US market: review and forecast for September 23. The results of the FOMC meeting

Netflix (NFLX) results for October-December 2021 mostly coincided with consensus expectations, while management forecasts for the next reporting period greatly disappointed investors. After the release of the quarterly report, the shares of the streaming service fell by 20%.The company's revenue grew by 16% YoY, to $7.71 billion, coinciding with preliminary market estimates. Operating margin exceeded investors' expectations, reaching 8.2%. GAAP EPS increased from $1.19 to $1.33 with the consensus of Wall Street experts at $0.83.According to the results of the fourth quarter of 2021, the subscriber base expanded by 8.28 million to 221.84 million, slightly falling short of the expectations of investors and the initial forecast of management at the level of 8.4 million and 8.5 million, respectively. However, many investment houses have previously pointed out this risk, therefore, from our point of view, it was taken into account in the quotes even before the release of the report. The actual data turned out to be even better than some investors had expected. The dynamics of the service's audience growth really slowed down significantly in November after the decline in interest in the series "The Squid Game", but the end of the year turned out to be quite strong due to the busy release schedule and the seasonality factor.Investors were disappointed by the following two aspects of the report:In the first quarter of 2022, the company forecasts an expansion of the subscriber base by only 2.5 million against consensus expectations of 5.8 million. Such a weak gain was an unpleasant surprise for all Wall Street analysts and investors. Management noted that this forecast reflects a higher density of premieres at the end of the quarter compared to its beginning, but the exact reason for the slowdown in audience growth is not yet clear. It is possible that this may be due to macroeconomic factors, as well as competition from other streaming services that are actively expanding geographically.According to management's expectations, the operating margin by the end of 2022 will be 19-20%, which is worse than the preliminary forecasts of investors. The possible strengthening of the dollar will put pressure on the indicator, since 60% of the streaming service's revenue is generated outside the United States, and its expenses are denominated mainly in American currency. According to Netflix, the strengthening of the dollar against major currencies over the last half of the year may lead to a decrease in revenue for 2022 by $1 billion.Such a weak guidance of the management for the current quarter increases uncertainty about the long-term trajectory of audience growth. As a result, we lower the target price for NFLX paper on the horizon of the year from $690 to $505.Despite the significant revision of the target, we still positively assess the long-term prospects of the issuer due to the following key factors:The global transition from traditional TV to streaming will continue, and Netflix is the market leader. The company owns the rights to six of the 10 most popular (according to the Google search engine) TV series of 2021.The subscriber base in the USA and Canada (in the home market of the service) grew by 1.2 million in the last quarter, to 75.2 million (with a consensus of +550 thousand), demonstrating the highest rate of expansion since the beginning of the pandemic. Consequently, the company is able to increase penetration in the most saturated market, despite the growing competition, which is a positive sign.According to management comments, free cash flow will still remain positive in 2022.Despite the growing costs of content creation, management maintains a target to increase operating margin at an average level of +3 percentage points per year, although investors were afraid of a decrease in the gaidens due to the acceleration of inflation. EPS in 2022-2025 may increase by more than 20% on average.The schedule of movie and TV series releases in 2022 is characterized by balance, so audience engagement will be maintained at a high level throughout the year.The epidemic factor no longer leads to delays in the filming process.The company is still actively developing mobile games, so we expect that in order to form an experienced development team, Netflix will continue to enter into small M&A deals, but large acquisitions are unlikely. Netflix will create games based on popular TV series, experimenting with various genres.We expect that in the coming year, investors will begin to perceive Netflix as a company with an effective business model, since the issuer will generate significant free cash flow and conduct a share repurchase program, while competitors are characterized by negative cash flow from streaming due to the smaller scale of the business.Taking into account all these factors, we believe that the reaction of investors to the report is excessively negative, since the long-term prospects of the business have not deteriorated. We believe that the sell-off in the issuer's securities was caused not so much by a change in investors' expectations regarding the company itself, as by a temporary weakening of interest in the shares of most fast-growing chips against the background of the expected tightening of the Fed policy. For this reason, in the near future, Netflix shares may show sideways dynamics or even continue to decline. However, if there are these securities in the portfolio, we do not recommend getting rid of them, since the long-term prospects of the company, in our opinion, are still positive.

