IPO watch: Is Rivian really worth $70bn?

Electric vehicle builder Rivian is going public very soon with an ambitious IPO price. Is this really justifiable?

Rivian IPO

The Californian EV manufacturer is ready to go public

Rivian’s initial public offering is scheduled for Tuesday 9th November.

The carmaker is hoping to emulate rival Tesla by starting from a strong capital base before launching into the stratosphere. For context Tesla, which just celebrated a very strong third quarter, started from a $75bn initial valuation and is now, somehow, worth $1.1 trillion.

Rivian recently updated its SEC filing to include higher IPO pricing. The California-based brand will offer 135 million shares worth between $72-74, an upgrade from the planned $57-62 price originally offered.

At the top end of the range, and if underwriters exercise an option to purchase an additional 20.25m shares, Rivian could launch with a value between $65-70bn. It also hopes to raise some $10bn in capital on its stock market debut.

Seed investors, which includes big names like Amazon, have committed to buying $5bn worth of Rivian shares once it goes public.

Its potential market capitalisation puts the EV start-up over and alongside some more established global automakers. Ford and GM, both titans of the car manufacturing world, hold market caps around the $70-80bn mark for example. Honda is worth a total of around $55bn.

Rivian’s self-appointed valuation seems very ambitious for a carmaker that has yet to deliver even a fraction of the vehicles the aforementioned marques do every quarter, let alone every year.

The most recent vehicle maker IPO was Volvo Cars which resulted in a valuation of around $18bn for the Swedish firm.

Rivian’s future plans

Rivian’s goal is to establish itself as one of the EV world’s leading lights. Who wouldn’t after Tesla’s meteoric rise?

Right now, the marque’s line-up consists of just two “adventure vehicles”: the R1T fully-electric pickup truck, and the R1S SUV.

Both are rugged go-anywhere vehicles – something more in line with the whims of American outdoorsman than chic, city-dwelling Europeans which Tesla or Polestar currently appeal to.

Rivian claims it currently has the capacity to deliver 150,000 vehicles annually. Its R1T pickup is already on the market, priced at a cool $67,500 for the entry-level vehicle. That’s quite a lot for what is essentially a utility vehicle. Going back to Ford, its flagship F150 model starts at less than half the cost of an R1T.

We are dealing with economies of scale here, however. As Rivian starts to make more, assuming Americans make the switch from the most popular pickup model of all time to this new electric rival, then the cost of an R1T could drop. However, the Ford F150 Lightning starts at conventional F150 prices when it launches in 2022.

The R1S starts at around $70,000. That’s more in line with other luxury SUVs and seems more sensibly priced than the R1T.

Given the popularity of SUVs in general, and particularly electric SUVs, this writer thinks this is the horse Rivian should be betting on. Deliveries of the R1S begin in December.

All told, Rivian says it is on track to deliver 40,000 vehicles across 2022.

According to the carmaker, however, it is a big commercial order for Amazon to fulfil: 100,000 electric vans for the eCommerce behemoth’s delivery fleet. Rivian said it would be working on these for the next few years at least.

A crowded marketplace could hamper Rivian profitability

Carmakers rarely become profitable in their first few years. This is a tough industry and mass production is even tougher.

The company posted net losses of over $1bn in 2020, although much of this can be attributed to the construction of a factory in Normal, Idaho. According to its third quarter results, Rivian said losses for 2021 will come to $1.28bn.

Profitability is still some way off – something for investors and traders to be wary of.

Plus, the EV space is getting more and more crowded. Legacy marques, though slow on the uptake initially, are pouring billions into updating their ranges to become fully electric.

Let’s go back to Ford as an example. Rivian says it has over 55,000 pre-orders for the R1T. Contrast that with Ford, which has 160,000 pre-orders for the F150 Lightning. Ford has also “sold out” of pre-orders for the electric version of its ever-present Transit commercial van.

Tesla’s Cybertruck will also be a contender. The Cybetruck, with its futuristic stylings, is said to start for $40,000, offering consumers yet another cheaper truck model to play with. Rivian may have already priced itself out of the market.

Tesla’s massive valuation also comes from tireless decade-long work on the behalf of its management team. It has established market share. It has been an EV pioneer and its market perception as the electric carmaker has done wonders. Plus, it has the relentlessly self-promoting Elon Musk at the helm which ensures headlines, good or bad, for Tesla.

It might seem unfair to compare such a new badge as Rivian to the likes of Ford or Tesla, but the way it has priced its initial public offering suggests these are the types of carmaker Rivian wants to compete with.

I’m not so sure Rivian can really compete. It could be a victim of its own self-confidence.

