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3 Wall Street Upgrades that Pack a Punch

·4 min read

On any given weekday there can be dozens of fresh opinions offered by Wall Street firms. For retail investors, it can be difficult to ascertain which actions to pursue in a sea of upgrades, downgrades, and target prices changes.

Sometimes there is power in numbers. This means that when multiple sell-side analysts have the same sentiment on a company it can be a more compelling buy or sell signal.

There are also situations where an individual analyst’s opinion carries extra weight. This is usually because the analyst is regarded as one of the most successful analysts in his or her sector. It can also stem from a very bullish target price that suggests big upside.

Let’s look at three of the most potent analyst upgrades to hit the market over the last few days.

What is MGM Resorts International Stock’s Upside?

On Monday, MGM Resorts International (NYSE: MGM) was upgraded from ‘market perform’ to ‘outperform’ at Bernstein. As Wall Street firms tend to use their own rating terminology, this is the equivalent of a bump from a ‘hold’ to a ‘buy’ rating.

The analyst noted that the casino resort operator has not been given enough credit for the progress it has made in its BetMGM interactive gaming business. He also noted MGM’s success in divesting certain real estate properties to improve its financial position.

While these catalysts make for a sound upgrade rationale, the most powerful part of the Bernstein update is the new target price assigned to the stock. The firm gave MGM Resorts a $58.90 target which is the highest on the Street and represents 37% upside.

The MGM upgrade is also significant because the company is considered somewhat of a bellwether of leisure recovery plays. While worsening pandemic conditions threaten to slow the travel industry’s rebound, a surging online gaming business and improved financial strength may push MGM’s share price considerably higher

What do Analysts Think About NGM Biopharmaceuticals?

From MGM to NGM, NGM Biopharmaceuticals (NASDAQ: NGM) received an upgrade at Raymond James over the weekend. The San Francisco-based biotech was moved from an ‘outperform’ to a ‘strong buy’ and given a substantial target price increase from $27 to $39.

The analyst cited the company’s C3 antibody mechanism which has been referred to as the ‘Swiss army knife’ of medicines. He also mentioned a “large potential opportunity” for NGM’s drug candidate for patients with geographic atrophy (GA), NGM621, in addition to the firm’s new cancer therapy NGM120 for the treatment of anorexia and cachexia in cancer patients. Initial data for NGM120 is expected to be presented at the European Society for Medical Oncology (ESMO) event next week.

The Raymond James upgrade of NGM to a ‘strong buy’ deserves extra attention for a few reasons. First, the analyst has a strong track record in the space which includes a ‘buy’ recommendation of ChemoCentryx back in October 2019. Second, the $39 price target points to nearly 50% upside from current levels. The upgrade is also noteworthy because it came on the heels of a ‘buy’ reiteration at B.Riley Financial which is also one of the stronger voices in the pharmaceutical space.

Is The Carlyle Group a Good Private Equity Play?

It had been quiet on Wall Street regarding The Carlyle Group (NASDAQ: CG) until BMO Capital made a big splash on Sunday. The highly regarded analyst there upgraded the asset management group’s stock to a ‘buy’ and gave it a $65 target.

Aside from the unusually high implied upside for a financial firm (32%), the BMO Capital upgrade is intriguing because it came at a time when The Carlyle Group had climbed to all-time highs. The stock went on a 10-month winning streak from October 2020 to July 2021 and ran as high as $51.55 last month. The timing of the upgrade suggests that there is more to come from this turnaround story—and since it fortunes are largely tied to private equity and alternative assets, perhaps the record setting run in stocks as well.

The upgrade follows a report over the weekend that The Carlyle Group is contemplating a sale or initial public offering (IPO) of Novolex Holdings, a South Carolina-based packaging business it purchased a few years back. Novolex is expected to fetch a valuation of approximately $6 billion which would be a handsome pile of cash added to The Carlyle Group’s balance sheet. As of June 30th, it had $1.8 billion cash position to go along with another $14.2 billion in receivables.

If the private equity firm goes through with the Novolex sale, it would mark another profitable investment in a rich history of global private equity and credit deals. The Carlyle Group has $276 billion in assets under management (AUM) across 415 investments around the world.

This makes it a unique way for everyday investors to gain indirect exposure to the private equity market, an area that is typically reserved for high-net worth, accredited investors and institutions. Despite The Carlyle Group’s 57% year-to-date return, the ongoing pipeline of growth investments and backing of a prominent sell-side analyst make the stock a solid momentum play.