Morgan Stanley Bets on These 3 Stocks; Sees Over 40% Upside
Did the stock market’s epic rally just need a little breather? The last few weeks have seen stocks experience their first meaningful correction since the bull market kicked off in March. Now, the question swirling around the Street is, will the rally pick back up again, or is more downside on the way?According to Morgan Stanley’s chief U.S. equity strategist Mike Wilson, uncertainty regarding the presidential election and stalemate on the next stimulus package could lead to declines in September and October. “On the correction, there’s still downside as markets digest the risk of congressional gridlock on the next fiscal deal. While we think something will ultimately get done, it will likely take another few weeks to get it over the goal line,” he noted.However, Wilson argues the recent volatility in no way signals the end of the current bull market. “We think this correction is just that, a correction in a new bull market. It’s normal for markets to pullback after such an incredible run like we’ve experienced since March. Furthermore, when a new bull market coincides with a new economic cycle, the bull market usually runs for years, not months,” the strategist explained.Taking Wilson’s outlook to heart, our focus shifted to three stocks getting a thumbs up from Morgan Stanley. As the firm’s analysts see over 50% upside potential in store for each, we used TipRanks’ database to get the full scoop.Akero Therapeutics (AKRO)With its innovative medicines designed to restore metabolic balance and halt the progression of NASH, a severe form of nonalcoholic fatty liver disease, Akero Therapeutics wants to address the unmet medical needs of patients from all over the world. Based on the strength of its lead candidate, Morgan Stanley is pounding the table.Representing the firm, 5-star analyst Matthew Harrison tells clients that AKRO’s treatment for NASH, efruxifermin (EFX), has a “best-in-class profile.” EFX is the company’s lead asset and was designed to mimic the biological activity of fibroblast growth factor 21 (FGF21), which regulates multiple metabolic pathways and cellular processes, to reduce liver fat and inflammation, reverse fibrosis, increase insulin sensitivity and improve lipoproteins.According to Harrison, NASH is a complex disease, with patients usually having multiple co-morbidities like obesity, type-2 diabetes, increased triglycerides, increased LDL cholesterol and low HDL cholesterol. “A promising therapeutic solution would not only treat the multiple components of NASH but would also have an acceptable side effect profile given the potential co-morbidities,” the analyst explained.That’s where AKRO’s therapy comes in. “In June, Akero presented best-in-class data from its Phase 2a study. This data indicates that EFX improved the two liver histological endpoints recommended by the FDA along with resulting in weight loss, improving cardiovascular health (increasing good HDL cholesterol, decreasing triglycerides, not raising bad LDL cholesterol), and improving factors related to controlling blood glucose levels. This benefit/risk profile beats the competition,” Harrison stated.Looking at the indication as a whole, Harrison views NASH as a very large opportunity given that roughly 20 million people in the U.S. suffer from the condition.The analyst, however, acknowledges there are commercial hurdles. One of these is the fact that “NASH is currently undiagnosed in all but a very small percentage of the prevalent pool since diagnosis currently requires an invasive liver biopsy.” Therefore, along with demonstrating a positive benefit/risk profile, AKRO will need to find patients and secure payer support should the candidate receive FDA approval, in Harrison’s opinion.That said, Harrison believes AKRO is up for the task. “We believe that given EFX’s clean safety profile and broad-based effects, Akero will likely largely overcome these commercial hurdles,” he commented.Harrison added, “Importantly, since Akero’s treatment is injectable, we only assume the drug will penetrate into the population of the most sick patients where there are currently at least 400,000 patients diagnosed and seeking treatment in the U.S.” To this end, he assigns a 60% probability of success, and estimates unadjusted peak sales for the U.S. and the EU will land at $4.5 billion.Based on all of the above, Harrison rates AKRO an Overweight (i.e. Buy) along with a $70 price target. Should his thesis play out, a potential twelve-month gain of 93% could be in the cards. (To watch Harrison’s track record, click here)Are other analysts in agreement? They are. Only Buy ratings, 6, in fact, have been issued in the last three months. Therefore, the message is clear: AKRO is a Strong Buy. Given the $58.50 average price target, shares could rise 61% in the next year. (See AKRO stock analysis on TipRanks)TransDigm Group (TDG)Next up we have TransDigm Group, which is one of the top producers, designers and suppliers of highly