Top US stocks: Blackberry, DraftKings and Disney

Blackberry reports after the closing bell, DraftKings ups its bid for Entain, Disney shares could bounce back after heavy selloff yesterday, Adobe and General Mills impress while FedEx disappoints, and Freshworks and Toast both go public today.

USA (1)

Blackberry

Blackberry reports second quarter earnings after markets close today, with analysts expecting further falls in in revenue and wider losses and investors closely-watch fragile elements of its guidance.

The company reorganised itself in the first quarter to focus on what it sees as its two biggest opportunities – the Internet of Things (IoT) and cybersecurity. Blackberry is struggling to turn things around in cybersecurity despite introducing a swathe of new products, while the semiconductor shortage is weighing on demand for its QNX platform that is used in cars. Licensing revenue will also continue to fall as Blackberry negotiates the sale of part of its patent portfolio – and investors should expect an update on this front today.

Analysts are expecting third quarter revenue to decline to $163.5 million from $266.0 million the year before due to continued falls in income from licensing and cybersecurity revenue. The firm is forecast to report an adjusted loss per share of $0.07 compared to a $0.11 profit, while its reported net loss per share is forecast to widen to $0.13 from $0.04 last year.

You can read the full preview ahead of the Blackberry earnings here.

DraftKings and MGM

UK-listed gambling firm and bookmaker Entain said it will ‘carefully consider’ the latest takeover offer from US outfit DraftKings.

Entain confirmed DraftKings made an earlier approach that was worth 2,500p per share in cash and shares, valuing Entain at £14.6 billion, and said this was rejected. The latest offer on the table is worth 2,800p per share comprised of 630p in cash and the balance to be paid in DraftKings shares. That values Entain at £16.4 billion. That is a 46% premium to Entain’s closing share price on Monday.

Entain owns a sprawling empire of gambling brands. It is best known for owning bookmakers Ladbrokes and Coral and its online brands including bwin. It also owns a number of gaming brands like Gala Bingo, Foxy Bingo and Cheeky Bingo. It also followed other UK gambling outfits into the high-growth US market, where it has a 50:50 joint venture with BetMGM.

Notably, reports suggest the ball could be in MGM’s court as it may have to give its approval to the deal, which could force DraftKings to sell its stake in the Entain joint venture if its bid is successful. However, other reports suggest another combination involving DraftKings and MGM could be on the table to avoid that – especially as the US venture is thought to be the jewel in Entain’s crown.   

Disney

Disney shares are in play after sinking over 4% yesterday on comments from chief executive Bob Chapek that spooked investors about the growth prospects of its streaming services, including Disney+.

Chapek, speaking at a Goldman Sachs conference, said it would only see subscribers grow by the ‘low single-digit millions’ in the fourth quarter of its financial year – a marked slowdown from the 12.4 million additions booked in the last quarter.

He blamed mobilisation issues in Latin America and challenges in India, but said the slowdown does not detract from its longer-term subscriber growth ambitions. It also flagged pandemic-induced production delays but said it was ‘very short-term’. Credit Suisse said the selloff yesterday was overdone and that the stock could bounce back strongly today.

Adobe

Adobe breezed past expectations when it released third quarter earnings after the closing bell yesterday, posting record revenue and strong profitability.

Adobe delivered 22% topline growth and posted record revenue of $3.94 billion in the quarter, coming in ahead of guidance and the $3.89 billion expected by analysts. Its Digital Experience unit that is more exposed to the global economic recovery posted 26% topline growth, accelerating from 21% in the second quarter. Its larger Digital Media unit posted 23% growth, with both divisions beating forecasts. Diluted EPS soared 28% to $2.52, smashing past the $2.29 forecast by Wall Street.

Adobe said it is aiming to deliver revenue of $4.07 billion in the final quarter of the financial year with EPS of $2.52. JPMorgan raised its price target on Adobe to $680 from $660 following the results.

FedEx

FedEx disappointed investors yesterday after revealing rising costs and a shortage of workers caused problems for its Express and Ground arms and resulted in an unexpected fall in earnings.