AUDUSD – Eases from Three Month High at 0.7550 Down to Key 0.74 Level

In the last week or so the AUDUSD has eased from resistance at the three-month high around 0.7550 back down to another key level of 0.74 where it was supported to finish last week. This retracement follows several weeks of a strong rally which saw the AUDUSD not only move back up through resistance at 0.73 but continuing higher to the 0.74 level and moving through to the three-month high. After hitting resistance at 0.7550 a few weeks ago, its rally did slow down as it rallied back up to 0.7550 to run into resistance again forcing it lower.

Although now less likely, should it bounce off the support at 0.74 and move through the resistance at 0.7550, you would expect the 0.78 level to play a role again having influenced the AUDUSD as much as it did earlier in the year across many months. If the current support at 0.74 fails, then the key 0.73 level is likely to step in and provide some support again.

Given its range trading over the last few months, there are several levels that are poised to resume playing a role including the current 0.74 level but also 0.73 and 0.71, now that the AUDUSD has eased away from the three month high at 0.7550. The 0.73 level first gained attention in August when for several weeks it propped up the AUDUSD and kept it within a range between it and 0.74. The price movement over the last two months has reversed the medium-term trend after it pushed through 0.7450 and moved through to the three-month high.

If the AUDUSD does reverse strongly and move back through 0.74 and 0.73, you could expect the 0.71 level to provide some support after it reversed at that level in August. Failing that, the round number of 0.70 is more likely to step in and provide support to the AUDUSD.


RBA Leaves Rates as Historic Lows

As no surprise to anyone, last week the Reserve Bank of Australia (RBA) kept the cash rate at its historic lows at its monthly board meeting. However they did change their tune ever so slightly as they left the door open to a rate rise in 2023, having previously said they couldn’t see rates rising until 2024. After the meeting last Tuesday, RBA Governor Philip Lowe said that inflation had picked up earlier than expected but in underlying terms was “still low”. “The board is prepared to be patient, with the central forecast being for underlying inflation to be no higher than 2½ per cent at the end of 2023 and for only a gradual increase in wages growth,” he said.

They are also still very conscious of the red-hot property market in Australia with increasing “household indebtedness” as people continue to question why the central bank isn’t playing a role in maintaining a lid on soaring prices and curbing borrowing. The central bank has been reluctant to comment on housing adopting the approach that they have a bigger economic picture to manage.

However last week they did make a comment on the scenario of increasing rates quickly and the impact on property prices. “Price falls could be widespread if interest rates were to increase sharply due to unexpected inflation or rising risk premiums,” the RBA said in its Financial Stability Review released last Friday. “Sharp price falls could cause greatest harm to the financial system for assets where leverage is common, notably residential and commercial property.”

However, “while there has been a slight moderation in housing turnover and housing price growth as a result of the lockdowns, recent data on commitments suggest housing credit growth is likely to pick up further” the RBA added.


ASX200 – Continues to Trade Around Key Level of 7400

A quick scan through the ASX Top 20 stocks will show a handful of stocks that have performed very poorly this year, while others have shone. In the last week, Aristocrat Leisure, Commonwealth Bank and Macquarie Group have all achieved all time highs on the back of very strong up trends. Aristocrat is also the best performing stock over the last six and 12 months. If you look outside into the top 50, ASX joins that list.

Continuing to drag the chain are the miners in BHP, Rio Tinto and Fortescue Metals, which are all trading at close to 12 month lows. It makes you wonder how much higher the S&P/ASX200 index would be if it wasn’t for these few stocks.

In the last week or so the ASX200 index has reversed well off the 7300 level returning to a one month high near the key 7500 level. The ASX200 traded right around the 7500 level in a very tight range for several weeks two months ago and that level is likely to offer some resistance again. As the index approached that level last week it did struggle to maintain the momentum and did stall for several days before easing lower to 7300.

Over the last few months the ASX200 index has been loosely forming a head and shoulders pattern with the head above 7600 in August and the two shoulders near 7400. This is widely accepted as a trend reversal pattern, however its current movement higher in the last week is threatening to collapse the pattern.

Several weeks ago, the ASX200 enjoyed solid support from the 7200 level where it propped it up for around two weeks and this may be called upon again should the index continue to ease lower. The volatility in the ASX200 index (seen in the chart below as the red line) has decreased in the last few weeks returning to a longer-term average

All things considered, the index has moved very strongly over the last 12 months, with recent signs that it could easily return to its recent all time high and threaten to move higher.

