Wall Street Buzz: Rivian’s Rally Faces Headwinds, UnitedHealth Soars on Cost Cuts
Analysts on Wall Street are weighing in on a range of companies, with the electric vehicle sector and healthcare giant UnitedHealth drawing particular attention. While Morgan Stanley raised its price target for Rivian following a strategic partnership, the investment bank also expressed caution about the EV maker’s long-term prospects. Meanwhile, Jefferies upgraded UnitedHealth to a "buy" rating, citing the company’s cost-cutting measures and favorable market conditions.
Key Takeaways:
- Rivian’s Rise May Be Short-Lived: Despite a recent surge in share price fueled by a $5 billion investment from Volkswagen, Morgan Stanley believes Rivian’s future could be brighter as a supplier of technology to other automakers than as a standalone EV manufacturer. The investment bank’s raised price target still implies a potential downside for the company’s shares.
- UnitedHealth Gearing Up for Growth: Jefferies upgraded UnitedHealth to a "buy" rating, citing the company’s cost-cutting initiatives that could lead to strong earnings in 2025. The analyst also highlighted a series of favorable external factors, including the resolution of political and regulatory overhangs, and the growth potential of Medicare Advantage plans.
- American Airlines Faces Headwinds: TD Cowen downgraded American Airlines to a "hold" rating ahead of the company’s upcoming earnings report, citing concerns about aggressive discounting and the airline’s exposure to oversupplied markets. The analyst also expressed concerns about the company’s ability to generate free cash flow and keep pace with its competitors.
Rivian’s Future: Supplier or Standalone EV Maker?
Morgan Stanley analyst Adam Jonas acknowledged the positive impact of Volkswagen’s investment on Rivian’s short-term outlook, but expressed skepticism about the company’s long-term viability as a standalone EV manufacturer.
"VW’s cash reduces near-term vol in the stock but it doesn’t change our view that Rivian may have a better future as a Tier 1 supplier/SDV ‘tech partner’ than as a stand-alone maker of EVs," wrote Jonas, who kept his overweight rating on shares.
Jonas cautioned that for Rivian to justify its current valuation, the company needs to demonstrate continued improvements in capital discipline, transparency in its earnings, and a credible path to generating $1 billion to $2 billion in free cash flow by the end of the decade.
UnitedHealth’s Cost Cutting Strategy Fuels Optimism
Jefferies analyst David Windley highlighted the cost-cutting achievements of UnitedHealth as a key factor driving his upgrade of the company to a "buy" rating. Windley noted that the company’s ability to tightly manage expenses could lead to impressive earnings in 2025.
"A major reason for our Hold position was a growing list of political/regulatory/self-inflicted overhangs," Windley said. "Over the past ~2 months, many have resolved or trended in UNH’s favor, notably the US Presidential election (most important, by far), competitors messaging conservative MA bid postures, Amedisys deal moving forward (key for capitated growth), Chevron Deference ruling, and UNH reportedly stopping pursuit of Steward’s Physician network (that was a bad look)."
Windley further emphasized UnitedHealth’s strong position in the growing Medicare Advantage market.
"UNH looks best positioned to capture the full economic opportunity of growth in Medicare Advantage plans," he added.
American Airlines Faces Challenges in a Competitive Market
TD Cowen analyst Thomas Fitzgerald expressed concerns about American Airlines’ ability to navigate the current market landscape, leading him to downgrade the company to a "hold" rating.
Fitzgerald noted that the airline’s aggressive discounting, driven by easing fuel prices, could negatively impact its earnings in the second half of the year. He also highlighted the airline’s exposure to oversupplied markets.
"Our checks indicate the airline has been aggressively discounting this summer as fuel prices eased. American’s network leaves it more exposed to the markets currently most oversupplied and less able to offset the higher cost environment," he wrote.
Fitzgerald raised concerns about American Airlines’ ability to generate free cash flow and attract investors. He cited the need for substantial investments in capital expenditures, as well as the need to finalize a new contract with flight attendants and hire a new chief commercial officer.
"These factors likely will push off the possibility of generating free cash flow in the medium term as well as the chance for shareholder returns," he said.
Looking Ahead
These recent analyst actions highlight the ongoing challenges and opportunities facing companies in various sectors. The performance of Rivian will continue to be scrutinized as the company navigates its transition from a standalone EV maker to a technology supplier. UnitedHealth appears poised for strong growth due to its cost-cutting measures and favorable market conditions. American Airlines faces a more uncertain path, as it grapples with aggressive competition and market oversupply. Investors will be keen to see how these companies perform in the coming months.