Mid-Morning Look: November 01, 2021

Street Recommendations

Monday, November 1, 2021


·     BAC downgraded to Underperform, expectations elevated and risk/reward unattractive. We are cutting BAC to Underperform, as we believe the risk/reward of the stock is generally unfavorable as it trades near ~2.2x TBV and ~13x-14x normalized EPS. BAC has executed well fundamentally, but we believe there are currently other names with more rate leverage, capital return potential, and more modest market expectations

·     SNCE init OP and $15 tgt – Science 37 is a clear leader in decentralized clinical trial solutions. COVID ignited DCT, we see no turning back. Science 37 is early in its growth curve but needs only a sliver of market potential to drive returns. Valuation is in the eye of the beholder, but the come-public ask is palatable and market theme and growth potential as well as SNCE’s position as the lone public pure play are too enticing to ignore.



·     AGCO downgraded to Neutral from Buy

·     LMT downgraded to Neutral from Buy

·     SWK downgraded to Underperform from Neutral

·     OSTK – we reiterate our Buy rating, raise estimates and our PO to $110 which is based on 1.3x ’22E EV/sales (was $97 on 1.2x). We remain bullish on OSTK and believe a higher multiple is warranted on: 1) Continued consumer shift to online retailers; 2) idiosyncratic drivers such as improved merchandising and product expansion and; 3) earlier stage but potentially meaningful initiatives including Canada expansion and a GSA contract. We also see a potential upcoming presentation in 2Q22 by Pelion (manages OSTK’s block chain fund) as a potential catalyst for shares

·     PINS reinstated Neutral and $57 tgt- With PayPal publicly indicating that the company is not pursuing a deal, and Pinterest setting an earnings date on Nov 4th, we are reinstating our Neutral rating. There is speculation that PayPal was deterred by stock reaction to deal leaks, or that Pinterest holders wanted a higher bid, but no official details available. The read on 4Q Online advertising from Snap and Twitter is cautious, and we maintain our view that Pinterest expectations have added risk from difficult comps from reopening and product improvements last year

·     RLX init with a Neutral rating and PO of US$6.0/ADS. As China’s leading closed system e-vapor brand, RLX enjoys the first-mover advantage with more than 60% market share currently. RLX’s brand power is also underpinned by its innovative and diverse product portfolio with new products launched every year. But regulation remains an overhang, especially if e-vapor is regulated under the conventional tobacco rule. Our EPS forecast for 2021-23 is >20% lower than market consensus, given we factor in potential regulation impact.



·     TRIP downgraded to Underweight from Overweight and cut tgt to $30 from $49



·     SPOT, ATVI, DISCA upgraded: U.S. Media & Video Games: Resuming coverage – Picking up where we left off. While we were away, company/industry developments, coupled with changes in stock prices, compel us to upgrade three stocks from Underperform to Market-Perform (SPOT, DISCA, ATVI). At SPOT, new industry data drives an increase in our global market forecast for music streaming. Multiplied against an increased forecast for long-term Gross Margins, supported by evidence in Q3 results, increases our probability-weighted target price to a level ($280) that is now in-line with the market price. Our increased streaming forecast also leads to a significant increase in our target price for WMG

·     WYNN, MLCO, LVS, MGM – Casinos – Oct GGR -83% vs. ’19; Est Nov GGR down 60’s% vs. ’19 (+90’s% m/m) assuming China’s outbreak contained soon. Macau Oct GGR -83% from Oct 2019 (-26% m/m from Sep 2021 and -40% y/y), in-line with expectations. The month’s results were significantly impacted by the first three week’s border closure stemming from Macau’s COVID outbreak. Since Oct 19, Macau has resumed quarantine-free travel with mainland China and daily visitation has been recovering and GGR improving. Visitor arrivals were 25,000+ and reached a peak of 28,000 on Oct 26 (since cross-border travel began resuming visitation’s have been 10% above Sept daily average).



·     CRWD downgraded to Neutral from Buy. Our checks lead us to believe that competition is on the rise and that tailwinds to CRWD’s growth in CY22 will downtick from CY21. As a result, we think ARR growth will likely moderate into the 40% – 45% range in a FY23 upside scenario (above current Street’s – we know). This means that investors will be faced with the difficult task of gauging the slope of a deceleration and sustainable long-term growth rates over the next 6 -12 months. Trading at almost 24x CY23E EV/sales, we think investors need to believe that CRWD can sustain revenue growth of 40% – 45%/year through 2025 to justify material upside to shares. Given our recent fieldwork, we think this view will be more difficult to defend over the near to medium term

·     TPR, CPRI – After multiple conversations with our sourcing contacts in Asia and as a follow up to our note from Sept. 13 (Supply Risks Rising), we believe production shutdowns in the South of Vietnam that began mid-July and continued through Oct. 1 have meaningfully impacted Tapestry (TPR, BUY, $61 PT) and Capri (CPRI, BUY, $83 PT) unit production, with TPR seemingly worse off. Based on our supply chain work, we believe TPR’s combined Coach and Kate Spade exposure to Vietnam is 40-45%, and for CPRI’s Michael Kors it is ~20% (Versace and Choo production is mainly in Europe with some exposure to Vietnam via sneakers production). While we hear both companies have been working on shifting production to factories in other countries, the lost unit production appears to be material, but contained to the holiday quarter and into early spring ’22.



