Investors hear Wall Street analysts issuing Buy and Outperform ratings all the time. They do not as frequently get to hear about when it is time to sell a stock. In fact, most analysts have the equivalent of Buy and Hold (or Outperform and Neutral) for more than 90% of their coverage universe during normal market conditions. So how should investors and traders react when they do finally hear the equivalent of “Sell!” in a research report? And what if only one analyst out of twenty is willing to wave the flag of caution?
Tactical Bulls searches the daily flow of analyst calls covering Wall Street’s upgrades and downgrades to look for new ideas. These analyst calls can be a reliable source for finding some of those new ideas that might have otherwise been overlooked or missed. While most reports are neutral to positive, some of the points in negative reports need to at least be considered. Each type of investor may react quite differently when they hear an analyst issue a Sell rating. Some may even buy the stock after the reaction is seen. There were 13 ratings tacked as “Sell” or “Underweight” or “Underperform” during the week of September 27.
Tactical Bulls always reminds its readers and all investors that no single analyst report should ever be used as the sole reason to buy or sell a stock. That is particularly true for those who are looking at short-sale potentials in their tactical investment strategies. After all, shorting comes with potentially unlimited downside as stocks can rise indefinitely. The ultimate decision to buy, sell, short-sell or hold needs to be made by each investor along with their financial advisor.
All ratings and views presented in this piece are from the research reports issued by each analyst and these firms’ ratings do not represent the opinions of Tactical Bulls. The weekly analyst “Sell” ratings have been presented in alphabetical order to avoid any appearance of prioritizing or ranking any call over another. Here are 13 of the most negative research calls during the week of September 23 to September 27.
THE 13 SELL RATINGS ARE…
Cadence Design Systems, Inc. (NASDAQ: CDNS) was initiated with an Underperform rating and a $225 price target (versus $273.32 prior close) at Oppenheimer. The firm believes that the valuation of Cadence Design should now go back down to 2023 levels and continue its slide after already falling over 15% since mid-July. Cadence Design Systems shares closed down only 0.56% at $271.80 on the same day (9/25) as the call. Its 52-week range is $227.77 to $328.99.
Floor & Decor Holdings, Inc. (NYSE: FND) should be a beneficiary of lower interest rates if that is ultimately going to help housing related stocks. Just don’t tell it to the team at Melius Research. They initiated FND with a Sell rating and the $80 price target issued on September 23 implied that FND could lose one-third of its value if the thesis pans out. This was a $119.62 stock ahead of the call but in the days after the call its share price was still up above $119. Floor & Decor has a $12.8 billion market cap and its 52-week range is $76.30 to $135.67. Most of the analysts who follow FND have Hold and Neutral ratings and FinViz listed a $99.08 consensus analyst target price.
GE HealthCare Technologies Inc. (NASDAQ: GEHC) was downgraded to Sell from Neutral at UBS on September 26., and the firm also cut the price target down to $74 from $84 in the call. GEHC shares closed up 0.87% at $93.01 ahead of the call and it was indicated down 1.3% at $91.79 on Thursday’s early indications. This downside call is after a 22% gain YTD.
General Motors Company (NYSE: GM) took a fairly harsh downgrade on September 25 when Morgan Stanley lowered its view on the auto industry. Morgan Stanley lowered its prior Equal Weight rating and prior $47 price target down to Underweight with an even more negative $42 price target. GM’s stock was at $48.07 ahead of the call, so Morgan Stanley was projecting over 12.5% downside without taking the dividend into consideration. The firm sees U.S. inventories rising and affordability still out of reach for too many buyers with higher delinquencies and credit losses being seen. Even the great growth engine in China is shown to be turning negative with overproduction and market share losses.
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The Hershey Company (NYSE: HSY) was downgraded to Underperform from Hold and its price target was cut to $163 from $184 at Jefferies on September 26. What is interesting about this call is that Hershey shares had risen to $203 in the middle of this month but the stock has just been in a straight staircase down since. And Americans don’t need to eat more candy anyway (the report doesn’t actually say that). After closing at $191 ahead of the downgrade, Hershey would have another 15% downside if the Jefferies target comes to fruition. The stock was down under $190 in reaction on that same day. Other recent calls had only been at “Hold ratings” but another “Sell” rating and a $182 target from Citigroup had been seen a month earlier, with Goldman Sachs also having issued a Sell rating and a $185 price target. The Jefferies price target appears to be the lowest new price target change seen in at least a year.
Moody’s Corp. (NYSE: MCO) was downgraded to Underperform from Market Perform at Raymond James. While no price target was given this is the same as a Sell rating elsewhere. Raymond James sees Moody’s ratings franchise bull-case unlikely to be realized and that the shares have become overvalued after rising 30% before the downgrade. The firm also noted that 2025 estimates seem too high with downside risks on Moody’s consensus expectations. The September 23 price reaction was down 3.2% to $479.00 after having just hit an all-time high just a week earlier.
