Netflix Dips 6%, Ulta Falls 13.2% on Analyst Downgrades

Key Takeaway

• Netflix shares fell nearly 6% pre-bell after Canaccord Genuity downgraded it due to concerns over future growth, despite solid Q1 results.
• Ulta Beauty downgraded by Jefferies amid increasing competition from Sephora, contributing to a 13.2% decline in shares in 2024.
• Positive analyst calls include DoorDash with over 30% upside potential by Loop Capital, and First Solar upgraded to overweight by Wells Fargo with more than 40% potential upside.

Analyst Downgrades and Upgrades

Several significant analyst calls were made early Friday, impacting stocks across various sectors. Canaccord Genuity downgraded Netflix following its first-quarter results, citing concerns over slower growth ahead. Analyst Maria Ripps pointed to the streaming giant's paid sharing initiative as a factor that "meaningfully pulled forward member growth," suggesting limited growth catalysts in the near term. Despite Netflix's solid results and outlook, Ripps recommended investors might find better opportunities elsewhere, leading to a nearly 6% drop in Netflix shares before the bell.

Ulta Beauty also faced a downgrade from Jefferies, with analyst Ashley Helgans moving the stock to hold from buy and cutting the price target significantly. Helgans cited increasing competition from Sephora and potential for downward revisions in the next 12 months as key reasons for the downgrade. Ulta shares have declined 13.2% in 2024, reflecting the competitive pressures in the beauty sector.

Edward Jones downgraded Hershey to a hold rating, with analyst Brittany Quatrochi highlighting record-high cocoa prices as a significant headwind. Despite Hershey's leading brand position, elevated cocoa costs are expected to limit near-term earnings growth, although price hikes and new product innovations could partially offset these challenges.

Positive Outlooks and Initiatives

Loop Capital initiated coverage of DoorDash with a buy rating, seeing over 30% upside potential. Analyst Rob Sanderson praised DoorDash's execution and momentum post-pandemic, highlighting its role as a "category killer" in the food delivery platform sector. Sanderson's optimism is based on DoorDash's strong free cash generation and its valuation premium justified by its growth rate and execution.

Wells Fargo upgraded First Solar to overweight, with analyst Michael Blum projecting more than 40% potential upside. Blum cited the company's near-term earnings stability and a series of catalysts, including expected regulatory changes favoring First Solar. The upgrade reflects confidence in First Solar's ability to maintain or increase average selling prices through the end of the decade.

Morgan Stanley upgraded Shopify to overweight, with analyst Keith Weiss expressing confidence in the e-commerce company's growth durability against tempered consumer spending expectations. Weiss highlighted Shopify's international expansion and advertising potential as key drivers for the upgrade, suggesting more than 20% upside for the stock.

Bank of America's Inflection Point

Wolfe Research upgraded Bank of America to an outperform rating, with analyst Steven Chubak citing a net interest income turnaround and a discounted valuation as reasons for the upgrade. Chubak expects Bank of America to gain market share in trading and investment banking, contributing to fee growth. The upgrade reflects a more optimistic outlook for the bank's ability to drive durable earnings growth over the next few years.

Street Views

• Brittany Quatrochi, Edward Jones (Neutral on Hershey):

  "Hershey is facing headwinds from record-high cocoa prices, which we expect to limit near-term earnings growth... These long-term positives are balanced by our belief that it will take several years for Hershey to offset higher cocoa costs, which we expect to weigh on earnings growth in the near term."

• Rob Sanderson, Loop Capital (Bullish on DoorDash):

  "We think that years of debate over viability and earnings potential of on-demand gig platforms has been settled... Industry leaders like DoorDash have demonstrated continued momentum postpandemic and the ramp in free cash generation is undeniable."

• Steven Chubak, Wolfe Research (Bullish on Bank of America):

  "While some of these NII pressures should persist in a higher-for-longer rate backdrop, with BAC’s 1Q24 results reflecting better asset repricing trends… we believe that we’re now approaching the point of NII inflection where 'under-earning' banks including both BAC and SCHW should post stronger gains following multiple years of underperformance."

• Michael Blum, Wells Fargo (Bullish on First Solar):

  "While it’s hard to predict which of the following regulations will pass, at a minimum, we see many ways in which FSLR could maintain [average selling prices] through the end of the decade (implies a $340/sh stock price) and a few scenarios in which [average sales prices] increase further from here (implies at least a $390/sh stock price)."

• Keith Weiss, Morgan Stanley (Bullish on Shopify):

  "Share gains upmarket by Shopify support confidence in the durability of growth against tempered consumer spending expectations. A disciplined view on headcount provides room for further operating leverage against more measured expectations..."

• Maria Ripps, Canaccord Genuity (Neutral on Netflix):

  "Despite these mostly solid results and outlook...we see limited growth catalysts for next few quarters...we think investors may be well served to look elsewhere for upside..."