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5 big analyst cuts: Block has 'limited upside potential,' per UBS

Investing.com -- Here is your Pro Recap of the biggest analyst cuts you may have missed since yesterday: downgrades at Block, Stem, General Mills , FMC, and Agiliti.

InvestingPro subscribers got this news first. Never miss another market-moving headline.

Block slashed at UBS due to dampened growth profit prospects

Block (NYSE:SQ) was downgraded to Neutral from Buy at UBS, which also sharply cut the shares' price target to $65.00 from $102.00.

The analysts believe Block’s gross profit growth will likely decelerate in the second half of 2023 and throughout next year due to a softening in consumer discretionary spending, a decreased growth rate of Cash App monthly active users, and moderation of Cash App monetization rates.

UBS says that, despite Block consistently improving its profitability and surpassing quarterly adjusted EBITDA expectations, investors are primarily concerned about the company's gross profit growth potential, commenting:

"This was most evident following the 14% decline in shares after Block exceeded Street adjusted EBITDA by 30% in 2Q/23, while pointing to slowing gross profit growth for 2H/23E. With a lack of catalysts in sight, and re-acceleration of gross profit growth unlikely, we see limited upside potential."

Shares were trading down in the premarket Wednesday, although recently they were off only marginally at $58.54.

Stem cut at Morgan Stanley

Morgan Stanley downgraded Stem (NYSE:STEM) to Equalweight from Overweight on Wednesday and cut its price target to $8.00 from $12.00.

The analysts said Stem remains their preferred choice in the energy storage sector due to its significant emphasis on high-margin software offerings. However, they expressed concerns about the company's ability to reach its targets of 65%-85% growth in service and software revenue and achieving an EBITDA-positive target by the second half of the year, based on year-to-date earnings.

General Mills downgraded ahead of Q1 earnings

Exane BNP Paribas downgraded General Mills (NYSE:GIS) to Neutral from Outperform on Tuesday, as reported in real time on InvestingPro.

The company is set to report its Q1/24 earnings on Sept 20. Street estimates stand at $1.09 for EPS and at $4.92 billion for revenues.

FMC stock drops on UBS downgrade

FMC (NYSE:FMC) shares fell more than 4% Tuesday after UBS downgraded the company to Neutral from Buy and cut its price target to $97.00 from $120.00.

"The speed of June quarter volume declines caught FMC, the industry, and ourselves off guard,” UBS said.

UBS noted that volumes dropped 35% year-over-year, a much steeper fall than the mild single-digit decline anticipated just two months prior. UBS also added that discussions with industry participants have indicated that this volume dip is likely a new normal rather than a temporary decline, thereby setting a reduced baseline for future earnings growth.

Agiliti plummets following BofA’s downgrade

Agiliti (NYSE:AGTI) shares plunged more than 11% Tuesday after BofA Securities downgraded the company to Underperform from Neutral and cut its price target to $11.00 from $18.00.

BofA expressed concerns over the company's limited visibility into short-term organic growth. Agiliti missed the consensus adjusted EBITDA estimate for Q2 and lowered its adjusted EBITDA guidance by 12%, attributing this to reduced usage of peak need rentals and elevated onboarding costs associated with newer contracts.

The analysts mentioned that it's unclear when utilization will stabilize and when the new contracts will achieve optimal margins. These challenges are expected to continue for at least the next six months and may last even longer, likely causing Agiliti to underperform compared to other companies in the sector.

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