Tuesday's analyst calls: Big banks get major upgrades, UBS calls for 25% rally in Spotify
(This is CNBC Pro's live coverage of Tuesday's analyst calls and Wall Street chatter. Please refresh every 20-30 minutes to view the latest posts.) Some of the biggest U.S. banks got major upgrades Tuesday. Morgan Stanley raised its rating on Goldman Sachs, Bank of America and Citigroup to overweight, calling for roughly 20% upside for all three stocks. Elsewhere, UBS upgraded Spotify as it grows bullish on the streaming giant's efforts to grow margins. Check out the latest calls and chatter below. All times ET. 8:38 a.m.: Bank of America says buy this cybersecurity stock ahead of a recovery cycle Bank of America is sticking by Fortinet for the long run even as Wall Street braces for another weak quarter for billings and guidance. "We believe the underlying demand for hardware-based Firewalls remains solid, and Fortinet's value proposition of lower pricing and greater feature set/throughput should continue to fuel the growth in the long term," wrote analyst Tal Liani. "By 2H24 we expect supplies of Fortinet's new ASIC chip, FortiSP5, to improve, potentially driving some replacement with the existing installed base." When the cybersecurity company reports fourth-quarter results next month, the firm anticipates a year-over-year decline in billings, along with slower revenue growth versus 2023. Liani also views Wall Street estimates as too high and in need of a reset, expecting first-quarter billings to face "greater seasonality headwinds and continued tough comps." Despite this near-term overhang, Bank of America regards Fortinet as a "strong competitor" in the network security space, and a stock to buy before its recovery cycle. "We believe the company will continue to demonstrate a strong price/performance value proposition due to its custom ASIC products," he said. "We see this, along with new product introductions, as driving replacement cycles and opening new opportunities in the high-end data center market given its competitive throughput." — Samantha Subin 8:33 a.m.: Bank of America hikes price target for Uber ahead of earnings Uber is set to cap off its 2023 fiscal year on a high note and continue that momentum into 2024, according to Bank of America. Analyst Justin Post hiked his price target for Uber to $73 per share from $68, saying in an earnings preview note that the rideshare company was poised to improve its margins in the new year. "Margin progress has been a top theme for the stock, and with strong driver supply and advertising traction we see an opportunity for another year of incremental margins above LT target of 7% ... While bar gets tougher as Uber laps the introduction of high-margin ads, we see strong driver supply, a stable competitive environment, and new advertising services (and partners) as contributing to margin expansion in 2024," the note said. The new price target is 9% above where Uber's stock closed on Monday. Bank of America has a buy rating on the stock. For the fourth quarter, Bank of America said it expects Uber to beat expectations for revenue and a key profit metric when the company reports its results on Feb. 7. — Jesse Pound 8:32 a.m.: Seaport downgrades Netflix after the stock's recent rally There's a lot of enthusiasm around Netflix , but the recent rally has left the stock fully valued, according to Seaport Research Partners. The firm downgraded the streaming giant to neutral from buy on Tuesday. Shares have jumped more than 18% since Netflix reported stronger subscriber growth than expected for the fourth quarter last Tuesday and announced it will air the WWE flagship program Raw starting next year. The stock closed at $575.79 on Monday, just below Seaport's price target of $576. Seaport said Netflix's addition of live sports rights will support the streamer's strategy of building a global, in-demand platform with an advertising model layered on top. However, that will come at a cost, with the WWE rights costing about $5 billion, analyst David Joyce wrote in a note. "Netflix has its qualities and attributes - including ease of use, recommendation engine, programming sourcing, talent relationships, global footprint from which to build incremental businesses in advertising and gaming, positive FCF, and capital returns," analyst David Joyce wrote in a note. "That said, various valuation metrics relative to growth expectations through 2027 appear to be rather full," he added. — Michelle Fox 8:14 a.m.: BTIG hikes price target on TripAdvisor, sees 35% upside BTIG is bullish on TripAdvisor heading into the travel company's earnings report next month. The firm said it sees healthy underlying trends and raised its price target on Tuesday to $30 from $22.14, implying 35% upside from Monday's close. It specifically sees strength in its experiences booking platform, Viator. "Traffic trends suggest Viator bookings growth in the 20% range and that could push revenue growth to the mid-20s after layering in a take-rate tailwind," analyst Jake Fuller wrote in a note to clients. He upgrade TripAdvisor to buy in December. "Further out, our perspective on 2024 is firming with increased confidence in above-Street estimates given the topline trajectory of Viator, $35M in identified Core segment cost savings and Viator/TheFork shifting from EBITDA losses to profits," he added. TripAdvisor is expected to release fourth-quarter earnings Feb. 13. Shares are up nearly 3% year to date. — Michelle Fox 8:13 a.m.: Roth MKM maintains neutral on Pinterest, says investors should wait for 'better' entry point Analyst Rohit Kulkarni thinks Pinterest is one of the "highest quality SMID-cap Internet stocks with identifiable catalysts," maintaining his neutral rating but adjusting his price target