Investing.com – Here’s a quick look at the key takeaways from Wall Street analysts over the past week: Ulta Beauty (NASDAQ:) upgraded its rating American Eagle Outfitters (NYSE:), CAVA Group and Nike (New York Stock Exchange:); downgrade by Arista Networks (New York Stock Exchange:).
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Ultra Beauty
What’s happened? On Monday, Loop Capital upgraded Ulta Beauty to Buy with a $540 price target.
What’s the whole story? The brokerage firm views the recent market decline as an overreaction, especially in light of Ulta Beauty’s challenging first-quarter fiscal 2024 comparison. Loop forecasts a rebound in Ulta’s fortunes over the remainder of the fiscal year, supported by a better year. comparisons over the years and new product launches.
Analysts also renewed their focus on the strategic benefit of buying back shares of Ulta Beauty at discounted prices, which is expected to contribute to greater earnings per share growth. Moreover, Loop Capital expects that the start of regular cash dividend payments (who doesn’t love dividends?) by Ulta Beauty could be a significant positive for the stock price.
The company’s target price is pegged to a multiple of 20.3 times estimated FY24 diluted earnings per share, which is in line with Ulta Beauty’s historical median.
Buying in Loop Capital means: “The stock is expected to trade higher on an absolute basis or outperform the market or its peers over the next 12 months.”
How did the stock react? Ulta Beauty shares were trading higher in premarket trading from $444.65 to $448.80, up about 0.91%. It opened the regular session at $454.22 and closed at $452.78, up 1.81%.
American Eagle Outfitters
What’s happened? On Tuesday, JPMorgan upgraded shares of American Eagle Outfitters to Overweight with a $31 price target.
What’s the whole story? JPMorgan recently met with American Eagle Outfitters executives, including Executive Vice President and Chief Financial Officer Mike Mathias, Senior Vice President of Investor Relations and Corporate Communications Judy Meehan and Senior Director of Investor Relations Shirley Martin. Management expressed optimism about the growth of the AE and Aerie brands. They incorporated multi-year conservatism into their three-year financial plan, forecasting consolidated revenue growth of 3% to 5% and mid-to-high range operating income growth.
Notably, Aerie’s revenue growth is expected to be in the mid to high single digits, below its historical double-digit CAGR. Despite the appearance of product value benefits from Holiday ’24 and the continued benefits of the AUR/brand mix, product margins are expected to remain unchanged.
Analysts upgraded American Eagle to Overweight with a 12/24/24 price target of $31 based on 15x FY25 EPS, which equates to 1x PEG 24/25 EPS growth fiscal year or 6.7 times EBITDA growth for FY25. This is higher than American Eagle’s pre-pandemic 3-year average of 5.3 times, helped by FY25 operating margins of about 200 bps. higher than pre-pandemic levels.
Overweight in JPMorgan means “Overweight (we expect this stock to outperform the average total stock return within the coverage of the research analyst or team of research analysts over the life of the price target in this report).”
How did the stock react? American Eagle shares traded higher in premarket trading from $24.42 to $25.45, up about 3.8%. It opened the regular session at $25.37 and closed at $24.40, down 0.08%.
KAVA Group
What’s happened? On Wednesday, Argus upgraded CAVA Group to Buy with a $70 price target.
What’s the whole story? Argus upgraded CAVA Group to BUY from HOLD, indicating confidence in the company’s potential in the fast food sector. By specializing in Mediterranean cuisine, CAVA Group is well positioned to capitalize on market opportunities in its niche and the industry as a whole. Analysts highlight the company’s profitable operations, strong financial performance and experienced management as key strengths. With a projected long-term growth rate of 20%, Argus sees a promising future for the company.
Although CAVA’s recent entry into the public market has made historical valuation comparisons less relevant, Argus believes the company’s valuation metrics present a mixed picture compared to industry peers. The price-to-earnings ratio is 200 times projected 2025 earnings per share, beating the average of 120 among peers such as CMG, SHAK and SG. However, CAVA’s price-to-sales ratio of 5.7 lags that of industry leader CMG. There’s a reason why Argus sees the recent market decline as an opportune time for investors to buy early-stage growth stocks, setting a price target of $70.
A Buy in Argus means: “Stocks with a BUY rating are expected to outperform the S&P 500 on a risk-adjusted basis over a 12-month period. To make this determination, Argus analysts set price targets, use beta as a measure of risk, and compare expected risk-adjusted stock returns to S&P 500 forecasts set by Argus market strategist.”
How did the stock react? CAVA Group shares were trading higher in premarket trading from $60.15 to $61.10, up about 1.0%. CAVA opened the regular session at $64.25 and closed at $66.38, up 4.22%.
Nike
What’s happened? On Thursday, BofA upgraded Nike to Buy with a $113 price target.
What’s the whole story? BofA upgraded Nike to Buy from Neutral as the company’s financial outlook is now within reach and its transformation efforts are well under way. The stock is currently valued at a 10-year low on its price/earnings (P/E) ratio. With fiscal 2025 (F25) consensus estimates down 35% over two years and a P/E ratio 10 points below the five-year average, BofA’s analysis suggests mid-single-digit revenue growth and improving margins. The current 20 times FY2026 (F26) P/E ratio of 1.1 times relative is seen as an attractive entry point.
The analyst’s new price target for Nike stock of $113 is based on a P/E multiple of F26, which is 25 times lower than the previous 27 times. This 1.2x relative multiple adjustment is believed to better reflect Nike’s growth potential. Look forward to Nike’s first Investor Day in seven years, scheduled for this fall, where a revised long-term growth algorithm is expected. With a history of using Olympic events to drive marketing and innovation, Nike is forecast to follow suit this year, potentially leading to renewed growth fueled by new product introductions and strategic changes within the organization.
Buying on BofA means: “The stock being purchased is expected to have a total return of at least 10% and is the most attractive stock in the coverage cluster.”
How did the stock react? Nike shares traded higher in premarket trading from $89.03 to $91.18, up about 2.50%. Nike opened the regular session at $91.00 and closed at $92.00, up 0.11%.
Arista Networks
What’s happened? On Friday, Rosenblatt downgraded Arista Networks twice to sell with a $210 price target.
What’s the whole story? Rosenblatt noted that Arista’s strengths may not be as effective in the artificial intelligence market. Arista, with approximately 30% of the data center Switch (NYSE:) and more than 40% in 400G, has historically relied on its founder’s network architecture expertise and extensible operating system software. has proven useful for general cloud applications due to their diversity. However, Rosenblatt’s industry talk suggests that EOS may not be as attractive to AI, which tends to repeat the same application.
The brokerage sums it up by saying that AI requires RDMA (direct remote memory access) rather than an extensible operating system. According to Rosenblatt, Nvidia (NASDAQ:) has taken a leading role in developing the concept of data center architecture. While Arista will continue to compete with Cisco (NASDAQ:) in the enterprise segment, Nvidia has emerged as a major data center competitor with significant advantages over Arista.
A sell in Rosenblatt means: “We believe this company’s stock will underperform other companies in its industry over the next 12 months.”
How did the stock react? Arista Networks shares were trading lower in premarket trading at $296.82 to $290.11, down about 2.22%. It opened the regular session at $281.15 and closed at $271.22, down 8.54%.