Dell Reports Surprise Revenue Growth in Q3; Target Price $82

Dell Technologies Inc, an American multinational technology company headquartered in Texas, reported a surprise quarterly revenue growth of about 3% to $23.48 billion as demand for remote working devices and desktops and notebook computers increased during the COVID-19 pandemic.

The leader in digital transformation said its total revenue rose 3% to $23.5 billion in the three months ended October 30, beating market expectations of a drop of 4.4% to $21.85 billion. Diluted earnings per share up 64% to $1.08, non-GAAP diluted earnings per share up 16% to $2.03, in line with the Wall Street estimates.

“Dell had record shipments, revenue, and profitability for its computer division, helping make up for weakness experienced within the server and storage business unit. While the pandemic may only be a temporary gusty tailwind for computer demand, we believe Dell’s hybrid-cloud offerings can provide it with a sustainable presence in the IT infrastructure stack for customers. We are maintaining our $65 fair value estimate and see shares as fairly valued,” said Mark Cash, equity analyst at Morningstar.

Dell forecasts revenue to grow 3% to 4% in the fourth quarter, implying a range between $24.18 billion and $24.42 billion, higher than the market expectations of $23.09 billion.

“While explicit guidance was not provided for fiscal 2022, Dell is cautiously optimistic that the demand environment for IT spending is improving. The company also believes it may be on the cusp of achieving investment-grade credit quality, which is up to the agencies and will continue to prioritize paying down its obligations,” Morningstar’s Cash added.

Dell Technologies shares closed 1.37% higher at $70.33 on Tuesday; the stock is up over 35% so far this year.

Executive Comments

“We met unprecedented demand for remote work and learn solutions this quarter while increasing revenue to $23.5 billion. At the same time, we accelerated our as-a-Service strategy and hybrid cloud capabilities at the edge – positioning us to win in these growing markets and making it easy for customers to manage data and workloads across all their operations,” said Jeff Clarke, vice chairman and chief operating officer.

Dell Technologies Stores Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $72.78 with a high forecast of $82.00 and a low forecast of $60.00. The average price target represents a 3.48% increase from the last price of $70.33. From those ten analysts, seven rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $82 with a high of $116 under a bull-case scenario and $39 under the worst-case scenario. The firm currently has an “Overweight” rating on the technology company’s stock. JP Morgan raised their target price to $80 from $70 and UBS assumed coverage with a buy rating and set the target price at $80.

Several other analysts have also upgraded their stock outlook. Evercore ISI raised their target price to $75 from $70; BofA Global Research upped their price objective to $75 from $70; Deutsche Bank increased their stock price forecast to $72 from $65; RBC raised their target price to $80 from $48; Citigroup upped their price target to $75 from $55.

Analyst Comments

“Dell is a full-stack technology provider managing more data than any other IT provider, which positions the company well to capitalize on the ‘Data Era’. A path to IG rating in the next ~12 months along with accelerating market share gains across ISG and CSG segments warrant a valuation in-line with peers,” said Katy Huberty, equity analyst at Morgan Stanley.

“Dell’s strategic evaluation of its VMware stake (announced 7/15/20) and commitment to go-to-market synergies positions the company to unlock trapped value while retaining operational exposure to a key asset. Our base case valuation assumes a 50% probability of a VMware spin, meanwhile, our bull case valuation assumes a 100% probability,” Huberty added.

Upside and Downside Risks

Risks to Upside: 1) VMware spin and cash dividend accelerate core debt pay down. 2) Faster recession recovery & pent up demand. 3) Stronger share gains across PCs, Servers and Storage – highlighted by Morgan Stanley.

Risks to Downside: 1) Dell and VMW don’t agree on terms for a VMW spin. 2) Longer recession accelerates public cloud migration & legacy server/storage declines. 3) Rate of share gains across servers & storage is short-lived. 4) Slower debt paydown vs guidance.

Check out FX Empire’s earnings calendar

Specialty Retailer Tiffany Earnings Beat Wall Street Estimates on Solid China Demand

Tiffany & Co, luxury jewelry and specialty retailer, recently bought by LVMH, reported better than expected profit in the third quarter, largely driven by strong sales growth in China, Korea and a revival in demand at home.

The specialty retailer said its global net sales fell 1% to of $1.0 billion and comparable sales increased by 3% from the prior year; on a constant-exchange-rate basis, net sales decreased 2% and comparable sales increased 1% from the prior year. Tiffany reported net earnings of $119 million, which was 52% higher than the prior year’s $78 million, and net earnings per diluted share were $0.98 versus $0.65 in the prior year.

Excluding certain costs, net earnings were at $136 million, or $1.11 per diluted share, were 73% higher than the prior year. That was higher than the market expectations of 66 cents.

“We are retaining our $131.50 fair value estimate for Tiffany’s shares as the company reported improving sales and profit dynamics in the third quarter. Our fair value estimate reflects the acquisition premium LVMH agreed to pay for Tiffany. The drop in revenue drop during the third quarter was contained to 1% at constant exchange rates, after the drop of 29% for the quarter ended July and a 45% drop in the first quarter (February to April). This was slightly worse than4% growth for Richemont’s Jewellery Maisons in the recent quarter, but still a solid performance,” said Jelena Sokolova, equity analyst at Morningstar.

“China grew by 70% in the quarter, boosted by Chinese nationals buying more locally as travel restrictions remained in place. The Asia region was the only one with a strong positive performance in the quarter, up 36% on a comparable basis and at constant exchange rates. In Japan and Europe comparable sales were down 5% and 9% respectively, with a solid performance in Europe, given a lack of tourists,” Sokolova added.

At the time of writing, Tiffany shares traded nearly flat at $131.5 on Tuesday. However, the stock is down about 2% so far this year.

Executive Comments

“We believe that the results we released today demonstrate that our strong continuing execution against the strategic priorities we set three years ago positions us to achieve sustainable sales, margin and earnings growth for this legendary brand. Further to continued management focus and investment in that important market, sales in Mainland China continued to grow dramatically in the third quarter, increasing by over 70%, with comparable sales nearly doubling in that period as compared to the prior year,” said Alessandro Bogliolo, Chief Executive Officer.

“In addition, and consistent with our focus, e-commerce sales finished the third quarter up 92% globally as compared to the prior year, performing positively in all markets. As a result, total e-commerce sales represent 12% of total net sales in the year-to-date, as compared to 6% for each of the last three fiscal years,”

Tiffany Stores Stock Price Forecast

Seven equity analysts forecast the average price in 12 months at $127.38 with a high forecast of $135.00 and a low forecast of $120.00. The average price target represents a -3.17% decrease from the last price of $131.55. All those seven analysts rated “Hold”, according to Tipranks.

Morgan Stanley gave the base target price of $131.5 with a high of $131.5 under a bull-case scenario and $87 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the specialty retailer’s stock.

Several other analysts have also upgraded their stock outlook. ValuEngine upgraded Tiffany & Co. to a buy rating from hold. Zacks Investment Research upgraded to a buy rating from hold and set a $129 price target. UBS Group lowered their price target to $123 from $135 and set a neutral rating. Wells Fargo & Company lowered their price target to $120 from $135 and set an equal weight rating.

Analyst Comments

“LVMH and TIF announced LVMH will acquire TIF for $135/share in November 2019, and following potential transaction risk in September 2020 and subsequent legal disputes, both parties agreed to a slightly reduced $131.50/share purchase price in October 2020. Despite the slightly amended acquisition price, the transaction valuation remains in line with LVMH’s precedent transactions, and appears reasonably haircut to reflect COVID-19’s impact on TIF’s cash flows,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

“We continue to see solid strategic rationale, as TIF’s status as a dominant luxury brand, global expansion potential, and pricing power make it a fundamentally attractive business,” Greenberger added.

BlackRock to Acquire Investment Management Services Provider Aperio for $1.05 Billion

BlackRock Inc, the world’s largest investment management firm, said it will acquire an investment management services provider Aperio from Golden Gate Capital and Aperio employees for $1.05 billion in cash.

BlackRock’s acquisition of Aperio will be funded from existing corporate liquidity and is anticipated to close in the first quarter of 2021. Although minimally dilutive to earnings per share, the transaction is not expected to be dilutive on a cash basis, the company said in the statement.

The deal will boost BlackRock’s separately managed account (SMA) assets by roughly 30% to over $160 billion.

“While modestly dilutive on a GAAP basis in the year one, the purchase provides valuable scale to BlackRock’s (BLK) customized SMA business. Aperio’s track record in ESG investing also compliments BLK’s increased focus and success in this area. BLK intends to keep Aperio as a standalone unit,” said Daniel T. Fannon, equity analyst at Jefferies.

BlackRock shares closed 1.51% higher at $682.87 on Monday; the stock is up over 35% so far this year.

Executive Comments

“The wealth manager’s portfolio of the future will be powered by the twin engines of better after-tax performance and hyper-personalization. BlackRock and Aperio, working together, will bring unmatched capabilities to meet these objectives,” said Martin Small, head of BlackRock’s U.S. Wealth Advisory business.

“The combination will bring institutional quality, personalized portfolios to ultra-high net worth advisors and will create one of the most compelling client opportunities in the investment management industry today.”

