Weekly Update - October 16, 2022

Selected highlights of this week

By: Teni Nyca Antenor

Bearish Estimates For MSFT Ahead FY 2023 Q1 Report

This October 25, 2022, Microsoft will release its FY 2023 Q1 earnings. According to Seeking Alpha, all eyes are on the company’s results after its 33% drop YTD.


“Beyond some softening demand for the company’s services over the near to medium-term as a result of rising interest rates in response to inflationary pressures, Microsoft’s business is as rock solid today as it was last year,” reported Nasdaq.


Oppenheimer analyst Timothy Horan affirms the statement. Horan cut MSFT price target to $275 (from $300) and reiterated an Outperform rating. The price target cut is due to softening demand for computers.


Last week, Samsung and Micron Technology cut their outlooks. Last month, Intel and AMD admitted that the PC market is doing worse than expected.


Netflix’s Ad-subsidized Service Gets Mixed Reactions From Wall Street Analysts


In a blog, Netflix announced launching a new advertising-supported service on November 3 in 12 countries. Netflix Basic With Ads will cost $6.99 per month compared to the regular $9.99 ad-free version.


Netflix Basic With Ads will have around 4-5 minutes of ads per hour. The 15-30 second ads will play before and in-between movies and series.


Similar offerings from competitors start at: $9.99 a month for HBO Max from Warner Bros. Discover (WBD), $4.99 a month for Peacock from Comcast (CMCSA) and $7.99 a month for Disney+ from Walt Disney (DIS).


Netflix Chief Operating Officer Greg Peters said the fast launch was thanks to its partnership with Microsoft. The ad-supported service was able to launch six months after the announcement.


UBS analyst John Hodulik upped NFLX price target to $250 (from $198). The analyst believes the new plan “will be accretive to [long-term] revenue & profitability.” Hodulik estimates it could boost total revenue by 10% in the coming years.


Earlier in September, Oppenheimer, Evercore, and Macquarie adopted bullish stances. Bloomberg reported, “Evercore calling the ad offering “a clear catalyst on the horizon,” one that “can drive a material re-acceleration in revenue growth.”


  • According to JPMorgan analyst Doug Anmuth, the ad tier shows NFLX’s confidence in ad revenue. Anmuth reiterated a $240 price target and Neutral rating.
  • Rosenblatt Securities analyst Barton Crockett rates a Neutral on Netflix. “We see limited uptake for Netflix’s ad plan,” wrote Crockett.
  • Pivotal Research thinks the optimism is misguided. Since 80% of U.S. households are already subscribers, it’s unlikely to help annual subscriber growth. The “less attractive ad-supported service” could also turn away customers. Pivotal Research analyst Jeffrey Wlodarczak reiterated a $175 price target and Sell rating.


Similarly, Goldman Sachs reiterated a Sell rating. Analyst Eric Sheridan also slashed his price target to $182 (from $186). According to Sheridan, “we expect a host of large scaled brand advertisers will adopt the offering but its current framework (large minimum commitment, above industry pricing and limited measurement) could cap the advertising dollar opportunity unless it evolves.”


“It may take a little while to scale impressions, build audiences and ultimately deliver a platform that can take in major advertising dollars that satisfy frequency and reach requirements,” said Wells Fargo analyst Steven Cahall. Cahall rates a Neutral.


Barclays Downgrades FIGS Citing Weakening Demand, Increasing Acquisition Cost and Potential Top-line Growth Slowing


Barclays analyst Adrienne Yih downgraded consumer cyclical stock Figs Inc. to Equal Weight (from Overweight). The analyst also cut the original price target of $15 to $9.


Yih cites weakening demand, increasing acquisition cost, and potential top-line growth slowing for the rating downgrade. Getting customers is getting difficult, making risks to margins and sales obvious. Inflation is also affecting demand. According to Yih, Figs’ increased promotional activities signal this effect.


