Top 3 Analyst-Downgraded Stocks: Tesla, Workday, Starbucks

Key Points

• Downgrades are relative to the price action and outlook: these stocks get price target reductions as the outlook is reset. 
• Tesla analysts have no conviction and see this stock trading in a wide range.
• Workday and Starbucks analysts operate in better alignment. Near-term headwinds impact the outlook, but the long-term growth outlook is solid. 

Investors should not ignore analysts' sentiment because it can profoundly impact a stock price direction. Upgrades naturally lift sentiment and lead markets higher, while downgrades can lower them. The caveat is that upgrades and downgrades are relative to the price action; a downgrade to Hold from Buy with a target that implies substantial upside isn’t the same as a downgrade to Sell and an expectation for substantial price decline. 

In the first case, sentiment has been reset but remains bullish; in the second case, a potential bull has given up hope and sees nothing but downside to come. This is a look at three leading names receiving negative analysts' attention that investors may want to buy. They may want to buy them because of the long-term opportunities and discounted prices today. 

Tesla is the Most Downgraded Stock on MarketBeat

Tesla NASDAQ: TSLA holds the dubious distinction of being the number one Most Downgraded stock tracked by MarketBeat. The stock has received twenty-eight negative revisions or downgrades in the last 90 days, lowering the consensus price target and putting the market on the brink of collapse. The downgrades are due to weak results, a tepid outlook for the year, and expectations for increased spending as the company invests in the next growth phase. That phase will be aided by AI and, fingers crossed, a lower-priced model that may be available next year. 

However, despite the position, Tesla analysts remain mixed regarding the company’s future and show no conviction in sentiment. The company is #1 on the Most Downgraded list, but there are numerous reiterated price targets, at least one increased target, and an upgrade in the mix. The takeaway is that Tesla is still ranked at Hold. The Hold rating has been steady for more than a year, and the consensus price target, which is lower, is only slightly lower than last year. At $185.60, it implies a low single-digit upside but some upside. The risk for investors is the Musk factor, including the current push for more pay and the upcoming earnings release. Due in mid-July, it will be a market-moving event. 

Workday Works Out a Deep Value Opportunity

Decreasing guidance warranted an analyst reset of sentiment, but the more in Workday NASDAQ: WDAY stock price is overblown. The stock shed nearly 20% on a round of analysts' revisions that reduced the consensus target by 3.5% and left it over 35% above the current price action. Some targets suggest additional downside, and the low was reiterated with a sell rating, but most targets range around and align with consensus. The post-release activity includes revisions of bullish outperform ratings and above-consensus price targets that suggest that consensus may be low. 

The reset was caused by a reduction in guidance to about $7.7125 billion in annual revenue. This is down about 0.5% or 50 basis points from the previous midpoint but aligns with consensus and equates to 17% growth year over year. At 17%, growth isn’t accelerating or decelerating but is expected to hold steady over the next two to three years, solid for a business trading at 31X earnings. 

Starbucks Analysts Put a Floor in the Market

Starbucks NASDAQ: SBUX shares corrected long before the Q1 report was released, resulting in a buy-the-news event despite the analysts lowering their price targets. 24 analysts lowered their price targets on Starbucks to range around and align with the consensus of $96. That target implies a 20% upside for this hold-rated stock, which is expected to bounce back. Near-term headwinds, including high inflation and interest rates, impact business growth in 2024, but a return to growth is expected by year-end and to accelerate in 2025. Technically speaking, the market is bouncing from solid support near $75, which aligns with the low end of the analyst's range. Assuming this level holds, the market should trend sideways within its range until growth is back in the results.