Barron’s is bullish on Morgan Stanley and Samsung

Barron’s, the weekly publication owned by the Wall Street Journal, in its latest issue mentions several names: 

Stockwinners offers Barron's review of Stockwinners offers stocks to buy, stocks to watch, upgrades, downgrades, earnings, Stocks to Buy On Margin

 

BULLISH  MENTIONS

Caesars looks ready to grow again – After a disastrous 2008 leveraged buyout, Wall Street seems to have warmed to Caesars (CZR) story this year in a strong market for casino operators, Andrew Bary writes in this week’s edition of Barron’s. With a bankruptcy filing settled, the company’s shares have surged this year, and the gambling giant could hit $18, up 50% in the next 18 months, he adds.

Coach shares look undervalued, could rise nearly 30% – Coach (COH), which has announced that it would be changing its name to Tapestry, is finally on the right path to growth, Emily Bary writes in this week’s edition of Barron’s. Recent acquisitions and brand-loyalty initiatives should help the company maintain its market share, and in the next 12 months the shares could return nearly 30%, including dividends, she adds.

DowDuPont shares likely to return as much as 30% over next year – If DowDuPont (DWDP) can cut $3B from its yearly costs and attract a higher valuation by splitting into three parts, the shares stand to return 15%-30% over the next year, including dividends, Jack Hough writes in this week’s edition of Barron’s.

Lufthansa has more room to climb – Amid competitor’s troubles, Lufthansa (DLAKY) has scored an “upgrade to first class,” Victor Reklaitis writes in this week’s edition of Barron’s. However, several bulls say other factors will be bigger drivers, seeing the stock’s price rising to $35.36 due to a range of tailwinds, and implying a rally of about 20%, he adds.

Another 20% gain in Morgan Stanley stock likely – In a follow-up story, Barron’s says Morgan Stanley’s (MS) strategic response to the financial crisis proves more resilient than others,’ and another 20% gain in the stock is likely.

Samsung has lots of upside driven by chips/screens – Samsung (SSNLF)  stock is up 50% this year and it is still cheap, Assif Shameen writes in this week’s edition of Barron’s. While the company is known for smartphones, Samsung lives off semiconductors and screens, with analysts estimating that chips will generate 70% of profits and screens 13%, he adds.

BEARISH MENTIONS

Market pounds United, sees American/Delta as possibly safe bets – United Continental’s (UAL) earnings were bad news for the company, with shares dropping after the carrier reported better than expected earnings but offered guidance that suggested that its fourth quarter earnings would miss, Ben Levisohn writes in this week’s edition of Barron’s. While Delta Air Lines (DAL) and American Airlines (AAL) followed their peer lower, their shares did not go much lower, as the Market seems to see the two airlines as possibly safe bets, he adds.

Regulators inquiries fuel speculation about big tech breakup – Facebook (FB), Amazon (AMZN) and Alphabet (GOOG; GOOGL) deserve a lot of the credit for last week’s record stock market highs but their positive effect will now depend on how they respond to U.S. and European regulators, Tiernan Ray writes in this week’s edition of Barron’s. European inquiries and those from the U.S.’s Federal Trade Commission have prompted speculation about the breakup of these companies, he adds. And it is not only antitrust issues that are in play, as many see the huge amounts of personal data that these companies are amassing as troubling, Ray contends.


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GE Disappoints!

GE shocks with ‘unacceptable’ results, guidance cut

GE gets $15B contract from Saudi Arabia

Shares of General Electric (GE) are lower in Friday’s  trading after the company reported quarterly profit that missed consensus estimates by 20c per share.

GE also cut its outlook for fiscal 2017 as new CEO John Flannery called the results “unacceptable.”

MISS AND CUT

GE this morning reported third quarter industrial operating earnings per share of 29c excluding restructuring charges, missing analysts’ estimates of 49c.

Total revenue for the quarter was $33.47B, which beat analysts’ expectations of $32.56B.

The company said that while the majority of its business units had “solid” earnings performance, “this was offset by a decline in Power performance in a difficult market.” “This was a very challenging quarter,” CEO John Flannery said.

