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This may have been one of the longest weeks in recent memory and I’m certainly ‘grateful’ it’s finally over. A mix of catalysts this week, including more incremental news on Omicron and a massive pivot from the Fed on inflation, led all three major indexes as well as MSCI Global to close lower on the week. This is a far cry from the ‘grind higher’ moves we have seen at the index level recently, especially with both the Nasdaq MSCI Global Indexes down 4+% over the past month. With carnage across almost every pocket of the market this week, weariness going into year-end could lead many investors to ‘pump the brakes’ on chasing incremental returns as PnL have seemingly evaporated since the beginning of November. The week after Thanksgiving in the US seems to kick off the holiday season, but this week’s activity has left any potential ‘holiday cheer’ much to be desired.
All of the ‘noise’ around Omicron and the Fed this week was more than enough to make my head spin. Going into the weekend, I’m spending my time thinking about three factors that should dictate the trajectory of markets: fundamentals, positioning and valuation.
On fundamentals, it feels as though one of the worst stories for a stock right now is broken growth. You don’t have to look far to find companies like Zoom (ZM), Peloton (PTON), Roku (ROKU) and DocuSign (DOCU) to understand the extent to which sentiment around these ‘exciting’ names can quickly turn to angst. After a wide miss on billings growth, DocuSign (DOCU) saw its stock price fall by over 40% in one day. Nevertheless, DocuSign (DOCU) is still meaningfully (~70%) higher than its pre-covid levels, which bulls would argue is warranted given the company has potentially proven itself beyond a covid winner with meaningful secular tailwinds. These results, however, bring into question the sustainability of the company’s growth as well as the durability of its valuation as the stock has de-rated from above 20x EV/Sales to below 14x. DocuSign (DOCU), among other names mentioned earlier and a plethora of ‘growth’ ‘winners’ may be facing the reality of how difficult it can be for companies to sustain meaningfully rapid quarterly growth against a growing base of revenue with lofty expectations.
After weeks highlighted by a ‘stock-picker paradise’ for those operating beneath the surface of indexes grinding higher, positioning may now be more important than ever. Chris Metli and the QDS team note that dispersion levels between and within sectors each fell more than 80%iles this week to the 9th and 13th %tiles, respectively (more on this below). Some of the most pronounced rotations have been out of the MS Crowded Longs (MSXXCRWD) and MS Unprofitable Tech (MSXXUPT) baskets recently, each down 16% and ~25% since the beginning of November. This has served as a meaningful challenge, as per our PB content team, Large Cap Tech and Unprofitable Tech still combine for 30% of net exposure. As indices have been held up by Large Cap Tech, bears could argue that any further degradation in markets would impact this subset of names from here. This would suggest we could be far from the bottom after two of the largest weeks of Tech selling YTD. US L/S gross and net exposure levels are at 12M lows (0th and 2nd %tiles), however on a 5Y basis, these levels are still elevated (57th and 75th %tiles, respectively), begging the question of where positioning settles out after a significant de-grossing on a short term basis. With retail turning net sellers of equities toward the end of this week and dealer gamma now neutral, the disappearance of these ‘safety nets’ for market declines presents a potentially perilous road ahead for investors.
This week could be an inflection point for how investors approach valuation for companies going forward. An accelerated tapering schedule lays the groundwork for tightening financial conditions that throw many growth-oriented valuations into question. Investors are no longer blinded by massive TAMs and shrugging off winding paths to profitability. Instead, the question now becomes ‘who will survive’(Gloria Gaynor, anyone?) against a backdrop of higher rates and the absence of Fed accommodation. Of course, it would be hard to have a price target without considering the prevailing risk of Omicron… but how do you price this in? It’s still too early to ascertain the danger of this new variant, yet ignoring it altogether could be catastrophic. Two weeks should give us enough time to assess the danger of this new strain and at the same time, see the Fed’s policy response following its December 15th FOMC Meeting.
Given the holiday season and my proclivity to be more optimistic, I think it would be worthwhile to look through some of the negative headlines from this week that distract us from what is still a strong market. We should be emboldened by the strength of the consumer and continued strength of earnings revisions going into the Q4 and into next year. The 4Q 2021 estimate is up 13% YTD vs. the 20-year average of -7% (4Q revision from start of year through 11/24 of each year). The out year estimate (2022 in this case) is up 14% YTD vs. the 20-year average of -3%. These revisions upward this year for 4Q and the out year are also much stronger than the last two years which were negative. Bottom line, revisions have been stronger into quarters/the out year than normal. Furthermore, the forward S&P multiple has de-rated several turns to ~20x, while balance sheets broadly remain strong and demand across multiple industries seems to remain quite buoyant. On the variant, bulls would argue that we are better prepared now than we ever have been for incremental challenges around covid and the Fed’s recent actions on tapering and rates were a long time coming.
I continue, like many of you, to have several observations that crossed my mind this week including…
- It’s been another very eventful week with various waves of news updates keeping investors on their toes. The Savone Family Movie of the Week is Chasing Mavericks
- With the holidays on the horizon again, it’s time to break out some of the best Christmas classics. The Holiday Bonus Movie of the Week is The Polar Express! I find this one just as entertaining for me as it is for my son. Please keep the holiday movie suggestions coming… much appreciated!
- My Cowboys traveled again on Thursday night to play the Saints in their rowdy Caesar’s Superdome in New Orleans. They left with a must needed win, although it wasn’t pretty! This team likes to keep me on my toes…
- My Hoyas and Bruins bounce back this week with much needed victories as well. The NCAAM basketball rankings have been moving around this week, and UCLA now sits in 5th with the other powerhouse teams. I hope they get another chance at taking the #1 spot...
- Looking to my team in Italy, Roma face a very strong Inter Milan team at home on Saturday. I hope they keep their hot streak going!
- Speaking of Italian athletic prestige, it seems that the college basketball world has a new star: Italian-American Paolo Banchero. He is #1-ranked Duke’s most dominant player. Could he be the next superstar player with Italian roots to reach the Hall of Fame?
- Twitter (TWTR) founder and (ex)-CEO Jack Dorsey passes on the virtual reigns to successor Parag Agrawal, making him the youngest CEO in the S&P500 at age 37. I wonder what he’ll do differently to capture the younger generations as more social media platforms come into the picture… and my wife and I do my very best to keep our 14-year old off these platforms.
- Just when I thought NYC streets couldn’t get any more crowded, Lyft (LYFT) reported that they are moving to quickly double Citi Bike dock availability to meet demand. As of December, Citi Bike has recorded 25.5M rides this year—4M more than in all of 2019…it seems that the subway has some serious competition now!
