Let’s cut through the noise of the past week with a Pro Recap of five key analyst takeaways that might very well forecast the next major market trend – including yet another downgrade for Tesla, and an upgrade for Lumentum.
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Lumentum upped to Overweight at JPMorgan
What happened? JPMorgan kicked off the week with an upgrade for Lumentum (NASDAQ:LITE) to Overweight with a $60 price target.
What’s the full story? Sure, the story is complicated enough and JPMorgan does acknowledge as much:
…we believe the current valuation is pricing in more headwinds than realistic, even when conservatively considering additional near-term downside to estimates from further share loss in 3D Sensing as well as inventory rationalization from Telecom and Datacom customers.
JPMorgan mentions the equity is trading at “~8x [price-to-earnings ratio] based on our CY24 estimates, which is heavily discounted relative to the long-term historical multiple of ~13x…”
So the upgrade comes on valuation, and JPMorgan sees Lumentum more fairly priced at roughly 11x (which is below the historical 13x), noting:
We are raising our December 2023 price target to $60 (vs. $54 prior) based on valuing our updated CY24E EPS of $5.42 (vs. $5.16 prior) at a ~11x P/E multiple, which is discounted relative to the long-term historical multiple of ~13x…
How did the stock react? After InvestingPro’s headline on the upgrade, which subscribers got in real time, the stock saw a premarket $1.20 spike to $46.46. Shares ultimately closed the regular Monday session at $46.22.
Nvidia stamped with Buy at HSBC
What happened? On Monday night HSBC upgraded Nvidia (NASDAQ:NVDA) to Buy, up two notches from the prior Reduce rating, with a $355 price target.
What’s the full story? Shares surged on the upgrade, only to be sold off once tech news site The Information tried to combat NVDA strength with a quick article on Microsoft (NASDAQ:MSFT) and AI.
The equity sold about $5 on that headline before reversing and ripping to the highs on the open. A specific scalper group was heavily trying to negate the HSBC double upgrade, to no avail.
As for what HSBC said – which traders highly contested all day through Twitter, which they used to influence order-prediction algorithms – it is merely a repeat of recent rhetoric from Nvidia management: Before it was crypto, and now it’s AI. HSBC wrote: “We were too focused on the slowdown in datacentres (sic), but what really surprised us was its pricing power on AI chips.”
So, as appears par for the course, anything with AI – or a company with “.AI” in it – wins. (Recall this type of malarkey previously in crypto, with Long-Island Iced Tea Corp. changing its name to Long Blockchain Corp.)
Alas, with new and exciting tech, the analysts are overvaluing the potential on hype (Bitcoin $100,000, anyone?) and therefore this call does look to be rather weak and a stretch, even with the headline grabbing double-upgrade.
How did the stock react? Shares surged on the 4 a.m. ET premarket open, as the upgrade – which InvestingPro was among the first to report – had come overnight Monday in New York. The equity jumped from $271.50 to a one-minute peak of $273.37. By 5:30 a.m., the stock was trading a $275 handle as people woke up and checked emails and news wires. By the end of Tuesday, Nvidia was trading $276.67, up 2.5%, or $6.65.
A Buy call for Spirit AeroSystems
What happened? Benchmark upgraded Spirit AeroSystems (NYSE:SPR) to Buy with a $45.00 price target on Wednesday.
What’s the full story? This is a structural play on the airliners, and SPR is a non-OEM (non-original equipment manufacturer) company. As Benchmark comments:
SPR will face costs to retro-fit 737’s, FY23 deliveries could be impacted, and FCF moves right. However, BA stated yesterday the SPR announcement won’t hinder supply chain plans for increasing production, SPR assembly fix is known (compared to redesigns), and the problem installations were limited to 1 of multiple suppliers. Net, net airlines are clamoring for new aircraft as existing fleet capacity struggles to meet demand (MRO visits at 2x normal stays), mega aircraft orders (United, Air India, Ryanair) are likely to continue as airlines lock in dwindling slots, and SPR has the infrastructure to ramp in place.
Translation: Someone has to design custom fuselage sections, manufacture them and ship those things for custom-designed large airliners and business/regional jets. Side note: SPR is a large prime manufacturer of defense products.
How did the stock react? Premarket, at 6 a.m., the equity rose from $30.20 to $30.67 after InvestingPro’s headline hit. Shares opened the regular session at $30.26. SPR ended the day up at $30.87, a gain of $0.61, or 2%.
Shift4 Payments raised to Overweight
What happened? Stephens upgraded Shift4 Payments (NYSE:FOUR) to Overweight with a $80 price target on Thursday.
What’s the full story? Following a short report, the sell-side came to the usual defenses. Stephens commented, “…we see minimal validity to the Blue Orca short report which has created an attractive entry point for shares.”
This tends to be the case with the Hindenburgs, Citrons, Muddy Waters and Blue Orcas of the world. Addressing the report itself alongside a valuation defense on Shift4, Stephens wrote:
We see minimal validity to the short report that alleges a series of aggressive financial maneuvers enabled by poor corporate governance and motivated by the CEO ownership interest. In our view, the 3rd party internalization (common industry practice) has been well-articulated by mgmt, motivated by the launch of SkyTab POS/reduction of CAC/payback period, and in the best interest of shareholders. Further, the $76.5M withdrawal which allegedly inflated CF was in fact included in adjustments, which invalidates the claim.
How did the stock react? Shares opened the regular session at $63.35 and rose $3.17 from the prior close, or about 5%, to close at $65.76.
Truist Downgrades Tesla
What happened? Truist ended the week with harsh news for Tesla (NASDAQ:TSLA) stockholders, downgrading the company to Hold from Buy with a $154 price target.
What’s the full story? Truist came right out of the gate calling out Tesla for yet another price cut:
Pricing trends amplify importance of TSLA’s AI businesses, but diminish the value of its core automotive business.
Truist analysis is a mixed bag among the scalpers who generate activity/liquidity and those who will use the commentary on either-side to support their thesis.
For those who mind, the call was based upon sensitivity analysis with the analyst commenting, “This influences a sensitivity analysis around automotive EBIT margins that we show below, stimulating our downgrade to Hold.”
How did the stock react? Tesla opened the regular session trading at a $164 handle and steadily gained on the day to end at $165.08, up nearly 1.3%.
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