What has Wall Street been buzzing about this week?
Here are the top 5 Buy calls and the top 5 Sell calls made by Wall Street’s best analysts during the week of October 17-21, 2022.
Top 5 Buy calls:
Netflix (NFLX) – Deutsche Bank and JPMorgan upgrade stock to Buy-equivalent ratings
On October 19, Deutsche Bank analyst Bryan Kraft upgraded Netflix to Buy from Hold with a price target of $350, up from $270, following the company’s quarterly results. The analyst now sees visibility into a subscriber growth inflection point next year given that Netflix management has confirmed both the early 2023 introduction of its new measures designed to better monetize account sharing, and the early November timing of its advertising-based video on demand tier launch in 12 top markets. The 100M "account borrowers" Netflix has counted represent a clear and present growth opportunity that Netflix will soon be in a position to exploit, Kraft told investors in a research note.
JPMorgan analyst Doug Anmuth also upgraded Netflix to Overweight from Neutral with a price target of $330, up from $240, representing 20% upside from the after-market price. Coming out of the third quarter results, the analyst has increased conviction in Netflix’s ability to accelerate revenue growth with the help of advertising and monetization of account sharing, expand operating margins, and increased free cash flow. He’s encouraged that "Basic With Ad"s unit economics should be at least neutral across all markets, and "significantly accretive" in large ad markets such as the U.S., with an even greater positive impact to revenue and operating profit.
Target (TGT) – Stock coverage transferred with a Buy rating at Jefferies
On October 18, Jefferies analyst Corey Tarlowe upgraded Target to Buy from Hold with a price target of $185, up from $170, after taking over coverage of the name. Amid a "challenging macroeconomic backdrop," a "subdued" valuation and improvements in supply chain and inventory positioning support a bullish stance on Target, Tarlowe told investors in a research note. The analyst believes second half of 2022 risk exists but says 2023 will likely realize margin improvement. Target is better positioned than the broader retail set at present, Tarlowe contended.
Home Depot (HD) – Cowen initiates coverage of the stock with an Outperform, $350 target
On October 19, Cowen analyst Max Rakhlenko initiated coverage of Home Depot with an Outperform rating and $350 price target. Rakhlenko is constructive on the opportunity to grow share, increase sales productivity, accelerate the flywheel, and expand EBIT margin as Home Depot’s Pro ecosystem comes together. The analyst contended that Home Depot is a best-in-class operator with leading Pro share, which positions the retailer to better withstand a slowing backdrop in the near-term, and accelerate on the other side.
Dick’s Sporting (DKS) – Oppenheimer upgrades stock to Outperform with $138 target
On October 20, Oppenheimer analyst Brian Nagel upgraded Dick’s Sporting (DKS) to Outperform from Perform with a $138 price target. The analyst believes a now better-positioned and more strategically merchandised Dick’s Sporting Goods is likely to continue to capitalize well upon positive, post-pandemic shifts in consumer demand and stepped-up competitive fallout within sporting goods retail. At current levels, the stock trades at just 12-14-times his assumed recession case earnings for the chain.
Lockheed Martin (LMT) – Bair upgrades stock to Outperform with headline risks reduced
On October 19, Baird analyst Peter Arment upgraded Lockheed Martin to Outperform from Neutral with an unchanged price target of $513. Given the multi-year free cash flow outlook offered and 2023 guidance that met Street expectations, headline risks have been reduced, "leaving little for bears," Arment told investors. He also argued that Lockheed’s valuation provides value, it has visibility compared to other mega-cap industrials, and the authorization of a $14B buyback and $4B Accelerated Share Repurchase program limits the downside.
Top 5 Sell calls:
Opendoor Technologies (OPEN) – Goldman Sachs downgrades stock to Sell
On October 17, Goldman Sachs analyst Michael Ng downgraded Opendoor Technologies to Sell from Neutral with a price target of $2, down from $7, as he sees continued weakness in the U.S. housing market. Although Opendoor shares are down 82% year-to-date, ongoing housing weakness through 2023 should "depress" its earnings power, limiting share price upside, Ng told investors in a research note. He believes declining home prices will lead iBuyers to increase service fees directly or indirectly to manage margins, resulting in reduced purchase volume.
Clorox (CLX) – Evercore ISI initiates coverage of stock with Underperform and $131 price target
On October 18, Evercore ISI analyst Javier Escalante initiated coverage of Clorox with an Underperform rating and $131 price target. He looks for Clorox to underperform and would "be sellers into strength" as investors gravitate to the company’s margin recovery’s potential, Escalante said. Clorox’s complex portfolio has undermined its pricing power and the strategic pivot takes reinvestment away from its core businesses, the analyst argued. However, he warned "don’t short," citing the company’s strong franchise and balance sheet as well as its activist potential.
Coupa Software (COUP) – Piper Sandler downgrades stock to Underweight on elevated risk factors
On October 20, Piper Sandler analyst Brent Bracelin downgraded Coupa Software to Underweight from Neutral with a price target of $55, down from $67. The 68% selloff in the shares year-to-date suggests a "considerable amount of near-term risk has been factored into the depressed valuation," Bracelin told investors in a research note. That said, the analyst sees increasing company-specific risk factors that erode his confidence in a sustainable growth recovery, including currency headwinds with Coup’a 40% international mix, payment timing risk, elongating sales cycles, convertible debt refinancing risk, and the emergence of a new class of competition. The risk/reward "appears more favorable" for HubSpot (HUBS) or Workday (WDAY) at comparable valuations, Bracelin said.
Generac (GNRC) – Roth Capital double downgrades stock to Sell from Buy
On October 20, Roth Capital analyst Philip Shen double downgraded Generac to Sell from Buy with a price target of $75, down from $320. The company preannounced downside third quarter results and lowered its 2022 guidance resulting in a weak implied fourth quarter, Shen told investors in a research note. The analyst sees potential for Generac’s "late-cycle" C&I business to "rollover" with the coming recession and expects its clean energy business to "struggle ahead as it regains its footing with new leadership." He expects the share downside to continue ahead and downgraded the shares until visibility improves.
Olaplex Holdings (OLPX) – JPMorgan and BofA double downgrade stock to Sell-equivalent ratings
On October 19, JPMorgan analyst Andrea Teixeira double downgraded Olaplex Holdings to Underweight from Overweight with a price target of $8, down from $16, after the company announced a substantial guidance cut for 2022 did not affirm its medium-term targets. Olaplex also warned that there has been increased competition in beauty including premium hair care, slower consumer acquisition and inventory destocking at retail partners, leading to an increase in inventory, the analyst noted. While management is taking measures to adapt to a new scenario including reducing third-party production, it may take until the third quarter of 2023 to inflect into positive revenue growth, Teixeira added. She believes the first half of next year will likely remain challenging for Olaplex. The company will no longer be viewed as a growth story in the short term given the expected decline in sales in the fourth quarter of 2022 and first quarter of 2023, the analyst said.
BofA analyst Jonathan Keypour also double downgraded Olaplex Holdings to Underperform from Buy with a price target of $5, down from $15, after the company pre-announced third quarter sales and EBITDA would miss consensus estimates. Facing an impending recession, and a preference to avoid discounting, Keypour doesn’t expect inventories to normalize until late fiscal 2023 and sees the company’s strategic overhaul hurting margins and creating uncertainty.
Published first on TheFly
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