Wall Street analysts are revisiting their rating calls in recent days and weeks amid the increase in market volatility, leading to some of the biggest analyst upgrades. While the S&P 500 remains comfortably in the green territory in 2024, the ongoing market pullback has forced analysts to rethink some of their recommendations to clients.
The pullback is part of a broader market correction influenced by various factors. Hotter-than-expected March inflation heightened worries about persistent inflation and potential Federal Reserve actions, possibly delaying a rate cut expected in June. Geopolitical tensions, notably between Israel and Iran, also drove investors towards safer assets, exacerbating the market’s downturn.
Writing about the current market conditions, Wells Fargo (NYSE:WFC) equity strategists noted that the recent market behavior resembled a “classic hedge fund de-grossing,” where there was significant selling in technology and momentum stocks, while traditionally higher-risk sectors like small caps saw unusual gains.
The banking giant indicated that current market conditions might not necessarily signal a shift to value and financial shares but rather a broader move to reduce risk. Wells Fargo also highlighted the uncertainty surrounding financial stocks, given a potentially less dovish Fed stance.
“We have been surprised [by] equity volatility, and the VIX have been so well-behaved YTD, especially with rising rates and geopolitical risk,” added the bank. “Our late-2023 analysis suggested we would see a VIX spike in 1H24 and slight equity downside,” the strategists said in a note.
As equity prices move lower, Wall Street sell-side analysts tend to refresh their models and look for opportunities to upgrade their recommendations amid more attractive valuations. Here are the three biggest analyst upgrades from last week.
Netflix (NFLX)
Needham & Company analyst Laura Martin has upgraded Netflix (NASDAQ:NFLX) from Hold to Buy and set a price target of $700.00 on the streaming giant’s stock, marking one of the biggest analyst upgrades recently. The analyst’s optimism is based on Netflix’s impressive first quarter 2024 performance, where it reported revenues of $9.4 billion, marking a 15% year-over-year (YoY) increase. Still, shares for Netflix fell after the earnings report following a soft guidance.
On a more positive note, Netflix’s subscriber base grew by 9.3 million, reaching 270 million, and its free cash flow was $2.1 billion for the quarter. As a result, Martin believes Netflix is well-positioned to benefit from generative AI, citing the company’s tech-first approach and global scale, which maximizes data value.
Furthermore, anticipated price increases and accelerating advertising revenue are expected to spur revenue growth and expand margins. The analyst also noted that Netflix’s stable content spending, which remains around $17 billion, alongside its strategy to repurchase shares using its free cash flow instead of paying down debt, will likely result in free cash flow and return on invested capital surpassing estimates.
EBay (EBAY)
EBay (NASDAQ:EBAY) stock received a strong boost last week after Morgan Stanley (NYSE:MS) analysts double-upgraded their recommendation to Overweight from Underweight. The price target on EBAY stock was nearly doubled to $62.00 per share.
Morgan Stanley’s upgrade is grounded in the positive outlook on eBay’s strategic shift towards broader site-wide horizontal solutions and the integration of generative AI technologies, which analysts anticipate will enhance both Gross Merchandise Volume (GMV) and adjusted EBIT.
Specifically, the broker projects a CAGR of 1% for GMV and 5% for adjusted EBIT from 2023 to 2026. Moreover, they believe eBay’s return to positive FX-neutral GMV growth in a challenging economic environment will bolster investor confidence in the company’s medium-term growth potential, possibly materializing sooner than expected in the first half of 2024.
One of the key drivers of the double upgrade is the fact that despite having a growth profile similar to Etsy (NASDAQ:ETSY), eBay currently trades at about a 35% discount based on 2025 EV/EBITDA estimates. That valuation gap, according to Morgan Stanley, offers a compelling case for potential multiple expansion if eBay successfully executes its strategic initiatives.
AMD (AMD)
HSBC analysts upgraded Advanced Micro Devices (NASDAQ:AMD) stock from Hold to Buy, also raising the price target from $180.00 to $225.00. This is one of the biggest analyst upgrades and is based on enhanced earnings projections fueled by expected growth in AMD’s AI GPU revenue and improved performance across its non-AI segments.
The broker also adjusted the 2024 and 2025 EPS estimates upwards by 7% and 25%, respectively, resulting in new forecasts of $4.08 for 2024 and $7.43 for 2025. These revised estimates are significantly above the consensus, by 13% for 2024 and 31% for 2025.
Analysts said their latest move reflects the confidence in AMD gaining a 10% market share by 2025 and capitalizing on competitor Nvidia’s (NASDAQ:NVDA) anticipated product transitions in the AI GPU space during 2024. Furthermore, HSBC suggests that under a bullish scenario for AMD’s AI GPU business, there could be a further 16% upside potential to his already elevated 2025 EPS estimate.
On the date of publication, Shane Neagle did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
