Mid-Morning Look: June 23, 2021

Street Recommendations

Wednesday, June 23, 2021


·     TGT – maintaining our BUY rating on Target Corp. and raising our 12-month target price to $265 from $250. Target’s 1Q financial results and strong holiday season performance suggest that it is one of the winners in a competitive retail sector. Management believes that the company boosted its market share by about $9 billion in FY21 and by another $1 billion in 1Q22.



·     FDX tgt to $375 from $360 ahead of earnings

·     PLUG tgt to $27 from $24, but remains underweight after earnings



·     GNRC Raising estimates and PO to $440 – We raise 2021-22E EPS by 4-13% on increased confidence in the core home standby business following our dealer calls, further growth opportunity in Clean Energy, and the recent Deep-Sea acquisition. We raise our PO from $390 to $440 as we roll forward our 27.5x target EBITDA multiple to 2022E. Markets may be slowly starting to embrace secular growth stories again, as global PMIs may be peaking. While the valuation is indeed lofty, GNRC has an 80%+ share of the HSB market entering the heart of the season with a more vigorous clean tech product offering coming to market in 2H21.



·     FDX – reports F4Q21 results this coming Thursday and is set to guide for fiscal 2022. While there is a lot of focus on where FDX can guide for next year, we think the stock’s reaction will be less about the guide and more about the messaging behind it. If the company can articulate a reason to own the stock that transcends cyclical factors the stock can move materially higher, and in today’s note we highlight the key factors influencing the difference between a beat you can buy and a beat you want to de-rate on cyclical factors

·     IT Hardware – CIOs forecast a rebound in IT spend but – perhaps surprisingly – not above pre-pandemic levels. We forecast IT spending will grow about 5% this year. While surveyed CIOs see an improvement in their IT spending outlook vs. three months ago, forecasted spending levels are below those forecast prior to the pandemic – i.e., 2017, 2018 and 2019. While cloud remains a dominant force, it appears that the pandemic has only modestly changed CIOs views of (and their intention to migrate to) the cloud. Workloads in the public cloud are now 28%, up modestly vs. a year ago (27%); CIOs believe that the pandemic has somewhat accelerated their migration to IaaS/PaaS, but not to SaaS.

·     SPLK – we believe that investors are reacting positively to this deal for two reasons: one, a sizable investment from a large tech investing firm is a vote of confidence in Splunk; and two, having Silverlake on the board could help better steer Splunk through the business model transition, leading to better stock performance. We also believe that some could see this as an early sign that the company could be taken private—much like what happened with Cloudera earlier this month. We believe investors view these possibilities as positive given the stock’s recent under-performance amidst a complex cloud transition and the COVID-19 pandemic



·     MNDY init Buy and $280 tgt – Growth that is not a case of the Mondays: New platforms are emerging to replace legacy work practices that improve collaboration and productivity, and we believe there is a sizeable market opportunity that today is relatively unpenetrated. While somewhat crowded, this is not a “winner takes all” market, and Monday.com’s Work OS ranks high among customers. In addition, we believe a focus on enterprise customers will likely support an above-peer 46% top-line CAGR through 2025.



·     EQX – Negative. The blockades announced this morning mark the second interruption of operations at Los Filos within the last nine months (the previous blockade began last September and was resolved in December) and are a disappointing setback for EQX. We are reducing our Los Filos NAV multiple to 0.8x from 1.5x, which results in our companywide NAV multiple declining to 1.1x from 1.3x. Accordingly, we have cut our target price to C$18.50. Los Filos accounts for just under 30% of our NAV and 2021 production estimates.

·     SPLK – After a series of substantial disappointments, Splunk finally delivered some good news to investors, led by the announcement of a $1 billion investment from Silver Lake. We modestly raise our target price to $148, and retain our Outperform rating, though we are keeping our “short leash” guiding principal in place.



·     ESTA tgt to $88 from $82 – In a positive finding for Establishment Labs’ SmoothSilk surface, research has underscored the importance of surface engineering in breast implant biocompatibility. A study published this week in Nature Biomedical Engineering found that different implant surface architectures impact the body’s immune response and surrounding tissue interaction. The study, conducted by MIT researchers, including senior author of the paper, Dr. Robert Langer, examined six commercial breast implants with different surface topographies across mouse and rabbit models (out to 6 months and 1 year, respectively), as well as human samples, and found that the implants kick off a foreign body response that varies by surface texture.