Procter & Gamble (NYSE: PG) raises prices for most of its products due to the rise in the cost of raw materials and transportation.Procter & Gamble has warned retailers about price increases for laundry and textile care products from February 28, and for personal care products from April. In total, the price increase will affect eight categories of goods, and this step will be made not only for the main one for Procter & Gamble of the US market, characterized by high purchasing power, but also abroad.For the second quarter of the current fiscal year Procter & Gamble recorded organic growth of 6% across all five major segments of its business. Half of this growth was due to higher prices even before the aforementioned decision to raise the cost of a number of goods for retailers. The consensus assumed that the corporation's sales would grow by only 3%.The rise in the cost of these products potentially pushes consumers to choose cheaper analogues, but P&G, in our opinion, is confident in its pricing strategy, since, according to management, its competitors face the same trends in prices for raw materials and transportation. At the same time, the impact of exchange rate differences is a bigger blow to P&G due to its broad global presence. In addition, the company believes that consumers of its products are willing to pay more for a brand they know and will not change their preferences. In this regard, the Procter management & Gamble is not afraid of damage to the business or loss of market share.Due to the increase in raw materials and logistics costs, P&G actually recorded a decrease in gross profit by 4 percentage points, but it was leveled by optimizing costs and increasing prices.P&G has improved its forecast for sales growth this year from 2-4% to 4-5%. The cash flow forecast has also been raised. This means that the corporation has a large amount of resources that it can invest in the business even while maintaining large dividend payments and actively repurchasing shares. For this year, the company plans to send $17-18 billion to shareholders against $15-16 billion set in previous goals. Despite the difficulties associated with rising costs, we give an optimistic forecast of P&G's financial performance and raise the target price for its shares to $176.

The second largest US financial institution by assets, Bank of America Corporation (BAC), increased earnings per share by 38.9% YoY to $0.82 in the fourth quarter of 2021, with a consensus of $0.77. Net profit increased by 28.2% YoY, reaching $7.01 billion. Net revenue increased by 9.75% YoY to $22.06 billion, slightly short of the $22.18 billion expected by the market. Bank of America's operating expenses increased by 5.7% YoY to $14.73 billion.Commenting on the publication of the financial statements, the bank's management noted that the quality of its assets remains at a high level due to the improvement of the creditworthiness of customers and the general state of the economy. The share of non-performing loans in total assets (net charge-off) of Bank of America by the beginning of the current quarter was a record low 0.15%, having decreased by 3 bps compared to last year's result. The volume of loans that are overdue for 30 and 90 days decreased by 14.5% and 30% YoY - to $5.28 billion and $1.4 billion, respectively. This indicates a reduction in risks for the loan portfolio. The volume of loans for which there is a risk of delinquency (reserved criticized utilized exposure) decreased by 73% YoY, to $22.38 billion. The volume of overdue loans in the portfolio for legal entities decreased by 29% YoY and by 7% QoQ, to $1.58 billion. At the same time, delinquency on consumer and mortgage loans increased by 9.7% YoY, $2.99 billion. And yet this share is 1-2% less than in the previous quarters of 2021.The disbandment of reserves for expected credit losses at Bank of America slowed down somewhat, but due to this, the issuer received $489 million in additional profit. However, these receipts are of a one-time nature. We believe that the impact of this factor will decrease in subsequent quarters due to an increase in the volume of loans and a tighter monetary policy of the Fed.Despite the minimum interest rates, Bank of America's net interest income increased by 11.3% YoY to $11.41 billion. Non-interest income increased by 8.2% YoY, $10.65 billion.Bank of America's net revenue from retail lending (consumer banking) increased by 8% YoY, to $8.9 billion. Income from asset management (GWIM) rose by 16% YoY, to $5.4 billion, due to an increase in the volume of assets under management by the same 16% yoy, to a record $1.6 trillion. Revenue from investment banking (global banking) increased by an impressive 24% YoY, to $5.9 billion, thanks to an increase in remuneration for financial advice on M&A transactions. Revenues from operations in the capital markets (global markets) rose by only 2% YoY, to $3.8 billion, due to a decrease in trading volumes and revenue from marketmaking amid weakening market volatility.Due to the presence of diversified sources of profit, Bank of America managed to show strong results in conditions of increased uncertainty and low interest rates. At the end of the year, the bank increased its net profit by 78.7% YoY, to $31.98 billion, due to which the return on equity (ROE) increased to 12.23%. The basic capital adequacy ratio of CET-1 decreased from 11.9% to 10.6% at the industry median level of 11.1%. However, with this value of the indicator, the bank is able to maintain stability and cover possible losses. Bank of America has enough resources to continue repurchasing shares and stable dividend payments.Our base target price for the BAC stock is $52, at the moment the paper is fairly priced by the market, but we recommend it for purchase. With the development of a "bearish" trend, the quote may drop to $43, with the implementation of an optimistic scenario, the stock may rise to $ 54.

