Cisco (CSCO) - Downgraded
HSBC cut Cisco (CSCO) to hold from buy and lowered its price target to $120 a share from $137. The reasons: valuation and no positive catalyst after the fourth quarter report. HSBC sees better value in other stocks and expects Cisco's growth to slow each quarter from the second quarter onward, which could pressure the stock's valuation multiple.
The stock fell hard the day before after earnings. Expectations going in were very high - shares had rallied more than 60% this year. A beat-and-raise quarter was not enough.
The main worry was gross margin compression. Non-GAAP gross margins dropped to about 66.3% from over 68% a year earlier. Product gross margin fell to just under 65% from well over 67% year-over-year. Management guided first-quarter fiscal 2027 gross margin to 65-66%, a sign margins may stay under pressure.
Investors are questioning the quality of Cisco's AI growth. The concern: growth may come from lower-margin networking hardware and custom silicon sold to hyperscalers instead of higher-margin software with recurring revenue.
Ratings stay neutral to bullish. Of 27 analysts covering the name (FactSet), there are no bears - 9 holds and 18 buys. Over one year the stock is up about 61%, but down about 7% this week after earnings.
Wayfair (W) - Upgraded
Wayfair (W) gapped up on earnings and now gets an upgrade. Bernstein raised shares to outperform from market perform and lifted its price target to $125 from $100 a share.
Bernstein came away from the second-quarter earnings call more positive on U.S. e-commerce. The firm sees a gap between consensus numbers and where the business is actually heading, helped by recently improved cost discipline. It expects Wayfair's revenue beats to now flow through to stronger EBITDA growth and margin expansion.
This is an upgrade about operating leverage. Wayfair has paired better revenue momentum with cost control, so extra sales should drop through more to EBITDA and margins. If U.S. e-commerce demand keeps improving and Wayfair is no longer spending as heavily, earnings estimates could be too low. The bull case rests on durability - home-related e-commerce has struggled, but Bernstein views the recent improvement as sustainable, not a short-term bounce.
Wayfair has never recaptured its pandemic-era all-time highs, when demand surged. Shares broke out after the earnings report on August 4th, then chopped around the new level. The stock is up about 4% this year and gained 3.3% on the day. No analysts rate it a sell.
Fox (FOXA) - Upgraded
Fox (FOXA) was a winner in the S&P 500 with two upgrades. JP Morgan and Wells Fargo both moved to overweight after the recent earnings. The bull case is shifting from a cheap media stock to a beat-and-raise story.
JP Morgan raised its estimates and target to $82 a share, citing strong World Cup economics, a better political ad outlook, continued ad momentum, and stronger distribution revenue. Wells Fargo lifted its price target to $80 a share, pointing to better visibility from the Roku deal, seen as a potential cash flow growth driver.
The NFL update was a big piece of the call. Fox does not expect changes to its NFL deal until 2030. Keeping the deal at least through the 2030 season removes a near-term overhang around rights and cost risk. Both firms see the Roku acquisition improving Fox's longer-term growth and easing worries about the company's terminal value.
The wider view: analysts think Fox is becoming ownable for a longer stretch, and the biggest risks - NFL rights growth and earnings provisions - look less severe than expected. Fox is down about 6.5% on the year and trying to regain losses. Both A and B shares are up about 4%.
Next week brings earnings from several retailers, including Walmart (WMT) and Home Depot (HD).
