Trillium Therapeutics Shares Soar Over 40% on $25 Million Pfizer Investment, Impressive TTI-622’s Safety Profile

Trillium Therapeutics, a clinical-stage immuno-oncology company developing innovative therapies for the treatment of cancer, said it received an equity investment of $25 million from the pharma giant Pfizer Inc; also investors remain upbeat over the impressive safety profile of TTI-622, an antibody-like fusion protein to be used for treating cancer, sending the stock soaring in after-hours trading on Tuesday.

Trillium Therapeutics’ shares jumped over 40% to $13.37 in after-hours trading. Also, the stock is up over 800% so far this year after closing at $1.03 in 2019.

Trillium Therapeutics said that it has agreed to sell nearly 2.3 million of its common shares at a price of $10.88 per share to Pfizer for gross proceeds of $25.0 million. The offering is expected to close on or about September 10, 2020.

Moreover, the company said in the phase 1 portion of the study of TTI-622, the safety assessment of the 8 mg/kg dosing cohort has been successfully completed. One Grade 4 thrombocytopenia dose-limiting toxicity was reported among the six evaluable patients; no additional Grade 3 or higher thrombocytopenia events have been observed.

Executive comments

“We are exceedingly encouraged by the evolving profile of TTI-622, our SIRPa-IgG4 Fc fusion protein, as demonstrated in the ongoing dose-escalation study in relapsed and refractory lymphomas,” said Jan Skvarka, Trillium’s President and Chief Executive Officer.

“TTI-622 is showing substantial monotherapy activity in highly pre-treated patients, with a broad therapeutic window, a rapid onset of action, and across a range of lymphoma indications. With no significant safety signals observed, we are further escalating the dose. TTI-621, our SIRPa-IgG1 Fc fusion protein, is showing a strong safety profile, and we have not observed any dose-limiting thrombocytopenia for doses up to 1.4 mg/kg.”

Trillium Therapeutics stock forecast

Three analysts forecast the average price in 12 months at $15.00 with a high forecast of $15.00 and a low forecast of $15.00. The average price target represents a 58.56% increase from the last price of $9.46. From those three analysts, two rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Craig-Hallum set the price target for Trillium Therapeutics at $15 and gave the company ‘Buy’ rating. Jonestrading initiates with buy rating and $15 price target.

Other equity analysts also recently updated their stock outlook. JMP Securities issued an “outperform” rating and a $10.00 price target for the company. BidaskClub downgraded shares of Trillium Therapeutics from a “Hold” rating to a “sell” rating. At last, Zacks Investment Research raised shares of Trillium Therapeutics from a “strong sell” rating to a “Hold” rating.

Analyst views

“We continue to be impressed by the safety profile of TTI-622 and believe this is the strongest monotherapy data shown by a CD47 targeting candidate. Our KOLs have previously suggested that early monotherapy activity for any novel IO drug is important and can be an early sign of success. We believe that even if the higher dose of 12 mg/kg is not tolerable, the 50% ORR achieved at the 8mg/kg level is sufficient to advance this drug further,” said Boris Peaker, equity analyst at Cowen.

“Previous discussions with management indicate that TTI-622 enrollment has been less impacted by COVID-19 since it is targeting a more aggressive tumor type (DLBCL) thanTTI-621 (CTCL). Taking into account both the timing of enrollment and today’s impressive update, we continue to believe that TTI-622 could become the lead drug candidate,” Peaker added.

Risks to Trillium Therapeutics

Clinical Trial Risk: Trillium Therapeutics will require FDA approval to market its products in the U.S. and EMEA in Europe. Failure to gain such approvals would significantly impact the value of the company, Cowen highlighted.

Competitive Risk: There are multiple competing agents in development, for indications in which SIRPαFc is being studied. The success of such agents could significantly affect SIRPαFc market share should it be approved.

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General Motors Acquire 11% Stake in Nikola; Buy with Target Price of $46

General Motors, an American multinational corporation that was the world’s largest motor-vehicle manufacturer in the 20th century, said it would acquire 11% stake in U.S. electric trucking startup Nikola for $2 billion, sending both shares higher in pre-market trading on Tuesday.

The auto manufacturer will also receive the right to nominate one director. General Motors seizes growth opportunity with Nikola to boldly move into broader markets with Hydrotec fuel cell and Ultium battery systems, the company said in the statement.

Following this release, General Motors’ shares rose about 6% to $31.66 in pre-market trading on Tuesday, but the stock is down about 17% so far this year.

In addition, Nikola shares climbed over 30% to $45.68 in pre-market trading. Also, the stock is up over 240% so far this year.

Executives’ comments

“By joining together, we get access to their validated parts for all of our programs, General Motors’ Ultium battery technology and a multi-billion dollar fuel cell program ready for production. Nikola immediately gets decades of supplier and manufacturing knowledge, validated and tested production-ready EV propulsion, world-class engineering and investor confidence,” said Nikola Founder and Executive Chairman Trevor Milton.

“Most importantly, General Motors has a vested interest to see Nikola succeed. We made three promises to our stakeholders and have now fulfilled two out of three promises ahead of schedule. What an exciting announcement,” Milton added.

“We are growing our presence in multiple high-volume EV segments while building scale to lower battery and fuel cell costs and increase profitability. In addition, applying General Motors’ electrified technology solutions to the heavy-duty class of commercial vehicles is another important step in fulfilling our vision of a zero-emissions future,” said General Motors Chairman and CEO Mary Barra.

General Motors stock forecast

Fourteen analysts forecast the average price in 12 months at $33.46 with a high forecast of $46.00 and a low forecast of $15.00. The average price target represents an 11.53% increase from the last price of $30.00. From those 14 analysts, ten rated “Buy”, three rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $46 with a high of $68 under a bull-case scenario and $15 under the worst-case scenario. General Motors stock price forecast was raised by Citigroup to $54 from $53.

Other equity analysts also recently updated their stock outlook. General Motors had its price objective upped by Deutsche Bank to $33 from $30. Deutsche Bank currently has a buy rating on the auto manufacturer’s stock. UBS Group raised their price target to $34 from $27.00 and gave the company a buy rating.

Analyst views

“We are Overweight (OW) based on its strong portfolio diversification across: General Motors (GM) brands, as well as EVs, ICE and AVs. It also has leading North American margins, generates strong cash flow, and has a strong balance sheet,” said Adam Jonas, equity analyst at Morgan Stanley.

“We believe the market is underestimating the SOTP of the GM enterprise via: 1) Legacy ICE, 2) GM EV, 3) GM’s Ultium Battery business, 4) China JVs, 5) GM Finco, 6) GM Cruise, and 7) hidden franchise value in brands such as Corvette. GM management have a proven track record to allocate capital away from structurally challenged areas towards re-positioning the business model,” he added.

Upside and Downside risks

Upside: 1) Ramp of HD Truck and Full-Size SUV Platform. 2) Strategic Optionality, similar to exit of Europe. 3) Liquidity / Cash Management. 4) Spin-off of EV Business or GM Cruise – highlighted Morgan Stanley.

Downside: 1) Used Vehicle Prices. 2) China Profitability. 3) SAAR remains depressed. 4) GM Financial Losses.

Check out FX Empire’s earnings calendar

DocuSign Slumps Despite Impressive Earnings Beat

DocuSign, Inc. (DOCU) shares plunged 10.64% Friday despite the electronic-signature company sailing past earnings forecasts and lifting its second-half outlook on the back of companies requiring more digital signatures from a growing number of remote workers.

For the quarter ended July 2020, the firm reported adjusted earnings of 17 cents per share, crushing analysts’ estimate by a dime, and improving from 1 cent a share in the year-ago quarter. Revenues of $342.21 million also came in ahead of expectations and grew 45% year over year (YoY).

As of Sept. 8, 2020, DocuSign shares have a market capitalization of nearly $40 billion and trade 191.81% higher on the year. Gains have accelerated in recent months, with the stock adding more than 50%.

