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Merck's Big Upgrade: 4 Big Analyst Calls | Pro Recap

Published 02/26/2023, 07:57 AM
Updated 07/09/2023, 06:32 AM

Merck shares picked up after an upgrade at Wolfe Research. And here is your full Pro Recap of the biggest analyst calls you may have missed on InvestingPro this past week. Start your free 7-day trial to get this news first.

Merck gets a lift at Wolfe Research

What happened? On Wednesday, Wolfe Research upgraded Merck (NYSE:MRK) to Outperform with a $127 price target.

Why highlight this note? Wolfe sees Merck's base business continuing to do well, driven primarily by Keytruda and Gardasil. A key point, mergers and acquisitions (M&A) should remain manageable and not threaten equity holders with an equity-based deal as the firm wrote, "In terms of M&A, based on recent language by management, it seems the preference is NOT for larger deals at the moment, lessening the risk of an equity-based transaction that could otherwise take shares lower, as they commonly do."

How did the equity react? Shares gained strong all week, rising from $108.90 to $109.89, ending the week up about 1%.

Alcoa upped to Buy at Citi

What happened? Citi started the holiday-shortened week by upgrading Alcoa (NYSE:AA) to Buy with a $65 price target.

Why highlight this note? Alcoa is a highly liquid name that draws a lot of activity from scalpers, traders, and investors when research is posted. This upgrade relates to China reopening and the potential for Alcoa to see benefits as the "default North America exposure to aluminum" per Citi analysts.

The global investment bank also wrote, "Based on our conversations, it seems Alcoa is relatively out of favor with investors, with the market more focused on copper and coal. The current valuation is 8-9x spot EBITDA (~$1.2bn 2023E on $2,450/t) and at 4.5x on Citi’s estimate 2024 (~$2.1bn on $2,900/t). The balance sheet is strong. FCF is limited at spot, although working capital should be a tailwind."

How did the equity react? Shares gained from just under $47 Tuesday afternoon on the upgrade and peaked Wednesday just shy of $51 before falling and closing the week out at $46.45, offering a 3.5% loss on the week.

Dun & Bradstreet stamped with Buy at Deutsche Bank

What happened? Deutsche Bank raised Dun & Bradstreet (NYSE:DNB) to Buy with a $17 price target on Thursday.

Why highlight this note? The upgrade followed a strong Investor Day presentation from management. Deutsche Bank highlighted the company's investments, writing, "While the company's revenue growth rate has historically trended below peers (warranting a valuation discount), we have been encouraged by the company's investments in enhanced technology/data/analytics which was evident in the products we saw." Further, Deutsche Bank sees secular trends as favorable in the world of digital marketing, increasing supply chain disruptions, and increasing regulator/privacy issues.

How did the equity react? Shares were stagnant all week, ending the week up marginally to $12.05 from Tuesday's open of $12.09.

Wingstop cut down at BMO Capital

What happened? The week ended with a downgrade for Wingstop (NASDAQ:WING) - BMO Capital lowered the stock to Market Perform with a $190 price target.

Why highlight this note? Sometimes banks and brokers will downgrade or upgrade assets based not upon fundamentals, but due more to equity rising to their target. When this happens it's known as a "valuation call." BMO wrote to clients, "Our downgrade does not reflect a change in our view of WING’s fundamentals, but rather discipline as we believe shares are more fully valued following the ~30% appreciation in shares year-to-date."

How did the equity react? Shares closed the week down fractionally, falling from $171.66 Tuesday morning to $171.06 by the close on Friday. Shares did spike to $189.42 Wednesday following earnings then sold off from there for the week.

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