JD.com Nudges Toward All-Time High After Earnings Beat

JD.com, Inc. (JD) jumped 7.93% Monday to trade just below its all-time high after the Chinese e-commerce giant delivered better-than-expected quarterly results. The company reported second-quarter (Q2) adjusted earnings of 50 cents per share, easily surpassing analysts’ expectations of 39 cents a share.

The company did not offer guidance for the current quarter, due to restrictions relating to its recent listing on the Hong Kong stock exchange.

The Beijing-based online retailer grew its active customer accounts by an impressive 30% to 417.4 million over the past year ended June 30. Moreover, mobile daily active users grew by 40% in June. As of Aug. 18, 2020, the Nasdaq-listed JD.com ADR has a market capitalization of $105.24 billion and trades over 90% higher on the year. In the past three months alone, the shares have gained 31.72%.

Supply Chain Focus

The company continues to invest heavily in supply chain management for future growth. In July, the firm bought a stake in established supply chain manager Li & Fung to leverage private-label initiatives for the Chinese domestic market. “Our strong financial and operating performance form the basis for JD’s continued investment in innovative supply chain capabilities and a superior customer experience to support our long-term growth,” said Sandy Xu, the company’s chief financial officer.

Wall Street Outlook

Goldman Sachs analyst Ronald Keung upgraded JD.com to a ‘Conviction Buy’ after the results and raised his price target to $85 from $73, implying a 27% premium from Monday’s $66.98 close. The analyst argues the company’s strong Q2 should sustain the stock’s uptrend amid the ongoing retail scale expansion from discretionary to staple goods. Elsewhere, analysts overwhelmingly believe the shares have further upside. The stock receives 1 ‘Strong Buy’ rating, 17 ‘Buy’ ratings, and 3 ‘Hold’ ratings. At this time, no analyst recommends selling the shares.

Technical Outlook and Trading Tactics

After trading within an ascending triangle for the better part of six weeks, JD.com shares finally broke through the pattern’s top trendline on above-average volume after the upbeat earnings report. Furthermore, the moving average convergence divergence (MACD) indicator crossed above its trigger line in Monday’s session to generate a buy signal.

Traders who anticipate a continuation move higher should consider using the 50-day simple moving average (SMA) average as a trailing stop. To implement this strategy, stay in the trade until price closes below the indicator.

BHP Posts 4% Decline in Annual Profit Amid COVID-19 Slowdown; Warns Slow Growth Recovery Outside China

BHP Group, an Anglo-Australian multinational mining, metals and petroleum dual-listed public company, reported a decline in annual profit of nearly 4% to $9.06 billion in the second quarter and said except China, all other major economies will contract this year as a result of the COVID-19 pandemic.

The largest diversified natural resource company reported an attributable profit of $8.0 billion and underlying attributable profit of $9.1 billion broadly in line with the prior year. The company posted a profit from operations of $14.4 billion and underlying EBITDA of $22.1 billion at a margin of 53%, with unit costs reduced by 9%.

BHP Group also declared a final dividend of 55 cents per share, down from 78 cents a year earlier, or US$2.8 billion, which includes an additional amount of 17 US cents per share (equivalent to US$0.9 billion) above the 50% minimum payout policy. Total dividends announced US$1.20 per share, equivalent to a 67% payout ratio.

BHP Group expects that China and the OECD will return to their pre-COVID-19 trend growth rates from around 2023. Developing economies outside East Asia may take longer. Inflation trends and exchange rates have been volatile.

Executive comments

“We expect most major economies will contract heavily in 2020, China being the exception. Recovery will vary considerably by country. Our diversified portfolio and high-quality assets position us to continue to generate returns in the face of near-term uncertainty, even as we secure and create the options in future-facing commodities that will allow us to sustainably grow value in the long-term,” Chief Executive Mike Henry said in a statement.

“BHP’s operations generated robust free cash flow and our balance sheet remained strong, with net debt finishing the year at the low end of our target range. We have announced a final dividend of 55 US cents per share, bringing shareholder returns to US$6.1 billion for the full year,” Henry added.

BHP Group stock forecast

Eleven analysts forecast the average price in 12 months at GBX 1,820 with a high forecast of GBX 2,130 and a low forecast of GBX 1,450. The average price target represents a -1.15% decrease from the last price of GBX 1,841.20. From those 11, seven analysts rated “Buy”, four rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is GBX 1,680 with a high of GBX 2,450 under a bull scenario and GBX 720 under the worst-case scenario. BHP Group had its price objective lowered by analysts at Royal Bank of Canada to GBX 1,900 from GBX 1,950. The firm currently has an “outperform” rating on the stock.

Other equity analysts also recently updated their stock outlook. UBS Group upped their price objective to GBX 1,850 from GBX 1,700 and gave the company a “buy” rating. Goldman Sachs Group upped their price target to GBX 1,850 from GBX 1,780 and gave the company a “buy” rating. Bank of America raised shares of BHP Group to a “buy” rating and set a GBX 2,050 target price.

Analyst view

“BHP’s portfolio mix and quality stand out among peers. The low-cost position of its assets enables the company to generate FCF yield even in a stress scenario. It maintains a strong B/S, giving the flexibility to pursue growth and/or increase cash shareholder returns, in particular given the company’s net debt target of $12-17 billion (post-IFRS16 adjustment) vs 1HFY20 levels of $12.5 billion,” said Alain Gabriel, equity analyst at Morgan Stanley.

“Spot FCF yields are comparable to peers, even without contributions from the Petroleum division, thus implying long-term optionality to a potential oil price recovery. We prefer BHP on a relative basis, given its attractive commodity mix ex-Iron Ore and free optionality on a potential oil price recovery,” Gabriel added.

Upside and Downside risks

Upside: 1) Growth projects (Jansen potash, Escondida growth, Spence hypogene, Olympic Dam) successfully executed. 2) Better operating performance, lower costs and capital expenditure. 3) Higher commodity prices – highlighted by Morgan Stanley.

Downside: 1) Execution issues at growth projects (Jansen potash, Escondida growth, Spence hypogene, Olympic Dam). 2) Weak operating performance, higher costs and capital expenditure. 3) Lower commodity prices.

Sanofi to Acquire Principia Biopharma for $3.7 billion; Analysts Optimistic on Outlook

Sanofi SA, a French multinational pharmaceutical company headquartered in Paris, said it would acquire a U.S.-based biopharmaceutical company Principia Biopharma for approximately $3.7 billion, sending its shares up about 1%.

Under the terms of the merger agreement, Sanofi will commence a cash tender offer to acquire all outstanding shares of Principia common stock for $100 per share in cash for a total enterprise value of approximately $3.36 billion, the company said.

Sanofi expects to complete the acquisition in the fourth quarter of 2020.

At the time of writing, Sanofi shares traded nearly 1% higher at EUR 86.03 on Monday. The stock is down about 5% so far this year.

On the other hand, Principia Biopharma stock jumped over 11% to $101 in pre-market trading on Monday. The stock is up more than 65% so far this year.

Executives’ comments

“This acquisition advances our ongoing R&D transformation to accelerate the development of the most promising medicines that will address significant patient needs,” Sanofi Chief Executive Paul Hudson said in the statement.

“The merger will provide global resources to get these novel therapies to patients faster,” said Martin Babler, president and chief executive at Principia Biopharma.

Principia Biopharma stock forecast

Six analysts forecast the average price in 12 months at $112.83 with a high forecast of $130.00 and a low forecast of $100.00. The average price target represents a 24.34% increase from the last price of $90.74. All six analysts rated ‘Buy’, according to Tipranks.

SVB Leerink raised price target to $112 from $80 and Guggenheim gave a “Buy” rating and target price of $100.

Sanofi stock forecast

Morgan Stanley target price is EUR 107 with a high of EUR 130 under a bull scenario and EUR 75 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Independent Research lowered the target price to EUR 105 from EUR 108.00; rated Buy.

