Video Game Retailer GameStop Shares Sink Over 17% on Disappointing Third Quarter Revenue

GameStop Corp. reported a loss for the third consecutive time in the fiscal third quarter as net sales plunged more than 30%, largely driven by store closures due to the COVID-19 pandemic and intense competition from rivals, sending its shares down over 17% in extended trading on Tuesday.

The videogame retailer said its net loss came down to $18.8 million, or 29 cents per share, from $83.4 million, or $1.02 per share, in the same quarter last year. Excluding items, posted a loss of 53 cents per share, analysts’ expectations were for a loss of 85 cents per share.

GameStop’s revenue slumped 30% to $1 billion, below the Wall Street consensus of $1.09 billion.

Following this disappointing result, GameStop’s shares slumped 17.36% to $14 in extended trading on Tuesday after closing 3.6% higher at $16.94. The stock is up about 180% so far this year.

Executive Comments

“We begin the fourth quarter with unprecedented demand in new video game consoles that launched in November, which drove a 16.5% increase in comparable-store sales for the month, despite being closed on Thanksgiving Day and the impact of COVID-19 related store closures, which affected most of our European footprint. We anticipate, for the first time in many quarters, that the fourth quarter will include positive year-on-year sales growth and profitability, reflecting the introduction of new gaming consoles, our elevated omnichannel capabilities and continued benefits from our cost and efficiency initiatives, even with the potential further negative impacts on our operations due to the global COVID-19 pandemic,” said George Sherman, GameStop’s chief executive officer.

“Overall, we remain confident in our strategy and look forward to executing in 2021 on the many exciting opportunities to leverage our brand, extensive loyalty member base, and increased digital capabilities to expand our addressable market and product offerings, providing growth in all things games and entertainment,” Sherman concluded.

GameStop Stock Price Forecast

Nine equity analysts forecast the average price in 12 months at $7.73 with a high forecast of $16.00 and a low forecast of $1.60. The average price target represents a -54.37% decrease from the last price of $16.94.

All those nine analysts, one rated “Buy”, five rated “Hold” and three “Sell”, according to Tipranks. Wedbush raised the target price to $16 from $8 and Telsey Advisory group upped the stock price forecast to $19 from $10.

Several other analysts have also upgraded their stock outlook. GameStop had its price target hoisted by analysts at Wedbush to $16 from $8. The firm currently has a “neutral” rating on the stock. Telsey Advisory Group upgraded to an “outperform” rating from a “market perform” and raised their price target for the company to $10 from $9. Benchmark boosted their price objective to $6 from $3.

Analyst Comments

“FQ3 was light vs. estimates but is a hop over in terms of sentiment. Nov comps +16% with mid-month new cycle launch was as expected. Significant SG&A savings of $316M YTD /$115M Q3 paired with pos. sales in Q4 should yield Y/Y profit growth. An announced shelf registration was unexpected, with $600M of Q3-end cash, inventories -33%, store closures with lease flex, e-com +257% Y/Y (18% of mix). Raising price target; waiting on clearer entry point & multi-year pathway,” noted Stephanie Wissink, equity analyst at Jefferies.

“Our forward sales assumptions are largely unchanged, with 1H21 estimate to grow 20%+ as demand for hardware outstrips supply. We trimmed Q4 profit on higher HW mix. Some degree of upside exists if tie-rates of software (physical; +digital for Xbox) are higher post-launch. We are monitoring: 1) pace of demand through the holiday, esp head-to-head allocation competition with Sony/Microsoft DTC; 2) channel mix & omni uptake; 3) PC gaming renaissance & related hard goods & software sales; 4) cost bend and lease flex; 5) CRM monetization. Price target to $15 on 5.5x FY2 EBITDA,” Wissink added.

Upside and Downside Risks

Upside Risks: 1) GME   successfully shifts sales mix towards collectables, accessories, and digital. 2) Video Game Software declines at a slower rate than expected. 3) GME leverages the popularity of E-Sports to drive customers into locations. 4) Close locations that are a drag on margins. 5) 2022 EBITDA: $250M; Target Multiple: 5x; Price Target: $20 – highlighted by Jefferies.

Downside Risks: 1) Consumers adopt videogame downloads faster than anticipated. 2) Volatility in content related demand leads to sales decline in collectables. 3) Inventory and markdown risk. 4) Assumes investors only value GME on FCF and PPE; completely discounting CRM and equity value. 5) Sales deceleration across categories leads to deleveraging. 6) 2022 EBITDA:  $120M; Target Multiple:  4.5x; Price Target: $10.

Check out FX Empire’s earnings calendar

Canadian Pipeline Operator Enbridge Upgrades 2021 Core Earnings, Dividend Forecasts

Enbridge, a Canadian multinational energy transportation company, upgraded their next year core earnings and annual dividend forecasts, largely driven by volume recoveries in its Liquids Mainline System and downstream pipelines.

Canadian pipeline operator forecasts 2021 EBITDA between C$13.9 billion to C$14.3 billion, higher than this year’s forecast of nearly C$13.7 billion, and distributable cash flow per share of between $4.70 to $5.00 per share.

Enbridge said its quarterly dividend for 2021 will be increased from $0.81 to $0.835 per share, commencing with the dividend payable on March 1, 2021, to shareholders of record on February 12, 2021.

Enbridge’s shares closed 0.3% lower at $33.28 on Monday; the stock is down over 15% so far this year.

Executive Comments

“In the near-term, our Plan continues to prioritize the execution of our $16 billion secured growth program, of which approximately $6 billion has already been spent, and are expected to deliver approximately $2 billion of incremental EBITDA from 2021 to 2023,” noted Al Monaco, President and CEO of Enbridge.

“Over the medium and longer-term, Enbridge’s diversified asset base, integrated infrastructure networks and extensive reach provide us with many opportunities to invest our expected post- Line 3 annual investment capacity of $5-6 billion. We will, however, stay true to our investment discipline, deploy capital to the best uses, and stick to what we know best,” Monaco added.

Enbridge Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $40.40 with a high forecast of $46.11 and a low forecast of $35.95. The average price target represents a 21.39% increase from the last price of $33.28. All those 10 analysts rated “Buy”, none rated “Hold” or “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of C$54 with a high of C$68 under a bull-case scenario and C$31 under the worst-case scenario. The firm currently has an “Overweight” rating on the energy transportation company’s stock. Wells Fargo raised the price target to C$46 from C$44, raises to overweight rating from equal weight.

Several other analysts have also upgraded their stock outlook. Enbridge has been given a C$50 target price by equities researchers at Tudor Pickering & Holt. The firm currently has a “buy” rating on the stock. TD Securities decreased their price target to C$53 from C$57 and set a “buy” rating for the company. National Bank Financial decreased their price target to C$55 from C$56 and set an “outperform” rating. Royal Bank of Canada reduced their target price to C$52 from C$58 and set an “outperform” rating.

Analyst Comments

“One of the most utility-like business models: minimal commodity and volume exposure, highly stable and diverse set of crude oil and natural gas pipelines, and a modestly growing utility business. Stable, self-funding equity model and potential positive cash flow generation create capacity for organic reinvestment, long-lived projects, and flexibility for potential share repurchases,” said Stephen Byrd, equity analyst at Morgan Stanley.

“Relatively limited variability to current operating environment positions ENB as a defensive alternative,” Byrd added.

Upside and Downside Risks

Upside Risks: 1) Regulatory approvals for Line 3/Line 5 projects. 2) Regulatory approval/contracting of the Mainline system to replace the Competitive Toll Settlement. 3) Execution on Mainline optimization initiatives and downstream expansions- highlighted by Morgan Stanley.

Downside Risks: 1) Legal challenges stop Line 3/Line 5 projects from moving forward. 2) Risk on producer-facing Northeast gas pipeline contracts. 3) Growth slows as new projects prove difficult to source.

Luxury Home Builder Toll Brothers Beats Earnings Estimates; Target Price $60 in Best Case

Toll Brothers, a home construction company based in Fort Washington, reported better-than-expected earnings in the fourth quarter, largely driven by rising housing demand due to record low mortgage rates and shifting living preferences during the COVID-19 pandemic, sending its shares up about 3% on Monday.

The luxury home builder said its total sales grew 7% from a year ago to $2.55 billion in the three months ended October 31, beating market expectations of $2.08 billion. Revenue from home sales, which accounts for a majority of Toll Brothers’ total revenue, climbed nearly 9% to $2.5 billion.

For the quarter, Toll Brothers said its net income and earnings per share were $199.3 million and $1.55 per share diluted, compared to net income of $202.3 million and $1.41 per share diluted in FY 2019’s fourth quarter. Analysts expected $1.23 in per-share earnings.

The attributed the strength in demand to historically low-interest rates, an undersupply of new and resale homes and a renewed appreciation for the home as a sanctuary. The work-from-home situation during the COVID-19 pandemic is also enabling more home buyers to live where they want rather than where their jobs previously required.

Toll Brothers forecasts the fiscal year 2021 home deliveries of between 9,600 and 10,200 homes with an average price of between $790,000 and $810,000.

Toll Brothers’ shares closed 2.73% higher at $49.21 on Monday; the stock is up about 25% so far this year.

