Street calls of the week: Upgrades for Skechers and Lockheed Martin

Investing.com — Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week.

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Texas Capital Bancshares

What happened? On Monday, Citi downgraded Texas Capital Bancshares Inc (NASDAQ:) to Sell with a $60 price target.

*TLDR: *2025 goals appear unachievable in a lower rate environment. *Citi remains cautious.

What’s the full story? Citi maintains a cautious stance on TCBI, despite the soft share price reaction following the company’s second-quarter results. The analysts continue to see downside from current levels, as the earnings outlook over the next 12 months appears rather uninspiring.

While the core franchise has undergone significant changes since 2020, Citi believes that the 2025 Goal metrics are unachievable in a lower interest rate environment. Despite the already below peer Price-to-Tangible Book Value valuation, Citi continues to foresee further downside.

Sell at Citi means “Buy (1) ETR of 15% or more or 25% or more for High risk stocks; and Sell (3) for negative ETR. “

How did the stock react? Texas Capital Banc shares opened the regular session at $64.69 and closed at $66.70, a gain of 1.06% from the prior day’s regular close.

Skechers

What happened? On Tuesday, Morgan Stanley upgraded Skechers (NYSE:) to Overweight with a $80 price target.

*TLDR: *Set-up for positive consensus revisions. *Management improves Skecher financial metrics.* Morgan Stanley sees possible +26% share price appreciation inside 12-18 months.

What’s the full story? Morgan Stanley’s updated price target reflects a modestly improved operating model and updated DCF assumptions. For FY24, the bank’s estimates remain largely unchanged, continuing to see upside to Street EPS forecasts across sales, GM, and SG&A. As a result, the bank analysts are modeling $4.20 EPS versus the consensus of $4.10.

Looking at the future, the bank is now more constructive on SKX’s mid-term margin profile, driven primarily by an improved GM outlook. Early signs indicate that GM is holding at structurally higher levels of 53%+. This view is taken because survey results and channel checks suggest that consumers continue to view SKX as a value-oriented brand, brand momentum remains strong despite price-taking activities over the last few years, and innovation capabilities are being increasingly recognized. These factors together increase Morgan Stanley’s comfort with SKX’s ability to maintain or expand GM from here.

As such, Morgan Stanley now models a 12% average operating margin for ’24-’28e versus 11% prior, driven primarily by a more optimistic GM outlook. The mid-term sales growth expectations remain largely unchanged at ~10% average ’24-’28e growth. Combined with updated WACC inputs (4.3% risk-free rate & 4.1% equity risk premium versus 4.1% & 4.6% prior, respectively) that result in a 9.4% WACC (versus 10% prior), this yields an $80 DCF-derived price target compared to $60 prior, representing a 26% upside from current levels.

Overweight at Morgan Stanley means “The stock’s total return is expected to exceed the total return of the relevant country MSCI Index or 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? Skechers opened the regular session at $66.24 and closed at $65.10, a gain of 1.39% from the prior day’s regular close.

Lockheed Martin

What happened? On Wednesday, TD Cowen upgraded Lockheed Martin (NYSE:) to Buy with a $560 price target.

*TLDR: *Strong Q2 for Lockheed Martin (LMT): Driven by F-35 delivery restart and leading FMS/munitions market position, projecting ~5% sales gains, 10-20bps margin lift, and rising cash flow for 2024-2026. *Despite positives, stock lags with a 20% net buy rating

What’s the full story? TD Cowen analysts highlight a strong Q2 performance for Lockheed Martin, driven by the restart of F-35 deliveries and its leading position in the Foreign Military Sales (FMS) and munitions market. This has provided LMT with enhanced visibility of approximately 5% sales gains, a 10-20 basis points annual margin lift, and rising cash flow projections for 2024-2026. Despite these positive indicators, the stock has lagged year-to-date, with a peer-low 20% net buy rating.

