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Upgrades for Apple and Shopify; downgrade for Doximity By Investing.com

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Investing.com — Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week.

InvestingPro subscribers always get first dibs on market-moving AI analyst comments. Upgrade today!

Apple

What happened? On Monday, Loop Capital upgraded Apple (NASDAQ:) to Buy with a $300 price target.

What’s the full story? Loop Capital has upgraded Apple based on insights from their Supply Chain Analyst John Donovan. Donovan highlights Apple’s potential to become the leading platform for Generative AI in the consumer market over the next few years. This potential is compared to Apple’s past transformative impacts with the iPhone in social media and the iPod in digital content consumption, both of which significantly boosted the company’s stock performance.

The brokerage’s analysis underscores Gen AI as a potential major growth driver for Apple. They have a price target of $300, which is 33x their projected $9.00 EPS for CY2026. This valuation is positioned at the higher end of Apple’s post-Covid P/E range of 20x to 35x. While there has been speculation about Apple’s potential benefits from Gen AI, Loop’s upgrade is specifically based on Donovan’s detailed assessment.

Despite their optimistic outlook, Loop maintains a cautious approach, noting that the full impact of Gen AI on Apple’s financial metrics will unfold gradually. They emphasize that the upgrade reflects confidence in Apple’s ability to leverage Gen AI to drive future growth, similar to the strategic advancements made with the iPhone and iPod in their respective technological eras.

Buy at Loop means “The stock is expected to trade higher on an absolute basis or outperform relative to the market or its peer stocks over the next 12 months.”

How did the stock react? Apple opened the regular session at $236.20 and closed at $234.40, a gain of 1.67% from the prior day’s regular close.

Shopify

What happened? On Tuesday, BofA Securities upgraded Shopify (NYSE:) to Buy with a $82 price target.

What’s the full story? BofA believes that the company, under the new CFO Jeff Hoffmeister, has turned a corner on balanced growth and margin following years of declining margin. The research team forecasts solid revenue growth and Free Cash Flow conversion from here, driven by solid high single-digit baseline eCommerce growth, steady share gains and disciplined expense spending.

BofA points out that revenue growth and disciplined spending are leading to healthy margin expansion going forward. They forecast a 17.4% operating margin for FY 2026, up from 14.3% in FY 2024.

The research team also notes that normalizing product mix-shift from lower-margin payments should result in a stable gross margin after years of decline (-650 basis points since FY 2017). Shopify is maintaining a ‘disciplined, limited headcount growth’ trajectory as a core tenet for operating leverage.

In an upside scenario, BofA projects FY 2030 revenue and FCF of $29.4 billion (+22% CAGR) and $8 billion (+33% CAGR), respectively.

Buy at BofA means “Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster.”

How did the stock react? Shopify opened the regular session at $67.28 and closed at $69.75, a gain of 8.63% from the prior day’s regular close.

1-800-Flowers.com

What happened? On Wednesday, DA Davidson downgraded 1-800 FLOWERS.COM Inc (NASDAQ:) to Underperform with a $8 price target.

What’s the full story? DA Davidson has analyzed FLWS’ performance, noting that the company, which operates in the late-cycle discretionary consumer sector, has experienced year-over-year sales declines since the pandemic ended. Sales have decreased in every quarter since F3Q22, with the declines worsening from low- to mid-single digits to -8% to -18% Y/Y over the past five quarters. Before the pandemic, when the University of Michigan consumer sentiment index was in the 90s and above 100, FLWS reported several quarters of organic sales growth between +8% and +10% Y/Y. Currently, the Michigan index is in the 60s-70s, having recovered from a low of 50 in June 2022.

The brokerage believes that consumer sentiment needs to consistently exceed 80 for FLWS to return to low-single-digit sales growth. Bloomberg debit card data, which is 94% correlated to sales, indicates a worsening trend, with a -15% Y/Y decline in F4Q24 compared to -13% in F3Q24. DA Davidson suggests that the consensus estimate of -6% Y/Y sales for F4Q24 might be too optimistic, potentially leading to a miss. They also anticipate that FLWS could issue FY25 guidance below market expectations due to ongoing recession-level consumer sentiment, weak everyday gifting, and potential cost inflation.

As a result, DA Davidson has lowered its sales and EBITDA estimates for FLWS to below consensus levels. The brokerage has also reduced its target multiple from 5.5x to 5.0x and its price target from $9 to $8, based on a 5.0x CY25E EBITDA of $106M (down from $109M).

Underperform at DA Davidson means “Expected to produce a total return of -15% to +15% on a risk adjusted basis over the next 12-18 months.”