Looking Ahead

The company raised its guidance for the full fiscal year, saying it now expects sales of $1.384 billion to $1.388 billion, up from its previous forecast range of $1.313 billion to $1.317 billion. Meanwhile, it projects billings growth of around 40% in the second half, easing from a record 60% in the first half. “Customers have pulled projects forward. Whether that will continue will depend on whether everyone is still working from home. But we’re very bullish about the growth prospects for this business going forward,” CEO Dan Springer told Barron’s.

The company continues to move into other digital contract management areas, such as analytical tools that help businesses sort a repository of digitized documents. It’s also developing video-based notary solutions. The firm expects that 45 states could allow remote notaries as early as next year.

Wall Street View

Despite the stock’s sizable year-to-date (YTD) gain, analysts remain mostly bullish on the stock. It receives 9 ‘Buy’ ratings, 8 ‘Hold’ ratings, and just 1 ‘Sell’ rating. Twelve-month price targets range from as high as $300 to as low as $158, with the average price pegged at $250.26 – implying a 16% premium to Friday’s $216.26 close.

Technical Outlook and Trading Tactics

DocuSign’s share price staged a breakaway gap above crucial overhead resistance at $230 on Sept. 1 before promptly reversing below that level on heavy volume in subsequent trading sessions. The move indicates a possible head-fake trade that may give way to further profit-taking in the weeks ahead.

Those looking to buy the stock should look for entries near $136, where price finds support from a previous horizontal trendline and the rising 200-day simple moving average (SMA). Traders who expect a deeper retracement should monitor the $92.50 level, which is likely to encounter significant support from the February swing high.

U.S. Group Verizon and South Korea’s Samsung Electronics Sign $6.65 Billion 5G Deal

Verizon Communications, an American multinational telecommunications conglomerate, and South Korean multinational electronics company Samsung Electronics have announced to sign a deal worth $6.65 billion for 5G network equipment and services.

“With this latest long-term strategic contract, we will continue to push the boundaries of 5G innovation to enhance mobile experiences for Verizon’s customers,” Samsung said in a statement, Reuters reported.

Samsung noted in a regulatory filing the period of the contract, which Samsung signed with Verizon, is from June 30, 2020 to end-2025, Reuters added.

Samsung Electronics shares rose over 3% to KRW 58,300 on Tuesday. On the other hand, Verizon’s shares rose 0.12% to $60.55 in after trading hours on Friday and the stock is up about 2% so far this year.

Verizon stock forecast

Eleven analysts forecast the average price in 12 months at $62.30 with a high forecast of $70.00 and a low forecast of $57.00. The average price target represents a 3.01% increase from the last price of $60.48. From those 11 analysts, five rated “Buy”, six rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $60 with a high of $71 under a bull-case scenario and $42 under the worst-case scenario. Verizon stock price forecast was raised by Deutsche Bank to $62 from $60.

Other equity analysts also recently updated their stock outlook. Verizon Communications had its price objective boosted by analysts at UBS Group to $60 from $59. The brokerage presently has a “neutral” rating on the cell phone carrier’s stock. Citigroup boosted their price objective to $60 from $55 and gave the stock a “neutral” rating. Oppenheimer reaffirmed a “buy” rating and set the price target at $70.

Analysts’ views

“Attractive business mix, as wireless market leader. Wireless service revenue 70% of consolidated revenue, and wireless EBITDA 85% of consolidated EBITDA. Dividend yield and potential buybacks provide some support, while the transition to 5G creates opportunities and risks, with mid-band spectrum needs in focus,” said Simon Flannery, equity analyst at Morgan Stanley.

“Our price target for Samsung Electronics is W70,000: We continue to employ a residual income (RI) valuation model, cross-checked against P/BV analysis. At our W70,000 price target, the 2021 P/B multiple would be 1.4x, which is in line with its long-term mid-cycle valuation level of 1.4x. Our terminal growth rate assumption is 5%, and we assume an 11.5% cost of equity, based on a beta of 1.0,” said Shawn Kim, equity analyst at Morgan Stanley.

Upside and Downside risks

Upside: 1) Continued strength in wireless. 2) Rates remain lower for longer. 3) Defensive market. 4) Developments around mobile video, and internet of things – highlighted Morgan Stanley.

Downside: 1) Rising interest rates make the dividend yield less attractive. 2) Competitive price pressure from wireless competitors. 3) Wireline business faces significant secular pressures. 4) Spectrum spend/M&A pressure Balance Sheet metrics.

Check out FX Empire’s earnings calendar

Goldman Sachs Joins Alibaba-backed Ant’s IPO of Up to $30 Billion Syndicate; Target Price $250

Goldman Sachs, an American multinational investment bank and financial services company headquartered in New York City, has joined syndicate for Chinese financial technology firm Ant Group IPO of up to $30 billion, two people with direct knowledge told Reuters.

Ant Group, an affiliate company of the Chinese Alibaba Group, plans to list simultaneously in Hong Kong and Shanghai, in what sources have said could be the world’s largest IPO and come happen next month, according to Reuters.

Goldman Sachs’ shares closed 1.62% to $210.94 on Friday. However, the stock is down about 8% so far this year.

Goldman Sachs stock forecast

Sixteen analysts forecast the average price in 12 months at $246.27 with a high forecast of $323.00 and a low forecast of $192.00. The average price target represents a 16.75% increase from the last price of $210.94. From those 16 analysts, ten rated “Buy”, six rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $192 with a high of $295 under a bull-case scenario and $119 under the worst-case scenario. Goldman Sachs stock prices were raised by Citigroup to $285 from $265 and Oppenheimer lowered their target price to $323 from $355.

Other equity analysts also recently updated their stock outlook. UBS raised their stock price objective to $220 from $200, Berenberg upped their target price to $200 from $160, D.A. Davidson raised target price to $238 from $215, RBC increased their stock price forecast to $225 from $200, KBW raised price objective to $260 from $240, Evercore ISI raised target price to $235 from $230 and Credit Suisse raised price objective to $255 from $240.

Analyst views

“While GS is in the middle of a multi-year strategic shift, a majority of the business still skews to capital markets. We expect the stock remains range-bound, as capital markets-related revenues can be volatile given the elevated level of macro uncertainty,” said Betsy Graseck, equity analyst at Morgan Stanley in July.

“Stock is trading at 1.0x BVPS, reflecting the 9-10% ROE we expect in 2021/2022, driving our Equal-weight rating,” she added.

Upside and Downside risks

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

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

Check out FX Empire’s earnings calendar

Eli Lilly’s Price Target Raised to $176 with Overweight Rating, $214 in Best Case: Morgan Stanley

Eli Lilly and Company’s, an American pharmaceutical company headquartered in Indianapolis, price target was raised to $176 from $157 with ‘Overweight’ stock rating, according to Morgan Stanley equity analyst David Risinger, who also said that they are bullish on prospects for Phase 3 diabetes asset tirzepatide and shares offer Alzheimer’s optionality.

On Thursday, the U.S. Food and Drug Administration approved two additional doses of Eli Lilly and Company’s Trulicity (dulaglutide), sending its shares up over 2% last week. The stock is up about 15% so far this year.

“We extended our model to 2025e, and our 2025e EPS is 7% above consensus. We project 5-year 2020e-2025e CAGR revision of 9% and EPS of 14%. Our 2025e revision of $36.2B is 7% above consensus $34.0 billion and EPS of $14.20 is 7% above cons’ $13.27,” Morgan Stanley’s Risinger said.

“Our 2025e operating margin of 40.0% compares to consensus’ 40.6%; we are slightly below based upon our assumption for greater reinvestment spending. Among Global Pharma, Lilly ranks among the fastest growers and has the least patent expirations over the next five years.”

Eli Lilly forecasts earnings per share for 2020 to be in the range of $6.48 to $6.68 on a reported basis and $7.20 to $7.40 on a non-GAAP basis. The leading pharmaceuticals company said they anticipate 2020 revenue between $23.7 billion and $24.2 billion.

