4 Huge Analyst Calls: Coinbase Flying; Advance Auto Parts in Free Fall
2023.06.04 07:41
Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Coinbase, Avis Budget, and The Trade Desk, and a post-earnings downgrade for Advance Auto Parts.
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Coinbase
What happened? On Tuesday, Atlantic Equities upgraded Coinbase (NASDAQ:) to Overweight with a $70 price target
What’s the full story? Coinbase is leveraging its trust with its clients to improve pricing power and profitability, wrote Atlantic Equities. The research firm also wrote:
While risks remain in the form of a weak volume backdrop, recession, regulation, and market prices, we believe that Coinbase’s recent actions allow investors to look through towards the longer-term opportunity.
Atlantic further appreciates that, given management’s efforts to focus on profitability, the firm is embedding some resilience into its model.
The definition of Overweight from Atlantic is as follows:
‘Overweight’ stocks are the most attractive stocks under the analyst’s coverage over the next 12 months. The total return potential is based upon the analyst’s coverage universe.
How did the stock react? After InvestingPro’s real-time alert on the upgrade, shares of Coinbase jumped from $57 to $59 in premarket trading. They opened the regular session at $60.10 before ending the day at $61.17, for a gain of 7.5%.
Avis Budget Group
What happened? On Wednesday, Deutsche Bank upgraded Avis Budget (NASDAQ:) to Buy with a $263 price target.
What’s the full story? The rental company has been a valuable scalp trade since COVID-19. Further, Deutsche Bank highlights that perhaps Avis has been the proverbial baby in the bathwater, writing:
…CAR’s forward year EV/ EBITDA multiple is, on average, nearly four turns lower than those of its peers in the comparable groups and is 1.5 turns below its own long term historical average. In short, and as we explain later, we believe there is too much negativity embedded in near- and medium-term expectations regarding the direction of rental car pricing and used car (residual) value.
Aside from embedded macro risks (which are always present), the valuation appears historically appealing, as Deutsche notes:
At 5.6x our 2024E EV/EBITDA forecast, CAR is trading 1.5 turns below its historical forward year EV/EBITDA multiple, and that is based on what we believe to be potentially conservative estimates for 2024 on both the top and bottom lines. Looking at current year valuation, CAR is trading at 4.2x on a 2023E EV/EBITDA basis (using our forecasts), which is essentially the lowest current year multiple on record, stripping out a few months of trading that was clearly and significantly impacted by Covid.
A Buy from Deutsche is benchmarked as follows:
Buy: Based on a current 12-month view of TSR, we recommend that investors buy the stock where TSR represents Total Shareholder Return.
How did the stock react? Shares of Avis jumped $5 on the headlines from $163 to $168 within 10 minutes of the 5:18am publication. Avis shares opened the regular session Wednesday around $171 and closed up 2.8% to $167.79.
Advance Auto Parts
What happened? On Thursday, JPMorgan downgraded Advance Auto Parts (NYSE:) to Neutral with an $84 price target.
What’s the full story? JPMorgan’s succinct summation of the downgrade is as follows, calling out the company’s underperformance vs. its peers:
Our Neutral rating is based on our view that the autoparts retailers remain the best way to play offense/defense in this backdrop, but AAP continues to lose share in DIFM [do it for me], is reversing course on pricing to win back share, and is guiding to 5-5.3% operating margin in 2023 vs. its prior 11-13% target. Moreover, AAP recently withdrew its financial targets/shareholder return algo, and with an incoming CEO potentially bringing a new strategic plan, we are waiting for more visibility/confidence given AAP’s perpetual turnaround status.
What will make this call work over a longer time horizon is if the Federal Reserve keeps everyone in limbo about interest rates or even raises to curb consumer spending, according to JPMorgan, to wit
If the economy worsens, consumer spending may continue to weaken, and the DIY [do it yourself] business is exposed to low-end spending.
How did the stock react? After the destruction following earnings on Wednesday morning, shares opened at $71.77 on Thursday and closed at $68.03 – down heavily from $112.20 on Tuesday’s close, just before AAP issued earnings.
The Trade Desk
What happened? On the close Thursday, Morgan Stanley issued what became Friday’s call of the day: an upgrade on The Trade Desk (NASDAQ:) to Overweight with a $90 price target
What’s the full story? Morgan Stanley sees TTD maintaining market strength and believes the company would be able to leverage its “independent player” status to attract more retail partners. The investment bank wrote to clients Thursday evening:
TTD’s status as a pure play, independent DSP puts it in a leading position to capitalize on the growth in CTV [connected TV], which we estimate drove ~56% of billings growth over the last 2 years and represents ~46% of total billings in 1Q. We believe that TTD’s close relationships with the ad agencies (e.g. OMC and IPG covered by Ben Swinburne) will also continue to be an asset as large TV advertisers shift budgets into CTV.
On the retail media side, while we believe that TTD’s broader shopper marketing business contributed hundreds of millions of dollars to ’22 billings, our updated penetration analysis shows that this represents just ~1% of the opportunity today. We believe TTD will be able to leverage its position as an independent player to sign more retail media partners… and ultimately be a leader in offsite retail media advertising.
How did the stock react? Shares rose from $73.26 on the close Thursday to $75.74 on the open Friday and ended Friday at $74.24.
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