- Spotify (SPOT) has come out with its yearly “Spotify Wrapped,” which presents the data on the music you listened to all year in an engaging way. What was your favorite song of the year?
- Inspired by the Peter Lynch philosophy,I’m always looking for companies with products that are near and dear to my family’s hearts when investing… Several come to mind recently: Disney, Allbirds, Warby Parker, Lulu and Oatly. In an ideal world, pairing a great product with an attractive growth trajectory would be the ultimate result for an investment. This process has been a struggle as of late as these companies de-rate; which resonates the most with you?
- If you’re interested in our upcoming 4th Annual Space Summit next week, come hear from someone who sent people to space herself: Shayla Rivera, former NASA Rocket Scientist, Professor and Comedian is coming to us on Monday! This event is part of our ongoing Diversity & Inclusion series. If interested in attending, please click here to register for our webinar.
As mentioned earlier, a series of data points I continue to follow closely relate to dispersion levels. The ratio of dispersion between sectors vs dispersion within sectors jumped meaningfully this week to the 36th %ile from the 24th %ile last week. As noted, the fall in both dispersion between sectors (-83 %iles) and dispersion within sectors (-80 %iles) was the largest 1w decline in both of these metrics since June 2021 (and March 2021 prior to that). Chris Metli and the QDS Team highlight two dynamics currently at play: one is more macro-driven (i.e. by Fed), and the other is single-stock driven (i.e. stock pickers forced to unwind from P/L pressures). As is often the case during times of heightened volatility, it appears that the macro forces are dominating broader moves in equity prices. Please reach out to be connected with Chris Metli and the QDS team.
On positioning as of 12/2, US Equity L/S gross leverage decreased ~4% WoW to 190% while net leverage decreased ~4% WoW to 58%; this gross leverage is the lowest we’ve seen in the past 12 months. On a YTD basis, absolute performance for the US L/S remains positive, albeit at low single-digit returns (down from +7.2% last week), but relative to the S&P 500 up +20.8%, that upside capture rate remains challenged vs historical averages. Across other regions, gross leverage for EU L/S funds rose ~6% WoW to 180%, while net leverage was down ~1% WoW at 46%. Asia fund gross leverage fell ~2% WoW to 134% meanwhile net leverage fell ~4% WoW to 69%. Turning back to the US, L/S funds have de-risked into year-end amidst increased volatility levels that have pressured PnLs.
From a historical dynamic, the latest TMT unwind from April 27th to May 13th featured the MS Unprofitable Tech Basket (MSXXUPT) down ~26% and the MS High EV/Sales Basket (MSXXEVSA) down ~20%. Similarly, these two baskets are down ~27% and ~19.9%, respectively, since 11/15. Nonetheless, the magnitude of recent hedge fund selling is unique to what we saw during the TMT unwind in May. Noah Bramlage on our Prime Brokerage Content Team desk believes there are two factors at play causing this: 1) Hedge funds are monitoring their PnL cushions cautiously into year-end and 2) Retail has not been buying the recent dips (12/1 was the biggest day of net retail supply since March this year according to Chris Metli and the QDS team, where tech saw the largest outflow).
Although it will take another week or two to get a clearer picture of Omicron’s impact on this evolving pandemic, MS Biotech Analyst Matt Harrison’s base case is that Omicron will rapidly replace the Delta variant, increase infection rates and reduce vaccine effectiveness. On the bright side, Matt believes that the severity of the disease will be in line with (or possibly less than) Delta. He expects a ~50%+ drop in neutralization antibody titers given the significant mutation burden with Omicron compared to previous VOC). While the world waits for data to come out in the next few weeks, Moderna (MRNA) and Pfizer (PFE) are testing the ability of their current vaccines to neutralize Omicron. Pfizer says it could develop and produce a tailor made vaccine against a new variant in about 100 days. Meanwhile, Moderna is advancing three lines of defense in parallel: 1) have evaluated a higher dose booster of mRNA-1273 (100 µg), 2) are studying two multi-valent booster candidates in the clinic that were designed to anticipate mutations such as those that have emerged in the Omicron variant and data is expected in the coming weeks, and 3) are rapidly advancing an Omicron-specific booster candidate (mRNA-1273.529). Please reach out to be connected with Matt for information on these developments.
As scientists continue to uncover the implications of the Omicron variant, investors maintain their focus on how countries will impose restrictions on travel and activities. However, MS Chief US Equity Strategist Mike Wilson is confident the market had already baked in seasonal increases in Covid cases prior to Thanksgiving, implying that the recent selloff was as much about Omicron as it was about the market looking for an excuse to go lower. The combination of tightening financial conditions and decelerating growth is usually not bullish for stocks, and when pooled together with one of the highest valuations on record, it is evident why Mike targets 3900/4400/5000 for his 12-month S&P 500 Bear/Base/Bull cases. In all, Mike believes the investment environment is no longer rich with opportunity, meaning one must be more selective. In a world of supply shortages, Mike favors companies with high visibility on earnings due to superior pricing power or cost management. He also suggests that investors be cautious of valuation and not overpay for open-ended growth stories with questionable profitability. Mike reiterates his view on Healthcare, REITs, and Financials outperforming next year. As a reminder, names within his Fresh Money Buy List that fit within these criteria are Iqvia Holdings (IQV) and E-Trade Financial (ETFC). Please reach out to be connected with Mike and the team.
Along with Omicron, Fed Chairman Powell took the spotlight this week as he turned far more hawkish than expected. MS Chief US Economist Ellen Zentner forecasts a base case for the FOMC to announce a $30 billion/month taper pace ($20 billion/month in Treasuries and $10 billion/month in MBS), with the reduction commencing in the monthly purchase period beginning mid-January. The decision to accelerate the taper reflects the Fed’s increasing discomfort with elevated inflation and a view among policymakers that it is no longer appropriate to add accommodation to the economy. Ellen expects a sea change in the SEP dot plot alongside an accelerated taper announcement, pointing to a firm median of one hike in 2022 as a likely minimum of what we will see, with good reason to believe that the dot plot could show a median of two hikes in 2022.
Looking to November payroll numbers, Ellen highlights that the overall report was strong, despite the lower-than-anticipated headline miss on NFP. She notes that the most important data point on the report was the unemployment rate dropping 0.4pp to 4.2%, which reinforces the key thesis in her 2022 outlook: tightness in the labor market should continue to support wages, but as more labor returns, the pace of wage increases should abate. Please reach out to be connected with Ellen and the team.
