target price to $105 from $82.

Twenty-four analysts forecast the average price in 12 months at $102.74 with a high forecast of $128.00 and a low forecast of $75.00. The average price target represents a 6.44% increase from the last price of $96.52. From those 24 equity analysts, 15 rated ‘Buy’, nine rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

“In the last fiscal year pre-COVID, EBITDA margins were 14%. If/when sales recover to 100% of pre-COVID levels, there is theoretically another 100-150 bp of margin opportunity, subject to reinvestment needs and competitive intensity at that time,” Morgan Stanley’s Adam Jonas said.

“For now, we are comfortable underwriting the 15.5% by FY22, leading us to raise FY21/22 EPS estimates as described below, and raising our price target to $112, based on our CY22 estimate of $6.60 in EPS (or $1.4B EBITDA), and restoring the multiple to pre-COVID averages given this increased visibility. Our bull case factors in the case where EBITDA margins could reach 17%.”

Upside risks: 1) Company is able to significantly gain share. 2) OG/LH comps benefit from higher off-premise sales vs pre-COVID. 3) Margins expand above expected without compromising investments, highlighted by Morgan Stanley.

Downside risks: 1) Regional lockdowns and new virus outbreaks keep consumers from visiting dining rooms (by choice or mandate). 2) Off-premise margins deteriorate. 3) Cheddar’s integration remains challenged in a tough macro backdrop.

ConocoPhillips Forecasts a Recovery in Global Oil Demand; Stock Price Target $51

ConocoPhillips, an independent oil and gas exploration company, forecasts global demand for oil recovering to 100 million barrels per day and increasing from there on, a senior executive said on Thursday, Reuters reported.

According to the latest Reuters report, senior vice president Dominic Macklon said during a Question and Answer session with Raymond James said, “The view stands in contrast to that of rival BP Plc, which sees the coronavirus pandemic leaving a lasting effect on global energy demand, though ConocoPhillips still expects “quite a bit of uncertainty next year”.

Macklon added that ConocoPhillips’ capital spending for next year will be “somewhat below” its previously expected this year’s level of $6.6 billion.

ConocoPhillips shares closed 2.06% higher at $33.60 on Thursday. However, the stock is still down about 50% so far this year.

ConocoPhillips stock forecast

Twelve analysts forecast the average price in 12 months at $51.45 with a high forecast of $62.00 and a low forecast of $45.00. The average price target represents a 53.13% increase from the last price of $33.60. From those 12 equity analysts, 11 rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $47 with a high of $69 under a bull scenario and $23 under the worst-case scenario. Wells Fargo raised their price target to $56 from $54; MKM Partners lowered their target price to $55 from $57 and Susquehanna cuts target price to $52 from $54.

A number of other equities research analysts have also recently issued reports on the stock. MKM Partners increased their target price on ConocoPhillips to $58 from $57 and gave the stock a “buy” rating in May. UBS Group increased their target price to $62 from $50 and gave the stock a “buy” rating in June. Raymond James increased their target price to $48 from $46 and gave the stock an “outperform” rating.

Analyst views

“COP checks all the boxes for sustained outperformance: excellent management, disciplined investment, and consistent return of cash coupled with high quality, low-cost portfolio that can deliver an attractive combination of FCF and growth. Attractive value proposition even in the current commodity price environment with leverage to any rally in oil and with resiliency should prices remain low,” said Devin McDermott, equity analyst and commodities strategist at Morgan Stanley.

“Strong balance sheet. While management received some investor pushback in 2019 for building an $8 billion strategic cash balance, that disciplined strategy is paying off in 2020 – creating financial and strategic flexibility,” McDermott added.

Upside and Downside Risks

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

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

Check out FX Empire’s earnings calendar

European Equities: A Quiet Economic Calendar Leaves Geopolitics and COVID-19 in Focus

The Majors

It was a bearish day for the European majors on Thursday. The CAC40 and EuroStoxx600 fell by 0.83% and by 1.02% respectively, with the DAX30 ending the day down by 0.29%.

Economic data and the latest uptrend in new COVID-19 cases weighed on the majors, with the markets now expecting further stimulus to counter the sputtering economic recovery.

The Stats

It was a relatively busy day on the Eurozone economic calendar. Germany’s IFO Business Climate Index and sub-index figures were in focus early in the European session.

In September, the Business Climate Index rose from 92.5 to 93.4. Economists had forecast a rise to 93.8. The current assessment sub-index rose from 87.9 to 89.2, with the expectations index up from 97.5 to 97.7.

By sector:

Manufacturing: The Business Climate Index saw a sizeable increase, with significantly fewer companies assessing their current business situation as difficult. More companies also expected that their business situation will improve.

Services: By contrast, the index fell for the 1st time in 5-months, as a result of weaker optimism. Firms viewed their current situation as marginally better.

Trade: Companies were considerably more satisfied with the current business situation, with many being more optimistic about the near-term.

Construction: The index was on the rise once more, with the current situation indicator hitting its highest level since March. While pessimism persisted, firms were less pessimistic than back in August.

From the U.S

It was a relatively busy day on the economic calendar. August new home sales and the weekly jobless claims figures were in focus late in the European session.

In August, new home sales rose by 4.8%, following a 13.9% spike in July. Economists had forecast a 0.1% decline, month-on-month.

More significantly, however, were the jobless claims figures.

In the week ending 21st September, initial jobless claims stood at 870k, which was up from 866k from the previous week. Economists had forecast 840k.

The Market Movers

For the DAX: It was a bullish day for the auto sector on Thursday. Continental rallied by 3.53% to lead the way, with Daimler and Volkswagen rising by 1.60% and by 1.90% respectively. BMW saw a more modest 0.48% gain on the day.

It was a mixed day for the banks after the scandal-driven sell-off. Deutsche Bank rose by 0.46% while Commerzbank ended the day down by 0.87%.

From the CAC, bank stocks saw more losses. Credit Agricole and Soc Gen slid by 1.83% and by 2.61% respectively. BNP Paribas saw a relatively modest 0.94% loss, however.

It was also a bearish day for the French auto sector. Peugeot and Renault ended the day down by 0.55% and by 0.36% respectively.

Air France-KLM hit reverse once more, sliding by 6.77%, with Airbus SE ending the day down by 3.46%.

On the VIX Index

The VIX fell by 0.24% on Thursday. Following a 6.40% gain on Wednesday, the VIX ended the day at 28.51.

Disappointing economic data from the U.S weighed on the majors, while FED Chair Powell’s talk of more support provided a cushion for the U.S markets on the day.

The NASDAQ and S&P500 rose by 0.37% and by 0.30% respectively, with the Dow ending the day up by 0.20%

VIX 25/09/20 Hourly Chart

The Day Ahead

It’s a particularly quiet day ahead on the Eurozone economic calendar. There are no material stats to provide the European majors with direction.

Late in the session, U.S durable goods and core durable goods will garner some interest, however.

With no stats to influence early on, geopolitics and COVID-19 will be the key drivers on the day. On the COVID-19 front, any talk of a reintroduction of restrictions would test support.

U.S – China tensions and Brexit chatter will also need monitoring.

The Futures

In the futures markets, at the time of writing, the Dow was up by 116 points, with the DAX up by 82.5 points.

For a look at all of today’s economic events, check out our economic calendar.

AMC Entertainment Shares Plunge Over 4% as Company Eyes to Sell 15 Million Shares

Pandemic-hit AMC Entertainment Holdings’ shares fell more than 4% on Thursday after it said that it has reached an agreement with some banks to sell nearly 15 million shares as COVID-19 pandemic hurt business, sending its shares down over 4%.

