Tuesday's analyst calls: Airline upgrades, industrial giant gets a downgrade

Published Tue, Feb 20 20245:39 AM ESTUpdated Tue, Feb 20 20249:16 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 posts.) Airlines and a major industrial company were in focus among early analyst calls Tuesday. Bernstein raised its rating on Southwest Airlines on strong demand, while Deutsche Bank upgraded JetBlue on an improving backdrop for domestic U.S. travel. On a more sour note, Evercore ISI advised clients take profits in Caterpillar, downgrading the stock. Check out the latest calls and chatter below. All times ET. 8:21 a.m.: Piper Sandler upgrades US Foods to overweight The surprising resilience of the American consumer should help push food distribution stock US Foods to new highs, according to Piper Sandler. Analyst Brian Mullan upgraded the stock to overweight from neutral, saying in a note to clients that US Foods should surge this year. "We see a relatively clear path for the stock to hit the 'high $50's / low $60's' levels over the course of the next ~12 months, with our formal PT of $59 representing ~19% upside from here," the note said. The restaurant and food distribution business is inherently cyclical, but US Foods could be a stalwart even if the economy weakens, Mullan said. "Absent the U.S. recession scenario playing out, we have a high degree of conviction in the upside case for USFD shares on an absolute basis; and even in the opposite case, we'd expect it to outperform the large majority of our U.S. Restaurant Industry coverage on a relative basis, most notably the Full-Service Owner Operators," the note said. — Jesse Pound 8:07 a.m.: Seaport Research initiates coverage of Booking Holdings Seaport Research Partners sees upside ahead for Booking Holdings , initiating coverage of the stock with a buy rating Tuesday. The firm said the travel company has established itself as a leading global brand for online accommodation reservations. "Booking.com's strong global position has enabled it to benefit from strong brand awareness which drives more direct traffic and hence higher margins (expect 33% EBITDA margins in 2023)," analyst Aaron Kessler wrote in a note to clients. He expects 10% bookings growth in 2024 and 9% in 2025 driven by global travel growth, online share gains and the expansion of alternative accommodations, as well as its newer connected trip offering. Its price target of $4,380 suggests nearly 18% upside from Friday's close. — Michelle Fox 7:52 a.m.: JPMorgan downgrades Holley to neutral Holley could be plagued by an onslaught of near-term headwinds, according to JPMorgan. The bank downgraded shares of the automotive manufacturer to a neutral rating from overweight, accompanying the move by lowering its price target to $5 from $6.50. This is just 1.4% above the $4.93 where shares of Holley closed on Friday afternoon. "We expect numbers to reset lower (again) with the downward revision a negative catalyst for the multiple, and the margin story likely being pushed out to 2025," wrote analyst Christian Carlino. Carlino believes that Wall Street analysts have been mis-modeling Holley's 2024 sales, with current estimates implying a 7.5% year-over-year growth. "In our view, while HLLY should continue to gain share, this seems like a high bar given the company's +6-7% long-term algo, the lackluster consumer backdrop, and HLLY now extending volume rebates to resellers," he wrote. Meanwhile, the company has recently undertaken a new pricing model that offers volume rebates to sellers — a strategic move in the long term, but a near-term headwind that hasn't been fully priced into consensus estimates, Carlino added. — Lisa Kailai Han 7:35 a.m.: AvalonBay gets upgrade from Barclays despite deteriorating REIT backdrop AvalonBay Communities has an edge over its competitors in the real estate landscape, according to Barclays. The bank upgraded shares of the real estate investment trust to an overweight rating from equal weight. Analyst Anthony Powell accompanied the move by raising his price target to $204 from $194, implying a potential 15% rally for the stock. "Due to high supply growth, inflationary cost pressures, the earnings growth outlook for apartment REITs is generally soft; given this, we are cautious on the space relative to other residential subsectors," Powell wrote. However, AvalonBay stands out amongst its peers for its "unique development platform," helping drive the company's solid funds from operations. "To the extent investors want exposure into any potential upside from peak leasing season, we think AVB is a good option (especially after the stock's decline from its December high), which drives our upgrade," the analyst added. "AVB stands out among coastal peers with its differentiated development capability (~2,625 apartment home deliveries forecast in 2024), operating model initiatives, and developer funding programs that we think can continue to drive revenue growth in 2024 despite a moderating rent growth