Looking at the economy more closely, the MS Equity Strategy, Economics, and Corporate Credit Strategy teams collaborated on a report this week that sheds light on how the US “workers economy” will affect margins and the market. The teams highlight that labor scarcity is driving a reversal of the secular fall of the labor share of corporate income over the past two decades. Non-financial corporate profit margins have risen sharply over this period, but as labor compensation catches up with realized productivity, they could fall by one third to levels last seen in the 1990s. At the macro level, the teams believe that margin compression can offer a buffer against higher labor costs driving prices higher, helping the Fed get to maximum employment with contained inflation. At the industry level, they point out that information technology, manufacturing, and trade have seen the widest gaps between productivity and labor compensation. In all, the teams think margin compression and the impact on profitability could matter for credit profiles in the long run, but near-term credit markets are cushioned by healthy levels of EBITDA margins and ample liquidity. Please connect with the teams for a deep dive.
Looking across the pond to Europe, MS European Equity Strategist Graham Secker highlights that the Morgan Stanley’s Global Risk Demand Index (GRDI) has fallen to a 10Y low, currently at -3SD, which suggests an attractive entry point for equity investors. This indicator historically has proved to be a solid buy signal over the following three months after initial occurrence. Graham also notes that fundamentals are strong ahead of the Omicron headlines so companies effectively pass through rising costs via higher prices to consumers in a high demand environment. This boost to corporate earnings is in-line with his forecast for the corporate sector overall, which is 4% ahead of consensus for Europe by 2022 year-end. The team thinks a de-rating in MSCI Europe is unlikely, with its N12M PE now below its 12/22 target of 15 and its equity risk premium 50bps above its 5-year average. With Europe’s inflation surprise index higher than other major regions, Ross highlights a list of 26 single names that are potential beneficiaries of higher inflation, which includes Engie (ENGI FP), Sika (SIKA SW) and Tesco (TSCO LN). Please ask for the full list or to be connected with the teams.
Shifting focus to Asia, MS Asia Economist Chetan Ahya highlights that the Omicron virus poses a near-term risk to his constructive outlook on Asia. He notes that the supply chain disruption risks in India and ASEAN are higher than in Northern Asia, but their vaccinated population is also higher than before. On a brighter note, Asia’s manufacturing PMI rose to 52.5 in November as demand strengthens and supply side disruptions ease. China’s EV momentum sped up and Xpeng (XPEV US) set another monthly delivery record of 15k units in November (54%MoM), attaining its volume target one month earlier than MS and street expectations; MS China Autos Analyst Tim Hsiao has raised his price target of NIO (NIO US) to $66 this week. As the SEC finalizes HFCAA Enactment, MS Chief China Equity Strategist Laura Wang believes the trading termination of a designated company could happen as early as 2024 and provides hedging strategies and stock lists in light of this. Please ask for strategies and the full list or to be connected with the teams.
In Japan, MS Japan Economist Robert Feldman highlights that the Kishida government has ambitious plans as it declares a new growth strategy based on technology, redistribution, and enhanced economic security. While many key plans have yet to be clarified, the private sector continues to pursue productivity growth through increased investment and more rapid adoption on new technologies. MS Analyst Masahiro Ono highlights Panasonic (6752 JT) as a stock to buy ahead of January 2022, as it is expected to formulate a concrete business plan to realize benefits from its acquisition of Blue Yonder and enter the supply-chain management software market, which has a global TAM of ~$17.6 billion and CAGR over 10%. Please ask to be connected with the teams.
I wanted to highlight a few upcoming MS conferences including the 4th Annual Space Summit, taking place in person (Dec 7), the 8th Annual Auto 2.0 Conference, taking place in Las Vegas (Jan 5), and the Virtual 14th Annual Latin America Executive Conference (Jan 12-14). Companies confirmed to participate in this year’s Auto 2.0 Conference included Aptiv (APTV), Fisker (FSR), and Tesla (TSLA). These conferences are always in high demand, so be sure to reach out to your sales coverage for more information. Thank you again to the MS Global Corporate Access team for such great work around the world! Please see below for all upcoming MS Conferences & Events.
Finally, I want to congratulate our Corporate Access team for putting together another successful conference, highlighted by the conclusion of our Consumer & Retail Conference this week. The key takeaways from the conference touched on the debates surrounding consumer spending, supply chain, and inflation. The best ideas from the conference include Driven Brands (DRVN), Capri (CRPI), McDonald’s (MCD), and Caesars (CZR). Please see below for more takeaways from the conference.
Despite underwhelming headlines around Black Friday and Cyber Monday, companies generally struck a bullish tone, noting that consumers are still spending. Names all the way from Capri (CPRI) to Walmart (WMT) to Caesars (CZR) show that North America trends are continuing with a very strong US consumer this quarter. Although these names hope this bullish trend continues, investors are debating whether this is peak retail and demand will normalize next year. While nobody truly knows how much demand can be retained, there are some cracks showing up in Tech, as WFH winners like DocuSign (DOCU), Peloton (PTON), and Chegg (CHGG) are starting to show weaknesses. One outlier that spoke about greater retention going forward was Dick’s Sporting Goods (DKS), which expects share gains across key categories and sales re-basing at higher levels as they monetize new customers acquired during the pandemic. Following the conference, this name could become the next battleground stock.
Touching on supply chain, the main takeaway from the conference was that the worst headwinds are now behind us, as ports begin to operate 24/7, labor returns, and companies with scale become prioritized. Looking bigger picture, the supply chain disruption is giving scaled players an opportunity to accelerate market share from independents struggling to source product. Names like Floor & Décor (FND) are looking to take advantage of the situation and be prudent about raising price. They are looking to acquire customers who struggle to find product, make them realize their price points are competitive, and capture that customer long-term once they appreciate their value proposition. Lastly, trends in commodity inflation might be worse than expected in Q4, creating incremental earnings risk. However, bullish investors are looking through this in hopes to see relief in 2022.
Nevertheless, please find below a selection of this week's data points, charts and research from each region (Europe, US, LatAm, Asia, Japan, EEMEA) that I believe points to an inflection or material change for individual sectors, companies and/or the macro environment this week. I have tried to avoid the obvious beats and misses and instead highlight what I thought to be the more significant trends and inflection points.
Have a great weekend. Drink lots of fluids, take Vitamin C, and make sure to wash your hands!
#FORZA
Nick
*Included in my 2021 Global Ideas Deck. Please ask for the presentation.
Please see below the list of client webcasts MS is hosting over the next few days. Please note, these are widely attended events open to Morgan Stanley’s Institutional and Corporate Client base, and appropriate Morgan Stanley personnel. Webcast link information should not be forwarded or shared beyond intended recipients.
