On The Fly

Shares of companies in fuel cell power space including Ballard (BLDP), Plug Power (PLUG), FuelCell Hydrogenics (FCEL), and Hydrogenics (HYGS) are all trading higher on Thursday after a confluence of recent natural disasters. BACKUP POWER: "Fuel cells can be used as backup power for a number of organizations during natural disasters including warehouse, critical communications centers, water supply systems, and healthcare and hospital facilities," said the Department of Energy. A spate of recent hurricanes has left a path of destruction, critically damaging infrastructure in many parts of the United States as well as the Caribbean. Currently, Maria, a Category 5 storm with sustained winds of 175 mph, is now pounding Puerto Rico. A magnitude 7.1 earthquake that hit Mexico Tuesday has left hundreds dead and damage to critical buildings and hospitals. FUEL CELLS: According to an industry trade group, fuel cells are electrical generation devices that utilize a chemical reaction to unleash a fuel's latent energy. They are clean, quiet, efficient, and scalable, allowing them versatility in nearly every power application. Just last week, the U.S. Energy Department said, "The business case for fuel cells is growing. With the industry rapidly emerging as a multibillion-dollar market opportunity, the United States is taking a leadership role in technology development, manufacturing, and economic impact. A main reason for this success is the increasing investment by the private sector and business community." Markets for fuel cell technology include transportation, material handling, defense and most notably critical infrastructure. ANALYST LIKES BALLARD: After attending fuel cell provider Ballard Power Systems' investor day in New York last Thursday, FBR analyst Carter Driscoll raised his price target for Ballard to $6.00 from $3.50, saying the company's analyst day highlighted its "robust" China mobility opportunity. Ballard is the early stages of capitalizing on the use of fuel cells for vehicle electrification, and deserves to trade at a premium to peers given its technology leadership, local presence and partnerships in China and improving financial position, Driscoll tells investors in a research note partially titled "A Vastly Different Company than Two Years Ago." The analyst reiterated a Buy rating on Ballard. PLUG POWER INSIDER BUY: This past week, Plug Power chairman George McNamee disclosed in a regulatory filing that he purchased 200,000 shares of Plug stock, worth more than $426,000 in September. PRICE ACTION: Shares of fuel cell companies are higher, including Ballard Power, up over 4%, Plug Power up 10%, FuelCell up almost 4%, and Hydrogenics, up over 1%.

After speaking with management teams of AmerisourceBergen (ABC) and Cardinal Health (CAH), Leerink analyst David Larsen said in a research note earlier today that he was surprised to hear Amazon (AMZN) "may indeed be in conversations with some middle-market PBMs now, in an effort to get into various contract arrangements." PBMs, or pharmacy benefit managers, include Express Scripts (ESRX) and UnitedHealth (UNH). Amazon likely has the ability to go after "cash paying" customers now, and while this segment of the market may be just 5%-10% of total, it can still be material, Larsen wrote. He points out that when Walgreens Boots Alliance (WBA) captured 40M prescriptions from CVS, or less than 2% of total PBM and retail scripts, the unfavorable earnings impact was significant. In order for Amazon to be licensed in 50 states, Leerink's specialist thinks it would take 18-24 months to get all of the paperwork completed. The specialist, however, believes there would be minimal impact from Amazon on the PBMs. After Axios highlighted Larsen's research note in an afternoon post on its website, shares of pharmacy owners CVS Health and Walgreens fell around 2%. Express Scripts is up 1% to $61.89 in afternoon trading.

Shares of Apple (AAPL) are under pressure near noon on reports of Apple Watch connectivity issues and somewhat disappointing reviews for the upcoming device. Meanwhile, Rosenblatt analyst Jun Zhang said checks suggest iPhone 8 preorder volume is below that seen for prior models. SERIES 3 SMARTWATCH: According to a report by The Verge, citing a company spokesperson, Apple has admitted that its new LTE-enabled Series 3 smartwatch, which starts shipping this Friday, has been experiencing connectivity issues. "We have discovered that when Apple Watch Series 3 joins unauthenticated Wi-Fi networks without connectivity, it may at times prevent the watch from using cellular. We are investigating a fix for a future software release," the spokesperson reportedly said. Meanwhile, Apple Watch Series 3 reviews are out, and consensus seems to be that it is convenient to have a watch with a connection when you do not have a phone, but that it has poor battery life when used in those situations, CNBC reported. Most reviewers also suggested buying the GPS model instead of the one that can also place phone calls, the publication added. IPHONE 8 PREORDERS: In a research note to investors, Rosenblatt analyst Jun Zhang said checks indicate about 1.5M iPhone 8 preorders on JD.com (JD) in the first three days of availability, versus 3.5M for the iPhone 7 in its first three days. He also pointed out he thinks China Mobile's (CHL) iPhone 8 preorder volumes are around 1M units, below those seen for the iPhone 7 and iPhone 6 in the first three days. For the U.S., Zhang said initial feedback suggests iPhone 8 preorder volume below the iPhone 7 and iPhone 6. The analyst told investors he remains concerned the iPhone 8 production plan for second half 2017 may need to be cut and the iPhone X production ramp might not be able to meet demand for the December and March quarters. 'SOLID' IOS 11 REVIEWS: Meanwhile, Macquarie analyst Benjamin Schachter told investors that the first round of iPhone 8 and iOS 11 reviews support his positive view of Apple and its Service business, with the initial wave of ARKit apps expected to have a "solid reception." iOS 11 is one of the most substantial iOS updates in recent memory, the analyst noted, adding that the App Store has also been completely redesigned to be more visually appealing and to better promote the discovery of new apps, which should increase download rates that have been slowing for mature users. However, Schachter acknowledged that it will likely be harder for investors and others to track app revenue, given the removal of the top-grossing charts. The analyst pointed out that the most highly praised new feature is the iPhone 8 Plus' Portrait Lighting. While Apple is not positioning it as such, Schachter believes it is essentially the best augmented reality app on iOS. The first wave of popular AR apps will not be games, but instead be more natural extensions of existing smartphone apps, he argued. The analyst reiterated an Outperform rating and $180 price target on the shares. PRICE ACTION: Near noon, shares of Apple have dropped nearly 2.5% to $154.84.

