Research Calls
- Upgrades:
- Algonquin Power & Utilities (AQN) upgraded to Outperform from Sector Perform at National Bank Financial; tgt lowered to $14.25
- Core Labs (CLB) upgraded to Neutral from Sell at Citigroup; tgt lowered to $17
- Federal Signal (FSS) upgraded to Buy from Neutral at DA Davidson; tgt raised to $46
- Goldman Sachs (GS) upgraded to Outperform from Mkt Perform at Keefe Bruyette; tgt raised to $429
- Moller Maersk (AMKBY) upgraded to Buy from Hold at Berenberg
- Progressive (PGR) upgraded to Buy from Hold at Jefferies; tgt raised to $142
- Downgrades:
- C.H. Robinson (CHRW) downgraded to Neutral from Buy at Citigroup; tgt lowered to $107
- Douglas Emmett (DEI) downgraded to Neutral from Overweight at Piper Sandler; tgt lowered to $19
- Lyft (LYFT) downgraded to Sector Perform from Outperform at RBC Capital Mkts; tgt lowered to $16
- Norfolk Southern (NSC) downgraded to Neutral from Outperform at Robert W. Baird; tgt lowered to $240
- Principal Fincl (PFG) downgraded to Underweight from Neutral at JP Morgan; tgt raised to $72
- Southern States Bancshares (SSBK) downgraded to Mkt Perform from Outperform at Keefe Bruyette; tgt $27
- Zions Bancorp (ZION) downgraded to Mkt Perform from Outperform at Keefe Bruyette; tgt lowered to $72
- Others:
- Alcoa (AA) initiated with a Neutral at UBS; tgt $43
- Check Point Software (CHKP) initiated with a Neutral at SMBC Nikko; tgt $115
- Chewy (CHWY) initiated with an Outperform at Oppenheimer; tgt $42
- Coupang (CPNG) initiated with a Buy at HSBC Securities; tgt $27.80
- CrowdStrike (CRWD) initiated with an Outperform at SMBC Nikko; tgt $240
- Fortinet (FTNT) initiated with an Outperform at SMBC Nikko; tgt $70
- Kinetik (KNTK) initiated with a Neutral at Goldman; tgt $37
- Lantheus Holdings (LNTH) initiated with a Buy at Jones Trading; tgt $104
- Navient (NAVI) initiated with an Underweight at Morgan Stanley; tgt $14.50
- Nuvei Corporation (NVEI) initiated with an Outperform at Wolfe Research; tgt $42
- nVent Electric (NVT) initiated with a Hold at Loop Capital; tgt $34
- Palo Alto Networks (PANW) initiated with an Outperform at SMBC Nikko; tgt $230
- Sallie Mae (SLM) initiated with an Underweight at Morgan Stanley; tgt $15
- Senti Bio (SNTI) initiated with an Equal-Weight at Morgan Stanley; tgt $7.50
- SentinelOne (S) initiated with a Neutral at SMBC Nikko; tgt $30
- Skeena Resources (SKE) initiated with an Outperform at BMO Capital Markets
- Unity Software (U) initiated with a Buy at Needham; tgt $50
- Zscaler (ZS) initiated with an Outperform at SMBC Nikko; tgt $220
Gapping down
In reaction to earnings/guidance:
- AMD -5.5% (lowers Q3 revenue guidance, cites weak PC demand and a significant inventory correction in PC supply chain), LEVI -4.3%, TSM -2.5% (Q3 sales), ACCD -1.8%, ASIX -1% (guidance), NIU -0.8% (Q3 sales)
Other news:
- LNTH -5.6% (to move to S&P MidCap 400 from S&P SmallCap 600)
- CVS -5.2% (Medicare issues 2023 Star Ratings for Medicare Advantage and Part D prescription drug plans; CVS says change in Star Ratings not projected to have any impact on FY22 guidance)
- KTB -4.2% (in sympathy with LEVI earnings)
- LOGI -4.1% (PC-related stocks lower on AMD guidance)
- INTC -3.1% (PC-related stocks lower on AMD guidance)
- LAC -3.1% (confirms oral hearing schedule for the Thacker pass record of decision appeal)
