On The Fly

Shares of companies involved in electronics contract manufacturing services are faltering after peer Jabil (JBL) reported fourth quarter results on Monday evening. JABIL BEATS, BUT STOCK FALLS: Contract manufacturer Jabil reported Q4 results that beat expectations on both the top and bottom lines, due to the strong performance of its core businesses. Q4 earnings per share came in at 70c, beating the expected 68c and the year-ago result of 64c. Jabil reported Q4 revenue of $5.77B, up from $5.02B in Q4 of 2017. The company projected first quarter revenue in the range of $5.8B-$6.4B, compared with consensus estimates of $5.9B. NO MARGIN IMPROVEMENT SEEN FOR A WHILE: "We assume that from FY19 to FY21, we'll get no expansion, no leverage of margin," CEO Mark Mondello said on the company's Q4 earnings conference call. PRICE ACTION: In afternoon trading, shares of Jabil are down almost 9% to $27.38. PEERS: Shares of other electronic contract manufacturers are also down, including Celestica (CLS), Sanmina (SANM), Flex(FLEX), and Xilinx (XLNX).

Shares of traditional payroll services providers ADP (ADP) and Paychex (PAYX) are moving lower in afternoon trading after Square (SQ) stated that it is introducing the Square Payroll App. The app "empowers sellers with fast access to an elegant and self-serve tool for running their business," making it "easy for employers to manage payroll, one of the most important yet complicated aspects of running a business, from anywhere," according to Square's launch announcement. PRICE ACTION: In afternoon trading following Square's announcement, ADP shares are down 1% to $147.50 while Paychex is down 1.6% to $73.35 per share.

Shares of Square (SQ) are on the rise after Nomura Instinet analyst Dan Dolev raised his price target on the stock to $125, a Street-high according to Bloomberg. Dolev believes Square should be the newest member of the FANG complex of Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google (GOOGL; GOOG), as he believes it is "en route to disrupt the global payments ecosystem." SIMILAR TO FANG DISRUPTORS: In a research note this morning, Nomura Instinet's Dolev raised his price target for Square to $125 from $86, while reiterating a Buy rating on the stock. The analyst pointed out that his analysis of Square's fundamentals highlights buoyant GPV, revenue and marketing efficacy trends. Among the key positives are the rapid growth in GPV from large sellers, a "dramatic" acceleration in GPV growth derivatives, improving marketing efficacy, and Cash App downloads already exceeding PayPal's (PYPL) Venmo by over 1M, he contended. Furthermore, Dolev argued that similar to FANG stocks that have disrupted traditional markets with massive global TAMs, Square's fully cohesive solutions and rapid rate of innovation suggest that it is "en route to disrupt the global payments ecosystem." The analyst noted that he does not believe Square is too expensive, given its "stellar" 45% expected three-year revenue CAGR, which makes it screen more attractively than many payment peers and FANG stocks. PEERS ALSO RAISE TARGET: Meanwhile, Jefferies analyst John Hechlt also raised his price target for Square to $88 from $63 this morning after taking a detailed look at the company's non-payments businesses. The analyst, however, kept a Hold rating on the shares. Various sum-of-the-parts analyses point to current premium valuations for each segment, suggesting "strong growth and successful execution is likely priced-in," Hecht contended. While Square's Subscription & Services products are "no doubt well positioned," the stock's valuation remains full, he added. Last week, two other Wall Street analysts had increased their price targets on Square. Citing the findings of her analysis of Square Cash App monetization, Evercore ISI analyst Rayna Kumar raised her price target on the stock to $101 from $76 and reiterated an Outperform rating on the shares. Kumar believes the company's new product features over the last two years will likely become a "material driver to both revenue and earnings over time". The analyst expects the app to contribute up to 16c to Square's FY20 EPS, 30c to FY21 EPS, and 40c in FY22 EPS, stating that the company's monetization strategy is in the "early innings." Also bullish on the company's momentum, Stifel analyst Scott Devitt raised his price target for Square to $100 from $76. The analyst said he expects continued momentum from larger sellers as Square's retail ecosystem keeps evolving and sees the company's partnership efforts expanding its reach and potential for cross- and up-selling. Devitt reiterated a Buy rating on the shares. PRICE ACTION: In morning trading, shares of Square have gained over 6% to $91.55.

