Microsoft earns another Buy rating: Street Calls of the Week
2023.12.17 09:57
Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Nike, Zscaler, and Live Nation Entertainment; new buy ratings for Microsoft and First Solar.
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Nike upgraded
What happened? On Monday, Citi upgraded Nike Inc (NYSE:) to Buy with a $135 price target
What’s the full story? Citi is increasingly optimistic regarding Nike’s ability to protect their earnings per share (EPS) in 2024 and 2025 despite a “choppy macroeconomic environment”, driven by their gross margin (GM) recovery, new innovation, and solid position in China. The analysts believe Nike’s GM recovery should start in the second quarter of F24 and continue through F25, thanks in part to lower freight costs, leaner inventory, lower promotions, and direct-to-consumer (DTC) mix benefit.
Citi wrote Nike will likely launch new products in calendar 2024 ahead of the Paris Olympics, and that it ought to maintain its strong presence in China despite the volatile macro situation. The analysts are expecting Nike to miss its revenue target and beat its GM target in the second quarter of F24. They further expect NKE to absorb a more conservative view on the second half of F24 sales, and to communicate its ability to hit its EPS targets with more visible GM gains and better sales, general, and administrative management.
Citi believes Nike is a one-of-a-kind brand with visible margin recovery, creating a favorable risk/reward in their view.
Buy at Citi means “Buy (1) ETR of 15% or more or 25% or more for High risk stocks.”
How did the stock react? Nike shares spiked from $115.72 to $118 in the premarket session. Nike opened the regular session at $117.54 and closed at $118.61, a gain of 2.33%.
ZScaler upgraded
What happened? On Tuesday, Macquarie upgraded Zscaler Inc (NASDAQ:) to Outperform with a $231 price target.
What’s the full story? Macquarie’s bullish thesis is supported by ZS’s Risk360 solution and its positioning at the nexus of cyber threat and SEC reporting requirements trends per a Tuesday morning research note.
The analysts reviewed ZS with their SaaS mature margin analysis framework and estimated that it may be able to achieve mid-range 40s% non-GAAP operating margins in the long term. Macquarie analysts believe that ZS’s Risk360 solution and its positioning at the crossroads of cyber threat and SEC reporting requirements trends are the key drivers for the upgrade.
The analysts’ bullish thesis is further supported by the new price target of $231, which implies a reasonably fair 13.8x FY2E EV/S.
Outperform at Macquarie means “expected return >10%.”
How did the stock react? ZScaler shares spiked from a low $204 handle to a $208 handle in the premarket session. ZScaler opened the regular session at $207 and closed at $210.79.
Microsoft initiated at Buy
What happened? On Wednesday, Truist started new coverage on Microsoft Corporation (NASDAQ:) at Buy with a street-high price target of $600.
What’s the full story? Truist analysts believe that MSFT is on the cusp of delivering further upside to expectations as projects go into production. Shares are up about 55% for 2023.
The brokerage house is impressed with MSFT’s early execution in the generative AI market and believes that the company can grow revenue and FCF in the mid-teens, driven by upside potential to consensus numbers in AI, Azure, and Copilot.
The analysts believe MSFT’s “impressive” execution in the generative AI market and its potential to grow revenue along with FCF in the mid-teens could propel shares to compounding strong gains. A fair expectation as AI expands.
The analysts expect many investors to be wondering where the upside potential is from here, and Truist believes MSFT is well-positioned to drive further upside to investor expectations as projects go into production
Buy at Truist means “the stock’s total return is expected to outperform the S&P 500 or relevant benchmark over the next 12-18 months (unless otherwise indicated).”
How did the stock react? Microsoft shares spiked from $375 to $376.50 in the premarket session. Microsoft opened the regular session at a $374 handle and closed at a mid $373 handle.
Live Nation Entertainment upgraded
What happened? On Thursday, Morgan Stanley upgraded Live Nation Entertainment Inc (NYSE:) to Overweight with a $110 price target.
What’s the full story? Morgan Stanley hit the wires optimistic about LYV shares, forecasting double-digit growth in EBITDA over the next handful of years, driven by fan growth in international markets and Venue Nation, its owned and operated venue portfolio.
The Tier 1 bank believes that LYV can achieve near pre-pandemic level EBITDA growth (Morgan’s estimate: ~11% 3-year growth CAGR through 2026), along with better FCF generation, which should boost its valuation.
The analysts have a $110 PT for LYV, which represents 25% upside from the current price and implies a ~15.5x fwd. EBITDA multiple, slightly higher than the current level, but still lower than the historical average. Morgan Stanley justifies this multiple based on LYV’s growth profile and FCF conversion, compared to its peers.
Morgan Stanley also sees a favorable risk/reward, with 65% upside in their $145 bull case and 25%+ downside in their $65 bear case, supporting their OW rating.
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? Live Nation opened the regular session at $91.25 and closed at $93.04
First Solar initiated at Buy
What happened? On Friday, Jefferies initiated First Solar Inc (NASDAQ:) at Buy with a $211 price target.
What’s the full story? Jefferies launched coverage on First Solar and offered four reasons for its conviction:
(1) Strong backlog, sold out through 2026,
(2) Exposure to utility scale, which has better growth prospects than residential solar,
(3) Fixed ASP with upside potential and declining cost structure, and
(4) Margin tailwinds from IRA as more clarity emerges.
Jefferies analysts are positive on First Solar’s exposure to utility scale and its strong backlog, which protect the company from near term volatility in the sector. The brokerage expects First Solar to benefit from the strong ~82GW backlog and potential upside to ASP. The analysts also anticipate gross margin expansion from 18% in 2023 to 25% in 2025, which is in the low end of company guidance per the research note.
Jefferies also highlights First Solar’s leadership in expanding capacity in the US to take advantage of the IRA credits, which can boost gross margins to ~53% by 2025.
Buy at Jefferies means “Describes securities that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.”
How did the stock react? First Solar opened the regular session at $165.35 and closed at $168.67.
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