UnitedHealth (UNH) reported better than investors' expectations for the fourth quarter. The company's adjusted earnings per share were $4.48, beating consensus by 4.2%. Strong operating results are supported by a strong outlook for the current year.The company's revenue for October-December increased by 1.9% QoQ and by 12.6% YoY, reaching $73.74 billion, which was 1% higher than general market expectations.Revenue from the UnitedHealthcare segment increased by 12% YoY for the quarter and by 11% for the full year 2021. The number of clients served in the past year increased by 2.2 million, mainly due to an increase in the number of participants in the Medicare Advantage and Dual Special Needs programs by 900 thousand, the same trends were noted in relation to the Medicaid program. Revenues from the Optum direction increased by 14.6% YoY for the quarter and by 14.1% YoY for the year. The number of Optum customers in 2021 increased by 2 million, reaching 100 million. Revenue per customer for the year increased by 33% YoY, thanks to the modernization of the service delivery system, including home-based services in addition to online and offline services available in medical institutions. Optum Insight's revenue backlog for 2021 increased by $2.2 billion to $22.4 billion, including $100 million for October-December. Last year, the company signed a number of new contracts with healthcare institutions and expanded the range of services in the areas of payments, digital modernization and coordination of patient care.UnitedHealth's operating profit for the fourth quarter increased by 0.6% YoY to $5.54 billion. More than 60% of operating profit ($3.4 billion) was generated by the Optum segment. In 2021, operating profit amounted to $24 billion, half of which was provided by revenues from Optum, which remains the main driver of UnitedHealth's profit growth. The company's adjusted EPS increased by 13% YoY to $19.02. The MCR index for October-December increased by 0.7% QoQ and amounted to 83.7%, recovering to a normal level. We expect this indicator to continue growing in the current quarter due to the new wave of the COVID-19 epidemic at the beginning of the year in the United States.UnitedHealth management confirmed a positive forecast for 2022, published in November. This forecast includes revenue in the range of $317-320 billion (+10.2-11.2% YoY) with adjusted EPS within $21,1–21,6 (+10,9–13,6% YoY) and operating cash flow of $23-24 billion (+2.9-7.4% YoY).We evaluate the UnitedHealth report positively, we raise the target price to $530.

