Mid-Morning Look: June 22, 2021

Street Recommendations

Tuesday, June 22, 2021


·     TSM init Buy and $150 tgt – We believe Taiwan Semi is positioned for multiple years of exceptional growth given an expanding array of drivers in the technology economy. These include accelerated digitization driving demand for traditional IT products and edge devices such as PCs and smartphones; cyclical drivers such as 5G and the emergence of cloud data center; and longer-term drivers such as AI, M2M, IoT, robotics, and autonomous



·     RMD init Neutral and $240 tgt – Short-run comps challenging – pandemic drove extraordinary ventilator demand. However, sleep volume seems to be recovering with reopening and Philips’ recall seems a unique short-run opportunity for share capture. Net, with relative valuation above historical average, calendar 2022 seems more interesting – tough COVID comps cycled, fuller AirSense 11 launch, perhaps more confidence around AHRQ impact or lack thereof



·     MAXR init Neutral and $45 tgt – This reflects a relative EV/EBITDA multiple on 2023 estimates. Maxar is a space technology and intelligence company which participates in two distinct areas of the satellite market. Earth Intelligence is associated with imagery both capturing and analyzing

·     BMRN – reit Buy and $110 tgt – With the Voxzogo launch and the 2H22 rollout of Roctavian (hemophilia A) in the US / EU, we see a new product cycle that should dramatically change the BioMarin narrative and with only $15-20/share in Voxzogo/Roctavian value currently embedded. Our latest launch scenario analysis reveals that even a slow Voxzogo launch and discounted likelihood of success (LOS; 90% for Voxzogo, 72% for Roctavian) for the late-stage pipeline implies >20% potential upside to the stock; below our base case PO with 35% implied upside



·     Ford (F) tgt raised to $17 from $15, GM tgt raised to $74 from $70 in auto space



·     PYPL – We estimate the pricing change will result in ~$600-900m annual revenue tailwind. And ~$300-500m revenue impact on 2021. We believe these pricing changes were already contemplated in PayPal’s guidance, so guidance revision solely based on this pricing action is unlikely. That said, the pricing changes likely offer a nice support for take rates in the midst of eBay transition.



·     CCCC tgt lowered to $53 – C4 provided additional insight into preclinical activity of CFT7455 in Non-Hodgkin’s Lymphomas (NHLs) this past weekend at ICML. Although early, we believe data continues to support a potential best-in[1]class degrader given promising activity across multiple NHL subtypes, including Pomalyst insensitive. While IMiDs are less of a mainstay in NHL than multiple myeloma (MM), we believe these data support development in both settings, with the first Phase 1 patient dosed earlier this month

·     NTR – Raising target price to US$70. This after marking-to-market our model for recent mid-year fertilizer price surges plus NTR’s new 2021 guidance of ~13.5Mt potash sales (previously ~12.5-13Mt), making up gaps from Mosaic and presumably Belarus/BPC. Nutrien expects to earn above its prior $4.9B EBITDA guidance high-end in 2021, and consensus is already ~$5B, but we believe NTR could be on track for ~$5.5B (our new estimate, up ~17%) even assuming H2/21E fertilizer price declines from lower crop prices.

·     PH – remains our top larger-cap idea. It is becoming increasingly obvious to us that the company’s operational initiatives, which are primarily driven by its “Win Strategy,” along with its ability to add accretive acquisitions and quickly pay down debt are transitioning Parker into an earnings compounder and placing it in a higher tier of industrial companies. Nonetheless, its consistent beat-and-raise results and the recent underperformance of its shares have combined to weigh on the stock’s valuation. This gives us even greater confidence in our Outperform rating

·     Steel industry – The unprecedented rally in the U.S. spot HRC prices continued over the past two weeks, with prices +3.0% to ~$1,685/st (now +67% ytd and +284% since prices floored last August) as supply tightness persists and demand remains resilient. Looking ahead, our view remains that low inventories, resilient demand, and extended lead times will offset the impact of rising imports and upcoming domestic greenfield capacity additions, leaving prices well above historical averages for the remainder of 2021 and 2022, although we continue to assume prices will moderate somewhat in 2H’21