Executive Comments

“We are currently experiencing the strongest housing market I have seen in my 30 years at Toll Brothers and we continue to increase prices in nearly all of our communities as we focus on driving profitability and managing growth. The strong demand began for us in mid-May and has continued through today. In our fourth quarter, net signed contracts of 3,407 homes and $2.74 billion were the highest totals for any quarter in our history, up 68% in homes and 63% in dollars compared to one year ago. In FY 2021’s first six weeks ended December 6, demand has remained very strong compared to one year ago, with our non-binding reservation deposits, which are a precursor to contracts, up approximately 48%,” said Douglas C. Yearley, chairman and chief executive officer.

“With our highest year-end backlog in 15 years and continued strong demand, we expect to deliver the most homes in our history in FY 2021. In addition, our strong land holdings and presence in over 50 markets position us well for 10% community count growth by the end of FY 2021. Based on the pricing power that has accompanied our strong sales since May, we expect gross margin to improve over the course of the fiscal year as we deliver those homes. And as we continue to focus on more capital-efficient ways to acquire and develop the land, we expect improvement in our return on equity in FY 2021. With our well-located land holdings, luxury brand and distinctive home designs that appeal to move-up, empty-nester and affordable luxury home buyers, we are strategically positioned for continued growth in FY 2021 and beyond.”

Toll Brothers Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $49.33 with a high forecast of $60.00 and a low forecast of $40.00. The average price target represents a 0.24% increase from the last price of $49.21. From those 10 analysts, four rated “Buy”, two rated “Hold” and four rated “Sell”, according to Tipranks.

Several other analysts have also upgraded their stock outlook. Zacks Investment Research upgraded Toll Brothers to a “buy” rating from a “hold” and set a $44 target price on the stock. Citigroup boosted the target price to $38 from $34 and gave the company a “neutral” rating. TheStreet upgraded to a “b-” rating from a “c+”. At last, Wells Fargo boosted the target price to $44 from $34 and gave the company an “equal weight” rating.

Analyst Comments

“4Q20 EPS of $1.55 beat our $1.25 estimate and consensus of $1.23. The beat was driven largely by revenue on significantly greater delivery volume than we anticipated. Order growth of +68% was slightly above our estimate of +64%. Operating margin of 10.2% was a shade below our estimate of 10.4% due to land write-offs. Guidance for FY21 was generally in line with our forecast, although 1Q was light,” said Carl E. Reichard, equity analyst at BTIG.

“Despite the strong top-line beat, shares are bid down 3.5% at the time of this writing, likely due to lower than expected 1Q20 delivery and gross margin guide. The guide seems at least in part driven by strong volume already delivered in 4Q which renders backlog thinner. Expectations for a margin beat this quarter may also be playing a role,” E. Reichard added.

Check out FX Empire’s earnings calendar

Cisco to Acquire Cloud Communications Software Firm IMImobile in Nearly $730Mln Deal

Cisco, the world’s leading provider of IP-based networking solutions, announced on Monday to acquire a London-based cloud communications software company IMImobile for 595 pence per share or an aggregate purchase price of nearly $730 million.

Together with IMImobile, Cisco will be able to provide an end-to-end customer interaction management solution, and the ability to drive faster and smarter interactions and orchestration through the customer’s channel of choice, the company said in the statement.

Cisco’s shares closed 0.61% higher at $44.38 on Friday. However, the stock is down around 7% so far this year.

Cisco Stock Price Forecast

Sixteen equity analysts forecast the average price in 12 months at $47.69 with a high forecast of $60.00 and a low forecast of $41.00. The average price target represents a 7.46% increase from the last price of $44.38. From those 16 analysts, eight rated “Buy”, eight rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $54 with a high of $65 under a bull-case scenario and $33 under the worst-case scenario. The firm currently has an “Overweight” rating on the technology conglomerate’s stock.

Several other analysts have also upgraded their stock outlook. Cisco Systems had its target price increased by Piper Sandler to $45 from $44. JP Morgan lowered their target price to $46 from $50 and set a neutral rating on the stock. BidaskClub reduced to a strong sell rating from a sell. New Street Research raised to a buy rating from a neutral and set a $60 target price.

Analyst Comments

“Infrastructure revenue likely to decline with a more limited IT budget environment, but pockets of growth can help stabilize earnings. The higher proportion of recurring sales limits downside volatility relative to previous cycles, but still not immune,” said Meta Marshall, equity analyst at Morgan Stanley.

“Security/analytics capabilities should help Cisco stay important to IT budgets even as cloud transition accelerates. Security and applications growth (primarily inorganic) help improve margins of the overall business,” Marshall added.

Upside and Downside Risks

Risks to Upside: 1) Software and services business drive growth. 2) Accelerated replacement cycles from product refreshes support growth in spite of weaker macro conditions. 3) A re-acceleration in GDP and therefore IT spending – highlighted by Morgan Stanley.

Risks to Downside: 1) Federal spending disruption. 2) Prolonged macro downturn and subsequent lack of recovery in networking spend. 3) Security sales materially decelerate given the disruption in leadership.

Morgan Stanley Raises Broadcom’s Target Price to $440; Forecasts Solid Earnings Report

Morgan Stanley raised their stock price forecast on Broadcom to $440 from $415, assigning an “Overweight” rating and said the global semiconductor leader will post a solid earnings report with strong unit and content growth in the iPhone pointing to upside.

The semiconductor manufacturer will report its fiscal quarter ending October 2020 earnings after the close of trading on Thursday, December 10. According to Zacks Investment Research, the consensus EPS forecast for the quarter is $5.32, up from $4.43 reported in the same quarter last year.

“We estimate October quarter revenue of $6.488bn (up 11.5% q/q and 12.3% y/y), slightly above the Street at $6.425bn. On a segment basis, we model Semiconductor Solutions at $4.852bn (up 15% q/q and 6.6% y/y) and Infrastructure Software at $1.636bn (up 2.1% q/q and 36.3% y/y). We estimate GM of 72.9% (down 130bps q/q and up 300bps y/y), below the Street at 73.7%, and EPS of $6.31, $0.07 above the Street at $6.24,” noted Craig Hettenbach, equity analyst at Morgan Stanley.

“Looking ahead to the January quarter, we model revenue of $6.501bn (up 0.2% q/q and 11% y/y), a touch below the Street at $6.515bn. From a segment perspective, we estimate Semiconductor Solutions revenue of $4.803bn (down 1% q/q and up 14.6% y/y) and Infrastructure Software revenue of $1.698bn (up 3.8% q/q and 1.9% y/y). We estimate GM of 72.6% (flat q/q and down 40bps y/y), below the Street at 73.5%, and EPS of $6.37, $0.02 above the Street at $6.35,” Hettenbach added.

Morgan Stanley gave a target price of $514 under a bull-case scenario and $307 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Deutsche Bank raised their stock price forecast to $450 from $400. Oppenheimer upped the price target to $475 from $400. Mizuho increased the price target to $425 from $390. At last, Jefferies raised the price objective to $420 from $405.

Seven analysts forecast the average price in 12 months at $420.83 with a high forecast of $475.00 and a low forecast of $360.00. The average price target represents a 2.22% increase from the last price of $411.68. From those seven analysts, five rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Broadcom’ shares closed 2.97% higher at $411.68 on Friday; the stock is up over 30% so far this year.

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

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

TAKE A LOOK AT OUR WEEKLY EARNINGS NOTE FOR THE WEEK DECEMBER 7-11

Earnings to Watch Next Week: Toll Brothers, AutoZone, Campbell, Adobe and Costco Wholesale in Focus

Earnings Calendar For The Week Of December 7

Monday (December 7)

IN THE SPOTLIGHT: TOLL BROTHERS

Toll Brothers, a home construction company based in Fort Washington, is expected to report a profit of $1.23 in the fourth quarter, up from prior $0.90, with new orders growth of more than 60%  as the company benefits from rising housing demand due to record low mortgage rates. Toll Brothers’ shares closed 1.25% higher at $47.9 on Friday; the stock is up over 20% so far this year.

“Our 4Q EPS estimate goes to $1.25. Our FY21 EPS estimate goes to $4.42 given what we expect will be a very large backlog ($6.6 billion, +26% y/y) heading into the new year. As a higher-end builder constructing largely build-to-order product, we do expect closing timing and costs to construct to have somewhat less visibility than peers despite the long backlog. This means guidance will likely be more important to share price performance post-EPS release than 4Q data. As a result of our higher estimates, our target goes to $40 from $36, but for now, we still see relative underperformance for the shares in the intermediate term,” said Carl E. Reichard, equity analyst at BTIG Group.

“While Toll Brothers (TOL) is benefiting from the ‘rising tide’ of housing demand, we believe entry-level, spec-focused builders will produce better growth, margins and returns in an environment where valuation gaps have not led to differentiated stock performance. Although shares are less expensive on a relative basis (1.3x TBV vs 1.8x for the group), and TOL has been moving to smaller homes and more optioned lots to improve turns and returns, we are looking for additional evidence that the company’s strategy for structural (not just cyclical) improvement in turns and/or margins is bearing fruit, such as improved backlog-to-close cycle time (running over 300 days currently) and inventory turns nearer to the group average of 1.0x (currently running below 0.7x.).”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 7

Ticker Company EPS Forecast
JKS JinkoSolar Holding Co. Ltd. ADR $0.85
CASY Casey’s General Stores $2.80
HQY Healthequity Inc $0.36
SMAR Smartsheet Inc. -$0.21
SUMO Sumo -$0.24
EC Ecopetrol $0.15
GCTAY Siemens Gamesa ADR $0.01

Tuesday (December 8)

IN THE SPOTLIGHT: AUTOZONE

AutoZone, the largest retailer of aftermarket automotive parts and accessories in the United States, is expected to report a profit of $17.56 in the first quarter ended Saturday, November 21, 2020. AutoZone’s shares closed 0.75% higher at $1162.63 on Friday. However, the stock is down 2.5% so far this year.

