Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Verra Mobility, AMD, Wingstop, and Generac Holdings, and a downgrade for ZoomInfo Tech.
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Verra Mobility
What happened? On Monday, Deutsche Bank upgraded Verra Mobility (NASDAQ:VRRM) to Buy with a $26 price target.
What’s the full story? Deutsche Bank raised its rating and price target for VRRM, citing strong travel demand, new legislation for traffic enforcement, and attractive valuation. The analyst expects VRRM to outperform in both commercial and government segments, and sees potential upside in the latter. Deutsche also noted the company’s efforts to reduce debt and risk. Still, the bank warns of customer concentration as a key downside risk.
The analysts boosted their price target for VRRM to $26 based on higher estimates for future years.
Deutsche uses a discounted cash flow model to derive its price target, which implies a 20x P/E ratio and an 11.8x EV/EBITDA ratio. The bank factors in steady revenue growth, margin improvement, and reasonable assumptions for cost of capital and terminal growth. However, the analysts are also cautious about various downside risks, such as macroeconomic factors, market demand, revenue timing, competition, customer concentration, technology, legal, and leverage issues.
A Buy at Deutsche Bank means:
Based on a current 12-month view of TSR, we recommend that investors buy the stock.
How did the stock react? At 6:21am in New York, shares spiked about $0.60 higher to hit $20.97, a rise of nearly 3% in the premarket session. Shares pushed to the $21 handle minutes after the regular open, and ended the day up 2.99% to $20.99.
ZoomInfo Technologies
What happened? On Tuesday, Deutsche Bank downgraded ZoomInfo Technologies Inc (NASDAQ:ZI) to Hold with a $20 price target.
What’s the full story? Deutsche Bank downgraded ZoomInfo to Hold from Buy after weak second-quarter results. The company’s revenue was hurt by lower demand and pricing pressure from tech customers.
Deutsche Bank also lowered its 2024 revenue growth forecast for ZoomInfo to 9% from 19%, citing uncertainty and competition in the sales tech market. The bank’s new target price for ZoomInfo is $20, based on 18x its estimated free cash flow. Deutsche says ZoomInfo’s data asset is still valuable, but questions the impact of generative AI on its advanced functionality segment.
A Hold at Deutsche means:
We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell.
How did the stock react? The downgrade hit at 5am in New York, and shares promptly fell an additional $0.70 to $20.46. The cut followed a painful earnings report after the Monday session that resulted in the equity sliding a total of nearly 20% in after-market trading on Monday and in the premarket Tuesday. Selling continued upon the regular-session open, and shares closed Tuesday down 27% to $18.67.
Advanced Micro Devices
What happened? On Wednesday, Citi upgraded Advanced Micro Devices Inc (NASDAQ:AMD) to Buy with a $136 price target.
What’s the full story? AMD, the leading chipmaker for PCs and servers, beat the expectations for 2Q23 revenue and EPS, driven by higher PC sales. However, the gross margin was slightly below the estimates “due to mix.” AMD also guided 3Q23 revenue below the consensus, but above the estimate, on enterprise and embedded weakness. Gross margin guidance was roughly in line with the consensus.
Citi admitted being wrong on two fronts regarding AMD. The analyst had thought AMD’s AI products (MI300) would be margin dilutive, but AMD said that, in fact, it should be margin accretive. The analyst also thought investors would eventually tire of the expensive valuation of AMD stock and was wrong on that count as well. As a result, Citi upgraded AMD to Buy on Wednesday morning.
The bank also adjusted the C23-C25 sales and EPS estimates upwards, reflecting the strong growth prospects of AMD in the server and AI markets. And Citi raised the price target from $120.00 to $136.00, or 40X the new C24 EPS estimate, at the upper range of its historical valuation of mid-30s.
A Buy at Citi means an expected total return, or ETR, of "15% or more."
How did the stock react? Shares were lower in the premarket following Tuesday’s trimmed guidance in the earnings release. Just before 5am in New York, the upgrade was published and shares rebounded off the $116 low to reach $119. The scalpers went bananas for two hours before the 7am retail-market pre-market open. AMD opened the regular session at $119.36 and closed at $109.35, down 7%.
Wingstop
What happened? On Thursday, Benchmark upgraded Wingstop (NASDAQ:WING) to Buy with a $200 price target.
What’s the full story? Benchmark upgraded Wingstop after the company reported strong quarterly results and said it had improved its chicken sourcing.
The analyst praised the WING store operating model, which delivers quick returns for brand partners and encourages new unit openings. The analyst also sees a huge global expansion potential for Wingstop, which is one of the rare restaurant concepts that combines high margin and high unit growth.
Benchmark values WING shares at 42x the forward adjusted FY24 EBITDA estimate of $155.8M to derive the $200 target.
A Buy at Benchmark means:
Stock is expected to outperform the analyst’s defined Sector/Industry Index* over the following 6 to 12 months.
How did the stock react? Shares were mute on the initial headline at 6:11am, trading only 76 lots at $167.68. Wingstop opened the regular session at $167.53 and closed at $165.53, for a loss of 1.31%.
Generac Holdings
What happened? On Friday, Truist upgraded Generac Holdings (NYSE:GNRC) to Buy with a $160 price target.
What’s the full story? GNRC saw a drop in consumer spending on home-improvement projects, which worsened the already-high inventory levels of its home standby generators (HSBs) according to Truist. The company also lowered its outlook for the year, delaying the HSB inventory normalization by a quarter.
Truist says the company also improved its inventory to around 1.2x-1.3x of normal levels, down from 1.4x-1.5x in April. Generac also produced more than it sold, trained more non-dealer contractors and aimed to increase its dealer network.
GNRC has 8700 dealers, up 500 from a year ago, but unchanged from the fourth quarter of 2022.
The analyst expects Generac to keep adding dealers in the coming quarters to enhance its omni-channel sales strategy. Truist is aware of the macro challenges that could further delay or disrupt the recovery, but projects 15% year-over-year growth in the company’s residential segment in 2024, including 12% growth in domestic HSBs, portables and chore products, and international residential products.
Truist also forecasts about 40% year-over-year growth in the company’s clean energy business. The analyst thinks the demand for home-energy resiliency and consumer energy awareness could shorten HSB cycles and create pent-up demand in 2024, which could lead to higher growth than its estimates.
A Buy at Truist means:
The stock’s total return is expected to outperform the S&P 500 or relevant benchmark over the next 12-18 months (unless otherwise indicated).
How did the stock react? Shares of the popular provider of generator equipment and energy storage company rose nearly 3% to end the Friday session up $3.18 to $113.95.
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