Investing.com – Here’s a quick look at the key takeaways from Wall Street analysts over the past week: Updates for Shake Shack, G-III Apparel, Sea and Textron; Old Dominion downgrade.
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Clothing group G-III
What’s happened? On Monday, Barclays downgraded shares of G-III Apparel (NASDAQ:) to underperform with a $23 price target.
What’s the whole story? Barclays’ downgrade is primarily driven by three factors: an expected 2% decline in revenue over a three-year period due to the announced closure of Macy’s stores on 02/27/24, the impact of losing business licenses over the next five years, and subdued search interest in its own brands , which involves longer timeframes to balance out revenue headwinds.
The investment bank remains confident that GIII will continue to pursue licensing agreements with new brands. However, little is known about the potential agreements, their initiation and whether they would sufficiently replace the lost Calvin Klein and Tommy Hilfiger businesses.
Analysts also believe potential acquisitions outside of the company’s core women’s apparel and outerwear businesses could create additional execution risk.
Underweight at Barclays means “the stock is expected to underperform the unweighted expected total return of the entire industry over a 12-month investment horizon.”
How did the stock react? GIII shares were trading lower in premarket trading at $33.11 to $31.87, down about 4.25%. GIII opened the regular session at $32.23 and closed at $29.73, down 10.56%.
LLC “Sea”
What’s happened? On Tuesday, JPMorgan upgraded shares of Sea Ltd (NYSE:) to Overweight with a $70 price target.
What’s the whole story? JPMorgan believes that in the current competitive environment, SE will likely continue to increase e-commerce fees while reducing sales intensity and marketing expenses. The investment bank expects e-commerce will likely lead to positive SE earnings revisions in the near term.
However, analysts also warn that high rates could lead to volatility in earnings expectations due to changes in the competitive environment. This volatility in earnings forecasts will likely cause the stock price to fluctuate. JPMorgan recommends investors trade these earnings estimate revisions. They believe earnings expectations are likely to see positive changes in the near future, driven by e-commerce.
Overweight at JPMorgan means that “we expect the stock to outperform the average total stock return of the coverage of a research analyst or team of research analysts over the life of the price target contained in this report.”
How did the stock react? Shares of Sea Ltd. rose from $53.62 to $54.50 in premarket trading. Investing.com Pro users received this information 5 minutes before other publications reported it. Sea Ltd. opened the next session at $54.32 and closed at $55.75, up 3.43%.
Old Dominion
What’s happened? On Wednesday, BofA downgraded Old Dominion (NASDAQ:) to neutral with a $446 price target.
What’s the whole story? BofA’s downgrade is based on limited upside to their target price (PO), citing an elevated multiple and lagging volume growth. The investment bank raised its PO to $446 from $443, based on a 2024 EPS estimate of 35.5 times expected, reflecting higher-than-expected pricing midway through the first quarter of 2024 and the use of earnings as returns demand. Despite lowering 2024 and 2025 earnings per share estimates by 1% to $12.55 and $14.65, respectively, due to lower volume estimates,
BofA remains bullish on leading carriers given the tight less-than-truckload (LTL) environment and potential earnings growth as demand recovers.
Analysts note that Old Dominion has established itself as a best-in-class operator in the trucking industry’s LTL segment, growing revenue and earnings per share at above-industry average rates and improving its operating ratio to industry-leading levels. They believe ODFL can continue to gain market share given its high level of service. However, they believe the company’s growth potential is limited given its premium valuation multiple.
BofA’s Neutral rating means: “Neutral stocks are expected to remain the same or increase in value and are less attractive than stocks rated Buy.”
How did the stock react? Old Dominion opened the regular session at $430.15 and closed at $435.46, up 1.25%.
Shake Shack
What’s happened? On Thursday, TD Cowen upgraded shares of Shake Shack (NYSE:) to Outperform with a $125 price target.
What’s the whole story? TD Cowen expects Shake Shack’s adjusted EBITDA to see positive multi-year revisions, driven by the potential for growth in restaurant-level margins in 2024-26E and general and administrative expenses (general and administrative expenses). The investment bank believes the brand’s multi-pronged efforts to improve efficiency and disciplined investing are undervalued, and these factors are expected to contribute to positive EBITDA revisions.
At the same time, the hiring of a new CEO marks a shift in the narrative and opens up opportunities for improved traffic as the brand leverages its scale to move to the next stage of the business curve.
Analysts raise their price target to $125 and rank the small- and mid-cap stock as the top and second overall performers. TD believes that hiring a capable new CEO can help accelerate traffic, driving multiple expansion through modernization of marketing and operations, as well as progress in the brand’s digital journey. Analysts say Shake Shack should trade at a premium to its average 5-year EV/EBITDA multiple, in line with its fast-moving peers.
TD Cowen’s outperform means: “The stock’s total positive return is expected to be at least 15% over the next 12 months.”
How did the stock react? Shake Shack opened the session at $100.96 and closed at $104.44, up 3.45%.
Textron
What’s happened? On Friday, BofA upgraded shares of Textron (NYSE:) to Buy with a $105 price target.
What’s the whole story? BofA’s valuation is brought forward to use 2025 estimates, and a relative P/E multiple of 0.90x (up from previous 0.85x) to the 2025 market multiple is used to arrive at the purchase price. BofA has prepared higher multiples for stronger performance in the airline industry despite weaker post-COVID demand, cost consolidation efforts in the industrial sector and a robust systems portfolio that should materialize into stronger growth next year. However, the relative multiple remains below the historical average of 0.95x due to perceived risks to Bell given its aging portfolio and possible budget cuts to its Future Vertical Lift (FVL) program.
Analysts believe Textron Aviation remains well positioned to benefit from continued growth in demand for business jets and a widening industry gap. Bell is believed to be positioned to benefit from increased demand for commercial helicopters and the development of a future long-range attack aircraft program.
Textron Systems is expected to benefit from increased domestic and international defense budgets. BofA analysts say Textron’s strong balance sheet sets the stage for continued shareholder-friendly capital distribution through dividends and share buybacks.
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? TXT shares rose from $90.28 to $92.05 in premarket trading, up 1.45%. Textron opened the regular session at $93.16 and closed at $92.13, up 2%.