Risk-on pile-on to end week as Pfizer delivers the good news

There is a big risk-on push to end the week as Pfizer delivered what could be the knockout blow to Covid. Reopening stocks are bid – IAG +4%, TUI +7%, EasyJet +5%, Wetherspoons +4% … you get the picture. In the US, Carnival, Royal Caribbean, MGM Resorts, Wynn Resorts, Las Vegas Sands, Delta, Southwest led the charge higher. It’s a pile-on for reopening stocks. Mega cap momentum (FANG+ index) lags XLE and XLF. Disney +3% to Netflix -2% tells the story of going out vs stay-at-home neatly. Drug manufacturers off strongly except Pfizer. Semis are having a good day.

All three of the major Wall Street indices posted fresh record highs, with gains of around 0.5%-0.9%, whilst the Russell 2000 showed up with a +1.8% rally. Vix being crushed to take a 15 handle as bears seem to be throwing in the towel. However, this is the kind of extended level at which I’d expect volatility to creep back in and stocks to pull back….but timing is everything and for now the bears are in hiding. In Europe the FTSE 100 made a new post-pandemic high at 7,332.45, trading up 0.5%. Euro Stoxx 50 also at a record high and trades +0.75% this afternoon.

The Pfizer anti-viral cuts risk of death and hospitalisation by 89%. It’s a game changer, for sure. The stock itself is +7% whilst Moderna is –19% on expectations that we won’t be needing booster jabs every few months. Coming after the Merck announcement it’s a very positive sign that we are through the worst of the pandemic now and won’t need to rely on vaccines + restrictions.

A strong US jobs report added to the sense of optimism. The headline 531k was a beat to expectations and revisions to Aug and Sep added a further 235k. Stronger jobs numbers indicate the US economy is reopening and healthier than at any point since before the pandemic, whilst it’s also been a positive for the dollar as it could draw the Fed into being more comfortable raising rates in line with market positioning, i.e. a tad sooner. At the other end, subtler wage growth – down to +0.4% from +0.6% in September – was a positive that wage spirals won’t lead to more permanent inflation.

The dollar found bid and hit its highest in a year before paring some of the gains. GBPUSD is weaker but off its lows. Several BoE members have been on the wires today trying to clear up some of the communications mess left by yesterday’s non-hike, but it’s not any clearer. They’re saying they will act, that the labour market will get tighter, and inflation will rise above 5%…so why not hike already? Yields are generally falling post FOMC and BoE, with the 10-year Treasury falling a one-month low at 1.467%. Bit of a yield flattener today with markets assuming perhaps a slightly quicker Fed taper but that could crimp long-run growth.

Dollar index: Fresh one-year highs but 94.80 is the big test, the 38.2% retracement of the longer-term peak to trough move. Chart maybe looks a bit toppy, but the bullish MACD crossover is in play.

Dollar Index 05.11.2021

Despite stronger USD, gold is bid and back above $1,800 as rates fell. US 10s down to 1.47% and real rates getting crushed. Struggling to gain much momentum above $1,800 but eyeing retest of the Oct high at $1,813. Support at 20-day SMA at $1,783.

Gold chart 05.11.2021

Oil is up 2% for the session but still set for a $3 fall this week. WTI holding the lower Bollinger but still looking bearish and heading for more bearish fundamental outlook.

Oil Chart 05.11.2021

Earnings Season: Apple revenues miss expectations

For the first time since 2016, Apple has missed Wall Street earnings estimations – but the big tech’s growth continues at a terrific pace.

Apple earnings

Apple’s headline stats

Global supply chains issues thrown up by the COVID-19 epidemic caused Apple to miss earnings estimations this quarter.

Sales of the brand’s flagship iPhone, iPad and iMac models were affected. A worldwide computer chip shortage has been affecting many tech companies. Only Tesla’s Q3 earnings seem to buck this trend.

“We had a very strong performance despite larger than expected supply constraints, which we estimate to be around $6 billion,” Apple CEO Tim Cook said.

However, overall revenue was still up 29%, going to show just how much of a behemoth Apple is.

The key takeaways from this quarter’s Apple earnings report are:

  • Earnings per share – $1.24 vs. $1.24 forecast
  • Revenues – $83.36 billion vs. $84.85 billion forecast

Apple shares also fell 3% in general trading after financials were published. At the time of writing, they had climbed 2.5%, on their way to making up yesterday’s losses.

Despite the chip shortage, which also coincided with pandemic-led labour issues in Southeast Asian manufacturing hubs, it seems all major revenue streams were up year-on-year for Apple.

  • iPhone revenue – $38.87 billion vs. $41.51 billion forecast – 47% y-o-y increase
  • Services revenue – $18.28 billion vs. $17.64 billion forecast – 25.6% y-o-y increase
  • Other products revenue – $8.79 billion vs. $9.33 billion forecast – 11.5% y-o-y increase
  • Mac revenue – $9.18 billion vs. $9.23 billion forecast – 1.6% y-o-y increase
  • iPad revenue – $8.25 billion vs. $7.23 billion forecast – 21.4% y-o-y increase

Even with that $6 billion loss, Apple appears to be in a very healthy place. The 47% increase in iPhone sales is particularly notable. Not even a global pandemic, component shortages and manufacturing snags can halt the world’s most popular smartphone’s growth.