·     NKE – trim tgt to $153 from $162 – We point out that NKE has been supportive of the Chinese Government’s effort to ramp up its national athletic program over the years, and as such we could see a quick yet quiet resolution to current restraints, consumer-led or otherwise, on the brand. That said, potentially more disruptive to NKE is the “guochao” trend that favors consumption of national brands like Anta and Li Ning, a trend that has principally been adopted by younger, digitally savvy consumers. With respect to our 4Q estimates, we see NKE delivering an in-line quarter relative to our/consensus estimates of ~76% sales growth and $0.51 in EPS, as we believe softening sell-through China data in the last two months of the quarter will show up in weaker orders in future quarters. That said, while we believe NKE can ultimately flex its marketing and innovation muscles to overcome these hurdles and further distance itself from the competition, we could see near term sales volatility in Greater China, the brunt of which is likely to be felt in the next 1-2 quarters

·     BLI init Buy and $70 tgt – BLI is emerging as a global leader in helping researchers characterize live cells for the purpose of accelerating the development of biotherapeutics and other cell-based products, ranging from antibody therapeutics and cell therapy to gene therapy and synthetic biology. We peg the total addressable market (TAM) at ~$25 billion. BLI’s “razor/razorblade” platforms enable researchers’ access to single-cell-specific digital information and provide a means for identifying and isolating the best cells used to develop the best therapies to the market much faster and a lot cheaper.

·     EXPE – We raise our 2Q bookings estimates for EXPE with tracking showing the recovery curve bending up, moving to >$20B and ~10% above consensus. Encouraging, but the buyside is already there and we aren’t sure a strong quarter will be a catalyst. We raised numbers for AirBnB (ABNB) & Booking Holdings (BKNG) last week but held off on EXPE because our tracking tied to stayed room nights and we weren’t seeing much delta. That misses bookings for future stays though, so we re-oriented to compare traffic to bookings and that suggests material upside.

·     BNL – Meetings with Management Highlight the Evolving Net Lease Landscape; Updating Estimates; Maintain Buy & Raising PT to $27. The company is well capitalized to execute on its growth, although the recent strength in the equity markets could allow BNL to tap additional funding sources sooner than expected

·     REG – maintain our Buy rating and are raising our PT to $69 from $64. We spoke with Regency’s management team at the annual Nareit conference last week, where they reiterated full adoption of the ‘continued improvement’ scenario underpinning notably strong guidance for 2021. Indeed, Regency raised core FFO guidance by $0.33/sh and SSNOI growth target by 650 bps at their midpoints last month, attributing the renewed confidence to accelerating deferral and abatement collections leftover from 2020 and timely payments for 2021



·     KGC downgraded from Outperformer to Neutral and lower our price target from $11.25 to $8.50 on the back of the guidance revision after market on June 21, following the fire at the mill at Tasiast on June 15. Earlier in the quarter (with the Q1/21 results release), KGC had noted that Round Mountain was encountering pit wall stability issues. KGC revised its guidance lower from 2.4MGEO (+/-5%) to 2.1MGEO (+/-5%) and noted that all mining activities, including stripping to access higher-grade ore, have restarted. K



·     Midstream & Energy – maintain our Buy rating on LNG and Neutral on CQP. On the heels of our detailed cost of equity work, we believe LNG could be a $130+ stock and initiate a pair trade favoring LNG over CQP, which we believe could be ~40% undervalued relative. Our target price for LNG moves to $115/shr (from $95) and for CQP moves to $45/unit (from $42).

·     SKIL – initiate Buy and $18 tgt – Skillsoft is the largest player in the fragmented professional learning space which we are bullish on given the twin structural tailwinds of lifelong learning and the analog to digital shift. We believe SKIL is well placed to exploit this large $28Bn TAM both organically and inorganically, and return to growth, given its de-levered balance sheet, new management team, and renewed investment, all this under the tutelage of Prosus. We conservatively expect 10% topline growth and a scalable model underpinning mid to high-teens EPS growth

·     MSTR tgt cut to $360 from $450 – updating our MSTR model post-closing of the latest round of debt financing of ~ $488M that was used to purchase additional bitcoin. MSTR now holds total bitcoin of 105K worth ~$3.3B. Bitcoin has faced extreme volatility recently with the value cut in half (~$32K as of close on 06/21/21) from the peak at ~$64K in mid-April. Our target price decreases to $360 as we mark to market the value of MSTR’s post-tax bitcoin holdings and factor in new debt issuance

