Investing.com -- Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Micron, Insulet, Cheesecake Factory and Bumble ; downgrade for ZoomInfo.
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Micron
What happened? On Monday, Baird upgraded Micron (NASDAQ:MU) to Outperform with a $150 price target.
What’s the full story? Despite boarding the train a tad late, Baird perceives significant upside possibilities for Micron, particularly in light of the stock’s recent pullback. This view is in contrast with the progressively positive trends emerging in DRAM, as per their latest channel checks. These developments lead to a somewhat unparalleled forecast for memory over the forthcoming 12-18 months.
DRAM pricing is proving to be more robust than previously anticipated, with an increasing mix of premium-priced DDR5. This trend is a positive indicator for Micron’s financial performance and market position. The brokerage house’s analysis suggests that the shift towards higher-priced memory options is a strategic move that could pay off in the long run.
Lastly, the potential of HBM3E (the fastest, highest-capacity high-bandwidth memory to advance AI innovation) is not to be overlooked. Baird projects that HBM3E could generate a gross margin exceeding 60% for Micron in the coming year. This potential margin indicates a strong financial performance and further solidifies Micron’s position in the market. Given these factors, Baird rates Micron as “Outperform”. This rating reflects the brokerage house’s confidence in Micron’s future performance amidst the evolving market dynamics.
Outperform at Baird means “Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months.”
How did the stock react? Micron opened the regular session at $119.04 and closed at $120.13 , a gain of 4.73% from the prior day regular close.
Insulet
What happened? On Tuesday, Wolfe upgraded Insulet (NASDAQ:PODD) to Outperform with a $200 price target
What’s the full story? Baird has learned over the years that to truly understand the valuation of some of these high-flying, high-growth, dream-the-dream stories, it needs to extend modeling duration versus the comfort of just one, three, or even five years. As a result, Baird has a PODD DCF that extends 20 years to 2040+.
Baird independently models four major buckets with varied assumptions for market penetration and PODD share: US type 1, US type 2 intensive (bolus+basal), US basal, and OUS type 1. Long term, their market penetration rates are highest for US type 1 and lowest for US basal. In type 1, Baird frames PODD earning 40% market share in US and OUS, over time. In type 2, given current leadership and an only-in-class-basal product, Baird sees PODD earning 50%+ market share in type 2 pumping long term. Terminal margin and growth in their DCF are 30% and 3%, respectively, and they discount cash flows at 9%.
More simply on valuation, returning to ‘short term’ metrics, Baird sees current levels as undemanding versus sector growth comps and history. On 2025 revenue, PODD here trades at approximately 6x – that's the bottom quartile of history per the note. There are 15%-25% growth comps trading 7x-13x 2025 revenue. On real EBITDA (including stock comp), PODD here is approximately 30x on 2025. Names like DXCM, ISRG, and SWAV (using takeout) are clustered around 40x 2025.
Outperform at Wolfe means “The security is projected to outperform analyst's industry coverage universe over the next 12 months.”
How did the stock react? Insulet opened the regular session at $183.01 and closed at $184.28, a decline of 4.47% from the prior day regular close.
ZoomInfo Technologies
What happened? On Wednesday, Goldman downgraded ZoomInfo (NASDAQ:ZI) to Sell with a $12 price target
What’s the full story? Goldman is moving to a Sell position due to the increased lack of visibility around an inflection in the aforementioned trends. The company’s 1Q24 results suggest ongoing macro challenges and execution hurdles, with NER declining to 85% from 87% in 4Q, and net-new revenue continuing to contract (FY24e $12mn vs $142mn in FY23, $350mn in FY22). Furthermore, there is waning cRPO (Current Remaining Performance Obligation) growth, which was flat/-2% on a yoy/qoq basis.
