Street Calls of the Week: Constellation Brands Makes Goldman Sachs' Top List

  • Stock Market Analysis
  • Editor's Pick -- Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Boeing, Spirit Aerosystems, and Constellation Brands; downgrades for Foot Locker and Airbnb.

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Foot Locker Downgraded

What happened? On Monday, Citi downgraded Foot Locker Inc (NYSE: FL ) to Sell with a $18 price target.

What’s the full story? Citi has grown increasingly negative on Foot Locker citing weak sales and margins, high inventory levels, and a challenging macroeconomic environment.

The bank expects the company to report disappointing third-quarter earnings on November 29 (update: Foot Locker beat on earnings while narrowing guidance), and to struggle to execute a turnaround in fiscal year 2024. Citi also notes that Foot Locker’s reliance on Nike (NYSE: NKE ) products reduces its control over its own destiny.

Citi believes that the stock is fairly valued at current levels, and that the risk/reward skews to the downside.

Sell at Citi means “Sell (3) for negative ETR” where ETR means Expected Total Return.

How did the stock react? Shares slid quickly at 5am from $23.20 to $22.59. Foot Locker opened the regular session at $22.20 and closed at $23.11, a loss of 0.90% since Friday's close.

Boeing Upgraded

What happened? On Tuesday, RBC Capital upgraded Boeing Co (NYSE: BA ) to Outperform with a $275 price target.

What’s the full story? RBC joined the bullish bandwagon after another year of supply chain disruptions and lowered expectations, as they believe the set-up into 2024 is favorable for Boeing.

The analysts are maintaining their 2023 free cash flow (FCF) estimate of about $3.5 billion, and adjusting their 2024 and 2025 FCF estimates to now $5.5 billion and $8.5 billion, respectively. RBC wrote they expect the strong demand to sustain for both the commercial and defense business, and as production and delivery ramps continue to improve, they believe investor confidence in the FCF outlook will improve.

RBC also opined that their FCF estimates for Boeing were more conservative than the consensus, and did not give the company full credit for the almost $10 billion in FCF guidance in 2025. The bank said that this was why its multiple appeared higher, but that it viewed the more conservative approach as more appropriate, noting investors should continue to put faith behind the company’s potential performance in future years.

Outperform at RBC Capital means “Expected to materially outperform sector average over 12 months.”

How did the stock react? Shares spiked quickly at 4am from a low $219 handle to a $224 handle, a gain of over 2% . Boeing opened the regular session at $221.73 and closed at $222.37, a gain of 1.40%

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Airbnb Downgraded

What happened? On Wednesday, Jefferies downgraded Airbnb Inc (NASDAQ: ABNB ) to Hold with a $140 price target.

What’s the full story? Jefferies' negative note stated Airbnb’s valuation reflected its potential to increase its take rate, which is the percentage of revenue that ABNB keeps from each booking.

The brokerage house said that a recent slowdown in bookings increased the risk of downside to the consensus, making the story more reliant on potential take rate expansion.

Jefferies wrote that their deep dive suggested that the monetization opportunity was largely priced in, as Airbnb’s valuation reflected a 65% premium to platform Internet peers, despite offering in-line earnings before interest, taxes, depreciation, and amortization (EBITDA) growth. The analysts valued the stock at $140, based on ~$100 per share for Airbnb’s underlying EBITDA and free cash flow (FCF), and ~$40 per share for take rate upside. Jefferies wrote that they remained positive on Airbnb’s long-term prospects, but that they saw limited near-term catalysts.

The analysts estimated that expanding take rate by 400 basis points would boost Airbnb’s 2030 revenue and EBITDA by ~35% and ~45%, respectively, compared to the consensus. Jefferies valued the take rate upside at ~$40 per share, and the underlying fundamentals at another $100 per share, based on their cash flow analysis. They wrote that Airbnb had a unique value proposition, a strong FCF generation, and a wide competitive moat.

Hold at Jefferies means “Describes securities that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period.”

How did the stock react? Shares slammed lower on the premarket open, pushing down near $125.50 (from $127.60) before rebounding into the regular session open. Airbnb opened the regular session at $127.17 and closed at $126.48, a loss of 0.85%

Spirit AeroSystems Upgraded

What happened? On Thursday, Baird upgraded Spirit Aerosystems (NYSE: SPR ) to Outperform with a $36 price target.

What’s the full story? Baird is bullish on SPR citing near-term catalysts and improved unit economics. The brokerage house expects SPR to revise its Airbus production contract by February 2024, which would improve its profitability and cash flow.

Baird’s analysts also wrote that the new interim CEO, Pat Shanahan, a former Boeing executive, was addressing the high-urgency problem areas within the company, and setting up 2024 as an execution year and improved financial performance. They wrote that Spirit AeroSystems was a turnaround story with a potential path to $50+ per share.

Baird increased the price target to $36, using a 10x EV/EBITDA multiple on 2024 estimates, compared to OEM peers trading in a range of 8x-16x. The analysts said that their model reflected a high single-digit EBITDA margin in 2024, and a low double-digit EBITDA margin in 2025, which would drive the stock materially higher if achieved, coupled with favorable FCF generation.

Lastly, Baird penned that sentiment was improving on the company, and that they saw an opportunity for multiple expansion in 2024

Outperform at Baird means “Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months.”

How did the stock react? Shares jumped 51 cents as the premarket opened, rising from $26.18 to $26.69. Spirit AeroSystems opened the regular session at $26.96 and closed at $27.49, a gain of 5.08%

Constellation Brands Upgraded

What happened? On Friday, Goldman Sachs upgraded Constellation Brands (NYSE: STZ ) to Conviction Buy with a $290 price target.

What’s the full story? Goldman believes STZ is poised to continue to garner market share in the US beer market as they expand distribution into the middle of the country from the current “coastal strongholds”.

The analysts wrote that Constellation Brands would rely more on volume than price to drive 7%-9% top-line growth in the beer segment, which includes popular brands such as Corona, Modelo, and Pacifico. Goldman also believes that a renewed focus on driving shareholder returns reduced the risk from its underperforming wine business, and the analysts believe management's focus on share buybacks should offer a boost for earnings per share (EPS) growth.

Goldman’s analysts noted they were 3% above the consensus on fiscal year 2025 EPS.

Conviction Buy at Goldman Sachs means “Each region manages Regional Conviction lists, which are selected from Buy rated stocks on the respective region’s Investment lists and represent investment recommendations focused on the size of the total return potential and/or the likelihood of the realization of the return across their respective areas of coverage.”

How did the stock react? Shares rose $4 to $244 between the note publication and the regular session open. The equity reversed at the open to a $239 handle before 10:30am. STZ opened the regular session at $243.24 and closed at $242, marking a gain of 0.63%

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