Annuals total fiscal revenue for 2021 is up 33% against 2020 at a total of $366bn.

Apple holds a buy rating according to the Markets.com analyst recommendations:

Apple Analyst Consensus

News sentiment is bullish, but only slightly above the average for the technology sector:

Apple news sentiment

Apple’s core growth areas

iPhones are obviously the cornerstone product driving most of Apple’s growth. The iPhone 13 model has recently been introduced, but only came a month before the quarter ended. Its impact won’t really be recordable until the next earnings season.

The next biggest growth area for the California tech brand was its services department. Revenues generated by services is up nearly 26% year-on-year. Services cover App Store sales, music and video subscription services, advertising, extended warranties, and licensing.

According to Tim Cook, Apple now boasts 745 million paid subscriptions.

“That’s up 160 million year-on-year, which is up five times in five years. So, it’s been quite the growth cycle,” Cook said.

The iMac segment did not match its stablemates’ spectacular growth, although sales were up over the year. However, growth only clocked in a 1.6%.

What’s next for Apple?

Apple has yet to give official guidance on the next quarter, but it has made some key predictions.

Speaking to analysts after the earnings call, CFO Luca Maestri said he expects iPad sales to decline in December. Supply constraints will affect manufacturing and subsequently sales. However, iPhone sales will likely continue accelerating, especially with the iPhone 13 available to consumers worldwide.

US Q3 earnings season is in full swing. Stay tuned for more updates. In the meantime, check out our earnings calendar to see which megacaps are reporting and when.

Earnings season: Ad revenues power Alphabet to Q3 earnings beat

Google parent company Alphabet comes out swinging in Q3, notching earnings and revenues beats for a second consecutive quarter.

Alphabet earnings

Alphabet’s key stats

Alphabet posts another strong quarter with revenues and earnings per share beating Wall Street estimates.

This is the latest third quarter earnings report from a FAANG stocks member. Facebook and Netflix have already reported their Q3 financials.

Check out the Google owner’s key stats below:

  • EPS – $27.99 per share vs $23.48 per share forecast
  • Revenues – $65.12 billion vs $63.45bn forecast

However, the search engine and web services firm did also record couple of revenue misses from some of its key cash generators.

  • YouTube advertising revenues – $7.21 billion vs $7.40 billion forecast
  • Google Cloud revenues – $4.99 billion vs $11.16 billion forecast

Despite not meeting earnings, Google Cloud grew at a rate of 45% quarter-on-quarter. While YouTube revenues did not meet expectations, they showed year-over-year acceleration. In Q3 2021, YouTube ad revenue came to $5.04 billion. As you can see from the above, over $2bn was generated from YouTube advertising in the third quarter y-o-y.

Total revenue growth, incorporating all of Google’s services and networks, came to 41%.

Google’s profits came to $21bn – three times higher than pre-pandemic records. Operating losses for the sector were halved from $1.2bn to $644m.

Advertising generated $53.13bn across Alphabet’s brands. That’s a major increase over the $37.1bn recorded in the third quarter of 2020.

Alphabet shares, which remained fairly flat after the earnings call, are up about 57% across the year. At the time of writing, however, they had gained nearly 5%.

Apple change affects YouTube revenues but retail fosters growth

Much like FAANG stock contemporary Facebook, Alphabet noted the impact of Apple’s latest privacy update on money stemming from YouTube advertising. However, the update’s effects were more muted compared with Mark Zuckerberg’s social media platform.

In a call with analysts, Ruth Porat, Alphabet’s finance chief, said that the new privacy features had a “modest impact on YouTube revenues.” She added that “focusing on privacy has been core to what we’ve been doing consistently.”

The Apple App Transparency Tracking abilities in the iO4 operating system means users can limit how they are tracked. Customers can choose to essentially ignore a lot of ad targeting now. While this is bad news for the likes of Snap and Facebook, Google and Alphabet are less concerned. They own the Android operating system where iOS updates do not apply.

But according to Alphabet Chief Business Officer Philipp Schindler, the retail segment of Google and YouTube’s ad matrix generated the most returns. Some regions experienced a fourfold increase in Google shopping activity this quarter Schindler said.

Bricks-and-mortar isn’t dead. Instead, omnichannel [shopping] is in full force,” said Schindler in an analyst call, noting that cash flow from this sector was up 40% across the third quarter.