Source: Morgan Stanley US Alpha Team & Global White Phone Teams
Time (EST)
TOPIC & SPEAKERS
WEBCAST LINK
Monday, December 6, 2021
Neudata Data Insights and Scouting Summit
9:00 AM
Global Macro Forum: Omicron, Tapering, and the Implication for Markets
MS
Matthew Harrison, US Biotech Analyst
Ellen Zentner, Chief US Economist
Mike Wilson, Chief Investment Officer & Chief US Equity Strategist
Jeffrey Sun, Head of NA Oil Trading and Co-Head of Global Oil Flow
Andrew Sheets, Chief Cross-Asset Strategist
10:00 AM
MS Weekly Industrial Webcast
Link to Follow
MS
Mark van der Pluym, US Industrials Specialist Sales
Tuesday, December 7, 2021
Morgan Stanley 4th Annual Space Summit
MS Virtual Food Delivery Day
Neudata Data Insights and Scouting Summit
11:00 AM
2022 Year Ahead US Muni Outlook
MS
Michael Zezas, US Chief Municipal Strategist
Samantha Favis, Municipal Strategist
Barbara Boakye, Municipal Strategist
Wednesday, December 8, 2021
Neudata Data Insights and Scouting Summit
8:00 AM
MS QIS Spotlight
MS
Stephan Kessler, Global Head of Quantitative Investment Strategies Research
Thursday, December 9, 2021
Neudata Data Insights and Scouting Summit
8:00 AM
Morgan Stanley Research Global e-Learning: Battery
MS
Adam Jonas, Global Head of Autos & Shared Mobility
Shawn Kim, Head of Asia Tech
Grace Kim, US Autos & Shared Mobility
Tim Hsiao, Greater China Auto Parts
Jack Lu, China Specialty Chemicals, Battery & Components
9:00 AM
Global Retail and Consumer: Supply Chain Disruption Update
MS
Kimberly Greenberger, US Retail Softlines & Branded Apparel & Footwear Analyst
Edouard Aubin, EU Brands & Retail Analyst
Terence Cheng, China Consumer Analyst
Elena Mariani, EU Brands & Retail Analyst
Dustin Wei, China Consumer Analyst
Friday, December 10, 2021
8:00 AM
MSQA: Inside the Mind of an Analyst - Autos
MS
Billy Kovanis, US Autos & Shares Mobility Research Analyst
Harald Hendrikse, EU Autos & Shared Mobility Research Analyst
Rikke Jacobson, EU Industrials Specialist Sales
Mark van der Pluym, US Industrials Specialist Sales
Reyna Venkat, Thematic Investment Strategist, Institutional Equity Division
UPCOMING CONFERENCES –
Please reach out to your sales representative if you are interested in attending any of these conferences.
Dec 7 (New York) I 4th Annual Space Summit
Dec 7 (London) I Business Services, Leisure & Transport Corporate Access Day
Dec 7-9 (China) I Virtual China Wind & Solar Symposium
Dec 9-10 (Global) I Virtual Global Metaverse Symposium
Jan 5 (Las Vegas) I 8th Annual Auto 2.0 Conference
Jan 5-7 (China) I Virtual China New Economy Summit
Jan 11-12 (China) I Virtual HK/China 2021 Top Picks Outlook Seminar
Jan 12-14 (New York) I Virtual 14thAnnual Latin America Executive Conference
Jan 13-14 (China) I Virtual China Cyclicals Corporate Day 2022
Jan 18 (Asia) I Virtual Asia ESG Symposium
Mar 7-10 (San Francisco) I TMT Conference
Mar 15-17 (London) I European Financials Conference
Mar 22-24 (Hong Kong) I Virtual Hong Kong Summit
May 10-12 (London) I Virtual EEMEA Conference
May 24-26 (China) I 8th China Summit
Jun 24-26 (New York) I China BEST Conference for US & EU Investors
Aug 31-Sep 1 (Beijing) I Asia TMT Conference
Sep 5-6 (London) I Asia BEST Conference for EU
Nov 16-18 (Singapore) I 21st Asia Pacific Summit
The following comments are a summary of Morgan Stanley Research by Morgan Stanley Equity Sales & Trading:
SELECT COVID VIRUS AND TREND FOR RE-OPENING DATA POINTS
Global – Biotechnology – COVID-19 Outbreak Dynamics
MS Research Analyst Matthew Harrison provides an update on the Omicron variant. He remains focused on transmissibility and vaccine evasion where data will take ~2 weeks. Current data suggests transmissibility (Rt) is greater than Delta and lower neutralization by vaccine induced antibodies is likely which could impact protection against symptomatic disease, although he remains hopeful that protection against hospitalization is high. S gene target failure is starting to rise in England in the last 5 days (~3x) suggesting an Omicron wave is beginning to start. Unlike prior waves where the HR for reinfection was less than 1 (~0.7 for both beta and delta), the hazard ratio (HR or relative risk) for reinfection in the Omicron wave is estimated at ~2.4, suggesting substantial immune evasion versus prior infection. Download the Complete Report
US – Retail – Total Discretionary Retail Traffic
MS BROAD TRENDS & INFLECTION POINTS
Positive
ìUS – Software – Automating Real-Time Business Operations; Upgrade PATH To Overweight And APPN To Equal-weight
MS Research Analysts Keith Weiss and Sanjit Singh highlight that a growing mandate for real-time operations and resiliency looks to transform a once siloed automation mkt from tactical point solutions to more strategic end-to-end platforms. They estimate that this new category in enterprise automation has a $40 billion TAM by 2025, supporting market growth in excess of 20%. They note that three macro themes underpin the adoption of enterprise automation initiatives over next several years: 1) Growing mandate among executive leadership that business operations need to be more resilient to unforeseen changes in the business environment, 2) Increasing need for IT and operations to be able to respond in real-time to better serve customers and sustain growth, 3) A higher priority being placed on projects focusing on the automation of both business processes and manual tasks in order for enterprises to operate effectively in an increasingly competitive labor market. The team believes that MSFT (OW, $364 PT) and NOW (OW, $807 PT) are best positioned to merge as early category leaders, given their breadth of capabilities and strong expertise in process level automation. PATH ($74 PT) and APPN ($95 PT) is also well-positioned, and they upgrade PATH to Overweight and APPN to Equal-weight. Download the Complete Report
ìAsia – Transportation – Qianlei Fan and Takuya Osaka-san provide their thoughts on the shipping sector and reassess the market dynamics 2 months since their joint bullish report published in late Oct 2021. They have been calling for higher for longer shipping cycle citing three factors – supply chain disruption, DM consumption demand and contract renewals – which are playing out as expected with their checks pointing to tight supplies and solid spot rate trends even in the current low season. Stock picks: COSCO Shipping, SITC, Nippon Yusen, Mitsui OSK, Kawasaki Kisen. Download the Complete Report | Download the Complete Report
ìUS – Chemicals – Single-Use Plastic Debate Shifting From Problem To Carbon-FP Solution
Source: Company data, Morgan Stanley Research
