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Street Calls of the Week: Upgrade for Procter and Gamble, Tesla downgrade

Published 03/17/2024, 07:58 AM
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Investing.com -- Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Procter & Gamble, Dollar General (NYSE:DG), UiPath (NYSE:PATH) and Thor Industries (NYSE:THO); downgrade for Tesla (NASDAQ:TSLA)

InvestingPro subscribers always get first dibs on market-moving rating changes.

Procter & Gamble

What happened? On Monday, Truist upgraded Procter & Gamble (NYSE:PG) to Buy with a $175 price target.

What’s the full story? Truist’s upgrade is based on approximately 25.5x their FY25 EPS estimate, compared to the large cap HPC/Personal Care median of about 23x and PG’s 5-year average of approximately 23.5x. The brokerage maintains its recently raised estimates.

The analysts’ recommendation and price target are based on their belief that investors are shifting focus in 2024 to Consumer Packaged Goods (CPG) companies with volume growth (let’s be real, who isn’t?).

Procter & Gamble, having returned to volume growth in F2Q24 (excluding China), recently provided encouraging commentary around its China business. In Truist’s view, this signals enterprise-level volume recovery in the coming quarters as the year-over-year comparisons for Procter & Gamble in China become more favorable.

Buy at Truist means “the stock’s total return is expected to outperform the S&P 500 or relevant benchmark over the next 12-18 months (unless otherwise indicated).”

How did the stock react? Procter & Gamble stock traded higher on the premarket upgrade from $160.23 to $161.71. PG opened the regular session at $161.43 and closed at $161.55, a gain of 0.75%.

Dollar General

What happened? On Tuesday, JPMorgan upgraded Dollar General to Neutral with a $159 price target.

What’s the full story? JPMorgan analysts model 4Q EPS of $1.87, above the Street at $1.74, and FY24 EPS of $7.42, slightly below the Street at $7.47. This is based on +1.9% same-store-sales, with a flat to +1% buy-side bar on management’s initial FY24 comp guide.

Digging deeper, the analysts’ flat comp in Q4 holds the company’s Q3 CAGR (Compound Annual Growth Rate) at +4.1%, noting year-over-year same-store-sales tailwinds from lapping Winter Storm Elliott in late December and the extra Holiday shopping day. This points to an underlying negative low-single-digit comp run-rate exit rate trend-line. Looking ahead, they model FY 2024 EPS of $7.42, driven by +1.9% same-store-sales, exceeding consensus at +1.3%.

The bank sees sequential top-line improvement in FY 2024 supported by management’s key initiatives around in-stocks, store standards, improving customer service, and signage highlighting value to customers. However, the analysts also see margin headwinds relative to 2019 tied to shrink, consumables mix, markdowns, and transportation.

Neutral at JPMorgan means “over the duration of the price target indicated in this report, we expect this stock will perform in line with the average total return of the stocks in the Research Analyst’s, or the Research Analyst’s team’s, coverage universe.”

How did the stock react? Dollar General stock traded higher on the premarket headline from $158.78 to $161.3, a gain of around 0.50 percent. DG opened the regular session at $161.24 and closed at $161.22, a decline of 1.19%.

Tesla

What happened? On Wednesday, Wells Fargo downgraded Tesla to Underweight with a $125 price target

What’s the full story? Wells Fargo’s downgrade is based upon concerns over the diminishing impact of price cuts on sales volume and the potential for negative EPS revisions. The bank’s EPS estimates for 2024 and 2025 are 32% and 52% below the consensus, respectively. The analysts also highlight the challenging economics of Tesla’s Model 2 as a mass-market compact vehicle, with Tesla’s stock trading at a significant premium—58x the consensus ‘24 EPS and 89x Wells Fargo’s estimate (irrational investors?) —compared to its ‘Magnificent 7’ peers at 31x.

Wells Fargo noted that Tesla’s growth in core markets has slowed, with sales in the EU and China remaining flat and the US declining since Q2. The recent price cuts have only led to a modest 3% half-on-half increase in volume, despite a 5% reduction in pricing, resulting in an average of $6.8K less gross profit per car.

Wells Fargo expects Tesla’s sales volumes to remain flat in 2024 and decrease in 2025, with additional concerns over reduced lease residuals, customer dissatisfaction, and the erosion of Tesla’s luxury brand premium.

Underweight at Wells Fargo means “Total return on stock expected to lag the Overweight- and Equal Weight-rated stocks within the analyst's coverage universe over the next 12 months. SELL.”

How did the stock react? Tesla stock traded down on the premarket headlines from $176.94 to $174.38, a decline of around two percent. TSLA opened the regular session at $173.14 and closed at $169.48, a decline of 4.54%.

UiPath

What happened? On Thursday, JPMorgan upgraded UiPath to Overweight with a $28 price target

What’s the full story? JPMorgan highlights UiPath as a frontrunner in Robotic Process Automation (RPA), offering a suite of tools that significantly enhance process efficiencies through automation. The bank emphasizes UiPath’s ability to manage the full automation lifecycle, which includes process discovery, development, management, governance, and scaling, as well as measuring the business impact of these automations. The analysts commend UiPath’s vision and the robustness of its platform, which is complemented by user-friendly tools that are now enabling business users to develop automations themselves.

The bank has upgraded UiPath shares to Overweight (OW) from Neutral, predicting a shift from the deceleration of Annual Recurring Revenue (ARR) growth to a stable growth trend, especially as the company engages with Generation AI (GenAI) automation projects and continues to improve margins. JPMorgan had previously maintained a contrarian stance on UiPath, steering clear of the stock during its decline from the $80s to the $20s. However, following a more positive outlook on UiPath’s recent quarters, including the fourth fiscal quarter (FQ4), and the potential end to rapid ARR growth deceleration, JPMorgan views the current low $20s share price as an opportunity for accumulation, despite the flat after-market trading influenced by soft Q1 revenue guidance and current Remaining Performance Obligations (cRPO) trend

Overweight at JPMorgan means “(over the duration of the price target indicated in this report, we expect this stock will outperform the average total return of the stocks in the Research Analyst’s, or the Research Analyst’s team’s, coverage universe).”

How did the stock react? UiPath opened the regular session at $25.22 and closed at $22.75, a decline of 6.88%.

Thor Industries

What happened? On Friday, Citi upgraded Thor Industries (NYSE:THO) to Buy with a $122 price target.

What’s the full story? Citi analysts describe Thor Industries as a quintessential example of the early-cycle recreational vehicle (RV) narrative. Despite investor apprehension leading to premature investments in the past, the bank believes that following the recent downturn and market correction, the industry is poised for a rebound. Citi anticipates a more favorable outlook starting in April or May, which should instill confidence in dealers to place orders, stabilize Original Equipment Manufacturer (OEM) guidance, and subsequently increase the company’s stock value.

Citi also initiated a 90-day upside catalyst watch, expecting a positive shift in the RV industry within the April-May period after enduring 32 months of year-over-year declines. This anticipated turnaround aligns with industry forecasts and is likely to encourage dealers to increase orders, OEMs to solidify their guidance, and investors to re-engage with THO’s narrative, potentially enhancing the company’s market valuations

Buy at Citi means “Buy (1) ETR of 15% or more or 25% or more for High risk stocks.”

How did the stock react? Thor opened the regular session at $103.30 and closed at $103.81, a gain of around 2.86%.

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