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Tesla CEO Elon Musk speaks during the unveiling of the new Tesla Model Y in Hawthorne, California on March 14, 2019.
Frederic J. Brown | AFP | Getty Images
Here are the biggest calls on Wall Street on Tuesday:
Morgan Stanley lowered its Tesla bear case price target to $10 from $97
Morgan Stanley cut its “worst case scenario” for Tesla, citing the company’s rising debt levels and geopolitical exposure. The firm’s price target for the stock remains at $230/share, with an “equal-weight” rating.
“Moving our bear case to $10 from $97 previously. Given the increased debt load, geopolitical exposure (demand increasingly dependent on China), and potential for negative news flow to impact fundamentals, we have lowered our bear case valuation for Tesla. Our previous $97 bear case was based on 70% EV/Sales applied to our 2020 revenues of the company. Our revised $10 bear case is based on a 31% EV/Sales ratio applied to our unchanged 2020 revenues. We believe a reduction of this magnitude in the EV/Sales ratio is fair given the combination of execution, economic and political risks facing Tesla’s 2020 revenues and a retrenchment in global auto share prices heading out of 1Q19 results. For perspective, a 31% EV/Sales ratio would still be at a substantial premium to the average European auto OEM ratio of 22% (including BMW at 28% and Volkswagen at 17%) and would also be a premium to the average US OEM EV/Sales valuation of 25% on our 2020 revenue forecasts.”
Read more about this call here.
Baird lowered its price target on Tesla to $340 from $400
Baird said Tesla is still well positioned over the long run but thinks it will take months or weeks for more clarity on issues such as “demand concerns” and “credibility questions.”
“Reiterate Outperform rating. Demand concerns, credibility questions, and messaging/communication (including a recent email announcing “hard core” cost cuts) have weighed on TSLA shares in recent weeks, and we think it could take several weeks/months for the narrative to shift (shareholder meeting on June 11 potentially a catalyst). That said, we are not changing our recommendation, as we continue to believe TSLA is positioned to outperform over the long run, as the company increases profitability, generates free cash flow, and ramps production of innovative products. “
Susquehanna initiated Uber as ‘neutral’
Susquehanna called Uber a “once in a generation company.”
“We agree that UBER is a once in a generation company with a massive opportunity to revolutionize transportation and logistics. We also applaud the company’s strong corporate governance, diversity, and inclusion principles. • Slowing growth, however, creates uncertainty around future trajectory. Given the large growth opportunity for UBER, it’s concerning to see growth decelerate meaningfully over the past several quarters. Bookings growth has slowed from the high 50s% y/y in 1Q18 to mid 30s% y/y in 1Q19, while adjusted revenue growth has slowed even more drastically from 85% to 14% over the same period. Law of large numbers have certainly impacted growth (as well as aggressive incentives and marketing for adjusted revenue growth), but we’re still surprised by the recent trends given the sheer size of the addressable market. “
Bernstein upgraded Kroger to ‘outperform’ from ‘market perform’
Bernstein said it believes investors are not giving Kroger enough credit for positioning itself well in the near term and into the future.
“With investors worried about recent comps and margins, we believe KR’s capacity to survive the short term and positioning for the long term are not getting full credit today. We believe the pieces are coming together to execute the rest of Restock Kroger and to take their position (with relevant partners) as a serious omnichannel player. We increase our target price to $33 and raise our rating from Market-Perform to Outperform. “
Credit Suisse initiated Biogen as ‘underperform’
Credit Suisse said it thinks Biogen’s core base business will decline in the “near term.”
“We are most cautious on Biogen, given what we believe to be a declining base-business, with underappreciated competitive threats to both the MS and SMA franchises. We are especially concerned that a soon-to-be launched gene therapy, Zolgensma, could take share in the SMA incidence market. An earlier-stage asset from PTC/Roche, risdiplam, could also take share in the prevalence market. Recent commentary from management to prioritize share repurchases over larger-scale M&A is concerning to us as while it may support the share price near-term, repurchases do nothing to address broader pipeline concerns. While the multiple is at a recent low, we could see further compression absent any clear strategy to return to growth. We think that Biogen needs to engage in a more transformative M&A to help reverse the current course. “
Credit Suisse initiated Amgen as ‘outperform’
Credit Suisse said amongst other things that the biopharmaceutical has “compelling valuation.”
“Amgen is attractive relative to peers for its (1) underappreciated biosimilars business, which could help change the projected base business revenue decline; (2) relative stability vs. large-cap peers, (3) varied and promising pipeline (with novel assets in oncology and immunology), and (4) compelling valuation. Amgen has a good balance of returning capital to shareholders (repurchases, dividends), pipeline, and ability (yet not urgent need) to do M&A. “
Bank of America upgraded Deckers to ‘buy’ from ‘neutral’
Bank of American said Deckers has an “attractive valuation.”