Kepler Capital Markets set a EUR 99 price target on Sanofi. The brokerage currently has a buy rating on the stock. UBS Group set a EUR 101 price target and gave the company a buy rating. Goldman Sachs Group set a EUR 105 target price and gave the company a buy rating. At last, Credit Suisse Group set a EUR 105 price objective and gave the company a buy rating.

Analysts’ views

“Principia acquisition makes strategic sense – we estimate implied peak SAR’168 sales of 3-4.5 billion euros,” said Mark D Purcell, equity analyst at Morgan Stanley.

“We value Sanofi using a DCF analysis, which incorporates government bond yield curves and the Sanofi CDS in generating a blended WACC of 6.8%. We assume a progressive return of the ROCE towards the European peer-group average over a 15-year fade period and we use a +1% terminal growth rate,” Morgan Stanley’s Purcell added.

“We reiterate our Buy rating and are increasing our price target to $108 from $77 to what we believe starts to more accurately reflect our initial conservative projections,” said Joseph Pantginis, equity analyst at H.C. Wainwright & Co.

Upside and Downside risks to Sanofi

Upside: Dupixent outperforms expectations, faster R&D turnaround, value-creative M&A, regulatory progress on the Rx-to-OTC switches of Cialis and Tamiflu, COVID-19 pandemic makes flu vaccination a global priority, highlighted by Morgan Stanley.

Downside: Dupixent growth slows as competitors take market share, the pipeline does not deliver (6 focus assets), management fails to turn around R&D and execute on cost-saving, value destructive M&A.

Starboard Value Sells 74% Stake in eBay; Buy With Target Price of $64

Starboard Value announced that it sold 74% of its stake in an American multinational e-commerce corporation, eBay, during the second quarter when the activist investment firm ended its proxy fight following the hire of Jamie Iannone as the new CEO of the e-commerce company.

According to a regulatory filing on August 14, the New York-based hedge fund held 2,090,000 shares of the e-commerce company, compared to 7,920,000 it reported in on May 15 filing.

eBay reported that its revenue rose to $2.87 billion in the second quarter, from $2.42 billion a year ago, beating market estimate of nearly $2.8 billion. The e-commerce company forecast a full-year adjusted profit between $3.47 and $3.59 per share.

eBay shares ended 0.018% higher at $56.29 on Friday. The stock is up over 40% so far this year.

eBay stock forecast

Twenty-seven analysts forecast the average price in 12 months at $62.32 with a high forecast of $82.00 and a low forecast of $52.00. The average price target represents a 10.71% increase from the last price of $56.29. From those 27, 11 analysts rated ‘Buy’, 16 rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $64 with a high of $71 under a bull scenario and $51 under the worst-case scenario. eBay had its price target upped by stock analysts at Stifel Nicolaus from $68 to $70. The firm presently has a “buy” rating on the e-commerce company’s stock.

Other equity analysts also recently updated their stock outlook. Mizuho upped their target price on shares of eBay to $52 from $46 and gave the stock a “neutral” rating. JPMorgan Chase & Co. upped their target price to $60 from $52 and gave the stock a “neutral” rating. Benchmark upped their target price to $69 from $60 and gave the stock a “buy” rating.

BMO Capital Markets lowered from a “positive” rating to a “market perform” rating and upped their target price for the stock to $59 from $52. At last, Wells Fargo & Co upped their target price to $58 from $50 and gave the stock an “equal weight” rating.

We think it is good to buy at the current level and target $64 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“Near-term trends are strong, and we remain positive payments and ads…but we think execution on eBay’s 3 new growth pillars (for sustained growth into ‘21) will be key to driving material upside from here,” said Brian Nowak equity analyst at Morgan Stanley.

“eBay has shifted its strategy to lower growth and cost rationalization and is aggressively repurchasing shares. New growth drivers, such as Promoted Listings and Payment intermediation (to be rolled out in full mid-2020) are on track.”

Upside and Downside risks

Upside: 1) eBay stabilizes and re-expands its core marketplace GMV. 2) eBay executes better than expected on the payments and promoted listings opportunities, highlighted by Morgan Stanley.

Downside: 1) core marketplace GMV continues to deteriorate. 2) eBay misexecutes on the payments and promoted listings opportunities.

Novavax to Deliver 60 million Coronavirus Vaccine Doses to UK; Buy With Target Price of $227

Novavax Inc, an American vaccine development company headquartered in Maryland, said the UK government will purchase 60 million doses of coronavirus vaccine, NVX-CoV2373, beginning as early as the first quarter of 2021, sending its shares up about 6% in pre-market trading on Friday.

Novavax said the Phase 3 clinical trial will be a randomized, double-blind, placebo-controlled efficacy study in approximately 9,000 adults 18-85 years of age in the UK.

The trial is expected to begin in the third quarter of this year, with the UK government supporting and providing infrastructure to Novavax in the execution of the trial. The trial will assess the ability of NVX-CoV2373 to protect against symptomatic COVID-19 disease as well as evaluate antibody and T-cell responses.

Novavax’s is among the most advanced in developing the coronavirus vaccine, but not ahead as AstraZeneca PLC and Moderna Inc.

“We are honoured to partner with the UK government to deliver a vaccine that could provide vital protection in the fight against the global health crisis,” Stanley C. Erck, President and Chief Executive Officer of Novavax said in a statement.

“Our Phase 3 clinical trial in the UK will be a critical component to assess the efficacy of NVX-CoV2373, which in a Phase 1 trial has already demonstrated to be generally well-tolerated and to elicit robust antibody responses. We are also delighted to expand our collaboration with FUJIFILM Diosynth Biotechnologies to manufacture our antigen at its UK site.”

Novavax shares closed over 7% higher at $133.28 on Thursday, rising about 6% in pre-market trading on the last day of the week. The stock has surged over a massive 3,200% so far this year.

Novavax stock forecast

Five analysts forecast the average price in 12 months at $227.60 with a high forecast of $290.00 and a low forecast of $105.00. The average price target represents a 70.77% increase from the last price of $133.28. From those five, four analysts rated ‘Buy’, none analyst rated ‘Hold’ and one rated ‘Sell’, according to Tipranks.

H.C. Wainwright raised their 12-month price target to $290 from $132 and JP Morgan upped it to overweight from neutral, raising the target price to $275 from $105. We think it is good to buy at the current rate and target $227 as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.

Analyst comment

“Shares of Novavax have significantly outperformed the industry in the year so far. Novavax’s efforts to develop influenza vaccine candidate NanoFLu look encouraging. COVID-19 vaccine program also progresses well,” noted equity analysts at ZACKS Research, who gave the price target of $176.

“If successfully developed and launched, this can be a huge boost to the company given the absence of an approved vaccine to address the deadly COVID-19 pandemic. However, in the absence of a marketed product, Novavax is yet to generate any revenues from product sales. Dearth of collaboration contracts too remains a woe. Thus, any delay in the pipeline development will hurt the stock.”

Cloudflare Inc’s Price Target Raised to $46, $67 in Best-Case Scenario: Morgan Stanley

Cloudflare Inc’s, an American web-infrastructure and website-security company, price target was raised by 23% to $46 after a solid second-quarter results, Q3 and fiscal year 2020 guidance, according to Morgan Stanley equity analysts, who also revised their billings estimates by 8% for the outer years and revenue by 4%, 8% and 8% for the fiscal year 2020, FY21 and FY22, respectively.

Last week, the security, performance, and reliability company reported a total revenue of $99.7 million, representing an increase of 48% year-over-year in the second quarter. GAAP gross profit was $75.6 million in Q2, or 75.8% gross margin, compared to $52.6 million, or 78.0%, in the second quarter of 2019.

Cloudflare forecasts a total revenue between $102.5 to $103.5 million in the third quarter of fiscal 2020 and $404 to $408 million for the full-year fiscal 2020.