“AutoZone (AZO) is our top pick in DIY Auto. We see it as a high-quality retailer with the ability to compound earnings/FCF growth over time. While not immune to a tougher macro backdrop (fewer miles driven), we believe AZO is best positioned through any recession given its leading exposure to the more defensive DIY segment (80% of sales),” equity analysts at Zacks Research noted.

“In addition, its DIFM growth was accelerating pre-COVID-19 and we think it can gain more share in that segment going forward. In our view, ongoing share gains coupled with solid expense management should allow AZO to overcome headwinds from less driving in the near- to medium-term.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 8

Ticker Company EPS Forecast
HRB H&R Block -$0.94
CMD Cantel Medical Corp $0.37
THO Thor Industries $1.58
MDB MongoDB Inc -$0.45
GWRE Guidewire Software -$0.05
AVAV AeroVironment $0.31
JRONY Jeronimo Martins $0.45
HOCPY Hoya Corp $0.74

Wednesday (December 9)

IN THE SPOTLIGHT: CAMPBELL SOUP

Campbell Soup, a US-centric packaged food company, is expected to report a profit of $0.91 in the first quarter of fiscal year 2021, up from previous $0.63. The one of the world’s top soup maker has set its Q1 2021 pre-market guidance at $0.88-$0.92 EPS. Campbell’s shares closed 0.49% lower at $48.5 on Friday; the stock is down about 2% so far this year.

“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,” Kaufman added.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 9

Ticker Company EPS Forecast
VRNT Verint Systems $0.80
RH Restoration Hardware $5.23
GEF Greif $0.70
AUOTY AU Optronics $0.09

Thursday (December 10)

IN THE SPOTLIGHT: ADOBE

Adobe, one of the largest software companies, is expected to report a profit of $2.67 in the fourth quarter, up from the previous $2.57. The company has set its Q4 2020 after-hours guidance at 2.64-2.64 EPS and its Q4 guidance at $2.64 EPS.

“Adobe (ADBE) has leading market share in some of the most dynamic secular growth areas in software: creative design, dynamic media, and marketing automation. As such, we see the longer-term growth story for ADBE as better than most,” said Keith Weiss, equity analyst at Morgan Stanley.

“With a large recurring rev base and operating margin improvements expected (as margin pressure from recent acquisitions comes to an end), we expect 23% EBIT CAGR from FY19-FY21 and believe this durable growth is not fully reflected in shares. Our $560 price target is based on 49x CY21e EPS of $11.50, which implies 2.3x PEG on 21% EPS CAGR from FY19-FY21e,” Weiss added.

IN THE SPOTLIGHT: COSTCO WHOLESALE

Costco Wholesale, the largest wholesale club operator in the U.S., is expected to report a profit of $2.02 in the first quarter of the fiscal year 2021, down from the previous $3.51. D.A. Davidson equity analyst M. Baker forecasts the retailer will report earnings per share of $1.93 for the quarter, up from their previous forecast of $1.92.

“FQ1 comps bested our above-cons. est. (as reported on 12/2) with earnings set for 12/10. All-in, Q1 comps accel’d Q/Q, but November slowed, we believe primarily due to hardlines -10 pts and ticket -220 bps. However, largely cont’d strength through the qtr, notably in Fresh and Softlines, should be a positive read for core-on-core GM% and EPS. While go-fwd comps likely moderate on vaccine/normalcy, we see robust growth and share gain opptys L-T. Reiterate Buy,” noted Stephanie Wissink, equity analyst at Jefferies.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 10

Ticker Company EPS Forecast
CIEN Ciena $0.63
AVGO Avago Technologies $6.24
MTN Vail Resorts -$3.60
LULU Lululemon Athletica $0.86
ORCL Oracle $1.00
SMDS Ds Smith £17.80
ASEKY Aisin Seiki Co $0.42
RLAY Relay Therapeutics Inc. -$0.32
FIZZ National Beverage $0.90

Friday (December 11)

No major earnings scheduled for release.

Tommy Hilfiger, Calvin Klein Owner PVH Beats Earnings Estimates; Target Price $95 in Best Case

PVH Corp, one of the world’s largest apparel companies, reported a better-than-expected profit in the third quarter, largely driven by strong demand from Europe and China for its Calvin Klein and Tommy Hilfiger brands, sending shares up about 6% on Thursday.

The global apparel company said its revenue declined 18% to $2.118 billion compared to the prior-year period. The Company’s revenue through digital channels grew 36%, with sales through its directly operated digital commerce businesses up 70% compared to the prior-year period.

PVH said its EPS came in at $0.98 on a GAAP basis and $1.32 on a non-GAAP basis, way above the Wall Street consensus of $0.24.

“Despite poor sales in North America, no-moat PVH beat our revenue and earnings expectations for 2020’s third quarter on 6% growth in China, solid sales in Europe, and 36% digital growth. Total revenue dropped 18%, but this was better than our forecast of a 23% decline. The pandemic continues to impact PVH in Europe and, especially, North America, where many retail stores have suffered from the 95% drop in international tourism (normally about 35%-40% of the region’s sales),” said David Swartz, equity analyst at Morningstar.

“While PVH’s shares jumped about 9% on the report, we continue to view it as undervalued. We think Calvin Klein and Tommy Hilfiger have growing international appeal and do not believe PVH is in any danger of falling into financial distress, having closed the quarter with $2.7 billion in liquidity. We expect to increase our per share fair value estimate of $108 by a mid-single-digit percentage,” Swartz added.

The clothing company forecasts revenue and earnings will continue to be negatively impacted by the COVID-19 pandemic its fourth-quarter; although there is uncertainty due to resurgences throughout Europe and North America, the company currently expects revenue in the fourth quarter to decline nearly 20% compared to the prior year.

PVH Corp’s shares closed 5.82% higher at $88.14 on Thursday. However, the stock is down about 16% so far this year.

PVH Stock Price Forecast

Eight equity analysts forecast the average price in 12 months at $86.50 with a high forecast of $95.00 and a low forecast of $66.00. The average price target represents a -1.86% decrease from the last price of $88.14. From those eight analysts, four rated “Buy”, three rated “Hold”, one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $104 with a high of $152 under a bull-case scenario and $63 under the worst-case scenario. The firm currently has an “Overweight” rating on the clothing company’ stock.

“We leave the print incrementally positive on international recovery, particularly as TH & CK international margins expanded y/y (+179, +427 bps y/y). At the same time, management impressively navigates a tough NA wholesale environment, while supercharging its profitable digital channel,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. Royal Bank of Canada increased their target price on PVH from $48.00 to $65.00 and gave the company a sector perform rating. Telsey Advisory Group raised the price target to $105 from $96. Barclays upped the target price to $95 from $75. Citigroup increased their stock price forecast to $92 from $62. RBC raised the target price to $90 from $65. Evercore ISI raised the target price to $90 from $70.

Analyst Comments

“Given recent negative U.S. traffic data points, we revise forecasts down to account for coronavirus-induced demand suppression, as well as a potential recession during 2020. PVH’s proven global growth track record suggests its CK Europe and TH Asia businesses should add more than $850 million in revenue and more than $100 million in EBIT over the next 5 years,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

“We see growth through several underpenetrated categories in Europe as well as China, particularly with women’s more broadly, jeans, underwear, and performance/sportswear. Beyond revenue growth, we see a compelling opportunity for margin improvement. We see an opportunity over the next 18-24 months for the CK business to expand margins by 200 bps,” Greenberger added.

Upside and Downside Risks

Risks to Upside: 1) Compelling future license acquisitions accelerate sales growth beyond what we have modelled. 2) FX headwinds prove more muted than expected – highlighted by Morgan Stanley.

Risks to Downside: 1) Macro weakness European markets and the Chinese economy hampers PVH’s international growth. 2) PVH’s insulation to the continued downsizing of key US department store wholesale partners proves weaker than expected.

Check out FX Empire’s earnings calendar

Kroger Shares Slump as Online Sales Growth Slows; Target Price $36

Kroger, one of the world’s largest food retailers, reported better-than-expected profit in the third quarter but its COVID-19-driven online sales growth slowed from the preceding quarter due to easing lockdown restrictions, sending its shares down over 4% on Thursday.

The retailer which operates over 2,500 supermarkets in the U.S. reported digital sales growth of 108% in the third quarter ended November 7, lower than the 127% surge it registered in the preceding quarter.

Kroger posted total sales of $29.7 billion in the third quarter, compared to $28.0 billion for the same period last year. Excluding fuel, it climbed just over 6% to $29.72 billion, lower than the Wall Street estimate of $29.97 billion. The U.S. supermarket chain reported an EPS of $0.80 and adjusted EPS of $0.71, up 51% compared to the prior year. That better than market consensus of $0.61.