Amid a challenged spending backdrop, softer macro signals, and after working through two large renewal quarters in 4Q/1Q, the banking house sees a lack of upcoming catalysts that can support revenue re-acceleration. This leads Goldman to expect a more gradual top-line re-acceleration story. Taken together with Street expectations for growth to accelerate by 600bps (pre-print) in CY25 (vs GSe ~100bps), Goldman sees downward estimate revisions as an overhang to the stock.
While Goldman notes that ZI is seeing an improvement in underlying trends, with mid-market retention stabilizing and enterprise improving, and is expected to introduce Gen-AI services in 2H, the banking house waits for the following trends to form before getting more constructive: 1) indications of a recovering hiring backdrop, 2) improved execution in terms of stabilizing churn, and 3) durable expansion. These factors will be critical in determining Goldman’s future stance on the company.
Sell at Goldman mean “Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a stock’s total return potential relative to its coverage universe.”
How did the stock react? ZoomInfo opened the regular session at $12.12 and closed at $12.14, a decline of roughly 25% from the prior day regular close of $16.02.
Cheesecake Factory
What happened? On Thursday, Raymond James upgraded Cheesecake Factory (NASDAQ:CAKE) to Outperform with a $42 price target.
What’s the full story? Raymond James says CAKE first-quarter results have shown promising signs of competitive resilience and significant outperformance amidst a weakening industry environment. Particularly noteworthy is the Cheesecake segment, which has surpassed its 2019 margin levels for the second quarter in a row, alleviating previous concerns about margin pressures. This performance indicates a robust competitive stance within a challenging market.
The brokerage observes that while store margins at the company’s growth brands are still not meeting unit economic goals, there is potential for margin improvement into 2024. This optimism is based on the expectation that pricing will align with inflation rates, which may prompt investors to re-evaluate the company’s long-term revenue growth prospects, estimated at 7-8% annually. Such an adjustment could lead to a re-assessment of the company’s value, especially considering its current low price-to-earnings ratio of approximately 11 times.
Furthermore, Raymond James highlights that the company’s stock is undervalued, with a P/E ratio of around 11x, suggesting room for growth. Additionally, the stock’s high short interest, which stands at about 15% of the float, is also noted. The updated guidance provided by the company incorporates a degree of caution due to the uncertain state of the industry. However, this conservative outlook may present an opportunity for stock appreciation if industry trends remain stable or improve. Raymond James maintains a positive outlook on the stock, anticipating potential gains from the current valuation levels
Outperform at Raymond James mean “The security is expected to appreciate or outperform the S&P 500 over the next 12-18 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, an Outperform rating is used for securities where Raymond James is comfortable with the relative safety of the dividend and expects a total return modestly exceeding the dividend yield over the next 12-18 months.”
How did the stock react? Cheesecake Factory opened the regular session at $36.47 and closed at $36.06, a gain of 6.15% from the prior day regular close.
Bumble
What happened? On Friday, BofA Securities upgraded Bumble (NASDAQ:BMBL) to Buy with a $14 price target
What’s the full story? BofA is upgrading Bumble to Buy as the banking house is now more confident that Bumble can meet or exceed Street expectations, which they believe will drive multiple expansion. BMBL exceeded street revenue estimates in 1Q for the first time in two quarters (EBITDA has performed better, above 4 out of the last 5 quarters) and consensus revenue estimates for FY24 are 80bps below the midpoint of guidance (range is +8-11% YoY).
The banking house also sees an expanded share repurchase program as supportive of valuation. At 6.4x 2025E EV/EBITDA, Bumble’s valuation currently represents a significant discount to projected growth (9.6/15.8% 3yr rev/EBTIDA CAGRs), competitor Match (8.4x), and consumer subscription comps (16.4x).
BofA raises estimates slightly and their PO remains $14 on 7x 2025 EV/EBITDA. This upgrade reflects BofA’s increased confidence in Bumble’s ability to meet or exceed market expectations and their belief in the company’s potential for growth.
Buy at BofA mean “Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster”
How did the stock react? Bumble opened the regular session at $11.65 and closed at $11.45, a gain of 0.26% from the prior day regular close.