from $31 to $37. The new target suggests shares could decrease about 5.5% from Pinterest's latest closing price. "We remain constructive over the longer term, however, near-term, we believe rising 1Q/2024 expectations are fairly captured at current valuation levels," Kulkarni wrote in a Tuesday note. "We await a better growth-adjusted entry point along with sustained user growth to become more constructive." The photo-sharing website saw record-high 90% incremental EBITDA margins last year, Kulkarni noted, saying consensus expectations are calling for roughly 40% and 50% incremental margin growth in 2024 and 20205, respectively. Given that Amazon's ad-spending business is expected to grow in 2024, Kulkarni added that Pinterest's partnership with Amazon could also lead to between $137 million and $150 million in incremental revenues for Pinterest this year. In the fourth quarter, roughly 0.05% of Amazon's ad spending was allocated to Pinterest, he said. Pinterest shares gained 1% in premarket trading. The stock is up about 5.8% so far this year. — Pia Singh 7:37 a.m.: Oppenheimer initiates bowling name with outperform rating Oppenheimer says it's "aiming to bowl a strike" with Pinstripes Holdings . The firm initiated coverage on the bowling company with an outperform rating and $6 price target on shares. The price target suggests shares could rally around 50% from Monday's close. "PNST represents an intriguing and more speculative investment opportunity within the attractive 'eatertainment' category. The company is armed with robust unit economics and proven portability as it enters a growth inflection aimed at scaling its profitable EBITDA model," analyst Brian Bittner wrote in a Monday note. Shares have declined around 65% since the stock began trading on Jan. 2. Bittner cited investor concerts regarding capital structure overhangs, which he believes could ease if management manages to successfully execute its new unit opening strategy and achieve its financial targets. "Underlying fundamentals are compelling with appetizing venue-level economics, above-average new unit paybacks, and a long-term opportunity to exponentially expand its current 15-unit footprint," said Bittner. — Hakyung Kim 7:08 a.m.: BTIG upgrades Block to buy, bullish on Cash App and Square growth Analyst Andrew Harte upgraded Block to buy from neutral, saying margins are poised to expand. His $85 price target implies shares could gain more than 23%. "We see the company's growth opportunities paired with management's focus on bottom-line as presenting an attractive investment opportunity," Harte wrote in a Tuesday note. "Our core investment thesis is focused on SQ's attractive position between the consumer and merchant with its Cash App and Square ecosystems and potential for each segment to become stronger as integrations are built between them." Harte said Cash App and Square are strong as individual units and are expected to grow throughout fiscal 2024 and beyond. Square's increased focus on costs are attractive, he added, saying he expects the company to reach its goal of mid-20s adjusted operating margin by 2026, which should pose an opportunity for investors who are increasingly focused on GAAP profitability. Block's stock price traded nearly 3% higher in early morning trading. Shares are down 10.8% so far this year. — Pia Singh 6:33 a.m.: Western Alliance shares are 'fully valued', according to Wells Fargo Wells Fargo downgraded Western Alliance Bancorp to equal weight from overweight. "Current results and guidance leave little room for error … risk/reward scenarios at this stock price level seem skewed to the downside," analyst Timur Braziler wrote in a Monday note. "Valuation is now about in line with peers … and fully valued, in our view." Shares are up about 6.6% this year, last closing at $70.11 per share. Braziler's new price target of $72, higher by $10, suggests about 2.7% potential upside over the next 12 months. Braziler noted that the bank's costs have increased, reflecting higher deposit earnings credit rate, higher tech and insurance spend. Liquidity and capital build are also taking away from profitability, he added. "Near-term efficiency and profitability still lag pre-pandemic levels," Braziler said. "In an upside scenario, WAL is able to return to industry leading growth, establish a solid capital base, and regain its prior levels of profitability. WAL has never had an issue being profitable, it has had an issue getting the proper multiple for that profitability." — Pia Singh 6:07 a.m.: Oppenheimer downgrades Five Below on worries of slowing growth Five Below's valuation may not be aligned with its fundamentals, according to Oppenheimer. Analyst Brian Nagel downgraded Five Below to perform from outperform. He also lowered his price target on the discount retailer to $200, suggesting shares could gain just 7% over the next year. During premarket trading on Tuesday, shares fell 1.7%, adding to the stock's losses of more than 12% this year. "Strategic positioning of the unique Five Below model and consumer proposition remain robust," Nagel wrote in a Tuesday note. "That said, we are starting to fret that underlying growth dynamics for FIVE are slowing, at least somewhat, given a now larger base of units, waning remodeling opportunities, and stepped-up reinvestment requirements, on top of already elevated operating margins." As the pace of growth for Five Below gradually diminishes, Nagel forecasted that the premium multiple shares at which shares trade could also moderate towards "recent troughs." He expects new store expansions to also gradually slow to the low-double digits. — Pia Singh 6:05 a.m.: Raymond James initiates CrowdStrike with outperform rating Cybersecurity company CrowdStrike is a