This Week From The Analyst Community

Stock analysts can provide valuable insight into the sentiment around a certain stock or sector and shed some light on what is possible or likely for a stock.  Stirring in the analyst community can sometimes be early signs of stock movement.  Which is why our team reviews dozens of analyst research reports each and every day with the goal of finding new investment ideas for our readers. 

Of the hundred of reports we reference weekly, some stand out among the others for various reasons.  Our team has sifted through this week’s reports and whittled it down to the most pertinent moves.   

Read on for the details on some of the most impactful actions taken by brokerage firms over the past week.    

Monday, November 1st

  • Stephens analyst James Rutherford upgraded Starbucks (SBUX) from Equal Weight to Overweight and raised the price target to $130 from $118.  Contrary to market views, Rutherford thinks that Starbucks is making a “smart move by spending more on employee wages.”  The analyst says “now more than ever,” labor is the most important competitive advantage in the foodservice industry.  According to the analyst, by paying its employees more than the competition can and will pay, Starbucks is positioning itself to take market share for years.  He believes those who view Starbucks’ Recently announced wage hikes “as being negative are being shortsighted.”  Now is the time to build positions in SBUX, says Rutherford.
  • Truist analyst Jake Bartlett upgraded Shake Shack (SHAK) to Buy from Hold, along with a $90 price target.  The analyst thinks near-term concerns over a delayed urban sales recovery and cost information have created a “strong buying opportunity.”  The company’s operating model has improved during the pandemic from an accelerated digital transformation and its menu “innovation” should drive traffic, Bartlett tells investors in a note.   

Tuesday, November 2nd

  • Chegg (CHGG) was the recipient of numerous downgrades after Q4 guidance and fiscal 2022 commentary and the price target was slashed by several Wall Street firms.  Criag-Hallum analyst Alex Fuhrman downgraded Chegg from Buy to Hold, lowering the price target to $50 from $125.   The analyst notes Chegg’s Q3 results were essentially in line with his estimates, but it appears that trends hit a wall in late September.  As a result, management lowered its full year guidance and pointing to Q4 results significantly below Fuhrman’s prior estimates. The analyst points out that it appears that the driving factor behind the lower guidance is a decline in college enrollments across the industry, which continue to be pressured by the COVID pandemic and also by rising wages and other economic factors. Given that these enrollments headwinds are likely to persist for the remainder of the 2021-2022 academic year, he is “significantly” lowering his 2022 estimates.
  • One analyst saw the sell-off of Chegg (CHGG) shares as a buying opportunity.   Barrington analyst Alexander Paris lowered the firm’s price target on Chegg to $60 from $100 and keeps an Outperform rating on the shares. The analyst would be a buyer of the stock on this morning’s post-earnings selloff.  Guidance was reduced to reflect a temporary industry slowdown related to a decline in college enrollments nationwide, Paris tells investors in a research note.  After posting “extraordinary growth” over the past 18 months, management said that the education industry is experiencing a slowdown that is likely temporary and a direct result of the pandemic, the analyst points out. 
  • Global video-based social media company Joyy (YY) was downgraded at Goldman Sachs.  Analyst Piyush Mubayi downgraded Joyy to Sell from Neutral with a price target of $57, down from $99. The analyst said the company will likely see its growth rate fall “sharply” into the low double digits starting in Q3 from 140% five quarters ago, which raises concerns of BIGO Live’s long-term growth runway.  Mubayi sees BIGO Live growing at a slowing pace and structurally losing live streaming revenue share to TikTok.

Wednesday, November 3rd

  • Northcoast analyst Jim Sanderson upgraded Shake Shack (SHAK) to Buy from Neutral with a $98 price target.  Channel checks indicate Shake Shack is experiencing stronger sales in October compared to a “lackluster” summer, Sanderson tells investors in a research note.  Further, the company’s New York City traffic and average sales are improving, says the analyst.
  • At least four Street firms downgraded Zillow Group (ZG) after its revenue for the third quarter missed estimates and the digital real estate company said it was exiting Offers, its business that buys and flip homes.  Among them, Citi analyst Nicholas Jones downgraded Zillow Group to Neutral from Buy with a price target of $86, down from $185.  FThe analyst believes that following the “surprising” exit of the home buying business, Zillow will likely “be in the penalty box” as investors digest the news and begin sizing its new growth opportunity.  The analyst’s new valuation removes the homes segment.
  • Evercore ISI analyst Mark Mahaney also downgraded Zillow (ZG) to In Line from Outperform with a price target of $89, down from $168, after the company posted “mixed” Q3 EPS results, largely driven by softness in the Zillow Offers iBuying segment, which it has decided to wind down over the next few quarters.  His long thesis had been partly based on the option value implied in Zillow’s long-term participation in this segment and in its synergies with Zillow’s core businesses, said Mahaney.  While he continues to like Zillow’s core residential real estate marketing segment and believes the stock’s current valuation doesn’t fully reflect the value of the segment, he is stepping to the sidelines as he reassesses Zillow’s long-term strategy and competitive position, the analyst said.
  • Activision Blizzard (ATVI) was downgraded by multiple firms on production delays and a change in leadership.  After announcing during its earnings call on Tuesday that co-leader Jen Oneal would be stepping down at the end of the year, leaving Mike Ybara as sole leader.  Among the analysts to revise their price target is Oppenheimer analyst Andrew Uerkwitz who thinks “the bigger problems at Blizzard are the leadership vacuum, and talent retention/acquisition.”  The analyst lowered the target for ATVI to $85 from $100.  
  • After a more than 22% pullback T-mobile (TMUS) was upgraded to Strong Buy by Raymond James analyst Ric Prentiss.  The analyst says the company’s in-line Q3 results and “tweaked up” guidance allayed competitive fears.  T-Mobile has a 5G head start that will push subscriber and service revenue growth even with headwinds from migrating Sprint subs, Prentiss tells investors in a research note.  With the stock down 22% from its July peak, the analyst thinks “now is an attractive buying opportunity.”

Thursday, November 4th

  • Argus analyst John Staszak downgraded Starbucks (SBUX) to Hold from Buy, citing the impact of rising labor costs, supply-chain challenges, and increased competition, also noting that potentially weaker comp sales in China could be a near-term headwind given the country’s continued use of lockdowns to control the pandemic.  Staszak further cuts his FY22 EPS view for Starbucks to $3.60 from $3.70.

Friday, November 5th

  • BTIG analyst Peter Saleh upgraded Shake Shack (SHAK) to Buy from Neutral with a $100 price target.  Despite the sales and margin miss in Q3, the company’s fundamentals appear to have “bottomed”, and the return to work along with an increase in tourism activity should drive outperformance, the analyst tells investors in a research note.  Saleh adds that while he has limited visibility on commodities, the more aggressive price increase taken in October is evidence that management will defend margins at this level.
  • Peloton’s (PTON) disappointing earnings led to multiple downgrades.  Among them was Stifel analyst Scott Devitt who downgraded Peloton Interactive to Hold from Buy with a price target of $70, down from $120.  The company’s fiscal year outlook has seen “rapid deterioration,” Devitt tells investors in a research note.  It was initially provided last quarter and significantly reduced alongside the fiscal Q1 results as Peloton lowered revenue guidance by $800M or 15% at the midpoint, citing limited visibility due to challenging compares, reopening economies, and cost pressures related to supply chain constraints, says the analyst.  He expects it will take several quarters to determine a more normalized pace of growth and sees limited near-term upside as Peloton works through this “digestion period.”

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