MS Research Analyst Vincent Andrews, the Chemicals, Consumer, and Business Services teams believe that the confluence of new chemical recycling technology from Eastman (OW, $142 PT) and aggressive recycled content goals from Pepsi (OW, $172), and likely others, could lead to a tipping point in the single-use plastic debate, particularly as it relates to plastic bottles (i.e., PET). In particular, the team notes that investor and consumer perception of PET is likely to shift from a post-consumer waste “problem” to a carbon footprint reducing “solution.” The team thinks that, the impact here could be far-reaching as consumer purchasing behavior could shift away from brands with low recycled content, and government policy could potentially accelerate the proliferation of regional PET chemical recycling value chains around the world. Vincent believes that Eastman is set to be the global leader in polyester chemical recycling and his base case suggests a $10-50 per share opportunity (versus the current $110 share price, which he does not believe prices anything in). Also, Vincent and the team point out that waste management companies, such as WM (EW, $153 PT), RSG (OW, $141 PT), and WCN (OW, $150 PT), will be key to success here as sourcing post-consumer polyester will be the main determinant of the pace of chemical recycling expansion. Download the Complete Report
ìUS – Communication Infrastructure – Towers Screen Attractive As 5G Leasing Hits Its Stride; SBAC Is Preferred Name
Source: Morgan Stanley Research
MS Research Analyst Simon Flannery highlights that towers now trade at just a 5-10% premium to the REIT group with 2022 AFFO multiples of ~27x vs ~25x, which is well off the ~35% premium he saw in mid-2020 despite continuing to offer 2-3x the long-term AFFO/sh growth. He notes that while the companies put up strong 3Q results with AFFO/sh growth averaging >12%, he believes that the 5G-driven momentum is being overshadowed by macro risks (interest rates, inflation) and an ongoing preference for subsectors with more immediate pricing power (Storage, Residential). Simon points out that services businesses continue to show record trends, boding well for 2022+ growth as the Big 3 + DISH (Covered by MS Research Analyst Ben Swinburne, EW, $40 PT) race to build out nationwide 5G networks; he sees Big 3 capex rising 7% in 2022. SBAC (OW, $407 PT) is Simon’s preferred pick in the group given their leading exposure to domestic tower leasing, supportive contract structures and capital allocation optionality. He also remains OW CCI ($208 PT) with >15% total returns supported by a ~3% dividend yield. Simon also notes that potential catalysts include: 1) 2022 guidance from AMT (EW, $294 PT) and SBAC in February, 2) Clarity on DISH's network build progress, 3) Spectrum auction updates, and 4) Resolution of the C-Band FAA delay. Download the Complete Report
ìîUS – Cryptocurrency – MS Head of Cryptocurrency Research Sheena Shah highlights that since launching her new cryptocurrency research product almost a month ago, she is finding that the MS investor conversations have moved on from asking "what is Bitcoin?" to trying to understand more about the broad universe of companies and services that form the cryptocurrency industry. Interestingly, the most common question she is asked is “what are other investors doing to get cryptocurrency exposure and how are they setting up their teams?” Sheena points out that retail investors remain large participants in the market along with early crypto adopters and, from the institutional investor community, it is no longer just hedge funds that are participating via futures; long-term asset managers and pension funds are now starting to question what role cryptocurrency should play in their portfolio and how to gain exposure to the related infrastructure around blockchains and web 3.0. She also notes that interest from the MS investor base has largely come from US-based accounts with European funds asking more about the developments related to central bank digital currencies and their future interaction or competition with stablecoins and cryptocurrencies. Download the Complete Report
ìEurope – Strategy–Inflation has surprised to the upside recently and is now catching the eye of policymakers. Investor focus on the stock consequences of inflation is high but quality/pricing power remains well bid and is at risk from higher real yields. MS Equity Strategist Ross MacDonald identifies 26 stocks considered 'inflation beneficiaries'. Download the Complete Report
ìîUS – Aerospace & Defense – MS Research Analyst Kristine Liwag highlights that a wave of consolidation has effectively hollowed out the A&D middle-tier. As she initiates coverage of nine Smid-Cap A&D names, she sees selective opportunity. Kristine believes that overall, the market is underestimating the aerospace recovery. She notes that orders for new aircraft have picked up and cancellations have waned. Her top OW is RBC Bearings ($263 PT).Download the Complete Report
ìEurope – Strategy–MS AlphaWise survey shows people want more virtual brands and goods. Accelerating demand for luxury NFTs supports MS Equity Strategist Edward Stanley 2030 profit TAM expansion thesis. Growing (albeit geographically- and gender-skewed) demand for crypto and tokens is leading to more polarised decisions for brands. Download the Complete Report
ì LatAm – LatAm Stocks Are Off Since This Summer
Source: Refinitiv, Morgan Stanley Research
The Super Cycle narrative is intact, yet the near-term EBITDA growth outlook is challenging amid higher energy costs. Double-digit FCF% should provide downside protection, while EBITDA growth in 2023 & beyond provides upside. The Super Cycle should elevate US & LatAm profitability for a decade. Download the Complete Report
ìEurope – Financials –Strong economic growth in 2022, continuing earnings momentum, and high payout yields all continue to underpin MS Research Analyst Magdalena Stoklosa’s constructive fundamental view. Valuations are attractive, and M&A likely to accelerate. Higher interest rates should be a boon in CEE and UK, and optionality in the Eurozone. Download the Complete Report
ìîEurope – Energy –Time Spreads And Inventory Days-Of-Cover Have Historically Shown Strong Co-Movement
After Friday's correction, time spreads are now historically consistent with a ~4 mb/d fall in oil demand and/or a ~180 mln bbl rise in OECD inventories. This is not impossible, but at this stage, still an unlikely outcome. For 2022, MS Research Analyst Martijn Rats still sees low inventories and spare capacity eroding. Download the Complete Report
Negative
îUS – Freight Transportation – Market Pricing 20x PE; Could See Pressure; Downgrade Industry View To Cautious
Source: Morgan Stanley Research; Freight Pulse Surveys
MS Research Analyst Ravi Shanker highlights that he is cutting his Freight Transportation Industry View from In-Line to Cautious and downgrading USX from OW to EW (PT to $10 from $12) and EXPD from EW to UW (PT to $95 from $110). Ravi is also separately resuming coverage of CNR at EW ($150 PT) and notes his prior downgrade of ODFL from OW to EW ($330 PT) on November 9. His industry downgrade is driven by three main reasons: 1) The cycle is probably closer to the end than the middle and record peaks of 2021 will be hard to top next year, 2) 2022 and 2023 consensus numbers are too high, in his view, with expectations skewed even higher for some verticals like the Rails, and 3) Valuations are too high as well. With virtually Ravi’s entire coverage making a new all-time high in the last few weeks and multiples well in excess of historical levels (20x NTM PE vs. LT average ~18x) on FY22/23e EPS that is over 100% above 2019 levels, he believes that the stocks are still reflecting a high level of optimism. Ravi also provides his views broken down by Transportation sub-industry. Download the Complete Report
