Get 40% Off
💰 Buffett reveals a $6.7B stake in Chubb. Copy the full portfolio for FREE with InvestingPro’s Stock Ideas toolCopy Portfolio

Block Stock Throttled After Short Report: 5 Big Analyst Calls | Pro Recap

Published 03/26/2023, 10:35 AM
Updated 07/09/2023, 06:32 AM

Block shares were beaten to a pulp after a Hindenberg short report, which sparked a downgrade at Atlantic Equity. And here is today's full Pro Recap of the biggest analyst upgrades and downgrades over the past week.

Block taken to task after Hindenberg report

What happened? On Friday, Block (NYSE:SQ) was downgraded to Neutral with a $70 price target at Atlantic Equity.

Why highlight this note? Easy call on a rather bizarre week. Hindenburg decided to take Square to task on their business. Atlantic Equity promptly walks away from buying the equity and writes to clients regarding Square's deposit fees,

The improvement of risk controls would reduce these fees over time, a move which could be accelerated by stakeholder pressure following Hindenburg's report. Given the high incremental margin of these revenues, assuming a 10-30% reduction of the Instant Deposit fees, this could eliminate 10-30% of adjusted EBITDA.

When in doubt, walk away.

How did the equity react? The equity got destroyed. Jack Dorsey couldn't be reached for comment as the stock fell from over $75 to the $60 handle, collapsing more than 17% on the week. Given his management of Twitter, investors are clearly seeking more secure securities to stash their hard earned capital.

My two cents from my experience seeing Cash App abuse in Sunny Isles (North Miami Florida) when I lived there: Hindenburg's claim has long legs on this.

As always, InvestingPro subscribers got this news first. Never miss a market advantage again.

Pepsico upped at Bernstein

3rd party Ad. Not an offer or recommendation by See disclosure here or remove ads .

What happened? On Monday, PepsiCo (NASDAQ:PEP) was upgraded at Bernstein to Market Perform with a $185 price target.

Why highlight this note? Bernstein off the bat acknowledged to clients Monday morning, "We were wrong, and today we throw in the towel."

Expanding on their mea culpa, the firm wrote:

After a better year in 2020, when PEP's market shares benefitted from a shift to at-home consumption, where its shares are higher, we expected to see a return to share losses and for this to impede PEP's ability to hit its margin targets., ultimately hurting share price performance. We were wrong, and PEP has been amongst the strongest performers in our coverage, materially outperforming the market over the past twelve months.

How did the equity react? Shares of Pepsi gained roughly 1.40% Monday to close at $177.59, up from $176.50 on the regular session open. Pepsi ended the week at $179.09, gaining 1.3%.

Harley Davidson upgraded on valuation

What happened? Morgan Stanley upgraded Harley-Davidson (NYSE:HOG) to Overweight with a $50 price target on Tuesday.

Why highlight this note? Straightforward valuation call. The investment bank says going long the equity will likely reward investors due to a under-appreciated valuation coupled with mean-reversion in Harley's financial services segment. Addressing HOD's financial arm the bank writes:

We believe much of the negative outlook is already priced in for the captive finco (HDFS). Harley's average customer is stronger than the average auto consumer and HDFS is 7.4x leveraged (Total Assets/Equity) vs. captive auto subs over 10x leverage.

3rd party Ad. Not an offer or recommendation by See disclosure here or remove ads .

Harley is trying to get back to basics as Morgan Stanley comments.

How did the equity react? Naturally, Morgan's call failed to capture the current market sentiment (a sentiment where fear runs wild regardless of evidence to the opposite). The materially sold off nearly 5% ending the week down to $35.77 from a Tuesday high of $39.91.

Krispy Kreme stamped with Buy

What happened? On Wednesday Krispy Kreme (NASDAQ:DNUT) was upgraded to Buy with a $20 price target at Truist.

Why highlight this note? Truist offers a three point thesis for the flour and water manipulator:

1) "...we believe DNUT is one of the few packaged good companies that will post meaningful volume growth in 2023.

2) "...with approximately 30% of sales coming from international markets, primarily in the EU, we expect the stock to be viewed as a prime FX beneficiary in 2H."

3) "...we believe the Street is still underestimating the impact of the recently expanded McDonald’s (NYSE:MCD) in-store test."

How did the equity react? The professional industry scalpers liked this one. They were tweeting it, blasting it in chats across all channels and my industry sources noted they also were contacted within seconds of the publication in a race to get ahead of a juicy upgrade.

Any time there is a premarket upgrade before the 7AM hour marker in New York for non-professional retail traders to enter orders, the professionals race to get in place to capture the upside on the non-professional retail order flow. Short interest was the play here on this upgrade as the squeeze was strong pre-market amongst the professionals.

3rd party Ad. Not an offer or recommendation by See disclosure here or remove ads .

The stock ripped face to the upside, running over $1 to $15.81 before remaining elevated for 3 days to end the week at $15.71 - up from Monday's open of $14.22, and a gain of over 10% on the week.

Chewy cut down at Deutsche

What happened? Chewy (NYSE:CHWY) was downgraded to Hold on Thursday, with a $25 price target, at Deutsche Bank.

Why highlight this note? All banking jokes aside for the last weeks, the (consistently struggling) German investment bank wrote to clients "While we appreciate that the macro environment remains an overhang to user growth at the moment, in order to confidently underwrite upside to either estimates or valuation, which sits at ~35x 2024 EBITDA, we believe investors need confidence in the user growth trajectory, something that is in short supply for Chewy at the moment. " Basically, at a critical time for the company and pet service names in general, Deutsche is concerned Chewy may be reaching peak market penetration. Investors need confidence at 35X 2024 EBITDA? Yeah, they sure do.

How did the equity react? Blasted. That's how it reacted. The equity collapsed over 12% on the week, selling off following earnings and negative commentary around the street. Chewy opened Monday at a $38 handle and sold off to a sub $34 handle before ending the week down nearly $5 to $33.59.

InvestingPro | Always Know First to Maximize Your Profit Potential

Latest comments

this article not aged well...SQ will fly very high.
I hate square it raped my buddy (bearish)
I had money in cash app and couldnt withdraw it for almost 8 months… stock is garbage
SQ earnings are fine. These short reports are garbage
Crypto is done.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.