Morgan Stanley target price under a bull-case scenario is $214 and $125 under the worst-case scenario. Eli Lilly And Co had its price target boosted by stock analysts at Guggenheim to $185 from $182.

Several other equity analysts have also updated their stock outlook. Mizuho lifted their price target on Eli Lilly And Co to $164 from $155.00 and gave the stock a “neutral” rating. UBS Group downgraded shares to “neutral” from “buy” but raised their price objective to $158 from $157. Cfra raised their price target to $167 from $146.00 and gave the stock a “hold” rating.

Nine analysts forecast the average price in 12 months at $176.38 with a high forecast of $190.00 and a low forecast of $164.00. The average price target represents a 16.88% increase from the last price of $150.91. From those nine, seven analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

“We are Overweight Eli Lilly (LLY) shares as we believe consensus underappreciates Lilly’s long-term revenue and EPS growth potential. We project 2020e-2025e CAGR rev +9% and EPS +14%. We see upside potential for pipeline candidate tirzepatide’s ‘trifecta’ opportunity in diabetes, obesity, and cardiovascular health,” Morgan Stanley’s Risinger added.

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

Upside risks: 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.

Downside risks: 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.

Check out FX Empire’s earnings calendar

Yum China to Raise $2.22 Billion in Secondary Hong Kong Listing; Target Price $61

Yum China, an American Fortune 500 fast-food restaurant company incorporated in the United States and headquartered in Shanghai, said it is considering to raise $2.22 billion in its secondary Hong Kong listing, two sources with direct knowledge told Reuters.

Yum China, which manages KFC, Pizza Hut and Taco Bell restaurants in the world’s second-largest economy said the final offer price for both the international offering and the Hong Kong public offering has been set at HKD 412 per share.

China’s largest restaurant company in terms of 2019 system sales, today announced the pricing of its global offering of 41.19 million new shares of common stock, which comprises an international offering and a Hong Kong public offering.

Subject to approval from the Stock Exchange of Hong Kong Limited, the Shares are expected to begin trading on the Main Board of the SEHK on September 10, 2020, under the stock code 9987.

Yum China’s shares traded 2.54% lower at $ 53.38 on Friday. However, the stock is up over 12% so far this year.

Yum China stock forecast

Seven analysts forecast the average price in 12 months at $61.59 with a high forecast of $63.00 and a low forecast of $60.15. The average price target represents a 14.27% increase from the last price of $53.90. From those seven analysts, six rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $58 with a high of $70 under a bull-case scenario and $35 under the worst-case scenario. Jefferies raised their price objective on Yum China to $62 from $59.

Other equity analysts also recently updated their stock outlook. Daiwa Capital Markets raised Yum China from a “neutral” rating to an “outperform” rating. Bank of America lifted their price objective on Yum China to $52 from $50 and gave the stock a “buy” rating. At last, Nomura Securities reaffirmed a “buy” rating and issued a $53.70 price objective.

Analyst view

“Large white space potential given lower restaurant penetration in China relative to other emerging markets. Digital and delivery execution remain strong, as penetration rises and Yum China (YUMC) harvests customer data. Strategic partnerships with Ant Financial and Primavera offer big data and mobile opportunities to drive traffic,” said Lillian Lou, equity analyst at Morgan Stanley.

“New development opportunities at Taco Bell and Little Sheep offer optionality value. Near-term challenges as PH turnaround progress may pressure share performance. However, 2021e EV/EBITDA is 10x, which we still view as attractive,” she added.

Upside and Downside risks

Upside: 1) Faster than expected SSSG recovery from COVID-19 impact. 2) Strong lower-tier cities adoption. 3) Further margin upside with operating leverage and efficiency gain – highlighted Morgan Stanley.

Downside: 1) Consumer industry slowdown in China. 2) COVID-19 impact continues longer than expected. 3) Further supplier issues that damage brands.

Check out FX Empire’s earnings calendar

Kimberly-Clark to Acquire Softex Indonesia for $1.2 Billion; Buy with Target Price of $180

Kimberly-Clark, an American multinational personal care corporation, said it will acquire leading Indonesian personal care maker Softex Indonesia for $1.2 billion in cash from a group of shareholders including CVC Capital Partners Asia Pacific IV.

The company, which markets diapers, toilet paper, feminine care, facial tissue, paper towels, and other hygiene products to retail consumers, said the deal will improve their currently limited position in Indonesia – where the diaper market is estimated at $1.6 billion – to one with a strong market share in key personal care categories across Southeast Asia’s largest economy.

“Strategically, Softex complements Kimberly-Clark’s (KMB) personal care portfolio, gives it a much-improved competitive position in one of the largest/fastest growing diaper markets globally, and signals a renewed openness to M&A under CEO Hsu. At 19x P/E, we see scope for KMBs shares to re-rate higher. Buy, price target $181,” said Kevin Grundy, equity analyst at Jefferies.

“We reiterate our Buy rating at KMB given: 1) High EPS visibility (conservative guidance), 2) Stronger topline / moderating commodity costs provide an offset to FX, 3) Positive strategic changes afoot, 4) Strong B/S (< 2x pro forma for Softex), and 5) Scope for multiple expansion at 19x NTM P/E. Our $181 price target is based on a 23.5x multiple on 2Q21 NTM ULFCF (~21x P/E vs. ~25.5x core staples avg.),” Grundy added.

The deal is expected to close early in the fourth quarter of 2020 and is subject to customary closing conditions. Morgan Stanley & Co. LLC and Centerview Partners LLC acted as financial advisors, and Gibson Dunn and Crutcher LLP acted as legal counsel to Kimberly-Clark on the transaction, the company said.

Kimberly-Clark’s shares rose 0.16% to $152.50 in post-market trading hours after closing 2.05% lower at 152.2 on Thursday. Meanwhile, the stock is up over 12% so far this year.

Executives’ comments

“This acquisition represents a compelling strategic fit and demonstrates our commitment to accelerate growth in developing and emerging markets,” said Mike Hsu, Chairman and CEO, Kimberly-Clark. “Moreover, adding Softex Indonesia and its brands to Kimberly-Clark will enhance our company’s underlying growth prospects and help us create even more long-term shareholder value.”

“Softex Indonesia has a strong, growing and profitable business with a portfolio of brands loved by Indonesian consumers,” said Aaron Powell, President of Kimberly-Clark’s Asia-Pacific consumer business. “This acquisition provides an opportunity for Kimberly-Clark to accelerate our growth in Southeast Asia, and we look forward to combining our strengths in innovation and brand building to expand on Softex Indonesia’s continued success.”

Kimberly-Clark stock forecast

Nine analysts forecast the average price in 12 months at $159.11 with a high forecast of $181.00 and a low forecast of $139.00. The average price target represents a 4.51% increase from the last price of $152.25. From those nine analysts, four rated “Buy”, four rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $160 with a high of $204 under a bull-case scenario and $99 under the worst-case scenario. RBC raised their price objective on Kimberly-Clark to $156 from $149.

Other equity analysts also recently updated their stock outlook. Deutsche Bank raised their price target to $150 from $147, Citigroup upped their stock price forecast to $139 from $125, JP Morgan increased it to $161 from $158 and Jefferies raised the price objective to $181 from $174.

Analyst view

“We have high near-term visibility on solid results above Kimberly-Clark Corp’s (KMB) FY20 guidance, driven by solid topline trends benefiting from an increase in consumption as a result of the COVID-19 pandemic, and margin upside vs. guidance on commodity benefits and upside to reinvestment guidance,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“However, we see limited long-term organic revenue growth of 1.5%, in-line with KMB’s mid-term +1-3% guidance (lowered from +3-5% in the past) driven by muted category growth with declining birth rates in the US/developed markets, and soft KMB share trends. We view KMB’s 30% CY21 P/E discount vs. higher growth HPC peers (PG/CL/CHD/CLX) as appropriate considering our lower long-term organic sales growth/EPS outlook,” he added.

