Tuesday's analyst calls: Retail stocks that can win, Peloton gets downgraded

Published Tue, Nov 7 20235:46 AM ESTUpdated Tue, Nov 7 202310:13 AM EST

(This is CNBC Pro's live coverage of Tuesday's analyst calls and Wall Street chatter. Please refresh every 20-30 minutes to view the latest post.) A slew of analyst calls Tuesday focused on the consumer. Evercore ISI initiated several retail names, including Nike , with outperform ratings. The firm noted these stocks can do well despite a challenging macro outlook. Meanwhile, Deutsche Bank downgraded Peloton to hold from buy, slashing its price target on the stock. Elsewhere, RBC Capital Markets initiated coverage of Lowe's and Home Depot with sector perform ratings and price targets that imply little-to-no upside going forward. Check out the latest calls and chatter below. 8:51 a.m. ET: Analysts cut home improvement estimates ahead of earnings Multiple Wall Street analysts are dialing back their expectations for Home Depot ahead of the retailer's earnings report next week. Barclays analyst Seth Sigman said in a note to clients that both Home Depot and rival Lowe's likely saw weakening demand in the third quarter. "We expect Q3 results for HD/LOW to be weaker than Q2 and potentially below consensus. Q4 and FY24 numbers need to come down. We lower our estimates. Potentially peaking rates provide some stock support, but the risk is still weaker demand for longer, with trouble well into FY24," the note said. Telsey Advisory Group analyst Joseph Feldman kept third-quarter estimates for Home Depot steady, but he trimmed the fourth quarter estimates and his price target on the stock, saying in a note to clients that the company appears to be slumping into the end of the year. "Home Depot's business is likely to remain under pressure in the near term, reflecting the uncertain macro backdrop, soft housing market trends, and lapping the solid pandemic gains," the Telsey note said. Home Depot will hold its third quarter earnings call on the morning of Nov. 14. — Jesse Pound 8:48 a.m. ET: Don't expect much from Arm Holdings' quarterly results, Bank of America says Bank of America does not expect much from Arm Holdings' fiscal second-quarter results after the British chip designer made its Nasdaq debut earlier this year . Analyst Vivek Arya said he anticipates in-line to modestly better results when Arm releases its results Wednesday, Nov. 8, though a lackluster backdrop for internet of things could hinder the stock . "Overall, we expect in-line to modestly better numbers on: 1) upbeat Client trends, with better iPhone/Android results and outlooks at customers; offset by 2) weak IoT environment on elevated channel inventories," Arya wrote on Monday. Still, he maintains a buy rating on the stock, saying it will perform better going forward with royalty rate expansion key to his thesis. His $65 price objective is about 22% above where shares closed Monday. — Sarah Min 8:11 a.m. ET: D.A. Davidson upgrades tech stock Monday ahead of earnings Work management company Monday appears to be performing well despite turmoil in its home country, creating an opportunity for investors, according to D.A. Davidson. Analyst Robert Simmons upgraded the Israel-based software company to buy, saying in a note to clients on Tuesday that the stock looks cheap ahead of next week's earnings report. "Based on our analysis of 3rd party data, talking to managements, and recent reads from relatively similar software reports, we believe the company can outperform guidance by a healthy margin. We view the recent share price dislocation as largely not fundamental-based, reflecting Monday's home country, and see a good buying opportunity for a high quality asset," the note said. The stock has fallen 18% over the past month, as the war between Israel and Hamas has ramped up. D.A. Davidson has a price target of $170 per share on Monday, which is nearly 31% above where the stock closed Monday. — Jesse Pound 8 a.m. ET: Goldman Sachs upgrades cloud computing firm DigitalOcean to buy from sell rating A recent sell-off has opened up an attractive entry point for shares of DigitalOcean , according to Goldman Sachs. "We upgrade DigitalOcean to Buy from Sell post significant stock underperformance (even with the +17% move on 11/3, DOCN is -7% YTD vs. Nasdaq +30%)," wrote analyst Gabriela Borges. She attributed the stock's underperformance to a "cyclical normalization in cloud optimization spending," as well as the ongoing search to find a new CEO for the company. Goldman Sachs maintained its $33 price target, implying a 38% upside from the stock's closing price of $23.85 on Monday afternoon. "As macro stabilizes, we believe the structural improvements that DO has made to its mix shift and cost structure will become more obvious, driving better revenue growth and continued FCF margin expansion," the analyst added. DigitalOcean stock popped more than 7% in premarket trading. — Lisa Kailai Han 7:58 a.m. ET: Re/Max slips as Morgan Stanley downgrades stock, warns