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 December 12-16, 2022.
Top 5 Buy calls:
Tapestry (TPR) & Gap (GPS) – Goldman Sachs upgrades both stocks to Buy
On December 12, Goldman Sachs analyst Brooke Roach upgraded Tapestry to Buy from Neutral with a price target of $44, up from $37. While top-line trends are "likely to remain lackluster," especially due to potential headwinds to the middle-income consumer following robust growth in 2022, Roach believes Tapestry has scope to relatively outperform peers in 2023. Her brand momentum trackers indicate that the Coach brand continues to show better relative momentum than other brands in her coverage universe.
The analyst also upgraded Gap to Buy from Neutral with a price target of $18, up from $10. She believes Gap has an "idiosyncratic opportunity" to demonstrate sequentially strengthening execution and better margins into 2023. As one of the earliest companies to make key inventory mistakes, Gap had "a difficult year" in 2022, but that may also allow for modestly stronger comps in early 2023, Roach adds.
Crowdstrike (CRWD) – Wedbush initiates coverage with an Outperform, $135 price target
On December 15, Wedbush analyst Taz Koujalgi initiated coverage of Crowdstrike with an Outperform rating and $135 price target. The analyst believes the company’s current installed base of about 20,000 customers gives it significant runway to add new customers as other larger security vendors have much higher customer counts. It also has significant runway to upsell to its installed base as the average number of modules per customer is relatively low, Koujalgi adds. The recent slowdown in momentum and guide down due to the macro environment is a concern, but the analyst believes the guide is conservative, and there is upside to numbers.
Lam Research (LRCX) – Deutsche Bank upgrades to Buy, raises price target to $520
On December 12, Deutsche Bank analyst Sidney Ho upgraded Lam Research to Buy from Hold with a price target of $520, up from $400. Lam has the most memory exposure among large cap semiconductor capital equipment companies, hence its stock has suffered the most in 2022, with many memory suppliers suggesting large spending cuts and new technology export restrictions impacting China’s memory companies, Ho tells investors in a research note. While some risks to memory wafer fab equipment remain in the near term, investor expectations are already low enough and should not have a significant impact on Lam’s share price, says the analyst. Looking beyond the near-term, Ho thinks memory wafer fab equipment is poised to rebound in 2024, as he believes 2023 memory spend is at unsustainably low levels. He notes that Lam’s risk/reward is attractive at current share levels.
Under Armour (UAA) – Stifel upgrades stock to Buy, raises target
On December 12, Stifel analyst Jim Duffy upgraded Under Armour to Buy from Hold with a price target of $12, up from $9. "Relative inventory management discipline" leaves Under Armour with better margin certainty and in a better position to bring newness to market in 2023, Duffy tells investors in a research note. The analyst expects "systematic risk from an inventory glut of larger competitors" will clear by the second half of next year. And with tightening lead-times, he sees tailwinds to Under Armour’s cash flow in 2023 and believes its net cash balances could be greater than 25% of the current market capitalization. With a strong balance sheet, improving earnings and new leadership, investor focus should shift to growth and the company’s structural margin opportunities, contends Duffy.
Pinterest (PINS) – Piper Sandler upgrades to Overweight, raises price target to $30
On December 12, Piper Sandler analyst Thomas Champion upgraded Pinterest to Overweight from Neutral with a price target of $30, up from $25. The analyst sees "multiple tailwinds" for the company into 2023 after his advertising buyer survey pointed to an improved ad product and rising market rising. The data points to better monthly active user trends for Pinterest, says Champion, who also sees a path to margin expansion ahead. "We like the new leadership, investor activism, and we see a buyback coming," Champion writes. He believes the lows are likely already in the shares.
Top 5 Sell calls:
Qualcomm (QCOM) – Wells Fargo downgrades stock to Underweight with price target of $105
On December 12, Wells Fargo analyst Gary Mobley downgraded Qualcomm to Underweight from Equal Weight with a price target of $105. The analyst believes that once investor sentiment toward the chip sector turns more positive, or once investors are convinced of a trough in the chip cycle, shares of companies with high smartphone exposure should underperform the broader chip sector. Mobley thinks Qualcomm’s shares will continue to trade at a discount to peers because investors will assign lower multiples to chip companies serving the no-growth mobile handset market, and investors may begin to value Qualcomm’s shares based on EPS power ex. MSM/RFFE shipments to Apple (AAPL).
Estee Lauder (EL) – Redburn initiates coverage with a Sell rating and $210 price target
On December 15, Redburn analyst Christopher Pitcher initiated coverage of Estee Lauder with a Sell rating and $210 price target. The company’s growth has been cyclical, and the "equity story is an interplay" between a China reopening and the risk of a U.S. and European slowdown, Pitcher tells investors in a research note. The analyst assumes a steady reopening in 2023 but with Estee’s growth "partially absorbed by high inventories at its main travel retail customer." The shares are trading at over a 20% premium to the 10-year absolute and relative average, implying a full Chinese reopening is largely discounted, leaving Estee more at risk from a slowdown in the U.S. and Europe, writes Pitcher.
Western Digital (WDC) – Goldman Sachs downgrades stock to Sell, lowers price target
On December 15, Goldman Sachs analyst Toshiya Hari downgraded Western Digital to Sell from Neutral with a price target of $31, down from $43. The analyst heard from "multiple sources" that the NAND suppliers are offering below cash-cost prices in an attempt to work down inventories "in what remains a weak macroeconomic backdrop." Given an expectation for a "severe" memory industry downturn, and historically low trough gross margins by extension, Hari downgraded Western Digital to Sell. He believes net leverage on the company’s balance sheet is likely to come "under greater scrutiny" by investors, and may constrain its operating activities in the near-term, presenting a risk to its post-cycle competitive position.
Discover (DFS) – BofA double-downgrades the stock to Underperform on consumer concerns
On December 13, BofA analyst Mihir Bhatia double downgraded Discover to Underperform from Buy. Capital One’s (COF) recent mid-quarter update suggested weakening credit conditions among U.S. consumers and with unemployment likely to rise and rates still rising as well, Bhatia believes pressures will intensify over the next few quarters. Companies covered with the most significant exposure to consumer credit risk and lower-income consumer spending include Discover, Synchrony (SYF) and Affirm (AFRM), the analyst notes.
Illumina (ILMN) – Citi downgrades stock to Sell, cuts price target to $180
On December 12, Citi analyst Patrick Donnelly downgraded Illumina to Sell from Neutral with a price target of $180, down from $200. Going into 2023, the analyst views sentiment across the life science tools space as "relatively mixed following several years of outperformance." He believes investors are content in the near-term to own more instrument-heavy tools companies given visibility provided by elevated backlogs. Donnelly sees less interest in the "usual large cap suspects" given concerns around the near-term outlook for bioprocessing growth and potential downside risk to 2023 numbers, while still carrying higher multiples. Going into next year, the analyst is more constructive on companies with improved 2023 setups and numbers "appropriately set for the year with more compelling current valuations," such as Avantor (AVTR), his top pick, Bio-Techne (BIO), and PerkinElmer, (PKI). In diagnostics and contract research organizations, he names QuidelOrtho (QDEL) and Icon (ICLR) his respective top picks for 2023. For Illumina, Donnelly says "two long held tenets of the bull thesis," consistent consumable stream and healthy margin profile/earnings power, are "continuing to deteriorate."
Published first on TheFly
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