The world’s largest movie theater operator said in a filing that postponement of major releases slated for the Thanksgiving and Christmas holidays until next year would significantly impact its liquidity in the fourth quarter, Reuters reported.

Following this announcement, AMC Entertainment shares fell over 4% to $4.57 on Thursday. However, the stock is still down over 30% so far this year.

AMC Entertainment stock forecast

Five analysts forecast the average price in 12 months at $4.63 with a high forecast of $7.00 and a low forecast of $2.00. The average price target represents a 0.33% increase from the last price of $4.62. From those five equity analysts, none rated “Buy”, four rated “Hold” and one rated “Sell”, according to Tipranks.

AMC Entertainment had its price target raised by B. Riley to $5.50 from $4. B. Riley currently has a neutral rating on the stock. Wedbush raised their price objective to $7 from $4 and gave the company a neutral rating. Credit Suisse Group downgraded AMC Entertainment from a neutral rating to an underperform rating and cut their target price for the stock to $2 from $4.

A number of other equities research analysts have also recently issued reports on the stock. Barrington Research reaffirmed a hold rating on shares of AMC Entertainment. Citigroup raised their target price to $4.00 and gave the stock a sell rating. At last, Zacks Investment Research cut their target price on to $3.50.

Analyst views

“With future capital returns forecasted to fall short of the cost of capital, AMC is expected to continue to be a major Value Eraser. With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. AMC has a slightly positive Appreciation Score of 68 but a very low Power Rating of 4, triggering the Negative Value Trend Rating,” noted Price Target Research.

Check out FX Empire’s earnings calendar

Johnson & Johnson Begins Final Stage Trial of COVID-19 Vaccine; Target Price $170

Johnson & Johnson, one of the world’s largest and most comprehensive manufacturers of healthcare products, said on Wednesday that it has begun its large-scale, pivotal, multi-country Phase-3 trial for its COVID-19 vaccine candidate, sending shares as high as 2%.

The company expects the first batches of the COVID-19 vaccine, JNJ-78436735, to be available for emergency use authorization in early next year, if proven to be safe and effective.

Following this announcement, Johnson & Johnson shares closed 0.16% higher at $144.44 on Wednesday. However, the stock is still down about 1% so far this year.

The company, which is well-known for consumer products like Band-Aids, said it will enrol up to 60,000 volunteers across three continents and will study the safety and efficacy of a single vaccine dose versus placebo in preventing COVID-19.

Johnson & Johnson added that the vaccine, if successful, is estimated to remain stable for two years at -20°C and at least for three months at 2-8°C. This makes the vaccine candidate compatible with standard vaccine distribution channels and would not require new infrastructure to get it to the people who need it.

Johnson & Johnson stock forecast

Seven analysts forecast the average price in 12 months at $166.86 with a high forecast of $175.00 and a low forecast of $158.00. The average price target represents a 14.23% increase from the last price of $146.07. All those seven equity analysts rated “Buy”, none rated “Hold” or “Sell”, according to Tipranks.

Morgan Stanley target price is $170 with a high of $204 under a bull scenario and $110 under the worst-case scenario. SVB Leerink reiterated an “outperform” rating on shares of Johnson & Johnson. Zacks Investment Research lowered shares of Johnson & Johnson from a “hold” rating to a “sell” rating and set a $150 price target for the company.

A number of other equities research analysts have also recently issued reports on the stock. Stifel Nicolaus lowered shares of Johnson & Johnson from a “buy” rating to a “hold” rating. Bank of America reissued a “buy” rating. At last, Credit Suisse Group reissued a “buy” rating.

It is good to hold now as 50-day Moving Average and 100-200-day MACD Oscillator signals a mild selling opportunity.

Analyst views

“Our price target of $170 for JNJ is based on a 19.0x multiple off of our base case 2021e EPS, supported by our SOTP analysis. We assume J&J trades at a mid-single-discount multiple with S&P 500 given defensive-oriented profile, growth acceleration in Pharma, and improving fundamentals in Consumer/MD&D, balanced by litigation overhang,” said David Lewis, equity analyst at Morgan Stanley.

“Litigation liability has been more than reflected in J&J shares, in our view, creating a meaningful valuation disconnect vs. the S&P. Pharma-driven acceleration is poised to drive the multiple higher in 2020 led by blockbuster franchises, pipeline launches and easing comparables. Momentum in MD&D and Consumer segments should drive a more balanced growth profile which is less reliant on Pharma,” Lewis added.

Upside and Downside Risks

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

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

Check out FX Empire’s earnings calendar

European Equities: Economic Data, COVID-19 News, and Geopolitics in Focus

Economic Calendar:

Thursday, 24th September

German IFO Business Climate Index (Sep)

The Majors

It was a relatively bullish day for the European majors on Wednesday, with the CAC40 rising by 0.62% to lead the way. The DAX30 and EuroStoxx600 weren’t far behind, with gains of 0.39% and 0.55% respectively.

A sharp pickup in manufacturing sector activity in September delivered support on the day, with the Eurozone Manufacturing PMI hitting a 25-month high. Service sector activity waned, however, limiting the upside for the majors.

Adding to the upside on the day was a continued slide in the EUR, which fell back to $1.16 levels.

The Stats

It was a particularly busy day on the Eurozone economic calendar. Ahead of the European open, German consumer confidence figures were in focus.

For October, Germany’s GfK Consumer Climate Index rose from a revised -1.7 to -1.6. Economists had forecast an increase to -1.0.

According to the GfK Survey,

  • Both economic and income expectations were on the rise, while propensity to buy tumbled.
  • The indicator for consumer income expectations rose by 3.3 points to 16.1 points.
  • There was an even sharper rise in consumer sentiment towards the German economic outlook. Economic expectations rose by 12.4 points to 24.1, logging a 5th consecutive monthly increase.
  • The propensity to buy indicator fell by 5.3 points to 38.4, however.

Later in the morning, prelim private sector PMI numbers for September were in focus.

France’s manufacturing PMI rose from 49.8 to 50.9, while the services PMI declined from 51.5 to 47.5. Economists had forecast PMIs of 50.5 and 51.5 respectively.

For Germany, the Manufacturing PMI increased from 52.2 to 56.6, while the services PMI slid from 52.5 to 49.1 Economists had forecast PMIs of 52.5 and 53.0 respectively.

In September, the Eurozone’s Services PMI slid from 50.5 to 47.6, while the Manufacturing PMI rose from 51.7 to 53.7. Economists had forecast PMIs of 51.9 and 50.5 respectively.

According to the prelim September survey,

  • The prelim Eurozone composite output index fell from 51.9 to a 3-month low 50.1.
  • On the slide was the Service PMI Activity Index that slid from 50.5 to a 4-month low 47.6.
  • By contrast, the Manufacturing PMI rose to a 25-month high 53.7.
  • For the manufacturing sector, a surge in new orders drove the PMI, with Germany’s private sector leading the way.
  • A general trend was seen across the bloc, however, with the service sector sounding the alarm bells.
  • On employment, the private sector reported a 7th consecutive month of job cuts, albeit at a slower pace.

From the U.S

It was a busier day. September’s prelim Makit private sector PMIs provided direction later in the session.

The Services PMI slipped from 55.0 to 54.6, while the Manufacturing PMI rose from 53.1 to 53.5. Economists had forecast PMIs of 54.7 and 53.1 respectively.

