Booking a Buy on Hearty Demand: Street Calls of the Week
2023.11.12 06:52
Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Booking Holdings, DigitalOcean, Microchip Technology, and Spirit AeroSystems, and a downgrade for Upland Software.
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Booking.com
What happened? On Monday, DA Davidson upgraded Booking Holdings (NASDAQ:) to Buy with a $3,400 price target.
What’s the full story? DA Davidson sees strong performance and outlook ahead for the online travel company. DA Davidson’s analysts are impressed by BKNG’s solid 3Q’23 results and encouraging 2024 commentary last week, which showed healthy leisure-travel demand and expense discipline.
The analysts increased their 2024 revenue and adjusted EBITDA estimates by 1% and 2%, respectively, for BKNG. DA Davidson’s analysts maintain their 12-month price target of $3,400 for BKNG, based primarily on a discounted cash flow (DCF) analysis and implying 14.5x 2024 EV/EBITDA.
The firm notes that BKNG’s current valuation represents an 11% discount to its five-year average P/E multiple.
Buy at DA Davidson means: “Expected to produce a total return of over 15% on a risk adjusted basis over the next 12-18 months.”
How did the stock react? Shares opened the regular session around a $2,888 handle and kept gaining through the opening activity. Before 10AM shares were trading up 2.55%. BKNG ended the day at $2,971.43, up 3.9% for the session.
DigitalOcean
What happened? On Tuesday, Goldman Sachs double-upgraded DigitalOcean Holdings (NYSE:) – to Buy from Sell – with a $33 price target.
What’s the full story? Goldman has a positive view on DO, as it sees a cyclical recovery and structural improvements for the cloud provider. The analysts believe that DO’s stock underperformance has been driven by a cyclical normalization in cloud-optimization spending, which has affected some of DO’s key subsectors such as SaaS builders, video games, streaming, and web agencies.
Goldman also mentioned the overhang from the ongoing management transition, as DO has been searching for a new CEO since August 25. They believe that DO is now approaching a cyclical trough, based on indicators in the SMB ecosystem and management commentary on the 3Q23 earnings call.
The investment bank’s analysts also highlight the contributions from newer initiatives such as the recent acquisition of Paperspace and the continued ramping of Cloudways, which they estimate will add about 3 percentage points of growth each to DO’s revenue in 2024.
Lastly, Goldman expects that as the macro environment stabilizes, DO’s mix shift and cost-structure improvements will become more evident, driving better revenue growth and continued free cash flow margin expansion.
Buy at Goldman means the following: “Being assigned a Buy… on an Investment List is determined by a stock’s total return potential relative to its coverage universe.”
How did the stock react? Shares spiked about 4.5% immediately premarket, rising from $23.86 to $24.97. Shares opened the regular session at $25.84 and closed at $26.27 making for a 10.2% gain.
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Microchip Technology
What happened? On Wednesday, Citi upgraded Microchip Technology (NASDAQ:) to Buy with a $100 price target
What’s the full story? Citi is bullish on MCHP, as its analysts see a bottoming of estimates and a fading of discount factors for the chip maker.
The analysts note that MCHP has traded at a discount to its peers due to three factors: high debt, low tax, and conglomerate discount. However, Citi analysts believe that these factors are going away, as MCHP is reducing its debt, increasing its tax rate, and streamlining its portfolio.
Citi analysts are raising their price target from $75 to $100 for MCHP, based on 18x C2025 EPS, which is in line with peer valuation. The bank believes MCHP is the cheapest stock on new numbers and that it has room for multiple expansions.
Buy at Citi means the following: “ETR [estimated total return] of 15% or more or 25% or more for High risk stocks”
How did the stock react? After the news, shares spiked from $75.30 to $77.10 within 10 minutes around 7AM in New York. Shares opened the regular session at $76.04 and closed at $75.36, making for a marginal 0.07% gain.
Spirit AeroSystems
What happened? On Thursday, Wolfe Research upgraded Spirit AeroSystems (NYSE:) to Outperform with a $34 price target.
What’s the full story? Wolfe Research analysts upgraded Spirit to Buy, writing that they see a recovery and improvement for the aerospace company. Wolfe’s analysts acknowledge that Spirit has faced a lot of challenges since 2019’s MAX crash, which has increased its debt and reduced its earnings.
However, Wolfe thinks Spirit has accomplished a lot in the last month, and that it benefits from a strong environment, especially for MAX deliveries.
Wolfe’s analysts are changing their valuation methodology from EPS/PE to EV/EBITDA (enterprise value to earnings before interest, taxes, depreciation and amortization), as they think that EPS and leverage are not reliable metrics for Spirit. The analysts are using an average EV/EBITDA multiple of 8x, which is in line with Spirit’s pre-pandemic valuation, to derive their new price target of $34 for Spirit, based on their 2025 EBITDA estimate of $887 million. Wolfe’s analysts see over 45% upside for Spirit’s stock.
Outperform at Wolfe means: “The security is projected to outperform analyst’s industry coverage universe over the next 12 months.”
How did the stock react? Shares spiked as high as 8% (to a $25 handle) in the early moments of the regular session. SPR closed at $23.94, gaining 3.8% from the prior close.
Upland Software
What happened? On Friday, Roth/MKM downgraded Upland Software (NASDAQ:) to Sell with a $3.50 price target.
What’s the full story? Roth downgraded UPLD to Sell from Neutral, as it sees no visible catalysts and lower forecasts for the company. Roth’s analysts report that the 3Q23 results were fair versus muted expectations, but showed a decline in both revenues and adjusted EBITDA year-over-year.
Roth’s analysts note that the shares have appreciated roughly 35% since the 3Q23 results on November 2, but they reiterate their $3.50 price target.
The analysts think that the stock is overvalued and has downside risk versus current trading levels.
Sell at Roth means: “A rating, which at the time it is instituted and or reiterated, that indicates an expectation that the price will depreciate by more than 10% over the next 12 months.”
How did the stock react? Shares were volatile most of the day, dipping under and above $4. UPLD ended the day down 8.9% to $4.10.
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