Amazon and Tesla are 'conviction' picks at Wells Fargo - but only one's bullish

By Emily Bary

Citigroup and Starbucks among Wells Fargo's bullish 'high-conviction' stock picks for the new quarter, while Bill Holdings and Sirius get flagged on the bearish side

Shares of Amazon.com Inc. and Tesla Inc. are among Wells Fargo's "high-conviction" picks for the second quarter, but the analysts there see those stocks heading in different directions.

Amazon's stock (AMZN) advanced 28% in the first quarter, and analyst Ken Gawrelski thinks the stock can continue its charge higher. He's upbeat about the company's potential to drive further expansion of its North America retail margins thanks to a change in the fee structure for Fulfillment by Amazon (FBA), a program that lets third parties use Amazon logistics functions.

The changes are "structured to incentivize sellers to send new FBA inventory to multiple [Amazon fulfillment centers], distributing it through the network, the cost of which was previously borne by AMZN," he wrote in a Monday note to clients. Further, sellers could respond by moving more toward Seller Fulfilled Prime, a service that he says is more profitable that FBA.

He has an overweight rating and $211 price target on the stock, with that target implying 20% upside from Thursday's close, which was the last session before the publication of the Wells Fargo note.

Meanwhile, Tesla's stock (TSLA) is a "high-conviction" pick at Wells Fargo as well, but on the bearish side. "We see moderating delivery growth driven by lower demand & diminished return on price cuts," analyst Colin Langan wrote in that Monday report.

(The company missed the mark with its first-quarter delivery numbers, sending its stock lower in Tuesday action.)

He flagged a "flattening" of electric-vehicle adoption in the U.S. and the E.U., while the company also faces stiff competition in the China market. Overall earnings per share could show a "deterioration" this year, according to Langan, as the company deals with the effects of price cuts and operating-expense increases.

Langan rates Tesla's stock at underweight with a $125 target price. That was 29% below last Thursday's closing level. Tesla shares lost 29% in the first quarter.

Other bullish conviction picks at Wells Fargo include shares of Citigroup Inc. (C) and Starbucks Corp. (SBUX). Citi's investor day in June should help reassure investors of the bank's ability to meet its financial goals, while Starbucks could be at a bottom, despite its stock being out of favor, according to the Wells Fargo team.

On the bearish side, calls include Bill Holdings Inc. (BILL) and Sirius XM Holdings Inc. (SIRI) Analyst Andrew Bauch downgraded Bill's stock to overweight from equal weight, warning of growing competition and the possibility that Wall Street is underestimating the extent of investments that the back-office automation company needs to make in order to maintain its growth. For Sirius, analyst Steve Cahall sees pressure on the audio company's fundamentals.

-Emily Bary

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04-02-24 1114ET

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