Boeing to take flight: Street Calls of the Week
2023.11.26 10:44
Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Boeing and C3 and downgrades for Virgin Galactic and Urban Outfitters.
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Boeing upgraded
What happened? On Monday, Deutsche Bank upgraded Boeing Co (NYSE:) to Buy with a $270 price target
What’s the full story? Deutsche’s analysts have upgraded the stock to Buy, as they see improved and sustainable performance in aircraft deliveries for the company. DB’s analysts argue that the acceleration in deliveries will lead to a positive inflection in free cash flow revisions, which will drive the stock to outperform.
Deutsche’s analysts back up their words with actions, and raise their free cash flow forecasts for the company. The analysts are now above the Street across all years of their forecast horizon that runs through 2027. For the upcoming fourth quarter, DB’s team is 49% above the Street on free cash flow ($2.6 billion versus Street $1.7 billion).
Deutsche also raised their price target from $10 to $15 for the stock, based on 10 times 2027 EV/EBITDA, which is in line with the peer average.
How did the stock react? Shares traded higher as news of the upgrade circulated. The stock jumped about 4 dollars, from a $207 handle to a $211 handle (1.50% gain). Shares opened the regular session at $211 and closed at $217.71 making for a 4.61% gain.
C3.a1 upgraded
What happened? On Tuesday, Oppenheimer upgraded C3.ai Inc (NYSE:) to Outperform with a $40 price target.
What’s the full story? Oppenheimer’s analysts have a positive view on C3, as they see a long-term growth opportunity and a valuation reset for the company.
Opco’s analysts maintain their revenue estimates for FY23 and FY24, which are above the consensus, for C3. The analysts note that C3 has lowered its guidance, worked through a model transition to usage-based, and shown real-world customer benefits since their initiation in June.
Oppenheimer also pointed out that C3’s equity has underperformed by 20% since mid-June, while its revenue growth is expected to accelerate from 0.1% in F4Q23 to 23% in F2Q24.
Oppenheimer lastly believes that the AI theme is real and durable, and that C3 AI is well-positioned as one of the few pure plays helping customers drive new revenue sources and major productivity improvements. The analysts expect C3 to accelerate its growth into FY25.
Outperform at Oppenheimer means “Stock expected to outperform the S&P 500 within the next 12-18 months.”
How did the stock react? Shares rose from $27.90 to $28.90 within 5 minutes, a gain of 2.5%. C3 opened the regular session at $28.96 and closed at $28.51making for a 1.71% gain.
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Virgin Galactic downgraded
What happened? On Wednesday, Morgan Stanley downgraded Virgin Galactic Holdings Inc (NYSE:) to Underweight with a $1.75 price target.
What’s the full story? Morgan Stanley analysts think that Virgin Galactic has proven out the space tourism concept, having flown five consecutively successful missions since late June 2023. MSCO simultaneously thinks Virgin Galactic is entering a catalyst-light period, as it plans to scale back near-term flight activity while prioritizing development and production of its Delta-class fleet, which is expected to arrive in 2026.
The analysts believe share price appreciation potential for Virgin Galactic during this lull, relative to the rest of their coverage, is low. Morgan’s analysts also included more conservatism into their Delta-class ramp forecast, as they analyze Virgin Galactic’s new roadmap, which offers increased visibility into company operations.
Underweight at Morgan Stanley means “The stock’s total return is expected to be below the average total return of the analyst’s industry (or industry team’s) coverage universe, on a risk-adjusted basis, over the next 12-18 months.”
How did the stock react? Shares hemmed and hawed around the $2 level through premarket trading. Shares opened the regular session at $2.03 and closed at $1.99 making for a 6.50 % loss since the close on Tuesday.
Market Holiday
What happened? On Thursday, Markets were closed in New York for Thanksgiving Day.
Urban Outfitters downgraded
What happened? In the shortened Friday session, Morgan Stanley downgraded Urban Outfitters Inc (NASDAQ:) to Equal-weight with a $36 price target.
What’s the full story? Morgan Stanley wrote their bull case scenario for the company, which assumed higher sales growth and margin expansion, is proving less likely, and that the stock is fairly valued at current levels.
The analysts adjusted their price target methodology back to their base case, which assumes low single-digit average sales growth and about 8% average operating margin through 2027, in line with the pre-Covid trend. Morgan Stanley wrote that this scenario reflected the challenges faced by the company’s flagship Urban Outfitters banner, which has been underperforming amid changing consumer preferences and increased competition. The analysts wrote they did not expect a turnaround for this banner until Spring 2024 at the earliest, and that it would remain a margin drag in the near term.
Morgan Stanley also penned that they continued to see opportunity for the company’s management to improve its initial mark-up (IMU) initiatives, which could lift Urban Outfitters’ margins higher over time. The analysts stated they embedded this outcome in their updated bull case, which assumes mid single-digit average sales growth and about 9% average operating margin through 2027.
Lastly, Morgan’s analysts acknowledged they would re-assess the achievability of their bull case as Urban Outfitters eventually inflects.
Equal-weight at Morgan Stanley means “The stock’s total return is expected to be in line with the average total return of the analyst’s industry (or industry team’s) coverage universe, on a risk-adjusted basis, over the next 12-18 months.”
How did the stock react? Shares were flat between $31.80 and $31.90. Urban Outfitters opened the regular session at $31.72 and closed the shortened session at $32.55 making for a 2.29% gain.