FED Chair Powell was also in focus on Tuesday, delivering a 2nd day of testimony on Capitol Hill. Powell talked of the need for more policy to support economic recovery. The FED Chair also noted that there is still a long way to go and that the recovery would be faster if support came from both the FED and from Congress…

The Market Movers

For the DAX: It was back into the red for the auto sector on Wednesday. BMW and Volkswagen fell by 1.08% and by 1.34% to lead the way down. Continental and Daimler saw more modest losses of 0.42% and 0.70% respectively.

It was yet another day in the red for the banks. Deutsche Bank fell by 0.83%, with Commerzbank ending the day down by 2.60%.

While there was plenty of red across the DAX, Adidas rallied by 2.68%. Better than expected Nike earnings delivered support on the day.

From the CAC, bank stocks also continued to struggle in the wake of the latest scandal. BNP Paribas fell by 2.60%. to lead the way down. Credit Agricole and Soc Gen saw more modest losses of 0.76% and 1.18% respectively.

It was another bullish day for the French auto sector, however. Peugeot and Renault ended the day with gains of 1.77% and 3.41% respectively.

Air France-KLM found much-needed support, rising by 0.12%, while Airbus SE slipped by 0.93%.

On the VIX Index

The VIX rose by 6.40% on Wednesday. Reversing a 3.31% fall from Tuesday, the VIX ended the day at 28.58.

Market reaction to dovish chatter from the FED weighed on the majors mid-week. FED Chair Powell talked of the need for more support to sustain the economic recovery.

On the economic data front, service sector activity saw marginally slower growth in September, raising further questions over the economic outlook.

The NASDAQ and S&P500 slid by 3.02% and by 2.37% respectively, with the Dow ending the day down by 1.92%

VIX 24/09/20 Daily Chart

The Day Ahead

It’s a quieter day ahead on the Eurozone economic calendar. Key stats include Germany’s IFO Business Climate Index figures for September.

Expect the numbers to influence, though the latest spike in new COVID-19 cases across the EU could overshadow any upbeat numbers.

From the U.S, the weekly jobless claims figures will also draw plenty of attention later in the session.

Aside from the economic indicators, FED Chair Powell and U.S Treasury Secretary Mnuchin are also in focus…

The Futures

In the futures markets, at the time of writing, the Dow was up by 58 points, while the DAX was down by 95.5 points.

For a look at all of today’s economic events, check out our economic calendar.

Coupa Software’s Price Target Raised to $330 with Overweight Rating, $466 in Best Case: Morgan Stanley

Coupa Software Inc’s price target was raised to $330 from $272 with ‘Overweight’ stock rating, according to Morgan Stanley equity analyst Stan Zlotsky, who also said sees a solid execution coupled with improving macro setting up the company well for a potential FY22 growth re-acceleration.

Early this month, the cloud-based expense management platform reported total revenue of $125.9 million, an increase of 32% compared to the same period last year. Subscription revenues were $111.6 million, an increase of 34% compared to the same period last year.

The company forecasts total revenues between $123.0 to $124.0 million for the third quarter and between $496.5 to $498.5 million for the full-year fiscal 2021.

“Most investors clearly see the impact COVID has had on Coupa’s growth in FY21, which we think creates an opportunity to own one of the premier SaaS assets ahead of a potential growth acceleration into FY22,” Morgan Stanley’s Adam Jonas said.

“We see a fairly clear runway for Coupa getting to mid-30% revenue growth in FY22 through: 1) organic growth of 25-30%; 2) Coupa Pay starting to hit revenue more materially – we estimate ~$60M potential; 3) $20-$25 million from Bellin acquisition; 4) $10-$15 million from Yapta acquisition as corporate travel resumes. Compared to current consensus FY22 growth of ~26%, we see the potential for Coupa to deliver the beat/raise cadence moving forward and outperform Street expectations through the year.”

At the time of writing, Coupa stock traded 1.5% higher at $272.15 on Wednesday; however, the stock is up over 80% so far this year.

Several other equity analysts have also updated their stock outlook. KeyCorp increased their price target on Coupa Software to $325 from $320 and gave the stock an “overweight” rating. Raymond James increased their price target to $300 from $235 and gave the stock an “outperform” rating. Truist increased their price target to $300 from $240.

Seventeen analysts forecast the average price in 12 months at $291.53 with a high forecast of $339.00 and a low forecast of $232.00. The average price target represents a 6.52% increase from the last price of $273.68. From those 17 equity analysts, 11 rated ‘Buy’, six rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

“In an uncertain macro environment, we expect relative outperformance in COUP due to  1) defensive nature of Coupa’s core business spend management (BSM) offering, 2) expanding TAM from entry into B2B payments (Coupa Pay) and 3) rapidly improving profitability – all of which drive durable LT growth, in our view,” Morgan Stanley’s Stan Zlotsky added.

“Our $330 price target is based on combining our $193 base case value for the core BSM business and our conservative Coupa Pay estimates, which imply $137 of incremental value. Our price target implies 33X CY21 EV/Sales and 0.94x growth adjusted vs. SaaS peers at 0.56x, a premium we think is appropriate given model conservatism, higher contribution margins from Coupa Pay and sustainability of long-term growth.”

Upside risk: Coupa Pay gains adoption faster than expected, opening a potentially large incremental TAM opportunity, highlighted by Morgan Stanley.

Downside risks: Increased competition from large, well established ERP vendors like Oracle and SAP Ariba. Prolonged macro slowdown limits new customer growth and share gains.

Ford Motors to Invest C$1.95 Billion in Canada Operations Under Unifor Union Deal

Ford Motors, an American multinational automaker, will invest 1.95 billion Canadian dollars in its Oakville and Windsor plants in Canada, Unifor union National President Jerry Dias said.

Unifor National President, Jerry Dias said: “I’m very pleased to announce that on behalf of the more than 6,000 members who work at Ford Motor Company, we have negotiated $1.95 billion of investments to retool the Oakville complex to build five models of electric vehicles and bring a new product to the engine plant in Windsor.”

“Today is an historic day. We are not only talking about solidifying the footprint of the auto industry in the short-term but for the long term. I think it’s fair to say that as an organization we hit a home run,” said Dias.

Dias added that up until today, of the $300 billion announced globally in EV investments as the auto industry transforms from combustible engines to battery-electric vehicles, not one nickel had been allocated Canada. But with today’s announcement, that changes.

Ford shares closed 1.31% lower at $6.78 on Tuesday; the stock is down about 30% so far this year.

Ford stock forecast

Eleven analysts forecast the average price in 12 months at $7.46 with a high forecast of $8.00 and a low forecast of $4.90. The average price target represents a 10.03% increase from the last price of $6.78. From those 11 equity analysts, three rated “Buy”, seven rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley target price is $8 with a high of $12 under a bull scenario and $4 under the worst-case scenario. Evercore ISI raised the price target to $8 from $5; Citigroup upped their stock price objective to $7.5 from $5.5 and Ford Motor had its target price raised by Credit Suisse Group to $8 from $7. The brokerage currently has a neutral rating on the auto manufacturer’s stock.

A number of other equities research analysts have also recently issued reports on the stock. Barclays upped their price objective to $7 from $4 and gave the company an equal weight rating. Royal Bank of Canada dropped their price target to $5 from $6.50 and set a sector to perform rating.

It is good to hold now as 50-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.

Analyst views

“We raise our 2020 Ford EPS forecast to ($0.90) vs. our prior forecast of ($1.30), while for 2021 and 2022 our EPS rises to positive $0.75 and $1.25 vs. our prior forecast of $0.30 and $0.80 respectively. On our revised price target of $8, Ford trades at just over 10x our 2021E EPS. Currently, the stock trades at just over 9x our revised 2021 EPS forecast,” Adam Jonas, equity analyst at Morgan Stanley noted in June.

