Given the current financial landscape, how can investors spot compelling plays?
One strategy is to look for stocks that boast strong upside potential through 2021 and beyond. The names highlighted below fit the bill, according to analysts with a proven track record of success. TipRanks analyst forecasting service attempts to pinpoint Wall Street’s best-performing analysts, or the analysts with the highest success rate and average return per rating. These metrics take the number of ratings published by each analyst into consideration.
Here are the best-performing analysts’ top stock picks right now:
Chewy
Following a beat and raise fiscal first quarter, Evercore ISI analyst Mark Mahaney remains optimistic about Chewy’s long-term growth prospects. Calling the online pet products retailer a “double trick pony,” the five-star analyst kept a Buy rating on Chewy stock. In addition, he gave the price target a slight boost, with the figure moving from $105 to $106 (37% upside potential).
Looking at the details of the print, the company reported revenue of $2.14 billion, which was up 32% year-over-year and beat the $2.12 billion consensus estimate. Meanwhile, EBITDA came in at a record high of $77 million, which implies an EBITDA margin of 3.6%, another record for Chewy. What’s more, gross margin reached an all-time high of 27.6%, compared to the Street’s 25.6% call.
As for the outlook, management guided for Q2 revenue of $2.15 billion-$2.17 billion, besting analysts’ $2.13 billion forecast. The guidance for FY21 revenue was also bumped up by $50 million.
However, net additions for the quarter slightly missed the Street’s estimates and reflected a deceleration from fiscal Q1 2019. Mahaney points out that this deceleration is likely related to “the Churn impact from the record COVID cohort in FQ1:20, as most of the cohort attrition happens in its first year.”
It should be noted, though, that the COVID cohort has delivered a better retention rate compared to cohorts from the last few years. Additionally, new customer additions are still higher than pre-pandemic levels. Therefore, management argues that there wasn’t a “pull-forward effect” on the 2020 cohort, and that spending for the cohorts will increase on a year-over-year basis.
“This is a solid print with all the right signals for strengthening fundamentals and a sustainable growth story. We think management offered a solid explanation to the relatively soft Net Adds this quarter, and we view the consistent-to-improving Year 1 retention and NSPAC profile of Chewy’s COVID cohorts as well as continued elevated Gross Adds trends above pre-pandemic levels as evidence of the permanent change in consumer behavior driving a sustainable secular tailwind of Pet spend going Online, with Chewy’s continued expansion into private label and health care further expanding the company’s TAM and Margin upside,” Mahaney opined.
To support his top 25 position on TipRanks’ list of best-performing analysts, Mahaney sports a 70% success rate and 47.7% average return per rating.
Square
Since Deutsche Bank’s Bryan Keane upgraded Square to Buy at the end of 2016, he argues the company “has morphed into a two-sided financial ecosystem that continues to expand TAM and beat expectations and we see continued momentum on the horizon.” Add in the “sustainable faster growth post pandemic,” and the analyst is surprised that the stock is trading at a discount to several other growth tech plays.
To this end, Keane reiterated a Buy rating and $330 price target. This target puts the upside potential at 47%.
Explaining his bullish stance, Keane commented, “We believe SQ remains well positioned to benefit from the accelerated adoption of digital financial services, software-based business solutions, and omni-channel capabilities spurred by the COVID pandemic. Cash App continues to significantly outperform as SQ has been able to attract new customers and engage existing customers while simultaneously improving monetization and product adoption.”
In the first quarter of 2021, gross profit for the Cash App surged 171% year-over-year due to the ramping growth in Cash Card and a strong performance in terms of business accounts. As such, Keane believes that gross profit growth for the Cash App in Q2 could land at 102% year-over-year.
When it comes to the Seller portion of the business, Keane believes that it will “likely see strong global growth as the company continues to expand its service offerings especially to larger merchants.” In April alone, Seller GPV gained 144% year-over-year and the company estimates that Seller gross profit grew more than 135% year-over-year.
“We believe SQ has the potential to accelerate growth globally as the company continues to expand its software and financial services offerings. The company will continue its focus on expanding the Seller market to drive incremental business into the platform and plans on expanding Seller marketing spend by 45%-plus year-over-year while doubling the size of the sales team in 2021,” Keane noted.
In FY21, margin expansion will depend “primarily on the strength of top-line growth as the company has signaled that it intends to invest heavily across its ecosystems in order to grow customer base, drive product adoption, and increase spending power.”
Keane added, “We expect margins will benefit through the remainder of the year from improving high margin Seller volumes and Capital as well as easier comps offset by investments and strong growth in Cash App.”
With a 77% success rate and 23.3% average return per rating, Keane earns a #202 ranking.
ZoomInfo
BofA Securities analyst Koji Ikeda came away from ZoomInfo’s recent analyst day with his bullish thesis very much intact. With this in mind, the top analyst left his Buy rating and $70 price target unchanged. Given this target, the upside potential comes in at 43%.
During the event, the tone was “positive,” in Ikeda’s opinion, with management discussing the value proposition, the go-to-market strategy, new offerings like recruiting, its Insent acquisition and expanding partnerships and integrations.