·     NKE – Ahead of NKE’s 4Q21 results to be reported on Thurs 6/24, we conducted a check-in survey with the Chinese consumer to see whether the Xinjiang cotton controversy was still having an impact on purchasing behavior for Nike, Adidas and other athletic brands. This follows up on our survey of 1,000 Chinese consumers conducted in April, when results showed a meaningful negative impact on demand for western athletic brands as a result of the Xinjiang controversy. Our survey results in June suggest the fallout from the controversy may be waning, however, it doesn’t seem that the controversy is entirely in the rearview mirror just yet



·     SBH upgraded Neutral to Outperform – A More Modern Sally Embraces The Vivid Color Cycle – Raising TAR $28 to $30. We see ~13% upside to Street’s FY22 EPS ($2.70E vs. Street’s $2.38) and believe near-term multiple revision will be driven by (1) Do-it-yourself (DIY) haircoloring & care trends that should remain strong post-pandemic, (2) Improving inventory management and modernization efforts that should yield margin expansion and customer growth, and (3) Solid FCF generation to de-leverage (~13% FCF yield on our FY22 FCF estimate)

·     FDX – Reit Outperform – 4QFY21 Earnings Preview: Packing Up Fiscal 2021 w/ Industry Tailwinds Intact – Reports 6/24. FDX should report strong 4QFY21 earnings given continued pricing power led by a recovery in B2B and continued ecommerce-fueled B2C demand. The y/y comp is relatively easy as work from home started in mid-March and consensus estimates are slowly rising to fit the same narrative. We anticipate EPS will come in at the high end of prior guidance and we’re in line with the Street at $5.00

·     VMEO – Best SMIDCap Ideas: Vimeo – Emerging Video SaaS Platform – VMEO is well-positioned to take share within the large and rapidly growing Video SaaS market. We expect Vimeo driven primarily by robust Enterprise adoption to generate 33% revenue growth over the next 5 years with ramping margins despite elevated investment in R&D and S&M over the next few years. Our $56 PT based on our DCF, implies ~28% upside from current share levels. At current levels, Vimeo is trading at 14.6x EV/S on our ’22 ests and ~10.8x EV/Sales based on our ’23 ests.

·     HUBG – Best SMIDCap Ideas: Raising TAR $77 to $83. HUBG appears well positioned to benefit from strong volumes robust contract pricing renewals and the anticipated improvement in rail productivity. We increase estimates and our price target to 83 from 77 to reflect current trends. This 25% upside and our view that investors appear likely to move their exposure away from early cycle trucking names lead us to name HUBG our best SMIDCap idea

·     CALX – We continue to see an outstanding long-term outlook for CALX’s operating model and shares with significant upside ahead for both rev growth and margin structure which will surprise investor expectations to the upside. We also expect CALX to generate near-term upside relative to Street estimates with the potential for upside to our Street-high outlier estimates–for CALX’s current June 2Q21 and full year CY21 periods.



·     KGC – TP revised lower to $7.50: We update our model for the lower 2021 production guidance and for the preliminary cost estimate. Our revised $7.50 TP ($8.50 previously) is based on a 50/50 weighting of NAV and CFO (adj.) valuation. Our CFO (adj.) valuation is $7.89 based on 2021/22 CFO (adj.) of $1.13 using a 7.0x multiple. Our NAV valuation is $7.39 based on $6.79 DCF using a 1.2x multiple, with adjustments at par. 2021E EPS changes to $0.55 from $0.80

·     TDOC, ACCD -drivers that accelerated healthcare consolidation in 2020 have continued in 2021, and are likely to continue for the near future. We are relatively more positive on the consolidation among digital health vendors versus an insurer or a provider acquiring a digital health entity. We believe there is more value to be captured when two entities offering different point solutions combine. Either way, the continuing consolidation will enable digital health vendors to obtain the scale and efficiencies required to succeed in the healthcare paradigm



·     DK upgraded to Neutral from Sell after relative underperformance versus peers. Since being added to the Americas Sell List on January 26, 2021, Delek US Holdings shares are +8% versus refining c-corp peers of +33% and S&P500 of +10%. In our view, the relative underperformance has been a function of tight US crude differentials, elevated leverage vs. peers, and concerns around RINs. While we remain concerned about US crude differentials and near-term profitability in the face of a still recovering macro and elevated RINs costs, we see downside risks as better reflected at current levels

·     CASY downgraded to Neutral from Buy – We lower our target multiples slightly to reflect increased near-term cost pressures specifically around OpEx led primarily by new unit additions. Risks include: COVID-19 resurgence causes longer than anticipated restrictions on self-service, loss of commuter travel/traffic thereby adversely impacting CASY’s overall margins and ability to deliver on its mid-term growth strategy;