“We raise our 3Q N. American Ford volume forecast to negative 12% Y/Y vs. down 15% previously. Our 4Q volume is revised to down 3% vs. down 5% previously. This slight upward adjustment reflects stronger than expected US SAAR, a rebound in used vehicle prices, and more supportive auto credit vs. our prior forecasts,” he added.

Upside and Downside Risks

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

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

European Equities: Private Sector PMIs , Powell, and COVID-19 in Focus

Economic Calendar:

Wednesday, 23rd September

GfK German Consumer Climate (Oct)

Spanish GDP (QoQ) (Q2)

French Manufacturing PMI (Sep) Prelim

French Services PMI (Sep) Prelim

German Manufacturing PMI (Sep) Prelim

German Services PMI (Sep) Prelim

Eurozone Manufacturing PMI (Sep) Prelim

Eurozone Markit Composite PMI (Sep) Prelim

Eurozone Services PMI (Sep) Prelim

Thursday, 24th September

German IFO Business Climate Index (Sep)

The Majors

It was a mixed day for the European majors following Monday’s sell-off. The DAX30 and EuroStoxx600 rose by 0.41% and by 0.20% respectively, while the CAC40 fell by 0.40%.

There was little influence from a light economic calendar on the day. While bank stocks continued to struggle amidst the latest scandal, dip-buyers delivered support on the day.

A softer EUR added support to the DAX30 in particular as the Dollar bounce back continued.

The Stats

It was a quiet day on the Eurozone economic calendar. The Eurozone’s flash consumer confidence figure was in focus late in the European session.

According to the latest survey, the Eurozone’s Consumer Confidence Indicator rose from -14.7 to -13.9 in September. Economists had forecast a rise to -14.6.

While up on the month, the indicator continued to sit well below the long-run average -11.1.

From the U.S

It was a busier day. While existing home sales figures for August were in focus, FED Chair Powell’s testimony on Capitol Hill was the main event of the day.

FED Chair Powell provided few surprises in his first speech of the week, however. Powell cited the path forward would depend on keeping COVID-19 under control and government policy moves.

The Market Movers

For the DAX: It was a relatively bullish day for the auto sector on Tuesday. Continental and Daimler rose by 1.48% and by 0.86% respectively to lead the way. BMW and Volkswagen weren’t far behind, with gains of 0.41% and 0.75% respectively.

It was another day in the red for the banks, however. Deutsche Bank fell by 1.78% following Monday’s 7.64% tumble, with Commerzbank ending the day down by 0.07%.

From the CAC, it was also a bearish day for the banks. BNP Paribas and Credit Agricole ended the day down by 0.52% and by 0.57% respectively. Soc Gen saw a more modest 0.10% loss following Monday’s 7.66% slide.

For the banking sector, the latest scandal continued to pressure European bank stocks on the day.

It was a bullish day for the French auto sector, which bucked the trend on the day. Peugeot and Renault ended the day with gains of 3.63% and 2.66% respectively.

Air France-KLM slid by 4.35% following Monday’s 7.63% slump, with Airbus SE following Monday’s 6.57% slide with a 2.68% loss.

The spike in new COVID-19 cases and fears of a reintroduction of containment measures continued to weigh on travel stocks.

On the VIX Index

On Tuesday, the VIX fell by 3.31%. Partially reversing a 7.55% gain from Monday, the VIX ended the day at 26.86.

Support came from dip-buying, with little else to provide the majors with direction following Monday’s pullback.

FED Chair Powell’s delivery also provided nothing new for investors to fret about on the day.

The NASDAQ and S&P500 rose by 1.71% and by 1.05% respectively, with the Dow seeing a more modest 0.52% gain.

VIX 23/09/20 Daily Chart

The Day Ahead

It’s a busy day ahead on the Eurozone economic calendar. Key stats German consumer confidence figures that are due out ahead of the European open.

Later in the morning, September’s prelim private sector PMIs are due out of France, Germany, and the Eurozone.

Following some disappointing numbers from August, there will be plenty of interest in today’s stats.

Any general downward trend in the PMIs and expect the majors to come under pressure. With new COVID-19 cases on the rise and the threat of lockdown measures lingering, COVID-19 chatter will also influence.

On the geopolitical risk front, there’s also Brexit and tensions between the U.S and China to monitor.

From the U.S, prelim private sector PMIs and Powell’s 2nd day of testimony on Capitol Hill will also influence late in the day.

The Futures

In the futures markets, at the time of writing, the Dow was up by 36 points.

For a look at all of today’s economic events, check out our economic calendar.

Carvana Shares Jump Over 30% as Company Eyes Record Q3 Sales and Revenue

A leading used-car retailer Carvana Co’s shares jumped over 30% on Tuesday after the company said that they aim to achieve records in performance across several important metrics, including sales and revenue, in the third quarter, following a recovery in auto sales in the United States.

Following this release, Carvana shares climbed more than 30% to $229.49 on Tuesday; the stock is up over 150% so far this year.

Carvana also said it plans to offer up to $1 billion in aggregate principal amount of senior notes, due in 2025 and 2028, Reuters reported.

Executive comments

“The momentum that we saw in the second quarter accelerated into the third, leading to record performance for Carvana in metrics that demonstrate strong progress both in growth and towards profitability,” said Ernie Garcia, Carvana founder and CEO.

“Hitting these records while continuing to provide the exceptional customer experiences we’ve become known for and adjusting to all the change that 2020 has brought us speaks to the quality of people we have at Carvana and to their tireless focus on our customers.”

Carvana stock forecast

Sixteen analysts forecast the average price in 12 months at $203.93 with a high forecast of $250.00 and a low forecast of $105.00. The average price target represents a -9.73% decrease from the last price of $225.91. From those 16 equity analysts, 12 rated “Buy”, four rated “Hold” and none rated “Sell”, according to Tipranks.

JP Morgan establishes December 2021 price target of $235 vs December 2020 price target of $190; Wedbush raised target price to $190 from $170 and Goldman Sachs upgraded their rating to buy; raising the target price to $205 from $178.

Robert W. Baird raised their target price on shares of Carvana from $148 to $195 in August. BofA Securities cut shares of Carvana from a “buy” rating to a “neutral” rating and raised their target price for the stock from $150 to $230. Piper Sandler reduced their target price on shares of Carvana from $211 to $209 and set an “overweight” rating.

Analyst views

“We believe that, as growth starts to slow, and the company is still not profitable, there will be a transition away from growth investors, and how investors think about the valuation will change. Our estimate for 2023 Retail Units Sold is ~25% lower than Consensus: (1) with US population coverage ~73%, the opportunity for market expansion is decreasing, and (2) while we expect the cohort curves to demonstrate continued improvement, there is limited room for improvement for Retail Units Sold / Market, as less mature & smaller markets are added to the footprint,” said Adam Jonas, equity analyst at Morgan Stanley, who has a price target of $232 in a bull-case scenario and $23 in the best case.

“We are modelling positive EBITDA by 2022 & positive FCF by 2023, but we remain concerned about the ability to leverage SG&A,” Jonas added.

Upside and Downside Risks

Upside: 1) Constructive third-party data on retail unit sales. 2) Gains from securitization sales SG&A leverage. 3) Additional products and services – highlighted by Morgan Stanley.

Downside: 1) 2020 & 2021 guidance. 2) Capital raise. 3) Insider selling. 3) U.S. auto and auto credit cycle. 4) Competition.

