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Wall Street analysts downgrade Cisco, Dollar General, Vroom, Shift stocks

Yahoo Finance Live anchors discuss Wall Street analysts downgrading shares of Cisco, Dollar General, Vroom, and Shift.

Video transcript

- Welcome back. For our first call of the day, we are locked in on a sell rating being slapped on Cisco ahead of the company's Wednesday earnings release. That call comes from Citi's Jim Suva, who is concerned about supply chain challenges and market share losses. Suva is the only analyst on Wall Street with a sell rating on Cisco.

I applaud his dedication to his craft and his willingness to stick his neck out there. But look, all signs point to a potentially weakish quarter when Cisco reports earlier in the week. We've seen-- of course, we talked about earlier in the show weakness out of China, a key market for Cisco. We've seen challenging economic conditions here in the US and in Europe. So I understand his call from Jim, certainly, into earnings.

- And they're reporting, what, on Wednesday you said. Yes.

- Yeah, and you talk about pull forward in demand. I mean, Cisco, Webex, any telecommunications company that had seen so much of the partnerships or the major deal making for their sales units actually come forward because of the pandemic and the number of people that were using some of those solutions for collaborative purposes. And now you see, as people are coming back to the offices, that's still relied on.

But how much are they actually upselling into that client base? And for cost management that many of those partnerships or those clients may be going through, does that mean that they're going to pull back for an extended period of time on the additional purchases or whether that be licenses or products that they use from Cisco? Yeah, those shares, by the way are down about 27% year to date.

Like most everything, they've bounced from the lows, right? They're up only about 11% from the lows. So, a little bit of optimism from the market going into the earnings.

- Big week of earnings.

- Big week. Also, let's take a look at another call. Checking in on Dollar General here, BMO Capital Markets downgrading the store chain to market perform as the firm believes that Dollar General's valuation is close to peak levels on recessionary comps.

The title of this letter was breaking up is hard to do, and unfortunately, priced for perfection is what they added on to here. So the new targets that they had put out there, $265 it looks like, and particularly here from [INAUDIBLE], saying that they're downgrading the company because they think that the valuation is close to some of these peak levels on the recessionary comps as we mentioned. But it's still a strong play right now if you're looking at Dollar General or Dollar Tree depending upon where some of not just the earnings results for this most recent quarter come in.

I believe Dollar Tree is reporting next week, and we'll get even more data out of the mind of the consumer from these reports that come forward in retail this week to really see exactly where they're spending most of their dollars, if you will. And so for Dollar Tree, Dollar General, I think that's exactly where you've got to keep an eye on is how they're also moving through inventory even if at a lower price level.

- Yeah, and this note brings up a good point. So they're calling out-- you probably see a good consumer strength, sales strength at Dollar General. But they're concerned about Dollar General being sucked into this discount, this discounting that's going on in retail. And if Dollar General has a discount from $1 to $0.25, that's not good for merchants.

- Well, Dollar General isn't just dollars.

- It's not just-- OK, $1.50.

- And Dollar Tree started charging above $1.

- Yeah, they're above $1.

- Yes, yes.

- [INAUDIBLE] activist pressure.

- Dollar General-- Dollar on the name of Dollar General is more figurative--

- Yes.

- --than literal--

- That is correct.

- --I believe--

- That is correct.

- --at this point.

- You're on the mark.

- So that's--

- Should be Value General.

- Yes. We should watch-- but we should definitely watch the--

- Value General.

- --margins at that company. All right, and let's talk about online used car platforms because Vroom and Shift are being hit with a downgrade JP Morgan as the analyst there continues to see a challenging backdrop for the used car industry broadly. Analyst Rajat Gupta downgrading both companies to underweight from neutral. And by the way, both of these stocks, it's not like they're up.

Both of these stocks are down sharply for the year to date. I think in the case of Vroom, it's about 80%, and shift is down more than 60% this year thus far. So you know, it's-- hit a man while he's down, I suppose.

And so the analysts here are saying that there might be better opportunities within the used car business as things start to improve. He says, we prefer companies that have ample liquidity and/or diversity in their business to navigate an uncertain macro backdrop. So effectively, he's saying that these are some of the weakest positioned players in this industry.

- Yeah, clearly JPM just downshifting into first gear in both of these names. But yes, that is that's a takeaway from reading this note, Julie. I don't think-- the analyst team at JPMorgan just doesn't trust the fact that these companies can make it through without another capital raise. And you look at Vroom, I remember that stock came to market under much fanfare. Both these stocks-- I mean, they're essentially penny stocks now.

- Well, the question among the consumers too is, if I'm going to buy a used car and it's already going to see a much higher price year over year and year over two then I would have been accustomed to and perhaps I'm not even getting the same type of warranty, type of guarantee from that dealership as I could get on a new car as long as you can find the new car and its on the lot, then that is just a cost comparison that any consumer would naturally go through, and that's going to directly hit a Carvana, a Vroom, car lots.

And so, you know, all of them are navigating where they've got inventory as well and the amount of backlog that they're also able to not just get off the lot but then have more customers continue to come back and make purchases at higher levels on perhaps a lower demand at those levels. I think that continues to just be that near-term headwind that they haven't been able to solve for.

- Yeah. In the meantime, JPMorgan says it likes bricks and mortar car dealers because they have stronger free cash flow.

- Like Joey down the block. They like that independent owner. There we go. Or I guess, AutoNation.

- They got some good deals down the block.

- Yeah, down the block.