Upgrades
Wells Fargo upgraded PennyMac Financial (PFSI) to Overweight from Equal Weight with a price target of $75, up from $54, as the firm believes the backdrop for the mortgage industry has turned more favorable. Inflation is an important factor for interest rates, and mortgage rates have already improved -104bps from the peak after the softer CPI data. Kaye expects further improvement as inflation pressures abate. While the winter months will be challenging especially from a seasonality perspective, the firm thinks the worst is behind the industry. The risk is that the firm is early and that the interest rate drop reverses or remains stubbornly high, the firm adds.
JP Morgan upgraded Barclays (BCS) to Overweight from Neutral. The firm reshuffled preferences on U.K. bank stocks heading into 2023, saying risks look evenly balanced for the sector, with concerns about net interest margins peaking in the second half of the year, offset by defensive attractions for larger U.K. banks. The firm notes Barclays has the most favorable risk/reward among U.K. domestic lenders and is now the top pick.
Morgan Stanley upgraded JP Morgan (JPM) to Overweight from Underweight with a price target of $153, up from $126. The firm notes the bank's operating leverage is inflecting positively in 2023, driven by revenues up 10% year-over-year and expenses up 9%. The firm thinks the risks around JPMorgan's operating leverage skew to the upside and says progress is being made on capital.
Downgrades
Deutsche Bank downgraded General Mills (GIS) to Hold from Buy with an unchanged price target of $88. The firm cites valuation for the downgrade. While the firm continues to believe General Mills operates from a position of relative advantage, the firm also sees current market expectations well-aligned with this view.
Morgan Stanley downgraded BNY Mellon (BK) to Underweight from Equal Weight with a $42 price target. The firm sees risk of continued deposit outflows.
Stifel downgraded Edwards Lifesciences (EW) to Hold from Buy with a price target of $75, down from $95. The firm notes the stock is down 43% year-to-date and already reflects some slower-than-expected U.S. TAVR growth and a slower TAVR market. The firm's downgrade follows conversations with ten implanting physicians asserting that until a new TAVR indication is approved, growth will be limited due to patient population aging. The firm further warns that TAVR growth rates may be-base lower for longer than consensus is estimating.
Others
Bernstein initiated coverage of Kroger (KR) with an Outperform rating and $58 price target. The firm is cautiously bullish on the U.S. hardlines / broadlines retail sector. Long-term fundamentals remain sound, and both the grocery and home improvement subsectors are surprisingly well-insulated from e-commerce encroachment. The firm believes COVID impacts have actually enhanced the long-term outlook for the group. Recent share pullbacks, and the general macro uncertainty, have created some potentially compelling entry points. With turbulence comes opportunity, writes the firm.
Citi initiated coverage of Xponential Fitness (XPOF) with a Buy rating and $29 price target. The firm notes the company has carved out a defensible and profitable position as the industry leader in the boutique fitness space. The firm says Xponential's asset-light franchise model allows for quick scaling of the business, with recurring revenues buffering the downside in the event of a recession.
UBS initiated coverage of United Therapeutics (UTHR) with a Buy rating and $320 price target. The firm sees the company's Tyvaso as a foundational therapy for Pulmonary Arterial Hypertension, and the firm believes that Tyvaso's transition into newly launched dry powder inhaler format and expansion into PH-Interstitial Lung Disease fuels growth. The firm adds that United Therapeutics' Remodulin also has the potential to relatively stabilize going forward, helped by newly relaunched Remunity pump and competitor supply constraints.
Cowen initiated coverage of Iqvia (IQV) with an Outperform rating and $251 price target. The firm sees multiple drivers of multiple expansion and share price outperformance for Iqvia, including an expanding total addressable market, better appreciation of its TAS segment, increased capital deployment, and a more defensive/resilient performance in more recessionary environments. The firm believes concerns for weaker biotech funding and macro headwinds are overdone.