- NVDA -2.9% (PC-related stocks lower on AMD guidance)
- DELL -2.6% (PC-related stocks lower on AMD guidance)
- HPQ -1.5% (PC-related stocks lower on AMD guidance)
- QCOM -0.8% (PC-related stocks lower on AMD guidance)
- WDC -0.7% (PC-related stocks lower on AMD guidance)
- TWTR -0.7% (trial stayed by Delaware court until Oct 28)
- MU -0.7% (PC-related stocks lower on AMD guidance)
- STX -0.7% (PC-related stocks lower on AMD guidance)
- AMLX -0.7% (prices offering of 6693750 shares of its common stock at $32.00 per share)
Analyst comments:
- LYFT -1.9% (downgraded to Sector Perform from Outperform at RBC Capital Mkts)
- SLM -1.4% (initiated with an Underweight at Morgan Stanley)
- NAVI -1.4% (initiated with an Underweight at Morgan Stanley)
- CHRW -1.3% (downgraded to Neutral from Buy at Citigroup)
Gapping up
In reaction to earnings/guidance:
- AEHR +11.1% (also releases two new enhancements for its FOX-P family of wafer level test and burn-in systems), TLRY +5.1%
Other news:
- PAYO +8.1% (to join S&P SmallCap 600)
- ATCO +6.8% (continues negotiations with Poseidon Acquisition; parties have made meaningful progress on potential transaction at $15.50/sh)
- CS +5.8% (announces public tender offers for debt securities)
- DKNG +5.7% (DKNG and Disney's ESPN close to signing partnership according to The Action Network)
- EXTN +5% (Enerflex announces successful placement of committed financing for pending acquisition of Exterran)
- MSGS +3% (declares special div of $7.00/sh; authorizes a $75 mln ASR program)
- ALLO +2.8% (initiates industry's first allogeneic CAR T Phase 2 trial)
- ALNY +2.8% (receives FDA approval of sNDA for OXLUMO)
- LAND +2.2% (comments on recent price volatility)
- TECK +2.1% (provides Q3 steelmaking coal sales volumes and realized prices)
- GFF +1.7% (strategic review process remains active and ongoing; expects update by the end of Nov)
Analyst comments:
- FSS +1.5% (upgraded to Buy from Neutral at DA Davidson)
- AQN +1.2% (upgraded to Outperform from Sector Perform at National Bank Financial)
Early premarket gappers
- Gapping up:
- AEHR +13.8%, DKNG +8.1%, ATCO +7.3%, ALLO +6.8%, CS +6.8%, PAYO +6.5%, LAND +5%, EXTN +5%, TECK +4%, MSGS +3.7%, GFF +3.2%
- Gapping down:
- AMD -5.8%, LNTH -5.2%, CVS -4.7%, LEVI -4.6%, KTB -4.2%, LOGI -3.7%, NVDA -3.2%, TSM -3%, INTC -2.9%, DELL -2.6%, CLOV -1.8%, WDC -1.5%, PTON -1.5%, MU -1.3%, HPQ -1.2%, QCOM -1.2%, STX -1.2%, TXN -0.9%, NTAP -0.8%, MSFT -0.6%, TRGP -0.6%, BMRN -0.6%, AVGO -0.5%, NIU -0.5%
Can Tech Save Poshmark?
Poshmark’s sale to South Korea-based Naver might feel hasty and ill-timed, but the resale company believes the technological benefits of the deal could help it solve a major conundrum: converting more of its 80 million users into buyers.
Amid the continued slowdown in online shopping, it was likely only a matter of time before the ongoing consolidation in e-commerce swallowed a resale player. Even so, Poshmark’s decision to sell to Naver, a South Korean tech giant, for $1.2 billion likely left some in the industry scratching their heads.
The deal values Poshmark at less than half the $3 billion valuation the company bagged when it went public in January 2021. Tech stocks across the board have slumped this year, but rather than try to ride out the downturn and fetch a higher price later, Poshmark opted for an exit.