·     NTRA tgt raised to $155 – (from $150) following three key updates: (1) To our surprise, late last week NTRA learned they received ADLT status from CMS and payment of $3,500/test for its Signatera MRD test (for use outside of the adjuvant testing window); (2) We expect NTRA is poised to take their fair (#1 positioned leadership) share of Progenity’s (PROG, Buy, $12 PT, covered by Sung Ji Nam) lab business (post its June 2nd announcement they are terminating its NIPT lab business); and (3) We are increasingly confident that NTRA’s work with Genentech (Roche, ROG.SW, Not Rated) is highly likely to lead to a companion diagnostic in bladder cancer (at least in that indication initially) given its strong data from the IMvigor 010 trial (and enrollment in the IMvigor 011 trial has commenced)

·     TCMD – Near term, we think TCMD’s expanded prescriber base in the wake of expansive clinical education events throughout FY20, along with high-volume existing prescribers returning to normal in 2H21, should provide upside to 2H21 numbers as the top-end of guidance (15%-20%) assumes ongoing vaccination rollout, COVID restrictions subside, and VA channel dynamics normalize. We continue to like the shares here, at 4.3x NTM EV/Sales, relative to high-growth peers



·     EVLO init Overweight and $28 tgt – EVLO is developing oral therapies derived from single strains of microbes that work by acting on the small intestinal axis (SINTAX), the largest part of the immune system. The company has demonstrated robust efficacy and safety from lead product, EDP1815, across dermatologic conditions, psoriasis, and atopic dermatitis (AD)



·     URI upgraded to Buy as we think positive estimate revisions can support further upside to the stock. Taking stock of recent asset mkt fluctuations, we acknowledge some vulnerability has crept into the pro-cyclical narrative. The group has pulled back alongside yield curve flattening & declining inflation expectations as a hawkish shift in FOMC tone appears to have removed the right tail risk in inflation. Our outlook has become more balanced, but we conclude it is too early to call for an end of the upcycle and would be selectively leaning in to the sector on the back of this sharp pullback

·     Managed care – CI and ANTM are our picks within MCOs, and we are lukewarm on hospitals given YTD performance/ expectations. For MedTech our Top Pick remains ZBH. Utilizing a new robust data set from Strata we provide May volume and other KPIs. Our analysis suggests somewhat static inpatient trends that remain below 2019 baseline in May. Outpatient shows better trends, above historical baseline, but some deceleration of late. Payor mix has shown favorable commercial trends but May dipped after a strong April and is an area to watch.

·     VZ – adding to Citi positive catalyst -30-day watch list – We are taking a positive view on Verizon’s upcoming C2Q results. We are raising our C2Q postpaid phone net add outlook from 125k to 215k vs. VA consensus at 152k. We also expect service revenue to benefit from customer up-tiering and a return of transactional/late fees. We forecast upwardly-revised C2Q EPS of $1.33, which should exceed consensus by 5 cents, or 4%. Capitalized interest savings and temporary D&A benefits (3 cents) should offset our below-consensus outlook for Adj. EBITDA, which incorporates higher sales activity and device upgrades. Net-net, we believe the potential for Verizon to exceed the current consensus on phone net adds and EPS should provide a positive catalyst for VZ shares over the near-term

·     VG tgt raised to $18 – We expect Vonage to report generally in line C2Q results with continued strength in APIs and a re-acceleration in growth for UC/CC towards high-single-digit topline growth exiting the year. The stock continues to trade at a substantial sum[1]of-parts discount to its competitors, while average revenue multiples for some of its pure-play competitors have risen from 16x to 17x over the last few months and trade in a range of 5x-22x on forward FactSet consensus estimates

·     UBER, LYFT – We remain positive on Uber and Lyft shares heading into H2 and view the setup into Q2 as increasingly favorable. We also are updating our models for both companies—our price targets are unchanged. We just ran our latest U.S. rideshare and food delivery usage surveys (~1k respondents), which yielded fairly encouraging results about the pace of the rideshare recovery and sustained food delivery trends



