Daniel Ek, chief executive officer and co-founder of Spotify AB.
Akio Kon | Bloomberg | Getty Images
Here are the biggest calls on Wall Street on Monday
Evercore ISI downgraded Spotify to ‘underperform’ from ‘in line’
Evercore said it is concerned about whether Spotify can generate a gross profit that investors demand.
“While our view is that SPOT user and revenue estimates are achievable, we believe the stock’s recent rally reflects an overly optimistic view as to the trajectory of gross margin and potential label negotiation outcomes. We simply do not see a path by which SPOT can generate the level of gross profit demanded by Street estimates over the medium-term. “
Jefferies upgraded Deere to ‘buy’ from ‘hold’
Jefferies said it thinks agricultural fundamentals are finally “turning.”
“We upgrade the shares of DE to Buy following 5 years of depressed Large ag fundamentals. A tightened global crop supply demand balance and positive momentum in farmer net income support double-digit large equipment growth through 2020. We correspondingly raise our revenue (and margin) forecasts and Price Target to $190, an 11.0x multiple on 2020 EBITDA. Our $12.00 earnings outlook is ahead of Consensus of $11.65, with some additional upside bias in our view. “
UBS upgraded Hostess Brands to ‘buy’ from ‘neutral’
UBS said it thinks the stock has 25% upside.
“Hostess offers a favorable event path and we identify three catalysts for why we think TWNK shares should outperform and have ~25% stock upside. First, Hostess sales trends are accelerating (per Nielsen data) as it launches new breakfast product lines & regains shelf space at its largest customer (WMT is 21% of mix). Second, the recent acquisition of a Chicago Bakery facility, which had been poorly operated under prior ownership, brings Hostess new production capability in breakfast categories and a $40m EBITDA contribution bridge over 2 years (to +$25m in FY20 from -$15m in FY18). Third, TWNK is on pace to generate $350 -400m in FCF over three years—we estimate this could reduce debt leverage to ~2.5x and transfer $2/share in enterprise value to equity holders. “
Cowen upgraded United Technologies to ‘outperform’ from ‘market perform’
Cowen said it is bullish on the company’s merger with Raytheon.
“We like UTX for extended Aerospace cash ramp and the proposed RTN merger. Its 5%+ selloff vs. S&P since deal announcement offers a win-win for attractive standalone valuation or merger benefits. We’re hiking our rating to Outperform for a PT of $150. “
Stephens named Electronic Arts as a ‘best idea’
Stephens said it likes the game maker’s upcoming slate of releases.
“In the console space we continue to be buyers of both Take-Two and EA but we are flipping our best idea to EA as we see more near-term catalysts for them. With Apex Legends Season 2 beginning on July 2nd, the data shows that Fortnite’s popularity has hit a lull and Season 2 is launching at the right time to capture momentum. We’re not predicting that Apex is going to eclipse Fortnite again as it did in February, but we have confidence that the updates Respawn is making for Season 2 will bring back a good chunk of the player base. We see a bull case scenario where Season 2 could generate $150 mil in revenue, likely leading to upside to EA’s FY guidance. “
Wedbush upgraded Dunkin’ Brands to ‘outperform’ from ‘neutral’
Wedbush said it thinks the company’s same-store sales growth is “underappreciated.”
“We believe Dunkin‘ U.S. is currently undergoing an inflection in SSS growth that is underappreciated by the Street. Importantly, in our view, the probability of a sustained inflection beyond the near-term is now high enough to warrant a more positive stance. Therefore, we upgrade shares of DNKN to OUTPERFORM from NEUTRAL. “
MoffettNathanson lowered its price target on Alphabet to $1,250 from $1,290
Moffett said it is concerned about Alphabet’s revenue growth trends.
“After analyzing Google‘s Economic Impact reports, we are seeing a concerning trend emerge. It appears that U.S. Search revenue growth has been steadily eroding over the past several years. Yet, this has been masked in overall results as other Google businesses, such as YouTube, Cloud or Hardware, seem to have accelerated to make up for weakness in core Search. “
Stephens downgraded International Paper to ‘equal-weight’ from ‘overweight’
Stephens downgraded the stock and said containerboard pricing was too “unpredictable.”
“We are reducing our rating on International Paper shares to Equal- Weight from Overweight to reflect the damage being done to investor confidence by the increasing unpredictability of containerboard pricing pronouncements, as well as continued new capacity announcements that promise to keep the need for economic downtime high. “
Loop Capital upgraded Tempur Sealy to ‘hold’ from ‘sell’
Loop said it is more positive following the company’s agreement to re-enter Mattress Firm.
“We are raising our rating from Sell to Hold and increasing our price target from $50 to $70 on TPX following its announcement that it will reenter Mattress Firm and will also become the primary supplier for Big Lots (BIG:$29.98-Hold). Though there has been much discussion about TPX renegotiating with Mattress Firm, the Big Lots agreement was more of a surprise as that category has grown strongly at BIG with another vendor over the past several years. At the same time, we believe there is an increased probability of potential further tariffs that could slow the tide of lower-priced imported mattresses that are growing rapidly through emergent sales channels. “
Morgan Stanley downgraded Occidental Petroleum to ‘equal-weight’ from ‘overweight’
Morgan Stanley said there is “outsized risk” to the stock if oil prices move lower.
“We expect OXY to recover some if its -18% underperformance since the company’s interest in APC was first highlighted in media reports on April 12; however, deal execution remains key for the stock to re-rate meaningfully higher. As we’ve noted in prior reports, the planned acquisition looks free cash flow accretive to OXY, but it also pushes leverage to among the highest in our coverage. As a result, we see a wide range of outcomes for the stock, with outsized risk if oil prices move lower. We estimate each $5 decline in oil prices would increase leverage by ~0.5x+ while also reducing dividend coverage — a potentially challenging situation for OXY to navigate. “