·     CARA assume Buy and raise tgt to $33 from $30 – We are assuming coverage of Cara Therapeutics with a BUY rating, and price target of $33. Cara recently received approval for Korsuva injection (difelikefalin), which is a first-in-class treatment for chronic kidney disease-associated pruritus (CKDaP) in adults on hemodialysis. Ahead of the upcoming launch of Korsuva IV launch in the US, we believe CARA stock is significantly undervalued

·     ILMN – We reiterate our BUY rating on ILMN shares and maintain our price target at $555. Before the market open on Friday, October 29, the European Commission (EC) announced that it has adopted interim measures to restore and maintain competition following Illumina’s “early” acquisition of GRAIL. As a reminder, the EC is conducting a Phase II review and separate investigation into the merger. The EC has adopted interim measures that provide that the two companies will be kept separate and are prohibited from sharing confidential information. ILMN must also provide necessary funds for GRAIL’s operations. These measures are in line with ILMN’s previous treatment of the merger.



·     TLRY downgraded to Neutral and lower our target to $11.80 from $18. The notion that someday a Canadian LP could be the next Coca-Cola or Philip Morris of the global cannabis industry is not entirely out of place, in our view. Unlike their US counterparts, Canadian LPs are not landlocked, have access to the capital markets, do not rely on a protectionist license-restrictive system, and are testing their mettle in a competitive, federally legal, three-tier market with inter-province trade. It will take visionary leaders for the LPs to execute on a global growth strategy – plus proper corporate governance policies to attract institutional investors to support them in that journey. We believe Tilray has such a leader in CEO Irwin Simon. That said, at present, we think of the large cap Canadian LPs as momentum stocks, mostly driven by expectations about US federal reform (only expect positive news on that front, at the earliest, by late 2022), and we have difficulty making an investment case for them based on fundamentals vs. valuations

·     CERN – reiterate our Overweight and increase our price target to $90 from $87. Reported 3Q21 revenue and adjusted EPS were above our estimates and FactSet consensus. After recording a $179 million charge in 2Q21 for organizational restructuring, adjusted operating margin increased 150bps y/y. Free cash flow grew nearly 32% from year ago levels to $312 million. This is impressive to us. The company used $375 million to repurchase shares. The company narrowed its 2021 revenue guidance to approximately 5% growth from “mid-single-digit growth” and increased its adjusted EPS guidance to approximately $3.30 from $3.25. The company indicated that it continues to make good progress with the Department of Defense deployment and remains optimistic about the VA project. We are encouraged about the company’s operating performance; improved capital efficiency and share repurchases.

·     THRX init at Overweight with a 12-mo. PT of $25. Theseus is focusing on developing next-generation, pan-variant tyrosine kinase inhibitors (TKIs) for the treatment of cancers with the goal of overcoming cancer resistance. The company’s management team has a breadth of experience with developing and commercializing TKIs from ARIAD (acquired by Takeda), which has developed and commercialized three TKIs: ICLUSIG (approved 2012), ALUNBRIG (approved 2017), and EXKIVITY (approved Sep. 2021). We think the company is leveraging expertise with developing and commercializing TKIs to develop next-generation pan-variant inhibitors against de-risked targets, including KIT and epidermal growth factor receptor (EGFR), and believe this expertise creates a higher probability of success



·     BHG, CNC both downgraded to neutral in managed care – analyzed Exchange (HIX) data to assess market position and pricing for 2022 across our coverage universe (CNC, BHG, ANTM, CI, UNH, and CVS/AET). While the ACA Exchange marketplace remains a relatively small part of the insured population (4%), it can be more meaningful to select companies overweight to this market. With companies entering/expanding next year we see a more competitive backdrop and have some concerns around “land grab”, with premium decreases in 2022 in the face of higher cost trend and lower margin seen thus far in 2021. On the heels of this analysis, we downgrade BHG and CNC to Neutral

·     AVTR – reiterates a Buy rating on AVTR with a $48 PT. On the call, management provided detail around FY21 guidance (organic growth to +10-11% from +9-11% previously), including 2% of COVID tailwinds ($400mn in revs) for the year. The company increased EBITDA margin expansion guidance to >170bps from the prior ~150bps. Perhaps most importantly, management discussed the 2022 outlook noting that MSD organic growth (inclusive of ~200bps COVID headwind) with continued margin expansion was the expectation. We remain constructive on the growth outlook, particularly in the Biopharma segment given that management noted the order book remains strong and dominated by the core business vs. COVID

·     MU – reiterates a Buy with a $120 PT. DRAM pricing officially entered a correction as PC DRAM contract pricing is down 9% MoM in October, the first monthly decline in DRAM pricing since November’20. The correction in PC DRAM is due to softening demand for PCs and a buildup of excess inventory. The good news is 1Q22 is still expected to be the “worst” quarter for DRAM with pricing declining double digits before declining low single digits in 2Q21 and going up in 2H22. We expect a strong recovery for Micron and our F22 EPS estimate is 8.0% above Consensus

·     GDYN – init with a Buy rating and $35 price target. The company is fully exposed to the positive and accelerating digital transformation trend with proven technology expertise and high-quality engineering talent, supporting attractive 20%+ revenue growth for multiple years. Grid Dynamics was harder hit by the pandemic than others given its prior retail exposure but it has shown good agility to quickly retool and pivot resources and is now a more diversified entity appreciated by investors (stock is up 120%+ YTD). We believe the company deserves a slight premium multiple relative to its comps given its faster growth and to normalize for a relatively higher tax rate

·     CHTR, CMCSA – cable – Our analysis indicates Comcast and Charter have similar risks to future fiber builds, while consensus still looks too high for average cable broadband adds over the next four years. We opened a negative catalyst watch on CHTR, which retains greater risk to valuation given its premium FV/EBITDA multiple.

·     HOOD – reiterates a Buy rating on HOOD with a $51 PT. Robinhood’s equity fell by around 10% after the 3Q21 results. The firm expects its top-line cadence to sequentially slow into 4Q with softer volumes and lower market volatility, tethered to weaker account monetization. We think our estimates are now too high in 2022 to 2024, and we revise our revenue forecasts by around 15%. We taper our target price to $51 per share (from $62), and retain our Buy rating, continuing to recognize HOOD’s longer-term opportunities.