·     PAYC– Reit Outperform – We believe that the Street has not yet factored in the revenue uplift from BETI’s rollout. Based on relatively conservative assumptions, we estimate an upside range of +170 bps ($21.7MM) to +690 bps ($86.7MM) to our FY23E revenue growth forecast. PAYC shares have been pressured YTD (-20%) by a broader rotation out of high multiple growth names despite exhibiting strengthening fundamentals due to the economic reopening and maintaining leading execution. BETI is an attractive catalyst for shares to decouple from any broader market trading fundamentals, as investors will now have a reasonably conservative framework to model potential revenue contribution from BETI

·     PMVP – Best Smidcap Ideas: PMV expects to have initial Ph1 data for PC14586 in Y220Cmut advanced solid tumors in late 21/early 22. The data could provide the first POC for PMV’s differentiated approach to structurally correcting mutant p53. The potentially pivotal Ph2 could start in Q4:22 and we anticipate NDA filing in FY25. The stock has retraced back to post-IPO levels and offers a good entry point ahead of Ph1 data

·     KRYS – Best Smidcap Ideas: KRYS lead candidate B-VEC (in dev for DEB) is in Ph3 dev with topline data expected 4Q21. We think the consistent impressive clinical efficacy/safety and convenience of a topical therapy will likely set up B-VEC for commercial success given the limitations of current SOC. KRYS proprietary STAR-D platform will enable continued development of off-the-shelf gene therapies as the pipeline expands

·     UAA – Best Smidcap Ideas: Momentum Can Continue into FY22 – The sector’s recent valuation contraction creates an improved risk/reward opportunity particularly for UAA which is down 20% since beating Q1 earnings. The brand has reached a much more consistent message with the Focused Performer, and now has improved tools to react to trends and read the consumer. We see upside to management’s guidance and consensus estimates into FY23



·     KGC upgraded from Neutral to Outperform on valuation, as we see the recent sell-off as overdone. Our target price increases from $7.50 to $8.00. While we appreciate that YTD the company has faced two major operational hurdles – the Round Mountain pit wall instability and Tasiast fire – we think the impact is mainly limited to 2021, with 2022/23 still looking like strong production years. There could also be upside from a potentially earlier restart of the Tasiast mill vs. the current (somewhat conservative) year-end timeline

·     BWXT downgraded to Neutral (from Outperform) with an updated target price of $67 (down from $74). Our ratings downgrade is premised on flattish estimate revisions over the next twelve months and a lack of multiple expansion catalysts. The deferral of BWXT’s cash harvest to 2023 is key to our downgrade. We increase our TP on NOC to $423 (from $400) and LHX to $243 (from $223). We provide a comprehensive update to our overall defense outlook. Our views are based on a bottom-up analysis, which begins with a base-case GFY’22 budget forecast and builds to expectations for multi-year earnings growth/revisions, an outlook for valuation multiples, and ultimately a consolidated return expectation for the group

·     AQUA – continue to have a favorable view on AQUA driven by 1) improving FCF conversion metrics as early outsourced water projects start to deliver strong cash performance, 2) continued execution on business model transition to digital water from capital projects, 3) increased emphasis on PFAS and other emerging contaminants, 4) potential for additional industry consolidation, and 5) a recovery in customer spending, which is cyclical, and capital spending related to semiconductors (ultrapure water).



·     CARR init Buy and $53 tgt – is the cheapest HVAC stock that we cover, trading at 22x NTM EPS, creating the opportunity for continued multiple re-rating. Given attractive 14% upside potential to our $53 price target (based on 22x our NTM EPS forecast, in 12 months’ time), we initiate coverage with a Buy rating. Risks: sustained non-resi construction downturn, sharper-than-expected decline in Resi HVAC industry shipments, execution on margin expansion/portfolio initiatives

·     TTGT init Buy and $80 tgt – Capturing and analyzing data is becoming paramount to businesses success, and we believe one of the most promising applications of this trend is in sales & marketing intelligence. Go-to-market intelligence is powering meaningful productivity and efficiency gains for sellers, and has become a critical component of the go-to-market strategy for B2B enterprises.