“We raise our PT to $42 from $34 as higher topline and margin estimates yield a CY30 FCF estimate of $748M (vs $711M prior). We now apply a 44x EV/FCF multiple to our CY30 FCF estimate (38x prior), implying a 1.7x EV/F/G (1.4x prior) which is in-line with the large-cap software median,” said Keith Weiss, equity analyst at Morgan Stanley.

“A $42 price target implies 24.8x CY21 EV/Sales and 0.68x growth-adjusted, a premium to the overall SaaS group at 0.54x growth-adj justified by a large TAM of $30B+, an effective sales motion spanning both SMB and enterprise customers, and importantly durable growth with growth prospects on the horizon around edge compute and yet-to-be-monetized remote access VPN (Cloudflare for Teams). Additionally, valuation is more balanced when looking at SaaS peers growing >30% CAGR (median 22x CY21 EV/Sales),” the analyst added.

Morgan Stanley target price under a bull-case scenario is $67 and $23 under the worst-case scenario. Several other equity analysts have also updated their stock outlook. Oppenheimer lifted their target price on Cloudflare to $55 from $35 and gave the company an “outperform” rating. Zacks Investment Research lowered shares of Cloudflare from a “buy” rating to a “hold” rating. JPMorgan Chase & Co. increased their target price on shares of Cloudflare to $52 from $30 and gave the stock an “overweight” rating.

Jefferies Financial Group upgraded shares of Cloudflare from a “hold” rating to a “buy” rating and boosted their price target to $50 from $27. At last, Needham & Company LLC increased their price objective to $50 from $47 and gave the stock a “buy” rating.

Twelve analysts forecast the average price in 12 months at $47.25 with a high forecast of $55.00 and a low forecast of $34.00. The average price target represents a 21.62% increase from the last price of $38.85. From those 12, ten analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

“Attractive Long-Term Opportunity. Cloudflare’s purpose-built cloud solutions address the complex security and website performance needs of a broad customer base. Penetration into an attractive $30 billion+ TAM depends on the strength of security products and a swiftly expanding solution portfolio, including Workers for the emerging edge computing opportunity and Access/Cloudflare for Teams for remote access,” Morgan Stanley’s Keith Weiss added.

“Risk/Reward Balanced by Near-Term Macro Uncertainty.  Cloudflare, up 120% YTD has significantly outperformed the SW universe/NASDAQ. Current trade of 23x EV/CY21e sales, 0.62x growth-adj is a premium to SaaS avg at 0.54x, supported by attractive LT growth but not without NT risks in our view.”

Lyft Quarterly Revenue Drops Over 60% as COVID-19 Pandemic Bites

Lyft Inc, an American ridesharing company based in California, said its revenue plunged 61% in the second-quarter and number of active riders dropped by 60% to 8.69 million as the COVID-19 pandemic drastically affected business, sending its shares down over 1% in after-hours trading on Wednesday.

The ride-sharing company said its revenue slumped to $339.3 million in the second quarter ended June 30, 2020, versus $867.3 million in the second quarter of 2019, a decrease of 61% year-over-year.

Lyft said its restructuring effort to reduce operating expenses and adjust cash flows, announced in April 2020, is on track to reach its objective of becoming profitable by the end of next year. The number of active riders tumbled 60% to 8.69 million in Q2.

“We view 3Q20 earnings as the next major catalyst, as well as any updates on LT projections and/or any regulatory or legal proceedings related to ridesharing, and updates on COVID-19 impact,” said John Blackledge, equity analyst at Cowen.

“We forecast 23% annual revenue growth’20-’30 driven by ~12% active rider growth over the period and expect EBITDA to turn positive by ’22 with 42% annual EBITDA growth from ’23 to ’30,” Blackledge added.

Lyft shares closed about 0.42% lower at $30.52 on Wednesday. The stock has declined about 30% so far this year.

Executive comments

“In Q2, we successfully limited our Adjusted EBITDA loss, outperforming the outlook we shared on our Q1 call by more than 20%.  We continued to take aggressive actions to reduce costs and increase our underlying unit economics in the quarter, which has put Lyft on track to achieve $300 million of annualized fixed cost savings by the end of the year,” said Brian Roberts, chief financial officer of Lyft.

“These steps position the Company to achieve adjusted EBITDA profitability with 20 – 25% fewer rides than originally contemplated in our fourth quarter 2021 target.”

Lyft stock forecast

Nineteen analysts forecast the average price in 12 months at $44.79 with a high forecast of $66.00 and a low forecast of $30.00. The average price target represents a 46.76% increase from the last price of $30.52. From those 19, 13 analysts rated ‘Buy’, six analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $34 with a high of $52 under a bull scenario and $20 under the worst-case scenario. BTIG lowered the target price to $40 from $52 and RBA raised the target price to $48 from $47.

Several other equity analysts have also updated their stock outlook. Lyft had its price target dropped by Jefferies Financial Group to $40 from $50. The brokerage presently has a “buy” rating on the ride-sharing company’s stock. Credit Suisse Group lowered their target price to $66 from $75 and set an “outperform” rating. At last, RBC upped their price target to $51 from $47.00 and gave the company an “outperform” rating.

We think it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator signal a selling opportunity. However, can target $20 under a worst-case scenario.

Analyst comment

“How Big is Lyft’s Active Rider Opportunity? We view Lyft’s primary addressable market as 18-50-year olds living in MSAs with a household income of $50K+. We estimate (at most) 24% of this demographic were Lyft users in ’18. We expect the more rational duopoly structure in North America to lead to rising adjusted take rates and faster revenue growth for Lyft,” said Brian Nowak, equity analyst at Morgan Stanley.

“We don’t see Lyft generating positive adj. EBITDA until ’22 but expect healthy operating leverage due to insurance and sales and marketing efficiencies,” he added.

Upside and Downside risks

1) Less than expected impact from COVID-19. 2) Faster than expected rationalization in US rideshare industry. 3) Positive resolution of AB5, Morgan Stanley highlighted as major upside risks to Lyft.

1) Greater than expected impact from Covid-19. 2) Slower than expected market rationalization. 3) Inability to spur user/frequency growth through lower prices, higher liquidity and innovation. 4) Regulation as Lyft faces municipal, country and labour regulatory/legal challenges, were major downside risks.

Cisco Tumbles After Soft Q1 Earnings Guidance

Cisco Systems, Inc. (CSCO) plunged 6.44% in after-hours trade Wednesday on the back of declining fiscal Q4 revenues and downbeat guidance for the current quarter. The company, which manufactures networking hardware and security software, reported quarterly sales of $12.15 billion, down from year-ago revenues of $13.43 billion.

Meanwhile, adjusted earnings for the period came in at 80 cents per share compared to 83 a share in the quarter ended July 2019. However, the San Jose-based company’s top- and bottom-line figures surpassed Wall Street expectations by 0.50% and 8%, respectively.

Through Wednesday’s close, Cisco stock has a market capitalization of $203 billion, yields an enticing 3.05%, and trades just 2.52% higher on the year. Performance has improved over the past three months, with the shares gaining around 12%.

Soft Forward Guidance

Management forecast Q1 adjusted earnings guidance of 69 cents to 71 cents and a revenue decline of 7% to 9%.  Analysts had projected earnings of 76 cents and $12.25 billion in sales for the quarter, representing about a 7% decline.

Software Focus

The company said it plans to acquire network intelligence company ThousandEyes in the quarter for $1 billion to provide a range of remote work and learning solutions. In recent years, Cisco has made a strategic shift to generate more revenue from software and service solutions to compete with cloud offerings from tech heavyweights Amazon.com, Inc. (AMZN), Microsoft Corporation (MSFT), and Alphabet Inc. (GOOGL).

“By the end of fiscal 2020, we achieved our goal of more than half of our revenue coming from software and services, and this strategy continues to resonate with customers as they digitize their organizations,” Cisco Chief Executive Chuck Robbins said in a statement accompanying the quarterly results, per MarketWatch.

