Top US Stocks: Tesla, NVIDIA and GSK

Tesla output in China hits new record, EU to prolong investigation into NVIDIA-Arm deal, buyers line-up for GSK’s consumer business, American Airlines set to beat expectations, Southwest tries to get back on track, and MGM Resorts, Nike and Square are all upgraded.

Tesla

Tesla sold a record number of cars made at its factory in Shanghai, China, during September, according to the latest data out from the China Passenger Car Association.

The electric carmaker is thought to have sold 56,006 cars made in China during the month. That marks a new monthly record since it started producing cars in the country around two years ago and is up from the 44,264 China-made cars sold in August. Tesla produces the Model 3 sedan and Model Y sport utility vehicle at its Chinese plant but still exports the majority of them to be sold in other markets.

 

NVIDIA

The EU’s antitrust regulator is set to extend its investigation into NVIDIA’s proposed $54 billion purchase of British chip designer Arm after the US company’s concessions failed to address concerns over the mega-merger, according to reports from Reuters.

Citing three unnamed sources, the report said EU regulators are due to end their preliminary review of the deal on October 27 but are now expected to extend it by a further four months. That marks another major blow after the UK regulator warned the it could lead to less competition and negatively impact rivals if it is allowed to go ahead. There are concerns about how Arm, as a neutral licenser of chip technology to firms around the world, can retain that position if it is under the thumb of NVIDIA, which argues the deal will do the opposite and boost rivalry in the market.

The report said the EU regulators have not asked for comments from rivals on the concessions offered by NVIDIA, which includes keeping Arm as a standalone neutral supplier, signalling that they failed to meet the regulator’s expectations.

 

GlaxoSmithKline

UK-headquartered GlaxoSmithKline is under the spotlight today after Bloomberg reported its Consumer Healthcare unit is attracting the attention of a number of private equity firms.

GSK is currently in the process of separating its Consumer Healthcare business, which boasts over £10 billion in annual sales, from its medical business that develops vaccines and specialty medicines. The company said yesterday that its new Consumer Healthcare business will be spun-off in 2022 into a UK listing and based at a new global campus in Weybridge.

Bloomberg said the likes of Advent International, Blackstone, Carlyle Group, CVC Capital Partners, KKR & Co, Permira and a number of major pharmaceutical and consumer goods companies could all be potentially interested in the Consumer Healthcare division, which it said could earn a valuation of up to £40 billion – making it potentially one of the biggest-ever M&A deals to be struck by private equity.

 

Curevac

Curevac said it has discontinued development of its current Covid-19 vaccine that it is developing in partnership with GSK after failing to secure fast-track approval, prompting it to shift attention to its second-generation vaccine instead.

Curevac said European regulators had informed it that its first-generation vaccine will be approved in the second quarter of 2022 at the earliest after failing to secure fast-track approval. Curevac said it expects its second-generation jab to be in late-stage clinical trials by then. It said existing purchase agreements with the EU have ceased as a result, but said it was looking at leveraging existing commitments for its second-generation vaccine.

‘The companies anticipate entering clinical development in the next months, aiming to achieve regulatory approval for market readiness of an improved COVID-19 vaccine in 2022. Published pre-clinical results have shown the strong potential of the initial second-generation mRNA COVID-19 vaccine candidate, CV2CoV, compared to CureVac’s first generation mRNA, CVnCoV. The data demonstrates up to 10x higher immunogenicity in animal models,’ Curevac said.

 

Southwest Airlines

Southwest Airlines said yesterday that it is working to stabilise operations and restore its full schedule ‘as soon as possible’ after having to cancel thousands of flights over the weekend.

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 due to bad weather and air traffic control issues which are thought to have hit the airline harder than its peers.

‘Southwest Teams have been working diligently to restore stability to the network, and we are experiencing less disruptions on Monday. We hope to restore our full schedule as soon as possible,’ the airline said. CNBC reported that Southwest Airlines is hoping to be operating as normal by Wednesday.

 

American Airlines

American Airlines said this morning that third quarter revenue will be down around 25% from the year before and that it will post a profit in the period as it continues to see improvement as the travel industry rebounds from the pandemic.

The airline had previously said quarterly revenue would be down 24% to 28% year-on-year in the third quarter. It said it has executed the ‘largest and fastest operational ramp-up in its history’ over the summer as demand recovers. The company said it flew 61.1 billion available seat miles in the quarter but said this is expected to rise to 62.2 billion in the fourth.