of litigation risk Shares of Re/Max dipped 3% in premarket trading Tuesday after being downgraded by Morgan Stanley to underweight from equal weight. The firm thinks a recent ruling against the National Association of Realtors and some residential brokerages increases the risk of further litigation. Realtors and the brokerages were found liable for $1.78 billion in damages for conspiring to artificially inflate commissions for home sales, a Kansas City, Missouri jury found last week. Re/Max had settled the case before trial for $55 million. "The risk of additional litigation and costly settlement has notably increased in our view and RMAX's $90mn of cash on balance sheet may not be sufficient in a more adverse scenario," analyst Ronald Kamdem wrote in a note Monday. Re/Max shares have lost 42% year to date. RMAX YTD mountain RMAX in 2023 — Michelle Fox 7:35 a.m. ET: Edward Jones upgrades HP on PC market's return to growth Edward Jones is getting bullish on HP , upgrading the PC-maker to buy from hold Monday. The Wall Street firm believes shares are attractively valued and is feeling more confident in the personal computer market. "We think that the PC (personal computer) market will return to growth in 2024 as PCs purchased during the pandemic are replaced," analyst David Heger wrote in a note to clients. Demand had declined following a surge in purchases during the pandemic,' he said. "Consumers and businesses may also start upgrading PCs because the Microsoft Windows 10 operating system will no longer be supported after October 2025," he added. Shares of HP are up nearly 2% year to date. HPQ YTD mountain HPQ in 2023 — Michelle Fox 7:33 a.m. ET: What some analysts expect from Disney's earnings report Disney is slated to report earnings Wednesday after the bell. Here's what some analysts are saying ahead of the report: Wells Fargo: Analyst Steven Cahall maintained his overweight rating and $110 price target, implying 30.9% potential upside for the stock from its latest close. Although he doesn't expect an addition to Disney+ core subscribers from here, Cahall is bullish on future DTC profit expectations for the company. "Long-term, Disney is a growth company with arguably the best IP," the analyst said. Morgan Stanley: Analyst Benjamin Swinburne sees strong growth ahead for Disney's experiences and DTC segments, but headwinds in its entertainment network. He expects the media giant's experiences division to deliver the majority of Disney's EBIT in the years ahead. Swinburne maintained his overweight rating on the stock and $105 price target. Loop Capital: Analyst Alan Gould maintained his buy rating and $110 price target. He expects an upside surprise in Disney's DTC business, a rebound in core subscribers and low-teens core advertising decline. Disney has made headlines in recent weeks, notably with its plan to buy the remaining stake of Hulu from NBCUniversal-parent Comcast and the appointment of PepsiCo's longtime chief financial officer as the media conglomerate's next CFO. — Pia Singh 6:57 a.m. ET: Buy-rated On Semiconductor could be a leader in EV chip market, says BofA Bank of America analyst Vivek Arya maintained a buy rating on On Semiconductor and named the company a "top autos pick." On has now gone through the necessary 2024 earnings reset and has an "attractive share gain position" in autos that gives it strong longer-term diversification compared to other chip companies that are dependent on AI-related products, Arya said. He noted On management's confidence in the company's product cycles, especially in Silicon Carbide for electric vehicles. According to the analyst, the company's expectations of low to single-digit year-over-year sales growth for 2024 are potentially "de-risked" as they reflect: Core industrial/non-Silicon Carbide (SiC) auto sales declining by mid-high single-digit year-over-year, in line with peers On's SiC sales growing by 60 to 70% year-over-year—double the overall rate of market growth—towards $1.3 billion to $1.4 billion with a broadening customer base The bank has a $105 price target on On, which suggests shares can pop more than 58%. The stock has gained 6.2% this year. — Pia Singh 6:35 a.m. ET: Deutsche Bank downgrades Peloton on challenging near-term outlook Deutsche Bank analyst Lee Horowitz downgraded Peloton to hold from buy Tuesday, slashing their price target to $4 from $13 per share. The new forecast implies shares could lose roughly 20%. "While we remain bullish on Peloton having a large TAM ahead of it that can support accelerative growth, particularly given the incremental growth drivers from the App, Commercial business, new modalities/hardware, and growing partnerships, the confidence in underwriting the success of these growth drivers in the medium term is challenging," Horowitz wrote in a note, adding that he believes the stock's valuation should be closer to its peers. The firm lowered its expectations on Peloton's EBITDA and revenue for 2025, saying that expanding losses for the company in