·     SAFE init Buy and $100 tgt – We adjust our GAAP NAV estimate for the following factors: (1) the present value of the future income stream behind the ground leases, which incorporate ~2% annual escalators; (2) the present value of the real estate that will revert to SAFE; and (3) the estimated future value of growth. We estimate SAFE creates ~$0.40 for every $1 of equity it deploys, or effectively a 40% accretion to its investment. When this valuecreating operating model is coupled with SAFE’s substantial premium to GAAP book value (3x), this creates a virtuous cycle in which substantial accretion can be realized by issuing stock

·     STAR init Buy and $35 tgt – The company is undergoing a major transformation to focus on growing its ground lease business, which it owns through a 65% stake in publicly traded Safehold Inc. (SAFE). We base our PT on 0.7x our adjusted NAV estimate, driven by (1) the projected future value of its ownership in SAFE, (2) the present value of the management contract with SAFE, and (3) book value for the remaining assets less debt. We expect STAR and SAFE to conduct a book-for-book merger within approximately two years, with SAFE being the surviving entity



·     ICE upgraded to Conviction Buy from Buy with a 12-month price target of $141, implying 24% upside from current levels. ICE has been among the biggest laggards in our coverage YTD – essentially flat vs. SPX +12%/XLF +21% – with NTM P/E of 22x at a significant discount to peers across Exchanges and Data Services companies.

·     LPLA downgraded to Buy from Conviction Buy – We continue to see LPL as an attractive business with a high-single-digit organic growth rate, expanding addressable market, and considerable EPS upside in a “normalized” rates environment. However, risks to spreads paid by the banks for sweep deposits amid significant liquidity in the system pose risks to 2022 EPS estimates (we are now marginally below the Street). Although the upside case remains intact (we see path to $14+ in EPS in 2024) and investors could ultimately look through rates-related revenue headwinds over the next 12-18 months, the downside case could also become more pronounced



·     IBKR, SCHW – out with a survey of US consumers regarding their brokerage activity. While recent retail trading activities have begun to stabilize, we continue to anticipate activity levels to remain elevated from pre-pandemic levels but below that of 1Q21 and 4Q20. We found that ~70% of those surveyed indicated that, in a normalized economy, they would either not alter or would increase their trading activity. In addition, 40%+ of respondents are likely to deposit more funds into their brokerage accounts within the next 12mo. When posed with a drawdown scenario of -15%, approx. 65% of participants said they would either not change or would even increase their trading frequency. We believe the environment will still favor scaled players like IBKR and SCHW

·     Wayfair (W) – hosted mgmt for a fireside chat at our Virtual Consumer Conference. Mgmt was upbeat on consumers prioritizing home category spend as more time at home has grown project lists and Americans have more money to spend. Additionally, we see the company’s early investments in Europe, the oppty in B2B, and Perigold being positioned to take share in the high-end market as catalysts for growth. Moreover, given its margin profile, we believe the sponsored advertising business can be impactful to GM% LT without aggressive assumptions in terms of scale. We reiterate our Buy-rating

·     UWMC init Hold and $9.50 tgt – UWM is the largest wholesale lender with 26% share, boasting 4.8% share of the total mortgage market in 2020. We point out that wholesale has meaningfully grown in recent years, reaching 14% through 2020, and is expected to expand >30% of the market by 2025. That being said, we note that the wholesale competition remains fierce/uncertain highlighted by a price war that has seen mgmt guide 2Q margins for 75-110bps. We forecast 85bps for 2QE and note that if margins remain under pressure at current levels, we could see 43% EPS downside to 2022 cons. Furthermore, current valuation is fair, in our view



·     HALO – New ENHANZE partnership with ViiV for HIV therapeutics; we reiterate our Market Outperform rating and risk-adjusted, DCF-derived $52 price target on Halozyme Therapeutics. Yesterday, Halozyme announced a new ENHANZE partnership with ViiV Healthcare for up to four of ViiV’s HIV drugs as exclusive targets for combination with ENHANZE. The deal brings a $40MM upfront to Halozyme, up to $175MM in additional milestones per target, plus mid-single-digit royalties on net sales. We have updated our model to reflect the upfront and look to a guidance update likely on the next earnings call. Recall that new partnerships are upside to guidance

