COVID-19 has left the U.S. economy reeling, yet Wall Street is pushing forward. Unemployment has reached alarming levels, with the loss of 20.5 million jobs in April bringing the U.S. unemployment rate to 14.7%, but the S&P 500 has staged somewhat of a recovery. While the index dipped Tuesday as investors weighed reopening efforts against fears of a second wave of infections, it has gained about 30% since hitting lows in March.So, what’s driving this stock market disconnect? Mike Wilson, Morgan Stanley's chief U.S. equity strategist, argues that investors are betting on a future recovery, with these bets being primarily fueled by concrete actions rather than the unknown. Additionally, he points out that market watchers believe the rebound will be “V-shaped”, the most ambitious form of an economic recovery.“Our client conversations have changed dramatically over the past month, shifting from whether we will have a re-test of the March lows to what does the shape of a recovery look like. Our view is that we will see a sustainable V-shaped recovery,” Wilson commented. He added, “… primarily because history tells us this is the way it always looks and feels in a recession — a highly uncertain recovery path, pessimistic investors, and volatile asset markets reacting to daily updates about the exogenous shock that got us here in the first place.”Taking Wilson’s statements to heart, we used TipRanks’ database to take a closer look at two stocks that have received Morgan Stanley's stamp of approval. TipRanks revealed that both Buy-rated names have amassed support from other analysts and boast over 25% upside potential. Zentalis Pharmaceuticals (ZNTL)Focused on the creation of differentiated small molecule treatments that target biological pathways of cancer, Zentalis believes it has developed an integrated approach that will allow it to overcome the limitations of current cancer therapeutics. Morgan Stanley highlights the speed of its pipeline advancement and the quality of its technology as making this company a standout in a crowded space.Representing the firm, five-star analyst Matthew Harrison cites ZNTL’s four INDs in a short period of time as proof of its development capabilities. “Small molecule targeted oncology is an attractive area for investment as initial results on efficacy and safety can quickly de-risk an asset and lead to fast approvals. Management has built a top-notch, differentiated chemistry group which has allowed Zentalis to quickly build a large pipeline against key targets,” he explained.Looking specifically at its lead asset, ZN-c5, a small molecule selective estrogen receptor degrader (SERD) designed for use in breast cancer, Harrison points out that it has already demonstrated clinically and preclinically low levels of major side effects as well as robust efficacy. This is important because while oral SERDs could be used across multiple stages of breast cancer and are more convenient than injectables, other oral SERDs in development have caused side effects like rash, diarrhea and vomiting. Based on all of this, the analyst thinks the opportunity for ZN-c5 could land in the billions.The good news doesn’t stop there. Harrison stated, “Importantly, the rest of the pipeline is robust, offering additional compelling targets.” In particular, he estimates that its Wee1 (ZN-c3) candidate could see peak sales hit $1 billion. When it comes to Bcl-2 (ZN-d5), Harrison argues that this therapy is a de-risked target with only one key competitor, with it possibly allowing ZNTL to differentiate itself. It should also be noted that the company has a third generation EGFR inhibitor that could be used alongside its SERD.It should come as no surprise, then, that Harrison joined the bulls. To kick off his coverage, he put an Overweight call and $45 price target on the stock. Should this target be met, a twelve-month gain of 26% could be in store. (To watch Harrison’s track record, click here) Does the rest of the Street agree with Harrison? With 100% Street support, or 4 Buy ratings to be exact, the consensus is unanimous: ZNTL is a Strong Buy. In addition, the $43.67 average price target implies 23% upside potential. (See Zentalis stock analysis on TipRanks)Quest Diagnostics Inc. (DGX)When it comes to laboratory diagnostic information services company Quest Diagnostics, Morgan Stanley has had a change of heart. Back in March, the firm downgraded the stock due to the overwhelming headwinds it thought couldn’t be offset by COVID-19 testing, but now it’s singing a different tune.Weighing in on DGX for the firm, five-star analyst Ricky Goldwasser argues that expanded testing guidelines as well as new market opportunities bode well for the company. Even though Wall Street has been laser-focused on the opportunity related to serology testing recently, based on Goldwasser’s analysis, the COVID-19 diagnostic testing opportunity could be two times larger if testing is added as part of a pre-elective procedure routine. She also points out that since March, supply shortages have limited COVID-19 testing, which in turn has spurred restrictive testing guidelines in an effort to save supplies.Expounding on this, Goldwasser stated, “Over time, as supplies become more available, testing guidelines are starting to expand. We expect Quest Diagnostics to meaningfully benefit from the market evolution to phase II of the testing paradigm and out of the four walls of the hospital. Our analysis suggests COVID-19 diagnostics could translate to ~689 million revenue opportunity and $372 million in EBIT through 2021.”That’s not to say serology testing isn’t important for DGX, with Goldwasser noting it’s a “critical component in reopening business.” She added, “Employers who are developing their return to work programs are working with the national labs to create testing programs. While the opportunity is going to be split among other supply chain participants (drug retail chains included), we estimate this as a $335 million revenue opportunity for Quest through the fall of 2020 helping to offset some of the declines in core testing.”All of the above prompted Goldwasser to upgrade her rating from Equal-weight to Overweight. On top of this, she bumped up the price target from $95 to $139. This new target suggests shares could surge 29% in the next twelve months. (To watch Goldwasser’s track record, click here) Looking at the consensus breakdown, DGX has been assigned 5 Buys, 8 Holds and 1 Sell in the last three months. As a result, it earns a Moderate Buy consensus rating. At $111.43, the average price target puts the upside potential at a modest 3.4%. (See Quest Diagnostics stock analysis on TipRanks)To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