The company is suffering from the same challenges facing many secondhand fashion sellers. Despite the growth opportunity in the market, the publicly traded firms have seen their stocks tank as sales growth slows and losses mount, keeping profits elusive for resale. ThredUp’s stock has dropped more than 80 percent this year, and The RealReal’s stock now trades at just under $2.
Ongoing inflation, rising interest rates and the threat of a recession make a turnaround in the near future unlikely. By selling, Poshmark was “able to get some cover,” said Sucharita Kodali, a retail analyst at research firm Forrester. “If they waited, they may have had to merge or sell for an even lower price.”
Poshmark stands to benefit in other important ways, too. Just as the acquisition gives Naver a foothold in the US resale market, it provides Poshmark — a social-shopping app that lets users buy and sell pre-owned fashion to one another — the opportunity to expand its presence in Asia, where buying goods in social media-like environments is second nature for consumers.
It also gets access to technology that promises to help it solve one of its most pressing issues: converting more of its 80 million registered users into active buyers.
The social media-like atmosphere of Poshmark’s app, where users can follow their favourite sellers’ closets and like and comment on posts, is a great environment to foster engagement and time spent on the platform. Yet certain commerce features that Poshmark hasn’t nailed, such as advanced search functionalities, have prevented many users from buying the pre-owned goods they ogle.
In the second quarter of this year, just 10 percent of overall users had made a purchase within a 12-month period.
Not converting enough users into buyers has been especially cumbersome for Poshmark at a time when costs to acquire new users skyrocket and recently implemented privacy changes by Apple make it harder for retailers to target ads at potential shoppers. Poshmark’s marketing expenses have grown and pushed the company, which was profitable when it went public, deeper into the red.
Manish Chandra, Poshmark’s chief executive, said on an earnings call in August that improving search was one of the principal tools the company would use to convert more of its users, along with offering promotions.
Now, Naver says it will bring its AI-powered software capabilities to Poshmark, including smart image recognition that lets users figure out where on the platform to find an item without knowing the name, and the ability for users to filter searches based on the colours, designs and materials they prefer. These tools are expected to inspire more purchases on Poshmark.
“We entered into this agreement because we believe that in partnership with Naver, we can execute our vision and ambition faster,” Chandra said in an emailed statement. “Naver’s expertise, technology and market position have the potential to accelerate our key strategic growth areas, which include live selling and global expansion.”
While better technology may not be enough to help Poshmark overcome all its challenges, for Naver, sometimes referred to as the South Korean equivalent of Google, the price tag on Poshmark makes the acquisition relatively low risk. (Though after news of the deal broke, Poshmark’s shares were up 13 percent while Naver’s traded down nearly 9 percent, suggesting who investors thought would benefit most from the deal.)
The deal marks Poshmark as the latest in a spate of recent resale acquisitions. Last July, Etsy bought Depop, which lets users buy and sell used goods to one another, for $1.6 billion. In March, Paris-based Vestiaire Collective scooped up Tradesy, another peer-to-peer marketplace, for an undisclosed sum to fill out its inventory and shore up its US expansion.
The string of purchases and the struggles of resale businesses to turn a profit might lead onlookers to wonder whether resale companies can ever survive alone. But some experts say that’s not the issue.
“It’s too early to say that the business model cannot stand up on its own. It’s still a pretty young industry,” said Tom Nikic, a senior apparel and footwear analyst at Wedbush Securities.
Poshmark turning to Naver to beef up its tech and operational capabilities was “more a function of them being a younger company with a shorter operating history and shorter time to have made all the investments,” Nikic added.
It probably won’t be the last resale business to get acquired in any case. The most likely targets offer some form of tech prowess. For example, The RealReal’s automated software for authenticating high-end goods makes it an attractive buy for a larger retailer, Anna Andreeva, a senior analyst at Needham, said in a note.