The U.S. supermarket chain forecasts adjusted per-share profit between $3.30 to $3.35 in 2020, a little better compared with its prior range of $3.20 to $3.30. Kroger forecasts same-store sales, to increase nearly 14%, up from previous expectations of a more than 13% growth.

“Our $33 per share valuation of narrow-moat Kroger is unlikely to change substantially after the firm announced solid third-quarter results (10.9% identical sales growth, excluding fuel; 2.7% operating margin) that continue to be driven by Americans’ turn homeward during the pandemic,” said Zain Akbari, equity analyst at Morningstar.

“With vaccines on the horizon, we continue to expect normalization as case counts fall in fiscal 2021, leading to2%-3% top-line growth and operating margins long-term.”

Kroger’s shares closed 4.36% lower at $30.88 on Thursday. However, the stock is up over 6% so far this year.

Executive Comments

“As a result of our continued strong performance, market share growth and the expectation of sustained trends in food at home consumption for the remainder of our fiscal year, we are raising our full-year 2020 guidance. For the full year 2020, we expect total identical sales without fuel to be around 14% and adjusted EPS growth of 50% to 53%,” said CFO Gary Millerchip

“Looking toward 2021, we believe that our performance will be stronger than we would have expected prior to the pandemic when viewed as a two-year stacked result for identical sales without fuel growth and as a compounded growth rate over 2020 and 2021 for adjusted earnings per share growth.”

Kroger Stock Price Forecast

Thirteen equity analysts forecast the average price in 12 months at $36.27 with a high forecast of $40.00 and a low forecast of $33.00. The average price target represents a 17.45% increase from the last price of $30.88. From those 13 analysts, one rated “Buy”, 12 rated “Hold”, none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $35 with a high of $55 under a bull-case scenario and $17 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the multi-department stores’ stock. JP Morgan lowered the target price to $34 from $38 and Jefferies assumes coverage with hold rating and target price of $33.

Several other analysts have also upgraded their stock outlook. Kroger had its price objective increased by investment analysts at Scotiabank to $40 from $38. The brokerage presently has a “sector outperform” rating on the stock. Wells Fargo increased their price objective to $38 from $37 and gave the company an “overweight” rating in May. Bank of America lowered shares from a “buy” rating to a “neutral” rating and set a $40.00 price objective.

Analyst Comments

“Kroger (KR) is one of the largest conventional food retailers, with competitive advantages including leading scale, an advanced customer data science platform, and ramping digital capabilities. COVID-19 disruption is driving a meaningful acceleration in ID sales and profitability in 2020 and could result in a secular share shift to Food at Home,” said Simeon Gutman, equity analyst at Morgan Stanley.

“We expect the Food Retail industry to experience margin pressure from discount and e-comm operators over the next several years. For KR, we struggle to model a path to sustainable EBIT growth and margin stabilization. We forecast long-term ID sales of 2.5%, roughly in-line with the industry, as we expect in-store and online initiatives to keep pace,” Gutman added.

Upside and Downside Risks

Risks to Upside: 1) COVID-19 provides meaningful ID sales/EBIT uplift and drives longer-term shift to Food at Home. 2) Continued share gains from other conventional operators/independent grocers. 3) Ocado partnership shows signs of progress – highlighted by Morgan Stanley.

Risks to Downside: 1) COVID-19 fails to drive higher profitability with incremental expenses to support demand. 2) Promotional environment intensifies, driven by WMT/discounters. 3) Online competition pressures margins.

Check out FX Empire’s earnings calendar

Dollar General Beats Earnings Estimates; Net Sales Surge Over 17%

Dollar General Corporation, the largest discount retailer in the United States, reported better-than-expected earnings in the third quarter with net sales surging over 17% as consumers continued to buy low-priced consumables, seasonal, home products and apparel during the COVID-19 pandemic.

The American chain of variety stores said its net sales increased 17.3% to $8.2 billion in the third quarter of 2020 compared to $7.0 billion a year ago. Same-store sales increased by 12.2% compared to the third quarter of 2019, driven by an increase in average transaction amount, partially offset by a decline in customer traffic. Same-store sales increased in each of the consumables, seasonal, home products and apparel categories, with the largest percentage increase in the home products category.

The Company reported net income of $574.3 million for the third quarter of 2020, an increase of 57.1% compared to $365.6 million in the third quarter of 2019. Diluted EPS increased 62.7% to $2.31 for the third quarter of 2020, beating market expectations of $2.01, up compared to diluted EPS of $1.42 in the same period last year.

Despite that Dollar General’s shares dipped 1.74% to $213.75 in pre-market trading on Thursday. However, the stock is up about 40% so far this year.

Dollar General Stock Price Forecast

Eight equity analysts forecast the average price in 12 months at $247.00 with a high forecast of $260.00 and a low forecast of $232.00. The average price target represents a 13.54% increase from the last price of $217.54. All those eight analysts rated “Buy”, according to Tipranks.

Morgan Stanley gave the base target price of $240 with a high of $315 under a bull-case scenario and $150 under the worst-case scenario. The firm currently has an “Overweight” rating on the discount retailer’s stock. Telsey Advisory Group raised their stock price forecast to $245 from $240.

Several other analysts have also upgraded their stock outlook. Jefferies raised the target price to $260 from $246. Dollar General had its price target lifted by JP Morgan to $250 from $230. JP Morgan currently has an overweight rating on the stock. Bank of America lifted their target price to $229 from $220 and gave the company a buy rating.

Analyst Comments

“Dollar General (DG) is a best in class operator offering a rare combination of 1) consistent, high-quality top-and bottom-line results; 2) visible store growth; and 3) a shareholder-friendly capital allocation policy. Recent high-quality results add more confidence to the 10% L-T EPS growth algorithm, ramping top-line initiatives appear sustainable, and we see underappreciated margin upside from the rollout of Fresh self-distribution,” said Simeon Gutman, equity analyst at Morgan Stanley.

“We think DG’s multiple, while elevated, is justified given consistent execution and potential for significant earnings upside especially amidst COVID-19 disruption and a potential recession,” Gutman added.

Upside and Downside Risks

Risks to Upside: 1) COVID-19/recession drives greater middle/upper income spend to Dollar Stores. 2) Margin upside from DG Fresh and Fast Track initiatives. 3) Accelerating contribution from new store concepts and remodel initiatives – highlighted by Morgan Stanley.

Risks to Downside: 1) COVID-19 fails to drive comp uplift and pressures expenses/margins. 2) Increased competitive threat from DLTR/FDO/WMT. 3) Difficulties continuing expansion into productive new locations.

Check out FX Empire’s earnings calendar

Splunk Posts Third Straight Quarterly Loss; Shares Sink About 19%

Splunk, the market leader in analyzing machine data, reported a loss for the third consecutive time in fiscal Q3 2021 and disappointing January quarter guidance, sending its shares down about 19% in extended trading on Wednesday.

The provider of the data-to-everything platform reported revenues of $559 million, down 11% year-over-year, missing the Wall Street consensus of $613 million.

Splunk’s loss widened to $1.26 a share from 38 cents a share in the same period a year ago. On an adjusted basis, Splunk reported a loss of 7 cents a share, missing market expectations of 9 cents profit.

Splunk forecasts fourth-quarter revenue between $650 to $700 million, far short of the Wall Street consensus of $777.9 million.

“Following disappointing results and outlook, we are downgrading Splunk to ‘HOLD’ rating and establishing a new $160 price target.  Splunk also lowered guidance for F4Q21 and pulled FY23 ARR and Operating Cash Flow guidance until the company can get a handle on the macro and the operating environment. We believe Splunk now has to execute well for a couple of quarters at least before investors can be comfortable all’s well with the company and for the stock to work,” said Srini Nandury, senior equity analyst at Summit Insights Group.

“We believe the company has the products, install base and customer goodwill that will help it in the long run. However, in the near-term, the stock will languish. For us to get comfortable with the story and recommend the stock again, we would need evidence that the company can execute and exceed its guidance, at least for a couple of quarters,” Nandury added.

Splunk’s shares closed 0.25% lower at $205.91 but later plunged about 19% to $167.50 in extended trading on Wednesday. However, the stock is up about 40% so far this year.

Splunk Stock Price Forecast

Fourteen equity analysts forecast the average price in 12 months at $241.67 with a high forecast of $301.00 and a low forecast of $165.00. The average price target represents a 17.37% increase from the last price of $205.91. From those 14 analysts, 11 rated “Buy”, two rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $270 with a high of $363 under a bull-case scenario and $172 under the worst-case scenario. The firm currently has an “Overweight” rating on the software company’s stock. Berenberg raised their stock price forecast to $260 from $247.

Several other analysts have also upgraded their stock outlook. Splunk had its price objective upped by Mizuho to $235 from $225. They currently have a buy rating on the software company’s stock. Jefferies Financial Group boosted their target price to $265 from $250 and gave the company a buy rating. Barclays lifted their price objective to $245 from $195 and gave the company an overweight rating. At last, BofA Securities lifted their price objective to $260 from $249 and gave the company a buy rating.

Analyst Comments

“Splunk (SPLK) is poised to maintain its leadership in the IT Ops and Security Analytics markets with an improving platform that surfaces business insights and initiates real-time responses. With Enterprise momentum, expanding use cases and new pricing/delivery models, we see SPLK sustaining >20% growth in adj. Software ARR through FY24,” said Keith Weiss, equity analyst at Morgan Stanley.