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(Bloomberg) — The human cost of producing 99-cent chickens and affordable burgers during a pandemic is pushing U.S. meatpackers to eye major operational changes that will likely make American meat more costly.Some plants are already running slower than normal to adhere to social distancing. But companies are also considering how best to redesign their operations to prevent infections, including by automating some lines altogether. The likely result: higher costs for an industry dominated by the likes of Tyson Foods Inc. and JBS SA that’s been very efficient at pumping out cheap meat.The changes are arriving as concerns mount over mega-plants staffed with low-paid workers operating elbow-to-elbow. More than 10,000 meat workers have been infected by the coronavirus, and at least 30 have died, according to the United Food and Commercial Workers International Union.“Americans want to buy cheaper and cheaper and cheaper food,” said Matthew Wadiak, founder of Cooks Venture, a small chicken producer selling directly to consumers. “We need to figure out how to pay a little bit more, because what’s the cost of a human life? It’s a lot more than 25 cents at the checkout.”Workers at meatpacking plants continue to fall ill, even with barriers placed between them, more protective equipment and enhanced social-distancing measures in common areas including cafeterias and locker rooms.While President Donald Trump has ordered plants to reopen, many are running at slower-than-usual rates to try to reduce the spread. Reducing plants to a third of their capacity and distributing the adequate protective equipment could boost chicken prices at grocery stores by 25% to 30%, according to Sanchoy Das, a professor at the New Jersey Institute of Technology.“The 99-cents per pound chicken could be in short supply very quickly,” said Das, whose research focuses primarily on supply chain modeling and analysis.Tyson’s operating costs are sharply higher due to the novel coronavirus and running into the hundreds of millions of dollars, Chief Executive Officer Noel White and Chief Financial Officer Stewart Glendinning said at the BMO Farm to Market virtual conference on Wednesday. That includes $120 million in bonus for employees, personal protection equipment as well as factory shutdowns and slowdowns.The bulk of America’s beef and pork are processed in a few dozen giant plants that handle thousands of animals in lines that have been allowed to run faster and faster. Tyson, JBS and Cargill Inc. control about two-thirds of America’s beef. Pork and chicken production is similarly concentrated.The outbreak could also help accelerate automation plans companies have already in the works. Tyson has said it is investing “aggressively” in automating the most difficult tasks within its plants. The company is installing robots in the deboning areas of its poultry plants, and also has initiatives in beef and pork.“You are going to see a bifurcation where the larger, more profitable facilities are going to move toward a vastly more automated meat processing facility,” said Decker Walker, an agribusiness expert at Boston Consulting Group. “Incentives for automation have never been higher.”Pilgrim’s Pride Corp. was increasing its use of automation and robotics even before the pandemic. The company invested more than $30 million in automation last year, projects that are helping plants to run efficiently in the midst of the coronavirus crisis.“We believe in automation, we believe in robotics, and we’re going to continue to move down that path,” Chief Executive Officer Jayson Penn said in an April 30 call with analysts.Meat processing is usually a low-margin business, meaning companies will be wary of overspending. While there’s probably going to be a lot of change in the way packers do business, consumers will pay for it in the long run, said Steve Meyer, an economist at consultancy Kerns & Associates.“This whole system was designed to produce quality products at the most reasonable cost possible, so you don’t go and add a lot of extra cost to go handle a once-in-a-100-year situation,” Meyer said. “But you also don’t turn a blind eye to the fact that people are sick and some people died. So I think there will be some changes made.”Another way to reduce infections, especially in poultry plants, would be to produce more whole chickens, as cutting up birds into legs and thighs requires more labor, said Das of the New Jersey Institute of Technology.Consumers in the U.S. can afford to pay a bit more for their meat, said Wadiak of Cooks Venture. That would increase wages and help avoid shared living accommodation, which has been a challenge for meat plant workers looking to adhere to social-distancing practices.“When the budget is tight, it’s hard to put food on the table, it’s hard to feed your family, I really, really get that,” he said. “But if that means you are putting food on your table at the cost of someone else’s life, it’s not worth it.”(Updates with Tyson CEO, CFO comments in eighth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.