- D.A. Davidson initiating Lyft as buy
- Goldman Sachs downgrading Monster Beverage to neutral from buy
- Jefferies downgrading Sony to hold from buy
- Evercore ISI initiating Costco as outperform
- Evercore ISI initiating Home Depot as outperform
- Evercore ISI initiating Bed, Bath & Beyond as underperform
- Mizuho downgrading Wendy's to neutral from buy
- Mizuho downgrading YUM Brands to underperform from neutral
- SunTrust initiating Allergan as buy
- SunTrust initiating Jazz Pharmaceuticals as buy
- J.P. Morgan downgrading FedEx to neutral from outperform
- Telsey upgrading Dollar Tree to outperform from market perform
- UBS downgrading Rockwell Automation to neutral from buy
Here are the biggest calls on Wall Street on Wednesday:
D.A. Davidson initiates Lyft as buy due to the company's recent momentum, market share gains, and growth and expansion.
"We initiate coverage of LYFT with a BUY rating and $75 price target. LYFT is one of the largest and fastest-growing "multimodal" transportation networks in North America... LYFT filed its S-1 on March 1st and is expected to IPO on Friday March 29th, with a pricing range of $62-$68... Our BUY rating reflects LYFT's impressive recent U.S. market share gains and momentum, the continued growth/expansion of the broader Ridesharing market, and the stock's reasonable EV/Sales multiple... Key risks to our rating include uncertainty around LYFT's long-term margin ramp/profile, risks associated with its positioning in autonomous driving technology, and the fluid regulatory/legal landscape for the Ridesharing industry..."
Goldman Sachs downgrading Monster Beverage to 'neutral' from 'buy' and removing from 'conviction buy list'
Goldman Sachs thinks Monster's near-term U.S. sales could be softer than expected.
"We downgrade shares of MNST to Neutral from Buy and remove the stock from the Americas Conviction List, and lower our 12-month price target to $59 (from $67) reﬂecting our view US sales could remain softer than expected in the near term, driving downward estimate revisions... We trim our EPS estimates by 1-2%, reﬂecting US sales growth of around 7% (down from 8%) for 2019... Since being added to the Americas Conviction List on 11/8/18 (post close), MNST shares are ﬂat vs. the S&P 500 and up 5.6% vs. the XLP... Since being upgraded to Buy on 9/24/15 (pre open), MNST shares are down -19.9% vs. the S&P 500 and up 10.7% vs. the XLP... We attribute underperformance vs. the S&P 500 to margins having come in below expectations on higher commodity costs and to increased concern around competition..."
Jefferies is downgrading Sony due to profit growth slowing and key segments showing weakness in 3Q results.
"What did we change and why? Recently, we warned of profit growth slowing down from FY3/20e onwards and risks of derating from exit of growth investors... Subsequently, Weak 3Q results showed that growth in key segments had already slowed down (esp Games and Music)... This has led us to cut our estimates. ...Additionally, we lower multiples for some segments (as an alternative to using lower PER for the group), given (1) slower profit growth (2) increasing uncertainty (3) unwillingness to exit Mobile phone business..."
Evercore ISI initiated Costco saying loyal membership, positive revisions, and multiple appreciation should take the stock higher.
"It's a multichannel retail "food fight" out there, yet Costco continues to drive traffic and high single digit topline in a low to mid-single digit growth U.S. retail environment... COST faces the Amazon wall of worry, yet we believe their sticky membership model creates loyalty which can drive sales and profits higher for years to come... Positive ticket trends, solid digital growth, and additional lift in renewal rate are all reasonable on a 12-18 month outlook... Membership count half of Amazon Prime and higher spend/member provide room for growth as long as they don't let Amazon convenience chip away at their loyalty... Positive revisions & multiple appreciation should take the stock higher... We see high single digit total return prospects with a $260 share price and another 2-4% return from dividends including another special likely in the next 18-24 months...."
Evercore ISI initiated coverage on Home Depot saying that, among other things, the stock is attractive and competition is shuttering.
"Compounder status intact... Fear Creates Opportunity... Cyclical pressures aside, we think Home Depot's stock is attractive as the fears of the peak of the housing cycle and tough 1H compares appear to be in the stock at 16.7x our 2020 EPS estimate... The key positives are digital pushing 8% of sales, Pro at almost a majority of sales, pricing power if tariffs escalate, and competitors such as Sears going away while Lowe's is shuttering capacity....Our Base Case of $215 is 19.5x our 2020e or $11.00..."
Evercore ISI initiated Bed, Bath, & Beyond as underperform due to lower margins and rising competition.
