Wednesday's analyst calls: Top AI play from Bernstein, JPMorgan upgrades a software stock

Published Wed, Nov 8 20235:37 AM ESTUpdated Mon, Nov 13 20239:50 AM EST

(This is CNBC Pro's live coverage of Wednesday's analyst calls and Wall Street chatter. Please refresh every 20-30 minutes to view the latest post.) Tech was in focus among analysts Wednesday. UBS said wait times for the new iPhone models are down year over year. This could point toward a sales slowdown for the tech giant. On a more upbeat note, JPMorgan upgraded software stock Datadog to overweight after a 28.5% rally in the prior session. Shares got a boost on the back of stronger-than-expected earnings for the third quarter. Meanwhile, Bernstein highlighted Adobe as a top AI play. Check out the latest calls and chatter below. 9:18 a.m. ET: Wall Street analysts applaud Cava's 'very impressive' earnings beat Wall Street analysts are betting that Cava shares will continue to rise after the Mediterranean restaurant chain's latest earnings report. After the bell Tuesday, Cava reported adjusted earnings before interest, taxes, depreciation and amortization of $19.8 million for its third quarter, versus the $13.1 million expected by analysts polled by StreetAccount. Revenue of $175.6 million topped the $171.5 million estimate. Cava also raised its guidance for the full year. Morgan Stanley analyst Brian Harbour called it a "very impressive beat" in a note Wednesday and said he expects new unit performance and sales growth to continue to be strong and drive upside to estimate upsides. Meanwhile, Baird said in a note Tuesday, "We still believe premium valuation metrics on CAVA can be justified by the company's relatively open-ended, high-ROIC growth opportunity as well as the upward bias to near-term estimates." Investors' focus is now shifting to the company's ability to measure up to difficult comparisons next year, according to a Tuesday note from Stifel. "While we aren't expecting a heroic 1H24 comp performance, we believe comps can remain positive as brand awareness continues to build from infilling existing markets," analyst Chris O'Cull wrote. — Michelle Fox 8:47 a.m. ET: Piper Sandler downgrades First Guaranty Bancshares The profitability outlook for regional bank First Guaranty Bancshares is worsening, according to Piper Sandler. The firm downgraded shares to underweight from neutral about a week after the company's third quarter earnings report, in which it missed on both top and bottom lines. "With core expenses up 12% y/y and core revenues down 18% y/y, the profitability profile at FGBI has taken a substantial hit. The ROA was 0.14% in 3Q, and we aren't expecting much improvement until mid/ late-2025 as the benefit of NIM expansion is mostly offset by normalization in the provision line," analyst Graham Dick wrote in a Wednesday note. Piper Sandler has a price target of $9.50 on shares. Meanwhile, the stock closed at $9.89 on Tuesday. Shares declined 4% Wednesday during premarket trading. The stock has not recovered from the regional bank crisis earlier in 2023 and is down nearly 58% year to date. Furthermore, the company's tangible common equity looks "slim" and could deter investors wary of economic volatility, said Dick. — Hakyung Kim 8:12 a.m. ET: Cantor Fitzgerald downgrades Lucid after production guidance cut A disappointing third-quarter report from Lucid has scared off one of the few remaining optimistic analysts covering the electric vehicle stock. Lucid's revenue of $137.8 million for the third quarter was below the $185.1 million expected by analysts, according to StreetAccount. The company also trimmed its full-year production guidance to a range of 8,000 to 8,500 vehicles from 10,000 previously. In response, Cantor Fitzgerald Andres Sheppard downgraded Lucid to neutral from overweight and said in a note to clients that the company has bigger issues than just a broad weakening in demand for electric cars. "We continue to view the company's 3Q23 production/deliveries announcement as disappointing, given the company's production and delivery numbers were below our estimates, and production for 3Q was even below 2Q levels. Additionally, with the latest slowdown in industry demand, we are becoming more conservative on Lucid in the short term, particularly given the company's persistent negative gross margins (we expect them to remain negative through 2024), and given the company's higher-priced vehicles (relative to the industry)," the note said. Just a third of the analysts that cover Lucid have buy ratings on the company, according to FactSet. Shares of Lucid were down 5% in premarket trading. — Jesse Pound 8:11 a.m. ET: Mizuho turns neutral on Datadog, citing modest upside ahead Mizuho moved to the sidelines on Datadog , warning there may be limited room to rally ahead after the cloud stock's Tuesday surge. Datadog shares finished Tuesday about 28.5% higher after the company beat Wall Street expectations for the third quarter and offered