Investing.com – Here’s a quick look at the key takeaways from Wall Street analysts over the past week: rating upgrades for Micron, Magnite and GoodRx Holdings; downgrade for Him Her Health.
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micron
What’s happened? On Monday, Morgan Stanley upgraded Micron (NASDAQ:) to Equalweight with a $130 price target.
What’s the whole story? Morgan Stanley admits that maintaining a negative stance on Micron for an extended period was a mistake. While they’re not optimistic yet, they admit that they should have foreseen the fundamental and narrative implications of AI’s special memory power.
According to their research report, the research team made three key mistakes. First, they paid too much attention to the recent losses. When they first became pessimistic about MU two years ago, they predicted significant cash burn, financing losses and a significant decline in book value. When the losses turned out to be quite large – $7.1 billion on a GAAP basis over five quarters of decline, resulting in a 14% decline in book value – they expected it to have a larger impact on valuations than it did.
Secondly, Morgan Stanley underestimated the value of High Bandwidth (NASDAQ:) Memory (HBM) to storytelling. HBM has become a critical technology for artificial intelligence, and although Micron is just now starting to reap the benefits of this, having missed the HBM3 phase in the market, they have a solid 3e product that will put them firmly in second place. This came to light six months ago, and despite some concerns that current wafer commitments are too high, it still brought Micron straight into the winner’s camp at a stage where proximity to AI has led to much of the alpha generation ended up in space.
Third, the bank wrote that it underestimated the importance of HBM in restoring the underlying business. While they believe their total addressable market (TAM) analysis of HBM remains valid, they now see that Trendforce forecasts that 15% of wafers will begin arriving at HBM by Q4 2024, and Applied Materials (NASDAQ:) suggests that they are already 20%. That’s too much, at least compared to the consumption assumed even in NVIDIA’s (NASDAQ:) bullish case, but the impact on non-HBMs has a more negative impact on industry supply than they expected.
With these factors driving near-term fundamentals (they could see a positive pre-announcement at upcoming conferences) and a positive outlook for the AI semi-finals, Morgan Stanley moves to an even weight on MU.
Equal weighting at Morgan Stanley means: “The stock’s total return is expected to be in line with the average risk-adjusted total return of the industry covered by the analyst (or industry team) over the next 12 to 18 months. “
How did the stock react? Micron opened the regular session at $127.30 and closed at $129.00, up 2.96% from the previous day’s regular close.
Penn Entertainment
What’s happened? On Tuesday (actually Monday after hours), Raymond James began new coverage of PENN Entertainment (NASDAQ:) on Outperform with a $20 price target.
What’s the whole story? The first quarter of this year was a difficult situation for PENN, characterized by several factors. These included weakness in the land-based business primarily due to weather conditions, higher-than-expected losses in the digital sector and a significant sell-off due to management issues.
Despite these setbacks, the core land-based gaming business remains relatively resilient. In 2023, PENN achieved record levels of revenue and EBITDAR (earnings before interest, taxes, depreciation, amortization, and rent). In addition, EBITDAR is expected to improve throughout 2024. However, it’s important to note that the stock’s performance continues to be impacted by the company’s interactive business, which has accumulated significant EBITDA losses.
Raymond James’ positive position on PENN stock is not based solely on the belief that ESPN BET (the interactive business) will capture significant market share or generate positive EBITDA in the near future. Instead, the brokerage acknowledges that PENN stock can still perform well to a certain extent. In particular, Raymond James believes that the market is undervaluing digital businesses, assigning them a negative cost of capital. In addition, the fair value of the onshore business is estimated to be above $20 per share.
It’s worth noting that PENN stock hasn’t traded at this price level since May 2020, when all US casinos were closed due to the global COVID-19 pandemic. Despite the challenges posed by PENN’s interactive strategy and overleveraged balance sheet, Raymond James sees value in its onshore operations. The brokerage states that current market conditions may not fully reflect this underlying value.
Raymond James Outperform means: “The security is expected to increase in value or outperform the S&P 500 Index over the next 12 to 18 months.”