Upside and Downside risks

Upside: Lower than expected commodity costs (particularly hardwood pulp), higher birth rates drive improved category growth, improving market share trends, greater price realization, and a weakening U.S. dollar – highlighted Morgan Stanley.

Downside: Greater than expected commodity pressure, price promotion drives lower category growth, worsening market share trends, lower KMB price realization, cost-cutting downside, and a strengthening U.S. dollar.

Check out FX Empire’s earnings calendar

Campbell Soup Q4 Net Sales Jump 18%, Forecast 5-7% Increase in Current Quarter; Target Price $59 in Best-Case

Campbell Soup Co, a US-centric packaged food company, reported an 18% surge in net sales in the fourth quarter and forecasts a 5-7% increase in the ongoing quarter as shoppers bought more Prego pasta sauces and Goldfish crackers during COVID-19 pandemic.

The food and snack processing company said its fourth-quarter net sales increased 18% and organic net sales increased 12% reflecting continued increased demand for products. The company said its earnings per share (EPS) from continuing operations were $0.28, increased from a loss of $0.02; Adjusted EPS of $0.63 increased 50%.

Campbell Soup’s full-year net sales and organic net sales increased 7% and EPS from continuing operations of $1.95 increased 24%. Given the uncertain operating environment due to the COVID-19 pandemic, the Company is providing guidance limited to the first quarter of fiscal 2021, the company said.

Campbell Soup’s shares traded slightly higher at $53.50 on Thursday. Also, the stock is up over 6% so far this year.

Executive comments

“Our strong fourth-quarter and full-year fiscal 2020 performance were enabled by the extraordinary work of our teams who remained agile and resilient in a challenging operating environment. We continued to invest in our businesses during the quarter as we experienced unprecedented demand for our products and welcomed millions of new households to the Campbell portfolio,” said Mark Clouse, Campbell’s President and CEO.

“This quarter concluded a year that furthered our strategic plan and solidified a significantly strengthened foundation that we will build upon going forward as we begin fiscal 2021.”

Campbell Soup stock forecast

Seven analysts forecast the average price in 12 months at $52.14 with a high forecast of $59.00 and a low forecast of $40.00. The average price target represents a -0.59% decrease from the last price of $52.45. From those seven analysts, two rated “Buy”, two rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $52 with a high of $67 under a bull-case scenario and $34 under the worst-case scenario. Evercore ISI raised their target price to $56 from $54. Piper Sandler raised their price objective on Campbell Soup from $55.00 to $58.00 and gave the stock an “outperform” rating.

Other equity analysts also recently updated their stock outlook. Bernstein lowered their rating to underperform from market perform and cut target price to $40 from $49. Campbell Soup had its target price hoisted by equities researchers at UBS Group to $45 from $44. The firm presently has a “sell” rating on the stock.  JPMorgan Chase & Co. boosted their target price to $52 from $51 and gave the stock a “neutral” rating.

Analyst view

“High exposure to secularly challenged soup category: Shelf-stable soup (26.5% of sales) faces headwinds given shifts in preferences toward better-for-you and fresh foods, competition from private label, and pricing pressure. Snacking brands are well-positioned, but face competitive pressures: Milano, Goldfish, Farmhouse, and Snyder’s-Lance have strong brand equity but face high competition from PEP and MDLZ,” said Pamela Kaufman, equity analyst at Morgan Stanley.

“Significant organizational changes over last two years refocused the company and show promise: Divesting non-core businesses and new leadership refreshes the company’s strategic plan, allowing the company to focus on its key segments and geographies,” she added.

Upside and Downside risks

Upside: 1) Soup volumes recover; new innovation translates to topline growth. 2) Strategic advertising/marketing resonates with consumers. 3) CPB increases share in cookies/crackers – highlighted Morgan Stanley.

Downside: 1) Unable to improve soup growth; negative consumer perceptions continue. 2) PEP and MDLZ present greater headwinds in snacking categories. 3) Pepperidge Farm sales weaken, dragging snacking growth. 4) Margins compress as fewer synergies are realized.

Check out FX Empire’s earnings calendar

CrowdStrike Shares Fall Despite Earnings Beat and Lifted Guidance

CrowdStrike Holdings, Inc. (CRWD) shares retreated 6.42% in after-hours trade Wednesday despite the cloud-based security software company reporting better-than-expected quarterly results and lifting its outlook for the current quarter amid businesses rushing to secure their systems as more staff work remotely during the pandemic.

The Sunnyvale, California-based technology firm reported second-quarter (Q2) adjusted earnings of 3 cents per share, with the figure topping the consensus forecast by 200% and improving from EPS of -18 cents in the year-ago quarter. Revenues of $198.97 million also came in ahead of Wall Street forecasts and grew 84% from a year earlier.

The company’s CEO George Kurtz told investors that recurring subscriptions and ongoing demand for security software underpinned recent growth. “CrowdStrike’s strong momentum continued into the second quarter with net new ARR reaching a new record and exceeding $100 million. A favorable competitive environment and strong secular tailwinds are fueling our growth,” he said in a statement accompanying the earnings call.

Through Wednesday’s close, CrowdStrike stock has a market capitalization of $30.69 billion and trades up a massive 185% year to date (YTD). In the past three months alone, the shares have added over 50%.

Raised Outlook

The company also lifted its fiscal 2021 top- and bottom-line outlook. It now expects to earn between 2 and 8 cents a share, up from its previous forecast of a projected loss between 5 and 8 cents per share. On the revenue front, CrowdStrike sees sales of $809.1 million to $826.7 million, higher than its previous expected range of $761.2 million to $772.6 million.

Management sees increasing demand for its products in the quarters ahead, believing that security breaches will impact businesses more severely in the current environment due to economic vulnerability caused by the pandemic.

Wall Street Outlook

Before the company disclosed its Q2 earnings, Barclays analyst Saket Kalia raised the bank’s price target on Crowdstrike Holdings to $130 from $114, while maintaining his Overweight rating based on reoccurring revenue upside potential. Analysts elsewhere also remain bullish on the stock. It receives 17 ‘Buy’ ratings and 5 ‘Hold’ ratings. No research firm currently recommends selling the shares.

Technical Outlook and Trading Tactics

CrowdStrike shares rose to a new all-time high (ATH) yesterday before closing the session lower as profit-takers moved in. Selling looks like continuing on Thursday, with after-hours trade indicating a fall to around $133 on the open.

Traders should consider buying deeper pullbacks to the $120 level, where previous resistance should now act as support. Before committing capital, consider waiting for signs of a reversal in this area, such as the formation of a hammer candlestick pattern, to confirm the uptrend has resumed. Limit downside by placing a stop-loss order somewhere below the 50-day simple moving average (SMA).

Macy’s Shares Rise on Strong Digital Sales in Q2; Target Price $16 in Best-Case

Macy’s Inc, an American department store chain founded by Xavier Warren in 1929, reported a lower-than-anticipated decline in net sales but digital sales remained strong, growing 53% in the second quarter as shoppers purchased everything from the comfort of their homes amid COVID-19 pandemic, sending its shares up about 6% in pre-market trading on Wednesday.

The fashion retailer said its net sales slumped 35.8% to $3.56 billion but beat market expectations of $3.48 billion. However, digital sales remained strong, growing 53% over second-quarter of 2019. Digital sales penetrated at 54% of the total owned comparable sales.

Macy’s delivered a gross margin of 23.6%, an improvement of approximately 650 basis points from first quarter 2020 due to improved retail margins from the sale of clearance merchandise.

Macy’s reported a net loss of $431 million, or $1.39 per share, in Q2, worse than a profit of $86 million, or 28 cents per share, seen a year earlier.

The company said it withdrew its 2020 sales and earnings guidance and is not currently providing an updated outlook due to ongoing uncertainty as a result of the COVID-19 pandemic.

Macy’s shares rose about 6% to $7.41 in pre-market trading on Wednesday. However, the stock is down about 60% so far this year.

