Both BMO Capital and Loop Capital upgraded ViacomCBS (VIAC) to Neutral-equivalent ratings on Monday after the stock fell nearly 50% last week. Meanwhile, Citi analyst Mark Li double upgraded GSX Techedu (GSX) to Buy following Friday's "overdone" selloff. Late last week, Morgan Stanley (MS), Goldman Sachs (GS) and Deutsche Bank (DB) are said to have unloaded large blocks of shares in several companies, fueling a 27% plunge Friday in ViacomCBS shares and a 42% plunge in GSX Techedu. Several major investment banks with ties to Bill Hwang's Archegos Capital Management liquidated holdings are contributing to the weakness in ViacomCBS and Discovery (DISCA) seen on Friday and extending into today, media reports indicate.
BLOCK OFFERINGS: Former Tiger Asia manager Bill Hwang's persistent purchases have sent shares in ViacomCBS, Discovery and a handful of other companies surging even when the broader market was down, The Wall Street Journal's Juliet Chung and Maureen Farrell reported, citing people familiar with the transactions. Late last week, Morgan Stanley, Goldman Sachs and Deutsche Bank unloaded large blocks of shares in those companies and others as part of the liquidation of positions at Hwang's Archegos Capital Management, with sales approaching $30B in value, according to the Journal's report.
According to Bloomberg's Bei Hu, Gillian Tan and Drew Singer, Goldman Sachs liquidated $10.5B worth of stocks in block trades on Friday. The bank sold $6.6B worth of shares of Baidu (BIDU), Tencent Music (TME), and Vipshop (VIPS), a move followed by the sale of $3.9B of shares in ViacomCBS, Discovery, Farfetch (FTCH), iQiyi (IQ) and GSX Techedu, according to an email to clients seen by Bloomberg.
A block of 20M shares in Rocket Companies (RKT) was also being offered on Monday through Morgan Stanley, according to Bloomberg, citing people familiar with the matter. This is the first time Rocket shares are known to be among the bevy of block trades that have been offered through banks including Goldman Sachs and Morgan Stanley since last week, the publication added.
Meanwhile, CNBC's Leslie Picker said via Twitter that, "Morgan Stanley has been telling investors it sold $15B worth of blocks in the last few days; it has no more blocks to do, and the firm has not incurred significant losses as a result of these transactions, according to a source with knowledge of the matter."
HEDGE FUND DEFAULT: Credit Suisse (CS) said in a statement that, "A significant US-based hedge fund defaulted on margin calls made last week by Credit Suisse and certain other banks. Following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions. While at this time it is premature to quantify the exact size of the loss resulting from this exit, it could be highly significant and material to our first quarter results, notwithstanding the positive trends announced in our trading statement earlier this month. We intend to provide an update on this matter in due course."
'SIGNIFICANT LOSS': Nomura (NMR) also announced that on March 26, "an event occurred that could subject one of its US subsidiaries to a significant loss arising from transactions with a US client." Nomura said it is currently evaluating the extent of the possible loss and the impact it could have on its consolidated financial results. "The estimated amount of the claim against the client is approximately $2 billion based on market prices as of March 26. […] As of the end of December 2020, Nomura maintained a consolidated Common Equity Tier 1 ratio of over 17 percent, which is substantially higher than the minimum regulatory requirement. Accordingly, there will be no issues related to the operations or financial soundness of Nomura Holdings or its US subsidiary."
Following the news, JPMorgan analyst Wataru Otsuka downgraded Nomura to Underweight from Neutral with a price target of 590 yen, down from 600 yen. While the losses on this transaction may be one-off, "it will be impossible to avoid a negative impact" on earnings and shareholder returns from fiscal 2020 onwards, Otsuka told investors in a research note. The analyst expects Nomura's share price to weaken relative to peers in the near term.
MOVING TO THE SIDELINES: On Monday, BMO Capital analyst Daniel Salmon upgraded ViacomCBS to Market Perform from Underperform with an unchanged price target of $70. "It could make sense to get more proactive" if the stock remains under pressure and heads below a $35 "fundamental downside scenario," Salmon told investors in a research note. While that scenario incorporates downward estimate revisions, those are increasingly priced in at current share levels, the analyst contended. Salmon added that his $70 price target implies considerable upside, but he thinks a Market Perform is more appropriate "until trading volatility clears." The analyst also believes $3B in free cash flow for ViacomCBS's streaming businesses in 2030 is reasonable given its "vast library" of owned content and accelerated shift to streaming.
Loop Capital analyst Alan Gould also upgraded ViacomCBS to Hold from Sell with a price target of $48, up from $41. The analyst noted that the stock fell nearly 50% last week and now trades closer to his target. Nonetheless, Gould is not advocating to buy the dip as he expects Viacom's Paramount+ to compete with HBO Max (T), Apple TV+ (AAPL), Peacock (CMCSA) and Star to be 4th or 5th streaming option behind Netflix (NFLX), Disney+ (DIS) and Amazon Prime (AMZN).
SELLOFF 'OVERDONE': Meanwhile, Citi analyst Mark Li upgraded GSX Techedu to Buy from Sell with a price target of $56, down from $66, after shares "plunged" on Friday. The analyst believes the key triggers for the selloff were fears of government regulation in China's after school tutoring market and selective investors' forced selling. According to Sina News, there was a document on potential AST regulation released on Friday, regarding control of the number of players in the market, tuition prices and time, but if online AST penetration speed is lower by 60% due to potential regulation, he estimates GSX can still achieve 45% topline growth this year, coupled with potentially better margins. Though Li still has a cautious view on regulation, he believes market fear is "overdone" and in addition to upgrading the shares he opened a 30-Day "Positive Catalyst Watch" as the analyst expects more clarity will come and the share price will recover from investors' forced selling.
PRICE ACTION: In afternoon trading, shares of ViacomCBS have dropped over 6% to $45.19, while GSX's stock has declined more than 13% to $33.88.
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