Investing.com — Here’s your Pro Recap of the best takeaways from Wall Street analysts over the past week.
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Ollies Bargain Outlet
What’s going on? On Monday, JPMorgan upgraded Ollie’s Bargain Outlet Holdings, Inc. (NASDAQ: ) to overweight with a $105 price target.
JPMorgan projects a positive near-term outlook for OLLI, bolstered by a strong strategic partnership environment, an improved competitive environment, and strong implementation that is contributing to same-store sales growth. Looking ahead, the investment bank expects a significant acceleration in “organic” unit growth, expecting it to reach double digits in FY25 and beyond. This growth path is based on a 10-year plan to achieve 1,300 stores, which is the estimated market saturation point. This expansion is forecast to drive a compound annual growth rate of approximately 13% in Earnings Per Share, based on a low single digit increase in same store sales.
Additionally, the power of lateral integration provides additional opportunities for wallet-driven improvements in same-store sales and unit growth, which are currently not included in the JPMorgan model.
The investment bank maintains that there are no structural barriers to returning to pre-pandemic unit growth levels of 13-14% over many years. This optimistic assessment is reflected in JPMorgan’s rating of OLLI as Overweight, reflecting confidence in the company’s potential for continued growth and profitability in the coming years. The bank’s analysis suggests that OLLI is well positioned to benefit from both organic growth and strategic integration to strengthen its market presence and financial performance.
Overweight at JPMorgan means that “within the target price range shown in this report, we expect this stock to exceed the average total return of the stocks in the Research Analyst, or the Research Analyst team, the universe includes.”
How did the stock react? Ollies Bargain Outlet opened the regular session at $90.55 and closed at $95.98, a 9.43% gain from the previous day’s close.
Kroger
What’s going on? On Tuesday, BMO Capital upgraded Kroger (NYSE: ) to Outperform with a target price of $60.
Analysts at BMO Capital saw a pullback in the stock market, saying it was due to fears about rising investment prices in the industry. This investment is assumed to be largely funded by retailers, with a small portion covered by retailer promotions. Analysts are optimistic about domestic deliveries in the first quarter, raising their forecast to 0.8% from 0%. This is based on an assumption of a 0.6% year-over-year increase in net profit excluding gasoline, flat cents per gallon at 45, and a positive impact of last-in, first-out accounting of approximately $90 million. Therefore, they expect earnings per share of $1.46, beating the consensus estimate of $1.35. This projection suggests that Kroger may be able to achieve the higher end of the guidance for Fiscal Year 2025.
In addition, BMO Capital’s full-year revenue forecast for Fiscal Year 2025 assumes approximately unchanged gross margin excluding fuel CPGs and stable fuel CPGs. With the stock trading at about 11 times the consensus EPS of $4.54, analysts believe it reflects a fair assessment of potential EPS risks. They emphasized that Kroger’s gross outlook appears to be more secure than previously expected.
Additionally, BMO analysts foresee a positive outcome regardless of whether the deal is done or not. As a result, BMO Capital raised its FY 2025 EPS estimate to $4.49 (from $4.40), FY 2026 EPS to $4.65 (from $4.60), and set a price target of $60, using a 13x multiple for the two-year forward P/E ratio, which was between 12x and 13x.
The main risk identified by analysts is the strength of the investment in prices driven by the intense competitive environment in the grocery sector.
Outperform at BMO Capital means “A forecast that outperforms the analyst consensus by rate of 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 on June 10
Rhythm Technologies
What’s going on? On Thursday, Wolfe Research upgraded iRhythm Technologies Inc (NASDAQ:) to Outperform with a price target of 115.
Wolfe Research issued an upgrade call, citing a reasonable entry price for the stock, currently valued at $98. Wolfe analysts expressed more confidence in the stock, expecting that the important overhang will be resolved within the next 12 months, leading to a target price of 115 $. This target is supported by a DCF analysis and EV/revenue comparison, which suggests that $115 is about 5 times the expected 2025 revenue.
Last year, IRTC’s EV/earnings ratio reached 5.5 times, and since its IPO, the ratio has been around 9 times. Compared to 30 small and mid-cap medical technology companies currently valued at roughly 3.5 times, Wolfe says a 5x premium is reasonable for equity. The reason for this premium is the higher expected youth IRTC income growth next year, which exceeds the lower percentage growth expected in the comparison group.
Wolfe Analysts’ valuation framework includes IRTC’s comprehensive DCF model, which has been historically challenging but has become more manageable over time. Improvements in the modeling may come from a significant rise in EBIT margin in the second quarter leading to 2025 and the successful implementation of the Zio AT FDA risk reduction roadmap. Moving forward beyond the FDA news will bring IRTC closer to launching its next-generation MCT device, potentially capturing a large market share in a large market where IRTC is currently a minor player.
Finally, the DCF analysis shows a target NPV of $115, using a 9% discount rate and a 5% terminal growth rate.
A positive move at Wolfe means “The security is expected to outperform the industry analyst’s dance over the next 12 months.”
Micron
What’s going on? On Friday, Aletheia Capital downgraded Micron Technology Inc (NASDAQ: ) to Hold with no price target.
Aletheia Capital downgraded MU to ‘Hold’ from ‘Buy’ and lifted its price target to $120. The primary reason for this is that the stock has seen 2.1x growth since its valuation upgrade in November 2023 and is now trading above its historic 2.5x Price-to-Book Ratio (PBR).
Second, Aletheia Capital feels that there are significant issues with MU’s HBM3E implementation that could negatively impact its revenue guidance and profitability. A key customer may have to reschedule the shipment of new products. The research team believes that it may take time for MU to develop and regain confidence in its HBM offering. As a result, they withdrew their previous $500 million forecast for HBM’s FY24E revenue.
Finally, Aletheia Capital believes that MU should significantly increase its capital expenditure (capex) to expand capacity in FY25E/26E, which has been stagnant (or even declining) from C2021. This is against known positives such as the continuous upward trend of memory’s Average Selling Price (ASP), strong demand for HBM from AI servers, rising earnings revisions, and having its FCF turn positive (starting from 1QFY23).
How did the stock react? Micron opened the regular session at $138.08 and closed at $139.54, down 3.22% from the previous day’s regular close.