·     BURL, ROST, TJX – We are lowering estimates and price targets for BURL ($314 from $375), ROST ($136 from $144), and TJX ($81 from $87). From a modeling perspective, freight, wage and cost inflation in SG&A are likely above implied by sell side consensus into 1H:22, and EPS estimates are likely to be lowered for FY22. Our consultants and checks showed concerns over the flow of seasonal goods and inventory levels in apparel, footwear and home at ROST and BURL. All three stocks now trade 1 std dev below FY2 three-year average valuation multiples. TJX is best positioned.

·     DKNG – Reit Outperform – Report 11/5 pre – Raising our ‘21 rev estimates raised to $1.35B with no change to adj ebitda loss $586M in-line with guidance. We see the potential for a guidance raise by $100M on revenue to pass through 3Q upside. DNKG’s 3Q mkt share down q/q with July/Aug up and Sep down on promotions to drive wallet share gains which is a similar strategy in 4Q20 that yielded significant q/q improvement. For 4Q21, we think there is a little more seasonality that may need to be considered due to NFL, NBA, etc and monetization of 3Q promotional spend as well as stock underperformance typically through 3Q print

·     GWH – init with an Outperform rating and a $23.50 price target. The proliferation of low cost renewable energy like wind and solar is causing stability and resiliency issues for electrical grids around the world. ESS’s iron flow battery design is well suited to address these issues, offering a low cost, scalable technology that possesses unique operating characteristics vs. Li-ion.

·     CHTR – Reit Outperform – Good 3Q21 Rev/EBITDA Beat but The Great Pull-Fwd Hits Adds; LT FCF Story Inta – Lowering PT to $804 from $890. CHTR posted good 3Q21 rev/EBITDA results but lackluster sub adds. We understand the lack of visibility on NT sub growth, but investors are overselling the stock as our very achievable estimates and re-rated (vs. FTTH) multiple delivers an 804 PT. Meanwhile mgmt. can still invest in Mobile network capacity and RDOF with enough to buy back 12% of the mkt. cap per annum over the next 5 years



·     LYFT tgt to $69 from $84 – We preview Lyft’s 3Q21 results, which are set to be released on Nov 2. Our FY21/FY22 Adj. EPS estimates are now ($0.61)/($0.15) respectively vs prior ($0.57)/$0.30. Our FY21 Adj. EBITDA forecast is now $39.2mm vs prior $53.1mm and our FY22 forecast of the same stands at $193.3mm vs $476.9mm prior.

·     Wayfair (W) – Lower PT to $321 (from $380). We preview Wayfair’s 3Q21 results, which it will report on Nov 4. We decrease our 3Q21, 4Q21, and 2022 revenue estimates while incorporating higher shipping and fulfillment charges for the balance of 2021 as well as the 1H22. Our FY21/FY22 Adj. EBITDA estimates are now $637mm/$665mm vs. prior $685mm/$874mm. We maintain our Outperform rating.

·     TXRH – We are decreasing our 2021 EPS to $3.46 (from $3.78) and our 2022/2023 EPS to $4.04/$5.10 (from $4.78/$5.26). We are lowering our target price to $115 (from $121) based on ~23x our NTM EPS in 12 months and supported by our DCF. TXRH’s 3Q print missed expectations as elevated cost pressures weigh on the flowthrough of otherwise impressive top-line. 3Q SSS were 30.2%, reflecting 2-yr SSS of 22.3%, and momentum has continued into 4Q, with October 2-yr SSS 23.6%. Restaurant margins were 15.7%, below 3Q19’s 16.7%, as strong sales were more than offset by heightened costs, including commodity inflation of 13.9% & wage/other inflation of 15.1%



·     LTH init Buy and $21 tgt – Our positive view has a blend of both macro and micro components to it. Big picture, we see the broader fitness category as a secular winner and one that resonates with investors focused on key consumer behavioral trends. We also see LTH as fitting into the bucket of “reopening” trades that have yet to realize their full recovery potential due to lingering restrictions or trimming factors related to back to office/back to school.



·     SEAT init – initiating coverage of Vivid Seats with an In Line rating and a $16 PT (based on 4.5x ‘23E EV/Sales and 21x ‘23E EV/EBITDA). We view Vivid Seats as being well positioned for both, meaningful immediate growth in post-pandemic recovery and above-industry long term growth, driven by the company’s strategic initiatives (Brand investments, international expansion, distribution partnerships), differentiated product advantages (Skybox, Rewards/Loyalty program), and strong secular tailwinds (greater skew towards faster-growing verticals like Concerts & pent-up demand).



·     HESM – Following 3Q2021 earnings, we maintain our Buy rating on Hess Midstream LP (HESM), though we lower our 2022-2024E EBITDA estimates by 4% on average – largely driven by lower production forecasts from our E&P colleagues covering HESM’s sponsor Hess Corp (HES, Buy, covered by Neil Mehta). While we lower our price target from $32 to $30, we still see nearly 27% total return compared to our coverage median of ~11%

·     HLT tgt to $158 from $151 – Both WH and HLT reported 3Q beats with solid forward commentary, highlighting sustained strength in leisure, solid blue collar business travel, and a nascent recovery in small-and-medium sized business (SMB) travel all of which could continue into next year. Importantly, HLT highlighted larger corporate clients have been willing to accept sizable price increases in negotiated rates while forward group bookings have been strong for 2022, all setting up for a more rapid recovery

·     LTH init Neutral and $23 tgt as we see it as a solid growth story tied to the recovery of on-site fitness membership and engagement post-pandemic, along with new unit growth. The company’s long-term financial algorithm targets 10-15% in annual revenue growth, supported by 2.5-5.0% in SSS plus new unit growth. That said, we think the stock could be limited near-term given its elevated leverage, which remains above peers through 2023 per our model, along with the ongoing uncertainty tied to the cadence of the post-pandemic recovery as membership count and revenues remain below 2019 levels.