As SPLK’s transition to term & cloud and shift towards annual invoicing continues, we see headwinds to FCF in FY21. However, we expect FCF to rebound strongly thereafter with FCF hitting $1.8 billion in FY26 resulting in a 24% FCF margin. At 11.5x EV/CY21 Rev and 38x CY22 FCF, we believe the durability of growth and strongly improving FCF are underappreciated,” Weiss added.

Upside and Downside Risks

Risks to Upside: 1) ARR grows faster than expected as a broader portfolio drives rapid market penetration. 2) Accelerated shift to cloud offerings. 3) New pricing unlocks greater usage – highlighted by Morgan Stanley.

Risks to Downside: 1) Increased competition from large tech vendors, modern pure plays and/or open-source solutions. 2) Lack of material adoption for cloud offerings. 3) New pricing fails to improve customer growth/expansion. 4) Failure to improve growth in new customers.

Check out FX Empire’s earnings calendar

Veeva Systems Shares Plunge Despite Strong Q3 Earnings; Target Price $301

Veeva Systems, an American cloud-computing company focused on pharmaceutical and life sciences industry applications, reported better-than-expected earnings in the third quarter of the fiscal year 2021 and forecasts revenue between $1,446-$1,448 million for the next fiscal.

Despite that Veeva Systems’ shares plunged about 10% to $257.47 in pre-market trading on Wednesday. However, the stock is up over 100% so far this year.

The cloud-computing company reported revenues of $377.5 million in the third quarter, beating the Wall Street consensus of $362 million, up from $280.9 million one year ago, an increase of 34% year-over-year. Subscription services revenues for the third quarter were $302.9 million, up from $226.8 million one year ago, an increase of 34% year-over-year.

For the third quarter, fully diluted net income per share was $0.60, compared to $0.52 one year ago, while non-GAAP fully diluted net income per share was $0.78, compared to $0.60 one year ago. That was higher than the market expectations of $0.68.

“Veeva reported a beat-and-raise F3Q with strength across all areas of the business. Guidance for F4Q and FY22 came in above consensus and looks conservative, especially as initial FY22 revenue guidance calls for a deceleration to 19% Y/Y growth. FY22 non-GAAP operating margin guidance reflects Veeva investing more in newer growth drivers, such as Data Cloud and MyVeeva, which we view as the right move. We maintain our BUY rating and $325 price target on Veeva Systems Inc,” said Rishi N. Jaluria, Senior Research Analyst at D.A. Davidson & Company.

Veeva Systems Stock Price Forecast

Seven equity analysts forecast the average price in 12 months at $301.71 with a high forecast of $335.00 and a low forecast of $225.00. The average price target represents a 6.16% increase from the last price of $284.20. From those seven analysts, five rated “Buy”, one rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $332 with a high of $532 under a bull-case scenario and $194 under the worst-case scenario. The firm currently has an “Overweight” rating on the cloud-computing company’s stock.

“Veeva delivered 11% billings upside in Q3, doubling the typical beat, while also driving op margins to company high of 41%. First look at FY22 revenue and profitability suggests plenty of conservatism to deliver beat/raise quarters. We roll forward estimates, remain OW and increase PT to $332,” said Stan Zlotsky, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. Stifel raised their target price to $325 from $300. Needham upped the target price to $327 from $310. Raymond James increased the target price to $335 from $285. In August, Bank of America boosted their price objective to $302 from $230 and gave the stock a “buy” rating. Piper Sandler boosted their price target to $310 from $220and gave the stock an “overweight” rating.

Analyst Comments

“Veeva’s core products provide SaaS solutions for the Life Sciences industry, targeting $10B+ of spending today with potential overtime to address more of the $44B Life Sciences spend on IT, leveraging the company’s strong brand recognition and expanding its TAM into other regulated industries and use cases,” said Stan Zlotsky, equity analyst at Morgan Stanley.

“As Veeva penetrates this large TAM, we see a sustainable 17% revenue CAGR over the next 5 years. Our $332PT is based on 2.4x EV/CY25 FCF/Growth adjusted, a premium to large-cap peers, but justified given the long term FCF durability and large market opportunity,” Zlotsky added.

Upside and Downside Risks

Risks to Upside: 1) VEEV 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.

Risks to Downside: 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.

Check out FX Empire’s earnings calendar

Salesforce.com Earnings Beat Wall Street Estimates But Slack Acquisition Steals Thunder

Salesforce.com Inc, an American cloud-based software company, reported better-than-expected profit in the third quarter of the fiscal year 2021 with revenue increasing 20% year-over-year to $5.42 billion, but shares plunged over 4% in extended trading on news of Slack acquisition.

The company reported GAAP net income of $1.08 billion, or $1.15 per share, compared with a loss of $109 million, or 12 cents per share a year ago. Adjusted earnings came to $1.74 a share. That higher than the market consensus for earnings of 75 cents per share and revenue of $5.25 billion.

“Wide-moat Salesforce reported strong results, including a meaningful upside to both revenue and non-GAAP EPS, while guidance for the fourth quarter was mixed. Stealing the thunder from fine results was the formal announcement that the company is acquiring Slack, and this dominated the earnings call. We have mixed feelings on the Slack acquisition,” said Dan Romanoff, equity analyst at Morningstar.

“We are maintaining our fair value estimate of $253 for Salesforce as good organic results are offset by the seemingly modest deleterious impact on shareholder value arising from the Slack acquisition. With the recent pullback, we think Salesforce shares are looking increasingly attractive,” Romanoff added.

Salesforce’s shares closed 1.81% lower at $241.35; traded over 4% lower at $231.50 in extended trading on Tuesday. However, the stock is up about 50% so far this year.

Salesforce Stock Price Forecast

Eighteen equity analysts forecast the average price in 12 months at $291.53 with a high forecast of $325.00 and a low forecast of $234.00. The average price target represents a 20.79% increase from the last price of $241.35. From those 18 analysts, 15 rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $275 with a high of $332 under a bull-case scenario and $187 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the enterprise cloud computing solutions leader’s stock. Raymond James raised their target price to $280 from $255.

Several other analysts have also upgraded their stock outlook. Salesforce.com has been given a $275 price target by The Goldman Sachs Group. The brokerage currently has a “buy” rating on the CRM provider’s stock. Bernstein restated a “neutral” rating and set a $234 price target. Barclays boosted their price target to $315 from $264 and gave the stock an “overweight” rating.

Analyst Comments

“While Salesforce.com (CRM) remains one of our best secularly positioned names given enterprise IT spend prioritized towards digital transformation, we see current valuation reflective of long-term share gains within an estimated $175 billion TAM over the next 4 years and >$200 billion longer-term,” said Keith Weiss, equity analyst at Morgan Stanley.

“We see total revenue nearly doubling by FY24, but at CRM’s current scale and market cap, an increasing focus on FCF and earnings is likely necessary for further price appreciation. Our Equal-weight view on CRM shares is based on our $275 PT, which is based on 30X our CY25e FCF per share of $12.07, discounted back at 8.5%,” Weiss added.

Upside and Downside Risks

Risks to Upside: Slack Connect becomes a powerful contributor to net new customer additions. Net dollar retention rate stabilizes as new COVID-19 customers begin to meaningfully expand – highlighted by Morgan Stanley.

Risks to Downside: Competition from Microsoft, which offers a similar product for free to Office 365 users; Difficulty expanding outside of the IT department; Organizations defer to a bundled alternative (MSFT Teams, Google Workspace) in a weaker macro.

Check out FX Empire’s earnings calendar

UnitedHealth Forecasts 2021 Revenue Between $277-$280 Billion; Target Price $400 in Best-Case

For this year, UnitedHealth Group expects revenues of about $257 billion, with net earnings to approach $15.90 per share and adjusted net earnings to approach $16.75 per share.

“Management previously braced investors that 2021 EPS growth would be below its long-term target of 13-16% due to COVID-19 uncertainty. The $18 starting point represents 8% growth, which is 2% below the Street. However, ex $1.80 of potential COVID-19 impact, growth would be an impressive 18%,” said David Windley, equity analyst at Jefferies.

“Other takes: 1) Positive enrollment updates: MA +13.5%, Commercial+1%; 2) Optum margins expand 45bps while Commercial declines 85bps due to COVID;3) Repurchases of $5BN vs $4.5BN in ’20,” Windley added.

At the time of writing, UnitedHealth’s shares traded 4.47% higher at $351.99 on Tuesday; the stock is up about 20% so far this year.

UnitedHealth Stock Price Forecast

Sixteen equity analysts forecast the average price in 12 months at $367.47 with a high forecast of $409.00 and a low forecast of $330.00. The average price target represents a 4.48% increase from the last price of $351.71. From those 16 analysts, 13 rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $371 with a high of $449 under a bull-case scenario and $183 under the worst-case scenario. The firm currently has an “Overweight” rating on the insurance company’s stock.

“We calculate our price target by applying a 20.5x P/E multiple to our base case FY21E EPS of $18.14. Multiple reflects 0.8 turn premium to S&P 500 multiple of 19.6x. Premium in-line with UNH 5 year average premium UNH has historically traded at the adjusted repeal of HIF (+0.4x) and for periods in 2019 where fears over M4A weighed on multiple (we don’t believe this outcome is likely),” said Ricky Goldwasser, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. UnitedHealth Group had its price target increased by equities research analysts at Piper Sandler to $409 from $385. The firm presently has an “overweight” rating on the healthcare conglomerate’s stock. SVB Leerink lifted their price target to $373 from $370 and gave the company an “outperform” rating. Credit Suisse Group boosted their target price to $395 from $355 and gave the stock an “average” rating.

