Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RBC Capital Markets analyst Sam Crittenden offered guidance on copper prices and his top picks in the North American mining sector,
“With copper falling in the quarter, the majority of companies reported Q3 results below consensus estimates and cost inflation drove … costs up another 9% q/q; however, given dramatic swings in copper sentiment, there was a muted reaction to results. The sector was up sharply last week on unverified reports about China relaxing COVID restrictions (the government has since reaffirmed stringent COVID policies) and hopes of slowing FED rate hikes. We continue to think caution is warranted given slowing global growth into 2023; however, we would have some copper exposure due to a tight physical market and positive medium term fundamentals … We continue to like Teck as they can take advantage of elevated met coal prices, and double copper production as QB2 ramps up, First Quantum and Ivanhoe provide the best leverage to copper, in our view, Capstone is creating value through expanding Mantos Blancos and Mantoverde, Hudbay can unlock value by de-risking Copper World, and Champion Iron provides a rerating opportunity as Phase 2 ramps up.”
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Network security software is in high demand thanks to constant hacking pressure and privacy requirements.
Morgan Stanley analyst Hamza Fodderwala notes, however, that the sector is not immune to slowing economic growth, but, on the other hand, he is now “pounding the table” on Palo Alto Networks Inc. (PANW-Q),
“September quarter results show security is vulnerable to macro, as multiple cos cut FY outlooks. With a lower growth outlook largely reflected in valuation, the setup looks much better from here. Pounding the table on PANW, while beaten-down names like OKTA starting to look attractive… While relatively more defensible, security is susceptible to macro pressures … This was even more apparent in CQ3 results where the majority of companies missed consensus expectations on key topline metrics and average bookings decelerated … But Setup Looks Far More Attractive Here. With overall security valuations now well below historical average and significantly below recent take-out multiples), we think the current multiples are bottoming here and already reflect much slower growth ahead … PANW remains our top pick and we’re pounding the table given highly attractive valuation at ~15X EV/CY23 FCF [15x enterprise value to calendar year 2023 free cash flow] (13X on CY24) for 30%+ FCF growth. Meanwhile, OKTA is likely nearing a bottom at 3.5X EV/CY23 revs (2.8X on CY24)”
“MS ‘pounding the table’ on PANW” – (research excerpt) Twitter
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Goldman Sachs’ David Kostin, one of the world’s most prominent U.S. equity strategists, has slashed his earnings forecast for the S&P 500,
“S&P 500 net margins in 3Q contracted year/year for the first time since the pandemic. We lower our 2023 EPS growth forecast to 0% (from +3%) to incorporate greater margin contraction than we previously assumed. Energy is an exception, as high oil prices and capex discipline have lifted the sector’s margins to record levels. However, we forecast S&P 500 margins excluding Energy will contract by 86 bp in 2022 and 50 bp in 2023 and return to the pre-pandemic 2019 level of 11.3%. Negative EPS revisions to 2023 consensus estimates have been particularly sharp this year. In a recession, we expect S&P 500 EPS would fall by 11%. We maintain our year-end 2022 and 2023 index targets of 3600 (-5%) and 4000 (+6%).”
“I missed this yday but Kostin slashed his profit forecasts for ‘23″ – (research excerpt) Twitter
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Diversion: “Oculus Founder Palmer Luckey Created a VR Headset That Kills You If You Die in the Game” – Gizmodo
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