Upgrades and Downgrades by Wall Street analysts; have upgraded Dollar Tree, downgraded Southwest Airlines, PayPal, Chegg, and Extreme Networks over the past week.
Dollar Tree
Keybanc Upgrades Dollar Tree
- Upgraded to Overweight.
- Set $150 price target.
Keybanc Upgrades Dollar Tree (DLTR)
- Keybanc upgraded Dollar Tree based on its “R.I.B.S.” framework, anticipating acceleration of fundamentals in the second half of the year.
- Family Dollar is at a critical juncture, facing a decision between a turnaround or a divestiture within the next two to three years.
- The rationalization of stores within the sector is expected to boost sales and profitability.
- Keybanc maintains a positive outlook on Dollar Tree’s long-term strategy of “Breaking the buck.”
- Dollar Tree’s negligible impact on earnings per share positions it as a candidate for either a strategic turnaround or a potential divestiture.
- Keybanc shifted its rating for Dollar Tree to Overweight from Sector Weight and set a new price target of $150, indicating a 27% potential upside.
Dollar Tree Stock Reaction
- Opened regular session at $119.45.
- Closed at $118.56, 0.26% gain from previous day.
Southwest Airlines
Jefferies Downgrades Southwest Airlines
- Downgraded to Underperform.
- Price target: $20.
Southwest Airlines’ Development Markets and Financial Position
- Jefferies identifies development markets as a significant issue for Southwest Airlines (LUV).
- LUV opened 18 new cities during the pandemic, accounting for 10% of the network.
- Four cities have been cut, and LUV is aiming to reduce losses in these ventures.
- LUV is re-evaluating its product strategy, focusing on cabin optionality.
- LUV’s minimum cash threshold is $6 billion, compared to $10.5 billion today.
- With FCF usage of $3.3 billion over the next three years, LUV is projected to move into a net debt position in ’25.
- The brokerage house suggests a potential cut in the $450 million annual dividend.
- Securities expected to yield minus 10% or less within 12-month period.
Southwest Stock Reaction:
- Opened regular session at $26.60.
- Closed at $26.84, 0.70% decline from previous day.
Chegg
Jefferies Downgrades Chegg
- Downgraded to Underperform
- Price target: $4.00
Jefferies’ Concerns Over Core Business Sustainability
- Jefferies expresses doubts about the sustainability of the core business amid AI challenges.
- The brokerage house reduces FY25 revenue and Adjusted EBITDA estimates by 12% and 20% respectively.
- The analyst believes CHGG is misguided in maintaining margin levels, suggesting a shift towards growth investments.
- Jefferies’ $4 price target is based on 1.5 times FY25 EBITDA estimate, indicating a bearish stock outlook.
- Underperform at Jefferies means securities with an average price consistently below $10 have an expected total return of minus 20% or less within a 12-month period.
Chegg Stock Reaction:
- Opened regular session at $6.16.
- Closed at $5.17, 27.89% decline from previous day.
Extreme Networks
Rosenblatt Upgrades Extreme Networks
- Upgraded to Buy.
- Price target: $17.
Rosenblatt Upgrades Extreme Networks
- Rosenblatt upgrades Extreme Networks due to stagnant Enterprise Networking performance, declining market execution by Juniper and HPE, and emergence of new product drivers like WiFi 6E and 7.
- The company’s attractive business model, characterized by increasing SaaS and recurring revenues, is a key factor.
- Expected sequential growth in revenues, including in Q1 2025, as Extreme Networks resolves channel inventory issues.
- Expected gradual recovery despite a soft macroeconomic environment, particularly in Europe.
- Forecasted quarterly sales to stabilize at a run rate exceeding $300 million.
- Price target for Extreme Networks raised to $17, up from $15.
- Rosenblatt’s recommendation for investment is based on the company’s prospects and positive outlook for the upcoming fiscal years.
Stock Reaction: Extreme Networks
- Opened regular session at $12.07
- Closed at $11.42
- Decline of 0.26% from previous day’s close.
PayPal
PhillipCapital Downgrades PayPal
- Downgraded to Accumulate.
- Price target: $75.
PhillipCapital’s Position on PayPal
- Shifts from Buy to Accumulate stance on PayPal.
- Adjusts DCF target price to US$75.00 from US$83.00.
- Maintains constant WACC of 7% and terminal growth rate of 4%.
- Reduces EBITDA projection by 2% to reflect anticipated expense increase.
- PayPal’s Q1 2024 Performance
- Gross margin declined by 200 basis points year-over-year to 45%.
- Decrease due to shift towards lower-margin, unbranded checkout solutions.
- Unbranded volumes saw a 26% year-over-year increase in Q1, accounting for approximately 37% of total TPV.
- PhillipCapital’s Accumulate Recommendation
- Recommendations consider qualitative factors like risk reward profile, market sentiment, recent share price appreciation, presence or absence of catalysts, and speculative undertones.
PayPal Stock Reaction:
- Opened regular session at $67.71.
- Closed at $65.68, 1.94% decline.
Must read book about investing – check here
Upgrades and Downgrades Upgrades and Downgrades Upgrades and Downgrades Upgrades and Downgrades