environment." — Lisa Kailai Han 7:26 a.m.: Bank of America downgrades AIG to a neutral rating Bank of America foresees a slew of headwinds placing downwards pressure on AIG stock this year. The bank downgraded shares of the insurance company to a neutral rating from buy, although it accompanied the move by lifting its price objective to $77 from $75. This implies that AIG stock could rise 10% from its current price. Analyst Joshua Shanker noted that while the company appears to be "executing well operationally in nearly all its businesses," a slew of obstacles is slated to plague AIG this year. "First, we expect difficult year-over-year comparables for both top line numbers and margins as 2024 results exclude the Validus reinsurance business recently sold to RenaissanceRe, which had higher underwriting margins than the bulk of AIG's business," he wrote. "While expenses can continue to be rationalized, improving underwriting margins, technical headwinds from the impact of the potential separation and lack of material upside lead us to lower our Buy recommendation to Neutral," the analyst added. Meanwhile, the analyst also expects the company's investment yields to decelerate in 2024. Shares of AIG have risen slightly more than 3% this quarter. — Lisa Kailai Han 7:03 a.m.: Morgan Stanley remains bullish Tesla despite overwhelmingly bearish sentiment Morgan Stanley is standing by its overweight rating on Tesla , despite the stock's overwhelmingly negative sentiment. Analyst Adam Jonas maintained his price target of $345, implying that shares of the electric vehicle maker could rally 73% from their current price. The "Magnificent 7" stock has already slid nearly 20% so far this year, but for the most part Wall Street analysts believe that Tesla hasn't yet completed its fall from grace. "Our recent investor survey (84 respondents) is aligned with the negative sentiment on TSLA shares. Three-quarters of respondents believe the stock has yet to bottom and only one-quarter see the stock as a good way to play AI," Jonas wrote. However, the analyst stressed that investors shouldn't ignore Tesla's other value propositions in favor of its lagging AI and EV narratives. "Negative developments in the global EV market very much matter to Tesla and should reasonably have a negative near-term impact on the price of the stock," Jonas wrote. "At the same time, however, we believe investors should not ignore the continued developments of Tesla's other plays, many of which are auto-related (i.e. the recurring revenue opportunity from the Tesla fleet — embedded in our Tesla Network Services valuation)." — Lisa Kailai Han 7 a.m.: Redburn Atlantic downgrades MSCI, cites slowing subscription sales Shaky subscription sales growth may take a toll on MSCI , according to Redburn Atlantic. Analyst Russell Quelch downgraded shares of the finance company to a sell rating from neutral, also slashing his 12-month price target to $470 from $620. This implies that shares of MSCI could slide 17% from their current price. MSCI's stock is flat on the quarter, but Quelch believes that fundamentals are still too low to justify its valuation. "The current valuation implies the market is expecting the business to return to higher levels of growth as the cyclical backdrop improves. We are less convinced," he wrote. "Rising competition and an increasing reliance on pricing for growth give rise to concerns over client retention." Additionally, Quelch also highlighted that recent criticism from activist investors has reignited apprehensions around MSCI's governance and practices. MSCI also appears to hold a larger proportion of financial leverage, lowering its quality when compared to its peer institutions, the analyst added. — Lisa Kailai Han 6:24 a.m.: RBC lifts rating for Ball Corporation as company refocuses on core business segments RBC Capital Markets' sees a bright future for Ball Corp . The bank upgraded shares to outperform from sector perform, also lifting its price target to $74 from $61. This corresponds to a potential 19% upside for the stock. Shares of Ball Corp have risen 8% this year. The company is best known for its production of items used in canning, such as glass jars and lids. Analyst Arun Viswanathan highlighted Ball's commitment to its core business as a reason for the upgrade. "We upgrade BALL to Outperform from Sector Perform following its completed sale of its Aerospace business to BAE Systems for ~$4.5B net after-tax cash proceeds, of which ~$2B will be used for debt paydown and ~$2B will be used for share buybacks," he wrote. The fundamental backdrop for global beverage can demand also looks favorable for Ball. Additionally, the company stands to benefit from improving volumes through 2024 and 2025, lower share count and balance sheet leverage, as well as higher margins from improved business execution. "We see more opportunities for margin expansion from BALL's footprint optimization actions, esp the shutdown of higher cost, older facilities. We believe BALL has executed