Wall Street Analysts Weigh In on Medical Device Maker and Value Retailer
The stock market saw mixed signals from analysts this week, with one medical device maker receiving an optimistic outlook while a discount retailer faced a bearish downgrade. Piper Sandler initiated coverage of Abbott Laboratories with an overweight rating, citing an attractive opportunity and potential for growth. Meanwhile, JPMorgan downgraded Five Below to sell from neutral, expressing concerns about the retailer’s ability to navigate a challenging economic environment.
Key Takeaways:
- Abbott Laboratories received an overweight rating from Piper Sandler, who see an attractive entry point with potential for growth in the coming years.
- Five Below was downgraded to sell by JPMorgan, who cite a difficult economic landscape and challenges for the value-focused retailer.
- JPMorgan’s downgrade is a notable outlier in Wall Street sentiment, as most analysts remain optimistic about Five Below.
- Abbott Laboratories has lagged the broader market this year, offering a potential buying opportunity for investors looking for undervaluation.
Piper Sandler Bullish on Abbott Laboratories
Piper Sandler analyst Adam Maeder initiated coverage of Abbott Laboratories with an overweight rating and a price target of $131, representing a potential upside of 14%. While Abbott shares have underperformed the broader market this year, Maeder sees a compelling opportunity for growth. "With ABT trading at 22.3x consensus 2025 adj. EPS, we see an attractive entry point into what we believe is one of the higher quality large-cap medtech names," Maeder stated in his research note.
Maeder acknowledged headwinds from lawsuits related to baby formula that allegedly caused necrotizing enterocolitis in preterm infants. However, he believes these challenges are short-term in nature, and the company’s long-term growth prospects remain strong. "We see a pathway to durable HSD top-line growth and expect ABT to return to double-digit adj. EPS growth in 2025 (and there forward)," Maeder stated.
He also highlighted Abbott’s consistent dividend and its strong track record in recessionary environments. "We couple this financial profile with a consistent dividend and solid past track record in recessionary environments and, ultimately, we see a versatile large-cap name that’s undervalued," he added.
JPMorgan Turns Bearish on Five Below
JPMorgan analyst Matthew Boss sent a shockwave through the market by downgrading Five Below to underweight from neutral, citing challenges in the face of a difficult economic environment. Although Boss raised his price target to $95, reflecting 5.2% downside from Wednesday’s close, he believes further downside is likely.
"In a period of heightened economic anxiety, we see the consumer turning to more ‘needs’-based products, which puts FIVE in a vulnerable position," Boss stated in his research note. Boss highlighted that Five Below’s product basket has seen declining sales year-over-year for all but one of the last 10 quarters. "We view continued margin headwinds driven by higher labor costs as key hurdles that highlight the challenge of righting the course of the business through pricing and product," he added.
He also underlined the significant impact of inflation and rising interest rates on consumer spending, making it challenging for value retailers like Five Below to maintain their competitive edge. "While FIVE has historically benefitted from the value-oriented consumer (esp. as a discretionary category alternative), we see the current environment challenging the discretionary spend of the value-oriented consumer, as they seek more essential goods and services," he concluded.
A Notable Outlier
JPMorgan’s bearish stance is a significant outlier in the current sentiment surrounding Five Below. Most analysts polled by LSEG have buy-equivalent ratings, with none previously rating the stock as underperform or sell. Despite the downgrade, Five Below’s stock performance has been particularly weak this year, plummeting approximately 53%. The company’s ability to navigate the turbulent economic landscape and regain its competitive position will heavily influence its future prospects.