“We are upgrading Deckers to Buy (from Neutral) and raising our price objective to $180 (from $150) based on 18X our new F2021E EPS of $10.03. Despite the significant appreciation in DECK shares over the last two years, we still see upside risk to consensus EPS and an attractive valuation (15X our calendar 2020 estimate compared to peers at 19-21X). We expect double-digit average EPS growth over the next two years supported by: roughly $250mm of annual buybacks funded by free cash flow (adding 4% to EPS), low-to-mid single digit revenue growth led by HOKA and SG&A leverage from cost reduction initiatives. We are modeling F2020/F2021 EPS roughly 6%/13% ahead of consensus. DECK will also report F4Q19 on Thursday, May 23rd after the market close and we are modeling EPS of $0.28 vs. consensus of $0.08. “
Wells Fargo downgraded Occidental Petroleum to ‘market perform’ from ‘outperform’
Wells Fargo said it downgraded Occidental primarily due to “limited upside” from its revised price target
“Our new $56 price target is based on a 5.0x EV/EBITDA multiple and our pro forma 2021 EBITDA estimate of $16.1 billion and other adjustments. This compares to our prior price target of $75 which was based on a 5.5x EV/EBITDA multiple and our 2021 EBITDA of $10.5 billion and balance sheet and growth forecasts. The lower EV/EBITDA multiple accounts for both higher post-merger leverage and less CFFO available to equity shareholders. We will maintain our 2020 and 2021 EPS estimates until the transaction closes (anticipated in Q4 2019), but we are providing pro forma 2020 and 2021 income statement estimates within this note. Our EPS estimates are unchanged since our last update on 5/6.”
Bank of America added Diamondback Energy to the ‘US 1 list’
Bank of America added the company to its US 1 list and said shares of the hydrocarbon exploration company are “poised” to outperform.
“Risk/reward hard to ignore as buyback kicks in; PO $170 While FANG share price has outperformed very recently (+3.5% over the past month versus -1.4% for S&P 500; -5.1% sector/IXE), we believe shares are poised to outperform as meaningful buyback kicks in. Critically, we see a three-to-one risk/reward profile that is hard to ignore (potential upside 55%/potential downside 18%). Our PO of $170 (up from $165 based on 6.5x 2020 EV/EBITDA on $60 WTI; revised ests. in Table 1) suggests an upside of 55%. Our bear case scenario of $90/share is based on $45 oil (-18%). We note that the recently announced buyback program is significant ($2 b, 12% of mkt cap) with a clear timeframe (to be completed by December 31, 2020) and should provide upside pressure to shares. We are adding FANG to BofAML’s US 1 list of Top ideas. “
Baird named Electronic Arts as a ‘fresh pick’
Baird said the game maker’s upcoming gaming expo should provide a boost to the stock.
“FIFA, Apex and Star Wars could prove an E3 boost to EA. With the annual E3 video game conference just a few weeks away, investors will have an opportunity to meet management teams and preview 2019 titles ahead of 2H19 launch. At this point, we believe sentiment for EA has the highest likelihood of improvement coinciding with E3, and as such, we are adding the stock as a near-term Fresh Pick. “
Guggenheim upgraded TripAdvisor to ‘neutral’ from ‘sell
Guggenheim upgraded the stock and said the worst is likely over.
“We are upgrading TRIP from SELL to NEUTRAL. Highlights: 1) Multiple has compressed to the low end of TRIP’s historical range; 2) TRIP has lapped the late-2017 OTA pullback and the first steps of its own marketing rationalization effort, and we expect less volatility in the hotel business; 3) New segmentation yields increased visibility into TRIP’s emerging businesses, lending some support for bullish SOTP-based arguments. Why NEUTRAL and not BUY? TRIP has warned that weakening international trends could be a 2Q drag, and we continue to see longer-dated competitive challenges. “
Needham upgraded TripAdvisor to ‘buy’ from ‘hold’
Needham said that amongst other things, that the company will see a “return to modest user growth in Q4.”
“We assume coverage of TRIP with a Buy rating (was Hold; Laura Martin), and set a $63 price target. A return to modest user growth in Q4, improving experiences growth and in-line EBITDA execution are they keys to our thesis. The upcoming quarter sets up to be an operating performance trough, in our view, and with management’s explicitly conservative communication and the stock at an EV/EBITDA multiple of 11x our 2020 estimate, we believe much if not all of the bad news is in the share price. “
UBS upgraded S&P Global to ‘buy’ from ‘neutral’
UBS said it thinks the financial information and analytics company has opportunities that will materialize “much sooner” from China.
“Upgrade SPGI to Buy; China upside within reach. Our upgrade comes on the back of data from a recent UBS Evidence Lab survey of Chinese corporates which suggest that upside from Chinese debt ratings opportunities will materialize much sooner than the 3-5 years that management and the market is currently expecting. We are raising our expected Ratings revenue growth rates for 2020-2023 between 2%-4%, which drives upside to our EPS estimates broadly (+6% in 2023). While the near-term issuance outlook continues to be uncertain, we think that the significant upside opportunity from China cannot be ignored. Non-Ratings segments should help insulate against Ratings volatility in the meantime. “