Check out FX Empire’s earnings calendar

Illumina to Acquire Grail for $8 billion, Shares Down Over 8%

Illumina Inc, a global leader in genomics, said on Monday that it would acquire Grail, a healthcare company whose mission is focused on early detection of multi-cancer, for cash and stock consideration of $8 billion.

Under the terms of the deal, at closing, GRAIL stockholders (including Illumina) will receive total consideration of $8 billion, consisting of $3.5 billion in cash and $4.5 billion in shares of Illumina common stock, subject to a collar. Illumina currently holds 14.5% of GRAIL’s shares outstanding and approximately 12% on a fully diluted basis, the company said.

Illumina’s shares plunged more than 8% to $270.13 on Monday; the stock is up down about 20% so far this year.

“While we think Grail’s liquid biopsy technology to detect cancers in very early stages holds significant promise in a preventative-care setting, the stock market has questioned that valuation being paid, pushing down Illumina’s stock 18% since last week when rumors initially started swirling around this deal, “said Julie Utterback, senior equity analyst at Morningstar.

“The shares appear to be under pressure in pre-market trading as well, but at first glance, we do not expect to significantly change our fair value estimate. Illumina shares are currently trading near fair value,” Utterback added.

Executive comments

“Over the last four years, GRAIL’s talented team has made exceptional progress in developing the technology and clinical data required to launch the GalleriTM multi-cancer screening test. Galleri is among the most promising new tools in the fight against cancer, and we are thrilled to welcome GRAIL back to Illumina to help transform cancer care using genomics and our NGS platform,” said Francis deSouza, Illumina’s President and Chief Executive Officer.

“Together, we have an important opportunity to introduce routine and broadly available blood-based screening that enables early cancer detection when treatment can be more effective and less costly. Multi-cancer early detection is better for patients, their physicians, and payors. As we accelerate our path to clinical leadership and the path to multi-cancer early detection, we will continue to drive significant value creation for our stockholders.”

Illumina stock forecast

Ten analysts forecast the average price in 12 months at $346.00 with a high forecast of $400.00 and a low forecast of $280.00. The average price target represents a 28.09% increase from the last price of $270.13. All those ten equity analysts, three rated “Buy”, six rated “Hold” and one rated “Sell”, according to Tipranks.

On Monday, Canaccord Genuity lowered their target price to $300 from $350; Evercore ISI cut shares of Illumina to $225 from $310 and JP Morgan cuts to neutral from overweight, lowering the target price to $280 from $390.

Other equity analysts also recently updated their stock outlook. Argus reiterated a “reduce” rating and set a $380 price target on shares of Illumina. JP Morgan Chase & Co. lifted their target price on shares of Illumina to $390 from $340 and gave the company an “overweight” rating in July. Piper Sandler downgraded shares of Illumina from an “overweight” rating to a “neutral” rating and lowered their target price for the company to $340 from $356 in August.

At last, Morgan Stanley started coverage on shares of Illumina on September 9th. They issued an “equal weight” rating and a $400 price objective for the company.

Analyst views

“GRAIL is bold, very dilutive, and an unclear fit with ILMN’s core competencies; also the long term strategic fit needs to be better articulated. That said, we believe the risk/reward for ILMN is getting much more compelling in the mid-$200s. GRAIL will likely attract non-specialist fund flow, could be part of a bigger clinical value re-capture strategy, and in the worst case could lead to a sale,” said Doug Schenkel, equity analyst at Cowen and Company.

Check out FX Empire’s earnings calendar

European Equities: The Futures Point Northwards after Monday’s COVID-19 Sell-off

Economic Calendar:

Tuesday, 22nd September

Eurozone Flash Consumer Confidence

Wednesday, 23rd September

GfK German Consumer Climate (Oct)

Spanish GDP (QoQ) (Q2)

French Manufacturing PMI (Sep) Prelim

French Services PMI (Sep) Prelim

German Manufacturing PMI (Sep) Prelim

German Services PMI (Sep) Prelim

Eurozone Manufacturing PMI (Sep) Prelim

Eurozone Markit Composite PMI (Sep) Prelim

Eurozone Services PMI (Sep) Prelim

Thursday, 24th September

German IFO Business Climate Index (Sep)

The Majors

It was a particularly bearish start to the week for the European majors on Monday. The DAX30 slumped by 4.37% to lead the way down, with the CAC40 and EuroStoxx600 sliding by 3.74% and by 3.24% respectively.

A fresh spike in new COVID-19 cases across EU member states weighed on the European majors on the day.

The sell-off continued on from Friday, following the WHO’s warning of Europe being in a “very serious situation”.

There were no major stats to distract the markets, with the fear of a reintroduction of lockdown measures doing the damage.

Following recent central bank commentary and economic indicators, the economic recovery had already begun to wane. A reintroduction of lockdown measures could hit the European economy far harder than the 1st time around.

The Stats

It was a quiet day on the Eurozone economic calendar. There were no material stats to provide the European majors with direction at the start of the week.

From the U.S

It was also a quiet day, with no material stats from the U.S session to provide the majors with direction.

The Market Movers

For the DAX: It was a bearish day for the auto sector on Monday. Continental and Volkswagen slid by 5.21% and by 5.13% respectively to lead the way down. BMW and Daimler weren’t far behind, with losses of 4.41% and 3.91% respectively.

It was also a particularly bearish day for the banks. Deutsche Bank tumbled by 7.64%, with Commerzbank sliding by 5.42%.

From the CAC, it was much better for the banks. BNP Paribas and Credit Agricole ended the day down by 6.37% and by 5.36% respectively. Soc Gen led the way down, however, tumbling by 7.66%.

It was also a particularly bearish day for the French auto sector. Peugeot and Renault ended the day with losses of 4.91% and 7.75% respectively.

Air France-KLM slumped by 7.63%, with Airbus SE sliding by 6.57%.

On the VIX Index

It was back into the green for the VIX on Monday. Reversing a 2.38% loss from Friday, the VIX rose by 7.55% to end the day at 27.78.

The U.S majors hit reverse as investors responded to the spike in new COVID-19 cases that could derail the sputtering economic recovery.

The Dow and S&P500 fell by 1.84% and by 1.16% respectively, while the NASDAQ saw a more modest loss of 0.13%.

VIX 22/09/20 Daily Chart

The Day Ahead

It’s a quiet day ahead on the Eurozone economic calendar. Key stats include the Eurozone’s flash consumer confidence figures due out late in the day.

With little else to focus on through the day, we can expect sensitivity to the numbers. Consumer confidence and spending remain key to any sustainable economic recovery. Expect any disappointing numbers to peg the majors back.

From the U.S, FED Chair Powell is back in the spotlight, however. We would expect Powell’s testimony to have the final say on the day.

Away from the economic calendar, geopolitics and COVID-19 news updates will also need tracking.

The Futures

In the futures markets, at the time of writing, the Dow was up by 34 points, the DAX up by 148.5 points.

For a look at all of today’s economic events, check out our economic calendar.

Nikola Shares Plunge Pre-Market on Founder Trevor Milton’s Resignation

Nikola Corporation’s shares slumped over 30% in pre-market trading on Monday after its founder Trevor Milton announced to voluntarily step aside as executive chairman and from the Board following allegations of fraud and nepotism.

The Board accepted his resignation, and Stephen Girsky, former Vice Chairman of General Motors Co. and a member of Nikola’s Board, has been appointed Chairman of the Board, effective immediately.

Short-seller Hindenburg Research said in a scathing report earlier this month that it had gathered enough evidence to show that Nikola and Milton made false claims about company’s proprietary technology to form partnerships with large automakers, Reuters reported.