strong guidance. It marked the best day ever for the stock. But analyst Gregg Moskowitz downgraded the stock to neutral from buy Wednesday morning. He raised the price target by $10 to $108 after Tuesday's rally sent shares above his prior target, with the new expected price now reflecting an upside of 5.7%. "While DDOG may be on more solid footing, we also believe competition has gotten a little tighter over the LTM, and it would be premature to assume further progression over the next few quarters," he told clients. "We also believe the risk/reward has become balanced." Shares slipped 0.6% in premarket trading Wednesday. — Alex Harring 8:10 a.m. ET: Raymond James downgrades Masimo Raymond James says it's becoming less patient with medical tech and devices company Masimo on a lack of visibility into growth. Analyst Jason Bedford downgraded shares to market perform from outperform. He retained his price target of $142, implying shares could rally more than 76% from Tuesday's close. Bedford called the company's "sizable" estimate reductions "thesis-changing," adding that the valuation has become less compelling. "We fully acknowledge that sentiment is already low, and this revision may well end up as the clearing point for the stock (MASI was -3% after hours). However, in our view, a bullish thesis now largely rests on corporate action, but without a timetable or management willingness, it is difficult to stay constructive given the more muted growth profile," the analyst said in a Wednesday note. Shares were down more than 8% Wednesday before the bell. MASI 1D mountain MASI falls Confidence in Masimo's new product release timelines has been dented, he added. The company's core healthcare business, which was "predictable" for more than a decade, has unexpectedly been disrupted. "While we are hopeful that the business has found a baseline, the growth and margin profile is lower than what was contemplated in our prior rating," Bedford said. — Hakyung Kim 8:08 a.m. ET: AllianceBernstein can benefit as fixed income rebounds, Bank of America says Bank of America is remaining bullish on AllianceBernstein as fixed income turns a corner. Analyst Craig Siegenthaler reiterated his buy and top pick ratings on the stock, along with his $40 price target. That target implies a 43.9% upside over Tuesday's close. Siegenthaler said his thesis is in part based on 2024 being a year of strong inflows for bonds after what should be three years of negative returns. AllianceBernstein could get a boost from this given its notable exposure to fixed income, he said. "It's best-positioned for the anticipated fixed income rebalancings and management is focused on driving operating leverage," Siegenthaler told clients. Elsewhere, the analyst pointed to the company's relationship with Equitable Holdings as providing "untapped synergies" and being a "key differentiator." Beyond Equitable Holdings, he noted the company has other insurance relationships that are underappreciated by investors. — Alex Harring 7:54 a.m. ET: Buy Microchip Technology before the discount window closes, Citi says Citi thinks investors need to take advantage of Microchip Technology while they still trade at a discount. The firm upgraded the integrated circuit stock to buy from neutral on Wednesday and raised its price target to $100 per share from $75. Citi's forecast implies more than 32% upside from Tuesday's $75.31 close. Shares are down more than 10% over the past three months. Analyst Christopher Danely said three key issues that pushed the stock lower have improved, adding the downside has been priced in. MCHP 3M mountain MCHP in past three months "We are upgrading MCHP to Buy as we believe the consensus estimates are close to bottoming and the three factors that caused MCHP to trade at a discount – high debt, low tax, conglomerate discount – are going away," Danley said. The analyst added that Microchip's roughly 20% discount to peer companies from 2014 to today was driven by acquisitions. The company hasn't made any large acquisitions since 2018, he added, and has not signaled further such moves planned for the future. — Brian Evans 7:49 a.m. ET: Morgan Stanley remains confidence in Toast Although Toast's quarterly results fell short of expectations, Morgan Stanley reiterated its overweight rating on shares. The restaurant payments software company lowered its revenue guidance for the full-year, which sent shares tumbling nearly 18% during premarket trading Wednesday. The growth drivers missed buy side expectations and the company's typical level of outperformance, according to Morgan Stanley. "As the story evolves, the leading secular position remains," analyst Josh Baer wrote in a Wednesday note. He added that he remains confident in the company's annual recurring revenue growth and expanding margins. Meanwhile, the analyst lowered his price target on shares to $22 from $28. The new price target suggests shares gaining 27.5% from Tuesday's close. Shares are