Wall Street Buzz: Gap and elf Beauty Shine, While Palo Alto Networks Faces Headwinds
Wall Street analysts were busy dissecting earnings reports and market trends on Thursday, with some stocks attracting more attention than others. Gap received an upgrade from Morgan Stanley, elf Beauty enjoyed a bullish outlook from Baird, and Palo Alto Networks encountered skepticism from Redburn Atlantic.
Key Takeaways:
- Gap’s positive earnings momentum persists, making it a favorite retail pick. Morgan Stanley upgraded the stock to "overweight", highlighting the company’s "long runway for positive rate of change" and attractive valuation.
- elf Beauty boasts strong brand momentum and expansion potential, presenting a compelling buy opportunity. Baird raised its rating to "outperform," citing the brand’s healthy growth and market share gains, despite potential headwinds from China tariffs.
- Palo Alto Networks faces pressure amid concerns over generative AI’s impact on growth. Redburn Atlantic downgraded the company, suggesting that the initial boost from AI investments might be short-lived and that growth in the cybersecurity space could slow down.
Gap’s Rise: Earnings Momentum Fuels Optimism
Morgan Stanley’s upgrade of Gap to "overweight" reflects the firm’s confidence in the company’s continued earnings momentum. Analyst Alex Straton highlights Gap’s "greatest fundamental recapture opportunities," both in terms of topline growth and profitability.
Straton believes that Gap’s stock is currently trading at an attractive entry point, with a potential upside of 26.4% based on his $29 price target. He also expects the company to continue exceeding earnings per share estimates in the near term, which could lead to a temporary valuation re-rating.
"GPS is one of few Retailers where we see a long runway for positive rate of change under new mgmt," Straton stated. "GPS is one of few Retailers where we see a long runway for positive rate of change under new mgmt," Straton stated. This optimism stems from Gap’s recent performance, where the company consistently surpassed quarterly EPS estimates for the past 5 consecutive quarters.
elf Beauty’s Bright Outlook: Strong Brand Momentum and Expansion Drive Growth
Baird’s upgrade of elf Beauty to "outperform" is fueled by the analyst’s belief in the brand’s strong growth trajectory. Analyst Mark Altschwager cites "healthy brand momentum," ongoing distribution expansion, and "significant international whitespace" as key factors supporting the company’s market share gains and premium earnings growth.
Altschwager also acknowledges that potential incremental China tariffs under a potential Trump administration could pose a risk to elf Beauty’s growth. However, he believes that the company’s demonstrated pricing power and attractive pricing relative to its peers would mitigate this risk.
While elf Beauty’s shares have experienced a recent dip, Altschwager sees this as a temporary setback and maintains a bullish outlook for the company. His price target of $230, representing a potential upside of 34.7% from Wednesday’s close, underscores his confidence in the company’s future prospects.
Palo Alto Networks’ Challenges: Generative AI’s Impact on Growth Sparks Concerns
Redburn Atlantic’s downgrade of Palo Alto Networks to "neutral" reflects cautious optimism about the company’s future growth. Analyst Nina Marques suggests that the initial boost from generative AI might be transitory and could result in a growth slowdown in the cybersecurity services market.
Marques also notes that the deflationary impacts of generative AI and increased competition could put pressure on future growth within the cybersecurity sector. This is particularly relevant for Palo Alto Networks, which has witnessed a significant climb in its share price year-to-date, even as growth among AI-driven cybersecurity winners slowed.
While Palo Alto Networks’ recent platformization strategy has led to several deals and a shift towards a stickier customer base, Marques believes that consensus expectations for a sharp reacceleration in growth might be unrealistic.
"Near-term expectations have been reset after the announcement of Palo Alto’s ‘platformisation’ strategy," Marques said. "However, consensus expects a sharp reacceleration in dollar growth from FY26 onwards, which we view as unlikely," the analyst added. "We view Palo Alto more defensive as it is skewed to a stickier customer base and a wider moat."
The analyst’s downgrade highlights the need for investors to closely monitor how generative AI will reshape the cybersecurity landscape and its potential impact on companies like Palo Alto Networks.
