Thursday's analyst calls: Car rental stock gets upgraded, Citi gives up on Spirit Airlines
(This is CNBC Pro’s live coverage of Thursday’s analyst calls and Wall Street chatter. Please refresh every 20-30 minutes to view the latest posts.) Thursday’s analyst calls featured an upgrade to a car rental stock and a big downgrade to an airline. Morgan Stanley raised its rating on Hertz to overweight, forecasting strong gains ahead. On the flipside, Citi cut Spirit Airlines to sell, citing uncertainty for the company after a proposed merger with rival JetBlue was blocked. Check out the latest calls and chatter below. All times ET. 6:03 a.m.: Paramount Global gets an upgrade from CFRA Research CFRA raised its rating on media and entertainment giant Paramount Global to buy from hold, saying shares could benefit from a potential company ownership change. Shares are “event-driven,” analyst Kenneth Leon said, noting that there has been media speculation of merger talks among RedBird Capital, Warner Bros. Discovery and other media giants such as NBCUniversal-parent Comcast. Paramount’s largest shareholder is Berkshire Hathaway with a 14.4% equity stake, Leon noted. “We think the current share price is an attractive entry for our upgrade to a Buy rating,” Leon wrote in a note. “PARA has great media assets and massive libraries in television and movie content, with the Showtime and Paramount+ bundle working.” Leon’s $16 price target on the stock implies shares could jump about 23% over the next 12 months. The stock edged up about 0.3% in premarket trading. — Pia Singh 5:51 a.m.: JPMorgan upgrades Grab Holdings, sees more than 30% upside JPMorgan thinks it’s time for beaten-down Grab Holdings stock to bounce back, citing improving delivery margins and a “reasonable” underlying valuation. Analyst Ranjan Sharma upgraded Grab to overweight and set a $3.80 price target for the stock, suggesting 30.1% potential upside since Wednesday’s market close. Shares rose 3.4% in premarket trading. “Financial results in 1H24 are likely to drive positive revisions in near-term earnings expectations with ongoing industry growth, easing competition and rationalization in delivery industry,” Sharma wrote in a Thursday note. On-demand delivery competition has eased and Grab’s delivery EBITDA margin improved between 2022 and last year, leading Sharma’s thesis that shares are likely to maintain or improve delivery margins in 2024. — Pia Singh 5:36 a.m.: Morgan Stanley upgrades Hertz to overweight on EV dumping decision Hertz Global Holdings’ recent decision to dump electric vehicles from its fleet bode well for the stock, according to Morgan Stanley. Analyst Adam Jonas upgraded the car rental company to overweight. He lowered his price target to $15 per share from $16, but the new forecast still implies upside of more than 79% from Wednesday’s close. “HTZ’s aggressive EV strategy has exacerbated significant challenges in both fleet cost and opex/unit, driving a significant retrenchment in consensus expectations,” Jonas wrote in a Wednesday note. “We believe the actions announced last week, while driving a sharp negative revision to FY24 and driving a sell-off in the stock, help mitigate longer-term risk to the stock.” Hertz announced on Jan. 11 that it would sell about 20,000 EVs, including Teslas, to buy more gas-powered vehicles due to higher expenses related to EV repair. The company had aimed to transition a quarter of its fleet to electric by the end of 2024. Although risks remain, including residual value risk related to EVs remaining in Hertz’s fleet, the de-fleeting announcement and market selloff provides “improved risk/reward” relative to Morgan Stanley’s valuation, Jonas said. “Forward estimates have fallen far-enough below our forecast for normalized earnings to drive an upgrade to this strategically consequential rental car giant,” he said. Shares gained more than 5.7% in premarket trading Thursday. — Pia Singh 5:36 a.m.: Citi downgrades Spirit Airlines to sell Citi is throwing in the towel on Spirit Airlines . The bank lowered its rating on the budget airline to sell from neutral and slashed its price target on the stock to $4 from $13. The new forecast implies early 35% downside from Wednesday’s close. The downgrade comes after a federal judge earlier this week blocked the company’s proposed merger with JetBlue due to antitrust concerns. Week to date, Spirit shares are down nearly 60%. SAVE 5D mountain SAVE 5-day chart “Although JetBlue and Spirit can still appeal Tuesday’s court ruling … it is unclear why JetBlue wouldn’t cut its losses here and recognize that it avoided a risky bid on a highly levered carrier with steep losses,” analyst Stephen Trent wrote. “Citi assumes that each carrier goes their separate way – and although it would be hard to rule out entirely the appearance of other Spirit Airlines suitors, a new bid seems unlikely w/o the carrier first restructuring its debt,” Trent wrote. Spirit shares were down more than 4% in the premarket. — Fred Imbert