·     PPTA init Buy and $11.25 tgt – Strong precious metal resource base with antimony component. Perpetua’s Stibnite Gold project in Idaho boasts a Measured and Indicated (M&I) gold resource of 6.0M ounces (oz), as well as 8.8Moz of M&I silver. Additionally, the M&I category contains 205.9M pounds of antimony, which is currently the largest known antimony resource in the U.S

·     SRRA reit Buy and $29 tgt – The latest results from EHA are particularly noteworthy, in our opinion, because they identified important factors that impact trial endpoints and overall survival. We believe these links between MMB therapy and successfully treating MF by mitigating anemia are integral for building the case for MMB’s adoption in the front-line setting, in combination with other anti-hematolgic malignancy agents, and/or in the overall clinical management of patients with MF



·     CHPT init Buy and $40 tgt

·     CNTA init Buy and $35 tgt



·     Gene editing – We hosted a panel discussion with gene therapy experts focused on current topics in therapy design and challenges in process design and manufacturing (webcast). Vectors based on adeno-associated viruses (AAV) have clearly emerged as one of the most promising gene delivery vehicles for in-vivo gene therapy. However, to date only two products are approved and clinical research is evolving at a rapid pace. We view the discussion as having positive takeaways for several covered companies: Generation Bio (GBIO) and gene editing company Intellia (NTLA), Taysha (TSHA), and LogicBio (LOGC)



·     SAFM – As of this writing, the SAFM shares were indicating $182, +9% post-close atop a +7% intraday move (SPX was +1% today) on a Wall Street Journal article entitled, “Sanderson Farms Explores Sale” (unconfirmed). We recommend continuing to buy the shares until they get nearer to $200; our new Dec. 2021 price target is $198, now the highest on the Street. We would not be surprised if the asking price is over $200/share. The typical 25% premium in the food-at-home group implies $195, above last Friday’s close. But based on our conversations with Mr. Sanderson over the years, we believe he sees his company as a growth story (as he should, in our view, considering that revenues have grown by a 10% CAGR over the last 20 years).



·     TWLO – Our propriety Key First Look Data shows strong underlying reopening trends for Twilio with Core 6 Consumer on Demand transactions up 65% y/y in 2Q21. Additionally, conversations with partners outline ongoing cloud contact center adoption with Twilio’s Segment strategy just emerging and could be underappreciated in consensus estimates. We are raising our revenue estimates on strong NT and MT trends and our PT to $424 on our raised revenue as we continue to see TWLO as a core growth holding, currently at 18x CY22 EV/rev vs. 30% growth peers at 27x

·     PII, HOG – Our mid-June checks and traffic data continue to evidence the retail headline deceleration (using 2019 as a baseline) and NT noise that we flagged in prior work (here, here). The limiter continues to be the lack of availability during the peak season, and while pre-sale/deposit backlogs remain at elevated levels, dealers are still flagging a deceleration in bookings from early spring volumes due to a perfect storm of longer lead times (PII lead times 6-8 weeks; RVs/ boats generally out to September+; HOG visibility limited), price dynamics (customers/dealers still waiting on MY22 clarity), and greater emphasis on immediate gratification during the selling season.



·     ROKU – reit Buy and raise tgt to $475 from $450 – All indications are pointing to an extremely strong advertising environment and connected TV should again be one of the strongest advertising platforms. In addition, Roku’s platform revenue should also benefit by the aggressive marketing by the streaming companies, the viewership growth of the Roku channel from its original/Quibi programming, and its nascent expansion moves internationally. We are raising our revenue estimates by 3-4% for this year and next. We had been cautious on Roku, concerned that competition from Amazon, Apple, Google and Comcast would impact growth, but instead the Roku’s operating system has grown to 38% of US TV’s sold

·     BLCT downgraded from Buy to Hold while cutting our price target for the shares from $15 to $7 as we adjust our model for a more challenged long-term margin structure. We are also cutting our estimates for the company’s revenue growth, solely on more conservative estimates for live-streaming gifts. We model annual top-line growth of just below 30% for the next five years. We still see BlueCity as uniquely positioned as the largest social and dating platform for the gay community in China, Thailand, Korea, and Vietnam

