The 3 Hottest Stock Downgrades From Last Week

Stocks to sell

Wall Street’s leading analysts have been adjusting their S&P 500 forecasts in recent days. Driven by potential Federal Reserve interest rate cuts, strong performance from large technology companies and solid corporate earnings growth, analysts expect the S&P 500 to consolidate its gains above 5500.

According to LSEG data, collective S&P 500 profits are expected to increase by approximately 10.7% from the previous year to $495.7 billion, surpassing the 8% growth seen in the first quarter. Evercore ISI strategists have attributed the positive outlook to the transformative effects of the post-pandemic economy. Also, they cite the advent of generative artificial intelligence (AI). The latter is anticipated to propel the market even further in the next six months. 

As valuations move higher, certain sell-side analysts have adjusted their stock-specific ratings lower. It reflects a more balanced risk-reward at the current levels. Let’s examine the three hottest stock downgrades from last week.

Palantir Technologies (PLTR)

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Palantir Technologies (NYSE:PLTR) is a data analytics company specializing in big data integration and analysis. The stock rallied strongly this year due to the company’s AIP (Artificial Intelligence Platform). It enhances decision-making by combining AI with large-scale data processing.

Still, Monness, Crespi and Hardt issued a downgrade call for Palantir Technologies’ stock. It moved its rating from neutral to sell and set a price target of $20.00. The firm cited a “Nuclear Winter” in the software sector, noting broad challenges during recent earnings seasons for enterprise software companies.

Despite industry challenges, Palantir Technologies has revised its full-year revenue forecast upward slightly to $2.68 to $2.69 billion. The earlier was $2.65 billion to $2.67 billion. However, this updated guidance still fell short of the analyst consensus of $2.71 billion. Additionally, the company projects yearly adjusted operating income to range from $868 million to $880 million. For Q2, Palantir Technologies expects revenue between $649 million and $653 million and adjusted operating income between $209 million and $213 million.

Analysts from Monness, Crespi and Hardt pointed to the recent earnings reports to highlight the industry’s difficulties. According to the research firm, even well-regarded companies haven’t been immune to the downturn. Thus, lower-than-expected performance leads to significant sell-offs in their stocks.

Apple (AAPL)

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Apple (NASDAQ:AAPL) saw its stock surge in recent weeks following better-than-feared quarterly results. And its AI-focused updates presented at the recent WWDC event helped as well.

Last week, Apple stock received a rating downgrade from Phillip Securities as it went from accumulate to neutral. Despite the stock downgrades, the firm raised its price target to $220, up from the previous $194.

Also, Phillip Securities adjusted its stance on Apple after reviewing the company’s recent share price performance. The new price target reflects an increased weighted average cost of capital (WACC) of 6.5% and a terminal growth rate of 3%. These changes are indicative of the firm’s revised expectations for Apple’s financial trajectory.

In addition, the broker modified its forecast for Apple’s product sales, specifically the iPhone. Estimates for iPhone unit sales have been increased by 8%. This adjustment is part of a broader revision of financial projections for Apple. Now, the firm expects a 5% increase in revenue and a 3% rise in profit after tax and minority interests (PATMI) for the fiscal year 2024.

Aerovate Therapeutics (AVTE)

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Aerovate Therapeutics (NASDAQ:AVTE) focuses on developing innovative therapies for rare cardiopulmonary diseases. Their lead product, AV-101, is an inhaled dry powder formulation of imatinib. It targets pulmonary arterial hypertension (PAH) to improve patient outcomes through enhanced efficacy and reduced systemic side effects.

AVTE received several stock downgrades last week, including from analysts at BTIG and TD Cowen. The moves were made following the announcement of disappointing clinical trial results for its drug candidate AV-101, which caused the stock to crash. BTIG downgraded the company’s stock from buy to neutral, while TD Cowen shifted its rating from buy to hold.

This lack of significant improvement led to the decision to terminate the Phase 3 segment of the study and the long-term extension study. So, the company’s management plans to release a full data analysis at a later and currently unspecified date.

Thus, TD Cowen’s downgrade reflects similar concerns, noting the discontinuation of Phase 3 development for AV-101. The analyst cited the contrast between the recent results and the previously encouraging efficacy signals from the Phase 2 IMPRES study.

On the date of publication, Shane Neagle did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Shane Neagle is fascinated by the ways in which technology is poised to disrupt investing. He specializes in fundamental analysis and growth investing.

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