Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Meta and Morgan Stanley, and downgrades for Fox Corp., JetBlue, and Progressive
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Fox Corp.
What happened? On Monday, Wells Fargo downgraded Fox Corp Class A (NASDAQ:FOXA) (NASDAQ:FOX) to Underweight with a $31 price target.
What’s the full story? Wells Fargo sees multiple headwinds facing Fox Corp, citing the challenges of cable news, cord cutting and sports-rights costs as reasons to avoid the stock. They argue that cable news is losing viewers as more people cut the cord, and that Fox News has suffered a significant drop in market share after the departure of its star host Tucker Carlson.
They also note that Fox News accounts for 80% of Fox Corp’s earnings before interest, taxes, depreciation and amortization (EBITDA), and that investors will need to see evidence of a turnaround. Wells moreover warns that cord-cutting could accelerate if ESPN goes direct-to-consumer, and that sports-rights costs will rise in 2024 due to new deals with the NFL and the Big Ten.
Wells says there are better value opportunities in the media sector with stronger content assets or higher free cash flow yields.
Underweight at Wells Fargo means:
Total return on stock expected to lag the Overweight- and Equal Weight-rated stocks within the analyst's coverage universe over the next 12 months.
How did the stock react? Once the InvestingPro headline hit at 5:02AM New York time, the equity declined about 50 cents to $33.54.
FOXA ended the day at $33.70, bucking the downgrade, as the scalpers captured alpha in the premarket - although shares were still off by 1.1% from the prior close.
JetBlue Airways
What happened? On Tuesday, Evercore downgraded JetBlue (NASDAQ:JBLU) to Underweight with an $8 price target
What’s the full story? Evercore cites the recent rally in JetBlue shares, which they attribute to irrational exuberance, as a reason to sell the stock. They note that JetBlue lost a crucial regulatory approval for its Northeast Alliance with American Airlines (NASDAQ:AAL), which they say could jeopardize its competitive position in the region. They also question the logic of JetBlue’s proposed acquisition of Spirit Airlines (NYSE:SAVE), which they view as overpriced and dilutive.
Evercore also warns that JetBlue will see its leverage ratio deteriorate from 2x to 5x net debt to EBITDA, well above the low-cost industry average of 1.2x., and adds that the integration of Spirit will be difficult and costly given JetBlue’s mixed track record of execution.
Moreover, the analysts flag the potential risk of a forced wind-down of the Northeast Alliance, which could disrupt JetBlue’s capacity and cost plans for the second half of the year.
Underweight at Evercore implies:
...the total forecasted return is expected to be less than the expected total return of the analyst's coverage sector.
How did the stock react? JBLU shares were walloped after the headline, dropping from $9.29 at 6:27AM to $8.96 within two minutes. Shares fell over 5% within eight minutes to $8.81, then predictability reversed to the 50% Fibonacci level of $9.05 by 7AM NY time.
JBLU ticked up fractionally into the open of the regular session before sliding back down to end the day at $9.04 - down 2.6% from the prior close.
Morgan Stanley
What happened? On Wednesday, Odeon Capital upgraded Morgan Stanley (NYSE:MS) to Buy with a $94 price target.
What’s the full story? Odeon commented Morgan Stanley has benefited from three favorable trends in the past month.
First, the Federal Reserve’s monetary policy has not tightened the liquidity in the financial system, as shown by the Odeon M3 Money Index, which measures the money supply. This has helped Morgan Stanley avoid the negative effects of rising interest rates on its fixed income assets.
Second, the stock market has soared by 27.1% since October 2022, driven by excess liquidity, boosting Morgan Stanley’s wealth management and trading businesses.
Third, the investment-banking business has rebounded strongly since June as companies seek to raise capital or pursue mergers and acquisitions. Morgan Stanley has maintained its strong presence in this sector and has also integrated its recent acquisitions.
A Buy at Odeon means:
Anticipated total return of 10%+ over the next 12 months including dividend payments and/or the ability to perform better than the leading stock market averages or stocks within its particular industry sector.
How did the stock react? MS shares rose $0.64 to $85.60 as the upgrade was published and circulated in the premarket.
The equity opened the regular session at $86.68 and slipped through the day to close at $85.77, up 0.95% from Tuesday’s close of $84.96.
Meta Platforms
What happened? On Thursday, TD Cowen upgraded Meta Platforms (NASDAQ:META) to Outperform with a $345 price target.
What’s the full story? Cowen analysts wrote they had misjudged Meta’s ability to slash costs after the company initially predicted high 2023 operating expenses and capital expenditures in its third-quarter earnings report last year. Meta management soon reversed course and announced staff reductions and other cost-saving measures as part of its year of efficiency strategy.
The analysts also cited several reasons for their bullish outlook on Meta’s shares.
First, Cowen expects Meta to beat the market expectations for its revenue and earnings, based on their positive checks on its digital advertising business. The firm said its agency contacts reported a 9% year-over-year increase in Meta’s ad spending in the second quarter, driven by a surge in ad impressions on Instagram.
They also said Meta could generate more revenue from its Reels feature, which allows users to create and watch short videos, by placing banner or carousel ads at the bottom of the screen. These ads have already been successful on Facebook’s core app and were introduced on Instagram Reels at the end of the second quarter.
The analysts also noted that Instagram’s Explore tab, which shows users personalized content from different accounts, was showing strong monetization trends.
Outperform at TD Cowen means:
The stock is expected to achieve a total positive return of at least 15% over the next 12 months.
How did the stock react? Shares were already displaying continued strength (up $5 on the 4AM opening match to a $314 handle), and the TD Cowen upgrade in the premarket generated further upside strength, with the equity jumping nearly $1.50 at 5:30AM in New York to $315.45.
META closed the regular session up 1.3% to $313.41.
The Progressive Corp.
What happened? On Friday, Wells Fargo downgraded Progressive Corp. (NYSE:PGR) to Equal Weight with a $128 price target.
What’s the full story? Following Thursday’s absolute clubbing, which Citi noted was PGR’s worst day since 1999, Wells Fargo analysts said they have cut their earnings and price targets for PGR due to the June miss and lower growth and margin. PGR is expected to miss its profit target in 2023 but beat it in 2024. The analysts also believe shares will be stuck until the company stops adding to its reserves.
How did the stock react? The equity traded down almost $0.70 to a low $114 handle in the premarket before ending the session at $116.79, up 1.75%. For the week, shares were down about 11%.
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