currently trading at about a 70% discount to the software small- and mid-cap median, he added. "This discount is unjustified given the quality of Toast's technology, its demonstrated market share gains that are set to continue, the underappreciated durability of growth, and impressive efficiency / margin expansion over the last year. We remain OW and would be buyers on the correction," said Baer. — Hakyung Kim 7:46 a.m. ET: Oppenheimer says Carlyle Group shares are now 'simply too cheap' Oppenheimer said shares of private equity giant Carlyle Group have become "simply too cheap" after this year's underperformance. "We continue to see ever more value embedded within the stock currently trading at ~$29, especially in the context of almost $10/share of pre-tax net accrued performance fees and over $5/share of net cash and investments as of 3Q23," the firm said. Carlyle reported a 43% drop in third-quarter distributable earnings, while net income tumbled 71% to $81.3 million from a year earlier. Shares of the alternative asset manager are down 1.6% this year, significantly lagging the market. — Yun Li 7:39 a.m. ET: Adobe is a top AI play in software, Bernstein says Bernstein analyst Mark Moerdler said in a note to clients Wednesday that Adobe is close to leveraging artificial intelligence into bottom line impact. "We believe Adobe will be the first of the SaaS vendors to generate meaningful revenue and profit from AI starting next year," the note said. A key for Adobe is that its existing products provide clear use cases for artificial intelligence. "Adobe's technology is among the best of its kind, if not the undisputed best— a clear result of years of thoughtful investment — and the ROI for end users is easily observable. Finally, AI affects the vast majority of Adobe's existing business (i.e. predominantly Creative Cloud with emerging use cases in Document and Experience Clouds), so any benefits will have a proportionally greater magnitude on the business as a whole," the note said. Bernstein raised its price target on Adobe to $660 per share from $627. The new target is 12% above where the stock closed Tuesday and tied for the highest among Wall Street analysts, according to FactSet. — Jesse Pound 7:17 a.m. ET: TD Cowen downgrades Estee Lauder Continued consumer weakness in China, along with mixed travel and retail trends, led to TD Cowen moving to the sidelines on Estee Lauder . Analyst Oliver Chen downgraded shares to market perform from outperform in a Wednesday note. He also lowered his price target by $6 to $120, implying just 3.9% upside from Tuesday's close. "Unfortunately, the company has lowered FY25 EPS guidance 5 consecutive times, and Street estimates could be too high even as compares ease, as we monitor a weakening China macro backdrop consisting of waning consumer confidence, ongoing weakness in the housing sector (70% of household income), and high youth unemployment rate (last report of 21.3% June, suspended disclosure in August)," Chen said. Revenue and margins in the Asia Pacific and Europe, Middle East and Africa region are expected to decline due to elevated retailer inventories, according to Chen. — Hakyung Kim 6:44 a.m. ET: Bank of America reiterates buy on DraftKings Ahead of DraftKings' upcoming investor day on Nov. 14, Bank of America reiterated its buy rating on shares. The firm believes the sports betting platform has positive underlying fundamentals and could see revenue growth come in above market standards. Analyst Shaun Kelley has a $40 price target on shares, implying shares could gain 11.4% from Tuesday's close. "The big take from Q3 was DraftKings cost leverage as it scales and external marketing starts to drop," Kelley wrote in a Wednesday note. "We expect DKNG to drill in on multiple state cohort examples that should show 1) improvement in promotion (despite investor fear) that are likely already below 30%, 2) annual gross margin improvement as they gain/leverage scale, 3) leverage on external marketing with actual dollars declining in states post-launch. We think this can result in medium term margins > 20%," he continued. Shares have surged more than 200% in 2023. DKNG YTD mountain DKNG in 2023 — Hakyung Kim 6:20 a.m. ET: Goldman says Quanta Services sell-off has created a buying opportunity Goldman Sachs upgraded specialty contractor Quanta Services to buy as it reaffirmed the case for utility investment in power grid modernization "remains clear." The upgrade comes as Quanta shares have taken a beating recently. Over the past three months, the stock is down 18.6%. "On a relative basis, given PWR's continued execution track record and greater exposure to seemingly more resilient customers, we believe the pullback presents investors an opportunity to gain exposure," analyst Neil Mehta said in a Wednesday note. He added, "We believe that the sell-off following several challenging market headlines have created an opportunity, especially given major customers have reiterated