Morning Reads

Morning Reads

• Unions Reach Tentative Pact on Eve of Deadline
• Households a Wild Card
• A Chinese Spy
• New Inflation Developments
• Ray Dalio Does the Math: Rates at 4.5% Would Sink Stocks by 20%
• Janet Yellen Will Pledge 5,000
• U.S. Senate to Grill SEC’s Gensler Over Climate, China and Crypto
• F.D.A.’s Drug Industry Fees Fuel Concerns Over Influence
• Ethereum Finishes Long-Awaited Energy-Saving ‘Merge’ Upgrade
• The Founder of Patagonia
• At Detroit Auto Show
• Shell Names New CEO as Longtime Boss Steps Down
• California Files Antitrust Lawsuit Against Amazon
• Inside Starbucks’ Plan to Speed Up Service
• The World’s Best Business Schools, Ranked
• Disney to Roll Out Israeli Superhero

Futures

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Analysts

Upgrades

• Atlantic Equities upgraded Activision Blizzard (ATVI) to Overweight from Neutral with a price target of $84, down from $95. The firm views the stock's risk/reward as positive given the substantial upside if the Microsoft (MSFT) acquisition is approved and much more limited downside if the deal does not complete. On a standalone basis, the firm believes Activision has started delivering on its strong content pipeline, which should see the company return to meaningful growth in 2023.
• Berenberg upgraded Hilton Worldwide (HLT) to Buy from Hold with a price target of $152, up from $140. The firm says the accelerating recovery in lodging has yet to be reflected in the shares. The firm now has Buy ratings on all hotel operators under the firm's coverage.
• Wolfe Research upgraded Masimo (MASI) to Outperform from Peer Perform with a $165 price target. The firm sees mid-to-high teens annual return potential next couple years.
• Evercore ISI upgraded Netflix (NFLX) to Outperform from In Line with a price target of $300, up from $245. The firm notes the company's advertising supported tier and password sharing revenue opportunities constitute catalysts that can drive a "material reacceleration" in revenue growth. The firm does not believe these opportunities are factored into current Street estimates or into the stock's current valuation. The firm thinks the global streaming market remains attractive, Netflix is the "proven market leader," and that the business model has proven its operating margin leverage and is in the process of generating substantial free cash flow.
  
  

Downgrades

• Wolfe Research downgraded Phillips 66 (PSX) to Peer Perform from Outperform. While Margolin believes Phillips' business mix warrants a premium multiple to its peers, and that its pending DCP transaction is fundamentally sound, the firm believes Phillips' peers are better positioned to deliver shareholder returns catalysts.
• Goldman downgraded Quanta Services (PWR) to Neutral from Buy with an unchanged price target of $150, representing 6% upside. The firm believes Quanta is a best-in-class equity expression of the specialty contractors levered to the trends in the electric grid transmission and distribution, and renewable generation markets, but believes these tailwinds are appropriately priced into the stock.

Others

• DA Davidson initiated coverage of KnowBe4 (KNBE) with a Buy rating and $25 price target. The firm notes the company offers a "best of breed" product addressing the under-funded "human element" of security. The firm is also positive on KnowBe4's large and growing addressable market along with a massive $359M cross-sell opportunity with their current installed base.
• Barclays initiated coverage of Axon Enterprise (AXON) with an Overweight rating and $147 price target. The firm notes Axon is a "unique" hardware and software provider to the public safety market that should benefit from high-teens revenue growth, gross margin of 60%-plus, operating leverage and ramping cash flow generation.
  
• Stifel resumed coverage of Bumble (BMBL) with a Buy rating and $35 price target. The firm is positive on the company's continued growth in North America and faster growth in international markets, particularly in India. The firm adds that Bumble App user and download growth have outpaced other brands as of late, also noting that the company's new monetization efforts, such as Compliments, virtual goods, and segment-specific bundling are not contemplated in the firm's model.

This Morning

• S&P 500 futures are 0.2% below fair value; the Nasdaq 100 futures are 0.2% below fair value; and the DJIA futures are in-line with fair value
• Key factors driving the futures market:
  • Lackluster rebound effort on Wednesday following huge losses on Tuesday has tempered buy-the-dip interest
  • Wait-and-see attitude in front of huge slate of economic data at 8:30 a.m. ET
  • Rising Treasury yields
  • Modest weakness in most mega-cap stocks
• President Biden says national rail strike to be avoided as tentative labor agreement has been reached
• PBOC leaves interest rates unchanged
• Japan's August imports stronger than expected (+49.9% yr/yr) while exports are weaker than expected (+22.1% yr/yr)
• Arconic (ARNC) the latest materials company to cut guidance; lowers FY22 revenue and adjusted EBITDA citing operational issues, demand declines, and higher energy costs
• Humana (HUM) raises FY22 EPS guidance to ~$25.00 from ~$24.75
• Adobe (ADBE) to buy FIGMA in $20 bln cash-and-stock deal; tops Q3 EPS estimate and guides Q4 above consensus; ADBE -7.5%
• Brokerage research calls of note:
  • Upgrades: ATVI, HLT, H, MAR, NFLX, DECK, GSK, NOK, JWN, NVS, EOG, WYNN
  • Downgrades: EA, AZN, CVI, DVN, ERIC, KSS, PSX
• WTI crude futures -1,0% to $87.58/bbl; nat gas futures -6.1% to $8.56/mmbtu; copper futures -1.0% to $3.48/lb.
• 2-yr note yield +7 bps to 3.84% and 10-yr note yield +5 bps to 3.46%
• Today's economic data: August Retail Sales, Weekly Initial Jobless Claims, Philadelphia Fed Index, New York Empire Manufacturing Survey, and August Import/Export Prices at 8:30 a.m. ET; August Industrial Production and Capacity Utilization at 9:15 a.m. ET; and July Business Inventories at 10:00 a.m. ET