Wednesday's analyst calls: Wells Fargo downgrade, Tesla gets a price target cut

Published Wed, Mar 27 20245:31 AM EDTUpdated Wed, Mar 27 20248:44 AM EDT

(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 posts.) Tesla and a major bank were in focus Wednesday as part of the day's analyst chatter. The EV maker got a price target cut from Citi, citing concern round the company's upcoming delivery numbers. Wells Fargo was downgraded to market perform by KBW, which noted the stock is due for a consolidation phase after outperforming recently. Check out the latest calls and chatter below. All times ET. 8:44 a.m.: Needham adds DraftKings to its conviction list Shares of DraftKings could find their way back to their all-time highs, according to Needham. The firm added the digital sports entertainment and gaming company to its conviction list Wednesday and boosted its price target to $58 from $54, suggesting 19% upside from Tuesday's close. "The market seems to be putting a greater emphasis on growth now, and we believe DKNG has the best growth outlook in our coverage over the next 24 months, especially factoring in valuation and estimate risk reward," analyst Bernie McTernan wrote in a note to clients. Over the past year, DraftKings has shown it can be compared against large-cap names, profitable growth companies and emerging tech leaders, he said. While the stock looks expensive on a 2024 estimate of adjusted earnings before interest, taxes, depreciation, and amortization, the company has a longer path to profitability. By 2026, the company looks cheap relative to the group on adjusted EBITDA, he said. There is also potential upside ahead if its online sports betting (OSB) hold rate grows more than expected and if more states legalize online sports betting, McTernan noted. The hold rate is the percentage of money the company keeps after wagers are settled. "We see a credible path back for the stock to the low $70s, a prior peak level last seen three years ago, driven by better OSB hold and OSB legislation in TX and CA," he said. Shares gained nearly 2% in premarket trading and are up 38% year to date. — Michelle Fox 8:41 a.m.: Morgan Stanley upgrades Deutsche Bank Deutsche Bank is now a buying opportunity on the strength of its revenue momentum, according to Morgan Stanley. Analyst Giulia Aurora Miotto upgraded the German bank to overweight from equal weight, and raised its price target, saying there is further upside for Deutsche Bank even after its outperformance this year. Shares are already higher this year by more than 13%. "Despite 10% outperformance vs the sector over the last 12 months, we think there is more room to go for DBK, as improving IB revenue momentum and better confidence on cost delivery are not fully priced in consensus numbers," the analyst wrote in a Wednesday note. The analyst's €18 price target was raised slightly from €17 previously. The stock is up about 3% in premarket trading. — Sarah Min 8:40 a.m.: Wells Fargo raises price target on General Electric, cites cuts to overhead costs There's further upside in General Electric even after its outperformance this year, Wells Fargo said. Analyst Matthew Akers hiked his price target on General Electric, and reiterated an overweight rating on the stock, saying cuts to overhead costs, including employees, can give it a boost. "GE recently targeted 150 bps reduction in SG & A by 2025; we ultimately think it could take out 300-500 bps, and while this would put it near the low end of its peer group on SG & A/sales, we don't think this is as difficult as it sounds," Akers wrote on Wednesday. "We estimate GE Aerospace's productivity (sales/employee, sales/sq ft) is 2x+ its closest peers; adjusting for this, the per square foot and per employee costs would be 2-3x its peer group averages," Akers added. In fact, a review of LinkedIn data shows that a greater share of General Electric's workforce is in overhead positions, such as human resources, information technology, and finance, as opposed to its peers, the analyst noted. "These employees account for ~60% of GE employee profiles vs ~40% for its closest peers, implying a third of overhead might be cut relative to sales," Akers wrote. General Electric is higher by more than 35% this year. However, the analyst's $200 price target, raised from $177 previously, implies the stock can climb 15% from Tuesday's closing price of $173.55. The stock was up by 0.5% in premarket trading. — Sarah Min 7:50 a.m.: DA Davidson downgrades Lowe's to neutral It's time for investors to dial back their expectations for Lowe's , according to DA Davidson. Analyst Michael Baker downgraded the home improvement stock to neutral from buy, saying in a note to clients that the company has limited upside from here. "Much of our positive investment thesis had been predicated on a revamped leadership team improving operations and therefore margins relative to other best in class retailers. Nearly six years later, we estimate that about 85% of that goal has been accomplished. And with the stock once again outperforming year to date and valuation at the highest it's been since early on during the pandemic, both on an absolute and relative basis, we think shares are due a pause," the note said. Another key driver for Lowe's has been that its margins have been pulling closer to Home Depot's over time. However, the gap between the two may prove to be stubborn in 2024, according to DA Davidson. "In fact, with HD's plan for 2024 margins to be 14.1% or down 10 bps and Lowe's plan calling for 12.6%-12.7%, or down 60 to 70 bps, the gap seems like it may re-widen this year," Baker said. — Jesse Pound 7:31 a.m.: 'Limited equity potential' for Spirit Airlines, says Barclays The outlook for budget carrier Spirit Airlines is dim, according to Barclays. Analyst Brandon Oglenski reinstated Spirit with an underweight rating. Oglenski's price target of $4 implies 15.8% downside from the stock's closing price on Tuesday. "With mounting financial leverage and on-going operating losses compounded by GTF engine related groundings, we see limited equity potential in Spirit Airlines' shares," Oglenski wrote in a Wednesday client note. Spirit's exposure to "lower-yielding leisure markets" such as Florida and Las Vegas also contribute to its reduced upside forecast, the analyst added. In order for the stock to make a turnaround, Oglenski says the company should focus on reducing structural costs and strengthening its relative revenue results. Earlier in