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Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Tesla, CVS, ImmunoGen, and Etsy, and a downgrade for DoorDash.
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What happened? Last Sunday Morgan Stanley upgraded Tesla (NASDAQ:TSLA) to Overweight with a $400 price target.
What’s the full story? Morgan Stanley analysts are bullish on Tesla, the electric vehicle and clean energy company, and have raised their price target to $400. The analysts think that Tesla’s value driver is not only its vehicle sales, but also its software and services revenue, which can open up new addressable markets and generate higher margins.
Morgan Stanley points to Dojo (I’m sure you’ve seen the memes), Tesla’s custom supercomputing effort, as a key catalyst for Tesla’s software and services growth. Dojo is expected to power Tesla’s full self-driving system (version 12) and Tesla’s next AI day, which are both slated for late 2023 or early 2024. Morgan analysts also see potential in Tesla Mobility (autonomous robo-taxis) and Tesla Network Services (SaaS business derived from Tesla vehicles and third-party customers), which they expect to have faster adoption and higher average revenue per user (ARPU).
Further, not surprising to many, Morgan Stanley analysts have increased their earnings forecasts for Tesla by about 20% by FY25/26, and they think the company's price target is justified by Tesla’s growth and valuation multiples compared to its tech peers.
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? Shares spiked $14 to $264 handle in Monday's premarket as some new Tesla news finally hit that didn’t involve CEO Elon Musk and hieroglyphic baby names, warring baby mama drama, or anything regarding Musk's other myriad of endeavors (interjecting in a war, slandering rescuers, pranking the market with Big Ben wrist watches on April Fools day, etc.
Tesla rose throughout Monday’s regular session, ending the day higher by 10.1% to close at $273.58, up $25.08 from Friday's close.
What happened? On Tuesday, Wolfe Research upgraded CVS (NYSE:CVS) to Outperform with an $80 price target.
What’s the full story? Wolfe analysts have upgraded their rating on CVS to Outperform from Peer Perform based on their analysis of the potential changes in CVS’s long-term guidance and the prospects of its Medicare Advantage business.
The analysts think CVS could lower its long-term earnings growth expectations for 2025 and beyond to a more realistic high single digit range, which would include a low-to-mid-single-digit decline in its Retail segment and more reinvestment of SG&A into growth projects. It seems Wolfe's thinking is that this would allow CVS to meet its near-term targets and invest for future growth, rather than disappointing investors with overly optimistic projections.
The analysts also see upside potential for CVS’s Medicare Advantage business, which could benefit from improved Medicare Star ratings and repricing in 2025. The analysts estimate that CVS could get a ~$900 million (~$0.50) boost to its 2025 earnings if it achieves 4-Star ratings in its key PPO plan with approximately 2M members, and another $600M in 2025 from repricing its Medicare Advantage business after the recent cost trend acceleration.
Also, Wolfe does acknowledge that CVS may not translate all of this into 2025 EPS upside, as it may need to invest more in its Medicare Advantage business to stimulate growth. However, the analysts think the combination of more realistic long-term guidance and better Medicare Advantage performance could give investors more confidence in CVS’s ability to deliver in-line to better EPS versus expectations starting in 2025. The analysts expect this to drive multiple appreciation from current levels
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? Shares ripped on Monday near the end of the day as Wolfe had pushed out a rapid-fire CVS note, the talk of the last hour of trading. Then, early on Tuesday morning, Wolfe decided to really pound the table and issued this upgrade, which drove CVS shares higher yet again: The stock ran into the $69 handle in premarket trading, up a solid $3 since Wolfe’s Monday update.
CVS ended Tuesday’s regular session up 2.6% to close at $70.52.
What happened? On Wednesday, JPMorgan upgraded ImmunoGen (NASDAQ:IMGN) to Overweight with a $22 price target.
