Hewlett Packard, Nike, L Brands & more

People walk by a Nike store in New York.Spencer Platt | Getty ImagesHere are the biggest calls on Wall Street on Friday:Seaport Global initiated KB Home, D.R. Horton, Lennar, and PulteGroup as ‘buy’Seaport said that despite it being a “volatile” group, the firm had a “generally positive” view of the homebuilders. “We are initiating coverage on five homebuilders with a generally positive view overall. The homebuilders are notoriously volatile with trends in order growth and gross margins, rightly or wrongly, often getting the most focus bottom-up, while changes in interest rate expectations seem to have increasingly come to outweigh (the often inversely related) near-term tenor of the economy in terms of top-down drivers. At this juncture, we are most drawn to builders oriented to affordable product, likely to generate very strong free cash generation as they pursue “land lighter” strategies and/or unlock obscured value.We have four names at Buy KBH, DHI, LEN, and PHM. “RBC downgraded L Brands to ‘sector perform’ from ‘outperform’RBC downgraded L Brands due to an “uncertain” trajectory in the company’s Victoria’s Secret and Bath & Body Works brands. “Despite a Sum-of-the-Parts disconnect with Bath & Body Works, we’re moving to the sides as the 2H plan for Victoria’s Secret comp and merch margin dollar progression are at odds with building inventories and considering traffic ramifications from a planned pullback on promotions during holiday. Longer-term, we wonder if changes in VS merchandise and positioning will strike a chord in today’s more body-positive environment. Reducing EPS and PT to $22.”Evercore ISI downgraded Hewlett Packard to ‘in line’ from ‘outperform’Evercore downgraded the stock after the company’s earnings report and said the stock may “languish” until it sees improvement in the Supplies revenue trajectory. “HPQ’s FCF remains robust, but we think the stock may languish until we see an improvement in the Supplies revenue trajectory something we currently do not have a line of sight for (management does not expect Supplies revenue to grow in FY20). Additionally, we note that a lower Supplies mix will likely impact operating margin looking forward while the PC business in FY20 will face difficult compares in FY20 as HP laps the Win 10 refresh cycle tailwind. We are therefore adjusting our rating to In Line and lowering our Target Price to $19 due to the lack of near-term catalysts. “Raymond James upgraded La-Z-Boy to ‘outperform’ from ‘market perform’Raymond James said in its upgrade that the company has a “strong” balance sheet and a dividend that continues to increase. “Recognizing that we do not live in a vacuum, we acknowledge that China tariffs and potential recession worries combine to frighten some to the sidelines. Accordingly, we are using our less-than- strongest rating, not for lack of conviction, but on the supposition that investors may need to be patient while the market comes to recognize LZB’s value. That said, La-Z-Boy’s balance sheet is strong with no funded debt and the dividend has increased each year since 2013. In addition, the host of retail earnings over the last two weeks seem to point to a healthy U.S. consumer. “Guggenheim downgraded Macy’s to ‘neutral’ from ‘buy’Guggenheim said in its downgrade note that it no longer sees headwinds “abating.” “While we respect management’s attempts to move fluidly in the ever-evolving retail environment, we no longer see the secular headwinds facing the company abating. .. .Overall, while we continue to believe the company has attractive real estate assets, we are moving to the sidelines on the shares. While we would welcome additional store closures and further debt paydown, with tariffs looming large, we have limited visibility into M’s ability to sustain and/or grow earnings in 2020. “Guggenheim named Nike as a ‘best idea’Guggenheim said that concerns over tariffs and market conditions have pushed Nike stock lower and created a compelling entry point. “While we acknowledge NKE’s current robust multiple, with the current global uncertainty, we believe investors should embrace NKE’s 1) strong recent results (both reported and in CC), 2) focus on DTC/digital, 3) supply chain improvements/diversification, and 4) the company’s robust innovation pipeline. Additionally, we believe NKE is one of the best-positioned names in our group to mitigate tariff risk through potential price increases. “Morgan Stanley upgraded Altria to ‘equal weight’ from ‘underweight’Morgan Stanley upgraded the stock and said it sees a more balanced risk-reward for the tobacco company. “Upgrade to EW as our thesis has largely played out, MO has materially underperformed the S&P 500, and we see a balanced risk-reward. Risk to US cigarette fundamentals appears to be increasingly priced in at a 48% discount to Consumer Staples (10.9x 2020 P/E; 8.2x on the core business). ”

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