Still, the varying business models of resale firms could limit acquisitions. Peer-to-peer platforms like Poshmark, Depop and Tradesy don’t incur the costs to process and store inventory. The RealReal and ThredUp, by contrast, face the same struggle to acquire customers and have to contend with the expenses of operating warehouses, contributing to their profit challenges. It could make resale firms that handle inventory less attractive, except maybe at a steep discount, and there’s no obvious technological solution for that.
Sephora Unveils Plans for the U.K.
PARIS — Sephora has unveiled details of the first phase of its reentry into the U.K. market.
“After many rumors, Sephora is finally coming to the U.K.,” said Sylvie Moreau, the retailer’s president of Europe and the Middle East.
On Oct. 17, Feelunique.com, which Sephora acquired one year ago, will be transformed into sephora.co.uk. That will have all the associated codes, including the beauty retailer’s signature black-and-white stripes. The website will be twinned with Sephora’s application in the U.K., as well.
Beauty brands available on the platform are to include numerous exclusive to the country, including Tarte Cosmetics, Ilia, Makeup by Mario, One/Size by Patrick Starrr, Gxve by Gwen Stefani, Skinflix and Vegamour, plus Sephora’s private-label line.
Premium beauty brands on offer are to comprise Pat McGrath Labs, Fenty Beauty, Gisou, Rose Inc, JVN and Glow Recipe, among others.
In phase two, a Sephora brick-and-mortar store is set to open in the U.K. in a yet-to-be disclosed location in London, in March 2023.
That news confirms a report published by WWD on Aug. 23.
“At Sephora, we innovate every day to build the most loved beauty community. We are delighted to bring Sephora to the U.K., responding to Britain’s strong demand for our unique prestige beauty experience,” said Chris de Lapuente, chairman and chief executive officer of Sephora, in a statement. “U.K. customers will be encouraged to explore and discover the best versions of themselves as we support them in their beauty journey with a fantastic curation of time-tested classics and new indie brands.
“We will offer British consumers a pioneering selection of beauty that is best in class for innovation, diversity and inclusion,” he continued. “The U.K. is home to a dynamic beauty and well-being market that Sephora will aim to surprise and delight through our trademark know-how and creativity. Our passionate team cannot wait to serve and inspire U.K. customers under the Sephora brand.”
Taking on the U.K. is not for the faint of heart, said Moreau, speaking during a press conference held mostly for journalists from the U.K. at the retailer’s headquarters in Neuilly-sur-Seine, France, a Paris suburb, in early September.
“We come to the U.K. very humbly,” she said. ”It has one of the most engaged, experienced consumer. It’s a big battleground.”
This isn’t Sephora’s first foray into the U.K. The retailer opened its debut store there in 2000 in Kent’s Bluewater shopping center, then opened nine doors overall. In 2005, those were all shuttered, unable to break through amid intense competition from Boots and others.
But the beauty landscape has changed subsequently, as has Sephora’s muscle.
“It’s precisely that Sephora is a brand itself that we could succeed in different continents,” said Moreau, who underlined that last year, Sephora was the only multibrand retailer to make the top 100 ranking of best global brands for 2021, compiled by Interbrand.
“The second strategic choice is we believe in stores,” she continued, adding those are what drive the strongest point of difference. “The store is our social hub.”
In 2021, Sephora opened more than 300 stores, primarily in China, the Middle East and U.S., in Kohl’s.
“They will always be the purest expression of our brand,” said Moreau, of brick-and-mortar, adding: “Of course, we embrace e-commerce since 1999.”
And that digital drive keeps amplifying. In June 2021, for instance, Sephora and Zalando announced they signed a long-term strategic partnership to create a prestige beauty experience online, beginning in Germany.
“Fundamentally, our strategic choice is omnichannel excellence,” continued Moreau, adding the key is combing the best of both worlds — brick-and-mortar and e-commerce.
Sephora has more than 5 million visits per day in its stores and websites combined, and 165 million consumers have a Sephora loyalty card.
Inflation: probably getting better, slowly
After today’s payrolls numbers drop, the market will have to, once again, recalibrate its estimate of how much the labour market is or isn’t tightening and how the Fed will or won’t react. But remember why we care about the labour market so much right now: because of inflation. A tight labour market creates wage inflation and wage inflation is sticky and contagious — that’s the orthodoxy, anyway. What started as a goods price spike driven by tight supply chains, lockdown spending habits and stimulus cheques has turned into a surge in wage-sensitive services prices.