Looking ahead, GE cut its FY17 EPS view to $1.05-$1.10 from $1.60-$1.70, well below estimates of $1.53.

“We are focused on redefining our culture, running our businesses better, and reducing our complexity,” Flannery added.

EXECUTIVE COMMENTARY

On GE’s earnings call, Flannery said the results were “unacceptable to say the least” and that while there are many areas of strength at the company, “it’s clear we need to make some major changes.”

Flannery said GE is doing “deep dives” on all aspects of the company, adding that “everything is on the table and there have been no sacred cows.” The company has started to outline its restructuring plans, saying it plans to exit more than $20B of its businesses in the next one to two years, but noted that the dividend is a “priority.”

STRATEGY UPDATE UPCOMING

GE is planning to update its company strategy and 2018 framework on November 13. Flannery has already been cutting jobs, research operations and corporate jets and cars.

PERSONNEL CHANGES

GE has also undertaken personnel changes, including the earlier-than-expected retirement of Chairman Jeff Immelt. According to a spokeswoman, “[Immelt felt Flannery] is prepared to be chairman and CEO now and leaving GE allows him to look at opportunities outside the company.”

Additionally, on October 6, GE said CFO Jeff Bornstein would leave the company on December 31 and will be succeeded by GE Transportation CEO Jamie Miller.

Bornstein said on today’s earnings call that GE was not “living up to our own standards or investor standards and the buck stops with me.”

Earlier this month, GE announced the election of Trian Fund’s Ed Garden to its board to replace Robert Lane, who is retiring. Trian’s Nelson Peltz said he had pushed to get Garden on GE’s board to “bring a fresh mindset.”

‘SHOCKING’ RESULTS

Deutsche Bank analyst John Inch called GE’s weaker than expected Q3 results this morning “shocking,” noting that the company “falls well short” of generating enough cash to pay its $8B common dividend from operations, which raises the prospects of a pending dividend cut and/or raising financial leverage to pay for the dividend. He has a Sell rating and $21 price target on GE shares.

Meanwhile, Citi analyst Andrew Kaplowitz said the earnings report indicates that the mounting challenges developing over time in the Power business now appear to be fully materializing. Kaplowitz, who has a Buy rating and $31 price target on GE, thinks shares could potentially be approaching a bottom.

PRICE ACTION

GE shares are down about 3%  at $22.72, improving quickly from their opening lows. The early drop pushes the stock’s year-to-date losses to nearly 30%. Shares have a 52-weeks trading range of $22.10 – $32.38.


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PayPal reports today

What to watch in PayPal earnings report

PayPal reports today. See Stockwinners.com for a review

PayPal (PYPL) is scheduled to report results of its third fiscal quarter after market close on October 19, with a conference call scheduled for 5:00 pm EDT.

What to watch for

1. OUTLOOK:

During the company’s last earnings call, PayPal said it sees 2017 earnings per share between $1.80-$1.84, and 2017 revenue between $12.775B-$12.875B. The company also said it foresees third quarter earnings per share of 42c-44c, and revenue of $3.14B-$3.19B.

2. VENMO POTENTIAL

Last month, KeyBanc analyst Josh Beck raised his price target for PayPal to $70 from $66 saying his proprietary Key First Look debit/credit card database suggests Venmo is more incremental than cannibalistic, generally better than market expectations.

On October 3, Deutsche Bank analyst Bryan Keane also raised his price target for PayPal shares to $77, citing the company’s Venmo monetization opportunity that could help push PayPal’s mid-term guidance of 16%-17% revenue growth and stable to slightly expanding operating margins higher. Venmo offers “exciting” potential avenues to accelerate revenue growth, relieve take rate pressure and drive higher operating margins, the analyst contended.

Meanwhile, Stephens analyst Brett Huff also increased his price target on the shares to $73 from $65 after PayPal said Venmo mobile payments were now accepted at greater than 2M merchants. The analyst, who thinks this is a better-than-expected-start for the long-anticipated Venmo monetization, reiterated an Overweight rating on the stock. 3.

UPSIDE AHEAD

On August 21, Craig-Hallum analyst Brad Berning argued in a research note that PayPal and Vantiv (VNTV) are both winning market share within the global secular growth of payments converting to digital from cash and check, and could be $100 stocks by 2020.