The designer and manufacturer of zero-emission battery-electric and hydrogen-electric vehicles has rejected all the accusations and threatened to take legal action against Hindenburg.

“Nikola is truly in my blood and always will be, and the focus should be on the Company and its world-changing mission, not me,” said Milton, who owns about 20% of the stake in Nikola.

“So I made the difficult decision to approach the Board and volunteer to step aside as Executive Chairman. Founding Nikola and growing it into a company that will change transportation for the better and help protect our world’s climate has been an incredible honor.”

Nikola’s shares plunged more than 30% below $24 in pre-market trading on Monday; the stock is up over 300% so far this year.

Nikola stock forecast

Five analysts forecast the average price in 12 months at $55.75 with a high forecast of $79.00 and a low forecast of $45.00. The average price target represents a 63.06% increase from the last price of $34.19. All those five equity analysts, two rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

RBC raised their stock price forecast to $49 from $46 and Wedbush initiates coverage with neutral rating and $45 price target.

Other equity analysts also recently updated their stock outlook. Cowen issued an “outperform” rating and a $79 price target for the company. Royal Bank of Canada issued a “sector perform” rating and a $46 price target for the company. Deutsche Bank issued a “hold” rating and a $54.00 price target for the company. At Last, JP Morgan Chase & Co. raised Nikola from a “neutral” rating to an “overweight” rating and set a $45.00 price target.

Analyst views

“We believe that Nikola is well-positioned to address the growing need for low emissions and zero-emission vehicles in the Class 8 trucking market. The company’s focus on battery and hydrogen technology and use of strategic partners particularly for vehicle manufacturing should allow for a fairly smooth production ramp, in our view,” said Jeffrey Osborne, equity analyst at Cowen and Company.

“Longer term we see the company evolving into a more broad-based energy technology company as hydrogen fueling infrastructure is slowly built out,” Osborne added.

Upside and Downside Risks

Upside: 1) A faster ramp of production in Ulm, Germany at Iveco to achieve 1H21 production and Coolidge, AZ facility starts production faster in 2022. 2) Less dilution or debt needed due to finding a funding partner for hydrogen station rollout. 3) Faster gross margin profitability after the start of production. 4) Commercial launch of the Badger pickup through a partner, highlighted by analysts at Cowen.

Downside: 1) Ramp-up of production in Ulm, Germany is not successful. 2) Greater dilution is needed for funding needs of stations and lower output from Germany and Arizona. 3) Elongated period of negative gross margins in production.

Check out FX Empire’s earnings calendar

Rolls-Royce to Raise 2.5 Billion Pounds to Strengthen Balance Sheet as COVID-19 Hurt

Rolls-Royce Holding Plc, one of the world’s leading producers of aero engines for large civil aircraft and business jets, said that it was exploring options to raise up to 2.5 billion pounds ($3.2 billion) to enhance balance sheet resilience and strength.

The second-largest provider of defence aero engines globally said it was considering a variety of structures including new debt issuance, a rights issue and potentially other forms of equity issuance.

No final decisions have been taken as to whether or when to proceed with any of these options or as to the precise amount that may be raised, the company said.

Rolls-Royce’s shares closed 5.13% lower at GBX 180.15 on Friday; the stock is down over 70% so far this year.

Rolls-Royce stock forecast

Ten analysts forecast the average price in 12 months at GBX 295.71 with a high forecast of GBX 498.66 and a low forecast of GBX 80.92. The average price target represents a 64.15% increase from the last price of GBX 180.15. All those ten equity analysts, three rated “Buy”, four rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of GBX 336 with a high of GBX 677 under a bull-case scenario and GBX 130 under the worst-case scenario. Berenberg raised the stock rating to “Buy” from “Hold” but lowered their target price forecast to GBX 270 from GBX 890.

Other equity analysts also recently updated their stock outlook. Credit Suisse cut their target price to GBX 200 from GBX 210; JP Morgan cuts the target price to GBX 80 from GBX 90; Jefferies cuts price target to GBX 500 from GBX 700; Citigroup cuts price target to GBX 564 from GBX 960 and UBS cuts target price to GBX 265 from GBX 328.

Analyst views

“Rolls-Royce has underperformed the peer group YTD and appears to trade on a single-digit P/E multiple in 2022 – much lower than major peers. There are fundamental reasons for this: high exposure to long-haul traffic and high operating leverage mean there is greater earnings and cash flow volatility in the near term,” said Andrew Humphrey, equity analyst at Morgan Stanley.

“Cash outflows of £4 billion in 2020 and around £500 million in 2021 will lead to higher leverage, and we, therefore, believe Rolls-Royce will need to address balance sheet structure to regain an investment-grade credit rating,” Humphrey added.

Upside and Downside Risks

Upside: 1) Faster recovery in widebody traffic. 2) Trent 1000 in-service issues have been demonstrably resolved. 3) Cash targets are met and cash flow quality improved. 4) Additional orders restore the market’s confidence in widebody prospects, highlighted by Morgan Stanley.

Downside: 1) Accelerated retirements of mid-life Trent-powered widebody aircraft. 2) Further cost overruns on Trent 1000. 3) Change to mid-term cash guidance.

European Equities: Futures Point Lower, with COVID-19 and Geopolitics in Focus

Economic Calendar:

Monday, 21st September

ECB President Lagarde Speaks

Tuesday, 22nd September

Eurozone Flash Consumer Confidence

Wednesday, 23rd September

GfK German Consumer Climate (Oct)

Spanish GDP (QoQ) (Q2)

French Manufacturing PMI (Sep) Prelim

French Services PMI (Sep) Prelim

German Manufacturing PMI (Sep) Prelim

German Services PMI (Sep) Prelim

Eurozone Manufacturing PMI (Sep) Prelim

Eurozone Markit Composite PMI (Sep) Prelim

Eurozone Services PMI (Sep) Prelim

Thursday, 24th September

German IFO Business Climate Index (Sep)

The Majors

It was a bearish end to the week for the European majors on Friday. The CAC40 slid by 1.22%, with the DAX30 and EuroStoxx600 ending the day with losses of 0.70% and 0.66% respectively.

A fresh spike in new COVID-19 cases across EU member states weighed on the European majors on the day.

Ahead of the European session, the WHO had warned of a “very serious situation” developing in Europe. In a bid to revive consumption and tourism, governments have been active in reopening the respective economies.

With a reliance on consumption to deliver an economic recovery, the latest spikes raise the chances of fresh lockdown measures.

Adding further pressures on the majors at the end of the week were Brexit and U.S – China tensions.

The Stats

It was yet another quiet day on the Eurozone economic calendar. Key stats included August wholesale inflation figures from Germany.

Germany’s producer price index stalled in August, after having risen by 0.20% in July. Whilst beating forecasts of a 0.1% decline, market jitters over deflationary pressures tested the majors going into the European open.

With stats on the lighter side, there was little to distract the markets from the latest U.S-China spat, Brexit, and COVID-19, however.

From the U.S

Key stats included prelim September consumer sentiment and expectations figures.

While both stats were skewed to the positive, both indicators remained well below pre-pandemic levels.

In September, the Michigan Consumer Sentiment Index rose from 74.1 to 78.9, according to prelim figures. While coming in ahead of a forecasted 75.0, the indicator had stood at 101.0 for January.

The Market Movers

For the DAX: It was a bearish day for the auto sector on Friday. Continental and Volkswagen slid by 3.97% and by 3.52% respectively. BMW and Daimler saw more modest losses of 1.72% and 1.91% respectively.

It was also a bearish day for the banks. Deutsche Bank and Commerzbank fell by 1.38% and by 3.11% respectively.