“The highlight of the session, in our view, was management’s bullish $2 billion revenue target for 2025, which represents a 2020-2025 growth CAGR of 33%, and suggests the business delivering durable, above software industry revenue growth (i.e., mid-20s) for the medium-term,” Ikeda stated.
When it comes to the company’s go-to-market strategy, management is planning to increase its sales capacity as well as its investments in enterprise and international sales motions, “which are still relatively early and could drive potential upside to future revenue as the strategies scale,” according to Ikeda.
It should also be noted that ZoomInfo’s TAM is now forecasted to be $52 billion, well above the $24 billion when the company IPO’d, thanks to an expansion in core intelligence and new additions like data management, chat, recruiting and Engage.
“We believe that ZoomInfo has established itself as a next-generation customer engagement platform, and has successfully added multiple growth levers to the platform with new products (organically and inorganically) that should enable the business to grow at an above average growth profile over the next five years… We believe ZoomInfo’s growth/profitability profile is best-in-software-class (Rule-of-80+), and appears sustainable, which can act as a solid anchor for long-term investors,” Ikeda cheered.
The analyst adds that even though “the business will likely be acquisitive in the future,” its strategy for M&A “should remain consistent with past practice, and management has a good track record of integrating acquisitions.”
More than earning his #184 ranking, Ikeda boasts a 79% success rate and 38% average return per rating.
SPX Corporation
Shares of SPX Corporation, an infrastructure equipment provider, have fallen roughly 4% since the company revealed its $645 million divestiture of the Transformer Solutions business on June 9.
Despite the dip, Oppenheimer analyst Bryan Blair is still standing in the bull camp. To this end, the five-star analyst reiterated a Buy rating and $72 price target, suggesting 21% upside potential.
Explaining his bullish thesis, Blair stated, “Although we understand that dilution (in this case, -$0.89 vs. prior 2021 outlook) screens negatively in isolation, we believe the initial market response neglects the transformational upside of the deal as higher-quality SPX is now positioned to significantly accelerate flywheel value creation going forward. In the end, we would be extremely surprised if management pursued the transaction without line of sight to offsetting dilution over the reasonably near term.”
Looking at the pro-forma impact of the deal, it would boost the company’s normalized core growth to GDP-plus levels, increase gross margin by about 450 basis points and reset segment margin to approximately 17%.
Additionally, the transaction would result in a net cash position of $170 million for SPX. So, with the addition of free cash flow generation, the company’s near-term deal capacity should land at $650 million-$930 million.
For 2025, SPX is targeting $2 billion in sales, “with strategic M&A driving two thirds of growth (over $100 million annual contribution vs. ~$80 million average over the last three years).” What’s more, segment margin is expected to expand by 300 basis points to 20%, and adjusted operating margin is set to reach 16%, reflecting a gain of 450 basis points.
Blair commented, “We are very confident that SPX has the organic and inorganic levers in place to compound earnings/cash flow growth and reach 2025 targets.” He added, “Combining SPX’s improved core growth/ margin profile and compounder prospects, we continue to view SPXC as an ideal core SMID holding.”
As evidence of his impressive track record, Blair has achieved a 72% success rate and 25.3% average return per rating.
Cardlytics
During its very first Investor Day, Cardlytics, an advertising platform for banks that utilizes purchase intelligence, offered more clarity regarding its recent initiatives like the self-service platform and new UI, along with details surrounding its international operations.
“Our key takeaway is that these strategies should increase penetration in new market segments (i.e. CPG, grocery & SMB) and geographies while driving engagement within the core FI base and growing base of FinTechs,” Wells Fargo analyst Timothy Willi told investors.
Noting that CDLX is one of the firm’s “Signature Picks,” the top analyst maintained a Buy rating. In addition, the $150 price target remained as is, implying 43% upside potential from current levels.
According to Willi, investors could see the wider rollout of the company’s self-service platform fuel “a material billing contribution from agencies in 2022 while increasing penetration in the SMB market and reducing time to market.” The analyst added, “Reflecting this opportunity, management indicated that roughly half of digital advertising comes from agencies, which have historically had minimal contribution to the business.”
As for the updated UI, at US Bancorp, the solution has led to a 50% increase in rewards visits and activation rates, with website visits also growing 5x higher.
It should be noted that the UK is still dealing with COVID-induced headwinds, but Willi remains optimistic as “open banking has created opportunity for CDLX outside of the bank channel such as the recently launched roll-out of Nectar Connect coalition program (~19 million users) by Sainsbury, the second largest grocer in the UK.”
Management also pointed out that along with a higher win-rate, the company has delivered a robust performance in the telecom category of eCommerce and Subscription, entered into the gas and convenience market with Chevron and sees potential within the grocery and CPG spaces. “While travel continues to lag, the company’s hotel relationships remain solid and its new relationships w/ online travel agencies should provide a boost to the business,” Willi said.
Summing it all up, Willi stated, “We continue to highlight CDLX as one of our top picks in the FinTech space, based on its significant market opportunity, leverage to a recovering global economy, and unique value proposition to a broadening set of marketers, which we view as drivers of strong multi-year growth and multiple expansion.”
Based on data from TipRanks, Willi is tracking a 76% success rate and 26.4% average return per rating.
Source: Investing - cnbc.com