well in 2023 and is recovering profitability through pricing/mix, footprint rationalization and optimization, and productivity efforts," Viswanathan added. — Lisa Kailai Han 6:05 a.m.: Rosenblatt sets highest price target on Wall Street for Super Micro Computer There's even more AI-induced tailwinds ahead for Super Micro Computer , according to Rosenblatt. The investment firm kept its buy rating on the technology stock but nearly doubled its price target to $1,300 from $700. This is a whopping 62% from where the stock closed on Friday and marks the highest price target on Wall Street for shares of Super Micro Computer. Analyst Hans Mosesmann listed the continued momentum in artificial intelligence — and the company's "strategic position" within the market — as a prime catalyst for the change. "Key to the story is for investors to consider that the company is benefiting not only from secular AI growth (over 50% CAGR over next several years), but material share gains. We anticipate these gains to reach double digits in the next couple of years, up from the current mid-single digits, with a particular focus on enterprise," he wrote. However, Mosesmann stressed that a "pivotal factor" for the company remains the adoption of liquid cooling technology, which would help mitigate the challenges that come with scaling up cloud computing. Shares of Super Micro Computer have already rallied an eye-watering 183% this year. SMCI YTD mountain SMCI in 2024 — Lisa Kailai Han 5:45 a.m.: Deutsche Bank upgrades JetBlue as domestic airline backdrop improves More balanced domestic supply should spell good things for JetBlue , according to Deutsche Bank. Analyst Michael Linenberg upgraded the airline to buy from hold. He also more than doubled his target price to $9 from $4, implying that JetBlue stock could rally 29% from its Friday closing price. "We believe more moderate domestic ASM (available seat mile) growth for 2024 will have positive implications for domestic unit revenue performance, and by extension, should translate into solid top-line performance for the domestic-focused names," the analyst wrote. Specifically, an idiosyncratic catalyst for JetBlue is the company's near-term commitment to restoring its profitability. Although JetBlue's blocked merger with Spirit Airlines is an obstacle, Linenberg believes the airline can still utilize other methods to grow its network. "We don't see any impediments to JetBlue seeking alternative means to expand its network and increase market relevance and ubiquity (assuming that the Spirit merger is no longer an option) via asset-light approaches such as code shares, alliances, and/ or international joint ventures, all of which can be highly accretive to [return on invested capital] and [earnings per share]," he wrote. — Lisa Kailai Han 5:38 a.m.: Southwest Airlines receives a tepid upgrade from Bernstein Near-term demand is strong enough to outweigh the headwinds for Southwest Airlines , according to Bernstein. The investment firm upgraded the airline stock to market-perform from underperform, boosting its price target to $32 from $26. To be sure, that forecast points to a more than 5% slide from Friday's close. Southwest has rallied 17.5% this year. Analyst David Vernon listed a stronger domestic market as a reason for the rating boost. While costs have remained elevated, demand is robust enough to balance them out. "The rejection of the JetBlue-Spirit deal and equipment availability issues at Spirit, a pivot by Frontier to shift capacity out of competitive markets, and slowing deliveries of Boeing Max aircraft has resulted in a more moderate capacity forecast than we had been expecting," he wrote. "At the same time, travel demand remains resilient. The combination of these factors has the market believing unit revenue forecasts are too low and will be sufficient to drive positive revisions." The analyst added that while the airline will find it difficult to raise returns on capital back to where they were before the pandemic, he's "not as convinced the market will care near term." Still, he cautioned that Southwest's lofty valuation makes it especially sensitive to any potential sentiment shift within domestic pricing. — Lisa Kailai Han 5:38 a.m.: Evercore ISI downgrades Caterpillar It's time to book some profits in Caterpillar , according to Evercore ISI. Analyst David Raso downgraded the industrial machinery giant to inline from outperform. His price target of $338 per share implies upside of just 5% from Friday's close. "Valuations/Expectations Have Gone From 'Survival' To Avoiding A Down Year To Now Anticipating Reacceleration 2H24 Through '25 & , In Many Cases, '26," Raso wrote. "Let's Take Some Profits, Pause and Let EPS, Mgn Assuredness, & Macro Visibility "Grow Into The Stocks"; This Could Be 'Not Goodbye, But Until We Meet Again.'" Caterpillar shares are off to a strong start for the year, rising 8.8%. Over the past year, the stock is up nearly 30%. CAT 1Y mountain CAT in past 12 months — Fred Imbert