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Here are the biggest calls on Wall Street on Wednesday
HSBC said that it could take some time for Apple to see a return on its recent investments in services.
“Recent announcements on services has Apple putting money where its mouth is but returns could take some time to extract. Services makes ecosystem more sticky but won’t necessarily enable Apple to recruit more consumers to iPhone, we feel. Downgrade stock to Reduce (from Hold) but increase TP to USD180 (from USD160) with 10% implied downside.”
Read more about this call here.
Bank of America raised their price target on Apple saying they see “more upside,” to iPhone units.
“We estimate 24% or 216mn units of the 900mn iPhone installed base are older than the iPhone 6. And 50% of those are candidates for upgrade. Of the remaining 684mn newer iPhones (iPhone 6s and later), we estimate 80% or 547mn iPhones were purchased in the primary market, and these phones are also candidates for upgrade (Fig 14). Fig 15 is a scenario analysis that shows even with conservative upgrade estimates, there could still be upside to our iPhone units. Our PO moves to $220 (from $210) on approximately 15x C20 EPS of $14.46 on higher confidence that estimates have bottomed.”
BMO is bullish on the company’s upcoming direct to consumer streaming services and investor day.
“Bottom Line: When we upgraded to Market Perform from Underperform a year ago, we felt the stock had downside protection, but lacked catalysts. We feel the former still applies, but the latter has changed considerably, with an Investor Day on Thursday, two Star Wars-themed lands opening in the domestic parks this summer, the launch of Disney+ before year-end, and a potential re-start of the buyback program within 12 months. We continue to like NFLX and AMZN more than DIS, but are comfortable recommending all three, as we expect them all to be long-term winners in global DTC streaming.”
Atlantic Equities said the social network has, “unique and broadly appealing proposition.”
“We are initiating coverage on Pinterest with an Overweight rating, $23 YE19 PT. We believe the company’s unique and broadly appealing proposition, offering consumers the ability to view and collate visual recommendations, will enable ongoing robust user growth. Moreover, we expect significant monetisation upside given the higher purchasing intent of the user base, yet lower current ARPU than other ad-supported platforms. With likely non-GAAP profitability in ’19 (GAAP in ’21) and valuation not challenging, we believe Pinterest offers an attractive way to diversify online advertising exposure.”
Read more about this call here.
KeyBanc said they see opportunities for growth in several areas of Nordstrom‘s business.
“We view demand weakness as transient, and 12x 2019 P/E is attractive – we upgrade to Overweight. Since our downgrade of JWN in July 2018, demand has weakened and the forward multiple has compressed >3 turns. Our recent meetings with co-CEO Erik Nordstrom and CFO Anne Bramman also affirm our framework that JWN is prepared to transition its asset base as e-comm continues to grow and that it is in two fundamentally attractive sectors of softlines retail: premium and off-price. We establish a $55 PT.”
Cowen said after a challenging 2019, they expect Wendy‘s to “reaccelerate” sales in 2019.
“Wendy‘s is pursuing the right strategy in 2019 by returning to the brand’s premium roots, in the backdrop of a less aggressive value-oriented landscape in 2019 vs 2018. We expect in-line results in 1H19, with greater likelihood for upside in 2H19, to restore investor confidence and help close the valuation gap vs. peers. We view the risk/reward as favorable with 2:1 upside/downside ratio.”
Citi said Under Armour is, “growing up,” and is focusing on profitability and ROIC.
“We are assuming coverage with a Buy rating (from Neutral previous) and a $29 target price (from $23 previous). UAA is growing up with a renewed focus on driving profitability and ROIC. After chasing 20%+ top line growth during the 2010-2016 period, UAA has taken action to adapt to the changing athletic landscape. With just a 3.4% EBIT margin in 2018, UAA has the opportunity to recapture 600bps+ in EBIT margin over the next several years. And near-term, we see upside to management’s F19 gross margin guidance.”
Citi said that they like many other specialty retailers, Footlocker is also facing too many headwinds.