"The last three years have not been banner years for Bed Bath & Beyond's franchises... With margins down from 16.5% in 2011 to ~3.5% in 2018 and comp store sales in the negative low single digits since 2016, it is no surprise to see the stock has lost about 80% of its value since 2015... While Bed Bath has been a share gainer from the demise of other big box specialty decor concepts like Linen 'N Things in the past, it is now facing mounting pressure (as are other retailers that sell branded goods) from online competition and discounters & clubs as the business still struggles to pivot to a winning multichannel strategy... With over $12bn of sales, Bed Bath & Beyond remains the third largest HF retailer in the U.S. garnering around 4-5% share... The two largest HF retailers remain Walmart and Target, who are not standing still. In addition, Wayfair and Amazon are catching up fast..."
SunTrust sees Allergan's stock as inexpensive given its valuation.
"We are initiating coverage of Allergan, a global pharma company focused primarily on medical aesthetics, eye care, CNS, and gastroenterology, with a Buy rating and $178 PT... We share the market's frustration with AGN's underperformance but see the stock at these levels as an inexpensive one for which valuation reflects threats to the company's franchises as well as pessimism on the pipeline... As such, we see attractive return potential over the next 12+ months if the company continues to meet or exceed its financial targets and has even mixed pipeline success... As AGN has more debt, a lower dividend yield, and more dependence on external innovation relative its large-cap peers, it may take some time for traditional "Big Pharma" investors to embrace the stock... We do not see a quick fix from activism or structural changes at the company but expect investors to debate these themes..."
SunTrust says Jazz should continue to deliver strong revenue and earnings growth into the future.
"We are initiating coverage of Jazz Pharmaceuticals, a biopharma company focused primarily on the areas of sleep disorders and hematology/ oncology, with a Buy rating and $163 PT... Led by a capable and thoughtful management team, we expect JAZZ to deliver continued strong revenue and earnings growth over the next several years, which sets the company apart from many of its peers in the Biopharma space. Longer term, we also believe that the market may not fully appreciate the size and durability of the company's largest product Xyrem... And while the cost portion of our model reflects continued R&D commitment, it does not ascribe much credit for a return on this investment, which may prove conservative... JAZZ has a strong balance sheet and continues to search for opportunities that can become high-growth, durable products for specialty indications that can be marketed with a focused sales force..."
Following a meeting with Dollar Tree management, Telsey said the meeting provided clarity on the discount retailer's plans to improve its results.
Upgrading DLTR to Outperform Rating from Market Perform: Coming out of 4Q18, we were more constructive on Dollar Tree's aggressive approach to rejuvenating Family Dollar and the continued solid execution of core Dollar Tree, but wanted greater clarity of the path to potential improvement... Our meeting with Dollar Tree's management gave us that increased visibility and confidence in the company's plan, which is why we are upgrading the stock... In our view, Dollar Tree should see a return to earnings growth in 2H19, after heavy investments related to its transformation—Family Dollar remodels, rebannering, store closing, store support center consolidation—followed by EPS growth of 14%-18% in 2020, with the double digit trend to continue in 2021..."
Mizuho said the aggressive franchising strategy employed by the quick-service restaurant operators may have trouble succeeding, especially in international markets.
"Vision Refocused: Wendy's development struggles aren't news... The company revised its 2020 guidance last quarter for the second straight year driven partly by slower-than-expected pace of international development... In November, the company announced that it would be "re-evaluating its approach to international market entry" under new leadership (Abigail Pringle, formerly Chief Development Officer), which suggests that a more conventional route is likely in play..."
Mizuho blamed similar reasons for this downgrade as well.
"The resilience of the stock in the face of new top line challenges is a testament to the strength of the
asset-light narrative even as the company nears the final stages of its transformation... Looking forward, the majority of Yum's value creation over the next three years will be in the hands of its of franchisees, and as a result we expect a bumpier ride in free cash flow to equity growth... Our downgrade reflects our view that bull case on top line growth is entirely in the stock..."
J.P. Morgan is downgrading FedEx primarily due to its negative earnings report and ongoing macroeconomic worries.
"Details of the Ground "transformation" should be disclosed later in CY19 although if management is not guiding to segment level margins we do not expect unveiling the new plan will be a catalyst for the stock... Lastly, while FDX screens favorably for the "Value" style, which outperforms as the business cycle recovers, we expect fundamental headwinds will most likely offset the stylistic tailwind we highlighted in our previous research..."
UBS downgraded Rockwell due to changes in industrial production, end market growth, and valuation.
"We are downgrading ROK to Neutral with a $190 PT (~1:1 upside/downside)... Our modest ~1% reduction of '19 & '20 EPS estimates reflects decelerating Industrial Production activity (down 220bps over the past 6 months in the U.S.) flowing through to organic growth and earnings... Even with U.S./global indicators slowing, we do not expect a recession in the next 12-24 months, and we believe ROK will outgrow underlying IP growth as it has for most of the past 15 years. In our view, its ~19x multiple, ~15% above the S&P 500 (in line w/ its 15-year LT historical average, ex-'09 & '10), appropriately reflects cycle risks and ROK's ongoing competitive advantages..."