“We are downgrading FIGS shares to Equal Weight and moving to the sidelines until there is greater clarity on the macroeconomic environment, the company’s ability to move through excess inventory, and the direction of customer acquisition spend,” said Yih as reported by Seeking Alpha.


Wall Street Analysts Lower Price Targets For GTES Ahead Q3 2022 Earnings


Gates Industrial Corporation plc announced that it would release its Q3 2022 earnings on November 4, 2022, before the market opens. On the same day, the management will host a webcast and conference call.


Following the announcement, the following analysts adjusted their calls:

  • Citi analyst Andrew Kaplowitz trimmed GTES price target to $13 (from $14) and kept a Buy rating.
  • KeyBanc analyst Steve Barger reiterated a Buy rating and set a $13 price target (from $15) on the industrials stock.
  • Goldman Sachs analyst Jerry Revich issued a similar call. Revich cut GTES price target to $13 (from $15) and kept a Buy rating.


PepsiCo. Q3 2022 Results Beat Analyst Expectations


PepsiCo announced their Q3 2022 results, beating expectations:

  • Revenue was $21.97B vs. analyst consensus of $20.82B
  • EPS was $1.97 vs. analyst consensus of $1.85

“We are very pleased with our results for the third quarter as our global business momentum remains strong. Given our year-to-date performance, we now expect our full-year organic revenue to increase 12 percent (previously 10 percent) and core constant currency earnings per share to increase 10 percent (previously 8 percent),” said PEP Chairman and CEO Ramon Laguarta in a press statement.


Following the results, Bank of America analyst Bryan Spillane reiterated a $190 price target and Buy rating. Spillane said to clients, “stronger price/mix with modestly worse volume bodes well.”


PepsiCo remains Morgan Stanley’s favorite mega-cap selection. Analyst Dara Mohsenian reiterated an Overweight rating saying that PEP is “morphing into a higher growth topline compounder longer-term and justifying a higher multiple.”


Energy Stock Scorpio Tankers Receives Upgrade After Announcing Earnings Release Date


Scorpio Tankers Inc. announced that it would issue its Q3 2022 earnings on November 1, 2022. On the same date, the company will host a conference call.


Following the announcement, two analysts upgraded the energy stock:

  • Deutsche upped the firm’s price target to $38 (from $34) and rating to Hold (from Sell).
  • Stifel analyst Benjamin Nolan increased STNG price target to $50 (from $43) and reiterated a Buy.


Wall Street analysts expect STNG earnings at $3.62 per share, while quarterly revenue is estimated at $399.25 million.


PGR Misses Q3 2022 Expectations


The Progressive Corporation released their Q3 2022 earnings result:

  • Revenue was $12.8B.
  • Net income was $117.4M
  • Profit margin was 0.9%
  • EPS was $0.20


The results of Q3 2022 missed analyst estimates. Revenue missed consensus by 2.8%. EPS also missed consensus by 82%.


Analyst calls following the results:

  • Wells Fargo analyst Elyse Greenspan reiterated a $100 price target and s Sell rating.
  • Barclays analyst Tracy Benguigui slashed PGR price target to $104 (from $106) and reiterated an Underweight rating.
  • BOFA Securities analyst Joshua Shanker increased his price target to $145 (from $143).


Commercial Metals Company’s Q4 Report Top Earnings


Commercial Metals Company‘s Q4 report topped earnings estimates and matched revenue expectations.

  • Revenue was $2.4B vs. analyst consensus of $2.4B
  • Earning per share was $2.45 vs. analyst consensus of $2.22


Barbara R. Smith, Chairman of the Board, President, and Chief Executive Officer, said solid execution was the key. It enabled the company to “fully capitalize on very strong market conditions in North America and to navigate the volatile conditions in Europe.”


Analyst calls following the news:

  • BMO analyst David Gagliano increased CMC price target to $43 (from $37) and kept a Market Perform rating.
  • Citi analyst Alexander Hacking upped the price target to $44 (from $42) and reiterated a Neutral rating.