Shares of Ionis Pharmaceuticals (IONS) are sliding after Alnylam Pharmaceuticals (ALNY) and Sanofi (SNY) announced the Apollo Phase 3 study of patisiran, an investigational RNAi therapeutic being developed for patients with hereditary ATTR amyloidosis with polyneuropathy, met its primary efficacy endpoint and all secondary endpoints. APOLLO RESULTS: Alnylam and Sanofi Genzyme, the specialty care global business unit of Sanofi, announced that the APOLLO Phase 3 study of patisiran met its primary efficacy endpoint - namely the change from baseline in the modified neuropathy impairment score at 18 months - and all secondary endpoints. Based on these results, Alnylam expects to file its first New Drug Application in late 2017 and first Marketing Authorisation Application shortly thereafter. Sanofi Genzyme is currently preparing for regulatory filings for patisiran in Japan, Brazil and other countries, to begin in the first half of 2018. Pending regulatory approvals, Alnylam will commercialize patisiran in the U.S., Canada and Western Europe, with Sanofi Genzyme commercializing the product in the rest of the world. DIFFERENTIATED SAFETY: Commenting on the news, Piper Jaffray analyst Edward Tenthoff highlighted that Alnylam's patisiran was safe and well tolerated, essentially comparable to placebo. The analyst argued that he believes this clean safety profile differentiates patisiran from competitor Ionis' inotersen. Tenthoff reiterated an Overweight rating on Alnylam shares and raised his price target on the stock to $116 from $110. IONIS STORY STILL ABOUT SMA, HUNTINGTON'S: Meanwhile, Evercore ISI analyst Joshua Schimmer told investors in a research note of his own that he would not be surprised to see Ionis shares fall 5%-10% after Alnylam's positive results from the APOLLO study. Moreover, Schimmer wonders if Ionis' inotersen is even worth a commercial effort. Nonetheless, the analyst pointed out that he believes the Ionis story continues to be about the Spinraza launch in Spinal Muscular Atrophy, or SMA, with partner Biogen (BIIB) and its Huntington's disease data later this year. He reiterated an Outperform rating and $65 price target on Ionis shares. PRICE ACTION: In morning trading, shares of Ionis have dropped over 8% to $54.28, while Alnylam's stock has jumped about 41% to $105.60.

Shares of toymakers, including Mattel (MAT) and Hasbro (HAS), are in focus on Tuesday morning following news that Toys"R"Us has filed for bankruptcy protection ahead of the critical holiday season. TOYS"R"US BANKRUPTCY: Toy retailer Toys"R"Us, which was acquired by private equity firms KKR (KKR) and Bain as well as real estate firm Vornado (VNO) over a decade ago and has struggled in recent years to compete with Amazon (AMZN) and Wal-Mart (WMT), officially filed for Chapter 11 bankruptcy on Monday night in federal court in Richmond, Virginia. The company said it has received a commitment for over $3B in debtor-in-possession financing from various lenders, including a JPMorgan (JPM)-led bank syndicate and certain of the company's existing lenders, which, subject to court approval, is expected to immediately improve the company's financial health and support its ongoing operations during the court-supervised process, the retailer said. Toys"R"Us said it is committed to working with its vendors "to help ensure that inventory levels are maintained and products continue to be delivered in a timely fashion." With its bankruptcy filing, Toys"R"Us becomes another casualty of the fast-changing retail industry, joining children's clothing retailer Gymboree and Payless ShoeSource. RETAILERS MOST EXPOSED: Jefferies analyst Stephanie Wissink noted earlier this month that the top three retailers most exposed to Toys"R"Us are Mattel, Hasbro and JAKKS Pacific (JAKK). Toys"R"Us made up 11%, 9%, 15%, of Hasbro, Mattel and JAKKS revenue in 2016, respectively, Wissink told clients. In a research note on Tuesday, Wissink said that the bankruptcy is "likely to create some dislocation among the vendor roster," and that companies like Hasbro and JAKKS are "strongly positioned" to maintain their financials and pursue brand consolidation opportunities. "We do not expect the bankruptcy event to trigger a domino effect in toy retail, implying massive discounting systemwide that pressures vendor margins on a sustained basis," Wissink added. TRU FILING 'POSITIVE' FOR AMAZON, WAL-MART: Separately, KeyBanc analyst Edward Yruma said this morning that the Toys"R"Us bankruptcy filing is likely to be "positive" for both Amazon and Wal-Mart, noting that baby and toy have been "strategic" categories for Amazon for years and that Wal-Mart should gain market share in the consolidating market. PRICE ACTION: In morning trading, shares of Mattel are up 0.13% to $15.07, JAKKS is up 2.65% to $2.90, and Hasbro is down 0.47% to $94.54.