engineered aerospace components, systems and subsystems. Its products are used on nearly all commercial and military aircrafts in service today. Given its ability to weather the COVID-19 storm, Morgan Stanley sees a bright future ahead.Morgan Stanley analyst Kristine Liwag stated, “We view TransDigm as the most defensible business model in commercial aerospace.” However, this is not to say the company hasn’t been confronted with serious challenges.Over the past few years, management has had to grapple with how to price its defense business, the sustainability of its pricing strategy in aerospace, the durability of its levered balance sheet and the ability to weather a downturn. That said, Liwag remains optimistic going forward. “TDG has overcome short thesis after short thesis in the past few years and we do not expect these concerns to repeat,” she noted.According to Liwag, TDG’s “ability to hold on to margins during a global pandemic” conveys its operating strength. To this end, her estimate for EBITDA margins is well above the rest of the Street’s. The analyst also points out that the company cut its SG&A expense by $89 million year-over-year in fiscal Q3 2020. “We assume the company will retain at least half of those savings, with the remainder returning in the form of variable selling expenses,” she said.Liwag added, “We are positive on TransDigm, particularly as recovery in global air traffic would be favorable for TransDigm’s core profit maker, the aftermarket. Additionally, we view it positively that TDG has the means to acquire weaker players.”Back in April, management raised $1.5 billion of additional debt to trim liquidity risks and provide an extra cushion. “A large debt load is part of management’s strategy to provide private equity like return for its shareholders. Historically, the company has used debt to acquire businesses with similar attributes to TDG’s portfolio of 90% proprietary products and 75% sole sourced. If passenger air traffic continues to normalize, we would expect TDG to use its incremental capital to acquire struggling businesses that fit its strategy,” Liwag commented.All of this prompted Liwag to leave her bullish call and $772 price target unchanged. This target conveys her confidence in TDG’s ability to climb 48% higher in the next year. (To watch Liwag’s track record, click here)Looking at the consensus breakdown, 7 Buys and 5 Holds have been published in the last three months. Therefore, TDG gets a Moderate Buy consensus rating. Based on the $500.58 average price target, shares are poised to stay range-bound for now. (See TDG stock analysis on TipRanks)Cemex SAB (CX)Cemex counts itself as one of the leading players in the building materials industry, with the company manufacturing and distributing cement, ready-mix concrete and aggregates. As its risk/reward profile has just gotten more positive, now could be the time to snap up shares, so says Morgan Stanley.Covering the stock for Morgan Stanley, analyst Nikolaj Lippmann believes that CX’s bullish guidance for the third quarter and FY20, which was significantly ahead of consensus, was “the catalyst that builds a bridge to a favorable risk-reward shift.” On top of this, the stock is trading at 6.4 2020e EV/EBITDA, which is cheap compared to its historical performance and its peers, according to the analyst.That being said, Lippmann argues “CX is mainly a good, strong deleveraging story with a call option on what could be an exceptional U.S. cement market if the U.S. Congress approves an infrastructure package in 2021… If we get a U.S. infrastructure package beyond 2020, it would add icing to the cake, we think, and take the market from good to possibly great.”Although a large multi-year package is dependent upon the outcomes of the U.S. presidential and congressional elections, even in the base case, Lippmann expects cement to show pricing power in the U.S.It should be noted that Lippmann thinks it’s possible the next year will be relatively uneventful, but in that case, he expects the industry to pause at 90% capacity utilization and grow from there. On top of this, pricing in Mexico has been holding up. This “limits the downside risk materially and helps skew the risk-reward positively,” in Lippmann’s opinion.What else is working in CX’s favor? The cement demand year-to-date has pleasantly surprised Lippmann, with upside seen during the first stage of the pandemic. He points to DIY and Department of Transportation maintenance work during periods of low traffic, and strong residential construction as the drivers of this demand.Everything that CX has going for it convinced Lippmann to rate the stock an Overweight (i.e. Buy). Along with the call, he attached a $6 price target, suggesting 50% upside potential. (To watch Lippmann’s track record, click here)Turning to the rest of the analyst community, opinions are split almost evenly. 6 Buys and 5 Holds add up to a Moderate Buy consensus rating. At $4.16, the average price target implies 4% upside potential. (See Cemex stock analysis on TipRanks)To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
