Street Calls of the Week: Apple gut punched
2024.01.07 09:01
Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Verizon and GM; downgrades for Apple and PayPal.
InvestingPro subscribers always get first dibs on market-moving rating changes.
Monday – Market Closed for New Year Holiday in the US.
Apple downgraded
What happened? On Tuesday, Barclays downgraded Apple Inc (NASDAQ:) to Underweight with a price target of $160.
What’s the full story? Apple’s ecosystem is noted for its stickiness, with a growing business in services and wearables, and a substantial capital return program according to Barclays.
The bank sees a pressured outlook for Apple due to perceived risks to both services and traditional hardware. The analysts have rated Apple as Underweight, noting concerns linger regarding the decline in iPhone upgrade demand amidst increasing competition in the premium smartphone segment.
The performance of IP15 has been lackluster, and Barclays believes IP16 will follow suit. The analysts predict that other hardware categories will continue to be weak, and they do not foresee Services growing more than 10%.
After a year in which most quarters missed targets and the stock outperformed, Barclays expects a reversion.
Underweight at Barclays means “The stock is expected to underperform the unweighted expected total return of the industry coverage universe over a 12-month investment horizon. “
How did the stock react? Apple shares slid from $192 to $190 (a decline of about 1.2%) as soon as the premarket session opened at 4am in New York. Apple opened the regular session at $187.38 and closed at $185.60, a loss of 3.60% since Friday’s close.
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Verizon upgraded
What happened? On Wednesday, Keybanc upgraded Verizon Communications Inc (NYSE:) to Overweight with a $45 price target.
What’s the full story? Keybanc has upgraded VZ to OW and set a $45 price target, based on a 6.7x 2025 EV/EBITDA multiple. The analysts cite four reasons for their bullish view on VZ: low wireless industry competition, strong broadband subscriber growth, accelerating EBITDA growth, and higher quality cash flows than AT&T (NYSE:).
Keybanc analysts expect VZ to outperform T in both wireless and broadband segments, as well as generate more cash flow as capital spending declines. The analysts also note that VZ is trading at historically low valuations, which could offer an attractive entry point for investors.
Keybanc believes that VZ is a deleveraging story with the potential for share buybacks in 2025.
Overweight at Keybanc means “We expect the stock to outperform the analyst’s coverage sector over the coming 6-12 months.”
How did the stock react? Verizon shares rose from $38.95 to $39.30 as the headlines ran. Verizon opened the regular session at $39.57 and closed at $39.14.
General Motors upgraded
What happened? On Thursday, Wolfe Research upgraded General Motors Company (NYSE:) to Outperform with a $42 price target.
What’s the full story? Wolfe Research believes General Motors is building advantages in electric vehicles (EVs) that should eventually come to the fore. The analysts believe that GM is uniquely positioned to benefit from nearly 100% passed-through Investment Tax Credit (ITC) manufacturing credits for most of their battery supply.
Additionally, they are ramping up other strategies such as domestically sourced LMFP (Magnesium-enriched Lithium Iron Phosphate) cells with Samsung (KS:) SDI and Mitrachem, which could provide GM with benchmark battery costs. These costs are estimated to be $3,000-$5,000 lower per vehicle than Ford (NYSE:) and Stellantis (NYSE:), and $1,500 lower than Tesla (NASDAQ:).
Combined with other innovations such as Gigacasting, Open Box Manufacturing, and Automation, GM is poised to become a leader in the EV market per Wolfe’s upgrade note.
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? General Motors shares surged from $35.35 to $36.05 (a gain of over 2%) in the premarket session as the rating circulated. GM opened the regular session at $35.64 and closed at $35.49, a gain of 0.28% since Wednesday’s close.
PayPal downgraded
What happened? On Friday, BTIG Research downgraded PayPal Holdings Inc (NASDAQ:) to Neutral.
What’s the full story? BTIG sees the process of returning the company to consistent and profitable revenue growth as a multiyear initiative, rather than a FY24 story. While PYPL’s unbranded TPV growth (primarily Braintree) has been compelling, growing 32% FXN during 3Q23, it carries a much lower transaction margin than PYPL’s traditional branded checkout TPV, which grew 6% FXN during 3Q23.
BTIG analysts believe the two top priorities for newly appointed CEO Alex Chriss will be 1) driving Braintree margin expansion, and 2) stabilizing/revitalizing traditional branded checkout, both of which they expect to be multiyear catalysts.
In the more immediate term, they believe there are cost-saving opportunities for PYPL to pursue to drive EPS growth. However, the more important KPI right now in their view is transaction margin dollar (a.k.a. gross profit) growth, which was reported -3.5% y/y during 3Q23, and +3.1% y/y when adjusted for one-time items. The analyst highlighted several opportunities for PYPL to right the ship and return to an attractive level of transaction margin dollar growth, but they want to see more tangible indications that trends are beginning to turn positive before they become more constructive on the stock.
Neutral at BTIG means “A security which is not expected to appreciate or depreciate meaningfully over the next 12 months. “
How did the stock react? PayPal shares slid from $58.40 to $57.74 in the premarket session. PayPal opened the regular session at $57.81 and closed at $60.15, a loss of 2.90% since Thursday’s close.
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