From the CAC, it was a bearish day for the banks. Credit Agricole and Soc Gen fell by 3.16% and by 3.05% respectively. BNP Paribas ended the day down by 2.34%.

It was a particularly bearish day for the French auto sector, however. Peugeot and Renault ended the day with losses of 4.35% and 4.03% respectively.

Air France-KLM fell by 1.93%, with Airbus SE sliding by 3.54%.

On the VIX Index

It was back into the red for the VIX, bringing to an end a run of 2 consecutive days in the green.

On Friday, the VIX fell by 2.38%. Reversing a 1.61% gain from Thursday, the VIX ended the day at 25.83.

U.S – China tension over TikTok and WeChat, rising COVID-19 cases, and the FED’s dovish outlook weighed on the majors.

The NASDAQ and S&P500 fell by 1.07% and by 1.12% respectively, with the Dow seeing a more modest loss of 0.88%.

VIX 21/09/20 Daily Chart

The Day Ahead

It’s a quiet day ahead on the Eurozone economic calendar. There are no material stats due out to provide the majors with direction.

With no material stats from the U.S, talk of retaliation from Beijing over Trump’s targeting of Chinese companies will test the majors.

There is also Brexit to factor in and the recent spike in new COVID-19 cases to consider. A continued rise in new cases could see a reintroduction of containment measures that would throw cold water over any sustainable economic recovery.

On the monetary policy front, Lagarde is due to speak late in the day. There are unlikely to be too many surprises, however, following the latest ECB press conference. That’s assuming that Lagarde holds back from talk of exchange rate risk to the Eurozone economic recovery…

The Futures

In the futures markets, at the time of writing, the Dow was up by 15 points, while the DAX was down by 32 points.

For a look at all of today’s economic events, check out our economic calendar.

Ericsson to Buy U.S. Networking Company Cradlepoint for $1.1 Billion; Target Price SEK 110

Ericsson, a Swedish multinational networking and telecommunications company, has agreed to acquire Cradlepoint, the U.S.-based market leader in Wireless Edge WAN 4G and 5G Enterprise solutions, for $1.1 billion with the transaction expected to close before the end of Q4 2020.

The technology company said the deal price, which is funded from Ericsson’s cash-in-hand, is paid in full on closing. Cradlepoint’s sales for 2019 were SEK 1.2 billion with a gross margin of 61%.

Ericsson’s operating margins are expected to be negatively impacted by approximately 1% in 2021 and 2022 – where half is related to amortization of intangible assets which arise from the acquisition. Ericsson said its 2022 group financial targets remain unchanged.

“We think this is a well-conceived acquisition—strong strategic fit and a reasonable purchase price. We will wait for close of the deal to revise our estimates. Reiterate Outperform,” said Paul Silverstein, equity analyst at Cowen and Company.

Ericsson’s shares closed 1.30% higher at SEK 98.26 on Friday; the stock is up over 20% so far this year.

Ericsson stock forecast

Morgan Stanley gave a target price of SEK 110 with a high of SEK 70 under a bull-case scenario and SEK 135 under the worst-case scenario. Ericsson stock price forecast was raised by Independent Research to SEK 110.00 from SEK 93.00, but rated “Hold”.

Other equity analysts also recently updated their stock outlook. Barclays raised their target price to SEK 110 from SEK 100; JP Morgan upped their target price to SEK 110 from SEK 104; Liberum upgraded their stock price forecast to SEK 115 from SEK 101; Deutsche bank raised the target price to SEK 92 from SEK 87 and Citigroup raised their price target to SEK 112 from SEK 102.

The one listed on the U.S. stock exchange, three analysts forecast the average price in 12 months at $11.80 with a high forecast of $13.00 and a low forecast of $10.00. The average price target represents a 5.83% increase from the last price of $11.15. All those three equity analysts rated “Buy”, according to Tipranks.

Analyst views

“We believe Ericsson has an opportunity to press home its product and operational advantages as global 5G network deployment ramps up. We see operational and profitability momentum at Ericsson continuing (with expanding market share and margins). FCF generation continues to improve at an impressive rate and the company’s product portfolio is well positioned near term,” said Dominik Olszewski, equity analyst at Morgan Stanley.

“2020-22e we forecast 16% cumulative FCF yield (best since 2010) and ROCE of c. 16%, the best since 2007. Through cycle average P/E 16x, EV/EBIT 10.6x – at base case PT we expect EV/EBIT 12x, undemanding given structural growth, improving cash flow and strong balance sheet,” Olszewski added.

Upside and Downside Risks

Upside: 1) Accelerated and larger global 5G rollout.; Covid-19 highlights strategic value of connectivity. 2) Ericsson wins greater market share in European 5G rollout. 3) Digital Services margin turnaround beats lowered expectations, highlighted by Morgan Stanley.

Downside: 1) Telcos meaningfully cut spending plans due to Covid-19. 2) Strategic contracts prove excessively dilutive to margins. 3) Digital Service margin turnaround continues to falter.

Check out FX Empire’s earnings calendar

European Equities: A Week in Review – 18/09/20

The Majors

It was a mixed week for the European majors in the week ending 18th September. The CAC30 fell by 1.11% to lead the way down, with the DAX40 ending the week down by 0.66%. Bucking the trend for the week was the EuroStoxx600, which rose by 0.22%.

At the start of the week, the markets jumped into action in response to COVID-19 news from the previous weekend. Reports of Oxford University’s resuming trials of its COVID-19 vaccine supported riskier assets early on.

In the week prior, trials had been suspended due to a patient becoming ill.

On the geopolitical front, criticism over Boris Johnson’s Internal Market Bill failed to rile the markets. Hopes are that the House of Lords would reject the bill in its current form. Such an outcome could test support for Johnson and the Brexit hardliners.

A passing of the bill, however, would likely materially increase the chances of a no-deal Brexit, which would be viewed as a market negative.

In the 2nd half of the week, however, the FED and the BoE weighed on riskier assets. For the CAC40 and DAX30, it was a bearish end to the week that reversed gains from earlier in the week.

A spike in new COVID-19 cases also weighed on the European majors on Friday. On Thursday, the WHO had reportedly raised concerns over the jump in new COVID-19 cases in Europe.

A reintroduction of lockdown measures would materially impact the Eurozone’s economic recovery that has shown signs of waning.

The Stats

It was a relatively busy week on the Eurozone economic calendar.

In the 1st half of the week, industrial production and trade figures from the Eurozone delivered positive results.

Economic Sentiment figures for September also improved, delivering the majors with support in the 1st half of the week.

Later in the week, however, the focus shifted to monetary policy, which left the majors on the back foot.

Both the BoE and the FED delivered particularly dovish views on the economic outlook and monetary policy.

While lower for longer tends to be positive for riskier assets, FED talk of near to zero rates until 2023 was unexpected.

With the FED delivering warning signals, the BoE didn’t hold back on Thursday, with the talk of negative rates doing the rounds.

From the U.S

Key stats included the weekly jobless claims, industrial production, and retail sales figures for August and September manufacturing data.

The stats were skewed to the negative, adding downward pressure on the majors later in the week.

While manufacturing sector activity picked up in NY State, sector growth slowed in Philly.

Retail sales figures came up short of expectations questioning the market’s optimistic outlook on the economy.

With jobless claims figures also disappointing, there were few reasons for the markets to shake off the central bank doom and gloom.

Wrapping things up from the U.S were prelim consumer sentiment figures on Friday, which were positive but not enough to shift the mood.

From elsewhere, industrial production and retail sales figures out of China had provided the European majors with support early in the week.

