30 Sep

Lyft Stock: Why Are Cramer and Wells Fargo at Odds?

WRITTEN BY Anuradha Garg

Lyft (LYFT) stock has fallen nearly 43% compared to its IPO price of $72. The stock has been hitting new all-time lows lately. The major sell-off in the stock started after its second-quarter results on August 7. Since then, the stock has fallen about 33%. The company recorded strong revenue growth and beat analysts’ estimates. However, investors have been wary of loss-making companies. Likewise, Uber (UBER) stock has fallen 33% compared to its IPO price of $45. Uber’s second-quarter results were worse than Lyft’s results.

Analysts are positive on Lyft and Uber

Despite all of the negatives, analysts are positive about these companies’ prospects. To learn more, read Why Uber and Lyft Have Analysts Feeling Positive.

Lyft and Uber have “buy” ratings from 64% and 63% of the analysts covering them. Analysts’ target prices imply upsides of 75% and 60% for Lyft and Uber, respectively. Any new initiation on these stocks is usually a “buy.” On August 26, Guggenheim upgraded Lyft stock from “neutral” to “buy.” Analysts were more positive due to the company’s EBITDA prospects. Read Lyft Stock Rises on Guggenheim Upgrade—More Upside? for Guggenheim’s detailed thesis on the stock.

Deutsche Bank and HSBC’s views on Lyft stock

Deutsche Bank (DB) initiated coverage on Lyft with a “buy” rating on September 5. After a steep fall in the stock price, Deutsche Bank thinks that the stock might be bottoming out. Read Is Lyft Stock Bottoming? Deutsche Bank Thinks So for more on Deutsche Bank’s thesis.

HSBC also upgraded Lyft and Uber from a “hold” to a “buy” rating on September 16. The bank thinks that most of the stocks’ regulatory concerns are already priced in. Read Uber and Lyft Get Upgrades as HSBC Sees 30%+ Upside to learn more.

Wells Fargo gave Lyft stock an “outperform” rating

On September 27, Wells Fargo (WFC) initiated coverage on Lyft with an “outperform” rating and a target price of $60. As reported by CNBC, Wells Fargo sees long-term opportunities in the stock. The analysts see an upside in Lyft stock, as reported by CNBC, based on:

  • faster-than-expected revenue growth for the company
  • upward revisions in the EBITDA and contribution margins
  • profitability and growth in Lyft’s new businesses

As reported by Business Insider, Wells Fargo;s analyst team, led by Brian Fitzgerald, thinks that it will come down to how much market share the company can grab from Uber. According to the report, the bank said, “A substantial number of companies are developing autonomous vehicle technology that could represent direct competition to current LYFT business model, including Alphabet (Waymo), Apple, Baidu, Uber, and Zoox.”

Jim Cramer’s thoughts

Jim Cramer, CNBC’s Mad Money host, isn’t so optimistic about Lyft’s prospects. During a lightning round on CNBC on September 26, Cramer said, “People have nothing but losses on it, so it might become literally a tax-loss play between here and year-end.” Tax-loss selling usually refers to investors selling loss-making investments to set off the capital gains realized against other investments. The selling helps investors reduce their overall tax burden.

While Wells Fargo and Cramer are at odds regarding Lyft stock’s upside potential, analysts seem to love the stock. Read Have Lyft and Uber Stocks Bottomed Out? to learn about Lyft and Uber’s prospects after they almost reached their all-time lows.

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