GM Gets Some Love: Street Calls of the Week
2023.12.10 09:55
Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for GM and First Solar and downgrades for Albemarle, PayPal, and Take-Two Interactive.
InvestingPro subscribers always get first dibs on market-moving rating changes.
Unlock the potential of InvestingPro for up to 60% off this Cyber Monday Extended Sale and never miss out on a market winner again.
General Motors Upgraded
What happened? On Monday, Mizuho upgraded General Motors (NYSE:) to Buy with a $42 price target.
What’s the full story? The brokerage house opined that sentiment on GM was at a bottom, as weak consumer demand, coupled with the 25% United Auto Workers (UAW) wage hikes, and challenges in its Cruise and electric vehicle (EV) segments were reflected in 10-year valuation lows.
The analysts wrote that the UAW strike was in the rearview mirror, production had resumed, and they saw idiosyncratic catalysts for the company, such as: 1) 2024 estimated $1.5 billion UAW wage increases fully offset with ~$2 billion in fixed cost reductions, 2) refreshed EV ‘Smart Ramp’ focused on profitability, 3) pausing money-losing Cruise investments, 4) 2024 a better production year post-strike interruptions, and 5) $10 billion share repurchase buys back at least ~10% of shares outstanding over 12 months.
Mizuho wrote that with the stock trading near 10-year trough valuations, they felt compelled to upgrade GM to Buy.
Buy at Mizuho means “Stock’s total return is expected to appreciate above the average total return of the analyst’s industry coverage universe, on a risk-adjusted basis, over the next 12 months. “
How did the stock react? General Motors opened the regular session at $32.80 and closed at $33.08, a gain of 2.22%.
Albemarle Downgraded
What happened? On Tuesday, Piper Sandler downgraded Albemarle Corp (NYSE:) to Neutral with a $128 price target.
What’s the full story? Piper shared they had recognized the substantial deterioration in global lithium markets, which had been hit by oversupply and weak demand amid the Covid-19 pandemic.
The analysts said that they believed that the current market conditions would undermine any significant rebound in the pricing environment for at least the next few quarters, leading to further earnings erosion and estimate reduction for both companies. Piper also noted that they had updated their models, price decks, and price targets (PTs) for Albemarle and Livent (NYSE:) as a result of this slide and a weaker near- and mid-term outlook for lithium markets, especially for batteries and EVs. The firm downgraded both names.
Piper sees limited upside potential for both stocks, and they prefer exposure through other battery materials plays.
Neutral at Piper means “Anticipated to perform in line relative to the median of the group of stocks covered by the analyst.”
How did the stock react? ALB opened the regular session at $116.22 and closed at $113.34.
cyber monday
PayPal Downgraded
What happened? On Wednesday, BofA downgraded PayPal (NASDAQ:) to Neutral with a $66 price target.
What’s the full story? BofA led their note writing that they did not think PayPal is broken, but that it will take time to fix. The analysts believe shares had traded up from the lows following PayPal’s modest third-quarter beat along with new CEO Alex Chriss’ fresh messaging around profitable growth and increased urgency around execution.
However, the analysts share that they see 2024 as a transition year, as a new CEO and CFO seek to earn Street credibility while driving sustained improvements in top-line metrics, especially total payment volume (TPV) growth, which faltered under prior management.
BofA made clear to share that PayPal still had a strong brand, balance sheet, and scale, but that they expected shares to be range-bound near-term, with valuation providing downside support.
Neutral at BofA means “Neutral stocks are expected to remain flat or
increase in value and are less attractive than Buy rated stocks .”
How did the stock react? Shares fell nearly 2% promptly as the intel circulated, hitting an early premarket low of $56.66 . PayPal opened the regular session at $57.83 and closed at $58.51.
Take-Two Interactive Downgraded
What happened? On Thursday, BofA downgraded Take-Two Interactive Software Inc (NASDAQ:) to Neutral with a $170 price target.
What’s the full story? BofA believes fiscal year 2025 (FY25) consensus estimates, which assume a Grand Theft Auto 6 (GTA 6) launch by March 2025, could fall by ~20% before August 2024.
The analysts wrote that not all investors were willing to extend duration beyond 15 months, and that not enough was known about the quality of GTA 6, based on the December 5th trailer and September 2022 leak footage, to underwrite a multi-billion dollar run rate for GTA Online, the online component of the GTA franchise.
Further, Bofa penned that based on investor inquiry patterns, participation had broadened meaningfully since the stock bottomed a year ago, which dampened downside price risk, but that they did not see significant further upside potential for now.
Neutral at BofA means “Neutral stocks are expected to remain flat or
increase in value and are less attractive than Buy rated stocks .”
How did the stock react? Take-Two opened the regular session at $157.26 and closed at $154.20, a loss of 1.98%.
First Solar Upgraded
What happened? On Friday, Morgan Stanley upgraded First Solar Inc (NASDAQ:) to Overweight with a $237 price target.
What’s the full story? Morgan Stanley said that they saw an attractive risk-reward skew for the stock with a 3:1 bull/bear ratio, after the 20% sell-off over the past three months. The analysts wrote First Solar offered one of the strongest risk-adjusted earnings profile with its sold out position through 2026, which, when combined with its cost hedging, should result in 17 percentage points of relatively low-risk margin expansion through 2026, before accounting for investment tax credit (ITC) benefits.
Morgan Stanley noted the stock was trading at 7.2x their 2025 earnings per share (excluding ITC benefit), which was 66% below its average pre-ITC price-to-earnings (P/E) multiple of 21.6x fiscal year 3 EPS according the research note.
The analysts value the stock at $237, based on a 7.0x enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) or 14.0x P/E multiple on their 2026 earnings estimates, which derived a $143 per share core equity value, and added $94 per share of equity value derived from a simple discounted cash flow (DCF) of the ITC benefits.
Overweight at Morgan Stanley means “The stock’s total return is expected to exceed 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 spiked higher as per usual in the thinly traded premarket session. First Solar opened the regular session at $150.30 and closed at $145.40.