Analyst Comments

“UnitedHealth Group is the number one Medicare Advantage player with 28% market share, the number two Medicare PDP player with 20% market share, and the number two commercial player with 15% market share. United’s model is enhanced via vertical integration with its OptumRx PBM platform, which is one of the three largest PBMs in the country,” said Ricky Goldwasser, equity analyst at Morgan Stanley.

“With a large lead in the breadth of services offerings and considerable exposure to government businesses, UnitedHealth is well-positioned for any potential changes in the U.S. healthcare system. A strong balance sheet and continued solid cash generation give flexibility for continued M&A,” Goldwasser added.

Upside and Downside Risks

Risks to Upside: 1) MA growth above the market. 2) Optum integration leads to industry-leading MLR performance. 3) Medicaid margins improve to target 3%-5% range – highlighted by Morgan Stanley.

Risks to Downside: 1) Regulatory uncertainty. 2) Slower growth in core growth areas such as Medicare Advantage, commercial, and Medicaid with focus on services. 3) Optum growth slows as competitors become more reluctant to work with UnitedHealth.

Zoom Earnings Beat Wall Street Estimates But Shares Dip 5% After Hours on Disappointing Margins

Zoom, a cloud video communications provider, reported better-than-expected earnings in the third quarter of the fiscal year 2021 with a revenue surge of over 365% and forecasts total revenue between $2.575-$2.580 billion in the full fiscal year.

But shares traded down 5% in the aftermarket, partially on gross margins that were light of consensus and down sequentially, driven by the high volume of free users and higher public cloud usage. Zoom’ shares closed 1.43% higher at $478.36 on Monday; the stock is up over 600% so far this year.

The company said its revenue climbed 367% to $777.2 million in the third quarter ended October 31, beating the Wall Street consensus estimate of around $694 million. Adjusted earnings came in at 99 cents per share, also beating market expectations of 76 cents per share.

Zoom forecasts revenue between $806-$811 million in the fourth quarter, above estimates of $730.1 million and non-GAAP income from operations between $243.0 million and $248.0 million. Non-GAAP diluted EPS is expected to be between $0.77 and $0.79 with nearly 306 million non-GAAP weighted average shares outstanding.

“Zoom (ZM) reported a record F3Q21, but shares traded down 5% AMC on light gross margins (partly the result of more free users). We would be buyers on a sustained pullback, as the quarter was beyond impressive, with ZM scoring a 420 on a “Rule of 40” basis,” said Rishi N. Jaluria, Senior Research Analyst at D.A. Davidson & Company.

“In our view, the key debate is about the sustainability of ZM’s growth post-pandemic and we take the view that ZM will be increasingly necessary to enable a hybrid remote work strategy and that many of the changes in work brought on by the pandemic are irreversible in nature. We maintain our BUY rating and $600 price target on Zoom Video Communications,” N. Jaluria added.

Zoom Stock Price Forecast

Twenty equity analysts forecast the average price in 12 months at $486.33 with a high forecast of $611.00 and a low forecast of $315.00. The average price target represents a 1.67% increase from the last price of $478.36. From those 20 analysts, ten rated “Buy”, nine rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $380 with a high of $530 under a bull-case scenario and $250 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the video communications provider’s stock.

“We are rolling forward our price target a year as the year comes to a close. As a result, our price target increases to $380 from $350, which represents 29x EV/FY23e Revenue or 28x EV/discounted FY32e FCF. We believe that while COVID-19 keeps video conferencing as a critical piece of employee connectivity, valuation is likely to remain closer to our bull case,” said Meta Marshall, equity analyst at Morgan Stanley.

“Our bull case moves to $530 from $500 and represents 31x EV/FY23e Rev or 29x EV/discounted FY32e FCF. Our bear case also increases to $250 from $210, which represents 19x EV/FY23e Revenue or 27x EV/discounted FY32e FCF. Risks to valuation remain macro headwinds, competitive efforts, COVID-19 vaccine causes a return to work/school.”

Several other analysts have also upgraded their stock outlook. Citigroup raised their stock price forecast to $467 from $377; RBC lowered the price target to $550 from $600; Credit Suisse upped their target price to $340 from $315; JP Morgan raised the target price to $450 from $425; Bernstein increased their target price to $611 from $228 and D.A. Davidson increased their target price to $600 from $460.

Analyst Comments

“Zoom eliminates barriers to video conferencing growth. Company has meaningful competitive moat built on more than just architecture. Leveraging position with customers to be center of UC platform. WFH has permanence but diminishes post-COVID-19. Valuation credits significant expansion opportunities in broader unified communications landscape, supported by initial Phone execution,” Morgan Stanley’s Marshall added.

Upside and Downside Risks

Risks to Upside: 1) Zoom Phone adopted faster than expected. 2) Sales efficiency matches previous levels. 3) International business shows continued leverage. 4) Topline beats to flow to bottom line WFH permanence. 5) K-12 Market – highlighted by Morgan Stanley.

Risks to Downside: 1) Macro conditions suffer. 2) Large competitor refreshes portfolio and gets aggressive on the price. 3) WFH wanes post COVID-19. 4) China / K-12 opportunity not monetizable.

Check out FX Empire’s earnings calendar

JetBlue Forecasts Revenue to Plunge 70% in Q4 as Fresh Spike in COVID-19 Cases Hurts

JetBlue Airways, a major American low-cost airline, forecasts revenue to plunge 70% y/y in the fourth quarter, worse compared to a previous prediction of nearly 65% y/y decline, and expects cash burn to surge to around $8 million per day as a resurgence in COVID-19 cases hammered air travel demand.

The passenger carrier said given the recent booking trends and the delay in receipt of cash tax refunds of nearly $70 million originally anticipated during the fourth quarter, the company now expects its average daily cash burn in the fourth quarter to be in a range of $6 million and $8 million, compared to its prior expectation of a range between $4 million and $6 million.

Booking trends remain volatile and the company continues to believe demand and revenue recovery will be non-linear through the fourth quarter and beyond, JetBlue added.

JetBlue Airways’ shares were down about 16% so far this year, traded nearly flat in pre-market trading on Monday.

JetBlue Airways Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $13.50 with a high forecast of $17.00 and a low forecast of $12.00. The average price target represents a -14.29% decrease from the last price of $15.75. From those ten analysts, three rated “Buy”, six rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $16 with a high of $29 under a bull-case scenario and $6 under the worst-case scenario. The firm currently has an “Overweight” rating on the ratings company’s stock.

Several other analysts have also upgraded their stock outlook. Stifel raised their price target to $13 from $12. Cowen and Company upped their target price to $13 from $10. Credit Suisse increased the target price to $12 from $11. JP Morgan lowered the target price to $16 from $17. UBS raised the target price to $13 from $9.

Analyst Comments

“We like JetBlue’s significant exposure to the “Medium Haul” U.S. domestic market, which we believe is likely to be the first to return (with short-haul challenged by driving and long-haul more challenged by international regulations). Additionally, JBLU’s “snowbird” network provides significant upside as leisure travel returns,” said Ravi Shanker, equity analyst at Morgan Stanley.

“We use a 10-year DCF assuming a 6.8% WACC and terminal cash flow perpetual growth rate of 2%. Our DCF valuation implies a 2023 EV/EBITDAR multiple of 6.1x, which is in line with LUV’s historical average given the “best in class” operating model,” Shanker added.

Upside and Downside Risks

Risks to Upside: 1) COVID-19 vaccine timing. 2) Leisure market recovery for point to point network. 3) Industry rationalization and fare stability – highlighted by Morgan Stanley.

Risks to Downside: 1) COVID-19 the second wave. 2) Better improvement in international travel vs. domestic.

S&P Global in Advanced Talks to Acquire London-based IHS Markit for $44 Billion

S&P Global Inc, a leading provider of independent ratings, benchmarks, analytics and data to markets worldwide, is in advanced talks to acquire IHS Markit, a financial information services company, for nearly $44 billion, according to the Wall Street Journal.

This deal for IHS would be the largest of the year globally, according to Dealogic data, topping both chipmaker Nvidia Corp’s about $40 billion deal to buy chip designer Arm Holdings and nearly $40 billion deal between Nippon Telegraph & Telephone Corp. and a subsidiary, reported by the WSJ.

S&P Global’s shares closed 1.0 4% higher at $341.57 on Friday; the stock is up about 25% so far this year.

S&P Global Stock Price Forecast

Nine equity analysts forecast the average price in 12 months at $397.25 with a high forecast of $422.00 and a low forecast of $353.00. The average price target represents a 16.30% increase from the last price of $341.57. From those nine analysts, seven rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $411 with a high of $629 under a bull-case scenario and $242 under the worst-case scenario. The firm currently has an “Overweight” rating on the ratings company’s stock.

Several other analysts have also upgraded their stock outlook. UBS raised the price target to $424 from $422. BMO lowered their stock price forecast to $375 from $392. Credit Suisse increased their target price to $405 from $400. Stifel upped the target price to $353 from $351 and Oppenheimer raised the price objective to $399 from $396.