Where next for Alphabet?

Alphabet has caught the green bug. Chief Executive Sundar Pichai says Google campuses will continue to up their environmental efforts. Pichai said the search engine will operate on renewable, carbon-free energy by 2030.

Google Maps will also be updated to offer drivers an eco-option, basically outlining the most fuel-efficient route to their final destination. Additionally, Google Cloud users will also be able to track their carbon footprints using data captured by Google services.

Google is also planning to build a $1.2bn office complex in New York City, presumably designed and built using environmentally-friendly materials. It is also planning to refurb its California campus using the same green building philosophy.

What’s the Alphabet market consensus?

According to the Markets.com analyst consensus tool, Alphabet holds a strong buy rating:

Alphabet Analyst Consensus

News sentiment shows the media thinks Alphabet is on a bullish footing too:

Alphabet News Opinions

US Q3 earnings season is in full swing. Stay tuned for more updates. In the meantime, check out our earnings calendar to see which megacaps are reporting and when.

Earnings season: Facebook beats earnings but posts revenues miss

Facebook’s Q3 2021 earnings come in ahead of Wall Street forecasts but revenues fall this quarter.

Facebook earnings

Facebook’s headline stats

Facebook reports in the midst of a major whistleblowing case. Despite disgruntled former insiders taking the social media giant to task, Zuckerberg’s Facebook shrugged this off to post an earnings beat.

Facebook is one of the largest tech companies to report so far, alongside Tesla and Netflix.

Investors seem to have chosen to cherry-pick the EPS increase, which is fair enough, rather than focus on Facebook’s quarterly revenue drop.

Facebook’s key Q3 2021 earnings metrics are:

  • Earnings per share – $3.22 vs $3.19 forecast
  • Revenues – $29.01 billion vs $29.57 billion forecast
  • Average revenue per user – $10.00 vs $10.15 forecast

Its EPS beat means Facebook has earned $9bn this quarter.

Ad revenues continue to enjoy sustainable growth. Facebook said advertising-generated revenue in the third quarter rose 35% from a year earlier, while net income rose 17% to $9.2 billion, from $7.8 billion a year prior.

Comparing quarters, EPS is actually down from Facebook’s second quarter earnings. During Q2, Facebook’s earnings per share totalled $3.60. Revenues stayed fairly flat quarter-on-quarter, although it is fair to say Facebook did warn of slowing growth in its second-quarter guidance.

We also need to examine key user metrics when looking at Facebook earnings. This includes users across all of the apps and platforms in the Facebook family. These include Instagram, Messenger, and WhatsApp.

User engagement totals for Q3 came to:

  • Monthly active users (MAUs) – 2.91 billion vs. 2.93 billion forecast
  • Daily active users (DAUs) – 1.93 billion vs. 1.93 billion forecast

These are both comparable to Q2 earnings. Fairly flat across the board once more.

The EPS beat will be good news for investors, but for Zuckerberg and co. it’s going to take a lot of PR massaging to foster more sales going forward.

Where next for Facebook?

In the major bundle of documents Facebook whistle-blower Frances Haugan has leaked to the press, it looks like the social media app is losing ground in the 18-29 segment.

“Over the last decade as the audience that uses our apps has expanded so much and we focus on serving everyone, our services have gotten dialled to be the best for the most people who use them rather than specifically for young adults,” Mark Zuckerberg said in an earnings call.

Facebook is now committed to developing its full-screen Reels feature, already popular on Instagram, to try and claw back some market share from TikTok. However, developing its products to get back this lost ground will not be a simple project. According to Zuckerberg, this is a multi-year endeavour.

There’s even talk of a rebranding for Facebook as a corporate entity as part of Zuckerberg’s “metaverse’ project. The metaverse seeks to create a persistent, online world where you can interact with others as though you were speaking in real life.

Again, this is all long term. In the short term, Facebook will still have to contend with Apple’s privacy updates. The Apple App Transparency Tracking abilities in the iO4 operating system means users can limit how they are tracked. Facebook targets users to grow its advertising offer to clients, which is a cash cow for the platform.

Limiting its tracking efforts could damage its revenue streams – especially on an OS as popular as iOS.

“Our outlook reflects the significant uncertainty we face in the fourth quarter in light of continued headwinds from Apple’s iOS 14 changes, and macroeconomic and COVID-related factors,” the company said in an earnings call.

In terms of share performance, Facebook gained 2% in after-hours trading, despite a mixed outlook for Q4. It continued to make gains on Tuesday morning.

According to our analyst consensus tool, Facebook holds a strong buy rating:

Facebook Analyst Consensus 26.10.2021

Blogger consensus is also strong:

Facebook Blogger Opinions 26.10.2021

Earnings season: Tesla drives through Q3 with another earnings beat

Despite supply shortages, Tesla comes out on top with another record-breaking earnings quarter.