·     AMWD and FBHS both upgraded Buy after our cabinets survey showed sales growth remains robust into 2QCY21, and dealer traffic levels, which we view as a leading indicator, are as strong as we’ve seen in this survey. Despite concerns about tough comps and the recent pause in new residential construction, our survey gives us confidence that sentiment has gotten too negative and that sales should outpace expectations while commodity cost inflation appears to have peaked. On the back of our higher earnings estimates, our PT for AMWD goes to $100 (+$6), and for FBHS, our PT goes to $120 (+$6). As a result of our changes, there is ~20% upside potential relative to our new price targets

·     DKNG – Based on the latest monthly GGR and AGR data releases from six of the 12 states where DKNG is currently live – namely, IN, IA, MI, NJ and PA (through May), and IL (through April) – we estimate DKNG’s 2Q revenue is pacing ahead of consensus. Specifically, our analysis points to only a ~11% sequential decline in DKNG’s average daily revenue QTD, which is meaningfully better than the roughly 23% seq. top line decline that the Street is modeling for the quarter



·     STSA upgraded to Buy (from Neutral) and increasing our price target to $15 (from $7) after the company’s release of new Phase 1 STS101 data and, more importantly, new data from the ongoing ASCEND safety study that shows patients using the second-generation device and receiving additional training on the device had a ~30% increase in dose delivered, as compared to what was seen in the failed EMERGE trial. The results give us increased confidence on STS101’s likelihood of being successful in the new Phase 3 SUMMIT trial, leading us to increase our POS to 70% (from 35%)

·     SAGE tgt cut to $60 – lowering our sales estimates for Sage’s zuranolone (partnered with Biogen, covered by Mizuho analyst Salim Syed) following results from the pivotal WATERFALL data which, while technically positive from a statistical perspective, were disappointing to us and experts we have spoken to from a clinical perspective. We now assume 2030 US probability-adjusted zuranolone sales of ~$1Bn in major depressive disorder (MDD), down from ~$1.6Bn, given the relatively limited placebo-adjusted efficacy zuranolone showed in the trial, as well as a side effect profile that we find concerning for the 50mg dose.

·     CDAY – We believe Ceridian is pioneering on-demand pay with its Dayforce Wallet, which leverages its differentiated continuous payroll engine. We conservatively estimate a Wallet revenue opportunity of $1.3 billion for Ceridian’s current installed base and $21 billion across the US. Moreover, we expect the Wallet to generate $500M+ in incremental Ceridian revenue by 2026, which we believe investors have yet to fully appreciate.



·     CNTA init Overweight and $37 tgt – Centessa is a combination of 10 operating subsidiaries pursuing 16 different molecules. Each subsidiary is a single-purpose company focused on programs related to a single biological pathway. However, when aggregated, the combination does leverage the benefits of diversification/scale typically associated with larger companies. Further, investors benefit from centralized capital allocation decisions so that money can be redirected away from programs which don’t meet certain success hurdles to those that have positive data



·     AUDC init Buy and $40 tgt – e see AUDC as the global leader in enterprise session border controllers, a software product segment that is benefiting from cloud voice adoption, including UCaaS and CCaaS. We think AUDC has a strong product portfolio and, most importantly, is tightly integrated with the Microsoft Teams (MSFT, not rated) ecosystem, now with > 145M DAUs.

·     BAND init Buy and $155 tgt – We see BAND as a global leader in the fast-growing CPaaS market, where it specializes in migrating voice services to the cloud (including UCaaS) from legacy telecom infrastructure and is a challenger in API-driven messaging. Despite an increasingly competitive and complex CPaaS landscape, we see BAND’s innovation and scale in voice among global leaders as a sustainable advantage.

·     CALX init Buy and $50 tgt – With strong visibility, we see limited risk to approaching quarters, except for 4Q21 where management identified supply chain impacts from the global semiconductor shortage, which is already factored into guidance

·     DZSI init Buy and $26 tgt – We see strong potential for the company’s mobile products to gain momentum outside of APAC, while fiber access products see tailwinds from US rural broadband initiatives and Huawei displacement. We look for progress on operating margin expansion through product rationalization, growth in higher-margin Western markets and opex efficiencies.

·     EGHT init Buy and $32 tgt – We see EGHT as a UCaaS segment challenger with increasing momentum. EGHT’s strong position in UCaaS, which is benefiting from cloud adoption, digital transformation, and work location flexibility, is complemented by bundled in-house CCaaS and video collaboration products. We see the strong EGHT technology stack as its primary competitive weapon as it retools its enterprise GTM under new CEO David Sipes, who we expect to significantly improve execution

·     HLIT init Buy and $9.50 tgt – HLIT delivered a strong Q1 and set a robust outlook for the balance of C21. With strong visibility, we see limited near-term risk, except for gross margin pressure as guided, due to the pandemic and the global semiconductor shortage. Both of the company’s business units appear poised for steady growth and operating margin expansion.

