Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Oracle, Electronic Arts, and Exxon Mobil, and downgrades for Texas Instruments and Netflix.
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Oracle
What happened? On Monday, Evercore upgraded Oracle (NYSE:ORCL) to Outperform with a $135 price target.
What’s the full story? Evercore analysts are upgrading Oracle to Outperform from In Line, as they believe that the recent pullback (-13% since the fiscal first quarter) simply creates a more attractive entry point for a business that it believes is now better positioned to deliver more consistent revenue and earnings growth due to a higher percentage of revenue coming from its cloud solutions.
While Evercore expects that the "lumpiness" in the Oracle Cloud Infrastructure (OCI) business and that Cerner (NASDAQ:CERN) "will continue to create some debate/concern in the near-term," they believe there are five other thoughts to consider:
1. They believe the apps and infrastructure cloud businesses are now big enough as a percentage of revenue to drive total revenue growth in the high single digits going forward.
2. OCI estimates (50% compound annual growth rate [CAGR] for fiscal 2023 through 2026) may eventually be viewed as too conservative.
3. The “macro storyline continues to favor ‘suites’ and this should help drive steady apps growth and potentially pull through some database/OCI revenue as legacy customers re-platform on the cloud," Evercore wrote.
4. They believe consensus estimates for fiscal 2026 leave room for upside relative to Oracle’s management to guide above expectations.
5. Finally, they believe there is potential for upside if Oracle can show consistent revenue growth and margin expansion.
Essentially, Evercore analysts see Oracle as a promising investment opportunity given its potential for consistent growth and margin expansion.
Outperform at Evercore means: “The total forecasted return is expected to be greater than the expected total return of the analyst's coverage sector.”
How did the stock react? Shares initially punched lower as the heavily armored premarket scalp traders sought to chase stop-loss orders. Moments following InvesingPro's exclusive alert to the upgrade, shares ripped about $3 to $111 before 6AM New York time. Shares ended the regular session at $110.32, up fractionally from the prior close.
Electronic Arts
What happened? On Tuesday, Bank of America upgraded Electronic Arts (NASDAQ:EA) to Buy with a $150 price target.
What’s the full story? BofA analysts think that EA’s valuation is attractive, as its shares have been rangebound since January due to several weak FY24 guides, a tough comparison for SPORTS FC after the World Cup, and a sparse launch pipeline. The analysts also believe EA has an opportunity to surprise investors with its rebranding of FIFA to EA SPORTS FC, which is arguably the biggest rebranding in the history of video games. The analysts cite several reasons for their optimism, such as:
1. EA’s relative valuation is near a five-year trough,
2. Early stats from the FC 24 launch suggest upside to Street estimates and guidance,
3. FY25 and out year estimates could see a string of upward revisions as EA benefits from above-trend growth in the PC/Console game market in CY24 and beyond.
Buy at BofA means: “Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster.”
How did the stock react? EA shares opened the regular session at $126.48 and closed at $128.08, for a rise of 2.8% from Monday’s close.
Texas Instruments
What happened? On Wednesday, Oppenheimer downgraded Texas Instruments (NASDAQ:TXN) to Perform from Outperform.
What’s the full story? Oppenheimer analysts expect TXN to report in-line results for Q3 and Q4 after four quarters of downward revisions.
The analysts respect TXN’s management team and its long-term strategic vision, and they believe TXN’s heavy capacity investment will strengthen its position as a low-cost, domestic manufacturer of analog components.
Oppenheimer noted that TXN’s catalog is wide-reaching and diverse, covering over 80,000 SKUs across over 100,000 customers. The analysts like TXN’s focus and exposure to long-life industrial, automotive, and communications segments, which account for about 72% of its sales.
However, the analysts also see sustained margin pressure for TXN as the company invests in capacity and faces under-utilization, increased depreciation, and aggressive commodity pricing in China, the latter of which represents about 20% of its sales. Oppenheimer’s analysts believe that TXN’s battle of attrition with smaller suppliers in China could persist for the foreseeable future.
Perform at Oppenheimer means: “Stock expected to perform in line with the S&P 500 within the next 12-18 months.”
How did the stock react? TXN shares opened the regular session at $156.32, closed at $157.33, for a fractional decline from the prior close.
Exxon Mobil
What happened? On Thursday, Truist upgraded Exxon Mobil (NYSE:XOM) to Buy with a $131 price target.
What’s the full story? Truist analysts think that Exxon's just-announced acquisition of PXD - and of Denbury (NYSE:DEN), which it agreed to buy in July - will not have a material near-term impact, but will create more value in the future.
The analysts also think that the pro-forma company deserves a premium earnings multiple and cash flow yield given its scale and well productivity, and they have updated their 2024 estimates for PXD, incorporating the acquisition and its benefits.
Truist analysts derive their new price target from two equally weighted methodologies: the first one applying a 6.0x EV/EBITDAX multiple (5.3x peer group average) to their 2024E EBITDAX estimate of $96.02 billion ($73.96B billion consensus), and the second one is assuming a 7.5% FCF/EV yield.
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 opened the regular session at $107.59, closed at $106.47, nearly breakeven with the prior close.
Netflix
What happened? On Friday, Wolfe downgraded Netflix (NASDAQ:NFLX) to Peer Perform from Outperform with no price target.
What’s the full story? Wolfe suspects Netflix’s growth prospects for 2024-25 are uncertain, and that its valuation premium to the S&P 500 may not be justified.
The analysts had previously expected Netflix to lead the industry transition from landgrab to efficiency by monetizing its existing viewership via advertising-supported video on demand (AVOD) and cracking down on password sharing. However, Wolfe’s analysts have become less confident in the thesis, as they cite reports of slow AVOD adoption, recent average revenue per member shortfalls signaling trade down, management signaling less margin expansion, and a lack of compelling third-party data on subscriber growth.
Wolfe believes that the risk/reward for Netflix is balanced.
Peer Perform at Wolfe means: “The security is projected to perform approximately in line with analyst's industry coverage universe over the next 12 months.”
How did the stock react? Shares deflated precipitously from $361 to $352, a drop of 2.55%, within the first 30 minutes of the note's distribution. Netflix opened the regular session at $355.64 and closed at $355.68 for a loss of $5.52, or 1.5%, from Thursday's close.
