Tesla lost more ground after getting cut to Hold from Buy at Berenberg, while KB Home and Etsy were double downgraded on valuation. And here is today’s full Pro Recap of the biggest analyst upgrades and downgrades over the past week.
What happened? Berenberg downgraded Tesla (NASDAQ:TSLA) to Hold with a $210 price target on Wednesday.
Why highlight this note? Berenberg sees pressures building on management to deliver on expectations, noting the “valuation now leaves less room for disappointment.” As appears par for the course, the sell side is trimming near-term estimates, realizing their prior long-term views needed downward calibration. Berenberg also cut their estimates while noting “outer-year upside persists.”
Of course it does – until it doesn’t. And that, too, is then calibrated to the downside.
How did the equity react? Shares were under pressure already the morning after Fed chief Jerome Powell spoke hawkishly and spooked bonds and equities. After InvestingPro’s real-time alert on the Berenberg downgrade, Tesla sold from a regular opening handle of $185 on Wednesday, sliding to a $182 close for the day. Shares finished the week at $173.44.
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KB Home’s double downgrade at JPMorgan
What happened? JPMorgan started the week by double downgrading KB Home (NYSE:KBH) to Underweight with a $32.50 price target.
Why highlight this note? This is fairly straightforward for a popular stock over the past year: JPMorgan believes KB Home is overvalued relative to other options among homebuilders, with the bank commenting, “…we view its valuation, trading at roughly 12.5x and 9.5x our FY23E and FY24E EPS, respectively, well above its smaller-cap peers’ averages of roughly 8.5x and 7x…”
How did the equity react? While the double downgrade is an exciting headline, issuing one purely on relative valuation is likely to have minimal impact – and that proved to be the case here. Shares on Monday opened at $35.04, and 24 hours later they opened Tuesday at $35.27. As for the entirety of the week, KB Home slid to $34.62, or down 2.6% for the week.
Costco upped to Buy
What happened? On Tuesday, Northcoast Research upgraded Costco (NASDAQ:COST) to Buy with a $560 PT.
Why highlight this note? Northcoast is a rarely cited firm relative to, say, Goldman, and their upgrade on a popular, highly liquid name does deserve attention. The firm sees Costco benefitting from a loyal customer base, capabilities to attract new customers, and the potential to offer shareholders a buyback opportunity. Northcoast commented:
Its strong value proposition in consumables — from food to pharmacy and HBC to household supplies to gasoline — not only allows it to retain its many loyal members, but attract new ones. In other words, 2023 will set this retailer up for another stage of overall market share gains. Further, an impeccable balance sheet gives us confidence that a special dividend (of at least $10 per share) as well as more, and perhaps aggressive, share repurchases will occur during the next 12-24 months.
How did the equity react? Shares jumped on the headline, from $438.50 to a high of $487.01 in Tuesday’s premarket session. COST ultimately slipped for the week to close at $471.14 on Friday.
Etsy cut to Underperform at Jefferies
What happened? Jefferies double downgraded Etsy (NASDAQ:ETSY) to Underperform with an $85 price target on Thursday.
Why highlight this note? Without mentioning SVB Financial (NASDAQ:SIVB) any more than we have to for Thursday, Etsy was getting pushed lower strictly on valuation, and not the actual performance of the business. Jefferies commented in the introduction to their research note
We are double-downgrading to Underperform (from Buy) as ETSY’s 70% valuation premium to Internet appears unsustainable given below average EBITDA growth (11% vs. 15%) and risk of downside to consensus.
How did the equity react? ETSY joined the internet group for the ride down last week along with nearly every other stock, although it only tracked 1.6% lower to end the week at $105.98.
Caterpillar cut to sell at UBS
What happened? UBS finished the week by downgrading Caterpillar (NYSE:CAT) to Sell with a $225 price target.
Why highlight this note? Caterpillar is a rather popular global name tied to the base-level of activity: moving earth to build and inhabit and/or to extract resources for use in easing life struggles for end users. UBS wrote, “Construction machinery, oil & gas slowing; mining not accelerating enough.” For the number-philes, here’s the data the Bank produced:
US Census data shows seasonally adjusted backlogs for construction machinery inflected negatively YoY in Jan (-1.5% YoY); 3mo average SAAR backlogs have been falling m/m since Sept. US oil & gas rig counts are down 4.5% from the recent peak in Dec. CAT did not cite RI backlog as having grown in 2022. Consensus capex estimates for 5 of the largest mining companies have capex flat in CY24. RIO’s 2023 capex guidance was revised down 6% from Dec to Feb, and Glencore (OTC:GLNCY) expects FY24 capex down 5% YoY.
How did the equity react? The impact of the downgrade is hard to determine outside the initial premarket volatility on the headlines. Shares tracked lower all week, in repeat of the narrative above, before accelerating its downward trajectory Thursday and Friday to end the week at $227.01 – a slide of 11.2% for the week.
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