Executive comments

“We are encouraged by our second-quarter performance; however, we continue to approach the back half of the year conservatively. Our immediate priority is successfully executing Holiday 2020. We are also focused on laying the groundwork for 2021 and beyond,” said Jeff Gennette, chairman and chief executive officer of Macy’s, Inc.

We plan to invest in fashion, digital and omnichannel, work with agility, and galvanize the resources of the company to serve our customers and move the Macy’s, Inc. business forward,” Gennette added.

Macy’s stock forecast

Seven analysts forecast the average price in 12 months at $5.57 with a high forecast of $9.00 and a low forecast of $3.00. The average price target represents a -20.54% decrease from the last price of $7.01. From those seven analysts, none rated “Buy”, three rated “Hold” and four rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $5 with a high of $16 under a bull-case scenario and $1 under the worst-case scenario. UBS downgraded to sell from neutral; lowered their target price to $3 from $6.

Other equity analysts also recently updated their stock outlook. Deutsche Bank raised their target price to $6 from $5, Jefferies upped their stock price forecast to $6 from $5, Cowen and Company increased their price objective to $9 from $7 and Credit Suisse raised it to $6 from $4.50.

Analyst view

“Macy’s continues to undergo core operating challenges, similar to peers in the department store space (eg. market share cessation to peers, falling store traffic, contracting margins, eCommerce disintermediation). Despite closing stores proactively, store-only comps remain negative and we forecast them to remain so in the future, eroding ROIC,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

“Expense cuts (eg. headcount reduction), real estate monetization, and secondary growth initiatives are encouraging, but are unlikely to stimulate enough cash flow to reinstate its dividend while also covering upcoming debt maturities. In the event of a 2020 recession, Macy’s likely struggles to survive as it is currently operating,” she added.

Upside and Downside risks

Upside: 1) A return to positive store-only comps while maintaining flow through. 2) Strategic initiatives help drive store traffic. 3) Improved merchandising and supply chain management leads to gross margin expansion. 4) Share buybacks recommence. 5) CECL has no impact to credit profit share – highlighted Morgan Stanley.

Downside: 1) Store-only comps deceleration. 2) CECL has a larger impact than anticipated. 3) 2020 coronavirus/recession impact more severe than anticipated.

AT&T Likely to Sell its Digital Advertising Unit Xandr; Target Price $25 in Worst-Case

AT&T Inc, an American multinational conglomerate holding company, is in discussions to sell its digital advertising unit Xandr, the Wall Street Journal reported citing people familiar with the matter, sending its shares down over 1% on Tuesday.

“Discussions are at an early stage and may not ultimately result in a sale, which is unlikely to fetch more than the amount AT&T paid for AppNexus in 2018,” the WSJ reported.

AT&T’s consolidated revenues for the second quarter totalled $41.0 billion versus $45.0 billion in the year-ago quarter. The COVID-19 pandemic impacted revenues across all segments.

Xandr revenue climbed more than 15% last year to $2 billion.

“AT&T’s wireless growth opportunities remain impressive with the widespread launch of mobile 5G services in several cities. The inherent growth potential of the streaming services from HBO Max also bodes well,” noted analysts at Zacks Research.

“(But) AT&T continues to struggle in a competitive and saturated U.S. wireless industry, while margin pressures due to promotional offers and discounts are headwinds amid the coronavirus-induced turmoil.”

AT&T shares closed 1.14% lower at $29.47 on Friday, the stock is down about 25% so far this year.

AT&T stock forecast

Twelve analysts forecast the average price in 12 months at $34.00 with a high forecast of $38.00 and a low forecast of $25.00. The average price target represents a 15.37% increase from the last price of $29.47. From those 12 analysts, eight rated “Buy”, two rated “Hold” and two rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $36 with a high of $49 under a bull-case scenario and $26 under the worst-case scenario. Scotiabank lowered their rating to sector underperform from sector perform; cuts target price to $30 from $34.

Other equity analysts also recently updated their stock outlook. AT&T had its price target boosted by Royal Bank of Canada to $25 from $24. They currently have an outperform rating on the technology company’s stock. Zacks Investment Research downgraded shares of AT&T from a hold rating to a sell rating and set a $33.00 price objective. Guggenheim lowered their price objective to $38 from $39 and set a buy rating.

Analyst view

“Valuations near multi-year lows already reflect company and industry concerns. Return to wireless service revenue growth with Firstnet and nationwide 5G rollout in 1H20. Potential industry consolidation provides upside opportunities. A dividend payout ratio in the 60s is sustainable in the medium term, buybacks possible as deleveraging continues,” said Simon Flannery, equity analyst at Morgan Stanley.

“Our valuation reflects 5.75% 2020E dividend yield, which is a +400bps spread above the MS Strategy 4Q20 US 10-year Treasury forecast, slightly wider than the historical 5-year average,” he added.

Upside and Downside risks

Upside: 1) Four to three wireless consolidation. 2) Return to wireless service revenue growth. 3) Improving Entertainment Group trends. 4) Activist Shareholder drives change – highlighted Morgan Stanley.

Downside: 1) Increased wireless competition ends return to service revenue growth. 2) Free cash flow pressured, increasing leverage and dividend sustainability concerns. 3) Recession could pressure business wireline, advertising revenues. 4) OTT dilution and execution risks.

Tesla Announces its Biggest Capital Raise of $5 Billion Amid Sharp Rally

Tesla Inc, an American electric vehicle and clean energy company based in California, announced to raise $5 billion capital in new share sales to ease some future debt burden, taking advantage of its recent rally in stocks and soaring investors’ interest.

The largest company in the U.S. by revenue said in a filing with the Securities and Exchange Commission that the extra shares will be sold “from time to time” and “at-the-market” prices.

“We intend to use the net proceeds, if any, from this offering to further strengthen our balance sheet, as well as for general corporate purposes,” Tesla said, reported by CNBC.

This move comes just a day after a stock split of five-for-one brought into play. In February, Tesla had announced plans to raise $2 billion in a stock offering.

Tesla shares have gained more than 500% so far this year; it rose over 7% in pre-market trading on Tuesday.

Tesla stock forecast

Thirty analysts forecast the average price in 12 months at $278.84 with a high forecast of $566.00 and a low forecast of $17.40. The average price target represents a -41.54% decrease from the last price of $477.00. From those 30 analysts, four rated “Buy”, 15 rated “Hold” and 11 rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $272 with a high of $527 under a bull-case scenario and $102 under the worst-case scenario. Independent Research lowered their target price to $109.00 from $540.00.

Other equity analysts also recently updated their stock outlook. Canaccord Genuity raised the target price to $442 from $325, Jefferies upped their price target to $2500 from $1200 and Wedbush increased their stock price forecast to $1900 from $1800.

Analyst view

“We are positive on Tesla’s leadership across: EVs, Batteries & FSD and see an opportunity for TSLA to further penetrate these key TAMs. Why not OW? At its current valuation, we believe the market has already discounted a large part of Tesla’s growth potential. Further, competition in the EV market continues to intensify from traditional OEMs, startups & mega-tech firms,” said Adam Jonas, equity analyst at Morgan Stanley.

“We also continue to harbour concerns over the long-term efficacy of an auto business commercializing advanced tech that is economically sensitive within China. As Tesla expands production, they will likely need to raise more capital. While there is a strong appetite in the short-term, it will dilute shareholders in the long-run,” he added.

Upside and Downside risks

Upside: 1) Tesla China profitability surprises to the upside. 2) Europe Giga success Model Y margin accretion. 3)  Software margin accretion. 4) Tesla the Supplier? 5) Cybertruck – highlighted Morgan Stanley.

Downside: 1) May never make the leap to a shared mobility model, limiting itself to niche OEM status. 2) Execution risk / COVID-19. 3) The openness of capital markets to funding Tesla’s strategic ambitions. 4) Large & better capitalized technology firms emerging as competitors.

Zoom Video Shares Stream Higher After Knockout Earnings

Zoom Video Communications, Inc. (ZM) added 22.74% in after-hours trade Monday after the video conferencing company reported blowout quarterly results as people and businesses rushed to the platform to stay connected while staying closer to home during the pandemic.

