A telecommunications satellite built by Maxar-owned Space Systems Loral.
J.P. Morgan began coverage of Maxar Technologies on Tuesday with an overweight rating, telling investors that the diminished space conglomerate is in the early stages of a turnaround that would yield over 70% upside by the end of 2020.
“We see Maxar as a high-risk/high-reward opportunity in the Space industry. We believe the next 24 months are critical as the company progresses on its turnaround plan and addresses its high leverage and debt levels, which should create value for equity holders,” J.P. Morgan analyst Benjamin Arnstein said in a note.
Maxar’s stock jumped as much as 13.1% in trading from its previous close of $7.03 a share. J.P. Morgan has a $12 price target on the stock. Arnstein explained that the firm’s target is conservative, based on its sum-of-the-parts analysis of Maxar’s four business units.
“We could see even greater upside after the company addresses its debt overhang,” Arnstein said.
J.P. Morgan’s “blue-sky scenario” would see Maxar’s stock at over $20 a share, which would represent an increase of nearly 185%. But the firm’s downside case, where Maxar’s debt load would slowly crush the company, would see the stock’s value at $5 a share, “or potentially zero,” Arnstein said.
“We believe investors will need to become more comfortable with the company’s cash generation potential and removing the debt and leverage overhang,” Arnstein added.
About 2½ years ago, Maxar’s stock traded as high as $66.46 a share and was undergoing a merger with Space Systems Loral (SSL), the satellite manufacturing company that would become a Maxar unit.
“Maxar came together in late 2017 but quickly ran into trouble at SSL … and then lost a high margin Imagery satellite,” Arnstein said. “Additionally, the company entered an investment cycle that resulted in significant cash outflows all while saddled with new debt from the transaction that created Maxar.”
At the stock’s low in March of $3.96 a share, Maxar had lost nearly 95% of its value. But Maxar shares have slowly begun to rise over the past six months. Maxar appointed Dan Jablonsky, previously the leader of its DigitalGlobe unit, as CEO in January. The stock has also had large percentage gains following recent wins, such as a NASA’s contract for Maxar to build a lunar orbiting platform and a report it may sell its space robotics business MDA for more than $1 billion.
“Maxar is not yet out of the woods but we see a viable path forward as the investment cycle tapers off and cost reduction efforts offset lower volumes at SSL,” Arnstein said.
The company has about $3 billion in debt outstanding, Arnstein noted.
“Modest asset sales are likely,” he said, and “larger pieces of the business may be in play.” A sale of MDA , for instance, would be one of the keys to Maxar’s stock passing $20 a share, Arnstein added.
Arnstein also said that Maxar should generate cash in 2021. His firm expects about $150 million in free cash flow from Maxar in 2021, as investments in the new DigitalGlobe satellite constellation slow down and Maxar reduces cost at SSL.
“Maxar is embarking on its turnaround that is focused on reducing leverage and improving operations in company’s core businesses,” Arnstein said.
Roku could fall another 30% before finding a bottom, chart suggests
The streaming wars may have claimed a new victim.
Roku shares plummeted nearly 30% last week, its worst weekly performance stretching to its 2017 IPO.
The streaming platform stock was pummeled Friday after Pivotal Research slapped a sell rating and $60 price target on it, fearing a rush of competition in the space. It was crushed days earlier after CNBC owner Comcast announced it would offer a free streaming box to its internet customers.
It could get even worse, according to Craig Johnson, chief market technician at Piper Jaffray.
Roku has “violated the uptrend support line off those April lows of this year. You’ve got some support that comes in at $113. But purely based upon the charts, your best support comes in all the way back down at the 200-day moving average. So you can see the stock trade back down to $81, maybe even $75,” Johnson said Friday on CNBC’s “Trading Nation.”
A move down to $75 marks 30% downside from current levels. It has not traded at that price since May.
“The risk/reward isn’t favorable. Even though the stock is up, it has sold off quite a bit in here recently. I still think you got about 30% downside and maybe a relief rally of 7% upside, so I’d be selling into this move,” said Johnson.
Quint Tatro, founder of Joule Financial, does not see Pivotal’s note on Roku as the stock’s death knell.
“Obviously, the stock got way overheated, trading 25 times sales, but [Pivotal’s] rationale regarding losing market share I don’t agree with. You have to understand, this is a cord-cutting product so their whole rationale is that the cable companies are going to offer their own device for free in order to compete. I’m a Roku user. I own six of them in our home and office. I have not had cable for years so I would not switch to a cable device,” Tatro said on the show.
