Investing.com — Here’s your professional summary of Wall Street analysts’ top takeaways over the past week.
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Ollies Bargain Outlet
What happened? On Monday, JPMorgan upgraded Ollie’s Bargain Outlet Holdings, Inc. (NASDAQ:) to Overweight with a $105 price target.
JPMorgan projects a favorable near-term outlook for OLLI, bolstered by a strong settlement deal environment, improved competitive landscape and strong execution that together contribute to same-store sales growth. Looking ahead, the investment bank anticipates a significant acceleration in “organic” unit growth, expecting it to reach double digits by FY25 and beyond. This growth trajectory is based on a 10-year plan to reach a store count of 1,300, which is the estimated point of market saturation. This expansion is expected to drive a compound annual growth rate of approximately 13% in earnings per share, based on single-digit increases in same-store sales.
Additionally, the potential for lateral consolidation offers additional opportunities for wallet-driven improvements in same-store sales and unit growth, which are not currently accounted for in JPMorgan’s model.
The investment bank maintains that there are no structural barriers to returning to pre-pandemic unit growth rates of 13-14% for several years. This optimistic assessment is reflected in JPMorgan’s rating of OLLI as Overweight, indicating confidence in the company’s potential for sustained growth and profitability in the years ahead. The bank’s analysis suggests that OLLI is well positioned to capitalize on both organic expansion and strategic consolidation to strengthen its market presence and financial performance.
Overweight on JPMorgan means “over the duration of the price target indicated in this report, we expect this stock to outperform the average total return of stocks in the research analyst’s or research analyst’s team’s coverage universe.”
How did the stock react? Ollies Bargain Outlet opened the regular session at $90.55 and closed at $95.98, a gain of 9.43% from the previous day’s regular close.
kroger
What happened? On Tuesday, BMO Capital upgraded Kroger (NYSE 🙂 to Outperform with a $60 price target.
Analysts at BMO Capital have noted a pullback in the stock market, attributing it to fears about rising investment prices within the industry. These investments are believed to be funded primarily by suppliers, with a smaller portion covered by retailer promotions. Analysts are optimistic about first-quarter domestic deliveries, raising their forecast to 0.8% from 0% previously. This is based on the assumption of a 0.6% year-over-year increase in gross profit excluding fuel, constant 45 cents per gallon, and a favorable last-in, first-out accounting impact of approximately $90 million. Accordingly, they anticipate earnings per share of $1.46, beating the consensus estimate of $1.35. This projection suggests Kroger could potentially hit the high end of its fiscal 2025 guidance.
Additionally, BMO Capital’s full-year fiscal 2025 earnings forecast assumes a nearly unchanged gross margin percentage, excluding fuel and flat retail fuel CPGs. With the stock trading at about 11 times consensus EPS of $4.54, analysts believe it reflects a fair assessment of potential downside risks to EPS. They maintain that Kroger’s gross margin prospects appear more secure than previously anticipated.
Furthermore, BMO analysts predict a favorable outcome regardless of whether a deal is reached or not. As a result, BMO Capital raised its fiscal 2025 EPS estimate to $4.49 (up from $4.40), fiscal 2026 EPS to $4.65 (up from $4.60), and set a price target of $60, applying a 13x multiple to the two-forward annual P/E ratio, which was previously between 12x and 13x.
The main risk identified by analysts is the potential for price reversals driven by an increasingly intense competitive environment in the food retail sector.
Outperform in BMO Capital means “Forecast of outperforming the analyst’s coverage universe in terms of total return.”
How did the stock react? Kroger opened the regular session at $52.52 and closed at $51.98, a 1.82% gain from the previous day’s regular close.
Wednesday: US markets closed for June 16
Rhythm technologies
What happened? On Thursday, Wolfe Research updated iRhythm Technologies Inc. (NASDAQ:) will outperform with a price target of 115.
Wolfe Research has issued an upgrade call, citing a sensible entry valuation for the stock, which is currently priced at $98. Analysts at Wolfe have expressed increased confidence in the stock, anticipating that a key overhang will be resolved over the next 12 months, leading to a price target of $115. This target is supported by a DCF analysis and EV/revenue comparison, suggesting that $115 is approximately 5x projected 2025 revenue.
Over the past year, IRTC’s EV/revenue ratio has averaged 5.5x, and since its IPO, the average has been almost 9x. Compared to 30 small and medium-sized medtech companies that currently average nearly 3.5x, Wolfe maintains that a 5x premium is justified to capital. The reason behind this premium is IRTC’s expected high percentage revenue growth next year, outpacing the low percentage growth anticipated for the comparison group.
Wolfe’s analyst valuation framework includes a comprehensive DCF model for IRTC, which has historically been challenging but has become more manageable over time. Modeling improvements could arise from significant EBIT margin leverage in the second half to 2025 and the successful execution of Zio AT FDA’s risk reduction roadmap. Moving beyond the FDA issues would bring IRTC closer to launching its next-generation MCT device, potentially capturing greater market share in a substantial market where IRTC is currently a minor player.
Ultimately, the DCF analysis indicates an NPV consistent with the $115 target, using a 9% discount rate and a 5% terminal growth rate.
Outperforming on Wolfe means that “the stock is projected to outperform analysts’ industry coverage universe over the next 12 months.”
Micron
What happened? On Friday, Aletheia Capital downgraded Micron Technology Inc (NASDAQ 🙂 to Hold with no price target.
Aletheia Capital has downgraded MU to ‘Hold’ from ‘Buy’ and removed its $120 price target. The first reason for this is that the stock has seen a 2.1x rise since its rating upgrade in November 2023 and is now trading above its historical price-to-book ratio (PBR) of 2.5x.
Second, Aletheia Capital perceives that there are teething issues with MU’s HBM3E execution that may negatively impact its near-term revenue and profitability target. A key customer may need to reschedule commercial shipment of new products. The research team believes it could take some time for MU to improve and regain confidence in its HBM offering. As a result, they have withdrawn their previous HBM revenue guidance of $500 million for FY24E.
Lastly, Aletheia Capital believes MU has to significantly increase its capital expenditure (capex) to expand capacity in FY25E/26E, which has remained stagnant (or even declining) since C2021. This contrasts with well-known positives, such as the continued upward trend in the average selling price (ASP) of memory, the strong demand for HBM from AI servers, the upward revision of earnings, and the fact that your FCF turns positive (for the first time since 1QFY23).
How did the stock react? Micron opened the regular session at $138.08 and closed at $139.54, a 3.22% drop from the previous day’s regular close.