How did the stock react? Penn Entertainment opened the regular session at $16.39 and closed at $16.41, up 0.86% from the previous day’s regular close.
Him her health
What’s happened? On Wednesday, Citi downgraded shares of Hims Hers Health Inc (NYSE:) to neutral with a $20 price target.
What’s the whole story? Citi expressed satisfaction with HIMS’ thoughtful approach to its new program, which initially raised concerns due to potential regulatory and legal risks. The bank is confident that HIMS is acting fairly by partnering with a major 340B manufacturer that directly produces semaglutide using APIs, processes and methods very similar to Novo. Management believes production of semaglutide is relatively straightforward and HIMS’s manufacturing partner should be able to produce enough product to meet the expected significant demand as there appears to be no shortage of APIs.
However, HIMS shares are up 20% since the announcement and effectively add about $760 million to its enterprise value based on limited new information, which Citi says leaves little room for upside. As a result, the bank is downgrading HIMS from Buy/High Risk to Neutral/High Risk as they await further details on the economics and durability of GLP-1. Despite the downgrade, Citi continues to closely monitor HIMS’s future performance and potential in the market.
“Neutral” for Citi means: “For a stock with a Neutral rating (2), if an analyst believes that there are insufficient valuation drivers and/or investment catalysts to generate a positive or negative investment opinion, he may, with the approval of Citi Research management, not assign a target price and thus not receive the ETR.”
How did the stock react? Hims & Hims Health opened the regular session at $16.90 and closed at $16.17, down 7.84% from the previous day’s regular close.
GoodRx Holdings
What’s happened? RBC Capital upgraded its rating on Thursday Goodrks Holdings Inc. (NASDAQ:) will outperform with a $10 price target.
What’s the whole story? GDRX’s recent ISP and DC initiatives, as well as the continued scaling of MfgSolns’ business, provide it with several new and significant growth opportunities. These initiatives also improve the reliability of the core transaction acceptance business. Most of the required pre-sales/contracts have already been completed, with GDRX signing five PBMs and seven top 10 pharmacies. The increase in these numbers gives GDRX a good outlook for its 3-year EBITDA CAGR.
RBC Capital believes that execution of this decision will help revalue GDRX’s current EBITDA valuation of 10 times in ’25 to a level more in line with its growth rate and the peer average of 14 times. Analysts raised their price target from $8 to $10.
“Outperform” in RBC Capital means “The company is expected to significantly outperform the sector average over a 12-month period.”
How did the stock react? GoodRx Holdings opened the regular session at $7.74 and closed at $7.24, up 0.56% from the previous day’s regular close.
LLC “Magnit”
What’s happened? On Friday, BofA Securities upgraded shares of Magnite (NASDAQ:) to Buy with a $15 price target.
What’s the whole story? RBC’s upgrade to MGNI is bolstered by the company’s increased confidence that MGNI will grow as a leading supply-side technology solution in CTV advertising, a sector that is expected to grow at a moderate pace over the medium term. This optimism is rooted in the industry’s shift toward more automated or programmatic ad execution, a niche in which MGNI excels. The company is increasingly recognized as the advertising technology partner of choice for both buy-side organizations such as agencies and DSPs and sell-side participants such as publishers. This is largely due to its advanced programming technology, which was highlighted by recent exclusive partnerships with industry giants Netflix (NASDAQ:) and MediaOcean.
Analysts highlight MGNI’s unique product suite, which integrates the ad server with the SSP, making it a key hub for publishers’ programmatic infrastructures regardless of purchase path. This integration makes MGNI significantly less vulnerable to disintermediation compared to standalone SSPs. What’s more, data from Disney and Paramount shows that the shift to programmatic methods is happening quickly, with premium streaming services projected to reach approximately 50% share by the end of 2024. This trend underlies claims of sustained growth in MGNI’s market share, according to analysts at RBC Capital.
Buying on BofA means: “The stock being purchased is expected to have a total return of at least 10% and is the most attractive stock in the coverage cluster.”
How did the stock react? Magnit opened the next session at $12.03 and closed at $12.57, which is 13.55% higher than the previous day’s usual close.