·     NTLA – We maintain our Market Outperform rating and increase our price target to $88 from $80 ahead of the readout (risk-adjusted, DCF-derived valuation), by increasing the NTLA-2001 PoS to 30% from 25%. A key focus for Intellia Therapeutics is the June 26th data presentation of the first-in-human, systemic NTLA-2001 gene-editing treatment in ATTR-PN. The share price has rallied as the readout approaches (+24% vs. +4% NBI over the last month), forcing us to recalibrate our scenario analysis ahead of the readout. We are confident in a positive readout for NTLA-2001. Our scenarios include: 1) Home run with higher-dose patient — good safety and TTR reduction >80%; 2) Bull case and most likely scenario — good safety and dose-dependent TTR reduction of ~20-60%, similar to early patisiran Ph2 data at low doses that showed modest, but significant 22-50% reductions; 3) Bear case — no therapeutic window with read-across to the entire LNP platform. We view the downside risk to this first readout as limited due to the fact that, if initial efficacy is weak later readouts will have data at higher doses, potentially improving efficacy. NTLA-2001 could also be re-dosed in patients with suboptimal efficacy

·     NTNX – continue to feel shares are undervalued – maintain our Market Outperform rating and $45 price target after Nutanix hosted its 2021 Investor & Analyst Day, which shed light on the company’s many ongoing business model transitions. This was the first analyst day hosted by Nutanix in more than two years and provided new CEO Rajiv Ramaswami an opportunity to formally present his current vision and execution strategies after examining the business over the last six months. The stock traded up 7% during normal market hours after the company reflected a positive mid- to long-term financial outlook

·     PTON – Earlier this morning, Peloton announced a corporate wellness program that creates, in our view, a significant new marketing channel/on-ramp to the service that can act as another catalyst to new subscriber growth across its markets globally. With the corporate wellness product now live, OTD times improving significantly— Bike & Bike+ OTD times are now less than two weeks, the potential for the Tread to make its U.S. debut in July/August now that the Tread Lock solution is live, and continued strong engagement— as of May, subscribers continue to average 26 workouts per month, Peloton remains one of our top-picks for 2021 and we reiterate our Market Outperform rating and $135 price target



·     CVNA downgraded to neutral – While we continue to like CVNA’s disruptive business model and related L-T growth potential, we believe the recent rebound in shares coupled with a meaningful pull back in brick & mortar auto retailers, makes the near-term relative risk-reward less favorable. With CVNA significantly outperforming its peer group YTD (+31% vs B&M retailers +19%, vs e-comm bell-weathers +6%) and 12 month period (+146% vs B&M retailers +95% vs e-comm +45%), and now trading at a ~17x FY23 EV/GP (~80% premium to e-comm), we believe the stock is getting appropriate credit for robust multi-year revenue and gross profit growth

·     RPM downgraded to Underweight – Our general view of the equities under our coverage is that we think there is more outperformance to be found in more cyclical equites than in less cyclical investments. We view RPM as a company with relative performance risk rather than absolute performance risk. RPM shares underperformed the market year-to-date, down (1%), with the general market up 13%. RPM is likely to contend with raw material, packaging, and logistics cost inflation in the upcoming two quarters, pressuring its gross margins. Announced price increases will take some time to catch up with cost inflation



·     PH upgraded to Overweight from Sector Weight with $350 tgt



·     LPTX – Reiterate Buy rating. We see the several updates of DKN-01 as positive for increasing the probability of positive readout in the upcoming Ph2a DKN-01+Tisle+chemo data in 1L G/GEJC in 2H21 (likely ESMO21) as key potential catalyst for LPTX. LPTX reported several DKN-01 updates which we see as positive for the upcoming key data catalyst in 2H21: Ph2a (DisTinGuish) data of DKN-01+Tislelizumab (Tisle) combo in 1L gastric or gastroesophageal junction cancer

·     CORT – We reiterate our Buy rating and $35 price target. We note that the pancreatic cancer program represented upside and was not incorporated into our income model. We believe that the RELIANT readout does not read through to the ovarian cancer program