What’s the full story? JPMorgan analysts have a positive view on IMGN, a biotechnology company that develops antibody-drug conjugates (ADCs) for cancer. The analysts think IMGN’s valuation is too low, as it only reflects the conservative assumptions of its lead product Elahere, which is approved for platinum-resistant ovarian cancer (PROC). The analysts see attractive upside potential for Elahere, as it could expand its label to other related markets, such as platinum-sensitive ovarian cancer (PSOC) treatment and maintenance.
JPMorgan also notes that IMGN has a clinical-stage pipeline beyond Elahere, which is not fully appreciated by investors. In particular, the analysts highlight Pivek, an ADC in late-stage development for blastic plasmacytoid dendritic cell neoplasm (BPDCN), which the analysts believe could strengthen IMGN’s commercial offering in the near term.
The investment bank further believes that IMGN has a product portfolio that is highly attractive for potential pharma partnership and collaboration, as it leverages its expertise in ADC technology.
The analysts expect IMGN to have multiple levers and solid revenue growth in its story, and JPMorgan rates IMGN as Overweight
Overweight at JPMorgan means: “Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe. “
How did the stock react? Shares surged a few minutes after InvestingPro ran the headline. IMGN spiked $0.45 from $15.45 to $15.90 immediately and then melted up to $16 by 7AM New York time. IMGN shares ended Wednesday's regular session up 2.8% to close at $15.88.
What happened? On Thursday, Wolfe Research upgraded Etsy (NASDAQ:ETSY) to Outperform with a $100 price target.
What’s the full story? Wolfe analysts are bullish on ETSY. The analysts think that ETSY’s valuation is attractive, as its shares have fallen by 46% year to date, while its FY2 EBITDA forecasts have only been revised lower by 5%. Wolfe’s analysts attribute the underperformance to multiple compression, as ETSY’s FY2 multiples have shrunk from ~25x in January to 11x currently due to top-line growth revisions.
Wolfe admits that ETSY’s top-line growth is highly sensitive to macro conditions, and they expect the correlation to continue over the next several quarters. However, the analysts believe ETSY’s growth should improve to a double-digit range when the macro environment improves, which they believe should drive EBITDA growth in the high-teens range. The analysts also note that ETSY could achieve similar EBITDA growth in the interim from cost savings.
Wolfe is forecasting FY24/FY25 gross merchandise sales (GMS) and EBITDA of $14.5 billion/$15.8B and $858M/$978M, respectively, implying a 9% compound annual growth rate (CAGR) and 170 basis points margin expansion from FY23E. The analysts’ FY24/FY25 EBITDA estimates are 3% and 2% above street, respectively.
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? Shares spiked more than 5% after the headline, rising over $3 premarket to hit $67.98. Etsy ended the regular session up by 3.3%, or $2.12, to close at $66.68.
What happened? On Friday, MoffettNathanson (a division within Leerink) downgraded DoorDash (NYSE:DASH) to Market Perform with a $93 price target.
What’s the full story? Moffett analysts say the end of the student loan suspension, which injected ~$2,700/year into the pockets of 43M US consumers, could introduce bookings risk to food delivery. They note that DoorDash and Uber (NYSE:UBER) Eats have a higher proportion of monthly active users (MAUs) in the 25- to 44-year-old cohort - which carry 69% of the US student loans - than does any other company in MoffettNathanson's coverage universe.
The analysts also consider food delivery to be one of the most discretionary behaviors of an average consumer, with a ~60% price premium to picking up an order in store. The analysts estimate that the average student-loan-bearing consumer is about to experience a 14% to 19% hit to their discretionary spending power, resulting in near- to medium-term risks to DoorDash’s bookings.
Moffett’s analysts express their admiration for DoorDash’s management and its ability to grow through this headwind, but believe the current risk-reward is unattractive at this time.
Market Perform at MoffettNathanson means: “We expect this stock to perform in line with its benchmark over the next 12 months.”
How did the stock react? Shares were volatile in the premarket and they did end Friday worse off, down 2.5% to close the regular session at $80.93.
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