·     X pt raise from $21 to $24, maintains Sell

·     NATI pt raise from $48 to $53, maintains Buy

·     EXR pt raise from $213 to $237, maintains Buy



·     ACAD upgraded to Buy – Data from ACAD’s trofinetide (oral IGF-1 analog) Phase III LAVENDER study (n=187) in Rett syndrome (RTT) are coming soon (by YE21) and we have a positive view on the readout based on: (1) the mechanistic rationale (IGF-1 has improved symptoms in RTT patients), (2) Phase II PoC already generated (Phase III 200mg/day BID dose was stat-sig on both co-primary endpoints in Phase II), (3) our powering analysis (see below), and (4) the significant unmet need in the space (no approved therapies for RTT means regulatory bar is lower). Per ACAD management, one additional successful trial (in addition to the Phase II) will be sufficient to file an NDA in 2022. We assign a 75% PoS to this study and model ~$500MM in risk-adjusted U.S. peak sales in Rett syndrome.

·     LTH init with a Buy rating and $21 PT. Bottom line, by targeting lucrative, upper-income households with highly differentiated experiences, LTH is poised to double its membership, total revenue, and EBITDA within the next ten years, in our view. This growth is underpinned by a strategic shift towards more urban, population-dense locations supporting higher per-member spend. Although the greater capital intensity, relative to franchised wellness models, argues for a lower valuation, an ~11x multiple on 2023E EBITDA would correlate to 21% potential upside from current levels.

·     MRK – We are updating our model post MRK’s strong 3Q21 earnings. Growth momentum continues for Keytruda, Gardasil and Animal Health; the company provided updates on molnupiravir’s potential EUA (mgmt. believes EUA likely in Dec-2021 and ests. potential sales of $5-7B in 2022E). We increase our PT to $98/share from $93/share based primarily on continued strength of the Keytruda, Gardasil and Animal Health as well as a boost from shared sales of molnupiravir. Reiterate BUY

·     WMT tgt to $185 from $170 – – We think there are three important points regarding valuation: 1) We believe the market is undervaluing the Walmart US Business at only ~10 times its EBITDA; 2) We estimate that strategic investments in Flipkart, JD.com, WalMex and Dada are worth $30/share; 3) We believe the Alternative Revenue Streams represent a multi-billion value-creating opportunity, anchored by Walmart Connect. Also, we see two potential catalysts

·     ZBH – We are updating our ZBH estimates ahead of the company’s 3Q results later this week. We expect ZBH to miss on both the top- and bottom lines given the macro headwinds that cropped up during the quarter, an outcome that shouldn’t come as a surprise to investors on the heels of cautious commentary from management in September and disappointing results from several of its large-cap MedTech peers over the past two weeks. With a weak 3Q already priced in at current levels. We are lowering our PT from $205 to $185 to consider our revised forecast. With ZBH still representing an attractive way to play the (eventual) normalization in U.S. procedure volumes, in our view, we reiterate our BUY rating.



·     ARTL init Buy and $4 tgt – Artelo’s pipeline shows promise as up-and-coming cancer therapies. We initiate coverage of Artelo Biosciences with a Buy rating and 12-month price target of $4.00. We are bullish on Artelo based on the following three points: (1) ART27.13 has demonstrated the ability to increase appetite and weight in cancer patients with potential to be the first FDA-approved therapy for Cancer Anorexia and Cachexia Syndrome (CACS); (2) ART26.12, a novel fatty acid binding protein 5 (FABP5) inhibitor, shows potential to overcome tumor cell resistance; and (3) ART12.11, a cannabidiol-tetramethylpyrazine (CBD:TMP) cocrystal, shows promise in eliminating CBD polymorphisms and enhanced pharmaceutical properties

·     MNPR init Buy and $9 tgt – Monopar Therapeutics is a clinical-stage biotech company developing novel cancer therapies. The company’s lead product, Validive, is currently being investigated in a Phase 2b/3 study for the treatment of severe oral mucositis (SOM) caused by chemo- and radiotherapy treatments. SOM is one of the most serious complications of cancer treatment and can severely impact patients’ quality of life. It is also a large indication with significant unmet need with an estimated 400,000 patients per year in the U.S. and no specifically approved preventative or curative therapies



·     IP, WRK downgraded to Hold from Buy – Admittedly cheap, but we’re downgrading IP & WRK to a Hold, and cutting estimates sharply to reflect more earnings leakage, even after lowering numbers into the print. The pivot on growth slowing, inventories normalizing, & stepping up exports came 6-9 months sooner. We see op rates dipping to the low 90s in 2023 as new capacity comes online. We see no imminent catalyst & believe sentiment will sour if vol turn negative. The pivot from tight to a balanced mkt came sooner. Despite a robust demand & pricing backdrop this past year, IP & WRK have delivered disappointing results with uneven execution and have been pressured by supply chain bottlenecks & surge in inflation. While we see realized price increases driving margins higher in 2022, we now see a lot more earnings leakage & we’re cutting our estimates



·     NWL upgraded to OW – After four years on the sidelines with a Neutral rating because of the significant core sales and profitability declines since the challenged 2016 acquisition of Jarden, we feel more confident with the turnaround as management finalized the divestitures of non-core businesses in order to simplify operations and redeployed its cash flow into value accretive growth. Asset sales proceeds were used to repay debt and fueled margin accretive innovation of the last two years. We believe NWL can improve margins starting in 2Q22