JPMorgan downgraded 3M (MMM) to Underweight, its equivalent of a sell rating, from Neutral, arguing that the stock's valuation does not reflect the negative catalysts facing the company. NEGATIVE CATALYSTS: 3M's auto, electronics, and China markets are all slowing, warned JPMorgan analyst C. Stephen Tusa, Jr. Furthermore, the company's recent strategic investments indicate that it is being forced to spend more to drive growth, according to Tusa. Analysts may lower their estimates for 3M going forward, he added. While 3M bulls say that the shares should be awarded a higher multiple because 3M is in the "safety/staples" category, the stock "dramatically underperformed" other names that are considered defensive during the last economic downturn, the analyst noted. OUTLOOK: Given 3M's high multiple and negative catalysts, the stock's risk/reward ratio is negative, Tusa believes. He thinks that the company's 2018 profits will come in below expectations. TARGET: Tusa raised his price target on the stock to $201 from $185. PRICE ACTION: In morning trading, 3M fell 1.5% to $210 per share.

Morgan Stanley analyst David Risinger upgraded Pfizer (PFE) this morning to Overweight, a Buy-equivalent rating, as he believes investors underappreciate the global prospects for breast cancer drug Ibrance. Meanwhile, his peer at Goldman Sacks cut Johnson & Johnson (JNJ) to Sell as he sees more downside relative to peers. Also being announced today is news that Pfizer is currently suing Johnson & Johnson for anticompetitive practices. BUY PFIZER: In a research note to investors, Morgan Stanley's Risinger upgraded Pfizer to Overweight from Equal Weight saying that following underperformance, the company shares are poised to outperform given the global rollout of its "number one growth driver", Ibrance. The analyst pointed out that he believes Ibrance is underappreciated given peers' limitations. Competitor Novartis' (NVS) Kisqali initial launch in recent months has been slow due to requirements for cardiac and liver function monitoring, and competitor Eli Lilly (LLY) disclosed abemaciclib first-line data on September 10 indicating elevated diarrhea and blood clot risk, he noted. He also cites the stock's favorable risk-reward, and M&A optionality, especially with the prospect of U.S. tax reform. Risinger raised his price target on Pfizer shares to $39 from $35. SELL JOHNSON & JOHNSON: Meanwhile, Goldman Sachs analyst Jami Rubin downgraded Johnson & Johnson to Sell, while raising his price target on the shares to $130 from $125. The analyst told investors in a research note of his own that while pharma has improved and he expects accelerated growth in the near-term, pressure on key products coupled with still-slow Medical Devices & Diagnostics growth and persistent pressure in consumer leaves J&J with a below-average, long-term growth outlook that suggests valuation is stretched. Further, Rubin noted that he believes Johnson & Johnson's lack of optionality for value creation - high value pipeline assets, transformative M&A and operating leverage - relative to peers, challenges the sustainability of its outperformance. He prefers names like AbbVie (ABBV), Bristol-Myers Squibb (BMY) and Eli Lilly with more identifiable, needle moving catalysts. PFIZER SUIT AGAINST JNJ: Pfizer has filed suit in the U.S. District Court for the Eastern District of Pennsylvania against Johnson & Johnson. The suit alleges that Johnson & Johnson's exclusionary contracts and other anticompetitive practices have denied U.S. patients access to therapeutic options and undermined the benefits of robust price competition in the innovative and growing biologics marketplace for patients. It further claims that Johnson & Johnson's systematic efforts to maintain its monopoly in connection with Remicade by inappropriately excluding biosimilar competitors violates federal antitrust laws and undermines the principal goals of the federal Biologics Price Competition and Innovation Act. WHAT'S NOTABLE: Morgan Stanley's Risinger also downgraded Allergan (AGN) to Equal Weight from Overweight this morning. PRICE ACTION: In morning trading, shares of Pfizer have gained over 1% to $35.96, while Johnson & Johnson has dropped more than 1% to $133.41.