The firm posted adjusted earnings of 92 cents per share on revenues of $663.52 million. Analysts had expected a profit of 45 cents a share and sales of $500.5 million. Moreover, top- and bottom-line growth increased by 355% and 1050%, respectively, from the year-ago period.

Management cited an accelerated shift to remote working, distance learning, and socializing for the better-than-expected quarter. “Organizations are shifting from addressing their immediate business continuity needs to supporting a future of working anywhere, learning anywhere, and connecting anywhere on Zoom’s video-first platform,” CEO Eric Yuan said in a statement cited by Barron’s.

As of Sept. 1, 2020, Zoom stock has a market capitalization of $91.71 billion and trades a whopping 378% higher on the year. In the past three months alone, the shares are up 80%. However, the stock comes with a lofty valuation, trading at over 200 times projected earnings.

Looking Ahead

The company substantially hiked its guidance for the current quarter, now expecting earnings per share (EPS) of 73- to 74 cents and revenues of $2.37 million to $2.39 million. It had previously forecast EPS of 35 cents on sales of $493 million.

Wall Street Outlook

Analysts remain bullish on Zoom Video stock on the back of more users signing up for paid plans after trialing a free account earlier in the pandemic. Research firms are also impressed with the company’s ability to grow its market share. “Zoom has captured the biggest portion of market share, increasing from 34% of total MAU’s back in March, to over 48% as of July 24th,” JP Morgan analysts wrote in a recent note to clients. The stock currently receives 11 ‘Buy’ ratings, 3 ‘Overweight’ ratings, 13 ‘Hold’ ratings, and 5 ‘Sell’ ratings.

Wall Street Outlook and Trading Tactics

While most stocks plunged to multiyear lows during the coronavirus sell-off, Zoom Video shares flipped previous resistance into support at the $105 level. Since then, the price has continued to trend sharply higher, with only minor pullbacks to the 50-day simple moving average (SMA). Given that the relative strength index (RSI) indicates short-term overbought conditions, traders should look to buy pullbacks to major support areas, namely at $280 and $175, rather than chasing recent gains.

Nestle to Acquire Peanuts Allergic Treatment Maker Aimmune Therapeutics for $2 Billion; Target Price CHF 120

Nestle SA, the world’s largest food & beverage company, said it will completely acquire a biopharmaceutical company Aimmune Therapeutics, which has the first and only FDA-approved treatment to help reduce the frequency and severity of allergic reaction to peanuts, for $2 billion.

Nestle Health Science (NHSc) currently has a total investment in Aimmune of $473 million, an approximate 25.6% equity ownership stake. Around 19.6% is voting common stock and the balance non-voting preferred stock.

NHSc made its initial investment of $145 million in Aimmune in November 2016, followed by further investments of $30 million in February 2018, $98 million in November 2018 and $200 million early this year, the company said in a press release.

Under the terms of the merger agreement, Nestle S.A.’s wholly-owned subsidiary, Société des Produits Nestle S.A. (SPN), will commence a cash tender offer to acquire all outstanding shares of Aimmune common stock that are not already owned by NHSc for $34.50 per share in cash, representing a total enterprise value, including the shares of Aimmune held by NHSc, of about $2.6 billion.

The $34.50 per share acquisition price represents a 174% premium to Aimmune’s closing share price on August 28, 2020 of $12.60.

After this announcement, Aimmune Therapeutics shares closed 172% higher at $34.22 on Monday; the stock is up over 2% so far this year.

Executives’ comments

“This transaction brings together Nestlé’s nutritional science leadership with one of the most innovative companies in food allergy treatment,” said Nestlé Health Science CEO Greg Behar. “Together we will be able to offer a wide range of solutions that can transform the lives of people suffering from food allergies around the world.”

“The agreement with Nestlé Health Science recognizes the value created by years of commitment and dedication to our mission by the team at Aimmune. Delivering Palforzia, the world’s first treatment for food allergy, has been a game-changing proposition in the bio-pharmaceutical industry and is transformative for the lives of millions of people living with potentially life-threatening peanut allergy,” said Jayson Dallas, MD, President and Chief Executive Officer of Aimmune.

“This acquisition ensures a level of support for Palforzia and our pipeline that will further enhance their potential for patients around the world living with food allergies.”

Nestle stock forecast

Morgan Stanley gave a target price of CHF 110 with a high of CHF 125 under a bull-case scenario and CHF 80 under the worst-case scenario. Jefferies increased their stock price forecast to CHF 109 from CHF 94.

Other equity analysts also recently updated their stock outlook. JP Morgan raised their price target to CHF 123 from CHF 116, Barclays increased their price objective to CHF 120 from CHF 112 and UBS raised their target price to CHF 130 from CHF 114.

We think it is good to buy at the current level and target CHF 120 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Fifteen analysts forecast the average price in 12 months at $125.55 with a high forecast of $143.68 and a low forecast of $104.99. The average price target represents a 4.50% increase from the last price of $120.14. From those 15 analysts, ten rated “Buy”, four rated “Hold” and one rated “Sell”, according to Tipranks.

Analyst view

“We view Nestle as a core holding in European Food, with an attractive portfolio of leading global brands and a defensive growth profile vs. peers. We see continuation of improving returns as Nestle looks to manage its core portfolio and drive growth through margin-accretive categories such as Coffee, Pet Care and Nutrition,” said Richard Taylor, equity analyst at Morgan Stanley.

“Ongoing cost savings should support margin expansion of 40bps over the next 3 years. Strong FCF + ROIC improvement should drive a premium vs EU Food-HPC peers. Nestle currently trades at an 8% premium to large-cap peers on 2021e P/E,” he added.

Upside and Downside risks

Upside: 1) Superior execution and re-rating as growth accelerates. 2) Cost savings and improving mix resulting in better than expected margins – highlighted Morgan Stanley.

Downside: 1) Strengthening of CHF vs Nestle’s major currencies, particularly USD. 2) Higher than expected reinvestment or restructuring. 3) Greater competition in some of Nestle’s core businesses, such as Coffee, Pet Care and Nutrition.

KKR to Sell its Epicor Software to Clayton, Dubilier & Rice for $4.7 Billion; Target Price $40

KKR & Co Inc, an American global investment company that manages multiple alternative asset classes, said it will sell its software business Epicor Software Corporation to Clayton, Dubilier & Rice in a $4.7 billion deal announced on Monday.

CD&R Operating Partner Jeff Hawn will serve as Chairman of the Epicor Board upon close of the transaction, expected later this year, the company said.

UBS Investment Bank is acting as financial advisor and Debevoise & Plimpton LLP as legal advisor to CD&R. Barclays is acting as lead financial advisor, BofA Securities and Jefferies LLC as financial advisors, and Simpson Thacher & Bartlett LLP as legal advisor to KKR and Epicor.

KKR shares closed 0.32% higher at $34.93 on Friday, the stock is up about 20% so far this year.

Executive comments

“Four years ago, we embarked on an ambitious product modernization journey together with Epicor and are incredibly proud of the successes that the company has achieved to date, particularly with its recent cloud releases,” remarked John Park, Chairman of the Epicor Board and Head of Americas Technology Private Equity at KKR.

“We are confident that CD&R will provide valuable support as the company continues these product- and customer- centric investments to accelerate growth in the cloud.”

KKR stock forecast

Twelve analysts forecast the average price in 12 months at $39.96 with a high forecast of $47.50 and a low forecast of $36.00. The average price target represents a 14.40% increase from the last price of $34.93. From those 12 analysts, nine rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $37 with a high of $63 under a bull-case scenario and $16 under the worst-case scenario. KKR & Co Inc had its price objective boosted by stock analysts at Credit Suisse Group to $38 from $34. The firm currently has a “neutral” rating on the asset manager’s stock.