·     EMN downgraded to Neutral from OW – We think it is difficult to calibrate Eastman’s 2022 earnings and would await better confirmation of its earnings trajectory before adding to positions. An uncertain auto market and contracting commodity spreads are likely to make 2022 earnings for Eastman something of a tightrope walk. Eastman is a riskier investment for 2022 but probably less so over a two-year period. The company should thrive when the auto market is growing nicely; but the resumption of global auto production growth is uncertain. We decreased our price target to $110 from $130 to reflect our lower estimates



·     HPQ – Raising our PT to $50 from $40 as HPQ’s 10/20 Analyst Day played out strong-case scenario. This now becomes a value play with catalysts as we move through 2022. Our $50 PT is 10x what we believe is $5.00 normalized EPS

·     PZZA, DPZ – We are even more positive on the shares of Papa John’s than Domino’s currently. We are confident Papa John’s and Domino’s will continue to benefit from a favorable domestic pizza QSR category environment even after the pandemic eventually subsides. Our franchisee contacts believe consumers will continue to eat and drink at home significantly more often in comparison to pre-COVID levels potentially for years to come, whether via a long-lasting change in habits and/or increased work-from-home arrangements. Also, our contacts estimate 10%+ of independents were forced to close YTD as pandemic-related government assistance dried up and this closure rate could reach 15-20% by early 2022

·     PRG, RCII – Last week pawn store operator FirstCash announced it has entered into a definitive agreement to acquire privately held virtual lease-to-own (VLTO) provider American First Finance for $1.2B. We believe this transaction—the third major VLTO deal of 2021—further highlights the industry’s attractiveness, including a large total addressable market (TAM) and long growth runway, as well as PROG Holdings (“Progressive”) and Rent-A-Center’s inexpensive valuations. For example, applying the American First Finance 2022E EBITDA multiple under a “no earnout” scenario would imply stock prices of $60 and $69 for Progressive and Rent-A-Center, respectively—both of which are well above current levels.

·     PRCH init with a Buy rating and $30 price target and expectations that the company will generate $190M in total revenues in 2021 and $301M in 2022. Our positive view is based on the company’s 1) leverage to the enormous and underserved home services market that is on the cusp of a technology awakening, 2) unique vertical solutions and disruptive business model that allow the company to break away from the multitude of existing, small private home services vendors by generating a repeatable business model of recurring subscription revenues and transactional fees on its low-priced software products and 3) recent, yet increasing exposure to the rapidly growing Insurtech market.

·     ACA init with a BUY, $63 PT based on 11x our FY22E EBITDA forecast of $322M as we see an attractive entry point and valuation for a company with an underappreciated mid- to long-term outlook. While we are below consensus for 3Q and towards the lower end of the company’s FY21E EBITDA guidance on conservatism around weather in Construction Products, short-term energy-related and steel cost concerns, and the pace recovery in Transportation Services, we are looking past the second half of this year and see a number of catalysts



·     LTH init EW and $21 tgt – LTH is a leader in fitness/wellness & recovery story, with an expanded strategy & TAM since ’15. At ~13x ’22 EBITDA, valuation fairly reflects leverage, capital intensity, Covid-driven uncertainties. We initiate EW, $21 PT, and believe confidence in membership, AUV trends is key for further upside.



·     AMD upgraded from Outperform to Market Perform w/ $120 pt. AMD has had a very strong year not only is it gaining share in the PC, server, and graphics markets, it is in the second year of a game console upgrade cycle. We are modeling revenue to increase 65% this year and non-GAAP earnings to grow by 104%. We are modeling revenue growth to slow to 21% in CY22 and non-GAAP earnings growth to slow to 30%. The growth headwind includes slower y/y growth in game console revenue from $3.5B, up 126% y/y to $4.0B up 14%

·     INTC upgraded from Underperform to Market Perform w/ $49 pt. We believe some of the parts valuation provides support for INTC’s shares at current levels. There is also an incredibly high hurdle to becoming leading-edge logic manufacturer as only 3 remain TSMC, INTC, and Samsung. The world desperately wants a second source to TSMC, and INTC is a contender due to a lack of alternatives. Holding it back is the lack of evolution over the last 15 years. Upgrading INTC to MP and lifting PT to $49.



·     ALNY upgraded to Outperform with $200 tgt – While last Thursday’s CEO transition plan announcement came as a surprise, we do not interpret John Maraganore’s upcoming departure from management and BOD as a signal of concern, and we expect effective leadership under Yvonne Greenstreet (COO since 2016) as the company’s team of capable and experienced executives remains in place. We expect shares to recover from their recent selloff (-17% since Wednesday’s close) as the market impact of the news diminishes with time.

·     SCM upgraded to Outperform – In 3Q21, SCM earned $0.66/share equating to an 18.6% ROE as it generated net gains of $10.0M, or $0.51/share. We estimate that Stellus will earn $1.55/sh and $1.13/sh from $1.09/sh and $1.11/sh in 2021 and 2022, respectively, for an ROE of 11% and 8.0%. In both years, EPS will likely cover the $1.12/sh core dividend. ROE since IPO has averaged 9.8%. We are lowering our discount rate 50 bps to 9% to reflect SCM’s lower risk profile (81% first liens)

·     LTH init with a rating of Outperform and a 12- to 18-month price target of $40. LTH represents a leading operator of large format, higher-end fitness centers, located throughout the US and Canada, and an enterprise devoted toward helping people enjoy healthier lives. Over the past several years, under private equity ownership and largely out of view of public markets, Life Time has worked to enhance further core disciplines and strengthen underlying longer-term growth and return prospects.

