Check out today's top analyst calls from around Wall Street, compiled by The Fly.
VERTICAL GROUP SEES 90% DOWNSIDE IN TILRAY: It is time to "back up the truck" and short shares of Tilray (TLRY), Vertical Group analyst Gordon Johnson said. The analyst introduced a year-end 2020 price target of $4, which implies around 90% downside to Tilray's closing price Wednesday of $39.04. The company's top shareholder, Privateer, is set to unload its 72% position over the course of this year and next, Johnson pointed out. Further, the analyst called Tilray's Q2 results "horrific." On top of that, the company, which only has two-to-three quarters of cash left, admitted its results are slated to get worse, added Johnson. The analyst said that in his years covering stocks, he's rarely seen such a richly valued company.
BOFA BOOSTS LEVI STRAUSS TO BUY: BofA/Merrill analyst Heather Balsky upgraded Levi Strauss (LEVI) to Buy from Neutral but lowered her price target to $20 from $25. The analyst said the company stands out with potential upside to revenue and earnings thanks to its strong brand momentum, and sees the current valuation of 8-times enterprise value to expected FY20 EBITDA as "attractive" relative to its post-IPO peak of 11-times. The analyst remained concerned about Levi's department store exposure in a tougher macro environment, but contended that the company can generate more market share gains.
B. RILEY CUTS URBAN OUTFITTERS TO NEUTRAL: B. Riley FBR analyst Susan Anderson downgraded Urban Outfitters (URBN) to Neutral from Buy and lowered her price target for the shares to $23 from $38. On its Q1 earnings call, management said they expected sales will start to improve with new back-to-school product in July and into August, Anderson noted. However, her channel checks show continued, elevated year-over-year promotions in July and thus far in August for both Anthropology and the namesake brand. This leads Anderson to believe that Urban Outfitters' sales have not improved from the weaker calendar Q2. She views the company as most at risk in the Specialty Retail & Apparel space for lower second half of 2019 margins as promos continue.
ARGUS RAISES PINTEREST TO BUY: Argus analyst Jasper Hellweg upgraded Pinterest (PINS) to Buy from Hold with a $40 price target, citing his belief that the company is well positioned as a host of content for the advertising industry that is in the early stages of monetizing its mostly international user base. Pinterest is "off to a strong start in 2019" and he looks for revenue growth to continue at a nearly similar pace as was seen in the first half of the year, said the analyst, who expects Pinterest to achieve full-year profitability within the next two years. However, he also noted that the stock could see selling pressure in October when the post-IPO lockup period expires.
MORGAN STANLEY DOWNGRADES PAYCHEX TO UNDERWEIGHT: Morgan Stanley analyst Steven Wald downgraded Paychex (PAYX) to Underweight from Equal Weight and lowered his price target for the shares to $74 from $77 as he assumed lead coverage of the stock and ADP (ADP). Small-to-mid-sized business employment is weakening and Paychex's revenue is 94% correlated to small business employment, explained Wald. Additionally, Paychex shares remain expensive compared to its Payments peers based on his EPS, revenue and margin estimates, the analyst said. Wald maintained an Equal Weight rating on ADP upon assuming coverage, setting a $174 price target on the stock, up from the firm's prior $150 target. At current levels, the market is sufficiently balancing ADP's relatively defensive market position from serving a wider array of clients than Paychex against the cyclical risks to growth if employment conditions broadly worsen, said Wald.
ANALYSTS WEIGH IN ON POTENTIAL VMWARE/PIVOTAL DEAL: A Dell Technologies (DELL) filing last night revealed that the boards of VMware (VMW) and Pivotal Software (PVTL) have each established special committees to negotiate an agreement for VMware to acquire Pivotal for $15 per share in cash. While a deal may not happen, the proposed combination makes strategic sense for both parties, William Blair analyst Jason Ader wrote in a research note. If a deal were to be consummated, it would result in Dell increasing its ownership stake in VMware through the proposed stock transaction, the analyst added. He reiterated an Outperform rating on shares of VMware.
However, while BMO Capital analyst Keith Bachman kept his Outperform rating on VMWare, with a price target of $198, he said he is not supportive of its confirmed agreement to acquire the remaining equity in Pivotal Software (PVTL). The analyst noted that while the combined entity would improve the messaging in go-to-market strategy and product overlap - areas where the partnership had previously struggled - the deal also contains "worse" financial implications for VMWare, since Pivotal's Expected operating loss in FY20 would reduce VMWare's operating margins by about 300bps.