Investment bank Morgan Stanley (MS), which is actively developing the asset management segment, reported for the fourth quarter an increase in diluted earnings per share by 11% YoY, to $2.01, despite the fact that the consensus laid the result at only $1.91. The bank's net profit increased by 9.2% YoY, to $3.69 billion, due to the fact that its revenues increased faster than expenses. Operating costs increased by 5% YoY, to $9.6 billion, and net revenue rose by 6.8% YoY, to $14.52 billion, slightly short of consensus at $14.56 billion. The volume of reserves for expected credit losses decreased by 79% QoQ, to $5 million. This indicates an improvement in the forecasts of the financial institution regarding the prospects of the economy.Net revenue grew due to an increase in net interest income by 16.4% YoY, to $1.4 billion. Morgan Stanley has stepped up the development of the lending segment and continues to increase assets in the loan portfolio, the volume of which as of the end of the fourth quarter increased by 24% YoY, and its share in total assets at the end of 2021 was 16.89%. The expected increase in interest rates this year will further increase Morgan Stanley's interest income.Income from asset management increased by 24% YoY, to $3.7 billion, which was facilitated by the takeover of the E*TRADE financial Corporation, which provided an influx of new assets under management in the amount of $127 billion. Revenue from wealth management increased by 10.3% YoY to $6.35 billion, and net profit increased by 34% YoY to $1.1 billion.Investment management revenues for the quarter rose by 59% YoY and 21% QoQ to $1.75 billion due to an increase in the volume of assets under management from $781 million to $1.6 trillion. Revenue from the business direction increased by 160% YoY, to $411 million. Revenues from institutional securities decreased by 4% YoY and by 11% QoQ to $6.7 billion, segment net profit decreased by 8% YoY to $2.2 billion.Morgan Stanley's results look strong compared to those of other banks specializing in lending. The stock of the basic equity of the first level (CET1) of the corporation is 16.0% with a median indicator for the sector of 11.7%. This gives reason to count on stable dividends and continued repurchase of shares. The Bank has the ability to cover potential credit losses and expand its business.The basic target for MS shares is $106, at the moment they are undervalued by the market. In the case of a bearish trend in the market, the quote may drop to $93, and in the case of a bullish scenario, it can reach $116. The financial sector's securities will be characterized by increased volatility this year.

The market the day beforeAt the auction on January 20, the decline of the main indices on American stock exchanges continued. The S&P 500 dropped 1.10% to 4,483 points, the Nasdaq adjusted 1.30%, and the Dow Jones lost 0.89%. In the green zone, only utility providers were closed (+0.14%). Other sectors showed negative dynamics. The outsiders were producers of cyclical consumer goods (-1.94%), raw materials companies (-1.43%) and the IT sector (-1.33%).Company newsThe shareholders of Casper Sleep (CSPR: +9.8%) voted for the privatization of the company.Insurance company Travelers Cos. (TRV: +3.2%) presented a strong quarterly report with record profit. Management emphasized the high underwriting revenues.Peloton Interactive (PTON: -23.9%) ceases production of Connected Fitness products amid a significant reduction in demand.We expectThe day before, President Joe Biden announced the possibility of breaking the Build Back Better program with a total volume of about $1.7 trillion into its component parts. At the moment, the White House is considering alternatives after initial efforts to coordinate were thwarted by the opposition led by Senator Joe Manchin. A preliminary consensus was reached only on the climate part of the package (just over $500 million). At the same time, provisions on maternity leave may be excluded from the updated draft law, and the expansion of tax benefits for children may be limited.The number of initial applications for unemployment benefits for the week increased by 55 thousand, to 286 thousand, reaching a three-month high amid the active spread of the strain "omicron", negatively affecting the labor market. At the same time, due to problems with hiring, employers are taking measures to retain employees, so the observed surge in applications for benefits is likely to be short-term.The December index of manufacturing activity published by the Philadelphia Federal Reserve increased by 8 points compared to November, reaching 23.2 points, which indicates optimistic assessments of business prospects on the part of entrepreneurs, despite the next wave of COVID-19 and the persistence of labor shortages, as well as logistical problems.Stock markets in Southeast Asia showed mostly negative dynamics during the last trading session. The Tokyo Stock Exchange Nikkei index lost 0.90%, the Chinese CSI 300 fell by 0.92%, the Hong Kong Hang Seng rose by 0.05%. EuroStoxx 50 has been losing more than 1.1% since the opening of trading.Brent crude futures are trading at $88.38 per barrel. The price of gold is around $1842.5 per troy ounce.In our opinion, the S&P 500 will hold the upcoming session in the range of 4440-4490 points.MacrostatisticsNo significant macro statistics are expected to be published today.Technical pictureThe S&P 500 has broken down support in the area of 4,500 points and continues to move towards the lower border of the ascending channel. The RSI is in the oversold zone. The MACD indicator is still showing a downward trend, indicating the probability of a continuation of the correction. However, the passing reporting season can provide the broad market index with growth drivers.

