Friday’s tiny drop in the stock market might have ended the week on a slightly sour note, but the weekly gains were 1.8% for the Dow Jones Industrial Average and 1.6% for the S&P 500 Index. After the first six weeks of 2016 saw investors selling every rally, those same investors have unilaterally reverted back to the trend of the prior four years: buying every market dip.
24/7 Wall St. reviews dozens of analyst upgrades and downgrades each day of the week. This becomes hundreds of analyst calls each week. Some analyst calls cover stocks to buy, while others cover stocks to sell or avoid.
In an effort to find value for investors, 24/7 Wall St. noted several analyst calls seen last week in well-known stocks that stood out above and beyond the rest of the pack.
Most Dow and S&P stocks are given implied upside of 8% to 15% when analysts upgrade or initiate coverage with Buy, Outperform and Overweight ratings. Then there are other calls that can be much more aggressive.
Several analyst calls stuck out that either saved the week for stocks or that totally made the week for some stocks.
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As a reminder, analysts issuing upside come with no assurances. Sometimes the situation changes unexpectedly, or sometimes the analysts just take the wrong view. It is very frequent that two analysts issue close to the same report after news and the only real difference at the end of the report is that one says to buy and one says to sell.
3D Systems — a New Street-High!
3D Systems Corp. (NYSE: DDD) saw a big whipsaw this past week. The 3D printing outfit received a stellar upgrade from Merrill Lynch on Thursday, having been raised in a double-notch upgrade to Buy from Underperform and with a new street-high $26.00 price target. Then on Friday, the research gods took back much of those gains after Citigroup decided the news was too good to be true and slashed its official rating to Sell from an already unenthusiastic Neutral.
Merrill Lynch’s call caused a 10.1% gain to $18.28, and Citi’s call took back 6.2% to close the week out at $17.15. The Merrill Lynch call said that 3D’s CEO announcement was a much needed catalyst to drive 3D’s turnaround through new strategy, alignment of cost structure and portfolio optimization.
the 3D Systems close of $17.15 on Friday was still a gain of 8.7% from the prior Friday’s closing price. 3D Systems has a consensus analyst price target of $14.55 and a 52-week trading range of $6.00 to $32.87.
Chipotle Mexican Grill — Feeling Less of a Burn!
Chipotle Mexican Grill Inc. (NYSE: CMG) was the beneficiary of a Thursday upgrade that helped to solidify gains for the week. The team at JPMorgan raised Chipotle to Overweight from Neutral and they assigned a $510 price target. This represented 15% upside from the prior $444.66 closing price.
Chipotle has been fighting to regain its good-guy image for fast-casual dining after being under pressure for months due to food contamination and questions that may not be fully answered yet.
Thursday’s upgrade took Chipotle shares up 2.55% to $456.01, and then the rally continued on Friday for a 2.9% gain to $469.29 — a gain of 4% versus the prior Friday’s close. Chipotle’s consensus analyst price target was about $477 going into the call, and it was closer to $479 at the end of the week. Its 52-week range is $399.14 to $758.61.
Hewlett Packard Enterprise — Yes, Really!
Hewlett Packard Enterprise Co. (NYSE: HPE) was started as Outperform by Oppenheimer on Friday, and the firm assigned a $21.00 price target. This represented a 22% upside call without considering its dividend. Shares closed up 0.8% at $17.40 on Friday, but this was still down slightly from the $17.89 close the prior Friday. While the moves might not sound that impressive on the surface, the reality is that very few analysts and investors are willing to endorse much upside here at anything tied to the old, pre-split Hewlett-Packard.
Oppenheimer’s upside was based on four key issues. First was its ability to integrate go-to-market and R&D efforts to drive incremental growth, followed by product innovation and a strong and refreshed product portfolio. Then there is the ongoing efforts to restructure, drop costs and improve margins, followed by the company’s high mix of recurring revenue (about 42%) and strong free cash flow ($3.8 billion in fiscal 2016).
HP Enterprise has an $11.63 to $18.55 range over the past 52 weeks, and its consensus price target is closer to $17.50. The $21 target from Oppenheimer is well above the consensus target and is only $2 shy of the top target of $23 for this stock.
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IBM — Ahead of Earnings!
International Business Machines Corp. (NYSE: IBM) had a very interesting week, rising despite the most negative analyst saying the rally is unwarranted. Credit Suisse said to sell the IBM rally, reiterating its Underperform and $110 street-low price target with the notion that it only looks cheap and remains a value trap.
Stifel reaffirmed its Buy rating on IBM after that call and raised its target price to $165 from $155. Merrill Lynch’s key monthly RIC Report also named IBM as a winner changing health care via technology. Even the prior week, RBC Capital markets had a Sector Perform rating but the target raised to $155 from $135 in that call.
IBM closed Friday with a gain of 0.4% at $151.72, for a weekly gain of 1.6% but also for a gain of 2.1% from the low of the week. IBM’s consensus analyst price target is $136.77, and it has a trading range of $116.90 to $176.30 over the past 52 weeks.
Micron Technology — Buying the Value, Despite DRAM Woes!
Micron Technology Inc. (NYSE: MU) received two positive accolades late last week. The memory giant was started as Buy with a $14 price target at Brean Capital, and Raymond James raised its rating to Strong Buy with a higher $17 price target.
These were two big calls, but the reality is that the investing community just doesn’t want to pay up for DRAM and is not currently all that much more excited about flash and other memory areas.
Micron’s gain on Friday was 2.8% to $10.69, which saved its week for a loss of only three cents from the prior Friday’s closing price. Micron has a consensus analyst price target of $13.48 and a 52-week range of $9.31 to $29.78.
Red Hat — Growth and More Growth!
Red Hat Inc. (NYSE: RHT) was the beneficiary of an upgrade on Thursday by Pacific Crest. The firm raised Red Hat’s rating to Overweight from Sector Weight and assigned a price target of $88. This represented upside of almost 20% at the time. Despite a high-beta valuation, the firm believes that Red Hat’s core business remains very strong to support its valuation of 33 times expected earnings. The company is also seen generating high levels of free cash flow ahead. This company is still growing earnings and revenues in the double-digit percentages.
Red Hat rose less than 1% to $74.45 when the call was made, but its shares rose another 0.3% to $74.66 on Friday. All said and done, Red Hat shares rose 1.2% during the week.
The consensus price target is $88.17 and the 52-week range is $59.59 to $84.44. What stands out here is that the highest price target on Red Hat is all the way up at $105, from Drexel Hamilton (raised in mid-March) for the cloud service and virtualization provider.
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