·     GENI and FUBO top short-term picks and DKNG remains our favorite LT idea in online gaming – The key takeaway ahead of 3Q21 OSB earnings is that into the NFL season, limited product differentiation is creating a competitive customer acquisition environment that appears unsustainable longer term. Our top observations are: 1) DKNG is prioritizing engagement and cross-selling by odds-boosting more aggressively; 2) Fanduel and BetMGM maintain top yield performance; 3) OSB providers are creating new iGaming players, Sept. NJ revenue is +40% y/y despite tougher comps; 4) Sept. handle data indicates Barstool and Caesars are gaining share; 5) GENI should benefit from strong NFL volume and development of more ad-tech solutions; 6) FUBO is trending toward another subscriber beat; soft-launched OSB in IA; checks indicate its Multiview product provides the leading sports streaming viewing experience and 7) RSI is our top event-driven stock with potential M&A or IL iGaming legalization

·     NBIX – OP rated and $140 tgt – We look forward to NBIX’s 3Q update, with particular interest in: 1) management commentary around the growth trajectory of Ingrezza including long-term potential; 2) color on the continued impact of telemedicine; 3) update on Ingrezza Sales Force expansion; 4) pipeline updates including crinecerfont and new indications for valbenazine; and 5) outlook for additional business development, which is a core capability and competitive advantage for NBIX. We look forward to top-line results from the Ph3 study of valbenazine in chorea of Huntington’s Disease (HD) by year-end and are encouraged by the two new valbenazine indications in ATS and DCP



·     KMPR downgraded to Neutral from Overweight. Last week, Kemper reported a troubling third quarter that showed further deterioration in its property-casualty insurance underwriting results. Further, it appears that it will take some time before Kemper is able to file necessary rate increases to improve its underwriting results. Upon reflection of the quarter’s results, a careful review of what was said on its earnings conference call and discussion with management we are materially reducing our EPS estimates

·     Internet security/software – Considering strong trends and mostly favorable reseller feedback, we are expecting a beat and raise scenario for CFLT, CYBR, FTNT, KNBE, RPD and VRNS. For FROG, MNDT and PING we are expecting inline to slightly better results and guides.

·     ALGN – In conjunction with ALGN’s GP Summit in Las Vegas, the company hosted an Investor Day beginning after-market on Friday, followed by a meeting with management on Saturday. Most important from an investor perspective, management stood behind its LRP and indicated being “very comfortable” delivering within the LRP’s 20-30% revenue growth window during 2022

·     EAT, WING, CAKE, and SHAK report this week – on EAT, our forward estimates are below consensus; and we do not view this quarter as the turning point. We expect WING to beat. We expect SHAK Street estimates to move lower and remain below consensus. Our CAKE estimates are generally in-line with the Street.



·     PFC downgraded to MP from OP

·     PSXP downgraded to MP from OP

·     CLAR init OP and $32 tgt



·     TRI downgraded from Outperform to Sector Perform. We continue to view Thomson Reuters as a high-quality core holding with an ability to deliver annual total returns of approximately +10%. Following the rolling forward of our valuation and updated FX/LSEG assumptions, our price target increases from US$118 to US$122. The company will report Q3/21 results on Tuesday, November 2, 2021

·     MERC downgraded to Underperform & lowers his PT to $8. We believe that the next year will be challenging for Mercer’s pulp business given the potential combination of a negative demand shock (Chinese energy curtailments) and a sharp rise in low-cost BEK capacity. While these may not all directly impact Mercer, we believe that BSKP prices are likely to be pulled down by BEK given the potential for fiber substitution which should keep relative pricing in check.

·     LTH init with an Outperform rating and a price target of $21. We view LTH as an attractive recovery story, with upside in a brand that is well-positioned to capture market share within the premium health and fitness services segment. Longer-term, we see upside from further expansion of the company’s athletic club footprint—aided by a less asset-intensive, higher return development model and new club formats— as well as extension of the Life Time brand (including digital).

·     CARG – spoke to half a dozen dealers using CarOffer & Max Cash Offer and feedback continues to reinforce our view that CarOffer has a solid and growing foothold in the used car wholesale channel, with concerns we’ve heard around the platform appearing generally one-off or fixable. Sell-side tailwinds continue to benefit CarOffer where we think likely supply/demand normalization next year can address buy-side headwinds. CarOffer needs a better localized market-based-pricing platform and we heard some grumbling over payment terms viewed as uncompetitive

·     Consumer Staples – highlights key themes/trends from companies that have reported so far this earnings season. We expect EL to be the positive stand-out for this quarter. We expect to see the most downside risk for CLX, REYN, and BGS (mainly due to cost pressures). We expect K results to hold up well for the quarter but expect a fair amount of prodding on the impact of its US cereal workforce’s ongoing strike for 4+ weeks. We worry that PRMW could miss top-line due to labor challenges. MDLZ should be in line, but we expect inflation will be a challenge to the company’s EPS algo. We are mixed on MNST (strong US offset by weakness overseas and inflationary pressures with no announcements around pricing).

·     HUBS – buyer into Q3 earnings based on positive checks. We expect strong results driven by front-office digital transformation, especially in SMB and mid-market. We believe there remains upside to 2021 numbers, despite several upward guidance revisions, and look for indications of sustained demand into 2022 where consensus 28% growth looks conservative to us.



·     ARBK init Buy and $27 tgt – We view ARBK as an ESG-friendly way to gain exposure to the quickly expanding crypto mining sector. ARBK is projected to increase its capacity fourfold by 2023, powered by 100% renewable energy. We see several catalysts driving ARBK’s forward growth including: 1) increased adoption of cryptocurrency mining/transactions, 2) rapid scale from its Texas expansion and estimated sub-$0.02/kWh power costs, and 3) flexibility beyond Bitcoin with other cryptocurrencies and blockchain endeavors

·     AIRG – Near-term, we believe that supply chain headwinds within the WiFi and cellular ecosystems pose challenges. On a positive note, cellular module demand (Nimbelink) and interest from the $1200 AirgainConnect rebate are driving significant interest. We are lowering our 3Q21 estimates to the lower end of $15-17M guidance to reflect WiFi and cellular headwinds. Despite the near-term risk, the valuation (0.9x EV/sales) and opportunity, particularly for HPUE, are intriguing. We maintain our Buy rating and lower our PT to $22.