Tesla earnings

Tesla’s headline stats

It’s another expectation-beating quarter for Elon Musk’s Tesla.

The electric carmaker was buoyed by record deliveries in Q3. This translated into higher net income and better margins. Tesla appears to have found chipsets no one else can locate, giving it the edge over its rivals as the world experiences a global computer chip shortage.

The key takeaways from Tesla’s Q3 2021 earnings are:

  • Earnings per share – $1.86 vs. $1.59 estimated
  • Revenue – $13.76 billion vs $13.63 billion estimated

In income terms, Tesla reported net income of $1.62bn. This is the second consecutive quarter the auto manufacturer has reached a $1bn income quarter. It only goes to show just how far Tesla has come. Last year, third quarter net income totalled $330m.

It was reported at the start of October that Tesla vehicle deliveries had outstripped Wall Street estimations. According to Tesla, it delivered 20% more vehicles against Q2 for a total of 241,300. Its Model Y and Model 3, more “affordable” cars, were the most popular models. Ultimately, Q3 vehicle deliveries were up 73% year-on-year.

Analysts had forecast that Q3 deliveries would stack up at 229,242 vehicles.

Gross margins improved from 26.6% overall and 30.6% for Tesla’s main automotive business – another record-breaking metric for Elon Musk’s brand.

Tesla also generated $806 million in revenue from its energy business, which combines solar and energy storage products, and $894 million in services and other revenue. Other revenue comprises maintenance, insurance and merchandise.

Tesla insiders show pre-earnings sell off

In a move that may signal something greater (but also maybe not), Tesla insiders began selling shares prior to the company’s third quarter earnings release.

As you can see from the below, Tesla company insiders have been releasing stocks. Over 450m Tesla stocks have been sold over the past 3 months, worth $7.1m. Compare that with buys of just 764,446.

Tesla inside earnings tool results.

Could this be part of a broader trend? Is Musk planning to sell some of his own Tesla holdings? It’s hard to say at this stage, but it’s worth keeping an eye on.

Tesla stock fell 1.5% in after-market trading. As of Thursday morning, the stock was still relatively flat, trading at $866.56. On the whole, Tesla shares are up around 23% across 2021.

According to the Markets.com analyst recommendations tool, Tesla holds a neutral rating.

Tesla analyst recommendations chart.

Contrasting with that is news sentiment which places Tesla in a firmly bullish position.

Tesla news sentiment rating.

Where next for Tesla?

Tesla is in the process of expanding its production capabilities with new factories under construction around the world.

“There’s quite an execution journey ahead of us,” Chief Financial Officer Zachary Kirkhorn said in the brand’s quarterly earnings call.

The centrepiece of its expansion plans is its Berlin “Gigafactory”. The $7 billion project could see cars start rolling off the production line in the next month, but there are still global parts shortages and high commodities prices to contend with.

This didn’t seem to really hold Tesla back in the third quarter. The EV builder seemingly has the ability to pull parts, chipsets, and micro components out of thin air.

“Q4 production will depend heavily on availability of parts, but we are driving for continued growth,” Kirkhorn said.

Also expect to see acceleration of the so called “Full Self-Driving Systems” Tesla is developing. As we reported yesterday, this new tech has its fair share of detractors, not least the National Highway Traffic Safety Administration. The self-driving technology is already under investigation by the NHTSA, and some Tesla fanboys/girls see this as an attack on the brand.

Others just don’t want to see a repeat of several fatal incidents caused by Tesla vehicles on autopilot. It’s imperative Tesla gets this right, otherwise there good be a major clampdown on its autopilot ambitions. But if people are getting hurt, or being killed, by wayward Tesla cars, it’s only right to take a cautious approach.

Let’s mention batteries. Tesla says it is about to make a switch to its standard-range models who currently use a lithium-ion battery with a nickel cathode. Tesla says it will start using a lithium iron phosphate (LFP) mix. Basically, iron is more abundant than nickel. It should make it easier for Tesla to source supplies.

The end goal, says Tesla VP of Powetrain and Energy Engineering Drew Baglino, is to localise battery and car production.

Some supply and critical safety challenges to overcome then for the world’s most valuable car maker.

Q3 earnings season is in full swing. Stay tuned for more updates. In the meantime, check out our earnings calendar to see which megacaps are reporting and when.

IPO watch: Volvo Cars seeks $23bn valuation on public launch

In one of the largest IPOs of 2021, Volvo Cars is going public. Here’s what you need to know about the Gothenburg carmaker’s stock market debut.