Shares of automakers were under pressure on Tuesday after German carmaker BMW (BMWYY) lowered its fiscal year revenue view for its Automotive segment and said it would not meet its target of achieving a flat pre-tax profit. BMW cited unexpected intense competition in the wake of new emissions rules. BMW CUTS GUIDANCE: The industry-wide shift to the new Worldwide Harmonized Light Test Procedure, or WLTP, standards in September has led to significant supply distortions in several European markets and unexpected intense competition and "significant" supply distortions in several European markets, BMW said in a statement on Tuesday. The automaker said that while it "always expected" 2018 to be a "challenging year" due to additional upfront investments of around EUR1B for future mobility and currency headwinds in the "mid-to-high three-digit million-euro range" compared with 2017, it now expects full year pre-tax profit to show a moderate decrease from the previous year vs. its prior view of "on par" with 2018. Additionally, BMW said it now expects Automotive segment revenues for 2018 to be slightly lower than 2018 vs. its previous outlook for a "slight" year-over-year increase. The operating margin in the automotive segment is now expected to be at least 7%, below the previous target on 8%-10%. The company said the current circumstances will have a "significant effect" on group profit before tax and the EBIT margin in the Automotive segment in both the third and fourth quarters. BMW Chairman Harald Kruger stated that the Group "remains fully committed to its goal of leading the transformation of the industry" and that in addition to the continuation of the current product roll-out, "ongoing cost and efficiency measures will also be intensified." WHAT'S NOTABLE: Daimler (DDAIF) said this summer that its Q2 profit fell 30% due to weaker pricing at Mercedes-Benz Cars, currency headwinds and tariffs from a global trade dispute. It previously blamed a trade dispute between the U.S. and China for a cut in its 2018 forecast. Fiat Chrysler (FCAU) and General Motors (GM) have also lowered their expectations for the year. ANALYST COMMENTARY: Though BMW in August backed its 2018 targets, Evercore ISI analyst Arndt Ellinghorst told investors in a research note on Monday that he doubted BMW's ability to meet its full-year pretax profit target. In the note, Ellinghorst said he expected more guidance revisions based on Daimler's revised forecasts, and said that he "would also not be surprised" if BMW were to cut its guidance from flat Group pre-tax to slightly lower. Additionally, the analyst said he expects Germany to agree on additional measures to drive inner city air quality by the end of the week. PRICE ACTION: Shares of BMW are down 5% to $31.13 in morning trading in New York, with other automakers, including Daimler, GM, Fiat Chrysler, Ford (F) and Volkswagen (VLKAY), all dropping in sympathy.

HIGHER: Arena Pharmaceuticals (ARNA), up 4% after positive topline results from its Phase 2a trial of olorinab, an investigational, full agonist of the cannabinoid receptor 2 in development for the treatment of gastrointestinal pain... Tenaris (TS), up 4% after BofA Merrill Lynch analyst Joao Vicor Lorenzi double upgraded the stock to Buy from Underperform and raised its price target to $40 from $30. Lorenzi expects Tenaris to benefit from a sustained, broad-based recovery in its end markets that should result in a muli-year period of strong earnings momentum... Tilray (TLRY) and Cronos (CRON), up 18% and 4% respectively after New York's Governor yesterday afternoon announced his signing of a bill adding pain management as a condition for medical marijuana. DOWN AFTER EARNINGS: FactSet (FDS), down 5%. LOWER: Opiant Therapeutics (OPNT), down 19% after announcing a common stock offering... TG Therapeutics (TGTX), down 28% after a safety review board said the company's UNITY-CLL trial ORR analysis can not be conducted... CenturyLink (CTL), down 4% after CFO departure... Digital Realty (DLR), down 3% after its 8.5M share secondary offering priced at $113.00... Facebook (FB), down 2% after reports that Instagram co-founders Kevin Systrom and Mike Krieger left the company amid frustrations with Facebook.

Shares of Boeing (BA) are in focus in morning trading after the company secured a deal with the Pentagon worth up to $2.4B to provide helicopters for protecting nuclear-missile bases. NEW CONTRACT: On Monday, Boeing and its partner Leonardo SpA were awarded a contract to replace the U.S. Air Force's UH-1N "Huey" choppers with a revamped version of the Italian company's AW139 commercial helicopter. The initial contract is worth $367M for four helicopters, but the full contract could be worth up to $2.38B if the Air Force orders the additional 80 aircraft it wants by 2031, Boeing said. Air Force Secretary Heather Wilson said Boeing and Leonardo beat out rival bids from Sierra Nevada and Lockheed Martin's (LMT) Sikorsky. WHAT'S NOTABLE: The contract comes just three weeks after Boeing won its first big Pentagon contract in seven years to update the courseware and software for the U.S. Navy's P-8A Poseidon training system. Under the four-year, $194M agreement, Boeing will upgrade devices at three locations for the U.S. Navy and the Royal Australian Air Force to reflect the latest configuration of the Poseidon maritime patrol aircraft, it said earlier this month. Boeing is also competing to win a contract worth up to $16B to supply new T-X training jets for the Air Force, with a decision expected this week, according to reports. In June, the Air Force canceled plans to spend $24M to replace two refrigerators on President Trump's Air Force One jet. At the time, Wilson said the service and the White House decided that canceling the units makes "prudent fiscal sense." PRICE ACTION: In pre-market trading, shares of Boeing are up about 0.6%.