Wall Street showed ongoing — and understandable — frustration with Walt Disney ‘s (DIS) lackluster share-price performance, while retailer TJX Companies (TJX) and ecommerce giant Amazon (AMZN) are poised to see their stocks climb higher. Here’s a look at three Club holdings in the news Thursday, and the implications for our investment case in each. DIS YTD mountain Disney’s year-to-date stock performance. The news: KeyBanc downgraded Disney to the equivalent of a hold, from buy, citing “meaningful uncertainty” and a lack of positive catalysts for the media-and-entertainment giant’s stock. In a research note Thursday, the firm said investor expectations around Disney’s theme-park business may be too high, and argued that Disney+ and Hulu subscriber growth “has stalled.” KeyBanc also expressed concerns about ESPN’s move to streaming, away from the traditional cable-TV bundle, saying that transition is “materially harder than we initially thought.” The firm’s “worries in 2023 continue into the 2024 financial setup,” KeyBanc analysts wrote. The Club’s take: Disney has been a real laggard, climbing less than 2% so far this year compared with a roughly 14% gain in the S & P 500 . Over the past 12 months, Disney’s performance has been worse, falling nearly 8%. So, it’s easy to understand KeyBanc’s frustration with Disney’s stock. We’re frustrated, too. KeyBanc’s call does not change our view on the company, though, because it comes after sentiment has been sour on Disney for quite some time. Indeed, the firm acknowledges its downgrade “might call the bottom” in the stock, which is trading at a steep discount to its five-year average price-to-earnings multiple. Disney’s intellectual property remains unrivaled and, over time, the company’s market valuation should better reflect that quality. Moreover, losses at Disney’s streaming business are poised to narrow in the coming quarters. One positive catalyst that we see looming for Disney is reinstatement of its dividend, which was suspended during the Covid-19 pandemic. Management said last month that Disney could resume dividend payments in the “not too distant future.” TJX YTD mountain TJX Companies’ year-to-date stock performance. The news: Off-price is “one of the most attractive sectors in apparel retail,” according to Piper Sandler, which on Thursday initiated coverage of TJX Companies with a buy-equivalent rating and $110-per-share price target. The firm’s stock-price objective implies 32% upside from current levels, and appears to the highest among Wall Street analysts, according to FactSet. Piper Sander rates TJX’s off-price peers, Burlington Stores (BURL) and Ross Stores (ROST), the equivalent of hold. TJX, which operates HomeGoods, TJ Maxx and Marshalls, has “clear competitive advantages” with its close vendor relationships and distribution network. “Simply put, we think that TJX is the first call for many vendors” when they have excess inventory, analysts at Piper Sandler wrote in a note. Bigger picture, Piper Sandler argues TJX can grow faster than the broader apparel industry, due in part to taking market share from struggling mall-based retailers, and believes its pretax margin target of 10.6% by fiscal year 2025 “looks reasonable.” TJX is currently in the second quarter of its 2024 fiscal calendar. Separately on Thursday, UBS maintained its hold-equivalent rating on TJX, contending a decline in U.S. consumer spending will hurt the off-price retailer more than the market expects. The Club’s take: As we continue to keep our retail exposure light, TJX remains one of the best companies to own in the industry because it appeals to increasingly cost-conscious consumers. Piper Sandler also is right to highlight the profitability story at TJX, which is working to bring its pretax margins back to pre-Covid levels of around 10.6%. In the company’s fiscal year ended Jan. 28, that figure came in at 9.3%. Accomplishing that margin goal would be good news for earnings. The company’s guidance, which it raised in May , calls for fiscal 2024 pretax margins between 10.3% and 10.5%. While TJX has underperformed the S & P 500 so far this year, it’s been a strong performer over the past month, gaining around 8% en route to setting new all-time highs, including on an intraday basis Thursday. AMZN YTD mountain Amazon’s year-to-date stock performance. The news: Amazon’s upcoming Prime Day will generate about $5 billion in incremental revenue for the ecommerce giant, JPMorgan said Thursday. That would represent a roughly 13% year-over-year increase from Prime Day in 2022 , which drove $4.4 billion in incremental revenue. “Importantly, 2023 is tracking toward the fastest Prime delivery speeds ever, which we believe helps drive higher customer consideration [and] purchase frequency,” JPMorgan analysts wrote in a research note Thursday. Overall, JPMorgan expects Amazon to see elevated demand during the two-day shopping event, but cautioned its benefit to the company may be “more modest” than in the past due to macroeconomic pressures. Amazon remains JPMorgan’s top internet pick, with its $145 price target representing 12% upside from Wednesday’s close. Elsewhere on Thursday, Bloomberg reported that the Federal Trade Commission is preparing to file a wide-reaching antitrust lawsuit against Amazon. The complaint’s main focus is expected to be Amazon’s online marketplace, alleging the company punishes third-party merchants that don’t use its logistics services, according to Bloomberg, citing people familiar with the matter. The Club’s take: We’re betting on more upside in Amazon shares, as the company’s primary profit engine – cloud unit Amazon Web Services – sees its growth rate pick up later in the year thanks to generative artificial intelligence adoption. And Amazon’s North American retail operations are poised to be more profitable as a result of cost-cutting measures, which also supports our optimism around the stock. Prime Day is certainly a big test for Amazon’s ecommerce business. As for the FTC complaint, we haven’t seen the actual document yet, so it’s hard to comment directly on its reported allegations. But in general, we’re used to navigating the uncertainty around these actions as investors in multiple large-cap tech companies that are always in the regulatory crosshairs, including Google parent Alphabet (GOOGL). The FTC has filed three earlier cases against Amazon, including one last week claiming Amazon “duped” millions of people into re-enrolling in Prime . We haven’t found that to be true, and maintain that Prime’s value to consumers far exceeds its cost. To date, the impact of past FTC actions on the company hasn’t derailed the bull case. (Jim Cramer’s Charitable Trust is long DIS, TJX, AMZN and GOOGL . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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A sign near an entrance to Walt Disney World on May 22, 2023 in Orlando, Florida.
Joe Raedle | Getty Images News | Getty Images
Wall Street showed ongoing — and understandable — frustration with Walt Disney‘s (DIS) lackluster share-price performance, while retailer TJX Companies (TJX) and ecommerce giant Amazon (AMZN) are poised to see their stocks climb higher.
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