·     AIRC, AVB and UDR reit Outperforms – With 3Q21 results now in the books, we are updating our multifamily REIT estimates and price targets. Keeping up with the unprecedented pace of recovery has admittedly been a challenge, with two or three years of pent-up demand sometimes coming through in a single year. Our 2022 estimates are substantially increased, despite our latest update being just three months ago. The question is if the strong stock performance of 2021 will continue into 2022, when peak levels of leasing activity inevitably fall into the rearview mirror. As discussed below, our answer is yes. We provide key thoughts from an eventful earnings season, and reiterate our Outperform ratings on AIRC, AVB and UDR



·     SBUX upgraded to OW from EW – Margins matter, but lower FY22 profit matters little when those investments make the FY23+ picture even better. We believe now is the time to build positions. (1) September U.S. & China comps accelerated. (2) “Bad” news is out. (3) Support from $20 bil. div/buyback program. We are upgrading from Equal-Weight to Overweight and increasing our price target from $118 to $130. Contrary to the market, we believe Starbucks is making a smart move by spending more on employee wages



·     SITM tgt to $292 from $245 – Expect another beat and raise, despite softer industry commentary on Consumer/IoT/Mobile demand (~50% of sales) – incl. AAPL’s (~15% of 2Q21 sales) supply constrained rev’s, as we anticipate SITM share gains to accelerate in key secular adoption cycles (while AAPL gradual declining % of rev’s over time).SITM highly levered to accelerating secular transition, given its valuable MEMs-based timing technology with both key performance differentiators and operational ones (shorter lead times, alternative supply source, streamlined inventory, potential for modest upside, and programmability).Maintain Buy on highly disruptive share gainer and content growth story.



·     SHAK upgraded to BUY from HOLD. Our upgrade is not a call on earnings (11/4) as we expect a miss. Instead, we believe that NT concerns around a slow urban sales recovery and inflation creates a strong buying opportunity (SHAK‘s shares are -18.4% YTD vs. +9.8% for restaurants and +22.6% for the S&P). We believe SHAK’s sales opportunity has increased throughout the COVID crisis, due to the acceleration of digital sales and improved delivery performance. We also expect less SSS cannibalization from new stores as its comp-base has grown. We are lowering ests. and our PT to $90.

·     KNSL – We are increasing our full-year 2021 EPS estimate to $5.45 from $4.82 to account for the upside in the third quarter as well as more favorable assumptions around topline growth and expenses; we are boosting our 2022 forecast to $6.50 from $5.85 to likewise reflect faster growth and greater optimism on underwriting profitability. Our price target of $230 (from $215) equates to 35x our new earnings number for next year as we think Kinsale – with its excellent prospects, both short- and long-term – should trade at the high end of the Specialty P&C group

·     EXP tgt to $172 from $164 – shares rose +7.9% (S&P 500 +1%) yesterday post close on overall results above expectations. Wallboard pricing surged yet again in the quarter and was a major piece of this quarter’s strong earnings. Cement and aggregates results rebounded as well as volumes improved. Management comments on sold out cement and potential for double-digit pricing next year also helped drive the stock. Overall, EXP is one of the few names that has both a residential and commercial end user story along with potential infrastructure.

·     MHK – shares were down 11% today (SPX +0.2%) as results were above expectations with price covering costs in 3Q21. The weaker 4Q21 guidance was driven by more surging inflation, particularly European natural gas, that is worse than other Building Product peers. Volume in quarter was also hampered by inputs, particularly LVT. These trends will continue into 1Q21 in our view, but could fade thereafter as MHK could be a prime beneficiary of deflation. Management’s share repurchases are starting to matter and could add to a substantial rebound in shares given a low valuation. Remain BUY on low valuation

·     ADS – We are adjusting our 2021/2022 rev/Adj. EPS estimates to $4,102 m/$22.17 & $3,960m/$13.72 from $4,350m/$17.77 & $4,693m/$14.47. The revisions reflect the upcoming spin of LoyaltyOne, which moves that segment to disc ops at 19% ownership. Some stock weakness ahead of the spin is to be expected. We believe 3Q21 results were strong and ADS is making progress on strategic goals. In our view, 2022 should be pivotal as new partnerships aid sales volume, macro improves, & greater efficiency is achieved. As a result, we reit our Buy rating but lower our PT to $115

·     CLR – Though Continental still has ample oil inventory remaining (50k+ Bakken & 100k+ Midcon undeveloped acres), the company is positioning itself well for future upside by proactively developing its attractive PRB play and shifting activity to its OK natural gas play. We believe CLR could soon potentially add to its PRB position after recently announcing a new large long-term acreage dedication agreement with Crestwood (CEQP – Richardson) in Converse County WY. We also believe CLR can lock in some strong gas returns given >$4/mcf pricing through 2/23.



·     SIG init with a Buy rating and $140 Price Target, 57% above the current stock price. Signet is the leading jewelry retailer worldwide (6.5% share) and has made transformational changes over the last 3.5 years. The company now has a unique omnichannel offering (eCommerce + stores), stronger pricing power, a more efficient store footprint, and fortress balance sheet. We believe these should drive sustained above-industry sales growth (3.5% organic % vs. 2%) over the next 4 years. We model a 10% 4-yr. post-pandemic EPS CAGR (CY21-25) and our CY22 EPS estimate is 27% above the Street’s view



·     Video games (ATVI, EA, MSFT) – According to NPD, September U.S. console/handheld software sales were roughly $203 million, down 39% y-o-y, and inline with our estimate of $205 million. The large year-over-year decline was driven by a stronger new release slate a year earlier. September 2020 saw the debuts of Activision Blizzard’s Tony Hawk’s Pro Skater 1 + 2, Nintendo’s Super Mario 3D All-Stars, Square Enix’s Marvel’s Avengers, and Take-Two’s NBA 2K21, with the Nintendo game enjoying a particularly strong start.

