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005930
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TTD
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Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: Upgrades for Lam Research and The Trade Desk, and downgrades for Rackspace, Wendy’s, and Carvana.
InvestingPro subscribers always get news like this first. Never miss another market-moving upgrade.
Lam Research
What happened? On Monday, Stifel upgraded Lam Research (NASDAQ:LRCX) to Buy with a $725 price target.
What’s the full story? Stifel has a bullish outlook on Lam Research, a leading supplier of semiconductor equipment, based on an expected recovery in memory spending in the second half of the year.
The firm argues that Samsung’s third-quarter expansion of capacity in high-bandwidth memory (HBM) DRAM, or dynamic random access memory, will boost the demand for Lam’s products – and especially its conductor etch process, which is used to create the TSVs, or through-silicon via tech, that connect the DRAM dies (i.e. integrated circuits) in an HBM stack.
Stifel notes that Lam has the highest exposure to DRAM among its peers, and that memory accounted for about 60% of Lam’s system revenue in the previous upcycle. Stifel also believes that memory spending reached an unsustainably low level in the second quarter, and that memory prices, profitability and utilization have bottomed out.
The analysts estimate that Lam’s memory revenue in the June quarter will be down 78% year over year, and will amount to only a fraction of the company’s historical average. Stifel does expect that memory spending will normalize from here, meaning that technology investments and roadmaps should then resume and that installed-base cannibalization should stop.
Stifel projects that even modest activity from Samsung (KS:005930), and other players like ChangXin Memory Technologies in China, will have a positive impact on Lam’s revenue and earnings in the September and December quarters. Stifel’s estimates are above consensus for both quarters.
A Buy at Stifel means:
We expect a total return of greater than 10% over the next 12 months with total return equal to the percentage price change plus dividend yield.
How did the stock react? Shares gained 2.5% on the day to close at a $639 handle.
Rackspace
What happened? On Tuesday, Citi downgraded Rackspace (NASDAQ:RXT) to Sell with a $1.50 price target.
What’s the full story? Citi analysts are now Sell-rated on Rackspace, a leading provider of cloud-computing services. They argue that Rackspace faces a tough challenge to achieve growth levels that attract investors in a reasonable time frame, given the macro challenges and required investments in the business.
Citi also notes that Rackspace lowered its estimates significantly in the last quarter, but that the stock has still risen 90%+ on zero news since that point. They believe the current valuation of Rackspace is too high and does not reflect the downside potential that they see.
Citi ratings are defined as follows:
The Investment rating definitions are: Buy (1) ETR of 15% or more or 25% or more for High risk stocks; and Sell (3) for negative ETR. Any covered stock not assigned a Buy or a Sell is a Neutral (2).
How did the stock react? Our InvestingPro alert hit just before 4am in New York, and shares dropped $0.12 to $2.46 once premarket trading opened a few minutes later. Rackspace ended Tuesday’s regular session at $2.45, down nearly 4.7%.
The Wendy’s Company
What happened? On Wednesday, Wendy’s (NASDAQ:WEN) was downgraded to Neutral at Kalinowski Equity Research with no price target.
What’s the full story? The analyst wrote that the downgrade reflects their concerns about the company’s performance and prospects. Kalinowski points out that WEN’s same-store sales growth has slowed down due to increased competition and weaker consumer demand.
Kalinowski also worries that higher interest rates and lower grocery prices could hurt WEN’s profitability in the next six to 12 months. Kalinowski suggests that WEN faces some significant challenges in the fast-food industry, and that it needs to improve its value proposition and differentiation.
Neutral at Kalinowski means:
Our firm does not recommend that clients buy this stock at the present time.
How did the stock react? Mark Kalinowski is a highly reputable analyst in the restaurant space. His downgrade hit the stock pretty hard in the premarket. Shares fell from $21.31 to $20.71 in 30 minutes. Notably, the equity completely rebounded and ran higher with the Fed positivity to end the day up about 1.3% to $21.58.
Carvana
What happened? On Thursday, Morgan Stanley downgraded Carvana (NYSE:CVNA) to Underweight with a $35 price target.
What’s the full story? Morgan Stanley conducted a normalized earnings analysis to compare CVNA and CarMax (NYSE:KMX), two leading online car retailers. Based on their 2030 estimates, Morgan Stanley projects that CVNA could earn $3.66 per share in 2030, which implies a current valuation of ~25.4x. This is close to KMX’s FY24 multiple of ~27.0x, based on their current share price and Morgan Stanley’s FY24 EPS estimate.
However, the investment bank assigns a lower target multiple of 20.8x to CVNA, reflecting the various challenges and risks that CVNA faces in the near and medium term. These include higher leverage, higher dilution risk, higher cost of capital, and governance issues, among other things.
Equal-weight at Morgan Stanley means:
The stock’s total return is expected to be in line with 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? The equity promptly slid from $43.53 to $42.20, a jolt to the downside of roughly 3.5%. Carvana ended Thursday’s regular session down 7.5% to $40.46.
The Trade Desk
What happened? On Friday, BTIG upgraded The Trade Desk (NASDAQ:TTD) to Buy with a $103 price target.
What’s the full story? BTIG initiated coverage of Trade Desk earlier this year with a positive outlook on their market position. However, the analyst had some reservations about the consensus expectations for 2023 in a recovering and uncertain ad market. BTIG’s view on that has changed completely since then.
BTIG says checks have indicated that the programmatic ad market is growing at a +20-25% pace annually, due to the sustained shifts of advertising dollars toward lower funnel digital formats, and automation of a higher proportion of that digital ad spend ex-search/social (~35-36% programmatic today). Trade Desk has a strong foothold in the key connected TV (CTV) and retail media segments of that programmatic market (the analyst estimates they have ~15%/5% share of each), and feedback suggests their platform is becoming an increasingly attractive alternative to Alphabet’s (NASDAQ:GOOGL) DV360 demand-side platform [DSP], which has ~65% market share). The analyst sees room for Trade Desk to meet or exceed the high end of that market growth range.
The analyst has adjusted estimates to better reflect the underlying market growth and Trade Desk’s advantages. It projects a roughly 27% growth CAGR in billings between 2022 and 2027, with EBITDA margins rising into the mid-40s and a steady ~70% EBITDA-to-cash-flow conversion rate. BTIG’s current estimates are 5%-10% ahead of the consensus on revenue and EBITDA in ’23/24 – and the analyst is comfortable with this, since it implies only a modest acceleration or even a slight drop in the rates of share capture for the CTV and Retail Media segments (~3-400 bps vs. 2-300 bps historically for CTV; consistent to declining rates of penetration for Retail Media). The feedback from the analyst’s checks was particularly constructive on both segments of the programmatic ad market.
Valuation is always tricky with Trade Desk, and the analyst chooses to evaluate the business with a shorthand discounted cash flow (DCF) analysis, excluding the benefit of executive stock-based-compensation packages.
Buy at BTIG is described as follows:
A security which is expected to produce a positive total return of 15% or greater over the 12 months following the recommendation. The BUY rating may be maintained as long as it is deemed appropriate, notwithstanding price fluctuations that would cause the target to fall outside of the 15% return.
How did the stock react? Shares took off on the popular name, with The Trade Desk gaining some 6% through Friday’s regular session to $90.45.
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Source: Investing.com