BlackRock Stores Stock Price Forecast

Eight equity analysts forecast the average price in 12 months at $719.14 with a high forecast of $800.00 and a low forecast of $602.00. The average price target represents a 5.31% increase from the last price of $682.87. From those eight analysts, seven rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $750 with a high of $1,140 under a bull-case scenario and $339 under the worst-case scenario. The firm currently has an “Overweight” rating on the asset manager’s stock.

Several other analysts have also upgraded their stock outlook. BlackRock had its price target raised by Deutsche Bank to $795 from $685. Deutsche Bank currently has a buy rating on the asset manager’s stock. Barclays lifted their price target on BlackRock to $700 from $625. Wells Fargo reaffirmed a buy rating on shares of BlackRock.

Analyst Comments

“We believe BlackRock (BLK) is best positioned on the asset management barbell given leading iShares ETF platform, multi-asset & alts combined with technology/Aladdin offerings that should drive 10% EPS CAGR (2020-22e) via 5% avg LT organic growth & continued op margin expansion,” said Michael Cyprys, equity analyst at Morgan Stanley.

“We see further growth ahead for Alts, iShares, international penetration, and the institutional market in the US. We expect a premium to widen as BLK takes a share in the midst of market dislocation and executes on improving organic revenue growth trajectory,” Cyprys added.

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.

AstraZeneca Shares Dip Over 3% After COVID-19 Vaccine Proves 70% Effective as Against Rivals

AstraZeneca’s shares fell more than 3% on Monday after vaccine efficacy results found an average 70% effectiveness in preventing the virus, a rate much lower compared with efficiency rates of above 90% among its two biggest rivals – Moderna and Pfizer.

One dosing regimen (n=2,741) showed vaccine efficacy of 90% when AZD1222 was given as a half dose, followed by a full dose at least one month apart, and another dosing regimen (n=8,895) showed 62% efficacy when given as two full doses at least one month apart. The combined analysis from both dosing regimens resulted in an average efficacy of 70%, the company said.

Moderna said the Phase 3 study of mRNA-1273, its vaccine candidate against COVID-19, showed that it was 94.5% effective in preventing COVID-19 and Pfizer and BioNTech announced that the first interim efficacy analysis from the phase-3 study found their jointly developed mRNA-based vaccine candidate to be over 90% effective in preventing COVID-19 among participants.

“Challenging to compare efficacy to the 95% of peers: We note several key differences vs the Moderna (MRNA) and Pfizer/BioNTech (PFE/BNTX) US Phase III studies: (1) weekly swabbing was performed to detect COVID-19 and not just confirmation of suspected cases by symptoms as in the US trials; and (2) meningococcal vaccine MenACWY used as a comparator and not placebo,” said Peter Welford, equity analyst at Jefferies.

“Importantly, AZD1222 offers the convenience of a simple supply chain, with the vaccine able to be stored and transported at normal refrigerator conditions (2-8ºC) for at least 6 months, with no specialist setting required for administration. This compares favourably to supply chain logistics for mRNA vaccines from Pfizer/BioNTech and Moderna, which can only be stored at refrigerator temps for 5 and 30 days, respectively, and require transport at -70ºC and -20ºC, respectively,” Welford added.

At the time of writing, AstraZeneca shares traded 3% lower at 8056p on Monday. However, the stock is up over 6% so far this year.

Executive Comments

“These findings show that we have an effective vaccine that will save many lives. Excitingly, we’ve found that one of our dosing regimens maybe around 90% effective and if this dosing regime is used, more people could be vaccinated with planned vaccine supply. Today’s announcement is only possible thanks to the many volunteers in our trial, and the hard-working and talented team of researchers based around the world,” said Professor Andrew Pollard, Chief Investigator of the Oxford Vaccine Trial at Oxford.

“Today marks an important milestone in our fight against the pandemic. This vaccine’s efficacy and safety confirm that it will be highly effective against COVID-19 and will have an immediate impact on this public health emergency. Furthermore, the vaccine’s simple supply chain and our no-profit pledge and commitment to broad, equitable and timely access mean it will be affordable and globally available, supplying hundreds of millions of doses on approval,” Soriot added.

AstraZeneca Stores Stock Price Forecast

Fourteen equity analysts forecast the average price in 12 months at 9,243.08p with a high forecast of 12,000p and a low forecast of 6,400p. The average price target represents a 15.48% increase from the last price of 8,004p. From those 14 analysts, nine rated “Buy”, three rated “Hold” and two rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of 9,400p with a high of 11,500p under a bull-case scenario and 6,800 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the pharmaceuticals company’s stock.

“Our price target is derived from a DCF analysis, with product-by-product sales forecasts up to 2028. We assume a WACC of 6.1%, +1% terminal growth and a reversion of ROCE to the cost of capital in the long term,” said Mark Purcell, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. Guggenheim lowered the target price to 9,900p from 10,100p. Independent Research cuts the target price to 8600p from 8900p and rated hold. AstraZeneca PLC has been given a GBX 8,100 price target by investment analysts at Jefferies Financial Group. The brokerage presently has a “neutral” rating on the biopharmaceutical company’s stock. Credit Suisse Group set a GBX 9,500 price objective and gave the stock a “buy” rating. UBS Group set a GBX 7,300 price objective and gave the stock a “sell” rating.

Analyst Comments

“AstraZeneca (AZN) has the highest sales and EPS growth within EU biopharma over 2020-25, with the shift to specialty care driving underlying margin expansion. Our analysis shows a 52% price deflation for drugs initially impacted by the 4+7 Centralised Procurement Scheme in China and that >40% of AstraZeneca’s emerging market revenues could face generic pressures before 2025,” said Mark Purcell, equity analyst at Morgan Stanley.

“The two ADC partnered with Daiichi Sankyo, Enhertu (HER2) and DS-1062 (TROP2) both carry multi-blockbuster potential in multiple tumour types. We forecast $8.7 billion risk-adjusted peak sales for Enhertu and $4.7 billion risk-adjusted peak sales for DS-1062, with most of the value back-end loaded,” Purcell added.

Upside and Downside Risks

Risks to Upside: Positive pivotal data from the pipeline including Imfinzi+treme, tezepelumab and Enhertu, growth acceleration in EM ex-China – highlighted by Morgan Stanley.

Risks to Downside: Regulatory hurdles for roxadustat, broader pipeline failure (Enhertu, TROP2), competitive risks to the pharma pipeline and growth platforms. Impact of China VBP reform on the legacy portfolio.

Williams-Sonoma’s Target Price Raised to $95 at Morgan Stanley After Earnings Beat, Forecasts $165 in Best Case

Morgan Stanley raised their stock price forecast on Williams-Sonoma to $95 from $75, assigning an “Underweight” rating and said the consumer retail company will likely deliver record earnings in 2020 but favourable trends will likely decelerate next year.

On Thursday, the speciality retailer reported its net revenue jumped 22.4% to $1.765 billion in the third quarter ended November 1, an increase largely driven by acceleration across all brands. That was higher than the Wall Street estimate of $1.555 billion. Non-GAAP adjusted earnings rose to $2.56 per share surpassed the market expectations of $1.56. That was an increase of 150% from $1.02 posted a year ago.

Williams-Sonoma said its e-commerce net comparable brand revenue growth accelerated to 49.3% with e-commerce penetration holding at almost 70% of total net revenues.

“We think Williams-Sonoma (WSM) can keep strong momentum through the holiday season (and into early 2021) and based on our model a Q4 comp of 20% will land Q4’2020 EPS at $3.70. However, based on normalized EPS of $6.60 in 2022, the stock is currently trading at 15.3x (above the stock’s 5yr/3yr/1yr averages of 14.1x/13.0x/13.1x), and COVID-19-driven home furnishings trends should decelerate through 2021. As such, the stock should lag going forward as we are not capitalizing current trends,” said Simeon Gutman, equity analyst at Morgan Stanley.

“We are rolling forward our valuation to 2022, and our $95 price target is based on 14.5x 2022e EPS of $6.60 vs 15x 2021e EPS of $5 previously. Our 2022e EPS is 12% higher than our prior estimate, driven by much stronger 2020 results than we expected and lower 2021 forecasts to account for the difficult lap. We expect 2022 to be a relatively normalized year with a 4.7% comp and flat margins, yielding $6.60 in EPS vs $5.90 previously. Our 14.5x target multiple is based on a discount to our prior 15x multiple as we roll forward to 2022 estimates,” Gutman added.

Berkeley Lights’ shares closed 6.60% higher at $107.71 on Friday; the stock is up over 45% so far this year.

Morgan Stanley gave a target price of $165 under a bull scenario and $65 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Williams-Sonoma had its price objective hoisted by Barclays to $144 from $112. They currently have an overweight rating on the speciality retailer’s stock. JP Morgan lifted their price objective to $95 from $80 and gave the stock an underweight rating. Telsey Advisory Group lifted their price objective to $120 from $110 and gave the stock an outperform rating.

Fourteen analysts forecast the average price in 12 months at $110.15 with a high forecast of $144.00 and a low forecast of $80.00. The average price target represents a 2.27% increase from the last price of $107.71. From those 14 analysts, five rated “Buy”, seven rated “Hold” and two rated “Sell”, according to Tipranks.

