Stocks go up, stocks go down — and so do analysts’ opinions of them. This series looks at which upgrades investors should act on. Specifically, we’ll find out why analysts are revving their engines for CommScope, Hewlett Packard Enterprise, JetBlue Airways, and Pinterest.
CommScope - 25% Upside
Kvaal has maintained a "hold" rating on the stock since October 5, 2018, and he’s been right to do so. Over that time period, CommScope stock has shed more than 55% of its value, falling from north of $29 to just $11.57 and change yesterday.
But this morning, the analyst finally gave COMM a break, and upgraded the stock to "buy" while keeping his price target at $16 -- 55% upside from current levels. Investors responded to the news with enthusiasm, bidding up shares by over 10%.
Kvaal commented, "Improving customer spending through 2020 and solid progress in recent months on delevering gives us increasing confidence around a bounce back in valuation from multiple expansion. We leave our target price unchanged at $16, based on 8.9x our 2020 EBITDA estimate, in line with the 5-year average multiple. CommScope has historically been a P/E play, but currently trades at 5x as the stock has (understandably) taken a hit off concerns around cable spending and leverage. We note a return to the 5-year average P/E multiple of 11x would yield a $25 share price."
Indeed, CommScope is a Wall Street favorite, earning one of the best analyst consensus ratings in the market. TipRanks analytics exhibit COMM as a Strong Buy. Out of 7 analysts polled in the last 3 months, all 7 are bullish on the stock. With a return potential of 57%, the stock’s consensus target price stands at $20.07. (See CommScope stock analysis on TipRanks)
Hewlett Packard Enterprise - 17% Upside
Normally analysts reiterate stock ratings- so when a stock is upgraded or downgraded, it’s worth taking note.
Today, Bank of America analyst Wamsi Mohan upped his rating on Hewlett Packard Enterprise (HPE) all the way from 'underperform' to ‘buy.’ According to Mohan, the computing giant is worth about 17% more than it’s currently selling for, and should hit $19 within the next 12 months. (To watch Mohan's track record, click here)
Mohan's upgrade is based on: "1) Free Cash Flow (FCF) improving with fewer 1-time items, 2) management’s focus on stable growth (no caveats e.g. Tier 1) and stability of earnings, 3) continued strong capital returns (50-75% of annual FCF), 4) less revenue tied to Tier-1 server sales (less services attached, lower margin), 5) strong growth in Intelligent Edge/Aruba product and services offerings, 6) increasing value of H3C put option and HPE ex H3C trading at a low multiple, 7) move to as-a-service offering which drives value over time, and 8) an improving mix (although rev declines in near term) at PointNext that should over time drive higher profitability."
Granted, not everyone is as enthusiastic about HPE as Mohan, as TipRanks analytics reveal the stock as a Hold. Out of 12 analysts polled in the last 3 months, 3 are bullish on the stock, 8 remain sidelined, while one is bearish on the stock. The 12-month average price target stands at $16.09, which aligns evenly with where the stock is currently trading. (See HPE stock analysis on TipRanks)
JetBlue Airways - 36% Upside
A third stock worthy of consideration — at least, Stifel thinks so — is JetBlue Airways (JBLU). 5-star Stifel analyst Joseph DeNardi upgraded the airline stock from ‘hold’ to ‘buy’, predicting JBLU shares will hit $24 a share (36% upside) a year from now. (To watch DeNardi's impressive track record, click here)
DeNardi commented, "Based on reports suggesting an increasingly strained relationship between Boeing and the FAA/ Congress as well as expectations that Boeing may soon look to further cut 737 MAX production rates, we see growing risk that the MAX grounding extends further into 2020 and/or leads to fewer MAXs delivered for an extended period. A prolonged grounding of the MAX is an existential threat to Southwest's business model. The only reasonable option Southwest has, in our opinion, to address this risk - diversifying away from the 737 - is through an acquisition of either JetBlue or Alaska; LUV acquiring SAVE/Frontier/ALGT would be blatantly anti-competitive, we believe. When combined with JetBlue's attractive CASMx story into 2020, we now see the increased likelihood of M&A as presenting a sufficiently attractive risk/reward setup to justify an upgrade."
Overall, Wall Street is evenly split between the bulls and those choosing to play it safe. Based on 6 analysts polled in the last 3 months, 3 rate JBLU a "buy," 2 say "hold," while one recommends "sell." However, the 12-month average price target stands at $20.20, marking a nearly 15% in return potential for the stock. In other words, even the analysts that are hedging their bets have some optimism reflected in expectations. (See JBLU stock analysis on TipRanks)
Pinterest - 30% Upside
The stock price of Pinterest (PINS), the social media company that allows users to "pin" ideas and projects to a digital board, has been choppy in recent months. One analyst, however, thinks this new, lower stock price could offer new investors an opportunity to get into PINS on the cheap. This morning, 5-star RBC analyst Mark Mahaney upgraded the stock from Sector Perform to Outperform, while assigning this $27 stock a $35 target price (30% upside). (To watch Mahaney's solid track record, click here)
Mahaney opined, "We believe PINS occupies a relatively unique position as a high-intent Discovery tool. We initiated w/ Sector Perform in May after shares surged ~50% post IPO, trading at an aggressive ~15x EV/ Sales multiple. Since then, our estimates have increased materially, while shares have retraced ~29% off highs. So…the upgrade."
"We see PINS’ new self- serve Mobile Ads Manager as a price of admission to unlocking SMB budgets, and we now anticipate PINS’ Unmanaged business becoming material in late 20’/early 21’. Recent announced Shopping formats should help marketers optimize for more objectives. The integration of Pinterest’s first party tag w/ Google Tag Manager (& others) should boost conversion," the analyst added.
All in all, the investor community is mixed on Pinterest stock. TipRanks analysis of 16 analyst ratings shows a Moderate Buy consensus, but an even split (8 analysts each) recommending Buy or Hold. However, the $34.44 average price target suggests about 30% upside from the stock's current value. (See Pinterest stock analysis on TipRanks)