March, Spirit terminated its merger agreement with budget airline peer JetBlue Airways after losing a federal antitrust lawsuit that had challenged the deal. The stock has plummeted 71.7% year to date, with shares falling 28% in March alone. — Hakyung Kim 6:50 a.m.: UBS raises Disney price target UBS said multiple tailwinds ahead for Disney could turn the stock into "an earnings compounder." The firm, which already had a buy rating on shares, raised its price target on Disney by $20 to $140. This suggests shares adding 16.7% from where they closed Tuesday. "We remain bullish on Disney shares and believe there is potential upside to the model in a number of areas that should push consensus estimates up over the next several quarters," analyst John Hodulik wrote in a note. Hodulik highlighted the park segment's outperformance, which he expects will be further strengthened by new spending over the next several years. Hodulik also underscored Disney's direct-to-consumer segment as the largest near-term upside driver, which he forecasts will break even by the fiscal fourth quarter and reach 10% margins in 2026. Disney has been embroiled in an acrimonious proxy battle with activist investor Nelson Peltz. The upcoming shareholder vote could contribute to some near-term volatility for the stock, according to Hodulik. — Hakyung Kim 6:28 a.m.: HSBC initiates buy rating on Spotify Spotify is "hitting the right notes" as a music streaming leader, according to HSBC. Analyst Joseph Thomas initiated coverage on Spotify with a buy rating and $310 price target. This suggests 17% upside potential for shares from Tuesday's close. Spotify is already the preeminent name in the music streaming business — and "new verticals with large opportunities" could help it capture opportunities beyond music in areas such as podcasts and audiobooks, Thomas said in a Wednesday note. These efforts could help the company finally achieve profitability, he added. "Spotify has historically been loss making but recent restructuring, alongside improved podcast profitability, should help to move it to an operating profit in 2024. From here, we see significant potential for margins to move upwards as mix shifts away from music towards higher margin verticals and as Spotify's promotional business continues to quickly expand," said Thomas. Shares have surged nearly 40% year to date. SPOT YTD mountain SPOT in 2024 — Hakyung Kim 6:12 a.m.: BMO upgrades mining company to outperform Precious metals mining company Royal Gold has a compelling valuation, according to BMO Capital Markets. Analyst Jackie Przybylowski upgraded the stock to outperform from market perform. She also raised her price target to $158 from $148, implying the stock could rally 45% from where it closed on Tuesday. "Royal Gold's valuation is now more compelling under our new commodity price assumptions and with modest relative underperformance of Royal Gold share price year to date," Przybylowski said in a Wednesday client note. Przybylowski cited a positive environment for new stream and royalty deals for the company in 2024. Royal Gold's asset quality and portfolio is also strengthening, the analyst added. "We see strong potential for this business model this year," Przblyowski said. "Even smaller deals will still 'move the needle' for Royal Gold. … [which is] large enough to compete and small enough to show growth," she added. Shares are down 9% in 2024. — Hakyung Kim 5:49 a.m.: Tesla partnership with battery maker potentially a 'game changer,' per Morgan Stanley Morgan Stanley's Adam Jonas says a partnership between Tesla and Chinese electric vehicle battery maker CATL could "recharge" the U.S. EV market. According to reports earlier in the week, Tesla and CATL are working together on a fast-charging battery in Nevada. Although CATL is "effectively barred" from directly selling into the U.S. market due to geopolitical tensions, it supplies automakers by licensing its technology to partners. If a partnership materializes, this "battery 'power couple'" could "re-charge the U.S. EV market," which is "in need of high quality, cheap battery tech," Jonas wrote in a note on Tuesday. "Tesla-CATL could be a game changer," said Jonas. "In our view, Tesla is in a very strong position to 'on-ramp' Chinese EV tech to the U.S. In leveraging Chinese manufacturing know-how, Tesla can deliver a $25k EV and drive EV adoption in the US." Jonas has an overweight rating and $320 price target on shares, which suggests more than 85% upside potential for the shares. Tesla's stock has declined nearly 29% in 2024 as the company grapples with slowing demand and higher competition, particularly from Chinese EV manufacturers. — Hakyung Kim 5:31 a.m.: Citi cuts Tesla price target Citi thinks there's not much upside potential for Tesla ahead of the release of its Q1 production and delivery numbers. As a result, the firm lowered its price target on shares to $196 from $224. This suggests shares rising 10.3% from Tuesday's close. Analyst Itay Michaeli also retained his neutral rating on the stock. "While buy-side Q1 delivery estimates (we believe in the low 400s range) sit well-below the sell-side consensus (460-470k, but coming down), the setup remains challenging with street estimates still looking too high, not only for 2024 but also 2025," Michaeli wrote in a Tuesday note. "Given recent datapoints and the heavy reliance on March, we see somewhat more downside than upside potential to our numbers. Year to date, Tesla shares have slumped 28.5% as the company struggles with weak EV demand and increased competition in the market. TSLA YTD mountain TSLA year to date — Hakyung Kim 5:31 a.m.: KBW downgrades Wells Fargo Wells Fargo is due for a pause after the bank's strong run-up, according to KBW. Analyst David Konrad downgraded the stock to market perform from outperform. He did, however, raise his price target to $62 from $56, with the new forecast calling for 9% upside. Wells Fargo shares are up more than 15% in 2024. Over the past year, they have rallied 51.3%. WFC YTD mountain WFC YTD Konrad noted the outperformance comes amid "renewed investor enthusiasm for the asset cap to be lifted. Although we share this enthusiasm, we believe the stock is set for a consolidation phase given expectations for [net interest income] to underperform peers and trough in 1H25." The asset cap refers to limits imposed by the Federal Reserve after the fake-accounts scandal that broke in 2016. That limit is set to roughly $2 trillion. — Fred Imbert