Micron downgrades, Kroger By Investing.com upgrades

Investing.com — A pro summary of key takeaways from Wall Street analysts from the past week.

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Ollie’s Special Price Outlet

What happen? JPMorgan on Monday upgraded Ollie’s Bargain Outlet Holdings, Inc. (NASDAQ:) to an overweight rating with a $105 target price.

JPMorgan expects a favorable near-term outlook for OLLI, driven by a strong clearance trading environment, enhanced competitive landscape, and consistent execution that collectively contribute to same-store sales growth. Looking ahead, the investment bank expects “organic” unit growth to accelerate significantly, reaching double digits by FY25 and beyond. This growth trajectory is based on a 10-year plan to reach market saturation point of 1,300 stores. This expansion is expected to result in a compound annual growth rate of approximately 13% in earnings per share, based on low single-digit growth in same-store sales.

Additionally, the potential for lateral integration provides additional opportunities for wallet-driven improvements to same-store sales and unit growth that are not currently included in JPMorgan’s model.

The investment bank argues there are no structural barriers to returning to pre-pandemic unit growth rates of 13-14% over several years. This optimistic assessment is reflected in JPMorgan’s Overweight rating for OLLI, signaling confidence in the company’s potential for continued growth and profitability in the coming years. According to the bank’s analysis, OLLI is well positioned to leverage both organic expansion and strategic integration to strengthen its market position and financial performance.

At JPMorgan, overweight means “we expect this stock to outperform the average total return of stocks in the research analyst’s or research analyst team’s coverage universe over the price target period indicated in this report.”

How did stocks react? Ollies Bargain Outlet opened its regular session at $90.55 and closed at $95.98. This is a 9.43% increase from the previous day’s regular closing price.

hook

What happen? On Tuesday, BMO Capital upgraded Kroger (NYSE:) to Outperform with a $60 price target.

BMO Capital analysts observed a decline in the stock market due to concerns about rising price investments within the industry. These investments are thought to be primarily funded by suppliers, with a smaller portion covered by retailer promotions. Analysts were optimistic about internal deliveries in the first quarter, raising their forecasts to 0.8% from 0% previously. This is based on the assumption that total profit excluding fuel will increase 0.6% year over year, cents per gallon will remain constant at 45, and FIFO accounting impact will be approximately $90 million. As a result, they expected earnings per share of $1.46, beating the consensus estimate of $1.35. This forecast suggests that Kroger could potentially achieve the upper end of its fiscal 2025 guidance.

Additionally, BMO Capital’s full-year fiscal 2025 revenue forecast assumes gross margin percentages remain virtually unchanged, excluding fuel and stable retail fuel CPG. Analysts believe the stock is trading at about 11 times the consensus EPS of $4.54, reflecting a fair assessment of the potential downside risk to EPS. They argue that Kroger’s gross margin outlook looks safer than previously expected.

BMO analysts also expect a favorable outcome regardless of whether the deal closes or not. As a result, BMO Capital raised its fiscal 2025 EPS estimate to $4.49 (up from $4.40) and fiscal 2026 EPS to $4.65 (up from $4.60) and set a price target of $60. The annualized forward P/E ratio was previously between 12x and 13x.

The key risk identified by analysts is the potential for price capex as the competitive environment in the food retail sector intensifies.

At BMO Capital, Outperform means “expected to outperform analysts’ coverage area on a total return basis.”

How did stocks react? Kroger opened the regular session at $52.52 and closed at $51.98. This is a 1.82% increase from the previous day’s regular closing.

Wednesday – US markets closed June 1

Rhythm Technologies

What happen? On Thursday, Wolfe Research received an upgrade. iRhythm Technologies Inc. (NASDAQ:) outperform with a 115 target price.

Wolfe Research issued an upgrade call, citing a reasonable entry valuation for the stock, which is currently priced at $98. Wolfe analysts’ confidence in the stock has grown as they expect major overhangs to be resolved within the next 12 months, leading to a target price of $115. This target is supported by DCF analysis and EV/Revenue comparisons, which suggest $115 is approximately 5x projected 2025 revenue.

Over the past year, IRTC’s EV/Revenue ratio has averaged 5.5x, with the average since its IPO being nearly 9x. Compared to 30 small and medium-sized medtech companies, which currently average about 3.5x, Wolff argues that a 5x premium to equity is justified. The basis for this premium is that the low-teens revenue growth IRTC expects next year exceeds the low-teens growth of its comparable group.

Wolfe analysts’ valuation framework includes a comprehensive DCF model for IRTC. This has historically been difficult, but has become more manageable over time. Improvements in modeling can be attributed to significant EBIT margin utilization in the second half of the year leading up to 2025 and successful execution of the Zio AT FDA risk reduction roadmap. Advances beyond the FDA issues will bring IRTC closer to launching the next generation of MCT devices and potentially allow IRTC to capture a larger market share in a market where it is currently marginal.

Ultimately, the DCF analysis indicates an NPV consistent with the $115 target using a 9% discount rate and 5% perpetual growth rate.

Wolfe’s Outperform means “Security is expected to outperform analysts’ industry coverage over the next 12 months.”

micron

What happen? Aletheia Capital on Friday downgraded Micron Technology Inc (NASDAQ:) to a hold rating with no price target.

Aletheia Capital downgraded MU from ‘buy’ to ‘hold’ and removed its $120 price target. The first reason is that the stock has risen 2.1x since the rating upgrade in November 2023 and is currently trading at more than its historical price-to-book ratio (PBR) of 2.5x.

Second, Aletheia Capital senses that there are serious issues with MU’s HBM3E implementation that could negatively impact its short-term revenue goals and profitability. Our major customers may need to change their commercial delivery schedules for new products. The research team believes that it may take some time for MU to improve and restore trust in HBM products. As a result, they withdrew their previous $500 million HBM revenue forecast for FY24E.

Finally, Aletheia Capital believes that MU will need to significantly increase capital expenditure (capex) for capacity expansion in FY25E/26E, which remains flat (or declining) beyond 2021. This contrasts with well-known positive factors, including the continued upward trend in memory average selling price (ASP), strong demand for HBM in AI servers, upward revisions to earnings, and FCF turning positive (for the first time since Q1 FY23).

How did stocks react? Micron opened the regular trading day at $138.08 and closed at $139.54, down 3.22% from the previous day’s regular closing price.