Wall Street Outlook

Despite the stock’s lackluster performance relative to the technology sector, analysts remain modestly bullish. The stock receives 13 ‘Buy’ ratings, 1 ‘Overweight’ rating, and 13 ‘Hold’ ratings. Price targets range from as high as $60 to as low as $41, with a consensus of $50.05. This represents a 4% premium to Wednesday’s $48.10 close.

Technical Outlook and Trading Tactics

Since testing the low 30s in mid-March, Cisco shares have made a Nike swoosh-like recovery. Over the past two months, the price looks to be carving out the right shoulder of an inverse head and shoulders pattern – a formation that typically signals a market bottom. Furthermore, the 50-day simple moving average (SMA) crossed above the 200-day SMA last month to indicate a new uptrend. Traders should use any weakness as a buying opportunity, providing the stock remains above the June 11 low at $43.64. Look for a move up to the $57.50 level, where price funds overhead resistance from a horizontal trendline.

Ferrari’s Price Target Raised to $265 on Growth Optimism, $350 in Best-Case Scenario: Morgan Stanley

Ferrari N.V., known as New Business Netherlands NV, is entering a higher phase of growth and a tech transition that takes investor thinking beyond the limits of luxury goods comps. and can grow the super-luxury pie much faster and more sustainable than the market expects, wrote Morgan Stanley’s equity analyst Adam Jonas, who raised his base-case forecast of an Italian luxury sports car manufacturer to $265 from $180.

This upgrade was largely driven by Morgan Stanly’s increased views of growth, margin and multiple. They forecast growth for RACE of over 7% and said have greater conviction that Ferrari can capture share in the high-performance super-luxury EV segment, which is they also forecast to grow at a CAGR of 19.5% through 2040.

Morgan Stanley forecast long term OP margin assumption of 26%, which is marginally above the pre-COVID-19 level of 24.4%.

Ferrari N.V. (RACE) shares have recovered completely from the COVID-19 panic selling seen in March, gaining over 40% from low of $122. The stock is up about 10% so far this year.

“In 2022 we now forecast EBITDA of 1.87 billion euros vs Consensus of 1.74 billion euros. In outer year 2025, previously we were forecasting EBITDA of 2.34 billion euros in 2025; now we’re at 2.65 billion euros. We expect EBITDA margins grow from 32% in 2020 to 40% by 2023 and steady out at 39% from 2027,” Morgan Stanley’s Jonas said.

“We account for a more aggressive capex spend to account for investments in powertrain & an EV platform, software updates, battery cell R&D, etc. Over the next 5 years, from 2021 to 2025, we expect cumulative Capex of 6.0 billion euros vs. 4.6 billion euros previously.”

Morgan Stanley target price under a bull-case scenario is $350 and $130 under the worst-case scenario. Several other equity analysts have also updated their stock outlook. JP Morgan raised the target price to $151 from $147; however, UBS lowered its target price to $176 from $180; Credit Suisse cut the target price to $198 from $205.

Seven analysts forecast the average price in 12 months at $205.37 with a high forecast of $235.00 and a low forecast of $147.00. The average price target represents a 10.72% increase. From those seven, six analysts rated ‘Buy’, one analyst rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

“1) We expect the unveiling of the Purosangue to be a catalyzing event and an inflection point for the growth trajectory to steepen. 2) We also look for an update to the 2022 target as well as other disclosure of medium to long-term targets at a Capital Markets Day that we expect in 2021. We would urge investors to get ahead of these potential catalysts as we think the market has done too perfect a job pricing Ferrari in the short term,” Jonas added.

“As Ferrari is considered a bond like proxy and ‘safe haven’ asset by investors, as the yield curve steepens, investors may find a better opportunity cost with other equities to derive yield elsewhere. We note that Ferrari generates substantial FCF already today ~$3.50/Share on MSe in 2022, and pays a dividend yield of <1%.”

Liberty Global to Acquire Sunrise Communications for CHF 6.8 Billion; Target Price $29

Liberty Global, the largest international broadband communications provider in Europe, Japan and Latin America, announced that it is acquiring a Swiss telecommunications provider, Sunrise Communications, for 6.8 billion Swiss francs.

Liberty Global offered all-cash tender offer for 100% of the publicly held shares of Sunrise Communications Group AG at a price of CHF 110 per share, funded through a combination of Liberty Global’s existing cash, expected to be approximately CHF 3.5 billion, and proceeds from new debt issuance.

Sunrise’s Board of Directors unanimously recommended that its shareholders accept the offer; Germany’s Freenet AG, Sunrise’s largest shareholder, which holds approximately 24% of Sunrise’s capital, has signed a binding, unconditional commitment to tender its shares at the offer price.

Liberty Global said the transaction price is underpinned by significant expected total synergies of CHF 3.1 billion on a net present value basis after integration costs, with the annual run rate of cost, capex and revenue synergies estimated at CHF 275 million.

Liberty Global shares closed 0.59% lower at $22.05 on Tuesday. The stock is down about 3% so far this year.

Executive comment

“The industrial logic of this merger is undeniable…Fixed-mobile convergence is the future of the telecom sector in Europe, and now Switzerland will have a true national challenger to drive competition and innovation for years to come,” Mike Fries, chief executive of Liberty Global, said the statement.

“This transaction is another significant step on our path to create fixed-mobile champions in all of our core markets, crystallizing the value of our superior broadband networks and driving long-term, sustainable free cash flow growth. Even after this deal, and assuming completion of our recently announced UK transaction, we will continue to have approximately $7 billion of liquidity8 to drive value creation for shareholders.”

Liberty Global stock forecast

Nine analysts forecast the average price in 12 months at $29.11 with a high forecast of $38.00 and a low forecast of $18.00. The average price target represents a 32.02% increase from the last price of $22.05. From those nine, six analysts rated ‘Buy’, one analyst rated ‘Hold’ and two rated ‘Sell’, according to Tipranks.

Liberty Global had its price target boosted by analysts at Pivotal Research to $30 from $27. Barclays raised the target price to $18 from $17. Several other equity research analysts have also recently updated their stock outlook.

In June, Deutsche Bank boosted their price target to $38 from $30 and gave the company a “buy” rating. In May, HSBC upgraded Liberty Global from a “hold” rating to a “buy” rating and set a $28 price objective.

Analyst comment

“We don’t plan to materially change our $33 fair value estimate, though the ultimate value of the firm will likely depend heavily on the investment decisions that management makes over the coming year or so,” said Michael Hodel, Director at Morningstar.

Upside and Downside risks

1) Value-accretive M&A, tapping strategic value in particular in Switzerland (synergy potential from fixed-mobile consolidation) but potentially also Benelux. 2) Stronger operational momentum than anticipated, e.g., in the UK. 3) More cost-cutting and/or lower capex than expected. 4) Target multiple 13.6x 2020e EV/OpFCF; price target$33.6, Jefferies highlighted as major upside risks.

1) Lacking strategic response to emerging FTTH/B rollout of UK incumbent. 2) Operational momentum slows, e.g., from regulatory (wholesale requirements), macroeconomic, or competitive issues (e.g., incumbent fibre) – downside amplified by high financial leverage. 3) Target multiple 9.6x 2020e EV/OpFCF; price target$17.8, were major downside risks.

Nio Posts More Than Double Revenue in Q2 Despite COVID-19 Crisis; Target Price $17

Nio Inc, a pioneer in China’s premium electric vehicle market, said its revenue more than doubled in the second quarter as vehicle deliveries surge despite the disruption caused by COVID-19 pandemic, sending its shares up about 10% in pre-market trading on Tuesday.

China’s electric vehicle maker said its quarterly revenue increased to at 3.72 billion yuan in the second quarter, representing an increase of 146.5% from the second quarter of 2019 and an increase of 171.1% from the first quarter of 2020. Excluding items, Nio reported a loss of 1.08 yuan per American depository share, experts had forecast a loss of 1.84 yuan per ADS.

