Investing.com — Here's your professional summary of Wall Street analysts' top takeaways over the past week.
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Roblox
What happened? On Monday, Morgan Stanley improved Roblox Corp. (NYSE:) overweight with a $65 price target
*TLDR: Morgan Stanley sets Roblox's target multiple at a 25% premium. The bullish scenario values Roblox at $110 per share.
What is the full story? Morgan Stanley has set a target multiple for Roblox that represents a 25% premium compared to its internet peers. The bloated support bench justifies this premium by highlighting Roblox's extensive user growth potential, high levels of engagement, and a robust user-generated content (UGC) ecosystem. Besides, Morgan Stanley (NYSE:) sees significant opportunities for Roblox to expand into high-margin revenue streams such as advertising and e-commerce.
In its bullish scenario, Morgan Stanley values Roblox at $110 per share, based on a target EV/EBITDA multiple of 34x, reflecting EBITDA growth of 76% from 2023 to 2026. This scenario assumes advertising revenue will grow a lot faster than the base case. , and e-commerce also contributed to the growth from the same year. The bank expects substantial acceleration in these new lines of business as Roblox continues to monetize its rapidly expanding user base.
Overweight on Morgan Stanley means that “the stock's total return is expected to exceed the average total return of the analyst's (or industry team's) industry coverage universe, on a risk-adjusted basis, over the next 12 to 18 months”.
Caravan Co.
What happened? On Tuesday, Morgan Stanley upgraded Carvana (NYSE to equal weight with a $260 price target.
*TLDR: Carvana's third-quarter profitability exceeded expectations with strong operating leverage. Positive cash flow supports self-financing and debt reduction.
What is the full story? Morgan Stanley analysts were pleasantly surprised by Carvana's rise in profitability in the third quarter, despite revenue growth modestly above expectations. Carvana demonstrated substantial positive operating leverage, and SG&A expenses per retail unit continued to decline. Adjusted EBITDA margins of 11.7% were nearly 200 basis points higher than Morgan Stanley's forecasts. The company is leveraging its national digital used car platform, which includes vertically integrated sourcing, reconditioning and inventory/fleet/logistics management. This SG&A leverage, historically absent in the business, has now turned a corner, driving industry-leading double-digit EBITDA margins. The third quarter results showed an EBITDA and cash flow rate much higher than one year from previous forecasts.
Carvana, which currently holds just 1% of the US used car market, is approaching its peak retail unit volume starting in 2021/2022. The difference this time is the company's ability to drive efficiencies in gross margin and gross SG&A, with a fulfillment infrastructure capacity that roughly doubles its current run rate. Used gross margins have more than doubled since 2021, while gross SG&A expenses have been cut in half. Third-quarter results suggest Carvana has achieved “escape velocity” in profitable growth, which appears to be more than a temporary phenomenon. Additionally, the company is generating positive free cash flow, supporting self-financing and providing opportunities to pay down its $5.6 billion corporate debt balance over time.
Equal weight at Morgan Stanley means that “the stock's total return is expected to be in line with the average total return of the analyst's (or industry team's) industry coverage universe, on a risk-adjusted basis, over the next 12 to 18 months. “
Snowflake Inc .
What happened? On Wednesday, Monness Crespi Hardt upgraded Snowflake (NYSE to Buy with a $140 price target.
*TLDR: Monness Updates SNOW Ahead of Q3 Earnings; attractive valuation. Long-term benefits of ai are expected; Avoiding restructuring can increase margins.
What is the full story? This update from Monness comes ahead of SNOW's third-quarter earnings report, scheduled for November 20. Despite a 41% year-to-date drop in 2024 and a 73% drop from its peak in late 2020, Snowflake's valuation is seen as increasingly attractive by MCH analysts. They highlight the company's accelerated pace of innovation this year, which they believe will begin to pay off in the next 12 to 18 months.
MCH analysts also note that while the generative ai hype of 2023 has not translated into significant revenue for the software sector in 2024, they expect Snowflake and the industry to benefit from this trend in the long term.
Additionally, Snowflake's decision to avoid the severe restructuring measures seen across the tech industry could provide significant margin upside in the future if needed.
Buying into Monness Crespi Hardt means that “the stock is expected to outperform the market by 10% or more over the next 6 to 12 months.”
SolarEdge Technologies
What happened? On Thursday, Piper Sandler lowered her rating SolarEdge Technologies Inc. (NASDAQ:) to underweight with a $9 price target.
*TLDR: Piper downgrades SEDG to underweight; Third quarter results and fourth quarter forecasts disappoint. European market challenges and cash flow issues prompt a price target of $9.00.
What is the full story? Piper's expectations for SolarEdge Technologies (SEDG) were already low, but the latest update managed to disappoint. Third quarter 2024 results were disappointing, with higher-than-expected write-downs and significant cash burn, despite aligned forecasts. Fourth-quarter revenue guidance missed expectations by 40%, attributed to declining battery sales in Europe and aggressive pricing and promotions for European investors. Piper sees the sequential decline in revenue as worrying, especially since SEDG is no longer clearing stock from its US channel.
With normal levels of days sales outstanding and days payments outstanding, moderate sales in distribution, and higher U.S. manufacturing expenses projected for Q4 2024 and Q1 2025, Piper sees no formal plans to reset the template. Combined with European market challenges and competition from Tesla (NASDAQ:), Piper struggles to envision an improvement in cash flow next year and anticipates another capital raise. Sweeping cost reductions are seen as necessary to survive, prompting Piper to downgrade SEDG to Underweight due to balance sheet risks going into 2025, with a price target of $9 per share.
Underweight on Piper means “It is expected to underperform the median of the group of stocks covered by the analyst.”
Bath and body work
What happened? On Friday, Barclays downgraded Bath & Body Works Inc. (NYSE to underweight with a $28 price target.
*TLDR: Barclays downgrades Bath & Body Works; supply and demand risks cited. Weak consumer spending and aggressive promotions are expected through 2025.
What is the full story? Barclays has downgraded Bath & Body Works shares citing concerns about supply and demand risks over the next 12 to 15 months. While the second half of 2024 appears largely risk-free following recent guidance adjustments, the bank anticipates a sustained negative sales and margin contraction in 2025. Barclays supply analysis indicates inventory is accumulating ahead of a sales recovery, while demand analysis points to aggressive promotions, suggesting weak consumer spending.
The downgrade is driven by several factors: a weakening US consumer that is likely to persist into 2025, recent data in the US beauty segment showing worse-than-expected performance (including companies like Estée Lauder and Coty (NYSE: ) and an early start to Christmas promotional activities. Barclays believes that during the holiday season, retailers will compete intensely for consumer spending, a trend that is not expected to reverse in 2025.
The underweight in Barclays means that “the stock is expected to underperform the unweighted expected total return of the industry coverage universe over a 12-month investment horizon.”
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