Every day Wall Street makes stock price predictions, issuing upgrades and downgrades of their prospects for the next year. Do analysts even know what they are talking about?
They should. Although securities regulations have leveled the playing field to ensure all material information is released to the public at the same time and not just a favored few analysts, Wall Street pros do have greater access to executives. They also have powerful models to help map out a company’s finances. They may be able to glean a little more insight into a business.
Still, it is fun to see analysts issuing a “hold” rating on a company weeks or months after they told you to “sell” — what exactly are you supposed to hold onto at that point?
It is why small investors shouldn’t rely solely upon an analysts’ stock price predictions. It’s only one data point to consider in an overall analysis of a stock. With that in mind, the three companies below had analysts lower their stock price targets. They may even have downgraded the stock from the analysts previous rating. Let’s see whether these Wall Street pros are on the right track or are creating an opportunity to buy shares at a discount.
Palantir Technologies (PLTR)
Artificial intelligence (AI) specialist Palantir Technologies (NYSE:PLTR) was recently knocked down from a “neutral” to a “sell” rating by one analyst with a one-year price target of $20 per share. Palantir stock slid 5.5% on the news to under $24 per share.
According to TheStreet.com, it wasn’t all that long ago Monness, Crespi, Hardt analyst Brian White upgraded the AI company to “neutral” from “sell,” though no apparent price target was assigned. In fact White has pretty much been neutral or bearish on Palantir stock since July 2021 when the stock was trading at $9 per share. Investors would have missed PLTR’s 265% run higher since, so it is fair to ask if the analyst is correct now in his assessment.
Well, he’s not alone in his belief the AI stock is overvalued. The consensus one-year price target is $21.25, though it ranges from a low of $7 per share (ouch!) to as much as $35 a stub.
Yet White is not bearish on the company, per se. He believes it will benefit in the long run from AI’s expansion. But the analyst notes that a number of software and data analytics stocks have been more muted on earnings calls of late. So after a 167% rally in 2023 and running as much as 49% higher this year, PLTR stock has a “gluttonous” valuation.
While Palantir’s government business rose sharply last quarter, its enterprise business slowed. There may be something to the “largely depressed” outlook from those Big Data firms. Still as one of the best pure-play AI stocks, PLTR stock should still be seen as a buy.
Nutanix (NTNX)
Morgan Stanley analyst Meta Marshall just weighed in on enterprise cloud platform provider Nutanix (NASDAQ:NTNX). While the investment firm maintained its equal weight rating on the stock it cut its price target 14% from $72 per share to $62 per share.
There doesn’t appear to be an explanation offered for the change, but the new one-year target brings the price closer to consensus estimates of around $58 per share. However most analysts have a “buy” or “overweight” rating on the stock. With Nutanix trading at $53 a stub, the Morgan Stanley analyst’s price target still implies 16% upside. Marshall may have simply believed she was previously too exuberant in her outlook considering the current economic climate and the company’s recent earnings performance.
While Nutanix shredded Wall Street’s fiscal third-quarter estimates, its guidance for the fourth quarter fell short of expectations. The cloud platform forecast $540 million in revenue for the coming quarter whereas analysts anticipated $546 million. Not a terrible miss, but it suggests growth might not be as strong as previously thought.
Despite the sharp drop in the stock after a 150% run-up over the past year, Wall Street is still looking for phenomenal earnings growth. They forecast Nutanix will see earnings expand 49% a year for the next five years. It would seem this enterprise cloud provider ought to break through the one-year consensus estimate. It may even exceed the Morgan Stanley analyst’s target, too.
SolarEdge Technologies (SEDG)
There is arguably no more curious analyst stock rating than on residential solar inverter maker SolarEdge Technologies (NASDAQ:SEDG). Wall Street has a hold rating on SEDG stock, but also a consensus one-year price target of $85 per share. That is 160% above the $33 per share level SolarEdge currently trades at.
To his credit, JPMorgan Chase analyst Mike Strouse seemed to stake out the middle ground. He cut his price target on SolarEdge from $73 a share to $59 a share. He maintained his “overweight” rating in the stock.
Still, Wall Street is essentially saying “don’t buy, but also don’t sell.” Yet they think the stock will rocket higher over the next year. It’s a puzzler.
On the one hand I get the hold rating. The high interest rate environment is making financing solar panel installations uneconomical for households. It’s not unreasonable to urge caution until conditions are more suitable for installations to move forward.
But why is the high price target? If SolarEdge Technologies will rise to that level in the next year then now is an excellent time to buy.
I do think that without an interest rate cut soon, the solar inverter stock will languish. It may be some time before there is much upward movement too because the Fed may give us one this year but it is expected to be negligible. That won’t move the needle for solar installations or SEDG stock to begin boosting sales.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