Auto industry in the world’s second-largest economy recovered from the COVID-19 outbreak as demand picked after lockdown restrictions were eased after the country reported fewer coronavirus cases. China was also the world’s first country to register economic growth.

Nio said it delivered 10,331 in the second quarter of 2020, including 8,068 ES6s and 2,263 ES8s, compared with 3,553 vehicles delivered in the second quarter of 2019 and 3,838 vehicles delivered in the first quarter of 2020.

China’s electric vehicle maker expects total revenues to be between 4,047.5 million yuan and 4,212.3 million yuan, representing an increase of approximately 120.4% to 129.3% from the same quarter of 2019, and an increase of approximately 8.8% to 13.3% from the second quarter of 2020.

U.S.-listed shares of the company shares gained about 10% to $15.58 in pre-market trading on Tuesday. The stock surged over 250% so far this year.

Executive comment

“The current constraints on the productions will be lifted in the near future and we are confident that our production capacity can meet the accelerated demand of our models,” Chief Executive Officer William Bin Li said in a press release.

“We achieved a record-high quarterly delivery of 10,331 ES8 and ES6 vehicles in total in the second quarter of 2020 and expect to deliver 11,000 to 11,500 vehicles in the third quarter as the momentum continues.”

Nio stock forecast

Six analysts forecast the average price in 12 months at $7.26 with a high forecast of $13.50 and a low forecast of $2.50. The average price target represents a -48.91% decrease from the last price of $14.21. From those six, two analysts rated ‘Buy’, two analysts rated ‘Hold’ and two rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $12 with a high of $17 under a bull scenario and $7 under the worst-case scenario. On June 24, Goldman Sachs cuts to neutral from buy, raising the target price to $7 from $6.4.

However, we think it is good to buy at the current level and target $17 as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.

Analyst comment

“We believe the recent rally reflects the smooth funding process from Hefei investors. Tesla‘s success in China has also attracted fund flows for EV makers, that we think has helped to drive NIO stock performance rally,” said Tim Hsiao, equity analyst at Morgan Stanley.

“We remain EW given the long-term uncertainties around scalability. Our price target hike reflects a more meaningful sales volume upgrade in the forecast period. We lower our WACC assumption to 12% from 14% (vs. 10.9% for major OEMs), given lower equity and debt costs due to rate cuts and NIO’s proven operation,” the analyst added.

Upside and Downside Risks

1) Progress in planned A-share listing. 2) Stronger-than-expected sales volume. 3) Better-than-expected improvements in operating efficiency, Morgan Stanley highlighted as major upside risks to Nio.

1) Weaker-than-expected sales volume. 2) Lack of signs of efficiency improvement, were the major two downside risks.

Occidental Petroleum Posts Loss of $8.35 billion in Q2 as COVID-19 Batters Oil Demand; Target Price $7

Occidental Petroleum, an international oil & gas exploration and production company, reported a loss of $8.35 billion in the second quarter, largely affected by the steep decline in energy prices due to significant drop in demand amid COVID-19 pandemic, sending its shares down about 6% in after-hours of trading on Monday.

The oil and gas producer said its net loss came in at $8.35 billion, or $9.12 per share, in the quarter ended on June 30, 2020, down from $635 million earnings, or 84 cents per share, a year earlier. Excluding one-time items, Occidental Petroleum lost $1.76 per share, compared with analysts’ average estimates of $1.68, according to Refinitiv IBES, Reuters reported.

“Occidental Petroleum’s 2Q EBITDAX was below our estimates on pricing but exceeded consensus. The focus will be on 2H20 guide that includes 3Q production 7% below our estimates given larger domestic declines and 4Q that is 10% below,” said David Deckelbaum, equity analyst at Cowen.

“Without asset sale clarity, Occidental’s declining asset base will be in focus, particularly as capex shifts domestically heading into 2021 w/ guided maintain capex of $2.9 billion that is in-line with our model.”

Occidental expects its oil and gas production to decline 13% in the ongoing quarter over last, and more 5% in the last quarter, to 1.16 million barrels per day. The average price Occidental received for crude oil plunged over 60% to $23.17 per barrel in Q2 as the coronavirus outbreak crushed demand for fuel.

Occidental shares slumped about 6% to $15.55 in after-hours of trading on Monday. The stock is down over 60% so far this year.

Executive comment

“We continue to make progress on our debt structure and have significantly exceeded our cost savings targets while delivering operational excellence across our business,” President and Chief Executive Officer Vicki Hollub said in a press release.

“These decisive financial and operational actions reflect our leadership as a low-cost operator, positioning us for success when market conditions improve.”

Occidental Petroleum stock forecast

Sixteen analysts forecast the average price in 12 months at $18.58 with a high forecast of $33.00 and a low forecast of $8.00. The average price target represents a 12.74% increase from the last price of $16.48. From those 16, four analysts rated ‘Buy’, six analysts rated ‘Hold’ and six rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $7 with a high of $29 under a bull scenario and $1 under the worst-case scenario. JP Morgan raised its price target to $19 from $17.

Several other equity analysts have also updated their stock outlook. Occidental Petroleum had its price target boosted by Piper Sandler to $20 from $13.00. Piper Sandler currently has a neutral rating on the oil and gas producer’s stock. Barclays decreased its price objective to $20 from $21 and set an equal weight rating on the stock. At last, SunTrust Banks increased their price objective to $25 from $13.

We think it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator signal a selling opportunity. However, can sell with a target price of $7 in a worst-case scenario.

Analyst comment

“Onerous debt maturity schedule. Occidental Petroleum has $11 billion of debt due over the next three years in a backdrop of limited free cash flow and capital markets access. The risk to asset sale execution. At current commodity prices, we see risk to additional proceeds from asset sales,” said Devin McDermott, equity analyst and commodities strategist at Morgan Stanley.

“Meaningful leverage reduction is challenged at current commodity prices. We project elevated leverage (includes 100% of preferred equity) of 5-6x net debt/EBITDAX over the next two years and 4.5-5x thereafter,” the analyst added.

Upside and Downside Risks

1) Higher commodity prices. 2) Service cost deflation. 3) Asset sale execution. 4) Upside to synergies associated with the acquisition of Anadarko Petroleum, Morgan Stanley highlighted as major upside risks to Occidental Petroleum.

1) Lower commodity prices. 2) Service cost inflation. 3) Regulatory risk in Colorado and global geopolitical risk. 4) Limited asset sale execution. 5) Potential to not achieve synergy targets associated with APC acquisition, are the major downside risks.

Marriott International Posts Bigger Q2 Loss as COVID-19 Hurts Demand; Target Price $108

Marriott International, an American multinational diversified hospitality company, reported a higher-than-anticipated loss in the second quarter as the COVID-19 pandemic halted international travel, with more cancellations on hotel bookings, sending it shares down about 3% in premarket trading.

The U.S. hotel operator said its second-quarter reported net loss totalled $234 million, compared to reported net income of $232 million in the year-ago quarter and reported diluted loss per share totalled $0.72, compared to reported diluted EPS of $0.69 a year earlier.

“The mixed quarterly results are likely less significant than the commentary around the improving operating environment, both of which should drive a neutral to modestly positive reaction in the shares,” said David Katz, equity analyst at Jefferies.

“We expect the evolving operating model and its interrelationship with a lower visibility demand environment to be the key driver of the shares and valuation going forward.”

Marriott said it has reopened 91% of its worldwide hotels, compared with 74% in April. On an adjusted basis, the leading lodging company reported a loss of 64 cents per share in the second quarter ended June 30, bigger than analysts’ expectation of a loss of 42 cents per share, according to IBES data from Refinitiv, Reuters reported.

The U.S. hotel operator said its second-quarter 2020 comparable systemwide constant dollar RevPAR declined 84.4% worldwide, 83.6% in North America and 86.7% outside North America. Total revenue plunged 72.4% to $1.46 billion, missing estimates of $1.68 billion.

At the time of writing, Marriott International shares traded 2.3% higher at $95.95, still down about 40% since the start of the year.