·     ATRS – Reiterate Buy and $7 price target. We continue to be impressed with the company’s development of new products via its proprietary pipeline and through agreements with Pfizer and Idorsia Pharmaceuticals



·     SDC downgraded to Hold on Increased Execution Concerns. We are lowering our rating from Buy to Hold on Smile Direct Club and lowering our price target from $14 to $9. We are adjusting our estimates lower to account for what we see as an inflationary environment for everything from shipping to digital marketing. Our sales estimate is basically in line with consensus in the current quarter and Q3, but we are below consensus starting in Q4 as we expect SDC to focus more on profitability than top line growth

·     BBY – Earlier this week Amazon held its annual Prime Day, with Best Buy responding by hosting “Flash Sale” events. We compared Best Buy’s prices to Amazon’s on 30 different items the two retailers featured during Prime Day. While the price gap between Best Buy and Amazon widened from the last Prime Day, we note this was largely driven by aggressive Amazon promotions on its own products. In addition, Best Buy was at price parity with Amazon on a larger percentage of items this year. Finally, we believe the Prime Day shift to June from October is advantageous for Best Buy. We reiterate our Buy rating on Best Buy and $150 price target.



·     SPLK – disclosed a large $1B investment from well-regarded PE firm Silver Lake, in the form of convertible senior notes with a low interest rate. While this transaction in and of itself doesn’t solve SPLK’s challenges, this is a favorable deal for SPLK, and we commend the management team for structuring it. We also expect that all (or virtually all) of the $1B proceeds will be used towards share buyback over the near-to-medium term, and this arrangement could potentially lead to other strategic outcomes over the longer-term. We maintain our Neutral rating and raise our PT to $150 (was $135)

·     SR – Today’s DC Circuit Court order vacating FERC 2018 approval of SR’s STL Pipeline adds a complication to SR’s story, but not one we believe will prove material. The ruling was surprising, but the FERC likely will conduct a thorough reevaluation of STL’s market necessity, which we believe is amply supported by STL’s performance during Winter Storm Uri. We do not see any far-reaching impacts for the gas utility/LDC space regarding companies with affiliate pipeline shipper agreements, but the ruling likely foretells greater scrutiny for such arrangements, adding yet another headwind for greenfield natural gas infrastructure

·     INTC – we believe the changes announced last night sharpen and add accountability to execution in key focus markets from GPUs to Datacenter/AI to Networking. No change to estimates, reiterating our Buy and $72 PT as near-term positive trends including 1) Enterprise rebound, 2) better Ice Lake availability, and 3) above-consensus PC Notebook ramps could position INTC for top-line UPSIDE



·     ACHV init Outperform and $23 tgt – Led by a proven leadership team, ACHV is solely focused on the development of cytisinicline for smoking cessation and nicotine addiction. While this plant-based alkaloid has been on the market for more than 20 years and used by 20M-plus patients, it has never been introduced to major markets. We believe cytisinicline’s extensive evidence in three investigator-led P3s, combined with its ability to demonstrate superior quit rates vs. placebo in ACHV’s P2b trial, significantly de-risks its upcoming P3 readout in 1H22

·     TH upgraded to Outperform from Perform with a $6 price target saying since its 3Q20 pandemic-driven trough, Target’s Permian segment has been steadily improving via contribution from both existing/new energy end-market customers as oil prices/rig counts rebound, and views this trend persisting/strengthening into 2022E



·     HBAN upgraded from Outperform to Strong Buy as we believe recent weakness in its share price is undeserved. Intra-quarter discussions suggest that fundamentals remain solid and integration efforts are well underway. Furthermore, some investor concerns are overblown, in our view. As a result, we are incrementally bullish on HBAN shares, as we believe the current discounted valuation represents an attractive entry point for a bank that consistently generates positive operating leverage and superior profitability metrics, which should be further enhanced by the acquisition of TCF.



·     CEVA – init Neutral and $50 tgt – With an accelerating rate of new applications, driven by artificial intelligence, 5G and IoT, we see CEVA’s IP portfolio as increasingly important. Through owning CEVA shares, investors gain market exposure to these high growth markets. We believe investors have recognized this growth potential based on the recent 50+% valuation premium compared to its 5-year average



·     BKD resume Buy and $9.80 tgt as we believe the secular bottom is in for senior housing and Brookdale stands to benefit from significant operating and financial leverage as occupancy is lifted by both pent-up demand post-COVID and a multi-year demographic tailwind ahead.