The Market Movers

From the DAX, it was a bearish week for the auto sector. Continental and Volkswagen slid by 3.12% and by 4.91% to lead the way down. BMW and Daimler saw more modest losses of 0.87% and 1.825 respectively.

It was also a bearish week for the banking sector. Commerzbank slid by 7.36% following last week’s 6.06% tumble, with Deutsche Bank falling by 2.04%.

From the CAC, things were not much better for the banks. BNP Paribas and Credit Agricole slid by 5.36% and by 5.70% respectively, while Soc Gen saw a more modest 1.64% loss.

The French auto sector also struggled in the week. Peugeot and Renault slid by 3.61% and by 7.44% respectively.

Air France-KLM and Airbus saw relatively modest losses of 0.46% and 0.32% respectively, however.

On the VIX Index

It was a 2nd consecutive week in the red for the VIX. In the week ending 18th September, the VIX fell by 3.87%. Following on from a 12.62% slide from the previous week, the VIX ended the week at 25.83.

The weekly slide came in spite of the U.S equity markets ending the week in the red after a bearish end to the week.

For the week ending 18th September, the S&P500 and the NASDAQ ended the week down by 0.64% and by 0.56% respectively. The Dow saw a more modest 0.03% loss.

VIX 19/09/20 Weekly Chart

The Week Ahead

It’s a busy week ahead on the Eurozone economic calendar.

At the start of the week, key stats include Eurozone and German consumer confidence figures. With consumer consumption a must to support any economic recovery, sentiment will need to continue to improve.

Of greater significance, however, will be September’s prelim private sector PMIs for France, Germany, and the Eurozone.

Following disappointing numbers for August, another tick lower would be negative for the majors.

Wrapping things up will be Germany’s Ifo Business climate index numbers for September on Thursday.

The degree of influence, however, will depend on Wednesday’s PMIs.

From elsewhere, expect U.S private sector PMIs, weekly jobless claims, and core durable goods orders to also influence.

Away from the economic calendar, COVID-19 and geopolitics will also need monitoring.

Aptiv’s Price Target Raised to $150 with Overweight Rating, $225 in Best Case: Morgan Stanley

Aptiv PLC‘s price target was raised to $150 from $63 with ‘Overweight’ stock rating, according to Morgan Stanley equity analyst Adam Jonas, who said that after coming out of the COVID-19 era, Aptiv’s portfolio is on the verge of a transformation that will alter the stock’s narrative, driving a multiple re-rating.

In July, the Jersey-registered auto parts company reported a second-quarter 2020 U.S. GAAP loss of $1.43 per diluted share. Excluding special items, the second-quarter loss totalled $1.10 per diluted share.

These results include the adverse impacts of global vehicle production declines of 45% in the second quarter, largely resulting from the ongoing impacts of the novel coronavirus pandemic.

“We think the rapidly changing mix of key revenue drivers of Aptiv lends itself to a change of divisional reporting structure. We believe the way Aptiv currently reports via two segments does not sufficiently capture the specific drivers of secular growth. Our bull case valuation of $225 assumes that the ADAS business is valued similar to the Mobileye acquisition multiple, Other User Experience segment is valued at 20x EBITDA and the BEV Power & Signal business and Mobility & Services are valued at strategic multiples,” Morgan Stanley’s Adam Jonas said.

“We argue investors will need to think out three to five or even five to 10 years in their DCF models to fully capture the compounding growth opportunity embedded in Aptiv.”

Aptiv stock rose about 4% to $86.30 in pre-market trading on Friday; however, the stock is down over 12% so far this year.

Several other equity analysts have also updated their stock outlook. Evercore ISI raised price target to $110 from $85; UBS upped their target price to $100 from $86; Citigroup increased their price target to $95 from $84 and Credit Suisse raised target price to $91 from $88. Oppenheimer raised price target to $95 from $83; Deutsche Bank lowered their target price to $91 from $93; RBC cuts target price to $92 from $94; Jefferies raised target price to $96 from $79 and JP Morgan upped their target price to $89 from $73.

Nine analysts forecast the average price in 12 months at $89.11 with a high forecast of $110.00 and a low forecast of $63.00. The average price target represents a 6.99% increase from the last price of $83.29. From those nine equity analysts, seven rated ‘Buy’, two rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

“+6% to +8% growth over market is best in class, with exposure to secular narratives around electric & autonomous vehicles. For electric vehicles, the Signal & Power Solutions business is growing +4% to +6% growth over market, with a favorable mix of Electrical Distribution Systems vs. Engineered Components,” Morgan Stanley’s Adam Jonas added.

“For active safety, based on the bookings, Aptiv is on track to be the industry leader in Active Safety. For autonomous vehicles, Aptiv has the world’s largest autonomous commercial mobility service in Las Vegas, with operations in Boston, Pittsburgh, Shanghai, and Singapore.”

Morgan Stanley highlighted electric vehicle penetration, active safety penetration and spin of signal & power or user experience as major upside risks to the stock.

However, Morgan Stanley’s gave a stock price forecast of $60 under the worst-case scenario.

“Where could we be wrong? the market may be reluctant to re-rate Aptiv higher as it may still view Aptiv through the lens of an auto supplier and may not rate its potential future recurring revenues, or ascribe premium valuations to its electric vehicle/automated vehicle (EV/AV) expertise and IP until further progress is demonstrated,” Jonas said.

“Further, Aptiv may not realize its targeted above-market growth and its backlog may not materialize into revenues. Ultimately the company is exposed to auto industry production and could be affected by a myriad of manufacturing issues as well as a loss of market share in AV/EV leadership to other competitors.”

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Delta Air Lines to Raise $9 billion Against SkyMiles Loyalty Program

Delta Air Lines, which provides scheduled air transportation for passengers and cargo throughout the United States and across the world, said on Thursday that it will upsize SkyMiles financing to $9 billion, $2.5 billion higher than previously anticipated deal size.

The Atlanta-based company said on Thursday the total proceeds are being raised at a blended average annual rate of 4.75%. Delta said on Monday that it is pledging its loyalty program to raise $6.5 billion, comprising of $4 billion bonds and $2.5 billion loans, as it burns through $27 million a day, Reuters reported.

Delta Air Lines’s shares closed 1.76% lower at $33.96 on Thursday; the stock is down over 40% so far this year.

Delta Air Lines stock forecast

Nine analysts forecast the average price in 12 months at $39.17 with a high forecast of $50.00 and a low forecast of $32.00. The average price target represents a 15.34% increase from the last price of $33.96. From those nine equity analysts, six rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $50 with a high of $80 under a bull-case scenario and $22 under the worst-case scenario. BofA Global Research raised their price objective to $36 from $31.

Other equity analysts also recently updated their stock outlook. Stifel cuts price target to $44 from $45; Cowen and Company lowered their stock price forecast to $32 from $33; Berenberg cuts target price to $32 from $35, while JP Morgan and Citigroup raised their target price to $45 from $41 and $38 from $30, respectively.

Analyst views

“DAL has some of the strongest customer satisfaction numbers among the other Legacy peers, while also commanding a higher PRASM, making it our preferred Legacy carrier. With ample liquidity we see limited liquidity risk here. Additionally, we continue to see DAL’s international alliances and partnerships as strategic assets, despite recent writedowns,” said Ravi Shanker, equity analyst at Morgan Stanley.

Forward Outlook

2021 planning is expected to be one of the toughest on record. DAL sees 2021 being anywhere from 25-40% down vs. 2019 levels. Longer-term, they ultimately don’t expect the environment to look much different than pre-COVID with similar network patterns once things have returned to normal, according to Morgan Stanley.

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