Executive comment

“While our business continues to be profoundly impacted by COVID-19, we are seeing steady signs of demand returning. Worldwide occupancy rates, which bottomed at 11% for the week ended April 11, have improved each week, reaching nearly 34% for the week ended August 1,” Arne M. Sorenson, president and chief executive officer of Marriott International, said.

“Greater China continues to lead the recovery. While the full recovery from COVID-19 will clearly take time, the current trends we are seeing reinforce our view that when people feel safe travelling, demand returns quickly.”

Marriott stock forecast

Eleven analysts forecast the average price in 12 months at $97.30 with a high forecast of $148.00 and a low forecast of $74.00. The average price target represents a 3.51% increase from the last price of $94.00. From those 11, three analysts rated ‘Buy’, seven analysts rated ‘Hold’ and one rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $88 with a high of $149 under a bull scenario and $56 under the worst-case scenario. Evercore ISI raised the target price to $120 from $101 and Suntrust Robinson raised price target to $88 from $86.

Several other equity analysts have also updated their stock outlook. Marriott International had its price target decreased by Wells Fargo & Co to $108 from $127. The firm currently has an “overweight” rating on the stock. Barclays raised boosted their price target for the company to $105 from $92.

Analyst comment

“Largest hotel brand company globally creates economies of scale, but the spread of COVID-19 will pressure unit growth. We expect several $100M working capital headwinds related to timing mismatches between owners paying MAR and MAR paying out expenses, but this should be temporary,” said Thomas Allen, equity analyst at Morgan Stanley.

“With the stock trading near its historical avg multiple, we see too wide a risk-reward to justify recommending, with upside/downside driven by how severe and quick business trends return to normal post-COVID-19,” the analyst added.

Qualcomm Lobbies Trump Administration to Sell Chips for Huawei 5G Phones; Target Price $115

Qualcomm Inc, a multinational semiconductor and telecommunications equipment company, is lobbying the United States government to roll back restrictions on the sale of advance components to Huawei Technologies Co. after the Commerce Department blacklisted the Chinese telecom giant, according to The Wall Street Journal report.

The Chipmaker is lobbying to sell chips to Huawei that the Chinese company would include in its 5G phones. With those restrictions, the U.S. has handed Qualcomm’s foreign competitors a market worth as much as $8 billion annually, the company said in the presentation, the WSJ said.

“We are very positive about Qualcomm’s competitive positioning and the strength of 5G, which is continuing its rollout globally. We raise our target price to $130, 20x our FY21E as the company continues to overachieve expectations. Our rating and target price assume that the S&P 500 remains unchanged over the next 12 months,” said Louis Miscioscia, equity analyst at Daiwa Capital Markets America.

Qualcomm stock forecast

Twenty-one analysts forecast the average price in 12 months at $115.12 with a high forecast of $137.00 and a low forecast of $90.00. The average price target represents a 6.35% increase from the last price of $108.25. From those 21, 13 analysts rated ‘Buy’, seven analysts rated ‘Hold’ and one rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $121 with a high of $139 under a bull scenario and $58 under the worst-case scenario. Qualcomm had its price target lifted by Royal Bank of Canada to $106 from $81. They currently have a sector perform rating on the wireless technology company’s stock.

Several other equity analysts have also updated their stock outlook. Deutsche Bank lifted their price target to $115 from $100 and gave the stock a buy rating. Canaccord Genuity lifted their price target to $115 from $102 and gave the stock a buy rating.

We think it is good to buy at the current level and target at least $115 as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.

Analyst comment

“We see an improvement in smartphone demand in 2H20 after bottoming 1H20 due to Covid-19. We also see 5G adding greater dollar content and supporting industry-wide handset volume growth. QCOM’s leadership in cellular technologies (3G/4G/5G) puts the company in a favourable position to maintain leading market share,” said Joseph Moore, equity analyst at Morgan Stanley.

“The potential elimination of a major competitor in the Chinese market, HiSilicon, should benefit QCOM as Huawei currently does not pay royalties. To the extent competitors that do pay royalties are able to pick up market share, that would be beneficial for QCOM,” the analyst added.

Potential Deal for TikTok’s US Operations Could be Compelling Strategic Fit for Microsoft, Target Price $230: Morgan Stanley

Given the strength of the asset, solid recent execution and multiple areas of synergies, a potential deal for TikTok’s U.S. operations could be a compelling strategic fit for Microsoft, said Morgan Stanley’s equity analyst, Keith Weiss, who gave a price target of $230 for the software giant’s stock.

Microsoft Corporation said on August 2 that it would quickly pursue discussions to acquire popular short-video app TikTok from Chinese internet giant ByteDance, and that it was aiming to complete the discussions no later than September 15, 2020.

“With both rapid growth to >100 million users and a demographic rapidly expanding from teenagers into older users, TikTok could immediately make Microsoft a viable player in the consumer-oriented social media space (core Facebook has 247 million U.S. users), beyond the LinkedIn professional network, Morgan Stanley’s Weiss said.

While there are no reported financial details, Morgan Stanley said they looked at the range of potential financial impacts based upon figures cited in Reuters and The Information. According to a Reuters’ source-based story, the popular short-video app could do $1 billion in revenue in 2020 and $6 billion next year. The Information reported that the U.S. revenue could be $500 million this year.

“For simplicity, assuming a deal was announced before the September 15th deadline that closed on December 31st, and Microsoft acquired the US business only, which illustratively could grow from $500 million in 2020 to $3 billion in 2021 (500%), TikTok could add 2% inorganic growth to Microsoft’s model in CY21e,” the analyst said.

With a base-case forecast of $230, over 8% increase from Friday’s close of $212.48, Morgan Stanley target price under a bull-case scenario is $290 and $150 under the worst-case scenario. Several other equity analysts have also updated their stock outlook. Microsoft had its price target increased by JPMorgan Chase & Co. to $220 from $190. The firm currently has an overweight rating on the software giant’s stock.

Royal Bank of Canada restated a buy rating and set a $240 target price, up from $200. Barclays increased their price target on shares of Microsoft to $234 from $204 and gave the company an overweight rating. At last, Wells Fargo & Co upped their target price on shares of Microsoft to $250 from $205 and gave the company an overweight rating.

Thirty analysts forecast the average price in 12 months at $228.22 with a high forecast of $260.00 and a low forecast of $195.00. The average price target represents a 7.41% increase from the last price of $212.48. From those 30, 27 analysts rated ‘Buy’, three analysts rated ‘Hold’ and none said ‘Sell’, according to Tipranks.

“Strong positioning for public cloud adoption, large distribution channels and installed customer base, and improving margins support a path well beyond $1 trillion market cap. Durable double-digit NT rev growth is supported by Azure (winning in public cloud), data centre (share gains and positive pricing trends), O365 (base growth and ARPU uplift) and LinkedIn. GM % improvement, continued opex discipline and strong capital return lead to durable teens total return profile,” Weiss added.

“At 30x CY21e GAAP EPS, Microsoft trades at a premium to the S&P, warranted due to MSFT’s premium return profile. Multiple expansion will likely come from gaining comfort in the durability of commercial business gross profit dollars.”

T-Mobile US Q2 Revenue Jumps 61%, Overtakes AT&T as Second-Largest Carrier; Target Price $115

T-Mobile US Inc, an American wireless network operator, said its revenue jumped 61% to $17.67 billion in the second quarter, beating Wall Street estimates and added it has overtaken rival AT&T Inc as the second-largest wireless provider in the world’s biggest economy, sending its shares over 5% pre-market trading on Friday.

The telecommunications company headquartered in Washington said it add 1,245,000 new customers in the second quarter of this year, pushing its total customer count to 98.3 million, overtaking AT&T in total branded customers across both postpaid and prepaid.

T-Mobile’s Total revenues increased 61% to $17.7 billion in Q2 2020, driven by the Sprint merger and continued customer growth at T-Mobile. That was higher than strategists’ estimates of $17.61 billion, according to IBES data. The company said its net income declined to $110 million, or 9 cents per share, from $939 million, or $1.09 per share, a year earlier.

