As earnings season finishes out, Merrill Lynch chimes in on GoPro Inc (NASDAQ:GPRO) and NVIDIA Corporation (NASDAQ:NVDA) after and ahead of their respective third-quarter financial results. When looking at GPRO’s long-term, the analyst believes the company’s product launch miss hinders long-term investor sentiment, leading to a bearish downgrade and price target slash. Meanwhile, with confidence in long-term EPS “power,” the analyst indicates a bullish forecast for NVDA and sees these shares as a tremendous opportunity for investors. Let’s dive in:
GoPro shares were continuing a downward dip yesterday of 5% after investors were disappointed by what Merrill Lynch analyst Jason Mitchell deems a third-quarter “miss” delivered November 3rd of last week. In reaction, the analyst downgrades to an Underperform rating on shares of GPRO while slicing the price target from $17 to $10, which represents a 6% downside from current levels.
The action camera giant came up short with both revenue of $241 million and EBITDA of ($74 million) by a “wide margin” when compared to the Street’s projection for revenue of $313 million and EBITDA of ($40). From Mitchell’s eyes, GPRO’s troubles lie in its lack of third-quarter supply for Hero5 Black units, stemming from challenges inherent in manufacturing. Additionally, the company has warned that for the forthcoming “critical holiday season,” the channel demand for fourth quarter is also about to suffer from supply limitations.
On a more optimistic note, Mitchell commends corporate intentions to cut operating expenses (OpEx) by $100 million in the financial year of 2017 to minimize cash burn and attempt to gain momentum back to a path of profitability.
However, in wake of the company’s underperformance, the analyst has pulled back on revenue and EBITDA estimates for the financial year of 2017, reducing revenue from $1.77 billion to $1.59 billion and lowering EBITDA from $59 million to $47 million, as he does not foresee the Hero5 will “outpace” the Hero4 camera. Additionally, the analyst has reduced outlook for the financial year of 2018.
Therefore, Mitchell affirms, “We are downgrading to Underperform as GoPro will miss the opportunity to fully capitalize on its new product cycle and drive a hero sized 4Q. With guidance still implying a 4Q of roughly 50% of FY16 revenue, we think investors will still see risk to guidance and likely keep GoPro in the penalty box until the focus switches to cost cutting and new product cycles in FY17.”
Not only are new product launches impacted by GPRO’s manufacturing struggles, but likewise this could “potentially endanger holiday sales with its fan base, retailers, and new consumers,” the analyst assesses.
Morevoer, Mitchell believes, “With GoPro hitting issues on two holiday quarters confidence in GoPro’s ability to drive product growth will be challenged. GoPro needs to show execution and potential to grow unit shipments above FY14 levels to turn sentiment around.”
Overall, “GoPro still has the potential to grow revenues on its new product line, but a big quarterly miss, execution issues, and long term market sizing skepticism will likely overhang the stock for the next few quarters,” Mitchell contends.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, one-star analyst Jason Mitchell is ranked #3,642 out of 4,181 analysts. Michell has a 0% success rate and faces a loss of 21.5% in his yearly returns. When recommending GPRO, Mitchell loses 22.9% in average profits on the stock.
TipRanks analytics exhibit GPRO as a Hold. Based on 15 analysts polled in the last 3 months, 3 rate a Buy on GPRO, 9 maintain a Hold, while 3 issue a Sell. The 12-month price target stands at $11.42, marking a 7% upside from where the shares last closed.
Throughout a lot of this past year, NVIDIA shares have been surging ahead, and yesterday was no exception with shares on a 6% ascent. As the chip giant prepares to deliver its third quarter print on Thursday, October 10th, investor confidence remains at a high.
When Merrill Lynch analyst Vivek Arya looked to channel checks, he now remains as bullish as ever, with expectations for both a beat and raise on back of robust gaming and Pascal-based enterprise server launches. As such, the analyst reiterates a Buy rating on NVDA with a price target of $80, which represents a 12% increase from where the shares last closed.
For the near-term, the analyst looks to a 30% quarter-over-quarter expansion in third-quarter PC gaming sales and calls for an upside as the company sustains an over 83% capture of the market share in comparison with competitor AMD when looking at leading online retailers. In fact, Arya believes NVDA’s gaming power and “cycle longevity” are “underappreciated.” Though PC gaming is one of the giant’s best assets, Arya looks to the company’s data center business as a key driver.
Arya notes, “Expectations are high, following the 105% YTD stock move vs. the SOX index up 25%+ and NTM P/E expansion to 30x from 20x, YTD. Bulls likely want to see: 1) Path towards $3/sh in annualized or 70c-75c in quarterly EPS vs. consensus at 67c/65c for FQ3/Q4; 2) 80-100% YoY growth in data center sales implied by FQ3 sales/FQ4 outlook, with l-t bullish narrative around cloud/deep learning projects; 3) Self-driving opportunity beyond recent Tesla win; and 4) GM to stay at-least around 58% to indicate gaming strength not coming at expense of margins and that AMD competition is still not an issue.”
“We would recommend taking advantage of any volatility since we believe NVDA remains uniquely positioned to target the largest and fastest growing addressable markets – deep learning, gaming, virtual reality, and self-driving cars – in semis,” Arya concludes.
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Vivek Arya is ranked #222 out of 4,181 analysts. Arya has a 57% success rate and garners 11.7% in his annual returns. When recommending NVDA, Arya earns 46.6% in average profits on the stock.
TipRanks analytics demonstrate NVDA as a Buy. Out of 24 analysts polled by TipRanks, 13 are bullish on NVIDIA stock, 9 remain sidelined, and 2 are bearish on the stock. With a loss potential of 2%, the consensus target price stands at $69.66.