îìAsia – Economics– Mobility And Its Impact On Asia's GDP
Source: CEIC, national sources, Google, Morgan Stanley Research. Note: The mobility indicator here we have used is the retail and recreation mobility indicator from Google for Asia ex China economies
Chetan Ahya sees near-term risk to his constructive outlook on Asia but thinks downside is less than what transpired in mid-2021, provided that the variant is not more challenging than Delta, given significantly higher levels of vaccinated population and potential for selective lockdowns rather than full lockdowns. In terms of the economic impact, Chetan groups the region into three categories based on their Covid management strategies – 1) further delay to re-opening: China, HK, Taiwan; 2) potential rollback of re-opening measures: Australia, Japan, Korea and Singapore; and 3) risk of selective lockdowns: India and ASEAN, and notes that lockdowns could pose risk of further supply chain disruptions just as economies are ramping up to full operating capacity with North Asia likely faring better than India/ ASEAN. In his year-ahead outlook, Chetan assumed Asia GDP growth of 1.9%Q on a SA basis in Dec 2021 and 1.5%Q in Mar 2022. The drag on 4Q21 GDP should be limited because this is a new outbreak and the starting point of cases is relatively low but the risks will be more for the 1Q22 quarter, depending on the evolution of the Omicron outbreak. Download the Complete Report
îìUS – Economy – Tight Labor Markets Lead To Reversal In Distribution Of Income
Note: Dotted line represents pandemic period. Source: BLS, Morgan Stanley Research
MS Economist Julian Richers, the US Econ team, the Equity Strategy, and the Credit Strategy teams explore the implications of the structural shift in the labor share of corporate income for the economy, sectors, equities, and credit markets. The team notes that labor scarcity is driving a reversal of the secular fall of the labor share of corporate income over the past two decades. The team points out that non-financial corporate profit margins have risen sharply over this period, but as labor compensation catches up with realized productivity, they could fall back to levels last seen in the 1990s. The team sees strong wage gains in excess of productivity as not just a temporary phenomenon, but the reversal of a divergence from labor's historical share of corporate income. Higher labor costs are often mentioned as an upside risk to inflation, but the team thinks that corporate profit margins will be the main shock absorber as real wages increase. Contrary to the bottom-up consensus, the team also sees higher wages amid a tightening labor market posing a risk to profit margins for US stocks in 4Q21 and 2022. The team thinks that margin compression and the impact on profitability could matter for credit profiles in the long run, but near-term credit markets are cushioned by healthy levels of EBITDA margins and ample liquidity. Download the Complete Report
î Asia – Consumer Discretionary – Estimated Revenue And EBITDA Exposures To VIP Segment And Chinese Tourists In 2019
Estimated Revenue and EBITDA exposures to VIP segment and Chinese tourists in 2019
Praveen Choudhary sees the recent news related to the largest junket Suncity’s Chairman Mr. Alvin Chau could put earnings estimates for most Asian gaming companies at risk. After calculating EBITDA exposure to the VIP segment for companies in Macau, Singapore, Cambodia, and the Philippines, we project the biggest impact on Naga (45%) and Wynn Macau (21%). Though the VIP exposure to EBITDA is not big for most of the operators (except Naga and Wynn Macau), the risk of further regulation in China is adding another layer of uncertainty on top of travel restrictions because of COVID. Macau has another uncertainty related to license renewal process. He sees consensus earnings estimates at risk.Download the Complete Report|Download the Complete Report
îìUS – Specialty Retail – MS Research Analyst Kimberly Greenberger highlights that Softline Black Friday store checks indicate traffic declines versus 2019, as expected, and provide further evidence that consumers started holiday shopping earlier this year & likely shopped more online. She notes that promotional breadth decreased an estimated ~400 bps (61% of in-store inventory on promotion, vs. 65% in 2019), likely a result of low inventory levels due to global supply chain issues. Additionally, she estimates that ~60% of retailers pared back discount levels compared to 2019, while only ~20% deepened discounts & ~20% remained unchanged. Kimberly notes that third party sources reported store traffic declined -28.3% vs. 2019 on Black Friday while online sales declined -1.4% y/y; 3P data & store checks showed similar traffic declines. She notes that Thanksgiving Day was weaker than Black Friday, with store traffic declines of -90.4% versus 2019 (per ShopperTrak/Sensormatic Solutions) as most retailers elected to close for the holiday, while eCommerce remained flat y/y (per Adobe Analytics). Kimberly makes out that Anthropologie (URBN) and lululemon (EW, $419 PT) emerged as the biggest winners this Black Friday, with A&F (UW, $32 PT) and Bath & Body Works (OW, $90 PT) also appearing strong. She also notes that Victoria's Secret (EW, $69 PT) and young adult retailers – Hollister (A&F), American Eagle Outfitters (EW, $29 PT), and Urban Outfitters (OW, $43 PT) – lagged pre-pandemic levels in addition to Kohl's (UW, $50 PT). Download the Complete Report
MS SINGLE NAMES CONTENT
Positive
ìUS – Cushman & Wakefield PLC – MS Research Analyst Richard Hill increases his PT on CWK (OW) by ~9% to $23.75 and raises his 21e/22e/23e by ~21% to $1.73 / $2.11 / $2.41. He believes that CWK remains an attractive play on strong CRE fundamentals trading at a ~6.3x multiple based on '23e vs CBRE (Not Covered) at 10.5x and JLL (Not Covered) at 10.2x (using cons. estimates); the historical discount is ~1x. He believes that CWK can catch up to its more cyclical peers as it’s a more balanced ‘mid-cycle’ play on his constructive CRE views. Richard sees risks that skew meaningfully to the upside, with a bull vs bear skew of +61% vs -22%. For his monthly CRE tracker, Richard notes: 1) CRE prices accelerate higher, 2) Four-quarter NOI growth is at +9.1%, a two-decade high, 3) Transaction volumes continue to grow, and 4) The lending markets are wide open. He points out that lending standards eased QoQ across all three major CRE loan categories to their loosest levels since 2Q13 vs 2Q20 where they stood at their tightest levels and demand remains robust as evidenced by the 119% YoY increase in originations in 3Q21. His PT is derived by applying a ~7.5x EV/EBITDA multiple based on ‘23e. Download the Complete Report
