Investing.com – Here's a professional summary of Wall Street analysts' biggest takeaways over the past week: Micron, Magnite, GoodRx Holdings upgrades; Reduced his health.
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Micron
What happened? On Monday, Morgan Stanley upgraded Micron (NASDAQ:) to Equal Weight with a price target of $130.
What's the full story? Morgan Stanley admits that maintaining a negative stance on Micron for an extended period was a mistake. Although they are not yet optimistic, they acknowledge that they should have anticipated the fundamental and narrative implications of power in AI's specialized memory.
The research team made three major mistakes according to their research report. First, they focused too much on recent losses. When they initially became bearish on MU two years ago, they expected significant cash burn, financial losses, and significant erosion in book value. When the losses turned out to be so huge — $7.1 billion GAAP over five quarters of the recession that resulted in a 14% decline in book value — they expected this to have a greater impact on the valuation than it actually did.
Second, Morgan Stanley downplayed the importance of high value Bandwidth (NASDAQ:) Memory (HBM) for narrative. HBM has emerged as an important AI technology, and while Micron is only just starting to reap the benefits of that, having missed the HBM3 stage of the market, it has a strong 3e product that will put it firmly in second place. This has been known for six months, and despite some concerns that current chip commitments are too high, this still pushes Micron straight into the winners' camp during the phase when proximity to AI drove most of the alpha generation into the space.
Third, the bank wrote that they underestimated the importance of HBM in changing the core business. While they believe the Total Addressable Market (TAM) analysis for HBM is still reasonable, they now see the Trendforce project starting with 15% of wafers going to HBM by Q4 2024, and Applied Materials (NASDAQ:) indicates It has already reached 20%. This is very high, at least relative to the consumption suggested by even NVIDIA's (NASDAQ:) bull case, but the impact on non-HBM has a larger negative impact on industry supply than expected.
With these factors driving near-term fundamentals – could see a positive pre-announcement at upcoming conferences – and a positive outlook around the AI Semifinals, Morgan Stanley moves to equal weight in MU
Equal weighting at Morgan Stanley means that “the stock's total return is expected to be in line with the average total return of the analyst's (or industry team's) industry coverage universe, on a risk-adjusted basis, over the next 12 to 18 months.”
How did the stock react? Micron opened the regular session at $127.30 and closed at $129.00, an increase of 2.96% from the previous day's regular close.
Pennsylvania Entertainment
What happened? On Tuesday (actually a Monday after hours), Raymond James initiated new coverage of PENN Entertainment (NASDAQ:) at Outperform with a price target of $20.
What's the full story? The first quarter of this year presented a challenging environment for PENN, which was characterized by several factors. These include weakness in the onshore business, which is mainly affected by weather conditions, higher-than-expected losses in the digital sector, and a significant sell-off due to management-related issues.
Despite these setbacks, the core land-based gaming business remains relatively strong. In 2023, PENN achieved record revenue and EBITDAR (earnings before interest, taxes, depreciation, amortization, and rent) levels. Furthermore, there is an expected improvement in EBITDA throughout 2024. However, it is important to note that the stock's performance continues to be affected by the company's Interactive business, which has accumulated significant EBITDA losses ( EBITDA).
Raymond James's positive stance on PENN stock is not based solely on the belief that ESPN BET (its interactive business) will capture significant market share or generate positive EBITDA in the near term. Instead, the brokerage recognizes that PENN shares can still perform fairly well. Specifically, Raymond James believes that the market is undervaluing digital businesses, attributing a negative stock value to them. In addition, the fair value of the land-based business is estimated at up to $20 per share.
It should be noted that PENN shares have not traded at this price level since May 2020, a period in which all casinos in the United States were closed due to the global COVID-19 pandemic. Despite the challenges posed by PENN's reactive strategy and overleveraged balance sheet, Raymond James identifies value in onshore operations. The brokerage company confirms that current market conditions may not fully reflect this basic value.
Raymond James outperformance means “the security is expected to outperform or outperform the S&P 500 over the next 12-18 months.”
