According to Cowen, industrial giant Textron expects upside ahead for company due to robust demand for business jets and rising interest in eVTOL aircrafts.
Cowen raised Textron’s rating to outperform from market perform. The firm also raised its price target for the stock from $75 to $95 per share. The new target price is 32% higher than Textron’s Monday closing price of $71.94.
The company stated that second-quarter sales show momentum for business jets, and that an increase in Covid-19 cases could be an additional tailwind.
“The Delta variant adds to the initial COVID demand for bizjets for safety and convenience. This could extend the demand upswing while providing better profitability than in the previous decade, according to Cowen analysts Cai von Rumohr and Dan Flick in a note Tuesday.
Cowen’s bullish call also mentions Textron’s progress in the eVTOL space.
The eVTOL sector is gaining popularity as aviation companies face increasing pressure to reduce carbon emissions in the face of climate change. Moves toward urban air mobility have also piqued the public’s interest in the space.
Textron’s expertise in tiltrotor design, manufacturing, and relationships with potential customers, according to the company, make it competitive in the eVTOL space.
“While maintaining a much lower profile than eVTOL SPACS… TXT has impressive potential to be an eVTOL leader,” the analysts concluded.
Electric vehicles use far more in-demand semiconductors than internal combustion engine vehicles. Despite potential supply chain issues, RBC Capital Markets’ equity analyst for European autos, Tom Narayan, believes patient investors will be rewarded.
“When looking at this sector, you really have to think long term,” Narayan said.
On Monday, Volkswagen’s shares closed at 284.20 euros ($335.35), down from 507.95 euros in October 2008.
“VW is trading as if it doesn’t have much terminal value,” Narayan said, before arguing that the company is the world leader in an EV market that will only grow in size.
Narayan also mentioned that Volkswagen owns a number of luxury car brands, including Porsche, Audi, Lamborghini, and Bugatti. “You have so many assets here,” he said, adding that VW will eventually “figure out what to do with them.”
All of these automakers require an increasing number of chips in their vehicles to power everything from power steering to parking sensors.
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However, demand for chips continues to outstrip supply. Harald Kroeger, a member of Bosch’s management board, said that the automotive industry’s semiconductor supply chains are no longer fit for purpose.
The chip shortage has already forced Volkswagen to reduce vehicle production, while Tesla has shifted to more readily available alternative chips.
“The situation appears to be deteriorating,” Narayan admitted.
A few months ago, it appeared that vehicle production in the third quarter would fall by only 200,000 units, but now it appears that it will fall by 2-3 million units.
Vertical integration is critical.
According to Narayan, the fact that Tesla and Volkswagen are focused on improving their own battery supply is another factor in their favor.
Both companies have recently announced plans to develop new chips for their vehicles.
Narayan believes they are more “vertically integrated” than other EV manufacturers, which means they are less reliant on external suppliers than other car companies because they manufacture more components themselves.
“When you rely on a supplier, some of the responsibility is diffused,” Narayan explained. “The supplier can point the finger at the OEM [original equipment manufacturer] and vice versa. If the OEM is completely vertically integrated, they have a stronger incentive to get it right.”
Narayan believes GM will become more vertically integrated in the future.
Electric vehicle (EV) demand
Volkswagen had some “early stumbles” in China, the world’s largest car market, earlier this year, but it is now “picking up steam,” according to Narayan. He also mentioned that Tesla’s vehicles are in high demand in China.
Overall, demand for EVs is increasing as new models arrive at a variety of price points. According to a recent Ernst and Young survey, 40% of people looking for a new car want an electric vehicle.
Simply looking at stock ratings or price targets, according to the strategists, can distort the underlying picture. Instead, they claim that the range and rate of analyst revisions on indicators such as earnings forecasts, ratings, and price targets can reveal who will win.
Here are five of their model’s most confident China picks for August:
Cosco Shipping Holdings is a shipping company based in China.
Cosco Shipping is one of China’s state-owned behemoths that generates a sizable portion of its revenue outside of the country, and it now operates in the midst of global shipping congestion, which has sent cargo costs skyrocketing.
This would be significantly higher than the 882 million yuan reported for the same period in 2020 and the 1.16 billion yuan reported for the first half of 2019.
While the company has yet to officially release those results, its stock has more than doubled in value this year and is up nearly 30% in August alone.
Anta Sports is a sports organization.
Anta, a competitor Chinese athleticwear brand, has not performed as well as Li Ning in terms of stock performance. Shares are down 6% for the month of August, but up nearly 30% for the year.
However, the company makes more money for its investors.
Wanhua Chemical Group is a Chinese chemical company.
According to the company’s website, Wanhua Chemical is a state-owned chemicals supplier for products ranging from furniture to electrical appliances. Wanhua is headquartered in Shandong’s northern province, but it claims to have research and development centers in North America and Europe.
Shares are down 6% for the month of August, but up nearly 19% for the year.
Despite the pandemic, Kibing, a manufacturer of window panes and other glass, has seen revenue increase over the last two years.
A Morgan Stanley analyst has suggested that investors purchase Japanese equities because of the lagging performance of Japan’s stock market compared to other developed economies in the United States and Europe.
As of Tuesday, the Topix index had risen around 8.6 percent this year, while the Nikkei 225 had risen 2.4 percent. Both were lower than the S&P500’s year-to-date gains of 20.4 percent and the Europe Stoxx 600’s year-to-date gains of 18 percent.
In an August report, Morgan Stanley stated that the Covid-19 outbreak was a factor influencing the performance of Japan’s stock market. According to the report, the country is increasing vaccination, which will aid in the recovery of the economy.
In March, the bank compiled a list of Japanese stocks with “upside surprise” potential, and in August, it made several changes to the list. Morgan Stanley predicts that the stocks on the list will perform better than expected.
Chugai Pharmaceutical, a newcomer to the list, has been added. Analysts at the bank believe the company’s earnings per share could be boosted by the approval and sale of its Covid-19 treatments, which they believe markets have not fully priced in.
Morgan Stanley removed the pharmaceutical company Astellas Pharma and the insurance company Tokio Marine from its list.
The following stocks are still on the bank’s list:
Aisin and NOK Corp. are auto parts suppliers.
Panasonic, Canon, and Ricoh are three consumer electronics companies.
Sumitomo Mitsui Financial Group is a Japanese bank.
Food and beverage companies Asahi Group Holdings and Suntory Beverage & Food
The flag carrier Japan Airlines (JAL)
Japan has many reasons to like it.
According to Jonathan Garner, Morgan Stanley’s chief Asia equity strategist, Japanese stocks could perform well throughout the business cycle.
During a webcast, Garner stated that many Japanese companies have made “quality” investments in becoming more productive and innovative. As a result, firms’ return on equity has improved, he says.
Goldman believes that this trade will return more than 20% in the next 12 months.
UBS sees three reasons why the S&P500 can reach 5,000.
The No. 1 economist on Wall Street sees a positive outlook through the end of the year.
Return on equity (ROE) is a metric that measures a company’s profitability in relation to its stockholders’ equity.
“That means that even in difficult environments — as we clearly saw during the Covid pandemic — the downward movement in earnings and ROE is less severe than in the past,” Garner explained.
“And the upward cycle when economic recovery occurs globally and locally is much more impressive and faster than we have seen in the past,” the strategist added.
However, the bank stated in its report that several factors could slow the earnings momentum of Japanese firms. This includes the spread of the Covid delta variant, the Federal Reserve’s anticipated tapering of asset purchases, and China’s economic slowdown.