ìUS – UnitedHealth Group Inc – MS Research Analyst Ricky Goldwasser highlights key takeaways from UNH’s (OW, $526 PT) Investor Day, which unveiled CEO Andrew Witty’s vision. She notes that Optum’s position as the front door for the enterprise was the key message delivered at United’s analyst day. Ricky makes out that revenue per member was $45 in 2021 and is expected to grow to $55 to $57 in 2022. Additionally, Ricky points out that Optum Health continues to lead the enterprise growth and is expected to grow 27-29% to $68-$69 billion in 2022 revenues (in-line with double-digit long-term targets). Ricky found that the Optum Store health marketplace, a new business initiative under OptumRx, is focused on providing consumers access to discounted prescriptions and virtual provider visits in partnership with Optum Virtual Care, sounded very much like GoodRx (EW, $38 PT). She also notes that the discussion in the OptumRx breakout session introduced the idea that low cost generics could be carved out from the benefit plan and may be more appropriate to be paid for out of pocket, a concept she discussed in relation to what the end game may be for Amazon (Covered by MS Research Analyst Brian Nowak, OW, $4000 PT) pharmacy. As United Healthcare’s business model evolves, Ricky thinks that investors' approach to valuing the company will also change and she points to this broader set of industry leaders as a potential new framework. Download the Complete Report
ìChina – NetEase, Inc – We Forecast Non-GAAP Net Profit To Almost Double From 2021 To 2025 (17% CAGR), Driven By Games (Both Domestic And Overseas) And Narrower Losses From Non-Game Segments
Source: Morgan Stanley Research estimates
Share price rebounded which seems to show market is now clearer about the concerns around recent removal of several PC versions of games. Alex Poon issued positive RTI yesterday as he views the impact here is immaterial - this is part of an ongoing effort to clean up the industry and not a change in regulation. The mobile version is already licensed and will not be affected, meanwhile visibility for NTES’ 4Q results is high. In a separate note, he highlighted that in medium term, there could be US$22/ADR or 20% upside by 2025 from the potential reduction in channel fee. He believes the channel fee reduction will happen in stages, starting with China and then moving onto overseas market. He estimated that if there is a 20% point reduction on channel fee from the 30-35% blended average that Netease now pays, this could drive a 10% point rise in games GPM (65% in 2021) and 50% increase in FCF by 2025, and a 28% EPS CAGR for 2021-25. Reiterate Netease as his top pick in the online entertainment space in China. Download the Complete Report | Download the Complete Report
ìUS – Amazon.com Inc – MS Research Analyst Brian Nowak highlights that AMZN (OW, $4000 PT) stated that it expects to be the largest package delivery carrier in the US by the end of the year, if not early 2022. He notes that this comes as AMZN has significantly expanded its fulfillment and logistics capacity over the last 2 years as part of Amazon Logistics (AMZL). Brian thinks that these comments are largely consistent with his current AMZL estimates that AMZL will ship an estimated ~6.3bn packages this year vs UPS’s (Covered by MS Research Analyst Ravi Shanker, UW, $135 PT) estimated 5.5bn packages. Looking at it another way, he points out that this implies that AMZL will ship 66% of the volumes on AMZN in the US (vs 42% in 2019) as AMZL’s on-AMZN volumes grew at an estimated ~74% ’19-'21 CAGR. Brian continues to believe that AMZL can improve AMZN’s overall shipping efficiency and lower shipping cost per unit (enabling them to ship more packages per truck-roll). He thinks that this higher utilization combined with a slower incremental build could lead to slower forward shipping cost per unit growth too as every 1% change in shipping cost per unit in '23 would lead to ~$1.2bn of incremental EBIT. But AMZN's own volumes may just be the beginning in Brian’s view as his current forecast implies the AMZL network may have enough capacity by 2023 to move 75% of AMZN's own US volumes as well as another 22% of non-AMZN US e-commerce volumes. Brian also notes that this development is a significant but not unprecedented one in the Parcel industry and marks another key inflection point in the competitive dynamics in the industry. Download the Complete Report
ìChina – Pinduoduo – Eddy Wang reiterated OW as he believes the 16% share price correction Friday was overdone. He raised FY21 non-GAAP net profit estimates by 25% to reflect stronger 3Q21 results, but trimmed his FY21-23 revenue forecasts by 6%, 4% and 4% to reflect lower revenue forecasts for 1P business. But FY22 non-GAAP net profit was unchanged and FY23 was raised by 2%. 3Q21 online marketing services revenue rose 44%, just 1% below his estimates. This miss was due to the decline in the loss-making 1P business from Rmb2bn in 2Q21 to only Rmb82m in 3Q21, which drove GPM from 65.8% in 2Q21 to 69.5% in 3Q21. Non-GAAP net profit was Rmb3.2bn, the second consecutive quarter of profitability, beating MSe of Rmb813m and consensus of a loss of Rmb364m. MAU grew 17m QoQ to 867m, lower than BABA’s 35m and JD’s 20m, as PDD changed its S&M strategy to spend more on R&D instead, with S&M expense down to 45% of sales in 3Q21 vs 69% in 3Q20. Eddy believes 3Q will be new normal, as PDD focuses on R&D in areas like agriculture technology which should become the key investment, promoting long-term development and improving user engagement. His price target implies a P/E of 34x FY23 non-GAAP EPS forecast, and a 0.98x PEG on his three-year projected earnings CAGR of 23% in 2022-25.Download the Complete Report | Download the Complete Report
ìUS – Adagio Therapeutics – Effectiveness Against Omicron Via Differentiated Profile; Upgrade To Overweight
Source: Company Data and Morgan Stanley Research
MS Research Analyst Matthew Harrison highlights that current evidence suggests that Omicron (B.1.1.529) is rapidly replacing Delta in South Africa, suggesting Omicron may have higher transmissibility than previous variants and is likely to become a new dominant variant in the short term. He points out that current leading antibodies, such as those from Lilly (OW, $275 PT) and Regeneron (EW, $617 PT), are compromised by Omicron. However, Matthew notes that Adagio's ADG20 remains highly effective at neutralizing Omicron. Further, he also points out that Adagio's ADG20 possesses preferable characteristics, including IM administration, long half-life up to 12 months, and coverage of multiple variants. In addition, Matthew notes that Omicron may prompt regulators to help Adagio complete an interim analysis (now expected in 2Q22) sooner for quicker market access given the potential issues with other antibodies. Therefore, he added 4M doses of government stockpiling for Adagio’s ADG-20 in 2022 and now project ~$1.8B in sales. The additional sales raises Matthew’s PT to $49 from $33 and he upgrades the stock to OW (from EW).Download the Complete Report
ìUS – Stitch Fix Inc – MS Research Analyst Lauren Schenk highlights that with SFIX ($27 PT) shares underperforming the S&P by -83% YTD, she sees a more balanced risk/reward at current levels. While the structural concerns around SFIX’s competition and retention remain, at ~0.8x ‘23e revenue those concerns appear priced in. Lauren upgrades her rating to Equal-weight from Underweight and per price target remains unchanged. Download the Complete Report
