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Upgrade for PayPal; downgrades for Etsy, Lululemon By Investing.com

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Investing.com – Here’s a professional summary of what Wall Street analysts said over the past week.

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arm Collectibles – Monday

What happened? On Monday, HSBC downgraded Arm Holdings (NASDAQ:) to Reduce with a price target of $105.

Talder: HSBC cautious on AI computer narrative. Earnings could come under pressure as smartphones weaken. 10% free cash could provide protection for share price from downturn.

What is the full story? HSBC has cut its earnings per share forecasts for fiscal 2025/26 by 3% and 2%, respectively, due to lack of smartphone restock momentum and weak AI PC sales. The research team finds it difficult to justify another revaluation beyond the new target price of $105.

They have rolled over their rating to FY26, applying a lower price target multiple to 51x (down from 63x) on FY26 EPS of $2.06. This price target implies a 29.5% downside, lowering the stock from Hold to Reduce. However, the research team also acknowledges the potential downside protection for the stock price given the limited liquidity of only 10% of the shares outstanding.

Finally, the bank noted that the outlook for AI-powered PCs is not as bullish as previously expected despite rising royalties, and that uncertainty over smartphones poses a potential risk to earnings in the near term.

HSBC’s downgrade means “When the target price is 20% above the current share price, the stock will be rated as a buy; when it is between 5% and 20% above the current share price, the stock can be rated as a buy or hold; when it is between 5% below and 5% above the current share price, the stock will be rated as a hold; when it is between 5% and 20% below the current share price, the stock can be rated as a hold or a reduce; and when it is more than 20% below the current share price, the stock will be rated as a reduce.”

How did the stock react? Arm Holdings Inc. stock opened the regular session at $146.58 and closed at $141.48, down 4.84% from the previous day’s close.

Affirm Holding – Tuesday

What happened? On Tuesday, Bank of America upgraded Affirm Holdings Inc (NASDAQ:) to Buy with a $36 price target.

Talder: Management’s financial targets are achievable. Partnership expansion and credit risk management are progressing well.

What is the full story? Bernstein Société Générale upgraded Affirm, citing that GAAP earnings could be closer to consensus expectations. The research team maintains its estimates and price target, noting that Q4 data and guidance could act as a positive catalyst. They also believe the FY25 outlook is achievable. Additionally, the low interest rate regime is expected to support revenue minus transaction costs (RLTC), which is the most important metric for P&L.

Analysts are optimistic about new and expanded partnerships, particularly with Apple (NASDAQ:), and stress that credit risks remain well contained. This bullish outlook supports the belief that these factors combined put Affirm Holdings on a promising financial path.

Buy from Bank of America means “the stocks purchased are expected to deliver a total return of at least 10% and are the most attractive stocks in the coverage group.”

How did the stock react? Affirm stock opened the regular session at $28.38 and closed at $27.45, a gain of 2.31% compared to the previous day’s close.

PayPal – Wednesday

What happened? On Wednesday, Bernstein SocGen upgraded PayPal (NASDAQ:) to Outperform with a $64 price target.

Talder: Bernstein’s first PayPal upgrade in 3 years. Valuation is attractive and management is executing.

What is the full story? Bernstein Société Générale’s research team is making a tactical upgrade to PayPal to “outperform” status, marking the first such upgrade in nearly three years. Their decision is based on several positive factors.

First, PayPal showed improved gross profit performance on transactions, driven by growth in its branded services, pricing initiatives launched by Braintree, and successful monetization of Venmo.

Second, the company’s product momentum and overall performance, under the leadership of the new management team, are expected to maintain overall earnings growth at a moderate single-digit level, even in the face of competitive pressures.

Moreover, PayPal’s strategic options in e-commerce and digital commerce, coupled with its attractive valuation (trading at a price-to-earnings ratio of 14x 2025), make it an attractive investment opportunity.

Outperformance at Bernstein Societe Generale means that “the stock will underperform the relevant index by more than 10 percentage points.”

How did the stock react? PayPal stock opened the regular session at $64.96 and closed at $65.87, a 3% gain from the previous day’s regular close.

Etsy – Thursday

What happened? On Thursday, Oppenheimer downgraded its rating. Etsy (NASDAQ:) will underperform the price target.

Talder: Recent strength/outperformance limits upside potential for valuation. Investment in cost-cutting initiatives could weaken financials in the near term.

What is the full story? The downgrade comes on the heels of recent strength. While Etsy reported Q2 results ahead of guidance due to strong footfall, the weaker Q3 guidance and removal of the full-year GMV forecast suggest a lack of near-term visibility. Additionally, initiatives related to gifting, seller ratings, and a focus on the mobile app are not expected to impact fiscal 2024 results.

In the long term, Oppenheimer sees significant potential for Etsy to leverage large language models to enhance search and discovery, though this would require significant time and investment, potentially conflicting with its focus on margins. While Etsy may eventually benefit from a cyclical recovery in its core categories, that is beyond management’s control.

The brokerage sees Etsy fully valued at about 10 times its expected fiscal 2025 EBITDA, compared to 11 times its peers, noting that Etsy is growing 76% slower.

Oppenheimer’s Performance means “the stock is expected to outperform the S&P 500 over the next 12 to 18 months.”

How did the stock react? Etsy opened the regular session at $63.03 and closed at $60.13, down 7.86% from the previous day’s regular close.

lululemon – friday

What happened? On Friday, Goldman Sachs downgraded its rating. lululemon athletica (NASDAQ:) to Neutral with a $286 price target.

Talder: Goldman Sachs is negative on weak execution and innovation. Lulu brand will see more competitive pressure.

What is the full story? Goldman had previously maintained a positive outlook on Lululemon (LULU) despite slowing U.S. sales growth and apparent execution missteps in the spring. Analysts believe the company could drive sequential acceleration in the second half of the year with an improved assortment of colors, accessories and sizes, as well as a stronger innovation pipeline, including the launch of new fabrics in women’s leggings. Despite some weakness noted in quarterly reviews earlier in the month, analysts initially thought trends were stable enough to maintain a constructive view on the stock.

But due to weak execution and innovation, Goldman’s confidence in the brand’s near-term growth prospects in the U.S. market has now waned. Analysts saw limited signs of physical innovation over the summer, and were disappointed by the rapid removal of the new Breeze brand by franchisees, suggesting choppy execution in the near term.

Additionally, LULU has become more promotional, raising concerns that the brand is training customers to expect regular discounts. Other signs of implementation errors were evident in store inspections, and more cautious brand signals were noted in HundredX survey data.

Goldman no longer expects a turnaround in sales growth in the second half of the year and believes the brand has become more vulnerable to competitive pressures and macroeconomic factors.

Neutrality at Goldman means that “Goldman Sachs assigns stocks to buy and sell on various regional investment lists; stocks that are not assigned in this way are considered neutral.”

How did the stock react? Lululemon stock opened the regular session at $239.57 and closed at $236.00, down 5.24% from the previous day’s regular close.

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