·     KVHI init Buy and $14 price target. KVHI aims to expand its leadership in satellite mobile broadband services as it pivots to a recurring revenue model and migrates customers from its legacy network. We see opportunity for a return to sustained revenue growth driven primarily by the maritime segment over C21/C22, modeling 10%/10% and operating margin improvements approaching breakeven

·     RNG init Buy and $360 tgt – and are adding it to the Needham Conviction List for our coverage. We view RNG as the global leader in UCaaS, a segment that is benefiting from cloud adoption, digital transformation, and work location flexibility. We see RNG’s innovation and its massive lead in go-to-market as strong differentiators capable of supporting steady market share gains.

·     TWLO init Buy and $430 tgt – We see TWLO as a global leader in several fast-growing market segments that enable digital customer engagement. Despite an increasingly competitive landscape, we see TWLO’s innovation and unique developer-focused go-to-market as strong differentiators capable of sustaining the company’s market share. TWLO ranks among our top picks in our coverage

·     VG init Hold – we see VG as a company positioned in several fast-growing cloud communications segments, CPaaS, UCaaS, and CCaaS, but we have concerns that a lack of scale in any of them makes it tough for the company to be a leader or a disruptor against an increasingly competitive landscape. The jury remains out on an almost entirely new management team who joined VG from large companies with the aim of increasing OpEx efficiency and reshaping go-to-market.

·     VSAT init Buy and $54 tgt – We expect recent IFC wins to support a resumption of revenue growth in F22 and look for new international services and government segments to augment top-line strength. The expense of launch and turn-up will be a headwind to the operating margin, we estimate, but we anticipate steady improvement after the up-front costs are incurred.

·     ZM init Hold – While the company issued an impressive F1Q22 report with 191% y/y revenue growth and better than expected GM, we look for continued traction with Phone, particularly in enterprise, evidence of stable churn in small business, further success in the channel and/or more clarity on the monetization timing for Zapps and Zoom Events before gaining more conviction on the stock at its current valuation



·     LECO upgraded to Outperform from Perform given confidence in its attractive demand runway, material earnings upside potential, and supportive valuation. Following many years of tentative industrial investment, we anticipate a significant recovery in capex as business confidence improves and companies invest in the technologies required to be more agile, efficient, and resilient going forward. We view Lincoln Electric as a key beneficiary of renewed capital spending, with its $300M-plus of portfolio “pruning” since 2009 (structural mix enrichment) implying stronger and more profitable growth through the new cycle

·     SBH upgraded to Outperform from Peer Perform – Following a more than 20% pullback in SBH shares from recent May highs, we spent time revisiting our views. We downgraded shares in a report titled Risk/Reward Now Balanced; Downgrading to Perform (3/11/21 at $20.90). Since early March, SBH shares are down 6% vs. a 9% gain in the S&P 500. Based on our work, we are upgrading shares to Outperform from Perform and installing a $24 PT. We now see sustainable earnings power in at least the $2.35 range, vs. our $2.00 forecast at the time of the downgrade

·     GILD – is entering a potentially fruitful period (up 16% YTD), as its business slowly recovers from the COVID-19 pandemic, year-on-year comps become easier and material pipeline catalysts come into view in 2H21. We continue to highlight a name that seems to be in the Street’s penalty box, while outperforming the NBI Index (up 6% YTD) and the smaller-cap weighted XBI ETF (down 4% YTD).



·     DRI – We see significant upside to management’s F4Q guidance driven by stronger sales in each of its segments, which should drive strong margin flow-through and EBITDA upside (new RJE $405M vs. guide $345-360M). We expect FY22 guidance to embed higher food inflation (perhaps in 3-4% range), though our FY22 EPS estimate is still raised by $0.47 to $7.67 on higher sales expectations. We also believe that the company has made significant progress towards re-staffing its restaurants, with further improvement likely through the summer

·     SAR init Outperform and $30 tgt – We believe SAR will continue to modestly increase its dividend from current levels (it has raised its dividend by a penny in each of the four last quarters), with projected over-earning accreting to NAV/share. Additionally, SAR total economic return and GAAP ROE – our two benchmarks for assessing BDC performance – have broadly outperformed the BDC group. We view the risk/return as attractive at current levels.