bullish play for the long run, according to Raymond James. Analyst Adam Tindle initiated coverage on the stock with an outperform rating and $330 price target, which implies 9.8% potential upside for the stock. "Our thesis is predicated on a near-term view that net new ARR (key growth metric) should accelerate alongside stabilization/improvement in the device end market as CY24 progresses," Tindle wrote in a Monday note. "We model this metric slightly above Street estimates for the next few quarters, but would not be surprised to see actual results well in excess of our current estimates." Tindle added that, for longer-term investors, CrowdStrike — with its detection and response services — will be a beneficiary of the value chain in cybersecurity shifting from proactive to reactive, given that high-profile security breaches have become seemingly inevitable. CrowdStrike's customer base is also roughly half the size of peers Palo Alto Networks and a fraction of Fortinet's, suggesting room to grow in customer acquisition. These shifts should drive operating leverage and cash flow generation, according to the analyst. Shares gained 0.4% in premarket trading. Tindle acknowledged that the stock — which has gained about 17.8% so far this year — is one of the most expensive in the firm's coverage universe, and that downside from valuation multiple compression could be significant at more than 50%. — Pia Singh 5:42 a.m.: Spotify gets an upgrade from UBS as efficiency initiatives play out UBS thinks Spotify still has room to run as the streaming giant focuses on margin expansion, price increases as well as subscription and advertising growth. These initiatives, in turn, should lead to higher earnings and revenue, according to the firm. Analyst Batya Levi upgraded shares of Spotify to buy from neutral and increased his price target by $104 to $274, which implies 25.3% potential upside for the stock. "We think efficiency initiatives remain the focus and have increased conviction on sustainable margin expansion and stronger bottom line trends in the coming years," Levi wrote in a Tuesday note. "While investors have struggled in the past with valuation given lack of profitability, we expect SPOT to gain valuation support with EBITDA now firmly in positive territory and growth pegged against peers." The analyst said Spotify's podcast business is on track to break-even in the first half of this year, and that its music segment should also benefit from new royalty deals with labels, which should support ad-supported margins. Revenue should grow 13% CAGR between 2023 and 2027, and gross margins should also expand during that period, Levi said. The stock is up more than 16% higher this year, and jumped more than 118% over the past year. Shares traded about 2% higher in premarket trading. — Pia Singh 5:42 a.m.: Raymond James downgrades AMD Artificial intelligence expectations for AMD are becoming too elevated, according to Raymond James. The firm lowered its rating on the chipmaker to outperform from strong buy. It also raised its price target to $195 per share from $190, but that only implies upside of 9.6%. "We project AMD's base business to earn $3.5-4 in 2025, which means AI GPUs will need to contribute > $3 EPS. That is equivalent to $12B revenue or 800k units," wrote analyst Srini Pajjuri. "In comparison, we estimate NVDA shipped 2M units in CY23 and are projecting 3.2M units for CY25. While ~20% unit share is not impossible, we think it's a little premature to give the benefit of the doubt." AMD shares dipped slightly in the premarket. The chipmaker's stock is off to a roaring start for 2024, surging 20.6%. AMD YTD mountain AMD in 2024 — Fred Imbert 5:42 a.m.: Morgan Stanley upgrades Bank of America, Citigroup and Goldman Sachs Morgan Stanley is getting bullish on major banks. Analyst Betsy Graseck raised her rating on Bank of America and Goldman Sachs to overweight from equal weight. She also upgraded Citigroup to overweight from underweight. Broadly, she cited three reasons for her optimism on the major banks: Risks from upcoming "Basel Endgame" rules "coming into focus: "Reading the tea leaves, it looks like Basel Endgame will be significantly lightened up vs. the current proposal." The possibility of greater buybacks, "especially given large banks have the highest excess capital levels ever in an environment where loan growth is tepid." "Our conviction in a capital markets rebound is growing." Specifically for BofA, Graseck said the stock is now trading at an attractive valuation, adding the banking giant benefits from a "strong consumer deposit franchise, with 92% of consumer checking accounts being primary accounts and 67% of deposit balances being with customers that have been at BAC for more than 10 years." The analyst raised her price target on Bank of America to $41 from $32. The new forecast implies upside of nearly 22%. Graseck also called Citigroup "the biggest beneficiary among the money centers from potentially lighter Basel Endgame rules as their stock trades at only 0.5x [book value per share]. That means they have the ability to buy back stock below book, a very accretive financial transaction." Morgan Stanley raised its price target on Citigroup to $65 from $46, implying upside of 20.1% over the next 12 months. As for Goldman, Graseck noted it's the bank with the most exposure to a "capital markets rebound, with 64% of revenues coming from Global Banking & Markets in 2024 in our model." She raised her price target on the stock to $449 from $333, implying 18% upside. Bank of America and Goldman shares are off to a sluggish start for 2024, losing 0.2% and 1.4%, respectively. Citigroup has outperformed early in the year, rising 5.2%. BAC C,GS YTD mountain BAC, C and GS in 2024 — Fred Imbert