Other equity analysts also recently updated their stock outlook. Oppenheimer lowered the price target to $39 from $40, BMO raised their price objective to $46 from $44, Citigroup upped their price forecast to $47.5 from $40, Wells Fargo increased their stock price target to $43 from $40 and KBW raised it to $43 from $41. Bank of America upped their target price to $40 from $36 and gave the stock a “buy” rating. At last, Keefe, Bruyette & Woods upped their target price to $41 from $34.

We think it is good to buy at the current level and target $40 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

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

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

Upside and Downside risks

Upside: 1) Faster deployment with greater opportunity set. 2) Accelerated portfolio exit activity. 3) Stronger fundraising boosted by seeding of new strategies. 4) Better balance sheet marks than feared – highlighted Morgan Stanley.

Downside: 1) Deeper recession that leads to weaker investment returns, balance sheet markdowns and delays harvesting of investments pressuring earnings. 2) Increased political and regulatory scrutiny of PE business model.

BlackRock Wins Regulatory Approval to Start a Mutual-Fund Business in China; Target Price $630

BlackRock, the world’s largest investment management firm, received an approval to set up a wholly-owned mutual fund unit in the world’s second-largest economy, making it the one of the first global asset management firm to win regulatory approval from the China Securities Regulatory Commission.

BlackRock got the green light late this month to start a wholly-owned subsidiary in Shanghai, the China Securities Regulatory Commission said on Friday.

The approval would extend the investment management firm’s spectra in the Chinese asset management market, where it already operates as a mutual fund venture with Bank of China and is in the process of setting up a management venture with China Construction Bank and Temasek, Reuters reported.

Last month, BlackRock reported a 20% surge in profit in Q2, largely driven by a boost in fixed income and continued momentum in cash management.

BlackRock shares closed 1.02% higher at $601 on Friday, the stock is up about 19% so far this year.

BlackRock stock forecast

Twelve analysts forecast the average price in 12 months at $632.27 with a high forecast of $685.00 and a low forecast of $566.00. The average price target represents a 5.19% increase from the last price of $601.06. From those 12 analysts, ten rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $652 with a high of $985 under a bull-case scenario and $320 under the worst-case scenario. The brokerage currently has an “overweight” rating on the asset manager’s stock. Deutsche Bank also raised their target price to $568 from $566.

Other equity analysts also recently updated their stock outlook. BMO Capital Markets raised their target price on BlackRock to $620 from $560.00 and gave the company a “market perform” rating. Wells Fargo & Co raised their target price to $615 from $605 and gave the company an “overweight” rating. At last, Argus increased their price objective to $640 from $530 and gave the company a “buy” rating.

We think it is good to buy at the current level and target $630 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“BlackRock seems well-poised to capitalize on opportunistic acquisitions to enhance financial performance. Also, its efforts to gain market share in the active equity business will aid profitability,” noted equity analysts at Zacks Research.

“(But) Mounting expenses (mainly owing to higher general and administration costs) are likely to hurt BlackRock’s bottom line to an extent. High dependence on overseas revenues makes us apprehensive.”

Upside and Downside risks

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

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

Veeva Systems’ Price Target Raised to $323 with Overweight Rating, $435 in Best-Case Scenario: Morgan Stanley

Veeva Systems’, an American cloud-computing company focused on pharmaceutical and life sciences industry applications, price target was raised to $323 from $253 with Overweight stock rating, according to Morgan Stanley equity analyst Stan Zlotsky, who also said with consistent growth, profitability, and defensibility, Veeva is a unique software asset.

Late last month, Veeva reported total revenue of $353.7 million in the second quarter, up from $266.9 million one year ago, an increase of 33% year-over-year. Subscription services revenue for the second quarter were $283.5 million, up from $217.3 million one year ago, an increase of 30% year-over-year.

Veeva forecasts fiscal year ending January 31, 2021 total revenues between $1,415 and $1,420 million and fiscal third-quarter Total revenues between $360 and $362 million.

“In our new model, we raise our FY21 revenue estimates to $1,419 million (vs $1,387 million prior), within management’s updated guidance range of $1,415-1,420 million. Our FY21 revenue estimates imply YoY subscription/total revenue growth of +28.9%/+28.5% compared to +26.6%/+25.6% previously and includes ~$92.5 million of inorganic revenue from Crossix and Physician’s World (unchanged). We raise our FY21 operating margin estimates to 38.3%, versus 36.5% previously and similarly lift our FY22/FY23 margin estimates to 39.5%/40.8% from 37.6%/39.0% previously,” said Stan Zlotsky, equity analyst at Morgan Stanley.

“Our FY21/FY22 OCF estimates also increase to $544.1 million /$682.1 million from $505.8 million /$642.3 million previously. On the back of our raised estimates and improving confidence in Veeva’s FCF durability, we increase our price target to $323 from $253 previously. To arrive at our new price target, we apply a 53x multiple (vs 43x prior) or 2.5x EV/FCF/G (vs 2.2x prior) to our CY25 FCF estimate of $1,504 million ($1,357 million previously) and discount back at a 7.6% WACC (unchanged),” Zlotsky added.

Morgan Stanley target price under a bull-case scenario is $435 and $214 under the worst-case scenario. Veeva Systems had its price objective raised by equities research analysts at Truist to $320 from $222.

Several other equity analysts have also updated their stock outlook. Piper Sandler lifted their price target on Veeva Systems to $310 from $220 and gave the company an “overweight” rating. Stephens boosted their target price on Veeva Systems to $325 from $290 and gave the stock an “overweight” rating.

Twenty analysts forecast the average price in 12 months at $293.79 with a high forecast of $325.00 and a low forecast of $228.00. The average price target represents a 7.20% increase from the last price of $274.07. From those 20, 15 analysts rated ‘Buy’, five analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

“Veeva’s core products provide SaaS solutions for the Life Sciences industry, targeting $10 billion+ of spend today with potential overtime to address more of the $44 billion Life Sciences spend on IT, leveraging the company’s strong brand recognition and expanding its TAM into other regulated industries and use cases. As Veeva penetrates this large TAM, we see a sustainable 18% revenue CAGR over the next 5 years,” Morgan Stanley’s Zlotsky added.

Upside risks: 1) Veeva penetrates its TAM faster than expected as it gains traction outside life sciences. 2) Traction within newer products and add-ons accelerates -highlighted by Morgan Stanley.

Downside risks: 1) 70%+ seat penetration in CRM could limit growth while declining sales headcount in Life Sciences may be a headwind. 2) TAM may be more limited due to vertical-specific focus. 3) Increased competition on CRM by competitors such as Iqvia.

Workday Upgrades Fiscal 2021 Subscription Outlook after Strong Q2 Earnings; Buy with Target Price of $250

Workday Inc, an American on‑demand financial management and human capital management software vendor, reported a 19.6% increase in total revenue in the second quarter as subscription-based sales surged amid COVID-19 pandemic and raised its revenue forecast for the fiscal year 2021, sending its shares up about 11% in pre-market trading on Friday.

The leader in enterprise cloud applications for finance and human resources also announced that it has promoted Chano Fernandez to co-CEO, alongside Workday Co-Founder Aneel Bhusri, who was previously sole CEO. Both co-CEOs will report to the Workday Board of Directors.

Workday’s total revenues increased 19.6% to $1.06 billion from the second quarter of fiscal 2020. Subscription revenue climbed 23.1% to $931.7 million from the same period last year. Net loss per basic and diluted share was $0.12, compared to a net loss per basic and diluted share of $0.53 in the second quarter of fiscal 2020. Non-GAAP net income per diluted share was $0.84, compared to a non-GAAP net income per diluted share of $0.44 in the same period last year.

“We’re fundamental fans, but believe shares are fairly valued at 12x 2021E rev. vs. comp group at 11.7x. Maintain Hold and raise price target to $250,” said Brent Thill, equity analyst at Jefferies. “We believe unearned revenue will continue to be volatile given the current environment and that investors should focus on subs. backlog.”

Workday forecasts fiscal 2021 subscription revenue between $3.73 billion and $3.74 billion, higher than the previous forecast of $3.67 billion to $3.69 billion.