How did the stock react? 1-800-Flowers.com opened the regular session at $10.40 and closed at $10.01, a decline of 9% from the prior day’s regular close.

Doximity Inc.

What happened? On Thursday, Wells Fargo downgraded Doximity Inc (NYSE:) to Underweight with a $19 price target

What’s the full story? Wells Fargo acknowledges that while Doximity has an appealing financial profile with consistent Free Cash Flow margins of over 35%, their biopharma survey indicates a slowdown in growth. This is expected to continue driving a downward rerating in the stock. The research team’s survey suggests that market share gains may be plateauing due to several factors. These include a shrinking percentage of clients reporting digital ad budget growth, a client wallet mix towards Doximity that is approaching a plateau, and the fact that bundling products doesn’t always translate into more same-store sales.

Additionally, a large new account/brand in FY25 is positively skewing growth dynamics, likely creating tough comparisons for FY26. Some clients have also pulled back spend, and some competitors are capturing market share.

Furthermore, Wells Fargo points out that brand lifecycles could increasingly become a hurdle to Doximity’s growth prospects. Surveyed clients reported less desire to rely on Doximity to advertise more mature brands, reflecting the research team’s channel checks. This suggests that the net revenue retention rate could encounter more pressure over time as brands mature, which in turn may lead to declining ad spend with Doximity.

Underweight at Wells Fargo means “Total return on stock expected to lag the Overweight- and Equal Weight-rated stocks within the analyst’s coverage universe over the next 12 months.”

How did the stock react? Doximity opened the regular session at $27.03 and closed at $27.59 , a decline of 4.83% from the prior day’s regular close.

Owens & Minor

What happened? On Friday, Citi upgraded Owens & Minor Inc (NYSE:) to Buy with a $19 price target.

What’s the full story? The bank believes the 40% sell-off since the first-quarter earnings report has been excessively harsh. OMI has demonstrated strong momentum in its core P&HS business, with the de-stocking of PPE seemingly concluded. In the long term, Citi views Chinese tariffs as a potential advantage for OMI’s products manufactured in the Americas. Despite recent headlines concerning GLP-1, the bank notes that PD (pharmacy distribution) continues to grow above market expectations, a trend they anticipate will persist. Citi sees minimal risk to the FY24 numbers, reinforcing their positive outlook.

The new price target of $19 reflects a 9.3x FY25 P/E multiple and a 6.0x FY25 adjusted EBITDA, which is significantly lower than OMI’s peers and its historical valuation. This adjustment underscores Citi’s belief that OMI is undervalued and presents a compelling opportunity for investors with a higher risk appetite. The bank’s analysis suggests that the recent market reaction has been overly punitive, and they expect OMI to benefit from both its current business momentum and favorable long-term factors.

Buy at Citi means “Buy (1) ETR of 15% or more or 25% or more for High risk stocks.”

How did the stock react? Owens & Minor opened the regular session at $14.75 and closed at $14.82, a gain of 1.44% from the prior day’s regular close.





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Business

China August factory output, retail sales miss expectations By Reuters

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September 14, 2024

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BEIJING (Reuters) – China’s industrial output growth slowed to a five-month low in August, while retail sales also weakened further, raising the case for bolder stimulus to shore up the world’s second-largest economy.

The sluggish data released on Saturday contrasted with the robust export growth seen in August, underscoring the uneven nature of China’s economic recovery.

Industrial output in August expanded 4.5% year-on-year, slowing from the 5.1% pace in July and marking the slowest growth since March, data from the National Bureau of Statistics (NBS) showed on Saturday.

That missed expectations for 4.8% growth in a Reuters poll of 37 analysts.

Retail sales, a key gauge of consumption, rose only 2.1% in August, decelerating from a 2.7% increase in July amid extreme weather and a summer travel peak. Analysts had expected retail sales, which have been anaemic all year, to grow 2.5%.

President Xi Jinping on Thursday urged authorities to strive to achieve the country’s annual economic and social development goals, state media reported, amid expectations more steps are needed to bolster a flagging economic recovery.

Faltering Chinese economic activity has prompted global brokerages to scale back their 2024 China growth forecasts to below the government’s official target of around 5%.

The protracted property slump has prompted Chinese consumers to cut back spending. Some experts have even proposed distributing shopping vouchers to counter the trend.

Premier Li Qiang said last month the country will focus on stimulating consumption and look at measures to boost household income.

A central bank official said last week China still has room to lower the amount of cash banks must hold as reserves while it faces some constraints in cutting interest rates.

Data from the central bank on Friday showed August new yuan loans remained soft.