United Natural Drops 3.4% As CEO Retires
United Natural Foods fell 3.4% in extended trading on Monday after the company announced the retirement of its CEO Steven L. Spinner. Spinner will leave the food products company once a successor is appointed or his term ends on July 31, 2021. He will remain on the Board as Executive Chairman following his retirement.The announcement comes as United Natural Foods’ (UNFI) reported strong 4Q results on Monday. Adjusted EPS increased to $1.06 from $0.35 in the year-ago quarter, surpassing analysts’ expectations of $0.74. The company’s bottom-line results mainly benefited from higher revenues and income tax benefits.The company’s 4Q revenues of $6.76 billion beat the Street consensus of $6.63 billion. Quarterly sales grew 8% year-over-year on a 13-week comparable basis mainly driven by strong customer demand and benefits from cross-selling. The company’s retail identical store sales jumped 21% year-on-year during the quarter. (See UNFI stock analysis on TipRanks).In 4Q, United Natural Foods recorded an income tax benefit of 17.5% compared with a tax expense of 56% on pre-tax income in the year-ago quarter. The change in 4Q effective tax rate was mainly due to additional tax benefit from the US Coronavirus Aid, Relief, and Economic Security (CARES) Act.For fiscal 2021, the company expects revenues and adjusted EPS in the range of $27-$27.8 billion and $3.05-$3.55, respectively.Last month, Oppenheimer analyst Rupesh Parikh reiterated a Hold rating on the stock following a virtual meeting with the company’s senior management including, CFO John Howard and CMO Chris Testa. In a note to investors, Parikh wrote, “We remain on the sidelines with UNFI driven primarily by elevated leverage levels and limited cash generation. We believe the company is well positioned to benefit N-T from elevated demand related to the current COVID-19 backdrop.”Overall, the rest of the Street has a cautiously optimistic outlook on UNFI with a Moderate Buy analyst consensus. With shares up nearly 119% year-to-date, the average price target of $25.50 implies further upside potential of approximately 33% to current levels.Related News: Thor Industries Pops 6%, Posts Strong 4Q Earnings On RV Demand AAR Soars 10%, Beats 1Q Estimates Despite Covid’s Impact Guggenheim Lifts Boston Beer’s PT To ‘Street High’ More recent articles from Smarter Analyst: * Uber Wins Appeal To Restore UK Operating License; Street Stays Bullish * United Airlines Up 5%, Pilots Approve Reduced Schedule To Avert 2,850 Furloughs * Sina To Be Taken Private In $2.6B Bid; Shares Gain 6% * GE’s GE9X Engine For Boeing’s New 777X Jet Gets US Certification
Air Force Completes 8-Year B-1 Bomber Battle Station Upgrade
The Air Force just wound up a major upgrade on its B-1B Lancer fleet that took eight years to complete.
The service announced that it finished the Integrated Battle Station, or IBS, modification earlier this month on 60 of the 62 long-range bombers in its inventory. Two aircraft are routinely reserved for testing operations.
To keep the Lancer viable in the future battlespace, the Air Force initiated IBS, likely the largest and most complicated modification the bomber will see in the near term — in 2012. The B-1 fleet is expected to be fully retired by 2036.
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Roughly 120 maintainers working in shifts executed 1,050,000 hours of planned work at the Oklahoma City Air Logistics Complex at Tinker Air Force Base to give “the flight deck a whole new look,” according to a service news release.
“This upgrade drastically improves aircrew situational awareness with color displays, and enhanced navigation and communication systems are projected to significantly enhance B-1B mission readiness,” Lt. Col. James Couch, 10th Flight Test Squadron commander, said in the release.
“All aircraft outfitted with the Integrated Battle Station modification enhancements provide the four members of the aircraft with much greater ‘battlefield’ awareness of surrounding threats, whether those threats are air-to-air or ground-to-air, and provides a much faster capability to execute both defensive and offensive maneuvers needed in any conflict,” Rodney Shepard, 567th Aircraft Maintenance Squadron director, added in the release.
In 2017, the upgrade was more than half done, with 33 planes converted to the new system.
The modifications targeted three developmental programs for the bomber: the central integrated test system, a fully integrated data link, and the vertical situation display upgrade, according to officials who spoke with Military.com at the time.
The central integrated test system, or CITS, works as a diagnostic and recording system to give crew more information in flight, as well as diagnostic information for maintainers on the ground, Master Sgt. Brian Hudson, a B-1 avionics manager at Air Force Global Strike Command, explained during an interview in 2017.