How did the stock react? Penn Entertainment opened the regular session at $16.39 and closed at $16.41, an increase of 0.86% from the previous day's regular close.
He has her health
What happened? On Wednesday, Citi downgraded Hims Hers Health Inc (NYSE:) to Neutral with a price target of $20.
What's the full story? Citi expressed encouragement at HIMS's thoughtful approach to its new program, which was initially a cause for concern due to potential regulatory and legal risks. The bank is convinced that HIMS is operating openly, in partnership with a large 340B manufacturer that produces Semaglutide directly, using an API, processes and methods very similar to Novo. According to management, production of Semaglutide is relatively simple, and HIMS' manufacturing partner should be able to produce enough product to meet what is expected to be significant demand, as there appears to be no shortage of the API.
However, with the stock up 20% since the announcement, HIMS has actually added roughly $760 million in enterprise value based on limited new information, leaving little room for upside, in Citi's view. As a result, the bank is downgrading HIMS from Buy/High Risk to Neutral/High Risk while they await further details on the economics and durability of GLP-1. Despite the credit rating downgrade, Citi remains alert to HIMS's future moves and potential in the market.
Neutral at Citi means “For stocks rated Neutral (2), if an analyst believes there are not enough valuation drivers and/or investment catalysts to derive a positive or negative investment view, he may, with the approval of Citi Research management, elect not to set a target price; Hence no ETR is obtained.”
How did the stock react? Hims & Hims Health opened the regular session at $16.90 and closed at $16.17, a loss of 7.84% from the previous day's regular close.
GoodRx Holdings
What happened? On Thursday, RBC Capital was upgraded Goodricks Holding Company (NASDAQ:) to beat its $10 price target.
What's the full story? GDRX's recent ISP and DC initiatives, combined with the continued expansion of MfgSolns' business, provide it with many new and meaningful growth opportunities. These initiatives also strengthen the robustness of its core Rx transaction business. Much of the required pre-sale/contract process has now been completed — GDRX has signed five PBM pharmacies and seven of the top 10 pharmacies. Condensing these gives GDRX a good line of sight in the mid-teens for a 3-year + EBITDA CAGR.
RBC Capital believes the execution here will help recalibrate GDRX's current EBITDA valuation of 10x '25 to something more in line with its growth rate and the peer average of 14x. Analysts raised their price target to $10, up from $8.
RBC Capital's outperformance means it is “expected to materially outperform the sector average over a 12-month period.”
How did the stock react? GoodRx Holdings opened the regular session at $7.74 and closed at $7.24, an increase of 0.56% from the previous day's regular close.
Magnet Company
What happened? On Friday, BofA Securities upgraded Magnite (NASDAQ:) to buy with a price target of $15.
What's the full story? RBC's promotion of MGNI is reinforced by the company's increased assurances that MGNI is on a trajectory to rise as a key supply-side technology solution in CTV advertising – a sector expected to grow at a mid-teens rate in the medium term. This optimism is due to the industry's shift towards automated or programmatic ad execution, an area in which MGNI excels. The company is increasingly recognized as the ad technology collaborator of choice for both buy-side entities, such as agencies and distribution service providers, and sell-side participants such as publishers. This is largely due to its leading software technology, underscored by its recent exclusive partnerships with industry giants Netflix (NASDAQ:) and MediaOcean.
Analysts highlight MGNI's unique product mix of ad server and SSP, making it a focal point of programmatic frameworks for publishers regardless of purchase path. This integration makes MGNI less vulnerable to disintermediation compared to independent SSPs. Furthermore, Disney and Paramount Insights indicate that the move toward programmatic approaches is progressing rapidly, with nearly 50% expected to arrive by the end of 2024 within premium streaming services. This trend supports MGNI's sustainable market share growth story, as seen by analysts at RBC Capital.
Buying into BofA means “the stock purchase is expected to have a total return of at least 10% and is the most attractive stock in the coverage pool.”
How did the stock react? Magnite opened the regular session at $12.03 and closed at $12.57, an increase of 13.55% from the previous day's regular close.