“Williams-Sonoma’s core playbook is working, and the business is also benefiting from increased spending on the home during COVID-19 disruption. However, performance will be difficult to maintain as tailwinds moderate and costs come back,” Morgan Stanley’s Gutman added.

Check out FX Empire’s earnings calendar

Earnings to Watch Next Week: Autohome, Medtronic and Deere & Company in Focus

Earnings Calendar For The Week Of November 23

Monday (November 23)

IN THE SPOTLIGHT: AUTOHOME

Autohome, a leading online destination for automobile consumers in China, is expected to report a profit of $6.31 in the third quarter with possible revenue growth of over 6% as demand for cars recovered in the world’s second-biggest economy.

The company has reported a higher-than expected-earnings in most of the last four quarters. Autohome Inc is expected to show an increase in its third-quarter earnings to 96 cents​ per share according to the mean Refinitiv estimate from seven analysts. Wall Street expects results to range from 89 cents to ​$1.02 per share, Reuters reported.

“We forecast ATHM’s revenue to grow 6% YoY to 2.3 billion yuan in 3Q20, and beat the higher end of its 3Q20 revenue guidance of 2,240 million to 2,280 million yuan, within which we forecast: (1) its media service revenue to remain flattish YoY; (2) its lead generation revenue to grow 1% YoY; and (3) its online marketplace revenue to increase 30% YoY supported by strong data product revenue growth (i.e. we expect ATHM’s data product revenue to increase 50% YoY in 3Q20). In addition, we expect ATHM’s 3Q20 non-GAAP net margin to improve ~5ppts YoY to 37% thanks to its effective cost control and better return of 818 Global Auto Show event this year vs. last year,” said Eddy Wang, equity analyst at Morgan Stanley.

“China’s auto market has witnessed a consistent recovery in 3Q20: New car sales have seen a decent recovery with new car sales growth improving to 8% YoY in 3Q20, sustaining its recovery trend since 2Q20. We note that new car sales growth continued to increase over 9% YoY in October, which bodes well for auto sales recovery to continue in 4Q20, the traditional peak season for auto sales in China,” Wang added.

Autohome’s shares closed 1.98% higher at $101.83 on Friday; the stock is up over 1% so far this year.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE NOVEMBER 23

Ticker Company EPS Forecast
KFY Korn Ferry International $0.05
PLAN Progressive Planet -$0.10
BZUN Buzzi Unicem RSP $1.17
MNTA Momenta Pharmaceuticals -$0.46
CBT Cabot $0.52
DQ Daqo New Energy $0.60
CENTA Central Garden Pet -$0.04
ARWR Arrowhead Research -$0.12
A Agilent $0.94
AMBA Ambarella $0.05
URBN Urban Outfitters $0.44
TCOM Trip.com Group Ltd $1.02
IMMU Immunomedics -$0.29
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 (November 24)

IN THE SPOTLIGHT: MEDTRONIC

Medtronic, an American Irish-domiciled medical device company, is expected to report a $0.80 profit in the second quarter of the fiscal year 2021 after reporting $0.62 earnings per share in the second quarter of the fiscal year, topping the market estimate of $0.21 by $0.41.

Sell-side analysts forecast that Medtronic plc will post 3.93 earnings per share for the current year, according to American Banking and Market News.

“Peer C3Q results across cardiovascular, neuromod, surgical, and diabetes suggest up to ~5 points of F2Q upside. The Risk/ Reward for Medtronic is positive but resurgence concerns have muted the near-term upside case for “Phase 2” Large-Caps despite vaccine data,” said David R. Lewis, equity analyst at Morgan Stanley.

“Our Medtronic model currently sits at $7,125 million in total F2Q21 revenues (reflecting -8.4% organic declines) and $0.78 in EPS, roughly in-line with consensus at ~$7,064mn in revenues and $0.80 in EPS. We model ~$90 million in COVID-19 driven, incremental ventilator sales this quarter (following $150 million in both F4Q and F1Q), as demand in certain regions has likely waned but Emerging Markets remained as of F1Q EPS,” R. Lewis added.

Medtronic’s shares closed 0.75% lower at $110.16 on Friday. However, the stock is down about 3% so far this year.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE NOVEMBER 24

Ticker Company EPS Forecast
CPG Compass Group -£6.52
PNN Pennon Group £29.94
SHB Shaftesbury -£1.70
WB Weibo $0.60
EV Eaton Vance $0.87
NJR New Jersey Resources $0.57
DLTR Dollar Tree $1.15
SJM J.M. Smucker $2.22
BBY Best Buy $1.64
ADI Analog Devices $1.33
HRL Hormel Foods $0.44
DKS Dick’s Sporting Goods $0.98
J Jacobs Engineering Group Inc $1.32
BURL Burlington Stores $0.16
DY Dycom Industries $1.02
CPB Campbell Soup $0.91
PDCO Patterson Companies $0.38
JWN Nordstrom -$0.05
GPS Gap $0.31
ADSK Autodesk $0.95
HPQ HP $0.52
VNET 21Vianet -$0.19
VMW VMware $1.44
AEO American Eagle Outfitters $0.32
CBPO China Biologic $1.34
JRONY Jeronimo Martins $0.45
HOCPY Hoya Corp $0.74

Wednesday (November 25)

IN THE SPOTLIGHT: DEERE & COMPANY

Deere & Company, the world’s largest makers of farm equipment, is performing excellently so far this year. Shares of the Agricultural, construction and forestry equipment manufacturer are up about 50% so far this year. The company’s earnings report next week will provide investors with an insight into 2021, where it is also expected a profit of $1.31 in the fourth quarter.

In the previous quarter, Deere & Company reported $2.57 earnings per share, topping the consensus estimate of $1.26 by $1.31. The company had revenue of $7.86 billion for the quarter, compared to the consensus estimate of $6.70 billion. However, the company’s revenue plunged 12.4% compared to the same quarter last year. Analysts expect that Deere & Company will post 7.61 EPS for the current fiscal year, according to Zolmax.

“The Zacks Consensus Estimate for Deere’s earnings per share is pegged at $1.35 for the fiscal fourth quarter, suggesting a 36.9% year-over-year plunge. The Zacks Consensus Estimate for total revenues is pinned at $7.23 billion for the period, indicating a year-over-year decline of 16.9%. The company has a trailing four-quarter average earnings surprise of 36.18%,” noted analysts at Zacks Research.

Deere & Company’s shares closed 1.16% higher at $258.56 on Friday

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE NOVEMBER 25

Ticker Company EPS Forecast
UU United Utilities £29.36
SMTC Semtech $0.46
PVH PVH $0.17
AUOTY AU Optronics $0.09
TRNO Terreno Realty $0.36

Thursday (November 26)

Ticker Company EPS Forecast
BVIC Britvic £19.24
ASEKY Aisin Seiki Co $0.42
SVT Severn Trent £68.16
GEBHY Genting Berhad -$0.07
RLAY Relay Therapeutics Inc. -$0.32

Friday (November 27)

No major earnings scheduled for release.

Off-Price Retailer Ross Stores Beat Q3 Earnings But Fresh Spike in COVID-19 Cases Poses Big Risk

Ross Stores, the second-largest off-price retailer in the U.S., reported a better-than-expected profit in the third quarter but the company remained cautious on outlook as a resurgence in COVID-19 cases hammered sales in November.

The U.S. home fashion chain reported earnings of $0.37 per share versus $1.03 per share seen in the same period last year, also, beating the market expectations of $61 per share. Net income was $131 million, compared to $371 million in the prior-year period. Third-quarter 2020 sales declined 2% to $3.8 billion, with comparable-store sales down 3%, the company said.

“3Q saw meaningful sequential top-line improvement as the quarter progressed, with comps holding in solidly at (MSD%) in the QTD. We also note strong merch margin expansion, driven by favorable buying, supporting our expectation for off-pricers to benefit from improved costing over the near term. While we are impressed with the execution, we continue to prefer TJX and Burlington to play the migration to off-price,” said Janine Stichter, equity analyst at Jefferies.

“We like Ross Stores’ strong, stable business and see oppty for the company to nearly double the store base. While we believe off-price should benefit from an accelerated secular migration due to COVID-19, Ross Stores’ geographic mix, more price-sensitive demo, smaller home exposure, and lack of e-comm exposure make the recovery somewhat less certain than TJX,” Stichter added.

At the time of writing, Ross Stores shares traded 3.33% higher at $113.53 on Friday. However, the stock is down around 4% so far this year.

“We model Q4:20E EPS of $1.09 vs. $1.06 consensus reflecting sales and EBIT declines of (3%) and (10%), respectively. In FY21E, we model EPS of $4.43 vs. consensus of $4.32 and FY19 EPS of $4.60. Our FY21E sales estimate of $16.2B is above FY19 sales of $16B, with EBIT margin of 13.0% below FY19 EBIT margin of 13.4% due to 50bps of higher SG&A costs in the structure,” said John Kernan, equity analyst at Cowen and Company, who gave a price target of $134.

Executive Comments

“As we enter the fourth quarter, our month-to-date comparable store sales in November are down mid-single-digits. In addition, there remains a high level of uncertainty related to the worsening health crisis and we are concerned with how the upsurge of this pandemic might impact consumer demand during what we expect to be a highly competitive holiday shopping season,” said Barbara Rentler, Chief Executive Officer.