The analysts note that with the resumption of F-35 deliveries, LMT has reached an agreement with the Department of Defense (DoD) on a schedule for completing TR3 updates and is negotiating the timing for final delivery payments of around $7 million per aircraft, totaling approximately $1 billion. Given that LMT has delivered only 1,300 of the planned 3,400+ F-35 fighters, it is unlikely that the DoD will cut production even if software issues remain unresolved. Additionally, LMT’s ownership of the intellectual property gives it leverage in these negotiations. The analysts foresee low to mid-single-digit F-35 sales growth from 2025-2027 as sustainment grows with the fleet and delivery payments catch up. Furthermore, the F-16 program, with a backlog of 125 planes, is ramping up production from two to four planes per month by the second half of 2026. Both programs are expected to see increasing profitability, contributing to 28% of LMT’s sales.

Buy at TD Cowen means “The stock is expected to achieve a total return of +15% or more over the next 12 months.“

How did the stock react? Lockheed Martin opened the regular session at $504.21 and closed at $515.20, a gain of 2.77% from the prior day’s regular close.

Omega Healthcare Investors

What happened? On Mizuho, downgraded Omega Healthcare Investors Inc (NYSE:) to Neutral with a $35 price target

*TLDR: *Valuation is key driver of downgrade following outperformance against peers. *Mizuho sees nothing wrong with the OHI as a business.

What’s the full story? Mizuho has downgraded Omega Healthcare Investors to Neutral from Outperform, stating that the current valuation largely reflects the three pillars of its previous top pick stance. The brokerage clarified that this downgrade is not a call into earnings.

Previously, Mizuho had highlighted several reasons for favoring skilled nursing facilities and particularly Omega: higher than anticipated cash collections from tenants in restructuring, an increase in external growth through acquisitions, and a more benign regulatory environment.

While Mizuho continues to see a high single-digit cash flow trajectory into FY 2025, the stock has outperformed REITs by 18bps year-to-date and is trading close to 13x adjusted funds from operations, which is near historical highs. As a result, the brokerage believes the positives are largely reflected in the current valuation

Neutral at Mizuho means “The stock’s total return is expected to perform in line with the unweighted, expected total return of the analyst’s industry coverage universe over the next 12 months.”

How did the stock react? Omega Healthcare Investors opened the regular session at $35.97 and closed at $35.73, a decline of 1.81% from the prior day’s regular close.

Lockheed Martin

What happened? On Friday, Deutsche Bank upgraded Lockheed Martin to Buy with a $600 price target. This is the second upgrade of the week for the defense company.

*TLDR:* Strong Q2 report showing gains on repricing of backlog should continue momentum through 2025 and 2026 as data surprises consensus.

What’s the full story? This upgrade is driven by strong second-quarter results, which, after further analysis, indicate a promising beat/raise opportunity in the second half of 2024. The bank believes this momentum could extend into 2025 and 2026, with potential upside to 2026 EBIT approaching the high single-digit range. If the outlook on revisions for LMT is positive relative to Deutsche Bank’s and the Street’s printed numbers, the stock could rerate to reflect this opportunity, supporting a 5.0% target free cash flow yield on 2026, driving the updated target price of $600, representing a 15% upside potential.

For the second half of 2024, Deutsche Bank anticipates improved operational performance and a significant spread between trailing three-year backlog growth (+17%) and trailing three-year revenue growth (+7%), suggesting additional revenue upside. Recently improved cost and EAC trends, along with the benefit of an increasingly repriced backlog, point to continued positive margin surprises. This could drive approximately 4% EBIT upside to second-half 2024 Street EBIT forecasts. Looking ahead to 2025 and 2026, Deutsche Bank expects revenue growth to approach 6%+ versus the Street’s 3.9%/3.6%, with additional margin normalization across the business, making it feasible to achieve high single-digit EBIT upside to Street estimates for 2026. While Deutsche Bank has raised its estimates conservatively, it is modeling EBIT growth at a 7% CAGR over the next two years, viewing LMT as a high-quality way to participate in a global defense upcycle.

Buy at Deutsche Bank means “Based on a current 12-month view of TSR, we recommend that investors buy the stock.”

How did the stock react? Lockheed Martin opened the regular session at $522.89 and closed at $524.80, a gain of 0.63% from the prior day’s regular close.