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Street Calls of the Week: Don't leave American Express in your portfolio

Published 2024-02-11, 08:54 a/m

Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Li Auto and Enphase Energy, downgraded for GlobalFoundries, American Express, and Albemarle.

InvestingPro subscribers always get first dibs on market-moving rating changes.

GlobalFoundries downgraded

What happened? On Monday, JPMorgan (NYSE:JPM) downgraded GlobalFoundries Inc (NASDAQ:GFS) to Neutral with a $56 price target

What’s the full story? JPMorgan analysts have downgraded GlobalFoundries Inc. (GFS) from an Overweight to a Neutral rating, setting a price target of $56.00 (revised down from $65.00). The rationale behind this decision, according to the note, lies in the declining specialty/mature node foundry manufacturing activity across various markets, which may lag behind semiconductor industry recovery trends by 1-2 quarters. Despite the company’s already adjusted CY24 revenue and EPS estimates (8% and 22% lower, respectively, compared to consensus expectations), there are additional concerns.

GlobalFoundries faces challenges as its FinFET customers (including AMD (NASDAQ:AMD), Qualcomm (NASDAQ:QCOM), and Marvell (NASDAQ:MRVL)) at 12nm-16nm nodes migrate to lower geometry nodes not supported by GFS. Moreover, the team’s slower response in backfilling these migrations exacerbates the situation.

Approximately 20-25% of the company’s total revenues still come from plain-vanilla 12nm and higher FinFET capacity mix. Additionally, certain RF customers may potentially migrate away in the mid-to-long term due to misalignment with future technology/product roadmaps.

Furthermore, intensified competition from US/Europe/Japan domestic specialty/mature foundry manufacturers (such as TSMC and UMC) outside of Taiwan adds to the complexity. Considering these dynamics, JPMorgan has revised its EPS estimates downward due to lower utilizations in the first half of the year, resulting in a 6% decline in CY24 revenues (versus consensus at +3%) and a 25% decline in EPS (versus consensus at +3%).

Neutral at JPMorgan means “(over the duration of the price target indicated in this report, we expect this stock will perform in line with the average total return of the stocks in the Research Analyst’s, or the Research Analyst’s team’s, coverage universe)”

How did the stock react? GFS equity traded lower on the premarket headlines from $55.08 to $54.01, a decline of 2.28 percent. GFS opened the regular session at $53.24 and closed at $51.67, a decline of 6.70 percent.

Li Auto upgraded

What happened? On Tuesday, Deutsche Bank (ETR:DBKGn) upgraded Li Auto Inc (NASDAQ:LI) to Buy with a $41 price target.

What’s the full story? The bank said that it saw a compelling set-up in the coming quarters driven by a robust product pipeline, further supported by an attractive valuation for a top tier EV player. The bank said that the stock had declined by 32% since late November, versus a 18% drop for the KraneShares CSI China Internet ETF (KWEB).

The bank relayed that management has proven time and time again to be best-in-class, being the first original equipment manufacturer (OEM) to embrace extended-range electric vehicle (EREV) powertrain technology and one of the few upstarts to achieve or beat ambitious targets on volume and costs. The analysts wrote that while the first quarter would be soft, volume and margin should bounce back starting in the second quarter, boosted by new and refreshed models.

Deutsche analysts wrote that they largely maintained their 2024 estimated volume outlook but reduced margin estimates, assuming more aggressive pricing and promotional activity. The analysts said that their price target came down from $45 to $41, using a lower multiple in light of the broader de-rating across China American depositary receipts (ADRs) and global EV stocks, but still implying significant upside from current levels.

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? Li Auto equity spiked higher on the premarket headlines from $28.07 to $30.55, a gain of 8 percent. Li Auto opened the regular session at $30.49 and closed at $30.92, a gain of 10.43 percent.

new year

Enphase Energy upgraded

What happened? On Wednesday, Oppenheimer upgraded Enphase Energy Inc (NASDAQ:ENPH) to Outperform with a $133 price target

What’s the full story? Enphase shares soared despite the company’s lower-than-expected guidance, sparking a debate on its market position and prospects. Oppenheimer lowered its estimates, but also upgraded the stock, citing a more realistic outlook on sales and margin.

The brokerage praised ENPH’s product innovations, which improve system efficiency and lower costs. The analysts also highlighted ENPH’s unique ability to create dynamic grids and manage them with AI, which could give it an edge over competitors.

Oppenheimer acknowledged the stock’s volatility but expressed confidence that the worst-case scenarios are already priced in.

Outperform at Oppenheimer means “Stock expected to outperform the S&P 500 within the next 12-18 months.”

How did the stock react? Enphase shares rose on the headlines and climbed throughout the premarket session following Tuesday’s earning report. Enphase opened the regular session at $120.01 and closed at $117.59, a gain of 16.99%.

American Express downgraded

What happened? On Thursday, Morgan Stanley (NYSE:MS) downgraded American Express Company (NYSE:AXP) to Equal-weight with a price target of $22.

What’s the full story? American Express shares rose 11% after earnings, as the company beat expectations on revenue and EPS growth, and increased its dividend by 17%. Morgan Stanley attributed this to management’s optimistic guidance for 2024, and its confidence in capital deployment despite new regulations.

However, the bank also warned that AXP faces challenges in boosting its discount revenues, which account for more than half of its total revenues. The analysts noted that discount revenues grew only 5% in 2023, and that their own forecast of 9.5% revenue growth for 2024 is at the lower end of management’s range. Morgan Stanley also pointed out that AXP’s credit quality, which is superior to its peers, could deteriorate as prime borrowers normalize.

With the stock trading at a slight premium to its historical average, the bank downgraded AXP to a more neutral stance.

Equal-weight at Morgan Stanley means “The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.”

How did the stock react? American Express opened the regular session at $207.08 and closed at $209.07, a gain of 1.68%.

Albemarle downgraded

What happened? On Friday, Citi downgraded Albemarle Corp (NYSE:ALB) to Neutral with a $120 price target.

What’s the full story? The bank wrote that they believe pricing near-term will remain under pressure until it sees significant production cuts and capacity delay. Citi suspects that while long-term strong secular EV demand ought to support higher long-term prices, they see Albemarle dialing back ambitious expansion plans and risk to growing with the market.

The analysts state that as one of the largest and lowest-cost players in the lithium industry, Albemarle could still make healthy margins at these prices but might need production cuts and capacity expansion delays to preserve cash. The analysts wrote that near-term, they believed prices had hit a bottom and risk/reward skewed more towards continued sluggish prices in the first half of 2024. The analysts said that historically, Albemarle’s share price had been highly correlated to lithium prices.

Neutral at Citi means “For stocks rated Neutral (2), if an analyst believes that there are insufficient valuation drivers and/or investment catalysts to derive a positive or negative investment view, they may elect with the approval of Citi Research management not to assign a target price and, thus, not derive an ETR.”

How did the stock react? Shares slumped as the headlines circulated, dropping from $114 to $112.40 immediately. Albemarle opened the regular session at $113.20 and closed at $115.78, a gain of 1.27%.

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