Workday shares rose about 11% to $240 in pre-market trading on Friday after closing 1.41% higher at $216.63 a day before.  Also, the stock is up over 30% so far this year.

Executives’ comments

“It was a strong quarter despite the environment, with continued demand for our products as more organizations realize how mission-critical cloud-based systems are in supporting their people and businesses through continuous change,” said Aneel Bhusri, co-founder and co-CEO, Workday.

“We executed extremely well in the second quarter and delivered solid results, with subscription revenue growth of 23.1% and non-GAAP operating margin of 24.3%,” said Robynne Sisco, president and chief financial officer, Workday.

“As a result of our strong Q2 performance, we are raising our fiscal 2021 subscription revenue guidance to a range of $3.73 billion to $3.74 billion. We expect third-quarter subscription revenue of $948.0 million to $950.0 million. We are also raising our fiscal 2021 non-GAAP operating margin guidance to 18.0%. Despite the near-term uncertainty that remains, our first-half performance has reinforced our confidence in the fundamental strength of our business, and in the long-term opportunity that we see ahead,” Sisco added.

Workday stock forecast

Twenty-one analysts forecast the average price in 12 months at $228.86 with a high forecast of $296.00 and a low forecast of $140.00. The average price target represents a 5.65% increase from the last price of $216.63. From those 21 analysts, eleven rated “Buy”, nine rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $295 with a high of $385 under a bull-case scenario and $125 under the worst-case scenario. Workday had its target price raised by analysts at Cowen and Company to $250 from $190 and Stifel increased it to $227 from $190.

Other equity analysts also recently updated their stock outlook. Monness Crespi Hardt raised their target price to $280 from $215, Deutsche Bank upped their price objective to $220 from $190, Needham raised target price to $260 from $200, Evercore ISI increased their target price to $290 from $205, Barclays upped it to $220 from $162, JP Morgan raised target price to $250 from $200, Jefferies increased to $250 from $195 and RBC raised their target price to $280 from $220.

We think it is good to buy at the current level and target $250 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“Workday is taking share in the large HCM/ERP market that is gradually shifting to the cloud with a disruptive SaaS platform. Our analysis suggests Workday is a LT share gainer in this space and can continue to grow its premier enterprise customer base globally while penetrating a large mid-market opportunity,” said Keith Weiss, equity analyst at Morgan Stanley.

“Furthermore, we see an attractive rev/customer growth opportunity as the company continues to develop its product portfolio and upsell sales motion. In a very expensive growth software stock landscape, we retain confidence in stories where durable/improving growth and improving margins can drive positive revisions in earnings and FCF – WDAY fits this description, keeping us Overweight shares,” Weiss added.

Upside and Downside risks

Upside: 1) Shift upmarket for the financials module greater than expected traction. 2) Shift downmarket for the HCM module gains more traction than expected. 3) Upsell motion develops faster than expected – highlighted by Morgan Stanley.

Downside: 1) Competition from legacy vendors and/or competing SaaS offerings. 2) Faster growth and higher investments further slow path to profitability. 3) Financials module does not gain traction.

Gap Q2 Comparable Sales Jump 13% as Online Shopping Nearly Doubled Amid COVID-19 Crisis; Target Price $24

Gap Inc, an American worldwide clothing and accessories retailer, reported a 13% increase in comparable sales in the second quarter, largely driven by a 95% surge in online buying amid COVID-19 pandemic, sending its shares up over 2% on Thursday.

The San Francisco-based retailer reported a second-quarter net loss of $62 million, or 17 cents per share, compared to a profit of $168 million, or 44 cents per share, a year earlier. Net sales declined about 18% to $3.28 billion but were above market consensus of $2.91 billion.

“Gap (GPS) is benefiting from the shift in consumer demand toward comfort and casual and impressively increasing its online sales penetration across brands. We believe Old Navy’s authority in the value space and Athleta’s compelling brand positioning in athleisure are resonating with consumers in the current environment and should serve as near-term tailwinds. However, we view Back to School shopping could be both lower and more extended, and we are more cautious than optimistic about holiday sales prospects. Key factors we monitor include: the promotional environment during the holiday season, the possibility of additional store closures, and higher fulfilment costs,” said Oliver Chen, equity analyst at Cowen.

“From a valuation perspective, the stock has rebounded 220% from its low point in March driven by the Yeezy announcement and higher conviction around Athleta and e-commerce sales. Given the stock run, we think the stock upside is limited in the near-term. We view GPS should trade close to the 3-year average FY2 P/E multiple of 11x, and we update our price target to $15 based on our updated FY2 EPS estimate,” Chen added.

The company delivered positive operating income and improved its cash balance by over $1 billion compared to the first quarter, ending the quarter with a cash and cash equivalents balance of $2.2 billion.

The second-quarter fiscal year 2020 comparable sales were up 13%, driven by the strength of Gap Inc.’s scaled e-commerce business, which added over 3.5 million new customers during the quarter. The comparable sales calculation reflects online sales and comparable sales days in stores that have reopened.

Given the high level of uncertainty amid ongoing COVID-19 pandemic, Gap did not provide fiscal year net sales or earnings forecast.

On Thursday, Gap shares closed 2.05% higher at $17.38, the stock is down about 2% so far this year.

Executives’ comments

“We nearly doubled our e-commerce business, with approximately 50% online penetration, demonstrating our ability to pivot to a digitally-led culture,” said Sonia Syngal, Chief Executive Officer, Gap Inc.

“Our strong financial position, healthy cash flow generation and our continued execution of initiatives to drive profitable growth provide the foundation to emerge from the crisis well-positioned to compete in a rapidly evolving marketplace,” said Katrina O’Connell, Chief Financial Officer, Gap Inc.

“Recognizing the uncertainty ahead, we remain committed to amplifying our distinct advantages and leveraging our scale to capture share as demand recovers,” O’Connell added.

Gap stock forecast

Citigroup upgraded Gap from a “neutral” rating to a “buy” rating and raised their price target to $24 from $12. Gap had its target price raised by analysts at RBC to $21 from $18.

Other equity analysts also recently updated their stock outlook. Morgan Stanley gave a target price of $11 with a high of $19 under a bull-case scenario and $3 under the worst-case scenario. Cowen and Company raised their target price to $15 from $11, B Riley FBR upped their price objective to $15 from $10 and JP Morgan establishes December 2021 price target of $16 from $14 for December 2020.

On the other hand, fourteen analysts forecast the average price in 12 months at $14.33 with a high forecast of $24.00 and a low forecast of $8.00. The average price target represents a -17.55% decrease from the last price of $17.38. From those 14 analysts, three rated “Buy”, nine rated “Hold” and two rated “Sell”, according to Tipranks.

We think it is good to buy at the current level and target $24 as 50-day Moving Average and 50-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“Gap (GPS) is in need of significant transformation. However, we are more positive on the LT forecast given mgmt’s commitment to fleet and corporate downsizing. The separation work and COVID-19 may be the catalysts GPS needed to downsize its business. Our fundamental concerns remain (falling store traffic, eComm disintermediation, declining brand health, apparel price deflation, falling margins), but are exacerbated in the NT driven by the COVID-19 impact,” said Simeon Gutman, equity analyst at Morgan Stanley.

“We think GPS’ value proposition is potentially no longer competitive, as Gap and BR have lost relevance with consumers; ON and Athleta are relative bright spots. We see a limited capacity for share buybacks, dividends, and SG&A savings in 2020-2021,” Gutman added.

Upside and Downside risks

Upside: 1) Segment comp outperformance (particularly at Gap/BR). 2) Successful revised strategy/execution under a new CEO. 3) Limited CECL impact to credit profit share. 4) Better-than-feared COVID-19 impact / potential recession – highlighted by Morgan Stanley.

Downside: 1) Ongoing Gap brand, BR, and ON performance deterioration. 2) Fashion mis-execution/risk. 3) Competitive risk (particularly at Gap/BR). 4) Worse-than-feared COVID-19 impact / potential recession.