“We don’t expect to materially change our $89 fair value estimate and we view the shares as modestly overvalued,” said Michael Hodel, director at Morningstar.

On Thursday, T-Mobile US’ shares closed 0.19% higher at $108.10 but gained over 5% in pre-hours trading on the last trading day of the week.

Executive comment

“Surpassing AT&T to become #2 was a huge milestone to kick off Q2, but that was only the beginning! In our first quarter as a combined company, T-Mobile led the industry in total branded customer adds – even in a challenging environment – and there is no doubt that we are THE leading growth company in wireless,” Mike Sievert, T-Mobile CEO said in a press release.

“Now we’re setting our sights on #1 – in customer choice and customers’ hearts – and we’ll get there by doing ONLY what the Un-carrier can do: offering customers the most advanced 5G network AND the best value while continuing to make big moves that fix customer pain points and disrupt this industry. I’m excited about what’s to come in this new T-Mobile era – we’re just getting started!”

T-Mobile US stock forecast

Sixteen analysts forecast the average price in 12 months at $119.50 with a high forecast of $140.00 and a low forecast of $94.82. The average price target represents a 10.55% increase from the last price of $108.10. From those 16, 13 analysts rated ‘Buy’, three analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $115 with a high of $146 under a bull scenario and $62 under the worst-case scenario. JPMorgan raised the target price to $140 from $110 and Deutsche bank kept target price unchanged at $140 target price, upped the rating to buy from hold.

Several other equity analysts have also updated their stock outlook. T-Mobile U.S. received a $110 price target from analysts at Royal Bank of Canada. The firm presently has a “neutral” rating. KeyCorp boosted their target price to $126 from $104 and gave the company an “overweight” rating. Nomura Instinet boosted their target price on T-Mobile U.S. to $110 from $102 and gave the company a “buy” rating.

We think it is good to buy at the current level and target at least $115 as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.

Analyst comment

“With the closing of the Sprint merger on April 1, T-Mobile has established itself on relatively equal footing with AT&T and Verizon. Postpaid market share now stands at nearly 30% with the company targeting 2-4% service revenue growth,” Morgan Stanley’s McLeod added.

“The company will be focused on the large integration ahead as it targets $6bn+ in run-rate synergies with the majority coming from decommissioning the legacy Sprint network and moving those subscribers over to a new 5G network. Fixed wireless broadband-enabled by the company’s enhanced mid-band spectrum portfolio could open up an $80 billion + adjacent TAM,” the analyst added.

Upside and Downside risks

1) Better net add and ARPU growth driven by new 5G network 2) Quicker synergy realization 3) Significant growth in fixed wireless broadband, Morgan Stanley highlighted as upside risks to T-Mobile.

1) High churn of Sprint subscriber base. 2) Difficulty in achieving synergy targets and integrating Sprint subscribers. 3) Wireless competition intensifies pressuring ARPUs, were major downside risks.

News Corporation Posts 22% Decline in Q4 Revenue as COVID-19 Pandemic Hits Business; Target Price $10

News Corporation, a diversified international media and entertainment company, reported that its revenue slumped 22% in the June quarter as COVID-19-related business closures led to an advertisement sales collapse at its newspapers and websites, sending its shares down about 4% in after-hours trading on Thursday.

America’s largest newspaper by total circulation said its revenues dipped 22% to $1.92 billion in the fiscal fourth quarter ended June 30, down from $2.47 billion a year earlier, primarily driven by the negative impacts related to COVID-19 and the sale of News America Marketing.

News Corporation reported a net loss of $401 million, which includes non-cash impairment charges of $292 million and higher restructuring costs due to COVID-19, worse than a loss of $42 million a year ago.

“We have largely maintained our earnings forecasts which incorporate some benefits of management’s cost-cutting initiatives. Despite this, we do not see a return to pre-COVID-19 earnings level until fiscal 2022,” said Brian Han, senior equity analyst at Morningstar.

“With minimal changes to our forecasts, we retain our USD13.40 per share fair value estimate for News, or AUD 18.60. at the current exchange rate. Shares in the no-moat-rated group have staged a strong recovery from the recent COVID-19-induced lows and are now trading in line with our intrinsic assessment,” Han added.

In the quarter, Dow Jones achieved record average subscriptions of 3.8 million to its consumer products, led by 28% growth in digital-only subscriptions, including 23% growth in digital-only subscriptions at The Wall Street Journal.

“We recommend investors hold REA direct, but owning News Corporation is another way to gain exposure, the 61% stake has CMV of $6.8bn or $11.50 per NWSA share,” said Andrew McLeod, equity analyst at Morgan Stanley.

News Corporation’s shares closed 1.65% higher at $13.51 on Thursday but dipped about 4% in after-hours trading.

Executive comment

“The creation of the Dow Jones segment allows us to make a direct comparison with the New York Times,” Chief Executive Robert Thomson said on a post-earnings call, Reuters reported.

“In what has been a difficult year for many media companies, Dow Jones reported a 13% increase in Segment EBITDA, based on the strength of its Professional Information Business, digital growth and the pre-eminence of The Wall Street Journal. One result of our candid approach on costs was that, despite the COVID-19 impact, our cash position strengthened to $1.5 billion from $1.3 billion as of December 31st. We also saw increased profitability at Foxtel and our campaign to reset sports rights prices was successful.”

News Corporation stock forecast

Morgan Stanley target price is $10 with a high of $20 under a bull scenario and $5 under the worst-case scenario. News had its price target hoisted by research analysts at Loop Capital to $18 from $16. The brokerage presently has a “buy” rating on the stock.

We think it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator signal a mild selling opportunity.

On the other hand, three analysts forecast the average price in 12 months at $14.00 with a high forecast of $18.00 and a low forecast of $10.00. The average price target represents a 3.63% increase from the last price of $13.51. From those three, two analysts rated ‘Buy’, one analyst rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Analyst comment

“We are fundamentally bearish on the outlook for News Corporation shares. We are bullish on NWSA’s 61%-owned Australian digital media company REA Group (OW), but we recommend investors own REA direct rather than via the conglomerate structure of NWSA. Historically, direct ownership has provided superior returns … and we expect that to continue to be the case,” Morgan Stanley’s McLeod added.

“Outside of the REA investment, we think earnings risks across the rest of the NWSA asset portfolio skew more to the downside for print assets and payTV business Foxtel/FoxSports. If it were to occur, a full break-up of the company could have the potential to close the discount at which the shares have historically traded to intrinsic value.”

Upside and Downside risks

1) Sale of large loss-making or declining print assets at a premium 2) Growth of OTT services more than offsets loss of cable/satellite subs at Foxtel. 3) Break-up or re-structure of the company. 4) REA makes gains ahead of expectations, Morgan Stanley highlighted as upside risks to News Corporation.

1) Accelerated decline in print ads brings downgrades and larger cash redundancy/restructuring costs. 2) A loss of positive earnings momentum at REA. 3) Worse-than-expected Foxtel earnings were major downside risks.

ViacomCBS Posts Better-Than-Expected Q2 Revenue on Robust Streaming Demand; Target Price $35

ViacomCBS Inc, an American diversified multinational mass media conglomerate, reported a better-than-anticipated revenue and profit in the second quarter, largely due to robust growth in streaming amid the COVID-19 pandemic, sending its shares up over 5%.

The mass media company said its affiliate revenue increased 2%, reflecting growth in station affiliation and retransmission fees, as well as subscription streaming revenue, which more than offset declines in pay-TV subscribers. However, its advertising revenue declined 27% year-over-year, driven by the adverse effects of COVID-19 on global advertising demand.

ViacomCBS U.S. pay streaming subscribers reached 16.2 million, up 74% year-over-year. That help boost streaming and digital video revenue to $489 million, up 25% year-over-year, driven by 52% growth in streaming subscription revenue.