A few days later, Barron’s said that despite the rise in PayPal’s shares, the stock still had upside as innovations could lift it another 16%.

Earlier this month, Morgan Stanley analyst James Faucette was also bullish on PayPal, upgrading the stock to Overweight as he believes the company is among the few large entities that can deliver high-teens revenue and 20% EPS growth.

Meanwhile, Nomura Instinet analyst Bill Carcache raised his price target for PayPal to $75 saying PayPal deserves to trade at 30-times earnings, or three-turn premium to other payment networks. The company is “uniquely positioned” to gain market share as payment network volumes continue their shift from physical to digital channels, Carcache contended.

4. POTENTIAL M&A

On September 27, Bernstein analyst Lisa Ellis told investors that she believes PayPal will likely make a strategic acquisition in the coming months. While there are a number of potential candidates, the analyst sees the acquisition of a European payments asset as the most likely. On the flip side, Ellis argued that it is unlikely PayPal would be acquired as few players can afford over $75B, and PayPal is likely more valuable independent than owned by those that could.

5. PARTNERSHIPS

On August 2, Microsoft’s (MSFT) Skype said in a blog post that it has “developed Send Money, a Skype feature that allows you to transfer funds via the latest Skype mobile app while you’re in the middle of a conversation using PayPal.”

A day later, Mastercard (MA) and PayPal also announced an extension of their partnership into Asia and earlier this month, an expansion of their partnership into Canada, Europe, Latin America and the Caribbean and the Middle East and Africa.

PYPL last traded at $66.56.


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Things turn ugly for Ulta Beauty

Ulta drops as Piper survey shows slowdown in teens’ beauty spending 

$ULTA Beauty spending lower. See Stockwinners.com for details

Shares of Ulta Beauty (ULTA) dropped in Wednesday’s trading after the cosmetics retailer was downgraded at Piper Jaffray, which cited a survey showing a slowdown in beauty spending by teenagers.

Ulta had been removed from the Conviction Buy list at Goldman Sachs earlier this week and also received a price target cut at Oppenheimer yesterday.

SLOWDOWN IN SPENDING

Piper Jaffray analyst Erinn #Murphy downgraded Ulta to Neutral from Overweight and cut her price target for shares to $210 from $260.

In a note to clients, Murphy said her firm’s Fall 2017 Teen Survey results indicated spending declines of 13% in color cosmetics among all female teenagers. While skincare declines were “less bad,” down 7% year-over-year, overall beauty wallet was down low-double digits.

She also noted that Piper saw broader signs of strength from LVMH’s (LVMUY) Sephora, and that Sephora’s Beauty Insider program has gained share while Ulta’s Ultimate Rewards Program has lost share.

Murphy said she is “incrementally concerned” on current category dynamics.

REMOVAL FROM CONVICTION BUY LIST

Earlier this week, Goldman analyst Matthew #Fassler removed Ulta from the firm’s Conviction Buy List and lowered his price target to $267 from $290, telling clients that recent data points suggest a “more complicated path to recovery.”

Oppenheimer analyst Rupesh Parikh this week cut his price target for Ulta to $210 from $250 as he believes sustained outperformance is “less likely” from here and sees a more competitive brick and mortar landscape in the coming quarters.

STILL A BUYING OPPORTUNITY

One analyst still seems positive on the stock, however.

William Blair analyst Dan #Hofkin said in a note yesterday that while he recognizes concerns surrounding slower industry growth, “the Amazon (AMZN) overhang,” and the lull in the beauty industry, he believes Ulta is “differentiated” and positioned to deliver strong earnings and sales growth going forward.

He does not believe Amazon is having a materially larger impact on Ulta than a year ago.

Ulta also faces competition from department stores like Macy’s (M), which are discounting high-end cosmetics and offering rewards, but Hofkin, who has an Outperform rating on Ulta shares, said he has not seen material changes in department stores’ approach to beauty and believes they have not impacted Ulta to-date.

WHAT’S NOTABLE

In August, Ulta reported quarterly comparable sales that declined from last year.