“Given the lack of visibility we have regarding these external risks and how they may evolve and impact our business, we will continue to manage our operations conservatively and will not be providing sales or earnings per share guidance for the fourth quarter,” Rentler added.

Ross Stores Stock Price Forecast

Fifteen equity analysts forecast the average price in 12 months at $113.71 with a high forecast of $130.00 and a low forecast of $88.00. The average price target represents a 3.19% increase from the last price of $110.20. From those 15 analysts, 12 rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $105 with a high of $137 under a bull-case scenario and $55 under the worst-case scenario. The firm currently has an “Overweight” rating on the off-price retailer’s stock.

“Ross Stores’ -2% y/y 3Q revenue decline defied optimistic expectations and leads peers. Accelerating market share gains and better expense metrics shine. We raise our 2021/22e EPS 10%/7% on a faster revenue and EBIT recovery. Our DCF-derived price target goes to $121 from $111,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. UBS raised their stock price forecast to $110 from $93; Telsey Advisory Group raised the target price to $130 from $112; Deutsche Bank upped the price target to $123 from $119; Guggenheim increased the target price to $125 from $110; MKM Partners raised the price target to $124 from $105; Citigroup upped stock price forecast to $127 from $108; RBC increased the target price to $130 from $100.

Analyst Comments

“Market share capture from competitor bankruptcies & store closures, favorable customer fundamentals, and high exposure to Hispanics, the fastest-growing U.S. population segment, support 6-8% long-term revenue growth and 10%+ annual EPS. Upward EPS revisions appear an ongoing positive share price catalyst. Profit flow-through is magnified when comps exceed the 1-2% plan,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

“The ‘everyday value’ proposition fosters comp outperformance, while recessions accelerate customer acquisition. Low average selling prices ($8-10/unit) and narrow gross margin render selling online unprofitable at this price point,” Greenberger added.

Upside and Downside Risks

Upside: 1) Wider retail store closures/bankruptcies fuel comp growth above our forecast. 2) Merchandise margin expansion more than offsets cost inflation. 3) Opening smaller format stores improves opex leverage. – highlighted by Morgan Stanley.

Downside: 1) COVID-19 prompts store traffic pressures, which stymie sales and compress EBIT margin. 2) The branded resale market cannibalizes off-price sales. 3) U.S. economic acceleration spurs consumer trade-up.

Check out FX Empire’s earnings calendar

Eli Lilly’s Baricitinib Gets FDA Approval for Emergency Use with Remdesivir to Treat COVID-19 Patients

Eli Lilly and Company, an American pharmaceutical company headquartered in Indianapolis, said its arthritis drug, baricitinib, in combination with Gilead Sciences Inc’s remdesivir, received an emergency use authorization from the U.S. Food and Drug Administration for the treatment of hospitalized patients with COVID-19.

The authorization is temporary and does not replace the formal review and approval process. In the U.S., baricitinib has not been approved by the FDA to treat COVID-19, and the efficacy, safety and optimal duration of treatment of baricitinib for COVID-19 has not been established. This is the first combination regimen authorized by FDA. Evaluation of baricitinib’s efficacy and safety as a treatment for COVID-19 is ongoing in clinical trials, the company said.

Eli Lilly shares closed 2.3% higher at $143.41 on Thursday; the stock is up about 10% so far this year.

Executive Comments

“Since the start of the COVID-19 pandemic, Lilly has been committed to finding potential treatments to help people around the world who’ve been impacted by this virus,” said David A. Ricks, Lilly chairman and CEO.

“Today’s FDA action for baricitinib marks the second Lilly therapy to be granted an EUA, in addition to the recent neutralizing antibody EUA for high-risk non-hospitalized patients, increasing the number of treatment options for COVID-19 patients at different stages of the disease. This is an important milestone for hospitalized patients on oxygen, as baricitinib may help speed their recovery.”

Eli Lilly Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $173.00 with a high forecast of $200.00 and a low forecast of $144.00. The average price target represents a 20.63% increase from the last price of $143.41. From those ten analysts, seven rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

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

Several other analysts have also upgraded their stock outlook. Mizuho lowered their target price to $156 from $164. Bernstein started with market-perform rating; target price $150. Berenberg Bank initiated coverage and set a “hold” rating and a $144.00 price target. ValuEngine cut Eli Lilly and to a “sell” rating from a “hold”. At last, JP Morgan boosted their price objective to $200 from $190 and gave the stock an “overweight” rating.

Analyst Comments

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

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

Nuance Shares Jump Over 15% as Analysts Upgrade Target Prices Post Earnings Beat

Nuance Communications’ shares skyrocketed by more than 15% on Thursday after several analysts raised price targets on the computer software technology corporation after it beat estimates in the quarter ended September.

The leading provider of voice recognition and imaging software technology said its earnings per share decreased over 45% to $0.18, but it was successful to beat the Wall Street estimate of $0.16. Revenue of $352.9 million declined by 25.01% year over year, but again beat the estimate of $345.7 million.

“Healthcare ARR growth of 29% combined with a multiyear outlook calling for accelerating growth in FY21 and a 30-40% CAGR thru FY23 all while improving margins by 400 bps makes Nuance a distinctive asset in software given a business transformation that is hitting its stride,” said Sanjit Singh, equity analyst at Morgan Stanley.

“While our near-term revenue and EPS estimates move down given the sale of the HIM transcription and EHR services businesses, the sale of these low-growth, low-margin businesses makes the longer-term growth and margin profile of the business much more attractive. For instance, our CY21-CY23 EPS CAGR moves up to 22% from 14% previously. As such, we apply a higher multiple (~40x, from ~31x previously) to our updated CY22e EPS estimate of $1.01 (down from $1.11 previously), which moves our price target up to $41 from $35,” Singh added.

Nuance Communications shares jumped over 15% to $39.0 on Thursday; the stock is up about 120% so far this year.

Nuance Communications Stock Price Forecast

Seven equity analysts forecast the average price in 12 months at $41.43 with a high forecast of $47.00 and a low forecast of $34.00. The average price target represents a 5.80% increase from the last price of $39.16. From those seven analysts, six rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $41 with a high of $51 under a bull-case scenario and $19 under the worst-case scenario. The firm currently has an “Overweight” rating on the software technology corporation’s stock.

Several other analysts have also upgraded their stock outlook. Oppenheimer raised their stock price forecast to $40 from $36; Craig-Hallum upped their target price to $41 from $36; Wedbush increased the price objective to $45 from $40; Stifel raised the price target to $34 from $26 and SVB Leerink upped the price target to $42 from $38.

We think it is good to buy at the current level and target $47 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst Comments

“Nuance has undergone a comprehensive rationalization of its product portfolio. Out of this process emerges a leaner, more focused organization that is better suited to grow into its most defensible opportunities,” said Sanjit Singh, equity analyst at Morgan Stanley.

“As a result of the more focused investment, an ongoing cloud transition that carries highly attractive unit economics with significant revenue uplift potential and an upcoming product cycle with DAX, we see annualized revenue growth accelerating to 11% in FY20-FY23  compared to the 1.6% CAGR seen in the FY16-FY19 time frame,” Singh added.

Check out FX Empire’s earnings calendar

Speaker Maker Sonos’ Shares Skyrocket on Earnings Beat; Target Price $30

Sonos, a U.S. developer and manufacturer of wireless home audio products, reported better-than-expected revenue and profit in the fiscal fourth quarter and forecasts revenue in the range of $1.44 billion to $1.5 billion for fiscal 2021, sending its shares up over 20% in extended trading on Wednesday.

The company said its revenue increased 16% year-over-year to $339.8 million; excluding the impact of the 14th week, revenue increased by about 7% year-over-year. That was higher than the market expectations of $298.8 million.

The U.S. speaker maker said its GAAP diluted earnings per share rose to $0.15 from $0.28 loss last year; non-GAAP diluted earnings per share excluding stock-based compensation, restructuring, and legal and transaction-related fees climbed to $0.33 from $0.15 loss seen last year, beating Wall Street consensus of 0 cents.

“Sonos’ Q4 print will fuel the bull case for the stock with a record 14% and 69% beat on revenue and EBITDA and FY21 EBITDA guidance $78M ahead of Street at the midpoint. While we acknowledge the structural improvements to the business, particularly a higher margin profile, a new $50M share repurchase program, and a larger DTC business (21% of rev in FY20 vs. 12% in FY19), we believe valuation is fair at 10x our raised FY22 EBITDA estimate,” said Brent Thill, equity analyst at Jefferies, who gave a price target to $22.

Sonos forecasts adjusted EBITDA in the range of $170 million to $205 million, representing growth in the range of 57% to 89%, or 21% to 46% excluding the effect of tariffs in fiscal 2020.

Post this announcement, Sonos shares jumped over 20% to $21.0 in the after-hours trading on Wednesday; the stock is up about 10% so far this year.

Executive Comments

“Fiscal 2020 was the 15th year in a row we grew total households by at least 20%, while our existing customers once again showed strong repurchase habits, accounting for a record 41% of total product registrations. We deliver a consistent cadence of new, innovative products and services, and we have only started the process of realizing the lifetime value of our customers, both old and new,” said Patrick Spence Sonos CEO.

