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Monday
May, 27

4 Huge Analyst Calls: ConocoPhillips Edges Out Peers; ConAgra Cut at Jefferies

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Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for ConocoPhillips and Keurig Dr. Pepper; a downgrade for ConAgra; and a fresh Neutral rating for Lucid Group.

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ConocoPhillips

What happened? On Friday, Wolfe Research upgraded ConocoPhillips (NYSE:) to Outperform with a $120 price target.

What’s the full story? Wolfe’s move is a comparison upgrade, as it believes the company appears more favorably positioned over peers. Wolfe commented:

Reasons for Upgrade –

1) the bolt-on acquisition of 50% of Surmont from TTE (funded with cash on hand) both allays FCF downside in a lower oil price case next year and increases FCF sensitivity in an upside case;

2) major projects roll-forward and out of a peak spend in 2023 with robust return profiles in a mid-commodity scenario;

3) valuation compares favorably to US IOCs;

4) variable dividend comps ease into 2024;

5) oil price leverage is higher than US IOC peers in the near term and major projects add duration/NPV layer to oil px sensitivity;

6) ytd COP has underperformed XOM by 9% and the XOP by 7%.

Wolfe describes Outperform as:

The security is projected to outperform analyst’s industry coverage universe over the next 12 months.

How did the stock react? After a $4 hammering in Thursday’s session, the equity was rebounding Friday even as many broad indices slid. Friday COP gained from a mid-$100 handle open, ending Friday’s regular session up 2.9% to $103.23.

Lucid Group

What happened? To start the week, Citi resumed coverage on Lucid Group (NASDAQ:) on Monday at Neutral with an $8 price target.

What’s the full story? Monday was a half day in the U.S. markets in observance of the Independence Day holiday. Citi resumed Lucid at Neutral citing:

…our latest 3rd party data checks weren’t discouraging but didn’t quite give us sufficient conviction either, so we opt to wait for an opportunistic entry point.

Citi does buffer its Neutral outlook with some positivity:

We remain constructive on Lucid’s leading technology position (recently validated by the Aston Martin deal), anchored by a miles/kWh advantage estimated to be worth $4-5k/vehicle.

Citi describes its Neutral rating as follows:

The Investment rating definitions are: Buy (1) ETR of 15% or more or 25% or more for High risk stocks; and Sell (3) for negative ETR. Any covered stock not assigned a Buy or a Sell is a Neutral (2).

How did the stock react? Between 4am and 4:10am, shares spiked about $0.20 higher to $7.09. From there the equity swung in a $0.10 range into the regular-session open, and closed the day up 7.3% to $7.39.


ConAgra Brands

What happened? After the markets were closed Tuesday for Independence Day, Jefferies downgraded ConAgra (NYSE:) to Hold with a $38 price target on Wednesday.

What’s the full story? Jefferies sees the equity priced at a price-to-earnings ratio of nearly 13x, which is fair. The firm also noted increasing concerns regarding near-term volume growth, which may require deep promotional offers. Jefferies wrote:

CAG’s biggest brands account for only ~63% of U.S. tracked channel sales, the lowest amongst large cap food peers. Portfolio re-shaping has been quiet since 2020 for understood reasons and with center-of-the store demand having normalized post-pandemic for many of CAG’s brands, we’re concerned resources could be spread thinly across the broad portfolio that plays in varying categories. We favor incremental portfolio optimization.

Jefferies’ definition for Hold is:

…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 declined over $0.45 on the premarket headline to trade mid $33 handle. CAG ended the day down 1.2% at $33.67.

Keurig Dr. Pepper

What happened? On Thursday, Morgan Stanley upgraded Keurig Dr Pepper (NASDAQ:) to Overweight with a $36 price target

What’s the full story? Morgan Stanley is betting the macro trend will prevail, noting investors may now begin to return to the equity after a period of disappointment. The bank noted, “Historically, we have been much more skeptical than the market regarding KDP’s stock,” and (rather long-windedly) delved into one of the primary issues it has been cautious about: the quality of the company’s earnings-per-share numbers:

We have been concerned about subpar EPS quality at KDP in our minds, with numerous one-time items included in adjusted EPS. Our concern was heightened in this area for two reasons:

a) KDP’s robust historical valuation did not seem to reflect EPS quality concern.

b) KDP’s explanation that one-time items were opportunely reinvested into marketing and therefore was a moot point, was hard for us to reconcile with KDP’s marketing -20% since a pre-COVID 2019, vs a 14% jump at a peer set of defensive staples peers.

Today, the issue is still a concern but we do note that it has become a bigger focus for investors and seemingly more priced into valuation, FY23 guidance also includes an unquantified step-up in marketing spend (including already yoy in Q1), so is higher quality, and KDP has indicated that the inclusion of non-operating items will be reduced going forward (we forecast by about half vs 2022’s 5% EPS contribution). These points all help assuage our concern.

Overweight at Morgan Stanley is described as:

The stock’s total return is expected to exceed the average total return of the analyst’s industry (or industry team’s) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

How did the stock react? Shares popped nearly $0.50 to $32.30 on the 5:48am upgrade headline. The equity remained elevated, although it did have to navigate the rough waters before noon, maintaining a 1.3%-1.8% gain. KDP shares ended the day at $32.20, up 1.4% amid the selling across broader indices.

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