The earnings report followed “softer” commentary from L’Oreal (LRLCY) on its earnings call regarding trends in its North American beauty business, increasing promotional activity from the department store channel and more difficult year-over-year comparisons that “could now signal a potentially more challenging beauty backdrop going forward.”

OTHERS TO WATCH

e.l.f. Beauty (ELF) is down 2.6% this morning after Piper’s Murphy lowered her price target on shares, while Sally Beauty (SBH) is fractionally lower.

PRICE ACTION

In Wednesday’s trading, shares of Ulta Beauty are down 1.25% to $199.77. Shares are down nearly 22% year-to-date.


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IBM Reports Today

What to watch for in IBM’s earnings report

IBM Reports today. See Stockwinners.com for details

IBM (IBM) is scheduled to report results of its third fiscal quarter after the market close on October 17, with a conference call scheduled for 5:00 pm ET.

What to watch for:

1. FY EPS CONSENSUS UP A TICK: Along with its last report, IBM reaffirmed its fiscal 2017 adjusted earnings per share guidance of at least $13.80. At the time, analysts expected the company to report FY17 adjusted EPS of $13.68, but that figure has since risen to $13.75.

2. CLOUD GROWTH: In its last report, IBM reported second quarter Cloud revenue of $3.9B, which marked a 17% year-over-year increase, excluding constant currency. On its quarterly conference call, the company said that Cloud made up roughly 20% of total revenue in Q2 and noted that it added more “leading” companies to IBM Cloud in the quarter.

3. TRUMP FORUM: On August 16, the New York Times reported that members of President Trump’s Strategic and Policy Forum were on the verge of disbanding following controversial comments the president made following the white nationalist rally in Charlottesville, Virginia. The council included BlackRock’s (BLK) Laurence Fink and IBM chief executive officer Ginni Rometty.

Before members of the forum could officially make a decision on the matter, President Trump tweeted that he was ending the forum, saying he was trying to avoid “putting pressure on the businesspeople of the Manufacturing Council & Strategy & Policy Forum.” In response, Rometty said that the forum could not serve its purpose any longer, according to CNBC.

4. BLOCKCHAIN: On Monday, IBM announced a new blockchain banking solution to “address the processes of universal cross-border payments.” The service, which is called IBM Blockchain, is intended to improve the speed at which banks both clear and settle payment transactions on a single network in near real time, the company said.

IBM added that it has convened an initial group of diverse banking leaders as part of the development and deployment process, including Banco Bilbao Vizcaya Argentaria, Bank Danamon Indonesia, Bank Mandiri, Bank Negara Indonesia, Bank Permata, Bank Rakyat Indonesia, Kasikornbank Thailand, Mizuho Financial Group, National Australia Bank, Rizal Commercial Banking Corp. Philippines, Sumitomo Mitsui Financial Group, TD Bank, Wizdraw of WorldCom Finance, and other financial institutions.

Blockchain technology has been used as a core component of the digital currency bitcoin.


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Intralinks sold for $1 billion

Siris Capital affiliates to acquire Intralinks from Synchronoss for $1B

Synchronoss sells Intralin for $1 billion. See Stockwinners.com for details

Siris Capital Group announced that investment funds affiliated with Siris have entered into a definitive agreement to acquire 100% of the common stock of Intralinks Holdings, a wholly owned subsidiary of Synchronoss Technologies (SNCR).

Investment funds affiliated with Siris have also entered into a definitive agreement to make an investment in convertible preferred equity of Synchronoss.

Under the terms of the agreements, investment funds affiliated with Siris will acquire all of the stock of Intralinks for approximately $1B in consideration and Intralinks will become an independent, privately owned portfolio company of investment funds affiliated with Siris.

Under the terms of the agreements, investment funds affiliated with Siris will make an investment in convertible preferred equity of Synchronoss in an amount of $185M.

Siris’ investment would initially be convertible into approximately 19.8% of Synchronoss’ common stock and would involve certain approval and governance rights, including with respect to the composition of the board as well as certain consent rights relating to the company.

The investment in Synchronoss is subject to specified closing conditions, including the closing of the sale of Intralinks, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and other foreign antitrust regulatory approvals, as well as certain other regulatory conditions.