Tatro says a pullback in Roku’s share price to 14 to 15 times sales, around $100, would make him a buyer. Roku would need to fall 7% from Friday’s close to get to that level.
Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com.
The market rotation this month may have been driven by a technicality
A trader works at the New York Stock Exchange in New York.
Wang Ying | Xinhua News Agency | Getty Images
What exactly happened during the “once in a decade” stock market rotation earlier this month that rocked investors? It might’ve just been a one-off technical move and not based on fundamentals.
A huge rotation out of momentum into value names took place suddenly last week. Many read the phenomenon as a warning sign as stocks with superior growth have led the market’s bull run in recent years and said a rebound in interest rates was the catalyst. However, the reversal in momentum, which seemed to abate this week, could be explained by a sudden stop in tax loss harvesting, some on Wall Street said.
The idea is that investors often sell losing stocks to lower their tax bill from the capital increases, a technical move that’s quintessential of a momentum trade — chasing winners and dumping losers. The amount of such activity might have decreased significantly last week due to speculations the Trump administration would pass a bill to reduce capital-gain taxes, therefore reducing the incentive to sell their losers.
“It’s quite possible some of the dominant robo advisors could have assumed that the U.S. administration would indeed follow through with its proposal on Sept. 9, and decided to change their optimization to take this into account,” Barclay’s head of equity derivatives strategy Maneesh Deshpande said in a note on Wednesday.
President Donald Trump earlier this month floated a proposal to tie capital gains taxes to the inflation rate, which could lower the taxes investors pay on profits from selling assets. He eventually ruled out such a plan on Sept. 11. But the discussion around the proposal last week coincided with the change in stock leadership that shocked many investors.
Tax loss harvesters might have stopped selling losers and adding winners on the prospect that capital-gains taxes would go down, which could make tax loss selling less beneficial. Such a change could have caused the downturn in momentum due to less selling of falling stocks and less buying of rising names.
The amount of active tax loss harvesting has ballooned over the years as robo-advisers, which automatically allocate assets in a tax efficient way, gained popularity on Main Street. Robo-advisers now manage about $1 trillion assets, up from $240 billion in 2007, according to Barclays.
“Of course, it is also entirely possible that some other investors would have put on the trade in anticipation of such a proposal,” Deshpande said.
The iShares S&P 500 Value ETF hit its highest level since January 2018 on Sept. 11 as the rotation hit its pinnacle.
Value, cyclical companies with low prices relative to earnings and book values tend to be sensitive to economic growth. However, embracing the group without a material change in the economy doesn’t make a lot of sense, analysts warned.
“Absent an improvement in underlying economics, we believe that the recent shift in leadership is unlikely to persist,” Jonathan Golub, chief U.S. equity strategist at Credit Suisse said in a note Monday.
‘Game of Thrones’ ends run with best drama award, 59 total Emmy Awards
D. B. Weiss (C, speaking), David Benioff (3rd L) and cast and crew of ‘Game of Thrones’ accept the Outstanding Drama Series award onstage during the 71st Emmy Awards at Microsoft Theater on September 22, 2019 in Los Angeles, California.
Kevin Winter | Getty Images Entertainment | Getty Images
Despite mixed fan and critic reactions to the final season of “Game of Thrones,” the eight-season epic took home the top prize in the drama category at the Emmy Awards on Sunday.
Closing out the 71st annual television awards ceremony, David Benioff and D.B. Weiss thanked creator George R. R. Martin for entrusting his book series to the young producers more than a decade ago and praised the cast and crew for their work on the program.
Since 2011, HBO’s “Game of Thrones” has garnered 160 Emmy nominations and taken home 59 prizes for everything from acting and editing to special effects and sound mixing.
On Sunday, the program earned two Emmys, one for outstanding supporting actor, which went to Peter Dinklage for his portrayal of Tyrion Lannister, and one for outstanding drama.
Earlier in the month, “Game of Thrones” won 10 additional awards during the Creative Arts Emmy ceremony.
“Game of Thrones” final award tally falls short of the 67 Emmys that “Saturday Night Live” has accrued over its 44 seasons. “SNL” earned two statues on Sunday, one for outstanding variety sketch series and one for outstanding directing.
The final season was widely criticized by fans who felt the pacing and its treatment of previous character developments were not up to par. Still, the show continued to have record-breaking viewership.
Each episode, save for one, topped viewer counts from the season seven finale, which was the series high prior to season eight’s release.
Disclosure: Comcast is the parent company of NBCUniversal and CNBC.
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