American Airlines said it expects to book a net profit in the third quarter but said this will be caused by special one-off gains. Excluding those one-offs, American Airlines said it expects to book a net loss of between $620 million to $675 million. Still, the loss looks set to come in better than Wall Street expected, with analysts forecasting a quarterly net loss of around $742 million.

 

General Motors

General Motors shares will be in play today after its two South Korean battery partners revealed they will shoulder the majority of costs associated with the recall of GM’s Chevy Bolt.

Problems with the batteries have been causing fires in some Bolts and GM said back in August that it was recalling 140,000 vehicles at a cost of around $1.8 billion. Reports today suggest its battery partners, LG Chem and LG Electronics, will cover $1.2 billion of those costs following talks between the trio.

 

Amazon

Amazon has launched its Amazon Prime subscription service in Poland just months after entering the country.

Amazon launched its Polish website back in March and is already the largest American employer in the country with over 23,000 staff and the third largest US investor. It is now offering Prime – which offers fast and free deliveries and access to its other services like Prime Video and Twitch – for 49 zlotys per year ($12.37) or 10.99 zlotys per month ($2.77).

‘We are delighted that from today customers in Poland will be able to join over 200 million Amazon Prime members around the world who are already benefiting from its advantages,’ said Jamil Ghani, the head of Amazon Prime. ‘In the future, we plan to introduce an even greater selection of products delivered even faster and expand our range of films and series with new items.’

 

Facebook

Facebook remains in play after announcing it plans to meet with a high-profile whistle blower and is introducing new features to Instagram to help provide greater transparency over future outages.

Frances Haugen, a former product manager at Facebook, has hit headlines in recent week after identifying herself as the source of leaked information and testifying to a Senate hearing where she accused the firm of putting profits over user safety. Facebook has denied those allegations but has revealed its oversight board plans to meet with Haugen to discuss her views over the coming weeks.

The stock is yet to recover the value lost following a major outage of its services last week. Yesterday, Instagram said it is testing a new feature that would inform users when there is an outage to provide more transparency amid the confusion caused by the latest event that knocked its services offline for almost six hours. The test will run in the US over the next few months and be rolled out further afield if it successful. It also said it is introducing a new ‘Account Status’ feature to be a one-stop shop to what is happening with user’s accounts, including if they are at risk of being disabled.

 

Merck

The World Health Organisation said it is waiting to receive the data from Merck’s trial of its potentially breakthrough Covid-19 pill, stating it could be ‘another weapon in the fight against the Covid-19 pandemic’.

The latest data from the pill, given to people suffering from mild-to-moderate Covid-19, suggests it could cut the risk of being hospitalised or killed by the virus in half. Merck confirmed yesterday it has applied for emergency use authorisation in the US and said it was set to apply for authorisation in other countries ‘over the coming months’.

‘Indeed, this is an interesting development. We would have to see the full data about it. If it holds true, then it is another weapon in the fight against the Covid-19 pandemic,’ said WHO spokesperson Christian Lindmeier.

 

Analyst Recommendations

MGM Resorts was upgraded to Outperform from Neutral by Credit Suisse and had its price target more than doubled to $68 on the belief that a series of recent transactions has not been fully appreciated by the market.

Airbnb was upgraded to Outperform from Market Perform by Cowen & Co on the belief that Wall Street is underestimating potential bookings growth in 2022 as the international travel industry recovers from the pandemic.

Nike was initiated at Buy by Goldman Sachs, which said the athleisure giant should benefit from strong fundamentals for the athletic footwear and clothing market.

Square was upgraded to Overweight from Neutral by Atlantic Equities, which thinks the stock is undervalued and boasts strong growth prospects.

Shares in SoFi, a favourite among retail traders, closed 13% higher at $18.38 yesterday – marking its highest level since early July - after Morgan Stanley iniaited coverage on the stock with an Overweight rating and a target price of $25, stating the fintech firm boasts the ’fastest growth story in consumer finance’ and has a leg up over its rivals even as competition intensifies thanks to its focus on younger clientele.

Netflix had its price target raised to $737 from $620 by Jefferies following the success of South Korean hit ‘Squid Games’, which it said demonstrates the success of focusing on creating content internationally.

Aptiv had its price target raised to $180 from $165 by Daiwa Capital Markets on expectations margins will improve in 2022.

Carvana had its price target upped to $345 from $325 by JPMorgan, which believes the company has got a head start in selling used cars online in a fragmented market.

 

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