“In fiscal 2020, we delivered a record 8.2% adjusted EBITDA margin or 10.6% excluding the effect of tariffs, and we project delivering 12% to 14% adjusted EBITDA margins next year, which is ahead of our prior targets,” Spence added.

Sonos Stock Price Forecast

Two equity analysts forecast the average price in 12 months at $18.50 with a high forecast of $19.00 and a low forecast of $18.00. The average price target represents an 8.25% increase from the last price of $17.09. Those two analysts rated “Buy”, according to Tipranks.

Morgan Stanley gave the base target price of $30 with a high of $45 under a bull-case scenario and $10 under the worst-case scenario. The firm currently has an “Overweight” rating on the speaker maker’s stock.

“We continue to believe SONO is undervalued relative to its consistent growth profile with $45 bull case better reflecting growth peers. We raise our FY21 EBITDA 60% and PT to $30 (vs $20),” said Katy Huberty, equity analyst at Morgan Stanley.

Several other analysts have also recently commented on the stock. BofA Global Research increased their stock price forecast to $18 from $17.50 and raised the rating to “Buy” from “Neutral”. ValuEngine upgraded shares of Sonos to a “buy” rating from a “hold”. Raymond James cut Sonos to a “market perform” rating from a “strong-buy” rating.

Analyst Comments

“Sonos leverages its wireless multi-room technology to expand its product portfolio and gain share in an $18B+ home audio market. While Sonos has historically been valued as a single-product, product cycle-dependent hardware company, it is becoming clear that consistent product launches, strong new household growth and growing engagement with existing households combine to deliver the consistent top and bottom-line growth not enjoyed by many of its consumer hardware peers,” said Katy Huberty, equity analyst at Morgan Stanley.

“We see a compelling risk-reward with Sonos trading in-line with challenged consumer electronics peers, along with a clear catalyst path including new product launches, new services revenue streams and a March 2021 analyst day,” Huberty added.

Upside and Downside Risks

Risks to Upside: 1) Sonos speaker demand accelerates faster than expected. 2) New service launch adoption significantly ramps and becomes a contributor to growth. 3) DTC demand grows faster than expected – highlighted by Morgan Stanley.

Risks to Downside: 1) Consumer spending fails to improve in 2021. 2) Product launches are delayed by component shortages. 3) Difficulties forecasting new product contributions. 4) New products or strategic announcements by large tech competitor.

Check out FX Empire’s earnings calendar

Lowe’s Forecasts Q4 Sales to Grow 15-20%; Buy with Target Price $190

Lowe’s Companies Inc forecasts total and comparable sales growth of 15% to 20% in the fourth quarter, but higher investment in COVID-19-related support for its associates, store safety and community pandemic relief will likely weigh on earnings.

The home improvement retailer reported net earnings of $692 million and diluted earnings per share of $0.91 for the quarter ended October 30, 2020. Excluding charges, third-quarter adjusted diluted EPS increased 40% to $1.98 from adjusted diluted EPS of $1.41 in the third quarter of 2019, a tad higher than the market expectations of $1.97 per share.

“The EPS was only slightly above consensus as expenses were higher than we modelled. The guidance was mixed. Thus, with the stock up 33.5% year-to-date, we expect a bit of a give-back today even with the stock at relative discount of 19.3x consensus forward estimate compared to HD at 22.7x, the S&P 500 at 23.0x and our group average of 21.5x,” said Michael Baker, MD and Senior Research Analyst at D.A. Davidson & Company.

Lowe’s said its sales rose to $22.3 billion in the third quarter, up from $17.4 billion in the same period a year ago, and comparable sales climbed over 30%.  Comparable sales for the U.S. home improvement business also jumped more than 30% for the third quarter.

The company that distributes building materials and supplies through stores in the United States said it invested $245 million in COVID-related support of frontline hourly associates, bringing its total COVID-related associate financial support to more than $800 million this year.

With the extra sending, Lowe’s forecasts diluted earnings per share and adjusted diluted earnings per share between $1.10 – $1.20 per share, compared with Wall Street estimates of $1.17 per share. For fiscal 2020, the company expects capital expenditures of about $1.7 billion.

“Shares are off as investors look past 30% comps and a robust 4Q sales guide and focus on 2H margins below Street expectations. Lowe’s has stood apart from peers in ’20 given its ability to fulfil record demand, but also now for its bold decision to pull forward investments (while competitors delay). This weighs on margins near-term, though we have no doubt these actions will amplify share gains ahead. Reiterate Buy,” said Jonathan Matuszewski, equity analyst at Jefferies, who gave a price target of $202.

At the time of writing, Lowe’s shares traded 5.83% lower at $150.54 on Wednesday. However, the stock is up over 25% so far this year.

Executive Comments

“Strong execution enabled us to meet continued broad-based demand, as we delivered over 15% growth in all merchandising departments, over 20% growth across all geographic regions. and triple-digit growth online.  We continued to invest in the future growth of the company, including a $100 million investment in the quarter as part of an ongoing effort to reset the layout of our U.S. stores, making them easier to shop with improved product adjacencies, especially for Pro customers,” said Marvin R. Ellison, Lowe’s president and CEO.

“Our omni-channel transformation continued in the third quarter with further investments in Lowes.com and our supply chain.   I remain confident that we are making the right strategic investments to deliver sustainable, long-term growth.  I would also like to thank our outstanding frontline associates for their unwavering commitment to customer service and safety,” R. Ellison added.

Lowe’s Stock Price Forecast

Nineteen equity analysts forecast the average price in 12 months at $193.11 with a high forecast of $315.00 and a low forecast of $159.00. The average price target represents a 28.16% increase from the last price of $150.68. From those 19 analysts, 16 rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $190 with a high of $260 under a bull-case scenario and $110 under the worst-case scenario. The firm currently has an “Overweight” rating on the home improvement retailer’s stock. Lowe’s Companies had its target price increased by Telsey Advisory Group to $190 from $185. The firm currently has an outperform rating on the home improvement retailer’s stock.

Several other analysts have also recently commented on the stock. Zacks Investment Research raised shares of Lowe’s Companies from a hold rating to a strong-buy rating and set a $187 price objective. BNP Paribas initiated coverage on shares of Lowe’s Companies and set a neutral rating and a $159 price objective. Barclays upped their target price on shares of Lowe’s Companies to $180 from $150 and gave the company an overweight rating in August. On the other hand, ValuEngine lowered shares of Lowe’s Companies from a hold rating to a sell rating last week.

We think it is good to buy at the current level and target $190 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst Comments

“We view Lowe’s favourably given its longer-term transformation opportunity and structural industry tailwinds, with substantial near-term uplifts from COVID-19 spending shifts that likely translate to longer-term sales retention,” said Simeon Gutman, equity analyst at Morgan Stanley.

“Assuming a healthy underlying housing backdrop, we think comps can accelerate longer-term from stronger sales/sq ft trends, driven by e-comm accelerating, better in-stocks, product refreshes/exclusive launches, greater traction with Pro initiatives, and removing friction from the customer shopping experience,” Gutman added.

Upside and Downside Risks

Risks to Upside: 1) Housing market remains strong, driving an acceleration in comps. 2) Margin initiatives gain momentum, driving achievement of 12% EBIT margin target (9.1% in 2019) faster than expected – highlighted by Morgan Stanley.

Risks to Downside: 1) Slowing housing market & deterioration in the competitive landscape. 2) Execution missteps cause flow through to be weaker than expected. 3) Gross margin stagnation/contraction as it nears peak levels.

Check out FX Empire’s earnings calendar

Kohl’s Shares Jump on Unexpected Q3 Profit; Target Price $32

Kohl’s, the largest department store chain in the United States, reported a surprise profit in the third quarter, but net sales plunged over 13% as consumers bought less apparel and footwear during the COVID-19 pandemic.

The U.S. department store retail chain reported adjusted diluted earnings per share of 1 cent per share, better than market expectations of a 43-cent loss. That was largely driven by cost-cutting and layoffs.

Following a surprise quarterly profit, Kohl’s shares closed 11.58% higher at $29.18 on Tuesday. However, the stock is down over 40% so far this year.

Kohl’s net sales plunged over 13% to $3.78 billion in the third quarter, below Wall Street estimate of $3.86 billion.

“3Q EPS upside driven by better GM and much better exp control while topline a bit softer. Management doing a good job playing DEFENSE during COVID-19 by shoring up the balance sheet (recent debt offering), cutting capex/op-ex, and reducing inventories substantially. A return to OFFENSE is visible on the horizon signalled by the return of a dividend in 1H’21. Shares cheap and we raise price target to reflect EPS beat. However, topline needs firmer footing for shares to break out,” said Randal J. Konik, equity analyst at Jefferies.

“Shares have likely bottomed as sales trends are getting less worse and earnings losses have turned to slight profits. The stock is not widely held and could benefit from the continued market rotation out of “growth” stocks into “value” names. We think the biggest driver of stock upside ahead would be: a) continued improvement in topline (needs to turn positive), b) indications that share losses to TGT and others are dissipating, and c)a return of op margin improvement towards recent historical avg (e.g., +MSD% – HSD%),” J. Konik added.