Analyst Comments

“S&P Global’s collection of businesses include a top two ratings agency, a leading index franchise, a market data platform, and a leading commodity pricing provider. It has a wide moat, strong market share, and high margins,” said Toni Kaplan, equity analyst at Morgan Stanley.

“We expect SPGI’s pricing power, the potential for product innovation, global expansion, commercial transformation, and cross-enterprise opportunities will drive an 11% EPS CAGR through 2024 with potential upside from China, Kensho, and ESG,” Kaplan added.

Upside and Downside Risks

Risks to Upside: Better-than-expected debt issuance due to rapid economic recovery. Counter-cyclicality of non-transaction revenue and ERS business could offset weaker issuance. Higher-than-expected synergies from BvD acquisition – highlighted by Morgan Stanley.

Risks to Downside: Greater-than-expected issuance decline due to credit-led recession. Additional industry regulation. Increased share loss to smaller rating agencies in both structured and corporate.

Earnings to Watch Next Week: Zoom, Salesforce.com and Splunk in Focus

Following is a list of company earnings scheduled for release November 30-December 4, along with earnings previews for select companies.

Earnings Calendar For The Week Of November 30

Monday (November 30)

IN THE SPOTLIGHT: ZOOM VIDEO COMMUNICATIONS

Zoom, a cloud video communications provider, is expected to report a profit of $0.57 in the third quarter lower than Q2’s $0.92 as the company is nearing the end of their growth cycle. Zoom’s shares closed 6.28% higher at $471.28 on Friday; the stock is up over 600% so far this year.

“Recent selloff makes some rebound on print more likely as current conditions have not changed. While a vaccine does change the outlook for how many employees will be working from home by the end of 2021, it doesn’t change the fact that in 2020, most employees remain at home (at least for a good portion of the week). While we are cautious on the achievability of long-term growth assumptions built into Zoom’s valuation, we are cognizant that the recent move discounts Zoom’s ability to post a meaningful beat in FQ3,” said Meta Marshall, equity analyst at Morgan Stanley.

“Our expectations for FQ3 and FY21 non-GAAP revenue / EPS are $688.1 million / $0.75 and $2.4 billion / $2.44, respectively. Our revenue forecasts imply 313% Y/Y growth in FQ3 (4% sequentially) and 283% growth for FY21, with quarterly, adds slowing meaningfully in our assumptions from the 102% Q/Q increase in FQ2. In general, we would view our estimates as conservative given churn rates should still be low and ability to sign new customers or expand deployments should be high. We believe a 9% beat is reasonable, at ~$750 million revenue (up 350% Y/Y) and implying 2 million net adds. Given last quarter’s Y/Y growth of 355%, we would note that continued acceleration is possible, which would cause a bigger correction in the name. With the 20% selloff since the peak, we continue to think there could be a correction this print,” Morgan Stanley’s Marshall added.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE NOVEMBER 30

Ticker Company EPS Forecast
NJR New Jersey Resources $0.57
ADNT Adient PLC $0.68
MNTA Momenta Pharmaceuticals -$0.46
ATHM Autohome $6.40
WB Weibo $0.60
BMA Banco Macro $1.30
IMMU Immunomedics -$0.29
EC Ecopetrol $0.15
VIST Vista Oil Gas -$0.19
GPFOY Financiero Inbursa ADR $0.09
MSNFY Minera Frisco ADR $0.05
GCTAY Siemens Gamesa ADR $0.01
AEG Aegon $0.27
TLK Telekomunikasi Indns Tbk Prshn Pp Pt $0.40
WF Woori Bank $1.57

 

Tuesday (December 1)

IN THE SPOTLIGHT: SALESFORCE.COM

Salesforce.com, an American cloud-based software company headquartered in San Francisco, is expected to report a $0.75 profit in the third quarter with more than 16% growth in revenue to over $5 billion. Salesforce.com’s shares closed 0.32% higher at $247.63 on Friday; the stock is up over 50% so far this year.

“Salesforce is benefiting from a robust demand environment as customers are undergoing a major digital transformation. The rapid adoption of its cloud-based solutions is driving demand for its products. Salesforce’s sustained focus on introducing more aligned products as per customer needs is driving it stop-line. Continued deal wins in the international market is another growth driver,” equity analysts at Zacks Research noted.

“Furthermore, the recent acquisition of Tableau positions the company to be a leader in business analytics for actionable results in everything from operations to HR. The stock has outperformed the industry in the past year. However, stiff competition from Oracle and Microsoft is a concern. Besides, unfavourable currency fluctuations along with increasing investments in international expansions and data centers are an overhang on near-term profitability.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 1

Ticker Company EPS Forecast
JKS JinkoSolar Holding Co. Ltd. ADR $0.85
BMO Bank Of Montreal USA $1.46
BNS Scotiabank $0.93
NTAP NetApp $0.73
TCOM Trip.com Group Ltd $1.02
VEEV Veeva Systems $0.68
HPE Hewlett Packard $0.34
BOX BOX $0.14
JRONY Jeronimo Martins $0.45
HOCPY Hoya Corp $0.74
AVAV AeroVironment $0.30

 

Wednesday (December 2)

IN THE SPOTLIGHT: SPLUNK

Splunk, the market leader in analyzing machine data, is expected to report a $0.09 profit in Q3 for the first time in the last three quarters with cloud revenue growth of over 85%. Splunk’s shares closed 2.6% higher at $204.03 on Friday; the stock is up over 35% so far this year.

“Our partner checks show weaker performance vs. last quarter & our gov’t checks also imply weaker growth on tough comps. Combined w/ some GTM changes under new sales leadership & pivot towards Observability & we see a lot of moving parts. We do see the upside to margins & 4Q pipelines sound good, but we feel top-line bookings could be more volatile Q-to-Q. Maintain Market Perform,” said J. Derrick Wood, equity analyst at Cowen and Company.

“For 3Q, we model -27% license growth, cloud growth at 87%, total revenue growth at -1% and ARR growth at 48%. We estimate normalized product bookings growth (ex-perpetual) in the high-teens for 3Q. For 4Q, we model -29% license growth, cloud growth of 86%, total revenue growth of -6% (Street -2%) and ARR growth of 45%,” Derrick Wood added.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 2

Ticker Company EPS Forecast
RY Royal Bank Of Canada $1.55
PDCO Patterson Companies $0.38
SNOW Intrawest Resorts -$0.38
CRWD CrowdStrike Holdings Inc. Cl A -$0.15
FIVE Five Below $0.20
SNPS Synopsys $1.56
SMTC Semtech $0.46
PVH PVH $0.18
RH Restoration Hardware $5.31
VRNT Verint Systems $0.60

 

Thursday (December 3)

IN THE SPOTLIGHT: DOLLAR GENERAL, KROGER AND ULTA BEAUTY

Ticker Company EPS Forecast
DG Dollar General $1.98
CM Canadian Imperial Bank Of Commerce USA $1.92
TD Toronto-Dominion Bank $0.97
KR Kroger $0.66
DCI Donaldson $0.45
ULTA Ulta Salon Cosmetics Fragrance $1.44
SAIC Science Applications International $1.53
COO Cooper Companies $3.09
MRVL Marvell Technology $0.25
OLLI Ollies Bargain Outlet Holdings Inc $0.58
CLDR Cloudera Inc. -$0.04
DOCU DocuSign Inc. -$0.23
YEXT Yext Inc. -$0.22
MDLA Medallia, Inc. -$0.18
PD PagerDuty Inc. -$0.20
FIZZ National Beverage $0.93

 

Friday (December 4)

No major earnings scheduled for release.

Focus Shifts to Speed of Recovery After Autodesk’s Upbeat Q3 Earnings; Target Price $290

Autodesk, an American multinational software corporation, reported better-than-expected earnings in the third quarter, largely driven by a recovery in subscription renewal rates, sending its shares up about 2% in pre-market trading on Friday.

The software company said its total revenue increased 13% to $952 million; GAAP operating margin was 18%, up 5 percentage points; Non-GAAP operating margin was 30%, up 3 percentage points; GAAP diluted EPS was $0.59; Non-GAAP diluted EPS was $1.04, beating market expectations of $0.96.

“Despite another great quarter for Autodesk, the company warned of the lagged effects they expect in fiscal 2022 as a result of the nature of subscription revenue recognition. While we previously had factored in such a lag, the effect is greater than we expected, moderating our fiscal 2022 expectations. Considering the rosy third-quarter results sobered by what could be an anomalous 2022 ahead, we are maintaining our fair value estimate of $198 per share for wide-moat Autodesk,” said Julie Bhusal Sharma, equity analyst at Morningstar.

“Share have remained flat upon news of the quarter, leaving shares trading at $258 per share. As a result, we continue to believe Autodesk is overvalued. Nonetheless, we reiterate our continued belief that Autodesk has built an extremely moaty company which we think will be well protected in the future,” Morningstar’s Sharma.

Autodesk’s shares closed 4.74% higher at $271.24 on Wednesday; the stock is up about 50% so far this year.

Autodesk Stock Price Forecast

Thirteen equity analysts forecast the average price in 12 months at $290.67 with a high forecast of $310.00 and a low forecast of $266.00. The average price target represents a 7.16% increase from the last price of $271.24. From those 13 analysts, 11 rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $266 with a high of $370 under a bull-case scenario and $193 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the software company’s stock.