·     ENSG resumed Buy and $95 tgt as believe the company’s decentralized operation model, turnaround focus, prudent financial management and value-add investment strategy have stood the test of time and is best positioned to capitalize on future consolidations in the skilled nursing industry.

·     HCSG resume Hold and $31 tgt – We think the market recognizes the subdued growth profile near term and view the current valuation as fair. A consistently growing dividend yielding 2.6% today should appeal to income and growth investors. We would be more constructive if there was better visibility on the path to accelerate growth.

·     MD resumed Hold and $30 tgt – We believe the company’s dominant market share in neonatal ICU (NICU) and maternal fetal medicine gives it an edge in acquiring physician practices and expanding into other pediatrics and obstetrics adjacencies. Dispositions of MedData, radiology and anesthesiology businesses are expected to improve margin and reduce earnings volatility.

·     SGRY resume Hold and $61 tgt – We believe the company benefits from the favorable long-term trend of aging demographics, increased healthcare utilization, as well as, higher volume and complexity surgical cases moving to lower cost ambulatory settings. Near term, SGRY benefits from a rebound in elective surgeries and favorable case mix that bucks the seasonal trend



·     PTON tgt to $135 from $120 – Peloton’s commercial business has been a small percentage of sales at 1% and has largely consisted of sales of bikes and memberships to hotels. With the acquisition of Precor, Peloton also gained access to Precor’s commercial customers in hospitality (e.g., hotels), education (e.g., universities), and other industries. The corporate program is another way to acquire new members and increase the affordability of its products. Over the next few years, we also believe sales of certified pre-owned bikes presents a meaningful opportunity to attract new members. The recent offer to select digital members seems to be a smart way to test the program



·     CCL, NCLH, RCL – Yield outperformance in the last 4-5 years has been driven by strong demand across deployments. As an almost entirely fixed cost business, cruise lines are able to bring increases in ticket price to the EPS and returns line. With cruise yields continuing to grow, the industry is benefitting from new millennial demand adding to the Baby Boomer demographic that continues to drive growth. We believe improved cruise demand is also tied to a broader consumer desire for accumulating experiences rather than objects. With measured supply growth and with early days of improved technology enhancing revenue management, we believe cruise operators could still deliver strong yield growth over the medium to longer term, though coronavirus could temporarily impair earnings, which means 2020 might not represent underlying earnings outlook for the cruise operators

·     Commercial Real Estate – SPG, SLG, PLD, BXP – More than 60% of CRE brokers expect the market to be generally stronger over the next 3 months. This is according to the UBS Evidence Lab survey of 100 US CRE brokers that gathers views and insights into the state of the market across the industrial, office, multifamily, and retail (malls, strips, and retail net lease) sectors. The survey ran from May 11-June 4, required brokers to work for a firm with a minimum of 10 brokers, and focused on major metros/states. As we develop a time series, the survey should provide unique insights into the trajectory of demand. More specifically, 100% of industrial and retail net lease brokers, 85% of multifamily brokers, and 67% of strip center brokers expecting the market to be stronger over the next 3 months. Conversely, 50% of office brokers and 75% of mall brokers expect their respective markets to be weaker over the next 3 months



·     CUBI – Heading into 2Q earnings, we remain very positive on Customers Bancorp (CUBI). We are raising our 2Q21 EPS forecast to $2.11 (was $1.73) and increasing our 2021 and 2022 EPS estimates to $7.19 (was $5.73) and to $6.18 (was $5.25) mostly due to recognition of PPP fees, but we also increased our core NIM and average loan growth assumptions. Additionally, we are raising our price target to $51 (was $42) as we shifted our targeted TBV from 4Q21 to 4Q22 (projected to be $41.51) while using a target multiple of only 1.22X vs. our mid-cap peers currently trading at 1.85X and CUBI at 1.32X

