Three Downgrades That Shouldn’t Be Ignored 

Three Downgrades That Shouldn’t Be Ignored 

Analyst Downgrade These Dow Stocks Before Q1 Earnings 

The peak of the Q1 2022 earnings reporting season is less than two weeks away and the analysts' activity is heating up. This time around, however, the activity is more bearish than not with revenue, earnings,  and price target downgrades dominating the news. Three downgrades that we’ve focused on include Disney (NYSE: DIS), JPMorgan Chase (NYSE: JPM), and Visa (NYSE: V) which are all Dow components. 

What this means for the near term is downward pressure on the index with the possibility of a deep decline driven by downward revisions to earnings. What this also means is a chance for these stocks to outperform their consensus ratings because the bar has been lowered. The bar has been lowered due to mounting headwinds in the economy, the question the market needs to be answered is if those headwinds are impacting the outlook for earnings or if there is still an expectation for economic improvement in the back half of the year. 

Disney’s Price Target Is Trending Lower 

Disney got a price target reduction from Loop Capital and it is not the first the company has received over the past few months. Loop Capital did not issue a rating for the stock but lowered its price target to $165 compared to the $190 consensus. The consensus figure is about 38% above the recent price action but has been trending lower over the past 3 months and 1 month periods. This action comes in the wake of an investor day event that was largely met with optimism. The company revealed park revenue is up from the 2019 period and expansion projects are beginning to pay off which bodes well for the summer season. The caveat is that much of the revenue gains is due to pricing increases and that consumer activity may slow over the summer due to inflation and high gas prices. 

Shares of Disney have been trending lower over the past several quarters and appear to be headed back down to retest the most recent support level. That may happen before the next earnings report which is due out the first week of May. If the market is able to move higher from here, however, we expect price action to remain range-bound until the earnings report. Our targets for the top of the range are near $145 and $155. 

Three Downgrades That Shouldn’t Be Ignored 

JPMorgan Chase Is A Strong Hold 

JPMorgan Chase is still rated a strong Hold by the analysts' community but the trend in sentiment and price expectation is downward. The latest comes from Wells Fargo which maintained an Equal Weight rating while lowering the price target to $150. This compares to the $170 consensus target which is 25% above the recent stock price action. The takeaway is that sentiment is down from a Buy at the first of the year with a price target that is down in both the 3-month and 1-month comparison. In our view, unless the company has a really awe-inspiring quarter, this trend will continue. While revenue and earnings should be supported by rising interest rates, overall activity is expected to take a hit from rising rates and there is a possibility of a recession. In that scenario, shares of JPM are more likely to go down than up. 

Three Downgrades That Shouldn’t Be Ignored 

Sentiment Begins To Shift In Visa 

Sentiment in Visa has been far more stable over the past 3 months but that is beginning to change. Barclays came out with a new price target of $260 that is both below the consensus target and has the consensus edging downward in the 90 and 30-day comparisons. Barclays is still rating the stock at Overweight compared to the consensus of Buy but both of those ratings may change (for good or bad) after the company reports earnings. The next earnings report is scheduled for the last week of April, the analysts are expecting a small decline in revenue and we see the possibility of a miss. Rising prices may keep total sales volume growing but stimulus tailwinds are gone and transaction volume (based on our personal experience) is declining. 

Three Downgrades That Shouldn’t Be Ignored 

Companies in This Article:

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Walt Disney (DIS)$94.23-2.0%N/A66.30Buy$165.76
Visa (V)$196.64-1.3%0.76%31.32Buy$266.24
JPMorgan Chase & Co. (JPM)$109.96-3.6%3.64%8.46Hold$159.33

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