What has Wall Street been buzzing about this week? Here are the top 5 Buy calls and the top 5 Sell calls made by Wall Street’s best analysts during the week of March 27-March 31.
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Top 5 Buy Calls:
Walmart upgraded to Outperform from In Line at Evercore ISI
Evercore ISI upgraded Walmart (WMT) to Outperform from In Line with a price target of $160, up from $145. The pivot to omnichannel, divesting of non-core assets and investments in productivity have positioned the company for traffic and margin upside over the next two years, the firm tells investors in a research note. Walmart’s traffic turn "appears to be building" with consumers across the demographic spectrum making wallet allocation choices, the firm contends.
Susquehanna upgrades Roku to Positive on attractive risk/reward
Susquehanna upgraded Roku (ROKU) to Positive from Neutral with a $75 price target. Despite "near-term noise," the long-term connected TV opportunity remains intact and Roku will be a "prime beneficiary of the secular shift of linear budgets," the firm tells investors in a research note. Susquehanna believes the scatter market likely bottomed in late Q4, with improvement building through Q1. Beyond scatter, the firm’s checks indicate that the broader connected TV market is "generally healthy and should see a tailwind from the upfronts." It believes Roku is beta testing opportunities to bring more third-party digital service provider buying to its demand-constrained platform, and views this as a "potential source of incremental high margin revenue." Susquehanna sees an attractive risk/reward at current valuation levels.
Melius starts UPS with a Buy, sees company better set up for downturn
Melius Research initiated coverage of UPS (UPS) with a Buy rating and $225 two-year price target. FedEx (FDX) and UPS were natural pandemic winners, but with the pandemic tailwinds subsiding, "the companies find themselves at two different points on a similar path," Melius argues. UPS management has spent the past several years minimizing cyclicality in the business and driving higher pre-tax margins, notes the firm, who adds that the focus now is to lean into the customer experience and roll out digital capabilities to drive further productivity and leverage. Changes at UPS allow for the network to flex up and down based on the environment, which "should allow for margins to hold up better during a downturn than in the past," Melius contends.
Lululemon upgraded to Buy from Neutral at Citi
Citi upgraded Lululemon Athletica (LULU) to Buy from Neutral with a price target of $440, up from $350. The firm liked the stock going into the Q4 report and feels even better following the results and fiscal 2023 outlook. Lululemon’s inventory-to-sales gap is better than expected with a pathway to further improvement, and the company is seeing no signs of a sales slowdown with Q1 trends starting stronger than expected, Citi tells investors in a research note. Further, the company’s China growth is poised to "rapidly accelerate" in fiscal 2023 and become a much more meaningful long-term driver, says the firm. It models 20%-plus earnings growth annually through fiscal 2027 as Lululemon "unlocks its global growth potential." CIti adds that shares are Lululemon are more cheaply valued than Nike (NKE).
Erste Group upgrades Adobe to Buy on revenue, profit growth
Erste Group upgraded Adobe (ADBE) to Buy from Hold. Adobe is again forecasting revenue and profit growth for this fiscal year and while the company has a "much higher" return on equity and operating margin than its peer group, the stock is valued significantly lower than the peer average, the firm tells investors.
Top 5 Sell Calls:
Foot Locker downgraded to Sell at UBS on softlines bearishness
UBS downgraded Foot Locker (FL) to Sell from Neutral with a price target of $30, down from $36. The firm has become "increasingly bearish" on softlines stocks and reduced its calendar 2023 EPS estimates across its coverage by 10%, on average. Its 2023 EPS estimates are now 13% below consensus for the average stock in its coverage in the space, UBS noted.
Caterpillar downgraded to Underperform from Neutral at Baird
Baird downgraded Caterpillar (CAT) to Underperform from Neutral with a price target of $185, down from $230. The firm sees rising risks for rental and construction equipment makers. A 2024 slowdown in U.S. nonresidential construction was already on the horizon but now is increasingly likely given ongoing regional bank "turmoil and their sizable participation in commercial construction lending," Baird tells investors in a research note. For equipment makers, backlogs and price/cost tailwinds are peaking, and there is potential for inventory builds in the second half of 2023 pressuring near-term valuation multiples and eventually 2024 production and earnings, contends the firm. It believes Caterpillar shares are "nearing a cyclical pivot point."
Medtronic assumed with a Sell, $79 price target at UBS
Medtronic’s (MDT) stock coverage was assumed with a Sell rating and $79 price target at UBS as part of a sector note on U.S. Medical Supplies and Devices. The firm lacks conviction that Medtronic can return to sustainable mid-single-digit top-line growth and drive consistent operating margin upside. Potential resolution of the outstanding Diabetes Warning Letter could be a positive catalyst for the stock, but UBS sees Medtronic at best stemming recent share loss in Diabetes even with new product launches.
UBS bearish on Zimmer Biomet, initiates with a Sell
UBS initiated coverage of Zimmer Biomet (ZBH) with a Sell rating and $112 price target as part of a sector note on U.S. Medical Supplies and Devices. The firm models Zimmer’s 2022-2027 sales CAGR at 3.5%, with Zimmer delivering sub-4% organic growth each year. While Zimmer has positive product cycles, UBS sees these as merely stemming share losses vs. driving sales gains.
Citi downgrades Ollie’s to Sell, sees 2023 earnings falling short
Citi downgraded Ollie’s Bargain Outlet (OLLI) to Sell from Neutral with a price target of $49, down from $52. Even through the company’s comp sales beat in Q4, merchandise margin dollars came in weaker than expected and implied guidance, the firm tells investors in a research note. Ollie’s has a difficult model to scale and its supply chain has been choppy for years, says Citi. It views the company’s free cash flow as "uninspiring with little improvement expected" and believes "several aggressive assumptions" are built into its fiscal 2023 guidance, including an acceleration in new store productivity and no assumed increase in promotions. The firm does not believe 2023 "will be a smooth year," and thinks Ollie’s earnings are likely to fall short of plan. Citi views the company’s guidance as a "stretch."
Published first on TheFly
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