Investing.com -- Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Allakos, Discover Financial, and Spotify; downgrades for PepsiCo and Nike.
InvestingPro subscribers always get first dibs on market-moving rating changes.
Allakos Inc. upgraded
What happened? On Monday, William Blair upgraded Allakos Inc (NASDAQ:ALLK) to Outperform. William Blair does not issue price targets.
What’s the full story? William Blair analysts expect ALLK to release top-line results from two studies of subcutaneous lirentelimab by either year-end or early 2024:
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a Phase II study in atopic dermatitis (AD) and
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a Phase IIb study in chronic spontaneous urticaria (CSU).
WB’s analysts noted that after a setback in the Allakos gastroenterology-focused indications with lirentelimab back in 2021, Allakos had a new chance in these dermatology indications and Allakos believed lirentelimab had a strong chance of showing efficacy in the two readouts.
The brokerage house further commented that given the current valuation with shares trading at an enterprise value (EV) of less than $100 million (while the closest comparable company Celldex (NASDAQ:CLDX) was trading at an enterprise value of $1.8 billion following its Phase II data in CSU) they see significant upside potential if proof of concept is positive in either of the upcoming Phase II studies.
Outperform at William Blair means “stock expected to outperform the broader market over the next 12 months.”
How did the stock react? Allakos shares spiked from $$3.00 to $3.16 (+5% move) in the premarket session as the headline went out. ALLK opened the regular session at $3.20 and subsequently sold off the entire day to close at $2.88, a loss of 4% since Friday’s close.
PepsiCo downgraded
What happened? On Tuesday, JPMorgan downgraded PepsiCo Inc (NASDAQ:PEP) to Neutral with a $176 price target.
What’s the full story? JPMorgan opined they did not see anything fundamentally wrong with PepsiCo and the analysts continued to have confidence that Pepsi is well positioned to deliver on its 2024 outlook. The Pepsi outlook per JPM pointed to the high-end of its long-term financial algorithm of +4-6% organic sales growth and +high single-digit% foreign exchange-neutral earnings per share (EPS) growth.
However, the analysts wrote they saw the magnitude of upward estimate revisions as “narrowing” and they feel there is a better opportunity within beverages, for example, Coca-Cola (NYSE:KO) and Keurig Dr Pepper (NASDAQ:KDP), which JPM analysts suspect possess a higher quality composition of top-line growth in calendar year 2024 and also did not have the narrative overhang from glucagon-like peptide-1 (GLP-1) concerns, which were likely overblown but tough to disprove at this point.
GLP-1 is a hormone that regulates blood sugar levels and appetite, and some studies have suggested that artificial sweeteners may interfere with its function.
JPMorgan’s analysts lowered the teams December 2024 target price to $176, based on 20x price-to-earnings (P/E) multiple, which was a 10-year average premium to multinational peers P/E applied to current calendar year 2024 multiples, off their calendar year 2025 EPS estimate of $8.82
Neutral at JPMorgan means “Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.”
How did the stock react? Pepsi shares slid from $168.90 to $167.50 upon the open of the premarket session at 4am in New York. Pepsi opened the regular session at $168.17 and closed at $167.95, a loss of 0.57% since Monday’s close.
Discover Financial Services upgraded
What happened? On Wednesday, Citi upgraded Discover Financial Services (NYSE:DFS) to Buy with a $133 price target
What’s the full story? According to Citi analysts, there are several potential catalysts for the shares of Discover over the coming calendar year.
These catalysts include the reinstatement of regular share repurchases, the sale of its student loan portfolio/business, a likely peaking of credit losses in 2024, and less expense pressure as it simplifies its business. Shares have rallied 24% in the past month, but are still 13% below its 52-week high and Citi analysts see potential for multiple expansion as credit and regulatory concerns fade.
The analysts are raising their target price to $133 from $93, reflecting an increase in their EPS, rolling to 2025 from 2024 forecasts, and decreasing the discount to its 10-year mean forward P/E of 9.4x to 10% from 15% (multiple to 8.5x from 8.0x) as they see less downside risk from regulatory and credit risks ahead.
Buy at Citi means “ETR of 15% or more or 25% or more for High risk stocks.”
How did the stock react? Discover’s shares jumped from $108.93 to $109.48 as soon as the headline our Pro wire. xx opened the regular session at $110.43 and closed at $107.62, a loss of 1.23% since Tuesday’s close.
Spotify upgraded
What happened? On Thursday, Pivotal Research upgraded Spotify Technology SA (NYSE:SPOT) to Buy with a $265 price target.
What’s the full story? Pivotal’s increased target price on Spotify is driven by several factors (the raised PT resulted in the recommendation raise).
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Higher forecast medium/long term EBITDA/Free Cash Flow on Spotify’s renewed focus on financial discipline, which is highlighted by the ongoing recruitment of a new CFO, versus what the analysts view as a very large margin expansion opportunity.
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Continued strong results and what appears to be an ability to take price without significant churn.
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It appears that Spotify has won the digital audio streaming content war allowing them to continue to generate solid unit and ARPU growth going forward.
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Possible additional upside from leveraging their 600M MAU’s moving to 1B longer term.
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A reduction in the discount rate in the analysts’ DCF valuation methodology from 10% to 8% on falling interest rates. Sixthly, favorable currency/investment movements.
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Lastly, a move to a YE’24 target price from YE’23 previously.
Buy at Pivotal means “The security is expected to have an absolute return in excess of 15%. “
How did the stock react? Spotify opened the regular session at $195.31 and closed at $192.76, a gain of 2.18% since Wednesday’s close.
Nike downgraded
What happened? On Friday, TD Cowen downgraded Nike Inc (NYSE:NKE) to Market Perform following earnings.
What’s the full story? The TDC analysts reported the consensus estimates for Nike were too high on a multi-year basis and that the next innovation cycle was already modeled into 2025 recovery estimates. The analysts wrote that Nike needed increased and improved marketing investments.
TDC analysts lowered their target multiple to 26x fiscal year 2025 estimated earnings per share (EPS) and target to $104. The analysts noted that Nike was the preferred athletic apparel brand across genders, ages, and income levels, as the company continues to build a moat around its brand through category offense, innovation, and digital connections with consumers.
Further TD Cowen opined they believe direct-to-consumer expansion and Nike’s Consumer Direct Acceleration strategy may create a multi-year inflection in gross margin past prior peaks to reach near ~$6+ in EPS potential through fiscal year 2026 estimated.
Market Perform at TD Cowen means “The stock is expected to have a total return that falls between the parameters of an Outperform and Underperform over the next 12 months .”
How did the stock react? Nike opened the regular session at $108.29 and closed at $108.30, a loss of 11.78 % since Thursday’s close around $122 handle.
