As the earnings reporting season draws to a close, many companies were able to deliver solid results despite pressures on consumer spending.
Investors seeking stocks that can withstand short-term pressures and deliver over the long term should track the recommendations of top Wall Street analysts.
Bearing that in mind, here are three stocks favored by the Street’s top pros, according to TipRanks, a platform that ranks analysts based on their past performance.
Take-Two Interactive Software
This week’s first pick is game developer Take-Two Interactive Software (TTWO). In August, the company reported better-than-expected adjusted earnings for the first quarter of fiscal 2025.
Recently, Baird analyst Colin Sebastian reiterated a buy rating on Take-Two Interactive stock with a price target of $172. The analyst is upbeat about the company’s upcoming releases and expects its bookings to increase by at least 40% in the next fiscal year following mid-single-digit growth this year.
Sebastian’s robust bookings growth estimate is backed by the expected release of key titles – Civilization VII, Borderlands 4 and the much-anticipated Grand Theft Auto VI (GTA VI). Moreover, he expects the company’s new console/PC releases to deliver about $2.25 billion in incremental bookings. He anticipates the mobile business will contribute around $3.1 billion, and catalog/live services will generate $2.5 billion in the full year.
While management has expressed high confidence in its ability to release GTA VI next year, the analyst thinks that any potential delay between two fiscal years would have a limited impact on TTWO’s two-year earnings path. He expects this vital release to generate about $3 billion of bookings in the first year, while enhancing the company’s financial flexibility with over $2 billion in free cash flow.
“Beyond the next 12-24 months, Take Two should benefit from the long-tail of live services/catalog sales and further depth in the pipeline with sequels to Red Dead, BioShock and Max Payne, and perhaps new 2K sports franchises,” said Sebastian.
Sebastian ranks No. 286 among more than 9,000 analysts tracked by TipRanks. His ratings have been profitable 56% of the time, delivering an average return of 12.8%. (See TTWO Ownership Structure on TipRanks)
Costco Wholesale
Baird analyst Peter Benedict is bullish on the prospects of membership-only warehouse chain Costco Wholesale (COST). Earlier this month, Costco reported a 7.1% rise in its net sales for the retail month of August (the four weeks ended Sept. 1).
Excluding the impact of changes on gasoline prices and foreign exchange, Costco’s August comparable sales also grew 7.1%. Benedict noted that the August comparable sales growth was sequentially steady compared to the 7.2% increase in July, as stronger traffic was offset by some moderation in average traffic growth.
Benedict increased his Q4 fiscal 2024 EPS estimate to $5.10 compared to the Street’s consensus estimate of $5.07 per share to reflect better-than-expected sales in the fiscal quarter. “COST’s traction with consumers continues to stand out against an increasingly challenged spending backdrop,” said the analyst.
Benedict highlighted that the company delivered solid core comparable sales growth yet again and displayed persistent strength in the non-foods area, even as there is continued softness in discretionary categories across most of the retail sector.
The analyst thinks that Costco’s “growth staple” appeal remains intact, thanks to its consistent performance, store network expansion, encouraging membership key performance indicators and the recently announced fee hike. He reiterated a buy rating on COST stock with a price target of $975.
Benedict ranks No. 30 among more than 9,000 analysts tracked by TipRanks. His ratings have been successful 71% of the time, delivering an average return of 16.1%. (See COST Options Trading on TipRanks)
Netflix
Streaming giant Netflix (NFLX) is the third pick for this week. Despite macro pressures and intense competition in the streaming space, the company has been able to impress investors with its crackdown on password sharing and the rollout of an ad-supported tier.
JPMorgan analyst Doug Anmuth contends that while “advertising is not in NFLX’s DNA” and the company is creating the ad tier from scratch, it has the ability to emerge as a major ad player as scale and monetization grow in 2025 and beyond. He estimates that ad revenue, excluding the subscriptions component, will account for more than 10% of the company’s revenue in 2027.
The analyst acknowledges that the scale of Netflix’s ad tier currently lags behind that of peers like Amazon, which gained from automatically including its Prime members in its ad-supported tier. That said, he is confident that Netflix can boost its scale by making changes in plans and pricing, bundling offers and providing live content that has extensive appeal.
Anmuth further explained that while Netflix’s ad tier is dilutive to its overall average revenue per member, the impressive 150% growth in the company’s upfront ad sales commitments, greater scale and improved focus on ad formats and ad tech should drive higher monetization.
Overall, Anmuth is optimistic about Netflix’s ability to grow its top line in the mid-teens this year and in 2025, further improve its margins, and deliver multi-year free cash flow growth. He reaffirmed a buy rating on NFLX stock with a price target of $750.
Anmuth ranks No. 99 among more than 9,000 analysts tracked by TipRanks. His ratings have been successful 61% of the time, delivering an average return of 17.7%. (See NFLX Financials on TipRanks)
Source: Investing - cnbc.com
