Investing.com – Here's a professional summary of the most important pieces of information Wall Street analysts said over the past week.
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Ollies deal executor
What happened? On Monday, JPMorgan upgraded shares of Ollie's Bargain Outlet Holdings, Inc. (NASDAQ:) to Overweight with a price target of $105.
J.P. Morgan expects a positive near-term outlook for OLLI, supported by a strong closing deal environment, an enhanced competitive landscape, and consistent execution that collectively contribute to same-store sales growth. Looking ahead, the investment bank expects a significant acceleration in 'organic' unit growth, forecasting it to reach double digits by FY25 onwards. This growth trajectory is based on a 10-year plan to achieve a store count of 1,300, the estimated point of market saturation. This expansion is expected to deliver a compound annual growth rate of approximately 13% in earnings per share, which is due to low-single-digit increases in same-store sales.
Additionally, the potential for lateral consolidation provides additional opportunities for portfolio-driven improvements to same-store sales and unit growth, which are not currently accounted for in JPMorgan's model.
The investment bank confirms that there are no structural obstacles to returning to unit growth rates before the pandemic, which ranged between 13 and 14% over several years. This upbeat assessment is reflected in JPMorgan's rating of OLLI as Overweight, indicating confidence in the company's ability to achieve sustainable growth and profitability in the coming years. The bank's analysis indicates that OLLI is well positioned to benefit from organic expansion and strategic consolidation to enhance its market presence and financial performance.
Overweight at JPMorgan means “over the duration of the target price indicated in this report, we expect this stock to outperform the average total return of stocks in the coverage universe of the research analyst or team of research analysts.”
How did the stock react? Ollies Bargain Outlet opened the regular session at $90.55 and closed at $95.98, an increase of 9.43% from the previous day's regular close.
Hooks
What happened? On Tuesday, BMO Capital upgraded Kroger (NYSE:) to outperform with a $60 price target.
BMO Capital analysts noticed a decline in the stock market, attributing it to concerns about rising prices of investments within the industry. These investments are believed to be primarily funded by vendors, with a smaller portion covered by retailer promotions. Analysts are optimistic about internal deliveries in the first quarter, boosting their forecast to 0.8% from the previous 0%. This is based on the assumption of a 0.6% year-over-year increase in gross profit excluding fuel, flat cents per gallon at 45 cents, and an appropriate last-in, first-out accounting impact of approximately $90 million. Therefore, they expect EPS to be $1.46, beating the consensus estimate of $1.35. This forecast indicates that Kroger will likely achieve the high end of its guidance for fiscal year 2025.
Furthermore, BMO Capital's full-year fiscal 2025 earnings forecast assumes a roughly unchanged gross margin ratio excluding fuel and stable retail fuels. With the stock trading at roughly 11 times the EPS consensus of $4.54, analysts believe it reflects a fair assessment of the potential downside risks to EPS. They assert that Kroger's gross margin outlook appears safer than previously expected.
In addition, BMO analysts expect a positive outcome regardless of whether a deal is reached or not. As a result, BMO Capital increased its FY2025 EPS estimate to $4.49 (up from $4.40), and FY2026 EPS estimate to $4.65 (up from $4.60), and set a price target of $60. With a 13x multiple applied to the two-year forward P/E ratio, which was previously between 12x and 13x.
The main risk identified by analysts is the possibility of price investments driven by an intense competitive environment in the food retail sector.
Outperformance at BMO Capital means “expectations of outperformance across an analyst's coverage spectrum based on total return.”
How did the stock react? Kroger opened the regular session at $52.52 and closed at $51.98, an increase of 1.82% from the previous day's regular close.
Wednesday – US markets are closed for Juneteenth
Rhythm techniques
What happened? On Thursday, Wolfe Research upgraded iRhythm Technologies (NASDAQ:) to beat the target price of 115.
Wolfe Research issued a call for an upgrade, citing a reasonable entry valuation for the stock, which is currently priced at $98. Wolfe analysts expressed growing confidence in the stock, anticipating the major buildup to be resolved within the next 12 months, leading to a price target of $115. This target is supported by a discounted cash flow analysis and company value/revenue comparison, which suggests that $115 is approximately 5 times projected 2025 revenue.
Over the past year, IRTC's EV-to-revenue ratio has averaged 5.5 times, and since its IPO, it has averaged nearly 9 times. Compared to 30 medtech SMEs that currently average roughly 3.5x, Wolf says a 5x premium is justified for the stock. The rationale behind this premium is that IRTC's revenues will grow at a very high percentage for next year, exceeding the lower growth percentage expected for the comparison group.
Wolfe's analysts' valuation framework includes a comprehensive discounted cash flow model for IRTC, which has been historically challenging but has become more manageable over time. Improvements in modeling could arise from significant EBIT margin leverage in the second half leading into 2025 and successful implementation of the Zio AT FDA risk mitigation roadmap. Advancing beyond the FDA issues would bring IRTC closer to launching a next-generation MCT device, potentially capturing a larger market share in a large market where IRTC is currently a minor player.
Ultimately, the DCF analysis indicates a net present value consistent with the $115 target, using a discount rate of 9% and a terminal growth rate of 5%.
Wolfe's outperformance means “the security is expected to outperform the universe of analysts' industry coverage over the next 12 months.”
Micron
What happened? On Friday, Aletheia Capital downgraded Micron Technology Inc (NASDAQ:) to 'hold' with no price target.
Aletheia Capital downgraded MU to “Hold” from “Buy” and removed its $120 price target. The first reason for this is that the stock has seen a 2.1x increase since its rating upgrade in November 2023 and is now trading above its historical price-to-book ratio (PBR) of 2.5x.
Second, Aletheia Capital feels there are initial issues with MU's implementation of HBM3E which may negatively impact its revenue target and profitability in the near term. A major customer may have to reschedule commercial shipping of new products. The research team believes that it may take some time for MU to improve and regain confidence in its HBM offerings. Consequently, they have withdrawn their previous HBM revenue forecast of $500 million for FY24E.
Finally, Aletheia Capital believes that MU will have to significantly increase its capital expenditures (capex) to expand its capacity in FY25E/26E, which has remained stagnant (or even declining) since 2021. This is in contrast to known positives such as the continued upward trend of the average Memory Selling Price (ASP), strong demand for HBM from AI servers, upward earnings revision, and FCF turning positive (first since Q1FY23).
How did the stock react? Micron opened the regular session at $138.08 and closed at $139.54, a decline of 3.22% from the previous day's regular close.