·     CGNT – In a fertile cyber security backdrop and given Cognyte’s proprietary Israeli R&D roots and entrenched government installed base, we believe the company is poised to ratchet up its growth profile over the next few years and represents a compelling name for tech investors to own. With its differentiated security platform and approach, Cognyte has built a strong customer list around the globe that has only added to its security domain expertise with roots out of its highly impressive Israeli R&D DNA. While we maintain our OUTPERFORM rating, we are lowering our price target from $45 to $40 reflecting a lower multiple

·     MSFT – Our recent June quarter checks upticked yet again as the Azure cloud growth story is hitting its next gear of growth in Redmond. We are seeing deal sizes continue to increase markedly as enterprise-wide digital transformation shifts are accelerating with CIOs all focused on readying their respective enterprises for a cloud driven architecture. We believe the Street’s view of moderating cloud growth on the other side of this 16-month WFH cycle is contrary to the deal activity MSFT is seeing in the field with a robust June quarter likely around the corner.



·     TWLO – We maintain our positive stance on TWLO (+ the addition of Segment), derived from the company’s best-in-class platform for next-gen communications, impressive execution at scale and differentiated product roadmap. Hosted a call with a CDP (Customer Data Platform) expert to look closer at Twilio’s acquisition of Segment, what it could mean for the business, and Twilio’s pursuit of a broader customer engagement platform. Our main takeaway is that Segment bolsters the vision around providing a holistic view of the customer by bringing a data intelligence layer to Twilio’s existing platform

·     CE – Following continued strength in acetic acid prices through the quarter, we reiterate our OW rating on CE and raise our estimates for 2Q and FY2021. We believe strong market fundamentals are supported in the near-term, with the potential for +$900m annual acetyl chain EBIT in 2023. For Engineered Materials (EM), we see strong volume growth from existing end markets (electronics, medical, and automotive) and new drivers (mobility (EV‘s), thermoplastics) to drive mid-DD growth from $550m in 2021 to $700-750m in 2023

·     NFLX – We see NFLX transitioning from Growth to GARP as the stock sheds its net add past and re-emerges as an earnings growth company. We think bottom-line performance is becoming steady enough that the company could even provide longer-term EPS growth guidance. Our PEG analysis suggests steady share price appreciation, so we like the current entry point

·     DBRG – Investor Day helped affirm our bullish thesis, with guidance raises for 2021/2023, along with initial guidance ranges for 2025. We believe DBRG remains a “story” stock, in that a substantial portion of its future value is predicated on inorganic expansion—either through deploying capital in its IM business or M&A on-balance sheet. But DBRG presented a framework through 2025 that, in our view, is not only achievable, but likely beatable.

·     MCD – Investors remain focused on the potential NT and LT benefits of the BTS promotion to U.S. SSS (where we remain bullish) however many may be missing the rapid re-opening of key IOM markets and the associated potential for a sharp acceleration in IOM SSS in 2Q21 results/3Q to-date commentary. IOM is a larger driver of profits than the U.S., and our 2Q/3Q our IOM store profits are $167/$132MM ahead of consensus, or add 6%/4% of potential upside to consensus EBITDA. With shares trading at 1.1x the S&P 500’s EV/EBITDA, or near the 5-year floor, we see little room to absorb positive estimate revisions without moving higher, and we continue to view the stock’s NTM risk-reward favorably at current levels

·     ICE – Based on our estimates, ICE is currently valued as the cheapest U.S. exchange on P/E (it trades essentially on top of CBOE) which is an extremely rare occurrence in its time as a public company. The stock has significantly lagged so far this year as investors are concerned about how a slow-down in mortgage activity will affect the company’s fast growing Mortgage Tech business. While this concern is valid, we think ICE stock is now in a better position to outperform



·     SF upgraded from Underperform to Outperform – While shares having lagged the peer group YTD (+23%, vs. Retail Broker peers +34%), the fundamentals have been better than anticipated, supporting: 1) Stronger EPS growth algorithm; 2) Higher excess capital generation; and 3) upside to cons. IB / Trading forecasts (as share gains should more than offset normalization headwinds).











Rating abbreviations…

***OP = Outperform

***SP = Sector Perform

***UP = Underperform

***OW = Overweight

***EW = Equal-weight

***UW = Underweight

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Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.