The job market is important. But let’s keep our eyes on the ball: what is inflation itself doing? It is easy to just shrug sadly and say “it’s high”. So it is, but the story is subtle, and continues to evolve. The details reward attention.
The first thing to say is that headline CPI has peaked. In both month-on-month and year-on-year terms, the top came in June and (at risk of tempting fate) a return to that level seems unlikely. Many commodity and transport prices are falling fast and (for what it’s worth) job listings are declining, too. There are lots of charts that look like this in circulation:
But the Fed is not going to be much impressed by these volatile, goods-driven prices in headline CPI. The focus now is squarely on core CPI — and more specifically on services such as housing, where wages are thought to be particularly important. Here is the economist Jason Furman, arguing in the Wall Street Journal this week that the Fed must not let up:
Optimists point to signs that inflation will moderate. The latest signal is the large decline in job openings, but there are also falling home prices, falling shipping costs, falling commodity prices . . . however, labour markets are still much tighter than at any point before the pandemic, and many of the other frequently cited factors have only a small or uncertain relationship to inflation. Many other signs go in the opposite direction . . . Wage inflation has picked up over the course of the year, and rent on existing leases remains well below rent on new leases.
Services inflation contains a ton of stuff, but three categories — shelter (42 per cent of core CPI), medical care (9) and transportation (8) — have dominated in recent months. This chart from Omair Sharif of Inflation Insights shows which inflation categories have driven up inflation the most since April (OER is owners’ equivalent rent, or what homeowners would rent their house out for):
Start with transportation services. Look beneath the hood and you quickly spot the bit that’s on fire: airfares. Since the pandemic, plane ticket prices have been exceptionally volatile.
This isn’t terribly shocking given pandemic disruptions to travel and fuel prices, but with the Omicron coronavirus variant hit to travel well behind us, we’re surprised how volatile airfares have remained. A slowing economy is cutting air travel demand, but the holiday season will boost it. Alan Detmeister, an economist at UBS, figures airfares, and transportation services inflation, won’t fall consistently until next year.
Medical care services are more interesting. As we’ve written, prices here hinge on insurance company earnings data that is updated once yearly, and on a long lag. As a result, Detmeister points out, every CPI report published so far this year has been based on price data comparing 2020 to 2019. When new data comes in October’s CPI report, all the analysts we talked to expect medical services will get squashed, dragging down core services.
You’ll notice that neither of these two categories really contains the usual story about wages or a tight labour market. As Sharif put it to us:
I just see people blindly looking generally at core services, seeing how high it is, and saying, ‘Oh, this is obviously a function of wage growth’ . . . What will people be saying in three months’ time when medical care becomes a drag on core services and transportation isn’t showing 14-15 per cent in airfares?
The last category, shelter, is inflation’s key link to a tight labour market. You can observe that empirically, but the intuition is plain enough. Here’s Detmeister again (notice that he emphasises stable employment over wages):
If you get a job, and a stable job, then you’re more willing to move out of a group house to have your own place. You’re more willing to move out from living with your parents. So [shelter inflation] is more tightly linked with the unemployment rate than with wage growth itself.
We’ve long known shelter inflation would come in hot this year, but it’s becoming clear that the peak is due soon (if it hasn’t come already). CPI’s shelter components are based on rental data. And private market rent indices kept by websites such as Zillow and Apartment List have been decelerating:
Remember that what makes an inflation rate go up is not whether rents are increasing, but whether they are accelerating. So for this index, the tip of the hump above should represent peak rent inflation.
Of course, the Zillow index is not an exact apples-to-apples comparison. It measures newly signed leases, while CPI rent indices captures the full universe of new and existing leases. But it does offer a look into the future. CPI rent tends to follow the private indices on a lag, the median of which is eight months, according to Nomura’s Aichi Amemiya. That pattern, he says, suggests month-on-month rent inflation should start falling around January, though gradually.