Executive Comments

“Our third-quarter results exceeded our expectations with significant sequential sales and profitability improvement. Digital sales growth remained strong and our actions to improve our gross margin showed great progress. We also further strengthened our financial position and fully repaid our revolver during the period, which underscores the solid cash flow generation of our business,” said Michelle Gass, Kohl’s chief executive officer.

“As we look ahead, we are incredibly focused on executing against our new strategic framework, which represents our greatest opportunity to drive long-term sales and profit growth and create shareholder value in the coming years. In addition, through disciplined capital management, we plan to reinstate a dividend during the first half of 2021,” added Gass.

Kohl’s Stock Price Forecast

Eight equity analysts forecast the average price in 12 months at $25.71 with a high forecast of $30.00 and a low forecast of $19.00. The average price target represents a -11.89% decrease from the last price of $29.18. From those eight analysts, one rated “Buy”, six rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $15 with a high of $32 under a bull-case scenario and $9 under the worst-case scenario. The firm currently has an “Underweight” rating on the Department store company’s stock. Evercore ISI raised their target price to $33 from $20 and Credit Suisse upped the stock price forecast to $30 from $23.

Several other analysts have also recently commented on the stock. Telsey Advisory Group increased their target price to $24 from $20. Kohl’s had its price objective boosted by investment analysts at Bank of America to $30 from $27. The firm presently has a “buy” rating on the stock.

Analyst Comments

“Kohl’s (KSS) comped the comp in 2018, however, momentum struggled to continue in 2019 as a series of tailwinds began to wane (eg. Tax Cuts and Jobs Act, competitor closures). 2020 recession risk likely exacerbates sales declines and market share loss, while delaying expected strategic initiatives,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

“Merchandise offering (40% private label) has lost resonance with consumers over the past 5 years, leaving Kohl’s in a weakened competitive position, particularly relative to the more compelling value of Off-price retailers. We believe sales declines, falling store margins, and revenue shift to the high variable cost eCommerce channel could make it difficult for Kohl’s to ever grow earnings again,” Greenberger added.

Upside and Downside Risks

Risks to Upside: 1) Kohl’s exceeds its comp forecast while gross margin exceeds the company plan. 2) Buybacks increase above our forecasts. 3) Kohl’s gains distribution access to “hot” center core brands. 4) CECL has no impact to credit profit share – highlighted by Morgan Stanley.

Risks to Downside: 1) Margin contracts more than expected. 2) CECL has a larger impact to credit profit share than anticipated. 3) COVID-19 impact more severe than expected.

Check out FX Empire’s earnings calendar

Walmart Earnings Beat Wall Street Estimates; Buy with Target Price $175

Walmart Inc, an American multinational retail corporation that operates a chain of hypermarkets, reported better-than-expected revenue and profit in the third quarter, largely driven by a surge in online sales as buyers purchased everything from the comfort of their homes amid the COVID-19 pandemic.

The world’s largest retailer by revenue said its online sales grew 79% with total revenue increasing 5.2% to $134.71 billion, beating market expectations of $132.23 billion. Walmart sales at U.S. stores open at least a year rose 6.4%, beating Wall Street consensus of 4.16% growth.

Walmart reported adjusted earnings of $1.34 per share, topping analysts’ expectations of $1.18. International net sales were $29.6 billion, an increase of 1.3%.

“We would characterize this as more of a true upside surprise, even though comps were up 9.3% last quarter. Recall that Walmart started the period off slowly due to a late start to back to school. These results suggest that trends may have improved a bit as the quarter went on. Most line items followed a similar pattern. But, overall, we see these results as supportive of our BUY rating even as the stock hit an all-time high yesterday,” said Michael Baker, MD and Senior Research Analyst at D.A. Davidson & Company.

“We believe Walmart takes share in strong environments and also outperforms in tougher economies. The key to the stock today will be comments on trends throughout the quarter as well as early 4Q as the pandemic re-surges,” Baker added.

Despite this optimism, Walmart shares traded nearly flat at $152.30 on Tuesday; the stock is up about 30% so far this year.

Executive Comments

“This was another strong quarter on the top and bottom line. Our associates continue to impress during this challenging year. They are working together to serve customers and communities in new, relevant ways and we’re very proud of them. We think these new customer behaviours will largely persist and we’re well-positioned to serve customers with the value and experience they’re looking for,” Doug McMillon, President and CEO at Walmart.

Walmart Stock Price Forecast

Twenty-six equity analysts forecast the average price in 12 months at $152.19 with a high forecast of $175.00 and a low forecast of $130.00. The average price target represents a 0.07% increase from the last price of $152.09. From those 26 analysts, 21 rated “Buy”, five rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $150 with a high of $240 under a bull-case scenario and $95 under the worst-case scenario. The firm currently has an “Overweight” rating on the multinational retail corporation’s stock. Walmart had its price target raised by Jefferies Financial Group to $170 from $165. Jefferies Financial Group currently has a buy rating on the retailer’s stock.

Several other analysts have also recently commented on the stock. The Goldman Sachs Group reaffirmed a buy rating and set a $144 target price on shares of Walmart. Cowen reissued a buy rating and issued a $155 price objective. Telsey Advisory Group lifted their price objective to $145 from $140 and gave the stock an outperform rating. At last, JP Morgan restated a neutral rating and issued a $137 target price.

As our previous target of $150 has been achieved, we have updated our target to $175 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst Comments

“We expect Walmart to sustain recent momentum in its core business in F’21/F’22 and see a growing ability to balance longer-term investments with near-term returns. Our OW rating and $150 PT are underpinned by a preference for 1) quality players with scale and 2) defensive retailers in the current COVID-19 environment,” said Simeon Gutman, equity analyst at Morgan Stanley.

Upside and Downside Risks

Risks to Upside: 1) Comps accelerate to +MSD-HSD led by continued Grocery strength. 2) Sustainable US e-comm growth of 50-60%+ behind Click & Collect momentum. 3) PhonePe gains wider market appreciation, driving incremental multiple expansion. 4) Walmart+ gains more traction than expected – highlighted by Morgan Stanley.

Risks to Downside: 1) E-commerce loses begin to rise again after briefly moderating. 2) US e-comm growth slows to <30% (comps <2%). 3) Greater than expected Flipkart losses.

Check out FX Empire’s earnings calendar

Baidu Beats Revenue Estimates; Announces to Acquire JOYY’s Chinese Live Streaming Unit

Baidu, a leader in the Chinese search industry in terms of user market share, reported better-than-expected revenue in the third quarter as the world’s second-biggest economy emerged from its COVID-19 slump, helping revenue from advertising to gain momentum.

Chinese search engine leader also said it will acquire JOYY’s live streaming business in China, which includes YY mobile app, YY.com website and PC YY, among others, for an aggregate purchase price of about $3.6 billion in cash. The deal is expected to occur in the first half of next year.

Baidu’s total revenue increased 1% year-over-year to 28.23 billion yuan ($4.29 billion), beating market expectations of 27.45 billion yuan. One of the largest AI and Internet companies in the world forecasts fourth-quarter revenue between 28.6-31.3 billion yuan, in the range of Wall Street consensus of 28.98 billion yuan.

Baidu’s U.S.-listed shares closed 1.9% higher at $147.84 on Monday; the stock is up over 15% so far this year.

Executives’ Comments

“Our revenue growth turned positive in the third quarter with many advertising verticals turning around, putting Baidu in a good position to further benefit from a recovery in the Chinese economy. Our new AI businesses saw healthy growth in the third quarter, particularly from the cloud, where we are differentiating with AI solutions,” said Robin Li, Co-founder and CEO of Baidu.

“Our focus on differentiating Baidu with open-platform, in-app search and new AI businesses has enabled Baidu Core’s adjusted EBITDA margin to reach 46% in the third quarter. We also executed on our capital allocation strategy by selling down equity investments and continuing to execute on our share repurchase plan,” said Herman Yu, CFO of Baidu.

Baidu Stock Price Forecast

Eight equity analysts forecast the average price in 12 months at $159.25 with a high forecast of $182.00 and a low forecast of $130.00. The average price target represents a 7.72% increase from the last price of $147.84. From those eight analysts, six rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $130 with a high of $196 under a bull-case scenario and $84 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the leading Chinese search engine’s stock. Baidu had its price target increased by The Goldman Sachs Group to $162 from $144. They currently have a buy rating on the information services provider’s stock.

Several other analysts have also recently commented on the stock. Barclays raised their price target on shares of Baidu to $140 from $130 and gave the stock an equal weight rating. Benchmark reissued a buy rating and set a $165 price objective. Bank of America lowered their price objective to $175 from $186 and set a buy rating.

Analyst Comments

“Top-line growth slowdown amid risks from the competition. Baidu could generate slower-than-peer revenue growth before AI initiatives materialize. Well-positioned to ride the next Internet wave, but patience needed. We like Baidu’s long-term roadmap for AI and industrial application initiatives (i.e., autonomous driving, IoT ecosystem) with commercialization on the way, which we view as a long-term positive,” said Gary Yu, equity analyst at Morgan Stanley.

“Equal-weight on an industry-relative basis. We like Baidu’s rich cash position and strategic investments but expect macro issues and competition to shadow top-line growth near term. Our price target implies 15x our NTM non-GAAP P/E, the midrange of its historical 11-24x trading band since 2019,” Yu added.

