Investing.com — Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week.
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Roblox
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.
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.
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
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
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. In the outlook for 2025, Bath & Body Works faces challenges as Barclays downgrades its shares due to concerns over supply and demand risks. The bank predicts continued negative sales and margin contraction, attributing this to inventory buildup ahead of a sales recovery and aggressive promotions indicating weak consumer spending.
Key factors contributing to the downgrade include a weak U.S. consumer outlook for 2025, disappointing performance in the beauty segment by companies like Estée Lauder and Coty, and early holiday promotional activities. Barclays anticipates intense competition among retailers for consumer spending during the holiday season, a trend expected to persist into 2025.
Barclays’ underweight rating suggests that Bath & Body Works is likely to underperform compared to the industry coverage universe over the next 12 months. This cautious stance reflects the bank’s analysis of the challenging market conditions and consumer behavior trends expected in the coming year.