·     AFRM init Underweight and $55 tgt – The normalization implies F2031E transaction volume (GMV) of $60.5 billion and revenues of $8 billion. We like Affirm the company, but we think AFRM the stock has moved too far ahead. Even at mature-level expense ratios and profit margins, Affirm needs to grow GMV much faster to reach current valuation. We won’t have visibility that Affirm will achieve the level of growth required until after 2024; for instance, if we valued AFRM on 2023 “mature” earnings (our calculation), AFRM would be $28/share at best.

·     CAC init Overweight and $54 tgt – Our positive disposition towards the stock rests on its consistently strong, diverse earnings profile, enviable #3 market share position in the state of Maine, EPS potential from higher rates, capital flexibility, and valuation. Looking ahead, we see the state of Maine as a post-COVID winner and anticipate continued strong earnings with an outlook for a 1.13% ROA and 11.9% ROTCE in 2022

·     MNSB init Overweight and $25.50 tgt – MainStreet is a unique, small cap bank, well-positioned in the wealthy and fast-growing DC and Virginia markets with a proven ability to grow the loan portfolio while remaining well-funded. We believe a premium valuation is warranted given the markets, loan and revenue growth outlook and pathways to higher EPS and ROTCE via higher interest rate



·     AAWW resume Buy and $90 tgt – as a leasing company, Altas is generally at the whims of the market, however that can be mitigated with good assets, a solid balance sheet, good customer mix/contract duration, and thoughtful capital allocation, which the company has in spades. Importantly, we estimate that the company still trades at a ~25% discount to mid-cycle valuations

·     ARCB resumed Buy and $70 tgt – ArcBest often gets a bad rap in investor circles from its union exposure we believe that is justifiable, in ways, because of the higher labor cost structure and productivity headwinds that come from more rigid work rules. But with a solid financial footing, a decent fleet, and a differentiated service offering, we think there is opportunity

·     ATSG resume Buy and $30 tgt – With the recent pullback in shares, ATSG is now trading at a slight discount to its 7-year historical valuations. The reason it is not a 10-year valuation is that ATSG was shrinking its fleet as DHL exited the U.S. domestic market which justifiably kept valuations depressed

·     CVLG resume Hold and $25 tgt – like the move to create a more durable earnings stream and think, over time, it will help improve the multiple if Covenant can stay ahead of the curve on the technology front. Today, however, dedicated remains a sizeable portion of the portfolio and has been under-performing on a combination of industry exposure, challenged contracts and rising wages – don’t believe these headwinds are going to resolve near-term

·     FDX resumed Buy and $339 tgt – believe FedEx is in a strong position to capitalize on secular macroeconomic tailwinds, including a significant pull-forward of global e-commerce trends. Capital investment, if implemented carefully, can help to offset the higher cost to serve for residential shipments, especially if paired with disciplined pricing and revenue quality management

·     HUBG resumed Buy and $73 tgt – We expect solid volume growth in intermodal to continue, based on persistent capacity challenges in parallel models, which could extend deeper into 2022 than most expect. As the second-largest player in the industry, we believe Hub stands to benefit.

·     JBHT resumed Hold and $165 tgt – We believe the company has reinvented itself over the last few years to become a bona fide multi-modal, asset-light logistics powerhouse. Growth and innovation have been a focus, especially at the company’s ICS division. To a degree, that growth has come at the expense of margins, but return on capital remains strong, in our view

·     KNX resumed Buy and $61 tgt – the carrier’s size, scale, and ability to capitalize on the upswing in the cycle make them attractive in this type of environment. This, however, is being discounted as concerns about supply re-entering the market permeate. We don’t see a clear path to material supply growth and believe Knight-Swift will grow earnings above consensus in 2022.

·     ODFL resumed Hold and $236 tgt – Old Dominion enjoys an industry-leading position within LTL as it continues to post record breaking operating ratios like fine clockwork. However, its current success was not always a foregone conclusion as the company’s OR was 91.9% in 3Q02 (vs. 76.1% in 1Q21). Over time, we believe the combination of talented people, a service-oriented culture and unwavering pricing/cost discipline has resulted in margins that are much higher than peers

·     SAIA resumed Hold and $200 tgt – The company continues to take market share and the industry pricing environment remains very favorable. Saia is one of the few growth stories left within the LTL space. While we do expect the company to be bigger and more profitable several years from now, we remain sensitive to valuation at current levels

·     UPS resumed Hold and $225 tgt – We think the global parcel market has changed considerably, led by the ecommerce megatrend. We see signs that UPS is responding, with new management and fresh approaches to pricing and service portfolio. It is still a behemoth, so it takes time to move the needle, but there are now more reasons to get excited about UPS, especially if we see a pullback in valuation.