Upside and Downside Risks

Risks to Upside: 1) Stronger core business recovery beyond current disruption to drive better top-line growth. 2) Solid margin expansion from investment discipline and cost control – highlighted by Morgan Stanley.

Risks to Downside: 1) Intensifying competition in search and online video, driving up traffic acquisition costs and more aggressive content investments. 2) Potential regulation on the news feed, healthcare, education, and gaming industries, limiting ad revenue growth.

Check out FX Empire’s earnings calendar

Moderna Shares Jump Over 15% After COVID-19 Vaccine Proves 94.5% Effective; Target Price $136

Moderna Inc, an American biotech company focused on drug discovery, said the Phase 3 study of mRNA-1273, its vaccine candidate against COVID-19, showed that it was 94.5% effective in preventing COVID-19, sending its shares up over 15% in pre-market trading on Monday.

This comes just after Pfizer and BioNTech announced last week that the first interim efficacy analysis from the phase-3 study found their jointly developed mRNA-based vaccine candidate to be over 90% effective in preventing COVID-19 among participants.

Based on these interim safety and efficacy data, Moderna said it will submit for an Emergency Use Authorization with the U.S. Food and Drug Administration in the coming weeks.

“This de-risk the platform and should increase visibility on a potential ‘best in class’ vaccine. This is at least line w/topline results from the PFE study which was above 90%. Next big event is whether other vaccines that are not mRNA-technology based can show these very strong initial results,” said Michael J. Yee, equity analyst at Jefferies.

Following this announcement, Moderna shares surged more than 15% to $102.88 in pre-market trading on Monday; the stock is up over 400% so far this year.

Executive Comments

“This is a pivotal moment in the development of our COVID-19 vaccine candidate. Since early January, we have chased this virus with the intent to protect as many people around the world as possible. All along, we have known that each day matters,” said Stéphane Bancel, Chief Executive Officer of Moderna.

“This positive interim analysis from our Phase 3 study has given us the first clinical validation that our vaccine can prevent COVID-19 disease, including severe disease,” Bancel added.

Moderna Stock Price Forecast

Eleven equity analysts forecast the average price in 12 months at $100.00 with a high forecast of $136.00 and a low forecast of $88.00. The average price target represents an 11.87% increase from the last price of $89.39. From those 11 analysts, nine rated “Buy”, one rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $100 with a high of $335 under a bull-case scenario and $17 under the worst-case scenario. The firm currently has an “Overweight” rating on the biotechnology company’s stock.

“Overall, we believe these data are strong and support mRNA-1273 as a best-in-class vaccine for COVID-19. We expect further details, including all key secondary endpoints such as the impact on asymptomatic disease, once the study completes. We see Moderna up on today’s update,” said Matthew Harrison, equity analyst at Morgan Stanley.

Several other analysts have also recently commented on the stock. The Goldman Sachs Group set a $105.00 price objective on shares of Moderna and gave the stock a “buy” rating in July. Piper Sandler lifted their price target on shares of Moderna to $136 from $134. Oppenheimer reissued a “buy” rating and issued a $108.00 price target.

Analyst Comments

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

“The COVID-19 vaccine programs provide a significant acceleration of the path to commercialization and validation of the Moderna platform. We are positive on the early data and look forward to the progress. We see vaccines and rare diseases as the key valuation drivers of the company.”

Upside and Downside Risks

Risks to Upside: 1) Supporting clinical data across several modalities. 2) Meeting timelines and continuing to expand a diversified pipeline. 3) Launch vaccines in multiple indications including CMV and COVID-19 – highlighted by Morgan Stanley.

Risks to Downside: 1) Efficacy and/or safety concerns cause investors to write-off subsequent readouts across additional modalities. 2) Delays in Moderna’s ability to generate significant clinical data. 3) Stronger than expected competitor data.

PNC Financial Services to Acquire BBVA’s U.S. Arm for Over $10 Billion; Target Price $138

PNC Financial Services Group, one of the largest diversified financial services institutions in the United States, said it is in the advanced stage to acquire U.S. business of Spanish multinational financial services company BBVA for over $10 billion, according to the Wall Street Journal.

If a deal is struck, it would be the biggest bank merger since the global financial crisis of 2008 and create the fifth-largest retail bank with over $550 billion in assets in the United States. The WSJ reported the deal could be announced as soon as Monday.

PNC Financial shares closed 1.47% higher to $122.78 on Friday. However, the stock is down over 20% so far this year.

PNC Financial Stock Price Forecast

Eleven equity analysts forecast the average price in 12 months at $119.71 with a high forecast of $138.00 and a low forecast of $88.00. The average price target represents a -2.50% decrease from the last price of $122.78. From those 11 analysts, five rated “Buy”, five rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of 109 with a high of $154 under a bull-case scenario and $79 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the diversified financial services organization’s stock. PNC Financial Services Group had its price objective hoisted by Credit Suisse Group to $117 from $115. Credit Suisse Group currently has a neutral rating on the financial services provider’s stock.

Several other analysts have also recently commented on the stock. JP Morgan increased their price objective on shares of PNC Financial Services Group to $120 from $110 and gave the company an overweight rating. PNC Financial Services Group had its target price increased by Bank of America to $138 from $135. The brokerage currently has a buy rating on the financial services provider’s stock.

Analyst Comments

“PNC generated $6B in capital from the sale of BlackRock (BLK) stake. What’s next? Bank M&A is now a key debate for the stock, especially as excess capital and liquidity pressures returns near term. We stay on the sideline as shares already largely reflect the value creation, we believe an accretive deal could deliver,” said Betsy Graseck, equity analyst at Morgan Stanley.

“PNC going national with multiple initiatives. Middle market C&I expansion well underway includes eight new markets in 2017-2019 and two additional markets in 2020. Funded by national retail digital strategy. M&A could accelerate this growth. Excess capital provides valuable hedge, giving PNC optionality regardless of the economic environment,” Graseck added.

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Berkeley Lights’ Target Price Raised to $80 at Morgan Stanley After Earnings Beat, Forecasts $120 in Best Case

Morgan Stanley raised their stock price forecast on Berkeley Lights to $80 from $65, assigning an “Equal-weight” rating and said the leading digital cell biology company’s top-line earnings beat in its first quarter was driven by robust system installs to cell therapy and CRO/CDMO customers and a strong recovery in recurring revenue of the expanding installed base.

On Thursday, Berkeley Lights reported total revenue of $18.2 million for the third quarter, representing a 16% increase over the same period in 2019 and a 72% increase compared to the second quarter of 2020. That was higher than the Wall Street estimate of $15.3 million.

“We are updating our model to reflect 3Q20 results and management commentary on 4Q20. We slightly increase our 2021/2022 estimates by 5% to $88M and $122M with more material increases to our estimates in the out years to reflect a faster penetration of the cell therapy TAM vs. our prior forecast. Our DCF analysis is based on our increased base case estimates and uses a WACC of 5.6% and 3.0% terminal growth, to yield our Dec. 2021 price target of $80,” said Tejas Savant, equity analyst at Morgan Stanley.

“While we see a clear path to the longer-term upside to our estimates, we believe that relative outperformance in the near term is likely to be somewhat muted by its current valuation and therefore, we maintain our Equal-Weight rating. Despite the high multiple, we view the Equal-weight rating as justified as Berkeley Lights (BLI) addresses a large and growing TAM of $23B between antibody therapy, cellular therapy and synthetic biology end markets with their proprietary platform representing one of the most highly differentiated cell selection technologies to come to market to date. With little competition on the horizon, we view the company as very well positioned to penetrate its addressable market, as the company’s customers reap the rewards of significantly accelerated development and commercialization timelines and differentiated profiles for their products. That said, after pricing the IPO at $22 back in July, the stock opened at $65 and is now trading at >$90,” Savant added.

Berkeley Lights’ shares closed 4.59% higher at $95.00 on Friday; the stock is up over 85% since it began trading on the Nasdaq Global Select Market on July 17, 2020.

Morgan Stanley gave a target price of $120 under a bull scenario and $60 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Berkeley Lights had its target price hoisted by analysts at JP Morgan to $100 from $75. The brokerage presently has an “overweight” rating on the stock. In addition, KeyCorp initiated coverage on shares of Berkeley Lights and set an “overweight” rating and a $95.00 target price.

Two analysts forecast the average price in 12 months at $98.50 with a high forecast of $100.00 and a low forecast of $97.00. The average price target represents a 3.68% increase from the last price of $95.00. Both analysts rated “Buy”, according to Tipranks.

“BLI addresses a large and growing TAM of $23 billion between antibody therapy, cellular therapy and synthetic biology end markets with their proprietary platform representing one of the most highly differentiated cell selection technologies to come to market to date,” Morgan Stanley’s Savant added.

“However, while we see a clear path to the longer-term upside to our estimates (most notably driven by our conservative assumptions around subscription, Lighting placements, new workflows, and additional synthetic biology penetration beyond Ginkgo), we believe that relative outperformance in the near term is likely to be slightly muted by its current valuation (on an EV/Sales basis, BLI trades at 69x our 2021 and 51x our 2022 estimate).”