The investment is expected to be consummated in the first quarter of 2018.

Equity financing will be provided by investment funds affiliated with Siris and certain co-investors.

Committed debt financing for the Intralinks transaction will be provided by RBC Capital Markets, Golub Capital, and Macquarie Capital. Evercore, Macquarie Capital, Moelis & Company LLC, and RBC Capital Markets are acting as financial advisors to Siris.

Wachtell, Lipton, Rosen & Katz is acting as corporate counsel to Siris and Greenberg Traurig, LLP is acting as financing counsel to Siris in connection with the transactions.Goldman Sachs & Co. and PJT Partners are acting as financial advisors and Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP is acting as legal advisor to Synchronoss in connection with the transactions.

SNCR closed at $13.73.


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Netflix Reports Today

What to watch in Netflix earnings report

Disney loss having minimal impact on Netflix subscribers. See Stockwinners.com Market Radar to read more

Netflix (NFLX) is scheduled to report results of its third fiscal quarter after market close on October 16, with a conference call scheduled for 6:00 pm ET.

What to watch:

1. SUBSCRIBER FORECASTS, PRICE HIKE:

Netflix’s subscriber numbers are a closely-watched measure of the company’s growth trajectory. Last quarter, the company reported streaming net additions of 5.2M members, including second quarter U.S. additions of 1.07M and international additions of 4.14M members. Turning to its Q3 outlook, Netflix had forecast streaming net additions of 750,000 in the U.S. and international streaming net additions of 3.65M. On October 5, Netflix announced a price increase in the U.S., U.K., and other select markets, noting that the last time it had changed prices in the U.S. was 2015.

2. NO ‘UN-GRANDFATHERING’ THIS TIME:

A number of analysts have been bullish about Netflix shares since its price increase announcement, voicing support for its pricing power.

Morgan Stanley analyst Benjamin #Swinburne raised his price target on Netflix shares to $225 from $210, stating that he expects less of a churn impact from its new domestic price increases. He estimates that higher average revenue per user will more than offset the estimated near-term subscriber impact from the price increases and raised his 2018 revenue estimates to reflect that view.

Stifel analyst Scott #Devitt raised his price target on Netflix to $230 from $200 ahead of the company’s Q3 earnings report, saying he expects “healthy subscriber trends” in the quarter and for the current price increase to be much less disruptive than last year.

Meanwhile, Goldman analyst Heath #Terry believes Netflix consensus subscriber estimates are too low, particularly for Q4 and beyond. Terry’s second half net subscriber addition forecast of 13.9M is considerably above consensus of 10.8M, which he believes management is likely to exceed.

Terry also boosted Netflix’s price target to $235 from $200 on faster top-line growth and revised estimates and reiterated his Buy rating on the shares. 3.

BULLISH EVEN BEFORE HIKE:

Early this month, before the company announced its price increase plans, UBS and Piper Jaffray predicted that the company’s third quarter subscriber data would come in above expectations.

The positive momentum that Netflix saw in the second quarter continued at similar rates in the third quarter, wrote analyst Doug #Mitchelson on October 4, noting that the continued strong year-over-year subscriber growth “across almost all markets” came despite a downturn in the quality of the company’s original programming last quarter. He raised his Q3 U.S. net subscriber addition estimate by 100,000 to 850,000 and increased his Q3 international net add estimate by 300,000 to 3.95M.

Meanwhile, on the same day, Piper Jaffray‘s Michael #Olson said that after analyzing Google search trends he believed that Netflix’s international and domestic subscriber growth beat expectations last quarter.

The analyst said the search data suggests that the company’s U.S. subscriber base jumped 16% in Q3, while its foreign subscriber base surged by 71% year-over-year, both of which were better than the consensus growth outlook at that time.

OPTIONS  MARKET

Pre-earnings options volume in Netflix is 1.6x normal with calls leading puts 8:7. Implied volatility suggests the market is anticipating a move near 11.9%, or $23.79, after results are released. Median move over the past eight quarters is 10.6%.

NFLX last traded at $201.18, up $1.69.


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