“We are assuming coverage with a Neutral rating (vs previous rating of Buy) and a $68 TP (vs. $72 prior). While FL has tailwinds at its back in North America with comps inflecting positively in 4Q18, the company still faces many of the same headwinds as other specialty retailers (significant mall exposure; EBIT pressure from DTC). And while FL has a strong partnership with NKE (which accounts for 66% of FL purchases), we believe NKE‘s DTC ambitions are a secular headwind.”
J.P. Morgan said that homebuilders should see “positive momentum,” in to earnings season.
“Additionally, as we recognize a more stable demand backdrop following the continued decline in rates, and review our ratings ahead of earnings, we upgrade PHM and KBH to Neutral from Underweight and raise our Dec. 2019 price targets on these names by 6% and 12%, respectively. Notably, however, while we recognize that the positive momentum in the sector will likely continue in the near-term, at the same time, we remain hesitant to ascribe target multiples that are greater than prior mid-cycle valuations; hence, our target multiples still result in 10% average downside potential for the group against current stock prices, particularly as our 2020 EPS estimates remain 5-10% or more below the Street consensus for several names across our universe.”
Nomura Instinet said that while Tesla is a, “disruptor,” in the industry, they have concerns about the company’s global expansion.
“Similar to some of the software greats’ disruption of enterprise hardware, TSLA is a true disruptor of the automotive industry, in our view. It forces legacy combustion engine behemoths to scramble to develop competing products without cannibalizing their cash flow machines—keeping them comfortably at a distinct disadvantage, similar to what Salesforce (CRM) did when it pioneered the Software-as-a-Service (SaaS) business model. We see several moats in the TSLA approach, and we applaud the company for blazing these trails and leading the way in creating a sustainable electric vehicle (EV) revolution and automating transportation. That said, we are cautious near term, as we navigate the breakneck pace of TSLA’s global expansion.”
Barclays said the consumer goods company’s margins look “exposed.”
“Unilever plans to grow 200bp ahead of its market growth (1% from market share gains and 1% from Portfolio) but this is not happening because of acquisition mis-steps (Blue-Air in China) and global share gains of 50% rather than the 60% needed to deliver its medium-term top-line targets. We are concerned about the performance of its Beauty and Personal Care division, its biggest, most profitable and strategic business (38% of sales, 48% of EBIT) which has had two mediocre years and is being left behind in growth terms by L’Oréal and Estee Lauder, which are much more premium. Its margins also reached 22% in 2018, 360bp above L’Oréal and 530bp above Estee Lauder, where we would question sustainability. Management has not closed the door to a margin reset, saying they would always favour growth over margin, but it will depend on whether it can improve its competiveness in short order. Even if it hits the 20% margin target in 2020, it will likely be difficult to persuade the market that there is much runway beyond then. Finally, we think the aborted move to simplify the NV/PLC structure reduces the likelihood of big corporate change that could drive a re-rating.”
UBS said that 2019 EPS estimates should see upside for the biotech company.
“Following the failure of selonsertib in NASH, Gilead has rattled off two important clinical wins: positive Descovy PrEP data and filgotinib FINCH1/3 data – unlocking two $2B+ revenue opportunities and going far to de-risk outer year (2021+) growth. In the near-term, despite a likely 1Q EPS miss, we expect 2019 EPS estimates will move higher as NASH pre-commercialization spend likely comes out of SG&A guidance. We expect this will more than offset any modest 1Q weakness (on seasonal factors). Coupled with strong Biktarvy / Truvada demand trends, we are moving our 2019 EPS estimates to $6.85 from $6.73. With that as a near-term tailwind and increased conviction on the mid-term growth outlook, we are upgrading to Buy. We acknowledge there is still a myopic focus on M&A, weak R&D productivity that still needs to be addressed, and projected revenue growth is modest (1.4% CAGR ’18-22) – but it’s improving and we see less downside risk relative to peers (Amgen, Biogen). Raising PT to $77 from $75.”