·     WERN resume Buy and $60 tgt – Werner has been consistently improving results since 2016, and we believe the carrier is in a unique position to be the Southwest Airlines of the truckload industry i.e. a carrier with consistently high margins, lower relative volatility, a very solid balance sheet and a strong company culture

·     YELL resumed Hold and $7 tgt – Two generations ago, management built an empire of sand and one generation ago, management kept it together through sheer force of will, in our view. The company’s current management are seasoned operators, and we believe they have a fighting chance to extract the company from a quagmire that’s persisted for over a decade. But LTL transformations are extremely complicated undertakings, and we’ve seen more fail than succeed, so risks are high, in our view



·     PRPL – remain constructive on Purple (PRPL) into the company’s analyst meeting on June 29. In our view, recent underperformance for PRPL (-27% since April 23 vs. -1% for Russell 2000) creates a buying opportunity. Like many consumer discretionary names, PRPL is facing the inevitable slowdown in growth as COVID tailwinds fade, but the trajectory of that slowdown and ultimately the long-term earnings power, will be the determining value for PRPL. The company’s DTC segment faces incredibly difficult comparisons this quarter (+127% sales growth in 2Q20) as online sales surged at the beginning of the pandemic as stores were closed, so it is reasonable to expect DTC sales declines this quarter, though we see modest upside to our/ consensus forecast for a -8% y/y decline to $133m despite Google Trends data showing a 2Q21 weekly average of -13% y/y (Figure 1). At the same time, our checks indicate continued strong sell-through at retail partners for PRPL products, driving more upside than downside risk to our/consensus $75m 2Q21

·     CCL, NCLH, RCL – cruise lines – Despite a number of legal and regulatory complications as well as conflicting news stories in recent weeks, it seems unlikely that anything is going to derail the pending restart of the cruise industry out of the U.S., starting with Celebrity Edge on Saturday. We recently spoke with a number of travel agents that specialize in booking cruise travel in an effort to determine demand levels and get their insight into current topics within the cruise line industry. Based on these conversations, there appears to be substantial and growing demand for cruise travel, an encouraging sign particularly given the industry’s fits and starts over the past year and the challenges that has created with regards to planning travel



·     HD, LOW, TSCO – Q2 checks were favorable, valuation for HD/LOW and TSCO has compressed since last April, yet checks indicate limited underlying trend change vs Q1 peaks plus LT structural demographic tailwinds that we view underappreciated

·     Autos – Autos: look at Big Data and its play, believe both F are well positioned for this theme, w higher confidence in their LT strategy we raise tgt in Ford (F) to $18

·     EVRG downgraded to EW from OW – Shares of EVRG have significantly narrowed the valuation gap versus peers as the company has demonstrated solid execution on the Sustainability Transformation Plan (STP) out of the gate. While we consider mgmt. to be shareholder-friendly and we are confident in the company’s ability to deliver on cost controls, we are not arguing for a premium valuation on account of the below-average regulatory environment in KS

·     EMN – Following recent due diligence, we reiterate our OW rating on EMN and increase our PT from $130 to $142, as we expect both the Advanced Materials and Chemical Intermediates segments to drive near term upside. We are raising our 2021E outlook where we expect pricing and margins for Chemical Intermediates to come in stronger than expected. In addition, Advanced Materials should see a strong 2H21E given strength across key end markets including auto, consumer, packaging, and construction.

·     Online auto – we take a deeper look at GPU profiles to assess LT opportunities as CVNA, VRM and SFT move up their respective maturity curves, achieve higher levels of scale and potentially unlock ancillary benefits (such as marketplace offerings, captive financing, etc.). We believe CVNA’s notable progress towards its $4,000+ LT GPU target adds some comfort that VRM could improve over time, and we see reasons to believe eAuto retailers at scale can surpass legacy dealer profitability over time. In the NT, rising rates, factor rotation, and a tricky growth tape likely keeps NT upside in check, yet this group remains among the most compelling LT opportunities in our coverage.












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.