the second quarter of 2024, coupled with macroeconomic pressures, could weigh on the stock. To be sure, Horowitz still believes the "growth runway for Peloton could prove to be substantial over time" and noted that the company is expecting strong free cash flow in the second half of next year. — Pia Singh 6 a.m. ET: TotalEnergies is a 'strong long-term compounder' and a top pick, says Morgan Stanley Morgan Stanley named France-based oil and gas company TotalEnergies a "top pick" and assigned an overweight rating to the stock. According to analyst Martijn Rats, TotalEnergies offers an "unusual combination" of qualities: The company has both a deep oil and gas resource base with a sizable project pipeline, as well as "arguably the most extensive" new energies business among its peers, which could boost the company's growth and earnings over time. Rats gave a €71.0, or $75.84, price target on the stock, implying shares could jump 14%. "When combined with high return on capital, low quarterly earnings volatility and a strong track record of delivery, we suspect this will make TotalEnergies a strong long-term compounder," Rats wrote in a Nov. 6 note. Despite broader macroeconomic uncertainty, Rats said the energy sector still offers long-term attractions, such as strong free cash flow levels and strong buybacks, to investors. — Pia Singh 5:46 a.m. ET: RBC Capital Markets initiates Home Depot and Lowe's, but doesn't see much upside for either RBC Capital Markets initiated a couple of home improvement names but thinks neither stock can run too far as the trajectory of home prices could further depress consumer spending in the sector. Analyst Steven Shemesh initiated coverage of Home Depot and Lowe's with a sector perform rating and price targets of $303 and $194, respectively. Those numbers indicate just 2.9% potential upside for Home Depot and 0.1% decrease for Lowe's from their closing prices on Monday. Home Depot: Although the analyst likes Home Depot for the long term, he maintained a conservative outlook on the stock underpinned by two of RBC's expectations: That the widening spread between home prices and home sales will create uncertainty in the market, which could lower home improvement spending. (Year-to-date home prices are roughly flat, while home sales are trending down by about 21%, which Shemesh said is the widest spread since 2007.) That Home Depot's share of total PCE to revert towards pre-pandemic levels as consumer spending shifts back towards services "The LT structural tailwinds for the home improvement industry are clear. There's a chronic undersupply of homes, the housing stock is rapidly aging, and the average size of homes is on the rise," Shemesh said. "In addition to these industry tailwinds, HD's recent supply chain investments and structurally advantaged real estate position it well to gain share over time." Lowe's: Shemesh said that while Lowe's is currently trading at an attractive valuation, it is likely to underperform its peers in the near-term as consumers pull back on spending, assuming that higher-for-longer rates persist. The company has meaningful share gain and margin opportunity over the long term, he said. "We recognize that LOW sales have historically correlated to home prices (which are being buoyed by low inventory) more closely than home sales, but it's highly unusual to see such a wide disparity between home prices and sales trends," the analyst wrote. — Pia Singh 5:46 a.m. ET: Evercore ISI initiates Nike, TJX and Ralph Lauren as outperform Evercore ISI highlighted several retailers that can do well going forward despite a tough macro backdrop. "Given our cautious near-term stance, we prioritize stocks with strong defensive characteristics, a clear track record of execution outperformance, structural/scale advantages and visible sources of self-help to drive P & L upside until the macro path is clearer," wrote analyst Michael Binetti. Binetti initiated Nike , TJX and Ralph Lauren — among others — with outperform ratings. Take a look where the analyst sees each of these names going from here: Nike (price target: $124, implying upside of 16%): "Stocks with high exposure to megatrends like Athletic and Healthy Lifestyle should see more upside and less downside in a volatile macro," the analyst said. He also noted that recent comments from the apparel giant "suggest the fall period has been better than expected." TJX (price target: $105, implying a gain of 15%): Binetti said TJX has the best "offprice execution, multiple paths to share gains (trade down, industry consolidation, price increases), under-earning segments (HomeGoods, Internat'l), store remodeling tailwinds and SG & A pressure easing." Ralph Lauren (price target: $130, pointing to 13% upside): The analyst noted Ralph Lauren's "consistent execution" should allow the stock to hold its premium valuation relative to peers. He also said the company's "customer evolution and best-in-class balance sheet should let it invest through sector weakness." — Fred Imbert