Revenue rose to $22 billion in the first quarter from $19.3 billion the year before, slightly ahead of analyst expectations. FedEx Freight led the way as anticipated with volumes growing 12%. FedEx Express and Ground both saw declines due to rising costs and labour shortages. Adjusted EPS fell to $4.09 from $4.72, which surprised analysts that had forecast a rise in earnings to $4.93.

FedEx cut its EPS forecast for the remainder of the year as a result, and this is worth watching closely after it said this assumes US industrial production, global trade and the tight labour market will all improve during the second half of its financial year.

General Mills

General Mills tweaked its guidance after beating expectations in the latest quarter, driven by strong demand for its pet food and higher sales in convenience stores.

Net sales increased 4% in the first quarter to $4.5 billion, coming in above the $4.29 billion forecast by Wall Street. Its petfood, convenience stores and foodservice businesses posted the strongest sales growth in the period of 23% to 25%, helping counter falls in the North American retail market. Diluted EPS was down 1% at $1.02 but still came in better than expected. The lower profit was caused by a reduction in the gains on investments compared to last year.

General Mills, known for brands such as Cheerios cereal, is expecting organic net sales to be down 1% to 3% over the full year and said today that it would hit the upper-end of that range, and said adjusted diluted EPS will be toward the higher end of its flat to 2% fall guidance range.

JPMorgan Chase

JPMorgan Chase is being investigated by authorities in Brazil over whether it was involved in allegations of bribery and money laundering spanning back to 2011, according to reports from Reuters.

The allegations centre around relations with state-owned oil firm Petrobras. The initial focus has been on JPMorgan’s purchase of 300,000 barrels of oil produced by Petrobras back in 2011 and whether illegal conduct continued after this.

Mastercard

Mastercard’s executive chairman Ajay Banga will retire at the end of 2021 and will be replaced by current lead independent director Merit Janow, who will become non-executive chair once he departs.

Mastercard said it had been making a transition since Michael Miebach was appointed as chief executive in February 2020, allowing him to take the reins away from Banga, who said the company was in ‘incredible hands’ to continue evolving thanks to Janow’s appointment and the ‘strong foundations’ laid out by Miebach.

Macy’s

Macy’s said it will recruit an additional 76,000 workers as it prepares for the busy holiday season, becoming the latest firm to scramble for workers amid a tight labour market.

The company said 48,000 of the roles will be temporary but flagged that a number of seasonal workers tend to stay on with the firm. Around 21,000 of the jobs will be in fulfilment working in warehouses, with the majority of the rest heading to stores. It said it is offering a $500 referral fee to existing staff to try and boost applications.

Freshworks

Software outfit Freshworks has earned a valuation of over $10 billion after pricing its IPO higher than originally expected as investors look at the potential of the stock as remote and hybrid working takes off.

The company, often touted as a rival to giant Salesforce, said it has priced 28.5 million shares at $36 each to raise $1.03 billion. It had previously said it was eyeing a price of $32 to $34 to raise around $969 million. The firm offers software to help businesses manage a wide range of tasks from customer management to messaging.

Freshworks shares will begin trading on the Nasdaq today under the ticker ‘FRSH’. You can find out everything you need to know about Freshworks and its IPO here.

Toast

Toast also priced its IPO considerably higher than anticipated today, earning a valuation of $20 billion.

The company said it has priced 21.7 million shares at $40 each. It originally set out with a price of between $30 to $33 in mind before it raised that to $34 to $36 not too long ago. Notably, Toast’s valuation has soared from the $5 billion it earned during its last private funding round back in February. Founded in 2011 and launched in 2013, Toast provides a software platform to help restaurants manage online ordering, keep up with their on-demand delivery network, and fully integrate all payment channels.

Toast shares will begin trading on the NYSE today under the ticker ‘TOST’. You read everything you need to know about Toast and its IPO here.

Analyst Recommendations: Autozone, Lennar and SoFi

Autozone had its price target hiked to $1785 from $1660 by Credit Suisse after posting better than expected results.

Housebuilder Lennar had its price target upped to $166 from $160 by Evercore ISI on the belief it can continue to benefit from higher prices offsetting inflation pressure on costs.

Jefferies initiated coverage on SoFi Technologies with a Buy rating and a price target of $25 on high hopes for the company’s flywheel model.

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