Volvo IPO

Volvo Cars hopes to raise $2.9bn in initial public offering

Chinese-owned Volvo Cars will make its public stock market debut on October 28th, 2021.

The company has set its sights on a $23bn valuation when it debuts on the Nasdaq Stockholm stock exchange in ten days.

In its prospectus, Volvo said it would be offering shares priced between 53-68 krona ($6.12-7.86) per share, initially offering $2.9bn worth to investors. Volvo Cars’ offering is made up of 367,647,058–471,698,113 newly issued common class B shares.

The transaction, including expected converted investments by investors AMF and Folksam, was seen resulting in a free float of about 19.5% to 24.0%, Volvo said.

That would give its owners, Geely Motors, a substantial ROI. The Chinese firm picked up Volvo from the ailing Ford back in 2010 for a cool $1.8bn.

Part of Volvo’s potential valuation is the fact it owns 50% of EV spinoff Polestar. Polestar is preparing its own IPO, which is expected to place a $20bn valuation on the premium electric car brand, due to launch in 2022.

Geely and Volvo also jointly own 8.2% of Volvo Trucks.

Volvo enjoys strong brand recognition and sales in key markets, such as China, mainland Europe, the UK, and the US.

The Swedish carmaker sold 770,000 vehicles last year, spearheaded by the popular XC family of SUVs. If it can pull of that $23bn target, Volvo would sit firmly alongside premium contemporaries like Daimler and BMW in terms of market cap, if not cars sold.

BMW shipped 2.3m cars worldwide in 2020. Mercedes-Benz shipped 2.2m.

Volvo’s electric outlook

Raising capital to develop its EV product offer and production capabilities is one of the key reasons behind this IPO. Volvo is aiming for annual car sales of 1.2m per year – an increase of 56% against 2021’s numbers.

“Volvo Cars believes that its unique structure and focused strategy makes it one of the fastest transformers in the global automotive industry, with mid-decade ambitions dedicated to electrification, sustainability and digitisation.” the Swedish company said in a statement.

As with pretty much all legacy car manufacturers, Volvo is looking to electrify its line up away from the Polestar brand. New electric models from Volve Cars will be badged as such. Think of Polestar as the premium of the premium. Volvo Cars are more in line with midrange BMW models, like the 1, 2 and 3 series, although it does offer models that can compete in the saloon and SUV/Crossover classes.

Could Volvo become one of the top EV stocks to watch?

The float, if successful, will help fund Volvo’s electric ambitions.

By 2030, Volvo aims to have removed internal combustion engines from its range. It expects 50% of total sales to come from electric-powered vehicles by 2025. In an interesting move, the auto manufacturer also expects 50% of its sales to come from online via the Volvo website by this time too rather than bricks-and-mortar dealerships.

“There is no long-term future for cars with an internal combustion engine,” Henrik Green, Volvo Cars’ Chief Technology Officer, said earlier in the year. “We are firmly committed to becoming an electric-only car maker and the transition should happen by 2030.”

September saw global Volvo sales fall 30% year-on-year. Supply chain chaos, chipset shortages, and worker COVID-19 breakouts all impacted manufacturing and delivery at this time. Volvo has said all workers have been given vaccines in its Southeast Asia factories, but it will still be hampered by semiconductor supply constraints.

US pre-mkts: Bank earnings strong, Cat upgrade

Very strong bank earnings coming through this morning – JPM led the way yesterday and the latest numbers from peers also look strong. Real good signs of improving loan growth in particular is a positive for BAC.

US pre-market key pointers

Bank of America (BAC)

Strong performance from Bank of America.

  • Net income of $7.7bn, EPS of $0.85 vs $0.71 expected
  • Revenues up 12% year-on-year – JPM was just up 2.2%
  • Net interest income up 10% to $11.1bn – most rate-sensitive of the big banks
  • Record M&A activity – Noninterest income up 14% to $11.7bn, driven by record asset management fees, strong investment banking revenue and higher sales and trading revenues
  • Expenses down on the quarter, flat on the year
  • $624m clawback from bad loan provisions – bottom line flattered less than the JPM numbers.
  • Stock up pre-mkt to tune of 2.5%, having fallen 0.92% yesterday in sympathy with JPM, which is trading mildly higher in pre-mkt.

Wells Fargo (WFC)

Wells Fargo results showed:

  • Net income of $5.1bn, EPS $1.17 vs $0.98 expected
  • Net interest income was down 5%, due to lower loan balances that reflect soft demand, also higher prepayments, lower yields
  • Results include $1.7bn decrease in credit loss provisions – equivalent to $0.30 per share.
  • Pre-mkt trades +1%, having slipped 1.3% yesterday.