ViacomCBS’ revenue declined 12% to $6.28 billion in the second quarter but exceeded the forecast of $6.27 billion, according to Refinitiv. On an adjusted basis, the company earned $1.25 per share, beating Wall Street estimates of $0.93 per share, according to IBES data, reported by Reuters.

At the time of writing, ViacomCBS’ shares traded over 5% higher at $27.35, still down about 40% so far this year.

ViacomCBS stock forecast

Sixteen analysts forecast the average price in 12 months at $28.23 with a high forecast of $45.00 and a low forecast of $17.00. The average price target represents an 8.58% increase from the last price of $26.00. From those 16, eight analysts rated ‘Buy’, seven analysts rated ‘Hold’ and one rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $25 with a high of $42 under a bull scenario and $8 under the worst-case scenario. They currently have an equal weight rating on the stock.

Several other equity analysts have also updated their stock outlook. UBS Group lowered their target price on ViacomCBS to $16 from $31 and set a neutral rating. Needham & Company LLC boosted their target price to $30 from $20 and gave the company a buy rating.

We think it is good to buy at the current level and target at least $35 in the short-term as 100-day Moving Average and 100-200-day MACD Oscillator signal a buying opportunity.

Analyst comment

“We believe ViacomCBS can use its greater scale to secure continued distribution and avoid a major pricing reset or lost distribution. However, even in the context of healthier than expected distribution revenues, traditional TV ad exposure and the rising need for investment could pressure margins. We see significant opportunity for the CBS broadcast network to drive upside from distribution revenues, as it remains a relatively under-monetized asset in the media ecosystem,” said Benjamin Swinburne, equity analyst at Morgan Stanley.

“Digital advertising through Pluto and AMS may be the answer to driving healthy ad growth but visibility is low. We continue to view Paramount as a scarce, valuable asset that could generate significant strategic interest,” the analyst added.

Upside and Downside risks

1) favourable distribution renewals or sub-trends supporting affiliate rev growth acceleration, 2) improved ratings, 3) healthy DTC sub growth, 4) improved film profitability, Morgan Stanley highlighted as upside risks to ViacomCBS.

1) unfavourable renewal or dropped carriage pressures affiliate rev growth, 2) macro trends or soft ratings trends weigh on ad growth, 3) DTC sub growth disappoints, 4) film underperformance pressures margins, were major downside risks.

MetLife Q2 Adjusted Earnings Slump 43%; Top Analysts Recommend Hold

MetLife Inc, the largest global provider of insurance, annuities, and employee benefits program, reported that its second-quarter adjusted earnings slumped 43% due to falling premiums, fees and investment losses, sending its shares down about 5% pre-market trading on Thursday.

The U.S. insurer said its adjusted earnings of $758 million, or $0.83 per share, compared to adjusted earnings of $1.3 billion, or $1.38 per share in the second quarter of 2019. Adjusted earnings, excluding total notable items, of $758 million, or $0.83 per share, compared to adjusted earnings, excluding total notable items, of $1.4 billion, or $1.46 per share a year earlier.

The company’s net income fell to $68 million, or $0.07 per share, compared to $1.7 billion, or $1.77 per share in the second quarter of 2019. That was largely to decline in premiums and fees, falling 13% to $10.4 billion, from $12 billion a year ago.

MetLife’s net investment income was $4.1 billion, down 13% from the second quarter of 2019. Adjusted net investment income was $3.4 billion, down 24% from the prior-year period. The decline in net investment income was primarily driven by a loss in variable investment income, which reflects a one quarter reporting lag for private equity results.

On Wednesday, MetLife’s shares closed about 4% higher at $38.28 but on Thursday’s pre-market it’s down 4.65% to $36.50, still down over 25% so far this year.

Executive comments

“The decline in our private equity portfolio was squarely within our expectations. On underwriting, our well-diversified set of businesses provided meaningful offsets to increased claims from COVID-19. The quarter also demonstrated our ongoing commitment to consistent execution, which was evident in our strong cash generation and expense discipline,” said MetLife President and CEO Michel Khalaf.

MetLife stock forecast

Five analysts forecast the average price in 12 months at $44.50 with a high forecast of $45.00 and a low forecast of $44.00. The average price target represents a 16.25% increase from the last price of $38.28. From those five, five analysts rated ‘Buy’, none analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $44 with a high of $51 under a bull scenario and $29 under the worst-case scenario. Evercore ISI raised its target price to $38 from $35 and JP Morgan upped it to $60 from $59.

Several other equity analysts have also updated their stock outlook. Royal Bank of Canada increased their price objective on shares of Metlife to $44 from $42 and gave the company an “outperform” rating. Wells Fargo & Co lowered their price objective on shares of Metlife to $44 from $59.00 and set an “overweight” rating.

We think it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator signal a mild selling opportunity.

Analyst comment

“Following its retail separation, the company is committed to profitable growth while also simplify its operations to reduce earnings volatility. Given these moves, the investment thesis for MetLife now revolves around capital management and free cash flow generation, growth in international operations, and expense reduction initiatives,” said Nigel Dally, equity analyst at Morgan Stanley.

“We believe MetLife has the ability to continue its solid execution in its various businesses. More importantly, the solid results over the past several quarters were not driven by a single division, with MetLife Holdings, US, and International all contributing to solid earnings performance,” he added.

Upside and Downside risks

Group benefits continue to perform above expectations; Interest rates increase notably, alleviate some earnings pressure; Acceleration of capital deployment plans International business grows faster than expected, Morgan Stanley highlighted as upside risks to MetLife.

Adverse currency moves; Sharply increased competition in the group benefits business; Geopolitical uncertainties outside of the U.S.; Surprise below the line charges, was the major downside risks.

WW International Tumbles on Slim Earnings Miss

WW International, Inc. (WW) slumped nearly 8% Wednesday after the company formally known as Weight Watchers reported quarterly results that fell short of Wall Street expectations.

The firm disclosed second-quarter (Q2) adjusted earnings of 67 cents a share, missing analysts’ forecast of 72 cents a share. On the sales front, revenues for the period of $333.64 million came in 1.67% below consensus and declined from the year-ago figure of $369.02 million. Studio closures resulting from the health crisis weighed down the company’s top line.

Through Wednesday’s close, WW International stock has a market capitalization of $1.65 billion and is down 36.12% so far in 2020. However, over the past three months, the shares have recovered about 7%.

Adding Subscribers

The weight-loss program operator grew its subscriber base during the quarter by 23% to 5 million members thanks to a record level of digital subscribers. Moreover, management believes the transition to online fitness sessions will continue to benefit the company amid the ongoing coronavirus pandemic.

“Creating exciting new coaching experiences, adding new digital features and producing creative content that is insightful, interactive and engaging will greatly increase our ability to attract new members to WW, retain them longer, help them achieve their weight loss and wellness goals, and deliver on our mission to democratize wellness for all,” the firm’s CEO Mindy Grossman said, per Barron’s.

Wall Street View

Riley Securities analyst Kara Anderson expects the company’s digital offerings to continue performing, given they meet consumers’ shift to online participation. The brokerage reiterated its ‘Buy’ rating after the Q2 result and bumped its price target to $36 from $30 – indicating a 47% gain from Wednesday’s $24.41 close. Elsewhere on Wall Street, the stock receives 6 ‘Buy’ recommendations, 1 ‘Overweight’ recommendation, and 6 ‘Hold’ recommendations. Currently, only one analyst has an “Underweight” rating on WW International shares.

Technical Outlook and Trading Tactics

Although the stock has trended steadily higher since plumbing its March low, it trades beneath the 200-day simple moving average (SMA), indicating price remains in a longer-term downtrend. Yesterday’s earnings-induced breakdown on above-average volume below a symmetrical triangle could drive further falls in the coming days. Those who want to buy the stock should look for entries between $17.50 and $20, where the shares find a zone of support from two key horizontal trendlines extending back over the past 12 months.