Among the biggest analyst headlines that you may have missed on InvestingPro this past week, Affirm was downgraded at two firms after a devastating earnings report while Spotify climbed on a pair of upgrades. Start your free 7-day trial on InvestingPro for rapid-fire, comprehensive coverage of market-moving analyst calls.
Affirm rating cut at two firms
It was a bad week for Affirm (NASDAQ:AFRM) that ended with downgrades at Morgan Stanley and RBC (TSX:RY) Capital after earnings and guidance widely missed estimates and the company said it would cut 19% of its workforce. A slew of price-target cuts followed as well.
Morgan Stanley lowered the stock to Equalweight, noting the “product ambitions are too large given narrow incremental benefits, slow consumer behavior change, development cost limitations, pricing missteps, and potential for increasing customer acquisition friction, all with a small time window for rapid customer base growth.”
Nothing more to really say than this: If the business model is non-friction and free-credit under the dependence of enough borrowers not paying on time, that’s not going to last very long.
Shares were sold heavily this week with the equity closing down 30% to $12.52 after starting Monday up near $18.
Two upgrades for Spotify
Spotify (NYSE:SPOT), on the other hand, received early-Monday upgrades from Atlantic Research and Wells Fargo. The former is worth highlighting.
Atlantic Research wrote, "We believe investors will be heartened to see non-music initiatives finally drive margin expansion," which is important. Second on Spotify's popularity list, behind music, is podcasting.
Atlantic is not expecting podcasting to break even in the coming one-to-two-year period, as guided by management in a 2022 Investor Day meeting. Audiobooks, according to Atlantic, will likely have "a fairly limited revenue opportunity," as the only way to sign up for the service is through the web.
As the week rounded out, ValueAct announced a material stake in the company in an effort to support the company's cost-savings efforts, according to a Bloomberg report.
Spotify closed the week up 1.3% to $125.16.
Lockheed Martin leaps on double upgrade
On Tuesday, Credit Suisse upgraded Lockheed Martin (NYSE:LMT) to Outperform from Underperform.
In a note to clients on the double upgrade, the investment bank wrote, "Weak book-bill was a primary driver of our prior Underperform rating on LMT, as we believed that this softness would limit LMT’s ability to accelerate its relative growth. However, LMT has now reported three consecutive quarters with book-bill >1.0x, with TTM book:bill accelerating to1.08x in Q3 and hitting 1.22x in Q4. We view this acceleration as a powerful signal that the rationale for our prior rating no longer holds."
Credit Suisse also believes LMT's Space segment exhibits a credible foundation for the company to grow, noting among others LMT's "classified activities" and their "hypersonics portfolio."
Shares of Lockheed closed up the week by nearly 4% to $480.83.
American Express rises on Top Pick designation
Morgan Stanley on Wednesday upgraded American Express (NYSE:AXP) to Overweight and called it a new Top Pick, replacing Discover (NYSE:DFS) on the list.
The investment bank highlighted credit losses with the comment, "We see credit losses hitting pre-COVID levels only by 2024 while all other card peers will overshoot on deterioration."
This is a signal that the paying customers of AXP are more likely to manage their borrowed funding more reliably than are the Discover customers flowing from the "we-accept-everyone" model.
Morgan Stanley seems to think that way, as it also downgraded Discover to Equalweight and wrote this on the company's credit losses: "While rising credit losses are less of a risk to DFS vs. more subprime exposed peers, in our view, this pressure nonetheless weighs on EPS growth in 2023, expected to decline 12% y/y."
AXP rode a steady wave all week and closed up 1.4% to $179.25. Discover lost 2.5%.
DraftKings cut at Roth
And on Thursday, Roth Capital issued a downgrade on DraftKings (NASDAQ:DKNG).
The brokerage wrote in a note to clients, "We tactically downgrade DKNG to Sell from Neutral (PT still $15) as we expect 1H23E EBITDA losses greater than consensus and reduce investor conviction in DKNG's profitability narrative."
The use of "tactically" matters: Without it, this would have appeared to be a more long-term, 12-month downgrade. Instead, this means the downgrade is more on an overextended valuation and the expectation for management to guide investor expectations lower in the coming two weeks regarding Q1 2023 EBITDA.
Roth wrote, "We expect mgmt to signal disappointing 1Q23 EBITDA as new state launches require more up-front investment than Street forecasts imply."
DraftKings will issue earnings on February 16, 2023, during pre-market trading.
Shares ended the week down 3.3% to $15.99.
In related news on Roth Capital, the firm last month bought MKM Partners, another respected brokerage.