Meanwhile, ahead of the cash open on Wall Street, US futures indicate all the major averages will open higher. SPX seen opening up 30+pts at just under 4,400, Dow Jones +200pts at 34,610, NDX at 14,900. Risk looking solid.

  • Walgreens Boots Alliance reported earnings $1.17, vs $1.02 expected, revenues $1bn ahead of expectations, cost-cutting programme a year ahead of schedule. US comparable sales up 8.1% from a year before.
  • UnitedHealth shares +2% pre-mkt after reporting earnings beat and raised guidance.
  • Caterpillar +1% pre-mkt, bouncing of its weakest level since Jan, as Cowen advises clients to buy ahead of the first ‘megacycle’ in 14 years, initiates with ‘Outperform’ rating and PT of $241.
  • Tesla shares are up pre-mkt to their best level in 7 months.
  • Boeing down 1% pre-mkt after report says co. dealing with new Dreamliner defect, production problems
  • FTSE 100 at HOD just a whisker under 7,200
  • Dollar continues to struggle. GBPUSD making a fresh 3-week high at 1.37334.
  • Gold also trades at HOD at $1,800, sitting on its 100-day SMA.
  • Treasury yields lower, 10s at 1.532%

Earnings season: five stocks on Goldman’s radar

Earnings season is underway. Now’s the time to take a look at some stocks that could provide investors with more than the Wall Street consensus would tell you.

US earnings season Q3 2021

Goldman reviews earnings season stocks

Sometimes investors like to break away from the pack. To dare is to do.

It’s all about spotting opportunities from stocks that may be overlooked by Wall Street.

As reported by CNBC, Goldman Sachs has been scanning Wall Street for stocks it believes hold promise for investors looking for something different this earnings season.

Earnings season began in earnest this week with major US banks leading the charge as always. You can use our earnings season calendar to see which megacaps are reporting this quarter and when.

In a note to investors published on Wednesday, Goldman said it expects stocks to rise 6% this quarter. Its spotlighted stocks, however, could offer upsides of 14%.

The investment bank deployed a fairly complex methodology when analysing Q3 2021 earnings season stocks. 1,000 companies in Goldman Sachs’ coverage universe were scanned at the 25 best opportunities were selected when considering EPS of $5 per share over the next four quarters.

After this, the results were filtered through analysts which were above or below Thomson Reuters’ consensus for the upcoming quarter, and the year ahead, “on a key financial metric.”

“Single stock put-call skew is at its highest level in over a year,” Goldman said, encouraging investors to make out-of-money calls on its out-of-consensus stock picks. “Given investors are well hedged, even modest earnings beats are likely to drive a relief rally in specific stocks (on earnings day) and the broad index (over the next three months).”

The out-of-consensus stocks to pick

Please note these are only Goldman Sachs’ recommendations – not hard and fast must-buys. Only invest if you are comfortable with the risk of potential capital loss.

The top five stocks Goldman has selected to watch this earnings season are:

  • Uber
  • Signature Bank
  • Yeti
  • Bank of America Corp
  • Lowe’s

Let’s start with Uber. The ride-hailing service burst onto the scene several years ago as a taxi industry disruptor. Goldman’s Eric Sheridan thinks the app can deliver a 37% upside over the coming year. Sheridan’s earnings estimates put Uber 20% higher than Wall Street consensus right now too.

The idea is that if Uber can close the supply/demand gap, then this should lead to normalised ride pricing, higher demand in general, and thus pre-pandemic profits.

Outdoor retailers Yeti could offer even better upsides than Uber. Goldman considers Yeti a “growth compounder with best in class authentic brand positioning.” It could deliver upsides of 44% if Goldman is on the money. In terms of EPS, Yeti’s could be 8% higher than analysts think in the third quarter and 3% higher in the next.

Investment banks are usually amongst the first to start reporting on Wall Street come earnings season. It’s certainly true this year. Of these, Goldman flags Bank of America as the one to keep an eye on. Goldman’s analysis puts BoA’s upside at 7% – some 10% higher than consensus.

Bank of America’s potential has been pegged to “significant remixing of cash into securities” by Goldman.

Smaller banks are represented by Signature Bank. Ryan Nash, a Goldman stock analyst, forecasts earnings-per-shares to come it at 7% higher than Wall Street forecasts this quarter and 5% for the next four. Signature is on course for a revenue-beating Q3, driven by an acceleration in loan growth.

Rounding off Goldman’s section of potentially consensus-beating stocks is Lowe’s. The DIY probably benefitted more than most from the pandemic last year, but this quarter it could offer investors an upside of 12%.

Goldman’s Kate McShane said Lowe’s position is stronger now than in the last 6-12 months, thanks to bringing forward its seasonal inventory purchases.

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