Investing.com — Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week.
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Arm Holdings – Monday
What happened? On Monday, HSBC downgraded Arm Holdings (NASDAQ:) to Reduce with a $105 price target.
TLDR: HSBC cautious on AI PC narrative. Earnings may see pressure via smartphone weakness. 10% Free-Float liquidity level may present share price downside protection.
What’s the full story? HSBC cut its FY25/FY26 EPS forecasts by 3% and 2%, respectively, due to a lack of smartphone restocking momentum and a weaker AI PC CPU narrative. The research team finds it difficult to justify a further re-rating beyond the new target price of $105.
They have rolled forward their valuation to FY26e, applying a lower target PE multiple of 51x (down from 63x) to the FY26e EPS of $2.06. This target price implies a 29.5% downside, leading to a downgrade of the stock from Hold to Reduce. However, the research team also acknowledges potential share price downside protection given the limited liquidity of only a 10% free float.
Lastly, the bank noted the AI PC narrative is not as bullish as previously expected despite higher royalties, and smartphone uncertainty poses a potential short-term risk to earnings.
Reduce at HSBC means “When the target price is more than 20% above the current share price, the stock will be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is between 5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more than 20% below the current share price, the stock will be classified as a Reduce.”
How did the stock react? Arm Holdings opened the regular session at $146.58 and closed at $141.48, a decline of 4.84% from the prior day’s regular close.
Affirm Holdings – Tuesday
What happened? On Tuesday, BofA upgraded Affirm Holdings Inc (NASDAQ:) to Buy with a $36 price target.
TLDR: Management fiscal goals are achievable. Partnership expansion and credit-risk management are going well.
What’s the full story? Bernstein SocGen has upgraded Affirm citing that GAAP profitability may be closer than consensus expectations. The research team maintains their estimates and price objective, noting that the fourth-quarter print and guide could serve as a positive catalyst. They also believe that fiscal 2025 forecasts are achievable. Additionally, a lower interest rate regime is expected to support revenue less transaction costs (RLTC), which is considered the most crucial P&L metric.
The analysts are optimistic about new and expanded partnerships, particularly with Apple (NASDAQ:), and highlight that credit risk remains well-controlled. This bullish outlook is underpinned by the belief that these factors collectively position Affirm Holdings for a promising financial trajectory.
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? Affirm opened the regular session at $28.38 and closed at $27.45, a gain of 2.31% from the prior day’s regular close.
PayPal – Wednesday
What happened? On Wednesday, Bernstein SocGen upgraded PayPal (NASDAQ:) to Outperform with a $64 price target.
TLDR: Bernstein’s first PayPal upgrade in 3 years. Valuation is attractive and management has been executing.
What’s the full story? The research team at Bernstein SocGen is making a tactical upgrade on PayPal to “Outperform” status, marking the first such upgrade in nearly three years. Their decision is based on several positive factors.
Firstly, PayPal has demonstrated improved transaction gross profit performance, driven by growth in its branded services, pricing initiatives by Braintree, and successful monetization of Venmo.
Secondly, the company’s product momentum and overall execution, under the new management team, are expected to sustain gross profit growth at a moderate single-digit level, even amidst competitive pressures.
Additionally, PayPal’s strategic optionality in the ecommerce and digital commerce space, along with its attractive valuation (trading at 14x 2025 price-to-earnings ratio), positions it as an appealing investment opportunity.
Outperform at Bernstein SocGen means “Stock will trail the performance of the relevant index by more than 10 pp.”
How did the stock react? PayPal opened the regular session at $64.96 and closed at $65.87, a gain of 3% from the prior day’s regular close.
Etsy – Thursday
What happened? On Thursday, Oppenheimer downgraded Etsy Inc (NASDAQ:) to Perform with no price target.
TLDR: Recent strength/outperform limits valuation upside. Investment into cost-saving initiatives may dampen near-term financials.
What’s the full story? The downgrade comes on the heels of recent strength. Despite Etsy reporting second-quarter results ahead of guidance due to a higher take-rate, weaker third-quarter guidance and the removal of the full-year Gross Merchandise Sales (GMS) outlook indicate a lack of near-term visibility. Additionally, initiatives around gifting, seller classification, and a focus on the mobile app are not expected to impact fiscal year 2024 results.
In the long term, Oppenheimer sees potential for Etsy to leverage large language models to enhance search and discovery, though this will require significant time and investment, potentially conflicting with margin focus. While Etsy may eventually benefit from a cyclical recovery in its key categories, this is beyond management’s control.
The brokerage views Etsy as fully valued at 10x its fiscal year 2025 estimated EBITDA, compared to peers at 11x, noting that Etsy is growing 76% slower.
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? Etsy opened the regular session at $63.03 and closed at $60.13, a decline of 7.86% from the prior day’s regular close.
Lululemon – Friday
What happened? On Friday, Goldman Sachs downgraded Lululemon Athletica Inc (NASDAQ:) to Neutral with a $286 price target.
TLDR: Goldman is negative on weaker execution and innovation. LULU brand to see further competitive pressure.
What’s the full story? Goldman had previously maintained a positive outlook on Lululemon (LULU) despite a slowdown in US sales growth and visible execution missteps in the spring. The analysts believed that the company could drive a sequential reacceleration in the second half of the year through an improved assortment of colors, accessories, and sizes, as well as a strengthening innovation pipeline, including new fabric launches in women’s leggings. Despite some weaknesses observed in quarterly checks earlier in the month, the analysts had initially believed that trends were stable enough to maintain a constructive view on the stock.
However, due to weaker execution and innovation, Goldman now has fading confidence in the near-term growth prospects for the brand in the US market. The analysts have observed limited signs of material innovation over the summer and were disappointed by the quick removal of the new Breeze through franchise, suggesting choppy near-term execution.
Additionally, LULU has become more promotional, raising concerns that the brand is training customers to expect regular discounts. Other signs of execution missteps were evident in store checks, and more cautious brand indicators were seen in proprietary HundredX survey data.
Goldman no longer expects a second-half inflection in sales growth and believes the brand is more susceptible to competitive pressures and macroeconomic factors.
Neutral at Goldman means “Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral.”
How did the stock react? Lululemon opened the regular session at $239.57 and closed at $236.00, a decline of 5.24% from the prior day’s regular close.