Fixed asset investment rose 3.4% in the first eight months of 2024 from the same period a year earlier, compared with an expected 3.5% expansion. It grew 3.6% in the January to July period.

Cash-strapped local governments issued bonds at a quicker pace last month for construction of major projects, a move that economists believe could spur investment and offer some short-term relief for the economy.

Meanwhile, the troubled property sector remains a major drag on growth. Property investment in January-August contracted 10.2% from the previous year, unchanged from a 10.2% slide in January-July.

© Reuters. FILE PHOTO: An employee works at a production line manufacturing optical fiber cables at a factory of the Zhejiang Headway Communication Equipment Co in Huzhou, Zhejiang province, China May 15, 2019. REUTERS/Stringer/File Photo

While Beijing has ramped up efforts to rescue the housing market, many analysts say much more aggressive steps are needed to help debt-laden developers, and encourage would-be home buyers back to the market.

Analysts at Nomura expect bolder measures to be released in the fourth quarter.





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Boeing faces cash crunch as machinists’ strike weighs on production

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September 13, 2024

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A strike at Boeing has cast doubt on the company’s production goals for the 737 Max and raised the spectre of a cash crunch, as its chief financial officer on Friday said the company would fight to preserve its investment-grade credit rating.

Boeing’s investment-grade rating is crucial to its operations and losing it would be a serious blow, meaning the company could face a punishing increase in borrowing costs given a debt load that has swelled to $53bn. The options to keep it would likely include some kind of securities offering to shore up cash.

About 33,000 workers with the International Association of Machinists District 751 walked out at 12:01am on Friday after rejecting a tentative agreement with the company. Chief financial officer Brian West said Kelly Ortberg, the new chief executive is “personally engaged” in addressing the situation.

In June and July Boeing had been building roughly 25 Maxes a month, with plans to raise that to 38 by the end of the year. But West told investors on Friday that “now, obviously, that is going to take longer”.

“I can’t comment on 38 per month,” he said. “That rate is so dependent on the duration of the strike.”

Boeing’s share price closed down nearly 4 per cent at $156.77.

The company has slowed production of the Max this year as it tries to improve the quality of its manufacturing process. Boeing has been scrutinised by regulators, prosecutors and the flying public since January when a door panel, which was missing several bolts, blew off a commercial jet midflight. The US Federal Aviation Administration has capped the group’s production at 38 a month.

The slowdown has cost Boeing billions in free cash flow. A lengthy strike would impede the company’s ability to deliver planes to customers, further hurting its cash flow.

The credit rating agencies are closely watching Boeing’s deliveries and ability to generate cash. All three have the group rated one notch above junk, on a negative outlook. Moody’s on Friday said it had placed the company on review for a downgrade.

“Boeing’s investment-grade credit rating has limited headroom for a strike,” said Fitch Ratings analyst Dino Kritikos. “If the current strike lasts a week or two, it is unlikely to pressure the rating. However, an extended strike could have a meaningful operational and financial impact, increasing the risk of a downgrade.”

When asked if Boeing may raise debt or equity before early 2025, West said the company had two priorities: keeping its investment-grade rating and stabilising its supply chain and factory floor.

“That last objective just got harder based on last night,” he said. “So we are perfectly comfortable to supplement our liquidity position to support these two objectives.”

West said it has told suppliers which are not behind on their deliveries to stop shipping to Boeing’s factories in Renton, Washington. Supply schedules remain untouched for the group’s South Carolina plant, which builds the 787 and is not unionised.

The work stoppage is “disappointing”, West said, “because things were starting to move in the right direction”.

“We’re working every responsible lever to do what’s right to conserve cash,” he said. “Our expectation — and I don’t have any timetable — is to want to get back to the table and hammer out a deal.”



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Dangers of being a FOMO customer as rates fall

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2 days ago

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September 13, 2024

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Getty Images Woman lies in bed at night looking at her smartphoneGetty Images

Falling mortgage rates may, at last, be bringing some relief to embattled homeowners and first-time buyers.

In a market described as “frenetic”, lenders are locked in intense competition for new customers while simultaneously trying to hold on to borrowers already on their books.

On supposedly unlucky Friday the 13th alone, big-name providers such as the Nationwide, HSBC and NatWest reduced their fixed rates. In an unusual move, TSB did so for the second time in a week.

Analysts expect further cuts to come, but brokers say the fear of missing out (FOMO) on better deals is paralysing some borrowers.

Failing to act before their current deal expires leaves them exposed to a much more expensive variable rate.

National obsession

During the last couple of years, mortgage rates have featured in discussions from chats around the dinner table to election debates.

About 1.6 million existing borrowers had relatively cheap fixed-rate deals expiring this year. Hundreds of thousands of potential first-time buyers have been hoping to get a place of their own.

