Top US Stocks: Merck, Tesla and Southwest Airlines

Merck seeks approval for Covid-19 pill, Tesla eyes German production starting next month, Southwest has a tough weekend, Global Payments is open to major M&A, Emerson strikes a deal with AspenTech, Hasbro’s CEO takes leave, and Cleveland-Cliffs enters the scrap metal game.

Merck

Merck said this morning that it has applied for emergency use authorisation for its pill that can help treat people with mild to moderate Covid-19 in the US.

If approved, it would become the first oral treatment to hit the market and could be a game-changer for governments fighting the virus, with existing treatments requiring people to attend a medical centre. The move comes after the latest data showed molnupiravir cut the risk of being hospitalised or killed by the virus in half.

Merck said it was set to apply for authorisation in other countries ‘over the coming months’. Notably, shares in vaccine makers like Pfizer and Moderna were hit when the latest data on the pill were released earlier this month over theories that governments will shift to new types of treatments and preventative drugs.

Notably, US regulators are set to meet later this month to decide whether to give their recommendation that vaccines made by Moderna and J&J should be used for booster shots. A meeting to discuss the Pfizer vaccine is booked in for a week later.

 

Tesla

Tesla held an event at the site of its new plant in Germany over the weekend, where CEO Elon Musk revealed the first vehicle could roll off the production line as early as next month but warned the ramp-up could take longer than it did to build the plant itself. 

Tesla is hoping to secure approval for the new site imminently, with officials set to decide by this Thursday, but warned it will take time to ramp-up output to its 5,000 (to ‘hopefully’ 10,000) vehicles per day target. He set a tentative target to hit volume production before the end of 2022. 

Musk also said the firm was waiting for people from all across Europe to arrive over fears it won’t be able to secure the talent it needs for the new site.

 

Southwest Airlines

Southwest Airlines is in play today after it was forced to cancel thousands of flights over the weekend due to bad weather and air traffic control issues.

Data from flightaware.com showed the airline cancelled 808 flights – or 28% of all scheduled flights – on Saturday and another 1,103 flights – about 30% of its schedule – on Sunday. ‘With fewer frequencies between cities in our current schedule, recovering during operational challenges is more difficult and prolonged,’ the airline said in an emailed statement to Reuters.

The cancellation rate was thought to be well above that of other affected airlines.

 

Global Payments

The chief executive of Global Payments has said he is open to a large acquisition following its $21.5 billion deal to buy TSYS two years ago.

I certainly see deals as big as TSYS in our future,’ Jeff Sloan told Reuters. Global Payments is a major player in providing transaction services for businesses and decided to bolster its offering by buying TSYS, which processes credit card transactions for banks. Sloan said the industry is consolidating as it searches for scale and adapts to the dramatic shift in online shopping.

The main attraction to any potential deal would be to access markets where it currently lacks a presence, Sloan said. The CEO added that the company will continue to make bolt-on acquisitions in the meantime.

 

Honeywell International

Honeywell International said the business aircraft industry has ‘almost completely shaken off the effects of the COVID-19 pandemic’ as it raised its outlook for the next decade.

The firm said on Sunday that it expects 7,400 business jets worth some $238 billion to be delivered between 2022 to 2031, up around 1% from its forecast made a year ago. It said manufacturers have reported an uptick in orders for 2022 and also flagged a sharp increase in used jet purchase plans, which are 12% ahead of last year. It said the jump in demand for used jets twinned with a record low inventory available for sale will ‘inevitably drive additional demand for new-build business jets’.

‘The increased demand for used jets is estimated at more than 6,500 units over the next five years, putting pressure on an already record low inventory and driving additional demand for new jets,’ said president of the Americas Aftermarket at Honeywell Aerospace, Heath Patrick. ‘Our latest operator survey results support continued private jet usage growth, as more than 65% of respondents anticipate increased business jet usage in 2022. Despite the ongoing challenges presented by the pandemic, flight hours have recovered and grown beyond pre-pandemic levels. The overall health of the business jet market is strong, and growth is expected to continue.’

 

Emerson and Aspen Technology

Emerson Electric has agreed to merge two of its software businesses with Aspen Technology in a deal worth around $11 billion, according to reports in the Wall Street Journal.

The cash-and-stock deal is expected to value Aspen Technology at around $160 per share, according to the report. Shareholders will be paid $87 in cash and secure 0.42 new shares in the combined company for each share they currently own. That implies around a 27% premium to Aspen Technology’s closing share price on October 6, when Bloomberg first reported the potential deal. The offer sits around 13% higher than the closing share price on Friday.

Emerson would own around 55% of the combined business with Aspen Technology shareholders owning the rest. It will retain its existing name and be run by CEO Antonio Pietri. The deal is thought to be aimed at capturing the increased demand for industrial technology, with Emerson helping make the likes of power plants and factories more efficient and Aspen Technology providing software to the natural resource, manufacturing and pharmaceutical industries.

 

Hasbro

Hasbro announced on Sunday that chairman and chief executive Brian Goldner is taking a leave of absence from his roles as he continues to seek medical care after being treated for cancer in 2014.

The lead independent director, Rich Stoddart, has been appointed as interim CEO with immediate effect. He has previous CEO experience at marketing execution firm InnerWorkings and at advertising firm Leo Burnett Worldwide.

‘After careful consideration, I have decided to take a medical leave to focus on my health. I feel confident knowing the Company will be in the skilled hands of  Rich Stoddart  as interim CEO, our highly experienced management team and the best employees in the business. Hasbro’s future couldn’t be brighter as we continue to Supercharge the Blueprint and build the world’s leading play and entertainment company,’ said Goldner.

 

Cleveland-Cliffs

Cleveland-Cliffs said it has entered the scrap metal business after agreeing to buy Ferrous Processing and Trading Co for $775 million on a cash-and-debt-free basis.

Ferrous Processing and Trading is among the largest processors and distributors of prime ferrous scrap in the US, accounting for 15% of the domestic merchant prime scrap market. The firm processes around 3 million tonnes of scrap per year, with around half of it classed as prime grade. It runs 22 facilities primarily located in the Midwest.

‘Cleveland-Cliffs is entering the scrap business as a major player through the acquisition of a large scrap company. Even more importantly, FPT has a very meaningful presence in prime scrap. With all the new flat-rolled EAF capacity coming online in our market over the next four years, prime scrap will only become more and more scarce. As the largest supplier of flat rolled steel in North America, Cleveland-Cliffs is the main source of the steel that generates prime scrap in manufacturing facilities,’ Cleveland-Cliffs said.

 

Analyst Recommendations

Eli Lilly was upgraded to Buy from Hold by Berenberg, which believes the firm can deliver 10% annual sales growth on average through to 2030, more than double the average among its peers.

Starbucks was upgraded to Buy from Hold by Deutsche Bank on hopes the coffee giant can benefit from booming demand in the US and sustained growth in China.

ConocoPhillips was downgraded to Neutral from Buy by Goldman Sachs, citing overvaluation considering the stock has risen over 83% since the start of 2021.

SoFi Technologies was initiated as Overweight by Morgan Stanley on the belief the fintech stock has a ‘powerful revenue growth story’.

Netflix has its price target raised to $740 from $643 by Credit Suisse on hopes of a solid finish to the year thanks to a strong content slate.

Peloton had its price target cut to $155 from $185 by Keybanc to put it in-line with lower valuations for the digital fitness market.

 

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