Kinder Morgan Energy Company (KMI) has presented solid results for the last quarter of 2021. The issuer may increase the quarterly dividend by 3.7%, to $0.28 per share, by the end of January-March 2022.KMI's revenue in the reporting period increased by 42% YoY, to $4,425 million, due to higher prices for hydrocarbons, which, however, increased the cost of their purchase. Net profit reached $637 million (+4.9% YoY) at an adjusted rate of $609 million (+0.8% YoY).The recovery in demand for petroleum products led to a cumulative increase in the volume of transportation by 8.7% YoY, however, the same indicator separately for gasoline and diesel fuel decreased by 2% compared to 2019, and for jet fuel - by as much as 22%, which indicates the continued growth potential in this segment in 2022.In 2021, Kinder Morgan managed to reduce net debt by $1.3 billion, to $32.2 billion, despite the purchase of assets for $1.5 billion. The volume of cash and cash equivalents on the company's accounts at the end of the year was $1.14 billion.Following the results of the quarter, the Board of directors of KMI approved the payment of dividends in the amount of $0.27 per share with a yield of 6.2% per annum to current quotations (the cutoff will occur on January 31, the payment will take place on February 15). According to the results of the first quarter of 2022, management plans to increase the dividend to $0.28, which is equivalent to a yield of 6.4% per annum to current quotes. In addition, in 2022, KMI may spend up to $750 million, or 2% of the current capitalization, on the repurchase of shares.We evaluate Kinder Morgan's reporting neutrally. In our opinion, the approach of the dividend cutoff will support the company's securities. The recommendation is "buy".

One of the largest investment companies and the second oldest of the current US banks, State Street Corporation (STT) reported for the fourth quarter of 2021 an increase in diluted earnings per share by 28% YoY, to $1.78, with a consensus of $1.88. The issuer's net profit increased by 29.8% and reached $697 million, as operating expenses increased by only 2% YoY, to $2.33 billion. As of the end of 2021, the volume of assets under management was $4.1 trillion, $43.68 trillion of assets were stored in the bank's depositories.STT's net revenue for the fourth quarter increased by 4.6% YoY, reaching $3.05 billion with a market-wide forecast of $3.01 billion. Net interest income decreased by 3%, to $484 million, due to a decrease in the interest margin (net) by 11 basis points, to 0.73%, in conditions of low interest rates. At the same time, STT is gradually expanding its loan portfolio, which increased by 16.5% YoY to $32.4 billion, but still accounts for a small share of the company's total assets (10.3%). According to our expectations, a further increase in interest rates in 2022 may contribute to improving net interest marginality and restoring the indicator to 2019 levels. STT management predicts an increase in net interest income by 10-12% in the next fiscal year.Non-interest income increased by 3.9% YoY, to $2.5 billion, mainly due to an increase in income from investment services. The commission fee for index maintenance (Servicing Fees) increased by 5.9% YoY, to $1.38 billion, for asset management (Management Fees) — by 7.5% YoY, to $530 million, against the background of the growth of quotations of the broad market and the expansion of the asset base under management (+7% QoQ, +19% YoY).Pressure on non-interest income was exerted by a decrease in income from foreign exchange trading services by 7.4% YoY, to $300 million, which is associated with a decrease in volatility in the foreign exchange markets. Revenues of Software solutions (Software and processing fees) also decreased by 4.4% YoY, to $195 million, which is mainly due to low market adjustments, but the segment was supported by higher revenues of the Charles River subsidiary, which provides specialized software for investment companies.The basic equity capital adequacy ratio (CET1) increased by 1.9%, to 14.2%, due to the additional issue of shares to finance the purchase of the investor services division of Brown Brothers Harriman (BBH) Investor Services for $3.5 billion. The deal will expand STT's investment business and increase the volume of assets in trust management (under custody) by $5.4 trillion, which will make the bank one of the largest providers of custodial services.In 2022, the main risk for STT remains a possible correction of the broad market, which may negatively affect the bank's financial results in the event of a revaluation of assets. According to management forecasts, the rate of increase in non-interest income in 2022 will be 3-4% against the background of the termination of the period of market growth and normalization of volatility in the currency exchange segment.Considering that the State Street Corporation shares still have growth potential, we set the base target for the paper on the horizon of the year at $115. In our opinion, STT shares are undervalued and worth buying. If a bearish trend develops, STT quotes will not exceed $100. If an optimistic scenario is realized, the stock can rise in price to $ 124.