Investing.com — Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week.
InvestingPro subscribers always get first dibs on market-moving AI analyst comments. Upgrade today!
Roblox
What happened? On Monday, Morgan Stanley upgraded Roblox Corp (NYSE:) to Overweight with a $65 price target
*TLDR: Morgan Stanley sets Roblox target multiple at 25% premium. Bullish scenario values Roblox at $110 per share.
What’s the full story? Morgan Stanley has set a target multiple for Roblox that represents a 25% premium compared to its internet peers. The bulge bracket bank justifies this premium by highlighting Roblox’s extensive user growth potential, high engagement levels, and a robust user-generated content (UGC) ecosystem. Additionally, Morgan Stanley (NYSE:) sees significant opportunities for Roblox to expand into high-margin revenue streams such as advertising and e-commerce.
In its bullish scenario, Morgan Stanley values Roblox at $110 per share, based on a target EV/EBITDA multiple of 34x, reflecting a 76% EBITDA growth from 2023 to 2026. This scenario assumes that advertising revenue will grow much faster than the base case, with e-commerce also contributing to growth starting in the same year. The bank expects substantial acceleration in these new business lines as Roblox continues to monetize its rapidly expanding user base.
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.“
Carvana Co.
What happened? On Tuesday, Morgan Stanley upgraded Carvana (NYSE:) to Equal-weight with a $260 price target.
*TLDR: Carvana’s Q3 profitability exceeded expectations with strong operating leverage. Positive cash flow supports self-financing and debt reduction.
What’s the full story? Morgan Stanley analysts were pleasantly surprised by Carvana’s increased profitability in the third quarter, despite modestly above-expectation top-line growth. Carvana demonstrated substantial positive operating leverage, with SG&A per retail unit continuing to decline. Adjusted EBITDA margins of 11.7% were nearly 200 basis points higher than Morgan Stanley’s forecast. The company is leveraging its national digital used-car platform, which includes vertically integrated sourcing, reconditioning, and inventory/fleet/logistics management. This SG&A leverage, historically absent from the business, has now turned the corner, driving industry-leading double-digit EBITDA margins. The third-quarter results showed an EBITDA and cash flow run-rate well over a year ahead of prior forecasts.
Carvana, which currently holds just 1% of the US used-car market, is approaching its peak retail unit volumes from 2021/2022. The difference this time is the company’s ability to generate efficiencies at gross margin and SG&A/gross, with fulfillment infrastructure capacity roughly double its current run rate. Used gross margins have more than doubled since 2021, while SG&A/gross has halved. The third-quarter results suggest that Carvana has achieved ‘escape velocity’ on profitable growth, which appears to be more than a temporary phenomenon. Additionally, the company is generating positive free cash flow, supporting self-financing and providing opportunities to pay down its $5.6 billion corporate debt balance over time.
Equal-weight at Morgan Stanley means “The stock’s total return is expected to be in line with 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.”
Snowflake Inc .
What happened? On Wednesday, Monness Crespi Hardt upgraded Snowflake (NYSE:) to Buy with a $140 price target.
*TLDR: Monness upgrades SNOW ahead of Q3 earnings; valuation attractive. Long-term AI benefits expected; avoiding restructuring may boost margins.
What’s the full story? This Monness upgrade comes ahead of SNOW’s Q3 earnings report, scheduled for November 20th. Despite a 41% decline year-to-date in 2024 and a 73% drop from its peak in late 2020, the MCH analysts find Snowflake’s valuation increasingly attractive. They highlight the company’s accelerated pace of innovation this year, which they believe will start yielding results over the next 12-18 months.
The MCH analysts also note that while the generative AI hype of 2023 has not translated into significant revenue for the software sector in 2024, they expect Snowflake and the industry to benefit from this trend in the long term.
Additionally, Snowflake’s decision to avoid the severe restructuring measures seen across the tech industry could provide a significant margin advantage in the future if needed.
Buy at Monness Crespi Hardt means “the security is expected to outperform the market by 10% or more during the next 6-12 months.”
SolarEdge Technologies
What happened? On Thursday, Piper Sandler downgraded SolarEdge Technologies Inc (NASDAQ:) to Underweight with a $9 price target.
*TLDR: Piper downgrades SEDG to Underweight; Q3 results and Q4 guidance disappoint. European market challenges and cash flow issues prompt $9.00 price target.
What’s the full story? Piper’s expectations for SolarEdge Technologies (SEDG) were already low, but the latest update still managed to disappoint. The third quarter of 2024 results were underwhelming, with larger-than-expected write-downs and significant cash burn, despite guidance alignment. The fourth quarter revenue guidance missed expectations by 40%, attributed to declining European battery sales and aggressive pricing and promotions for European inverters. Piper finds the sequential revenue decline troubling, especially since SEDG is no longer destocking its US channel.
With normal levels of Days Sales Outstanding and Days Payable Outstanding, subdued sales into distribution, and higher US manufacturing expenses projected for the fourth quarter of 2024 and the first quarter of 2025, Piper sees no formal plan to reset headcount. Combined with European market challenges and competition from Tesla (NASDAQ:), Piper struggles to envision an improvement in cash flow next year and anticipates another capital raise. Radical cost reductions are deemed necessary for survival, leading Piper to downgrade SEDG to Underweight due to balance sheet risks heading into 2025, with a price target of $9.00 per share.
Underweight at Piper means “Anticipated to underperform relative to the median of the group of stocks covered by the analyst.“
Bath & Body Works
What happened? On Friday, Barclays downgraded Bath & Body Works Inc. (NYSE:) to Underweight with a $28 price target.
*TLDR: Barclays downgrades Bath & Body Works; supply and demand risks cited. Weak consumer spending and aggressive promotions expected into 2025.
What’s the full story? Barclays has downgraded shares of Bath & Body Works citing concerns over supply and demand risks for the next 12-15 months. While the second half of 2024 appears largely derisked following recent guidance adjustments, the bank anticipates sustained negative sales and margin contraction in 2025. Barclays’ supply analysis indicates that inventory is building ahead of a sales recovery, while demand analysis points to aggressive promotions, suggesting weak consumer spending.
The downgrade is driven by several factors: a weakening U.S. consumer likely to persist into 2025, recent data points in the U.S. beauty segment showing worse-than-expected performance (including companies like Estée Lauder and Coty (NYSE:)), and an early start to holiday promotional activities. Barclays believes that during the holiday season, retailers will compete intensely for consumer spending, a trend that is not expected to reverse in 2025.
Underweight at Barclays means “The stock is expected to underperform the unweighted expected total return of the industry coverage universe over a 12-month investment horizon.”