their growth ambitions in renewable spending as well as transmission and distribution projects." The firm also raised its price target to $211, implying shares could rally 25% from Tuesday's close. Industry spending levels for macro trends such as modernization and grid hardening are expected to stay resilient in the coming years, according to Mehta. Specialty contractors with exposure to these trends will likely benefit as a result of the increased earnings expectations, he added. — Hakyung Kim 6:05 a.m. ET: Wall Street analysts still see a 'murky' picture ahead for Rivian Electric vehicle maker Rivian may have given an optimistic forecast for the full year, but several Wall Street analysts remain muted on the stock. Rivian shares jumped more than 7% after the company increased its production forecast for the full year by 2,000 units to 54,000. The company also posted a smaller-than-expected loss for the quarter. There's still a "murky line of sight" for Rivian, according to analyst Colin Langan. "With scale tailwinds moderating, we expect breakeven in 2024 to be tough given the large needed cost savings," he said in a Tuesday note. Langan has an equal weight rating on shares. He raised his price target by $5 to $24, implying 37% upside potential from Tuesday's close. Piper Sandler analyst Alexander Potter also reiterated his neutral rating on shares with a price target of $21. "Q3 was heartening, but we're still neutral ahead of a daunting ramp in 2024/25," Potter wrote in a note on Tuesday. "We still think the valuation properly balances Rivian's recently strong execution against a challenging 2+ year execution plan. In our view, Rivian has one of the most appealing brands in the U.S. auto industry, but we struggle to model capex and cash flow." Goldman Sachs is also neutral on Rivian. While the recent quarter marked a "modest incremental positive" with respect to longer-term volumes and cost targets, the firm noted the high competition in the industry, which it believes could impact profits. "But if we gain more conviction in the timing/path to profitability, we could be more positive on the stock," analyst Mark Delaney wrote in a Tuesday note. His price target of $25 per share implies 43% upside potential from Tuesday's close. Morgan Stanley is more bullish on shares, with overweight and outperform ratings, respectively. "Rivian 3Q cash burn was approx. $600mm better than MSe driven by improvements in gross margin loss and far lower capex. At the 3Q burn rate, we estimate Rivian has sufficient liquidity through late 2025," Jonas wrote in a Tuesday client note. Jonas has a $24 price target on shares. — Hakyung Kim 5:37 a.m. ET: JPMorgan upgrades Datadog, says deceleration wave has started to level out JPMorgan upgraded software company Datadog after the company posted stronger-than-expected quarterly results forward guidance. Datadog shares also jumped 28.5% on Tuesday following its earnings announcement. Analyst Mark Murphy raised his rating on shares to overweight from neutral. He also increased his price target to $115 from $90, which suggests 12.5% upside from Tuesday's close. Datadog shares have produced zero return over the past three years, Murphy noted, with shares down 9% since Oct. 15, 2020. "Investors have recently endured a series of guide-belows / guide-downs, which may prove unnecessary, but underneath the volatile surface, we have consistently voiced our view that Datadog is the 'Top Dog in Monitoring' and view it as a cohesive, organic, converged Observability platform that is displacing a patchwork of legacy niche tools," he added. To be sure, he added that valuation remains somewhat challenging and the stock jumped on Tuesday likely on short-squeeze activity. "Our view is to manage the short- term volatility by advising patient, opportunistic accumulation of shares during pullbacks, keeping an eye on the sub-$100 zone," Murphy said. — Hakyung Kim 5:37 a.m. ET: iPhone wait times down significantly year over year, UBS says UBS analyst David Vogt said the wait times for the new iPhone models are down "materially" year over year as competition in key markets ramps up. "Despite smartphone demand catalysts drawing closer (retailers stocking up in preparation of Black Friday and the approaching holiday season), the Pro and Pro Max materially lag last year's models by 25 days and ~2 weeks, respectively," Vogt wrote. "Notably, the discrepancy, while not as large YoY as the US, continued to widen in China even with the upcoming Singles' Day on 11/11; we think that the results are starting to reflect the high-end smartphone competitive dynamic from the launch of Huawei's Mate 60," he added. UBS has a neutral rating on Apple and a price target of $190 per share, which implies upside of 4.5%. Shares are up nearly 40% year to date. AAPL YTD mountain AAPL in 2023 — Fred Imbert Correction: This story has been updated to correct the implied upside of Piper Sandler's and Goldman Sachs' price targets on Rivian.