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Rivian’s Sharp Downgrade: 5 Big Analyst Calls


Along with the Rivian downgrade, upgrades were granted to NetApp, WW International, and Shopify, and Costco was initiated at Outperform. Here is today’s full Pro Recap of the biggest analyst calls over the past week.

Rivian Auto cut to Neutral at Piper

What happened? Piper downgraded Rivian (NASDAQ:RIVN) to Neutral with a $15 price target.

Why highlight this note? Piper says that while they favor the current strategy management is deploying, the firm is now coming to the realization of how costly it is to compete with Tesla (NASDAQ:TSLA) and to further improve unit costs without spreading its production investment over “millions of units (just like Tesla does),” according to Piper. The brokerage commented:

We still like Rivian’s strategy, which uses vertical integration to capture lucrative after-sales revenue (e.g. software, service, and charging). Tesla is the only other company with so much ambition, and arguably, Tesla’s superiority stems from its ability to unilaterally control all aspects of design, production, sales, and service. The problem is, this strategy is costly. In order for RIVN to justify its cost structure, the company must spread its investment over millions of units (just like Tesla does), and in order to finance such aggressive expansion, RIVN will need capital.

Now we’ll just await the share offering.

How did the equity react? Shares closed lower by $0.99 to $13.38, down 6.89% on Friday.

As always, InvestingPro users got this news in real time. Get faster data for a superior portfolio.

NetApp stamped with buy at Stifel

What happened? Stifel began the week with an upgrade of NetApp (NASDAQ:NTAP) to Buy with a $75 price target.

Why highlight this note? The commentary from Stifel follows multiple investor meetings with the CFO and VP of IR. Both executives highlight company-specific actions that ought to increase margins and earnings in the foreseeable future. Those actions are, via Stifel commentary:

1) a recent 8% headcount reduction; 2) a planned sales force re-org aimed at aligning reps more closely with specific customers and vendors; 3) an expected margin tailwind from lower component costs due to improved supply; and 4) the recent introduction of QLC-based, lower-cost all-flash arrays (C-Series), which could help boost market share.

Further, highlighting a possible tailwind from price declines in NAND, Stifel wrote:

NAND price declines in recent quarters could provide a modest tailwind in margins for the next quarter or two, but Mr. Berry noted that most of those savings would likely be passed through to customers in the form of lower pricing, given that all of NetApp’s competitors will have the same advantage.

How did the equity react? Shares closed up 3.3% to $65.05 on Monday.

WW International gets a Buy rating at Goldman

What happened? Goldman Sachs upgraded WW International (NASDAQ:WW) to Buy with a $13 price target on Tuesday.

Why highlight this note? Goldman likes the recent acquisition of Sequence. And it suspects, according to their research commentary on the whole, that WW (aka Weight Watchers) will see combination benefits to their legacy offering with a new obesity medication offering. The investment bank wrote:

With the now completed acquisition of Sequence, WW will begin to offer a pharmaceutical based clinical subscription service that it can integrate with its legacy behavioral based weight management offering.

Goldman believes the current valuation may not be capturing the assumed total-addressable market (TAM) potential. Goldman wrote:

We believe that capturing only 3% of the addressable population TAM in the US could add $2 of variable EPS contribution to the company (compared to the FactSet CY24 EPS estimate of $0.28). We do not believe this potential is adequately captured in consensus estimates or the stock price.

Side note: I’m well aware of the generally accepted suspicion of Goldman upgrades. (I was working on a desk when they once did a morning upgrade on Tesla then after-hours operating the book-running for an announced share offering.) I want to highlight that these upgrades still impact news-reading algos from market makers, global bank trading operations, family and hedge fund offices, as well as retail traders.

How did the equity react? Shares soared nearly 60% Tuesday to $6.55 on the acquisition news.

Shopify raised to Market Perform

What happened? JMP Securities upgraded Shopify (NYSE:SHOP) to Market Outperform on Wednesday with a $65 price target

Why highlight this note? JMP believes Shopify is a leader in commerce enablement and continues to capture increasing market share. The brokerage also wrote:

While we acknowledge Shopify now offers a broader set of services, we note of the $495M Y/Y increase in R&D spend in 2022, $456M was attributable to employee-related costs and increased headcount, including additions from its Deliverr acquisition. This leads us to believe that there are significant cost synergies available to Shopify that can lead to upside to our profitability projections.

How did the equity react? Shares closed higher by 1.2% to $45.30 on Wednesday.

Costco started at Outperform

What happened? William Blair initiated coverage on Costco (NASDAQ:COST) at Outperform on Thursday.

Why highlight this note? The brokerage sees the third-largest global retailer as a leading value option for shoppers, which should drive further operations gains due to the current macroeconomic uncertainty in the U.S. and around the world. William Blair wrote:

Costco trades at 30.5 times our 2024 EPS estimate, slightly below its recent average but at a slight premium to the average across other high-growth retailers and value-based peers. We believe the premium is warranted given the stability of the membership base and increasing appeal of Costco’s value proposition. We expect the primary driver of the stock will be sustainable earnings growth in the low-double-digit range with potential for additional upside from further share repurchases, membership fee increases, and international maturation.

How did the equity react? Shares closed lower by $6.59 to $491.30, down 1.32% on Thursday.

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