Yet, rates have been volatile and much higher than what was the norm for more than a decade.

Line chart showing the average interest rate charged on two-year and five-year fixed deals, according to Moneyfacts. The two-year rate was 5.49% on 13 Sep 2024, and it peaked at 6.86% in July 2023. The five-year rate was 5.15%, and it peaked at 6.51% in October 2022.

The interest rate on a fixed mortgage does not change until the deal expires, usually after two or five years, and a new one is chosen to replace it.

Average rates on new deals are now 5.49% for a two-year deal, the lowest for more than a year. Five-year deals have an average rate of 5.15%, according to the financial information service Moneyfacts.

However, the best, so-called headline, rates are reserved for those borrowing a small proportion of the value of the home (known as loan-to-value). A few are at levels not seen since rates shot up following the mini-Budget in the short-lived premiership of Liz Truss.

“Momentum is really starting to build now and the cuts are coming thick and fast.,” said Emma Jones, managing director at broker When The Bank Says No.

“Borrowers are the winners as lenders seek to compete for all-important market share as we head into the final months of the year.”

‘We took the plunge’

The Bank of England’s interest rate cut in August, with the potential for more to come, is part of the reason for falling mortgage rates.

That came slightly too late for Johnny and Sophie Abbott, whose last mortgage deal expired at the end of July.

Johnny Abbott Portrait of Johnny and Sophie Abbott, both of whom are smilingJohnny Abbott

Johnny and Sophie Abbott decided to move house

When they spoke to the BBC in March, the couple from Loughborough, who have three children, admitted every option seemed like a gamble.

In the end, they chose to buy a home that needed renovation.

“We took the plunge and can just about deal with the mortgage,” said Mr Abbott. “It will be great when it’s done.”

In June, the Bank of England said three million households would see their mortgage payments rise in the next two years, and about 400,000 mortgage holders were facing some “very large” payment increases.

A few months ago, Gary Rees expected to have to make serious lifestyle changes when his current deal expires in October. Now, things are looking better.

Yet, typical of many, the benefit is a smaller rise in his monthly mortgage repayments, not a fall. To be blunt, the financial punch won’t hurt as much.

“It’s improved, but my mortgage rate is still likely to double, rather than triple,” he said.

He is expecting to settle on a two-year deal, in the hope of further rate falls. The Bank of England’s next interest rate decision is on Thursday, although analysts are predicting a hold at 5%.

Getty Images A young man stands outside a house looking at his phone with a reflection of a tree in the window behind himGetty Images

These two cases show that, although things are looking more positive for borrowers, not all are getting an equal benefit. Savers, meanwhile, are seeing the interest they receive worsen.

Brokers say that lenders have been offering the best deals to new, house-purchasing customers, rather than those who are remortgaging.

With relatively few buyers, providers are trying to get a piece of a small pie, according to David Hollingworth, of broker L&C. That includes offering loans at higher multiples of income, up to 5.5 times.

He said that while the lowest rates were “not divebombing”, the market was frenetic.

The market could also improve for remortgagers, he said, as lenders try to hit year-end targets.

Time to act?

Mr Hollingworth said the danger for any borrowers endlessly waiting for even lower rates to come is that they do nothing.

If a fixed deal expires, then borrowers automatically move on to their lender’s standard variable rate – which currently carries an average interest demand of 7.99%, which is two-and-a-half percentage points higher than a new two-year deal.

Adviser Jo Jingree, director of Mortgage Confidence, said people in the process of buying or remortgaging could still switch to a better deal if rates continued to fall before their personal deadline.

“I’ve seen first-hand that customers have been able to achieve revised mortgage offers on the lower rates which will save them money on their monthly payments,” she said.

Borrowers should monitor their rates, particularly a few weeks before their mortgage completes, to ensure they are getting the best possible rate, said Aaron Strutt, of broker Trinity Financial.

He expected rates to keep falling, especially if the Bank of England cuts the base rate on Thursday, or later this year.

With the cost of funding mortgages coming down, some in the industry suggest lenders could have cut rates more quickly.

They say lenders are making smaller price cuts week after week when they could be making larger reductions in one go.

Tackling it Together strap

Ways to make your mortgage more affordable

  • Make overpayments. If you still have some time on a low fixed-rate deal, you might be able to pay more now to save later.
  • Move to an interest-only mortgage. It can keep your monthly payments affordable although you won’t be paying off the debt accrued when purchasing your house.
  • Extend the life of your mortgage. The typical mortgage term is 25 years, but 30 and even 40-year terms are now available.

Read more here.



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