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NICE Earnings Beat Estimates on Robust Growth in Cloud Revenue; Target Price $276

NICE, the worldwide leading provider of software solutions, reported better-than-expected revenue and profit in the third quarter, largely driven by a record surge in cloud revenue amid the ongoing COVID-19 pandemic.

The company which provides enterprise software solutions worldwide reported revenue of $410 million in the third quarter, up 6.1% from the same period last year. Revenue from cloud activities rose 33.9% to $202 million while sales of products and services dipped 32% and 5.2% respectively.

NICE Systems reported diluted EPS of $0.76 versus $0.69 last year, 10% growth year-over-year. Excluding items, Diluted EPS came in at $1.41 versus $1.30 last year, 8% growth year-over-year. That was also higher than the market expectations of $1.39 per share.

“Narrow-moat Nice reported solid third-quarter results, with revenue and adjusted EPS largely in line with the company’s guidance and slightly ahead of our above-consensus expectations. Cloud revenue acceleration and adoption by large enterprise customers drove the quarter. Consistent with many companies we cover, management pointed to an acceleration of digital transformation efforts as it relates to the contact center as a result of COVID-19,” said Dan Romanoff, equity analyst at Morningstar.

“Our model is in line with CapIQ consensus for both revenue and adjusted EPS for 2021, and as a result, we are maintaining our fair value estimate of $199 per ADR. While we think the company is performing well, we continue to struggle with valuation across many companies within our coverage.”

NICE shares closed 0.62% higher to $247.53 on Thursday. However, the stock is up about 60% so far this year.

Executive comments

“Cloud grew a record 35% and now represents 50% of our total revenue, which is a major milestone for NICE. We achieved 10% sequential growth in the cloud compared to the second quarter of this year, and we already surpassed the more than 800 million dollar cloud revenue run rate that we had originally expected by the end of the year,” said Barak Eilam, CEO, NICE.

“The acceleration in our cloud growth is being driven by several factors, including substantial growth in new customers, rapid adoption by large enterprises, new verticals that are embracing remote service and digital transformation that has become front and center for organizations of all sizes. We witnessed an increase of over 50% in new customers compared to the same quarter last year. Additionally, we saw a 91% sequential increase in digital volumes for CXone, and a 154% increase year-over-year, confirming the strength of our leadership in digital,” Eilam continued.

NICE Stock Price Forecast

Nine equity analysts forecast the average price in 12 months at $276.33 with a high forecast of $302.00 and a low forecast of $250.00. The average price target represents an 11.65% increase from the last price of $247.50. 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 $230 with a high of $310 under a bull-case scenario and $165 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the software provider’s stock. Rosenblatt Securities raised their stock price forecast to $290 from $265.

Several other analysts have also recently commented on the stock. Wedbush upped their price objective to $275 from $250; RBC raised the target price to $250 from $216; Citigroup raised their price target to $292 from $254. Oppenheimer lifted their target price to $250 from $230 and gave the company an outperform rating.

Analyst Comments

“Key acquisitions for customer interaction analytics and for the market-leading, cloud-based contact center positions NICE to provide a fully integrated platform that combines cloud-based routing, workforce optimization and analytics in a single platform,” said Sanjit Singh, equity analyst at Morgan Stanley.

“Despite the ability to eclipse the rate of market growth, we forecast a 7% revenue CAGR and a 12% EPS CAGR thru 2021 reflecting slower growth in workforce optimization and the Financial compliance businesses. At 37x CY21e EPS, current valuation looks to capture the attractive share gain opportunity in the enterprise.”

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Cisco Shares Jump Over 8% After Earnings Beat; Target Price $55 in Best Case

Cisco reported better-than-expected revenue and profit in the first quarter of fiscal 2021 as demand for its network services, teleconferencing tools and cybersecurity software surged amid COVID-19 pandemic, sending its shares up over 8% in after-hours trading on Thursday.

The network equipment provider said its revenue plunged 9% to $11.93 billion in the first quarter of fiscal 2021, which ended on Oct. 24, beating the market expectations of $11.85 billion.

Cisco reported net income on a generally accepted accounting principles (GAAP) basis of $2.2 billion or $0.51 per share, and non-GAAP net income of $3.2 billion or $0.76 per share. That was higher than Wall Street’s consensus of 70 cents per share.

“Although Cisco is benefiting in certain areas, like an increased need for remote collaboration and cloud security, its core products have been hampered by soft networking infrastructure upgrade demand amid widespread sheltering-in-place,” said Mark Cash, equity analyst at Morningstar.

“Nonetheless, we believe that Cisco is turning the corner after a few quarters of declining sales due to the pandemic and we expect to see improved performance in the second quarter. With Cisco more positive about the demand environment ahead, shares increased over 7% after reporting. We are maintaining our $48 fair value estimate and believe shares are undervalued,” Cash added.

Cisco forecasts GAAP EPS to be between $0.55 to $0.60 in the second quarter of fiscal 2021.

Post this announcement, Cisco shares climbed over 8% to $41.63 in extended trading on Thursday. However, the stock is down about 20% so far this year.

Executives’ comments

“Cisco is off to a solid start in fiscal 2021 and we are encouraged by the signs of improvement in our business as we continue to navigate the pandemic and other macro uncertainties,” said Chuck Robbins, chairman and CEO of Cisco.

“Our focus is on winning with a differentiated innovative portfolio, long-term growth and being a trusted technology partner offering choice and flexibility to our customers.  We see many great opportunities ahead as every company in every industry is accelerating its digital-first strategy,” Robbins added.

“Our Q1 results reflect good execution with strong margins in a challenging environment,” said CFO of Cisco, Kelly Kramer, who will be succeeded by Scott Herren from December 18.

“We continued to transform our business through more software offerings and subscriptions, driving 10% year over year growth in remaining performance obligations. We delivered strong growth in operating cash flow and returned $2.3 billion to shareholders,” Kramer added.

Cisco Stock Price Forecast

Twenty equity analysts forecast the average price in 12 months at $47.33 with a high forecast of $55.00 and a low forecast of $36.00. The average price target represents a 22.39% increase from the last price of $38.67. From those 20 analysts, eleven rated “Buy”, nine 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 multinational technology conglomerate’s stock. Cisco Systems had its price target raised by research analysts at Credit Suisse Group to $45 from $36. The brokerage currently has a “neutral” rating on the network equipment provider’s stock.

Several other analysts have also recently commented on the stock. Bank of America cut their price objective on shares of Cisco Systems to $50 from $52 and set a “buy” rating. ValuEngine downgraded shares to a “sell” rating from a “hold”. Royal Bank of Canada reiterated a “buy” rating and set a $48 price target. Goldman Sachs Group reiterated a “neutral” rating and issued a $45 price target.

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.”

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.

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Southwest Airlines Shares Drop About 3% as Rising COVID-19 Cases Stall Revenue Improvement

Southwest Airlines, the world’s largest low-cost carrier, said modest improvements in passenger demand and bookings seen in the past few months were fading due to recent surge in COVID-19 cases, sending its shares down about 3% in pre-market trading.

The U.S. low-cost carrier forecasts its fourth-quarter 2020 capacity to decline about 40% year-over-year. Southwest Airlines recently adjusted its January 2021 published flight schedule, and currently estimates its January 2021 capacity to dip in the range of 35% to 40% year-over-year.

“While the Company expected the election to impact trends, it is unclear whether the softness in booking trends is also a direct result of the recent rise in COVID-19 cases. As such, the Company remains cautious in this uncertain revenue environment,” Southwest added.

Southwest Airlines shares fell about 3% to $41.98 in pre-market trading on Thursday; the stock is down about 20% so far this year.

Southwest Airlines Stock Price Forecast

Thirteen equity analysts forecast the average price in 12 months at $47.40 with a high forecast of $59.00 and a low forecast of $40.00. The average price target represents a 9.67% increase from the last price of $43.22. From those 13 analysts, nine rated “Buy”, three rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $59 with a high of $90 under a bull-case scenario and $29 under the worst-case scenario. The firm currently has an “Underweight” rating on the world’s largest low-cost carrier’s stock. Southwest Airlines had its price objective increased by UBS Group to $52 from $48.

Several other analysts have also recently commented on the stock. Bernstein raised their price target to $44 from $29. Barclays increased their target price on shares of Southwest Airlines to $40 from $35. Wolfe Research cut shares to a peer perform rating from an outperform. Citigroup cut their price target to $36 from $38 and set a neutral rating.

Analyst Comments

“Southwest Airlines (LUV) is arguably the highest quality airline in the U.S. with a good balance sheet and high margins. As a largely US domestic medium-haul airline, we believe its network is in a sweet spot for a COVID rebound and it has one of the attractive loyalty programs with a loyal customer base,” said Ravi Shanker, equity analyst at Morgan Stanley.

“All of these make LUV the most resilient at the bottom and well-positioned for a recovery, especially being able to capitalize on share gain or M&A opportunities as other Airlines falter/lag.”

Upside and Downside Risks

Risks to Upside: 1) COVID Vaccine timing. 2) Industry Consolidation. 3) Industry Rationalization & Fare Stability – highlighted by Morgan Stanley.

Risks to Downside: 1) COVID Second Wave. 2) Alliance/Partnership Disruption/Breakage.

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