Northern Trust Corporation (NASDAQ: NTRS) saw its shares hit a 52-week high just a week earlier. Goldman Sachs updated coverage by downgrading it to Sell from Neutral and cutting its price target down to $82 from $84 in a valuation call on September 26. Northern Trust always trades at a premium to asset managers and to banks and this call represented almost 10% downside from the prior $90.79 closing price. Northern Trust shares were down 2.2% at $88.77 on the heels of the call. FinViz shows its consensus analyst price target as $92.07.
Shake Shack Inc. (NYSE: SHAK) was assumed in new analyst coverage at JPMorgan with an unchanged Underweight rating, but its price target as downgraded to $102 from $105 in the call. This represented close to 5% downside from the prior $106.57 close, and the September 24 reaction had SHAK shares down over 2.2% to $104.15 but only on light trading volume. JPMorgan sees challenges for SHAK to reach broad-market penetration, as its burgers are “very high priced” in an intensely competitive market of fast-casual sellers in the burger and chicken category. This stock is was up 100% from its 52-week low, up 40% YTD and is still valued at 100-times earnings. So hamburgers that cost over $20 aren’t a bargain?
Sirius XM Holdings, Inc. (NASDAQ: SIRI) was resumed with an Underweight rating and with a $23 price target at Morgan Stanley, representing 10% in implied downside from its prior $25.60 closing price. Sirius XM shares fell 5.8% to $24.10 on the September 24 reaction and the 8.1 million shares was nearly a 2x volume spike. Morgan Stanley sees risks to Sirius XM subscriber growth expectations as net additions remain negative even as auto sales have recovered. This is led by gross add-on and conversion pressure. While the Sirius XM’s product investment will help generate a recovery, Morgan Stanley believes it will take time to pan out. On September 26, Citi also maintained its Sell rating on Sirius XM.
Sonos Inc. (NASDAQ: SONO) was given a double-downgrade at Morgan Stanley on September 26, down to Underweight from Overweight and with a price target slashed down to $11 from $25. The Morgan Stanley call points out that the top-line and bottom-line impact of its app redesign is likely greater than the market currently perceived after significant backlash from existing users (accounting for 44% of annual new product registrations). Sonos closed down 2% at $12.59 ahead of the call and the initial reaction was down another 5% at $11.90 after the call.
Starbucks Corporation (NASDAQ: SBUX) was downgraded to Underperform from Hold (now the equivalent of a “Sell” rating), and its former $80 price target was slashed down to $76 in that call. The rise of Starbucks on Chipotle’s Brian Niccol taking over as the CEO story of the year is well-known. Here is a more detailed look why Jefferies thinks Starbucks is likely to give back all of its recent gains. Just remember that Jefferies call for 20% downside is the only one of the large Wall Street firms to take such a negative view. The very negative Jefferies call was the only negative call in the last two weeks — BofA raised its target to $118, Bernstein raised its target to $115 and both TD Cowen and BMO raised their targets to $110 during that timeframe. On the flip side, Guggenheim raised its rating to Buy from Neutral and raised its target price to $30 on September 18.
Triumph Group, Inc. (NYSE: TGI) is supposed to be a leading aircraft products and services players. BofA Securities downgraded Triumph in a rare two-notch downgrade to Underperform from Buy on September 24. Its price objective was also cut to $12 from $17 in the call. BofA’s call noted that production uncertainty looms because of its reliance on uncertain plane production rates at both Airbus and Boeing. The firm also worries about destocking and OEM delays amplifying Triumph’s cash burn concerns. This is also when Triumph has been restructuring its balance sheet with more active strategic alternatives discussions taking place soon. The stock fell 4.4% to $12.95 on above-average trading volume after the call, and its shares were down at $12.62 later in the week.
Tyson Foods, Inc. (NYSE: TSN) was downgraded to Underweight from an already cautious Neutral rating at Piper Sandler on September 25. The firm is projecting even more downside ahead after cutting its target to $50 from $57. The downgrade noted more downside risk that isn’t priced-in based on — cattle costs getting worse before they get better, downside risk to unusually favorable beef pricing, downside to chicken prices on increased supply, and the boost from major chicken efficiencies has now been seen. The stock had closed at $60.52 ahead of the call and the immediate reaction had its shares down 2.5% at $59.00 on Wednesday and shares were just above $59 late in the week. Tyson Foods has a $44.94 to $66.88 range in the last 52-week period.
AND THE FOREIGN BONUS (#14)
Ecopetrol S.A. (NYSE: EC) is the Colombian integrated energy company and JPMorgan sees operational setbacks and margin contraction pressuring its earnings ahead. This call goes out to the end of 2025. JPMorgan cut its rating to Underweight from Neutral and slashed its price target to $8.50 from $12 in the call. Ecopetrol’s ADSs were trading at $9.32 ahead of the call and the stock was down almost 5% at $8.88 after the downgrade. Its 52-week range is $8.67 to $13.14.
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