ìChina – NIO – Tim Hsiao reiterated OW and raised PT by 3% to US$66 as a new model cycle will kick in from 2022 and valuation is attractive vs peers after more than 40% underperformance vs peers. He raised his FY21-23 volume forecasts by 8-24% and revenue forecast by 6-16%, but widened his FY21 net loss by 70%, lowered his FY22 projection to a small loss, and cut FY23 earnings estimates by 30%. This is driven by lower GPM and OPM assumptions from investment in distribution channels, volume promotion and R&D investment to compete with the technology entrants. He now projects earnings of Rmb8bn in 2023. The pre-production of the upcoming model ET7 rolled off assembly line on 29 November, which should mark the first of the three new models powered by the NT2.0 platform slated for launch in 2022. After the October disruption, NIO reported November sales of 10878 units, up 2.4% vs September, a record high monthly delivery. The stock is trading on 5.3x FY22 P/S vs XP at 7.6x and LI at 4.9x, and he see favorable risk and reward. His pecking order is Xpeng, NIO, and Li Auto. Download the Complete Report
ìNorway – AutoStore Holdings Ltd-W/I –AutoStore is an industrial technology company growing at a ~35% CAGR (FY21-25) with EBITDA margins ~50% – a unique proposition. MS Research Analyst Ben Uglow is persuaded on the growth outlook for automation in e-commerce and AutoStore's ability to dominate its market. However, its valuations already reflect this. Download the Complete Report
ìîHong Kong – HSBC –HSBC's share price has been rangebound this year as the prospect of rising rates has not been enough to offset China risk. These risks are now finely balanced. MS Research Analyst Nick Lord sees operational improvements coming through, but not enough to tip the balance. Remain EW with Singapore and domestic UK banks preferred. Download the Complete Report
ìî HSBC – Hong Kong – Market Expectations Are That Rates Will Move Up Further
Source: CME, Morgan Stanley Research
Nick Lord believes the rate environment is more favourable and operating improvements are coming through. But these are not enough to tip the balance. He remains EW as he sees better value and lower risks with Singapore and domestic UK banks. Policy rates in the UK are projected by our economists to increase 65bps in the next 12 months, and the Fed funds futures curve suggests US rates could also start to rise within 12 months. HSBC is one of the most sensitive to US rates, with every 25bps increase in US rates translating into 8% uplift to earnings if all drops through. This compares to 5-6% for BOCKHK, HSB and the Singapore banks. On operating performance, after the scaling back of US and EU retail operation and a reduction in capital allocation to GBM, he believes HSBC will return to average growth which will be better than UK/European banks, but weaker than APxJ banks, but a lot would depend on delivering costs savings to mitigate inflationary pressure. SoTP analysis suggests group cost of equity would fluctuate between 12.2% and 15.1%. Download the Complete Report
ìîJapan – Panasonic – Panasonic's ROE And The Contribution From Connect
Source: Company and Morgan Stanley Research, e = Morgan Stanley Research estimates
Ono-san takes a deep dive into Panasonic’s Blue Yonder, quantifying the TAM, profit drivers and earnings upside based on benchmarking vs global SCM (supply chain management) solutions peers (Kinaxis, Manhattan Associates, SPS Commerce, Descartes Systems etc). SCM has become all the more important amid the pandemic where production disruption has facilitated the need to invest and adopt SCM software across a broad range of industries. Ono-san believes that the market is underestimating the earnings upside from Blue Yonder, which will allow Panasonic to fully enter the SCM software market (global TAM ~Y2trn, 11% CAGR in 2021-25e). Ono-san sees Panasonic’s target of 13% sales and EBITDA CAGR in C20-25e as reasonable given its unique status of providing cloud-based SCM solutions across the three fields of manufacturing, distribution, and retail, and updates F3/22-23e OP forecasts, well ahead of the company guidance/ consensus, with unchanged PT of Y1,900. At current share price, Ono-san sees significant value and would be a buyer ahead of Jan 2022, when Panasonic is expected to formulate a concrete business plan to maximize mutual benefits from the acquisition. Download the Complete Report
Negative
îUS – CrowdStrike Holdings Inc – MS Research Analyst Hamza Fodderwala highlights the most notable areas of pushback in the last couple of weeks since initiating coverage at UW. First, he notes that investors have asked to what degree does increasing competition actually have an impact or can this be mostly noise. Hamza sees competition for new customers picking up more meaningfully throughout 2022 and does not view the market as zero sum with competing vendors racing to the bottom on lower pricing. Hamza notes that while checks indicate more competitive deal situations, he doesn’t think that there's a material change in overall win rates today and CrowdStrike ($247 PT) remains the dominant share gainer in its core market. Second, investors have asked Hamza if he is underestimating the TAM opportunity. He thinks that there's a large potential opportunity for CrowdStrike over time in adjacent markets as it expands into a broader platform for XDR (extension, detection & response), but it will take a few years become material. Third, investors asked to justify CRWD’s UW rating versus SentinelOne’s ($77 PT) OW rating with a higher valuation multiple. Hamza’s checks point to SentinelOne seeing more significant upmarket traction, resulting in larger deal sizes and more substantial relative share gains going forward. Download the Complete Report
îì China – Meituan – Segment Revenue Outlook
Source: Company data, Morgan Stanley Research (E) estimates
Gary Yu cut FY22 estimates from a profit of Rmb4.3bn to a loss of Rmb2.8bn to reflect slower food delivery in 1Q22 and lower unit economics on impact of social benefit costs. But he remains constructive on medium- and longer-term outlook and maintains his PT of HK$320. 3Q revenue grew 38% YoY, in line with his expectation, while margin was slightly better in the in-store segment, resulting in slightly beat in adjusted operating loss of Rmb6.2bn vs his estimate of Rmb6.7bn. But the company guided for a slowdown in food delivery and in-store and hotel in 4Q21, driven by COVID wave, which may last until the Winter Olympic hence the impact may linger until 1Q22. There are early signs that CGB loss has peaked out in 3Q and should start to narrow in 4Q to Rmb11.6bn. The stock trades on 7.5x FY22 P/S or 24x FY22 P/E based on steady state margin assumptions of 20% for food delivery and 45% for in-store. Download the Complete Report | Download the Report Complete
Nick Savone, Managing Director
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