The point is that while the jobs market-inflation story matters, current data suggest the worst has passed. Put together, we have a picture of services inflation that will moderate, slowly, as airfares eventually settle, new data deflate medical care and CPI rent indices catch up with current conditions.
For markets, the optimistic bit is that a cataclysmic wage-price spiral looks unlikely. But avoiding disaster doesn’t mean inflation’s grinding descent will be pleasant. We’d guess that there won’t be enough good inflation news to knock the Fed off its march to 4-5 per cent rates. In the meantime, plenty else could go wrong. (Ethan Wu)
>>> Up
* Ashtead Raised to Buy at Liberum; PT 4,900 pence
* Renault Raised to Outperform at Oddo BHF; PT 55 euros
* Severn Trent Raised to Buy at Investec; PT 2,750 pence (+)
>>> Down
* Bradesco ADRs Cut to Neutral at JPMorgan
* Fielmann Cut to Sell at Hauck & Aufhaeuser; PT 27 euros (+)
* Home24 Cut to Hold at Jefferies; PT 7.50 euros
* Home24 Cut to Hold at Hauck & Aufhaeuser; PT 7.50 euros (+)
* Mercedes Cut to Neutral at Oddo BHF; PT 65 euros (+)
* RWS Holdings Cut to Hold at Canaccord; PT 330 pence (+)
* Social Chain Cut to Hold at M.M. Warburg; PT 7 euros (+)
>>> Initiation
* Bytes Technology Rated New Neutral at Citi; PT 425 pence
* Knaus Tabbert Rated New Buy at Raiffeisen Bank; PT 37.50 euros
>>> Call
* Ashtead Raised to Buy, Added to Most Preferred List at Liberum
* London Offices, Weak Retail Balance Sheets Are MS Property Ideas
* Maersk Upgraded at Berenberg as ‘Too Compelling to Ignore’
* Ocado PT Cut to Street-Low at MS on Increasing Uncertainties
* Mercedes Cut to Neutral at Oddo on Lack of Short-Term Catalysts (+)
* Renault Upgraded and PT Hiked at Oddo on Quicker Recovery (+)
- Nel (D7G TH) +1.3%
- Vodafone (VODI TH) +1.1%
- Equinor (DNQ TH) +0.9%
- Renault (RNL TH) +0.9%
- Diageo (GUI TH) +0.8%
- Grifols (OZTA TH) +0.7%
- National Grid (NNGF TH) +0.4%
- Telefonica Deutschland (O2D TH) +0.3%
- Qiagen (QIA TH) +0.3%
- Danone (BSN TH) +0.3%
- Aurubis (NDA TH) -0.7%
- Aixtron (AIXA TH) -0.7%
- Watch European, US Chipmakers as AMD, Samsung Miss Estimates
- Deutsche Bank (DBK TH) -0.8%
- Adidas (ADS TH) -0.9%
- Adidas Seeks New Boss to Bring Buzz to Brand and Bottom Line
- TUI (TUI1 TH) -1%
- STMicroelectronics (SGM TH) -1.1%
- ASMI (AVS TH) -1.1%
- Infineon (IFX TH) -1.4%
- ASML (ASME TH) -1.5%
- Nordic Semiconductor (N0S TH) -3%
DAX:
- Continental (CON TH) +0.6%
- Vonovia (VNA TH) +0.2%
- Mercedes (MBG TH) -0.5%
- Europe’s Carmakers Scrap Growth Hopes, Ask Policy Makers for Aid
- Infineon (IFX TH) -1.4%
- Watch European, US Chipmakers as AMD, Samsung Miss Estimates
MDAX:
- Aroundtown (AT1 TH) +0.9%
- Telefonica Deutschland (O2D TH) +0.7%
- Telefonica Deutschland Hits 52-Week Low at 2.03 Euros
- Commerzbank (CBK TH) -0.6%
SDAX:
- Nordex (NDX1 TH) +1%
- Heidelberger Druck (HDD TH) +0.7%
- Uniper (UN01 TH) -0.7%