·     THRX init Outperform – THRX is a clinical-stage biopharmaceutical company developing small molecule programs in target oncology. Specifically, the company is focused on developing and commercializing next-generation “pan-variant” tyrosine kinase inhibitors (TKIs) against known targets that aim to prevent the emergence of resistant tumors, thereby improving survival. The company’s development approach is differentiated by using a novel research tool called a predictive resistance assay (PRA).

·     HEAR – Given Turtle Beach’s proven ability to maintain or build market share in various environments, its still nascent PC gaming headset and accessories segment, and its available cash for M&A and new product development in-house, we think it has plenty of runway for growth in the years ahead. We have confidence in the company’s ability to hit its 2021 revenue guidance, and accelerate growth through 2023, although its near-term profitability may be at risk given the rise in air freight costs. Turtle Beach has frequently turned to air freight in periods of heightened demand or in difficult supply environments, and gains market share in these periods by getting product on store shelves. We reiterate our OUTPERFORM rating and lower our price target to $34 from $36

·     HOG – During the Group of 20 (G-20) summit on Saturday, the Biden administration and EU officials have reportedly reached a deal that would lift steel and aluminum tariffs on at least some limited volume of imports. This appears to be in line with previous proposals of a tariff-rate quota system that would lift the tariffs on a predetermined amount of steel and aluminum imports while leaving shipments above this level subject to higher duties. In addition to finding some resolution to a Trump era trade dispute with Europe, the Biden administration was clearly motivated to do what it can to alleviate supply chain and inflationary pressures plaguing the market. On last week’s call, HOG management estimated that the company’s tariff burden would be $64M, or about $0.32 on a per-share basis. From a gross margin perspective, HOG’s GAAP gross margin guidance of 7-9% was seeing more than 100 bps of pressure this year from tariffs



·     AON downgraded to EW from OW – Following earnings, we are moving to the sidelines on AON and downgrading our rating to Equal Weight from Overweight. The shares have been on a good run lately, trading up 37.6% since pulling the Willis merger on 7/26 versus the insurance broker average excluding BRP and RYAN (up 13.4% over the same time period) and the S&P which is up 4.4%. Given the recent strength in the shares and the Q4 expense headwinds, we are using this as a time to downgrade our rating, Our price target is now $326 (up from $321) and is based on our blended P/E, EV/EBITDA, and FCF valuation analysis.

·     CION init EW and $12.50 tgt – We see earnings potential through building an SLF, increasing overall leverage and refinancing existing facilities, most of which were formed or amended during the COVID era. Origination could benefit from further incorporation into Apollo, and/or 30% bucket specialty partnerships. We model NOI of $1.28, $1.32, and $1.40 for 2021-2023, respectively. Our $12.50 PT reflects an ~10.5% forward NOI yield, which is wider than market (~9%) given CION’s execution challenges and advisory fee structure.

·     CHTR – We remain Underweight and modestly reduce our target multiple on our trim to net adds. –    The wall of worry around broadband grows higher as CHTR points to 2018 as the benchmark for 2021 net adds. The concern is that whatever is causing the slowdown today will roll into higher competition and lower sub growth in ’22+. When there are worries on Cable it’s tough to love CHTR as the biggest pureplay; cut tgt to $603 from $665

·     GH, EXAS – recently conducted a survey of primary care physicians (n = 44) to assess trends in colorectal cancer screening during the pandemic as well as appetite for a colorectal cancer screening blood test. We consider the results positive for Overweight-rated Guardant Health (GH, $116.79), which expects to begin commercializing its colorectal cancer (CRC) screening blood test next year. GH remains one of our top picks in emerging growth diagnostics. Results for Equal-weight rated Exact Sciences (EXAS, $95.22) were mixed.

·     JNJ – will host its biennial Pharmaceutical Investor meeting on Nov. 17-18. We believe this is a particularly important meeting for JNJ because its Pharma business is facing a number of patent expirations over the next few years. From 2011-20, JNJ’s Pharma business has grown at a CAGR of 7.2% (+6.4% ex-ATLN) and has been the company’s growth engine. At the investor meeting, we expect JNJ to provide a 2020-2025 Pharma sales CAGR (ex-COVID vaccine) that will be closer to our 5.0% CAGR and above consensus of 3.8%. In addition, we believe JNJ will make the case that it can grow its pharma business each year through 2025 despite the patent expirations. JNJ also plans to provide color the Pharma outlook through 2030, which we expect to be above our 2025-2030 CAGR of 1.0%.

·     RWT init with an Equal Weight rating and target price of $14. We view Redwood as a top player in the non-agency residential mortgage market. RWT also has a strong history and reputation from a credit and securitization perspective. We see further dividend growth, and book value has a tailwind from retaining earnings and mark-to-market potential. That enthusiasm is tempered by our concerns around the impact of higher interest rates on the stock.



·     CIEN – We Expect Ciena To Set The FY22 Bar Modestly To Start, Leaving Room For Upside. We believe the stock has underperformed because of general investor worry about the supply chain’s impact on revenues and margins. Also, more specifically for Ciena, investors are concerned the sell side consensus for FY22 already reflects 8% revenue growth, which is the high end of the 6%-8% guidance range the company is likely to give. We are reiterating our Buy rating despite the concerns above. We are positive on CIEN because the supply chain should not meaningfully constrain revenue growth in FY22 now that longer lead times have been factored into procurement.











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.