“An acceleration to +18% cRPO bookings growth likely suggests the worst is behind Autodesk. While our reseller checks and management commentary suggest a more gradual recovery thru FY22, greater confidence in durable 20%+ FCF growth into and through FY23 could drive a re-rating in the stock,” said Keith Weiss, equity analyst at Morgan Stanley

Several other analysts have also upgraded their stock outlook. Autodesk had its price target hoisted by equities research analysts at Credit Suisse Group to $275 from $265. The brokerage currently has an “outperform” rating on the software company’s stock. Mizuho upped their target price to $290 from $280 and gave the company a “buy” rating. Barclays increased their price objective to $295 from $283 and gave the company an “overweight” rating.

Analyst Comments

“The subscription transition (now largely complete) has significantly reduced volatility in earnings, which has driven the multiple higher. Additionally, Autodesk has found multiple avenues to better monetize a sticky customer base. However, long-standing debates on the longer-term sustainable growth, higher macro sensitivity and quality of near-term FCF likely limit further multiple expansion NT, leaving us EW on ADSK,” said Keith Weiss, equity analyst at Morgan Stanley.

“Our long-term model forecasts $9.80 in FCF/share by FY23 and $14.24 by FY26, applying a 25X EV/FCF multiple against this FCF and discounting back at 11.3% drives our $266 price target. Our applied 25X multiple is in line with design software peers,” Weiss added.

Upside and Downside Risks

Risks to Upside: Improved monetization of the customer base and reduction of piracy drives better than expected top-line growth. Secular opportunities within newer markets like Field Construction drives higher Cloud ARR growth – highlighted by Morgan Stanley.

Risks to Downside: High correlation to the global macro environment given a high dependence on construction and manufacturing industries. The increased investment is necessary to enter new markets pressures margins.

Check out FX Empire’s earnings calendar

Salesforce.com in Advanced Talks to Buy Workplace Communication App Slack; Shares Down Over 5%

Salesforce.com Inc, an American cloud-based software company headquartered in San Francisco, is in advance talks to buy workplace messaging application Slack Technologies, according to the Wall Street Journal.

“Strategically, this would be a sound acquisition for Salesforce, as it would add serious direct exposure to collaboration and the remote work movement, large and rapidly growing markets that the company indirectly participates in, and would allow for yet another connection between Salesforce and its customers. We stress that no deal has been formally announced, so obviously, there are no deal metrics to consider,” said Dan Romanoff, equity analyst Morningstar.

“The reports have sent shares of Slack up more than 20% intraday while weighing on Salesforce shares by approximately 3%. With Slack’s market cap at $21 billion now, the deal would likely be the largest ever for Salesforce in terms of dollars. However, it would be smaller than Salesforces’ June 2019 Tableau deal announcement in terms of percentage of market cap, with Slack currently at 9% of Salesforce’s market cap, compared with 13% for the Tableau deal. For now, we are maintaining our fair value estimates of $253 for Salesforce and $20 for Slack,” Morningstar’s Romanoff.

Salesforce.com’s shares closed 5.37% lower at $246.82 on Wednesday. However, the stock is up over 50% so far this year.

Salesforce.com Stock Price Forecast

Sixteen equity analysts forecast the average price in 12 months at $292.20 with a high forecast of $325.00 and a low forecast of $234.00. The average price target represents an 18.39% increase from the last price of $246.82. From those 16 analysts, 14 rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $275 with a high of $332 under a bull-case scenario and $187 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the enterprise cloud computing solutions leader’s stock.

“CRM is down 5% after Wall Street Journal reported Salesforce is in advanced talks to buy Slack. At the current $23B valuations (21x EV/ NTM sales), the deal would be CRM’s largest yet and likely dilutive. While WORK can give CRM a boost in collaboration tools, MSFT competition remains a key risk,” said Keith Weiss, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. Salesforce.com has been given a $275 price target by The Goldman Sachs Group. The brokerage currently has a “buy” rating on the CRM provider’s stock. Bernstein restated a “neutral” rating and set a $234 price target. Barclays boosted their price target to $315 from $264 and gave the stock an “overweight” rating.

Analyst Comments

“While Salesforce.com (CRM) remains one of our best secularly positioned names given enterprise IT spend prioritized towards digital transformation, we see current valuation reflective of long-term share gains within an estimated $175 billion TAM over the next 4 years and >$200 billion longer-term,” said Keith Weiss, equity analyst at Morgan Stanley.

“We see total revenue nearly doubling by FY24, but at CRM’s current scale and market cap, an increasing focus on FCF and earnings is likely necessary for further price appreciation. Our Equal-weight view on CRM shares is based on our $275 PT, which is based on 30X our CY25e FCF per share of $12.07, discounted back at 8.5%,” Weiss added.

Upside and Downside Risks

Risks to Upside: Slack Connect becomes a powerful contributor to net new customer additions. Net dollar retention rate stabilizes as new COVID-19 customers begin to meaningfully expand – highlighted by Morgan Stanley.

Risks to Downside: Competition from Microsoft, which offers a similar product for free to Office 365 users; Difficulty expanding outside of the IT department; Organizations defer to a bundled alternative (MSFT Teams, Google Workspace) in a weaker macro.

Deere Earnings Beat Wall Street Estimates; Forecasts Net Income Between $3.6-4.0 Billion for FY2021

Deere & Company, the world’s largest makers of farm equipment, reported better-than-expected earnings in the fourth quarter as demand for farm machines bounced on higher crop prices and government subsidy payments.

Agricultural, construction and forestry equipment manufacturer reported net income of $757 million for the fourth quarter ended November 1, 2020, or $2.39 per share, beating market expectations of $1.55 per share, up compared with net income of $722 million, or $2.27 per share, same period last year.

“The coronavirus pandemic was undoubtedly a headwind for Deere in fiscal 2020, but the company managed to post resilient operating margins in the fourth quarter, largely due to cost-cutting and solid pricing. We are raising our fair value estimate to $187 per share from $183 due to a more favourable near-term outlook than we previously modelled. In fiscal 2021, we expect Deere’s top-line to grow by roughly 10% compared with 2020,” said Brian Bernard, sector director at Morningstar.

“We expect Deere will benefit from increased investment from its dealer network over our forecast, resulting in 3% average sales growth from 2021-2025,” Bernard added.

For fiscal 2020, net income attributable to Deere & Company was $2.751 billion, or $8.69 per share, compared with $3.253 billion, or $10.15 per share, in 2019. Worldwide net sales and revenues decreased 2%, to $9.731 billion, for the fourth quarter of 2020 and declined 9%, to $35.540 billion, for the full year.

However, uncertainties regarding supply constraints as well as labour force availability due to the ongoing COVID-19 pandemic could negatively affect the company’s results and financial position in the future.

Deere’s shares closed 1.94% lower at $256.43 on Wednesday amid a weak broader market. However, the stock is down about 50% so far this year.

Net income attributable to Deere & Company for fiscal 2021 is forecast to be in a range of $3.6 billion to $4.0 billion. In the year ahead, Deere expects to benefit from improving conditions in the farm economy and stabilization in construction and forestry markets, according to John C. May. That forecast is higher than the Wall Street estimate of $3.3 billion.

Executive Comments

“Higher crop prices and improved fundamentals are leading to renewed optimism in the agricultural sector and improving demand for farm equipment. At the same time, we are looking forward to realizing the benefits of our smart industrial operating strategy, which is designed to accelerate the delivery of solutions that will drive improved profitability and sustainability in our customers’ operations,” said John C. May, chairman and chief executive officer.

Deere Stores Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $254.70 with a high forecast of $285.00 and a low forecast of $220.00. The average price target represents a -0.67% decrease from the last price of $256.43. From those ten analysts, four rated “Buy”, five rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $335 with a high of $467 under a bull-case scenario and $134 under the worst-case scenario. The firm currently has an “Overweight” rating on agricultural equipment manufacturer’s stock.

Several other analysts have also upgraded their stock outlook. Deere & Company had its price objective raised by Robert W. Baird to $281 from $250. The brokerage currently has an outperform rating on the industrial products company’s stock. Deutsche Bank raised their price target to $244 from $227 and gave the stock a hold rating. BMO Capital Markets increased their price objective to $235 from $150 and gave the stock an outperform rating.

Analyst Comments

“Deere is one of the highest quality, most defensive names within the broader Machinery universe, given a historically lower cyclicality of Ag Equipment and history of strong management execution. FY21 should mark a tangible acceleration in the NA large ag replacement cycle, as commodity tailwinds are complemented by moderating trade headwinds and improving farmer sentiment,” said Courtney Yakavonis, equity analyst at Morgan Stanley.

“With mgmt continuing to execute against its 15% mid-cycle operating margin target, we see continued momentum in Deere’s margin improvement narrative – representing one of the most attractive idiosyncratic margin improvement narratives in the broader Machinery group,” Yakavonis added.

Upside and Downside Risks

Risks to Upside: 1) Recovery in commodity prices and US cash receipts. 2) Better than expected margin improvement efforts. 3) US infrastructure bills pass, driving outsized C&F growth – highlighted by Morgan Stanley.

Risks to Downside: 1) Commodity prices truncate ongoing replacement cycle. 2) Excess Used inventories limit pricing power and demand pull-through. 3) Mis-execution around 15% operating margin target. 4) Supply chain woes and price/material headwinds persist.

Check out FX Empire’s earnings calendar