The plane is already outfitted with the Joint Range Extension Applications Protocol, known as JREAP, which extends tactical data link communications over long-distance networks. But the Fully Integrated Data Link, or FIDL, gives “the addition of Link 16, so really what FIDL [does] is to add Link 16 and integrate with beyond-line-of-site JREAP, and merge those two together and push that information onto the displays inside a cockpit,” added Maj. Jeremy Stover, B-1 program element monitor and instructor weapons systems officer, in 2017.
Link 16 supports digital exchange of imagery and data in near-real time with aircraft, ships and some ground vehicles.
The total program cost for the IBS upgrade is estimated at $1.1 billion, officials said.
“Big thanks to the team at Tinker for doing a remarkable job retooling the B-1 and getting it back in the fight,” Gen. Tim Ray, the AFGSC commander, said in the release following the completion of the program. “The work the B-1 and our Airmen are doing is a great example of how we’re making a huge impact on Dynamic Force Employment to support the National Defense Strategy. These modifications have revitalized the B-1 for the high-end fight, allowing our precision strike force to remain strategically predictable but operationally unpredictable.”
During the Air Force Association’s virtual Air, Space and Cyber conference earlier this month, Ray said the readiness of the bomber fleet is improving, and its recovery and maintenance are well ahead of schedule, thanks to concentrated resources dedicated to bringing the workhorse airframe out of its previous abysmal state.
“[The Lancer is] probably six or seven months ahead of where we thought it would be,” he said Sept. 16.
“On any given day, I probably can fly well over 20 of the B-1s,” Ray said, referencing the fleet’s mission-capable rate, or the ability to fly at a moment’s notice to conduct operations.
Within the last year, the airframe has endured frequent inspections and time compliance technical orders, or TCTOs, which often mandate modifications, comprehensive equipment inspections or installation of new equipment.
The additional maintenance was necessary after the service overcommitted its only supersonic heavy payload bomber to operations in the Middle East over the last decade; the repeated deployments caused the aircraft to deteriorate more quickly than expected, Ray said last year.
The Air Force wants to downsize its Lancer fleet by 17 aircraft. In its 2021 fiscal budget request, it asked lawmakers to divest bombers that need repeated structural work, which will cost the service more in upkeep than modernization efforts, officials have said.
— Oriana Pawlyk can be reached at email@example.com. Follow her on Twitter at @Oriana0214.
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Cleveland-Cliffs CEO Says Focus After ArcelorMittal Deal is Emissions
(Bloomberg) — The head of Cleveland-Cliffs Inc. sees an “era of clean steel” ahead, and its main focus will be on cutting carbon emissions as it expands production of the metal with a second major acquisition this year.Cliffs, which on Monday said it will purchase the U.S. operations of ArcelorMittal SA for $1.4 billion, plans to change the mix of raw materials going into the newly acquired blast furnaces, Chief Executive Officer Lourenco Goncalves said in an interview. While those furnaces typically use iron ore pellets and coking coal, the Ohio-based company will substitute hot-briquetted iron for some of the pellets, allowing them to use less coal, he said.The push comes amid stricter emissions rules globally and demand from steel customers including automakers for supply chains that are lower in carbon emissions, which are tied to global warming. Steel production has among the world’s largest footprints, accounting for about 8% of global carbon dioxide emissions in 2018, according to McKinsey & Co.“The era of clean steel in the United States is starting right now,” Goncalves said by phone. “And another thing — it’s not going to happen in 10 years: it’s going to start next year.”Cliffs currently sells hot-briquetted iron to steelmakers that use electric-arc furnaces, while blast furnaces such as those from integrated producers such as Mittal usually rely on the pellet-coking coal mix. Goncalves said he doesn’t know how much the shift will cut emissions, nor exactly what the final mix will be for his steel production, but that its emissions will be lower than other producers including those in Europe and China.Goncalves also signaled that he doesn’t anticipate layoffs in the acquisition, pointing to Cliffs’ purchase of AK Steel Holding Corp. in March, just as the coronavirus pandemic started.“We don’t acquire to cut, we acquire to grow,” Goncalves said. “The employees at the plants love what they are seeing because they’re not only employed, they’re busier, they’re producing more and they are making more money”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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