High Wall Avenue analysts again these shares as market notches file highs
Zoom founder Eric Yuan poses with members of his company in front of the Nasdaq building in New York as the screen shows the logo of the video-conferencing software company Zoom after the opening bell ceremony on April 18, 2019.
Kena Betancur | Getty Images
As the year winds down, the stock market continues to break record after record. After a historic month for the S&P 500, the index hit a fresh high this week on continued optimism related to a coronavirus vaccine, marking its 28th record close this year.
Contributing to the positive investor sentiment, initial jobless claims for the week ending November 28 were lower than expected. However, this is not to say that it’s smooth sailing from here, as there is significant uncertainty surrounding the next stimulus package from lawmakers.
“I do think that we will have a deal, but the problem is the market is already anticipating it,” Blue Line Futures President Bill Baruch commented. “Now I am bullish, and I think the path of least resistance is higher for stocks, but one thing again is, what are the markets’ expectations?”
At the same time, the number of coronavirus deaths exceeded 2,800 for the first time this week, according to a tracker from Johns Hopkins University.
So, in the current economic environment, how can investors find compelling plays? By following the activity of the experts with a history of getting it right. TipRanks analyst forecasting service tracks analyst ratings to find the analysts with the highest success rate and average return per rating. These metrics take the number of ratings issued by each analyst into consideration.
Here are the best-performing analysts’ five favorite stock picks right now:
Wall Street’s fourth best-performing analyst, Oppenheimer’s Brian Schwartz, is backing Salesforce’s stock after it announced that it will acquire Slack Technologies for $27.7 billion enterprise value or roughly 20x 2022 sales. On December 2, the five-star analyst maintained a Buy rating and $265 price target, indicating 18% upside potential.
The acquisition was met with dismay from the Street, but Schwartz argued, “The deal is pricey but supports CRM’s long-term growth ambition.”
Expounding on this, the analyst said, “We believe long-term investors need to own the stock because of a large TAM, leadership positioning, and predictability. However, achieving and likely exceeding the fiscal Q4 growth targets will be required for a higher company valuation given the challenges and risks ahead from effectively integrating the operations, technology, products, services, and thousands of Slack employees.”
Additionally, the software company reported fiscal Q3 results, which showed “good growth and margins but missed investor expectations,” according to the analyst. Total revenue of $5.419 billion reflected a 20% year-over-year gain and beat the consensus estimate, with pro forma EPS also surpassing the Street’s forecast. However, total billings missed the consensus estimate for the first time in five years.
Schwartz added, “Management commentary was upbeat, but this is balanced by decelerating trends shown across the business and another leadership transition.”
Based on TipRanks’ data, Schwartz is tracking a 79% success rate and 32.5% average return per rating.
Ahead of its first Analyst Day in over three years on December 8, BofA Securities analyst Jason Kupferberg gave Fiserv his stamp of approval. To this end, he reiterated a Buy rating on December 1. In a further bullish signal, the top analyst bumped up the price target to $136 from $120, putting the upside potential at 18%.
Kupferberg thinks that the financial services technology provider will offer multi-year financial guidance for the first time since acquiring First Data in July 2019.
“This is an important event for sentiment (new CEO) and could be a positive catalyst for the stock, as investors gain greater visibility into each of FISV’s segments and the P&L outlook for the next few years. With regard to the multi-year guide (using 2021 as the base year), we believe the most likely scenario for internal revenue growth is for 6%-8% and adjusted EPS growth of at least low to mid-teens (following 22% in 2021), which could be a little higher depending on how much balance sheet deployment is included,” the analyst commented.
On top of this, Kupferberg expects FISV to provide an in-depth view of the size and scope of its e-commerce business and capital allocation strategy.
Reflecting another positive, shares are trading at a discount to the other “Deal Stocks” despite the stock’s recent outperformance, and Kupferberg argues the valuation gap will continue to narrow “as investors gain more confidence in the new CEO’s execution.”
With a 72% success rate and 17.9% average return per rating, Kupferberg is among the Top 100 best-performing analysts tracked by TipRanks.
Despite another estimate beating quarter, shares of Zoom fell 15% after the company reported fiscal Q3 2021 earnings on concern that its growth is moderating.
Looking more closely at the results, revenue of $777.2 million exceeded the $694 million Street forecast, while EPS of $0.99 beat the $0.76 consensus estimate. On an annualized basis, revenue grew 367% in the quarter, compared to a 355% gain in the previous quarter and 169% growth in Q1.
In response to the earnings release, on December 1, RBC Capital analyst Alex Zukin trimmed his price target from $600 to $550 (33% upside potential), but kept a Buy rating on the stock.
Zukin notes the company “meaningfully” surpassed expectations, and now has a “better grasp of underlying retention dynamics.” Although he estimates a material sequential decrease in gross and net bookings, he stated, “We believe the weakness was driven at least partially by increased seasonality and greater mix of SMB bookings, with greater possibility of a bounce back next quarter. Specifically, we see potential for outsized booking success in Q4 supported by a combination of sales incentive compensation plans (which are semi-annual in nature for enterprise reps) and traditional Q4-heavy enterprise buying cycles.”
When it comes to the long-term opportunity, “Zoom continues to be in the pole position to enable a remote and hybrid large enterprise workforce for years or even decades to come,” in Zukin’s opinion. He added, “On top of this, nascent product opportunities around the monetization of the consumer/gig economies have potential to provide a meaningful new act for the company, although this remains unproven.”
Zukin takes the 6th spot on TipRanks’ ranking, which is supported by his 78% success rate and 32.2% average return per rating.
Thermo Fisher Scientific
Thermo Fisher Scientific just updated its Q4 2020 and full-year guidance, with management now expecting further acceleration of organic growth in Q4 to 40%, compared to 34% in Q3, resulting in adjusted EPS of $19.17 for full-year 2020 (55% growth versus $12.34 in 2019). For Needham’s Stephen Unger, this development reaffirms his bullish thesis, with the analyst reiterating a Buy rating and $539 price target on December 2.
Unger had previously forecasted 29% organic revenue growth in Q4 and 2020 adjusted EPS of $18.37 (49% growth). Most noteworthy for the analyst, “TMO attributed the anticipated upside to higher organic growth by both the base business and COVID-19 response revenue (global sales of PCR-based tests and other products/ services, including COVID-19 vaccine and therapy development), which is now expected to remarkably contribute revenue of ~$2.4 billion (vs. ~$2 billion in Q3 2020).”
What’s more, the company highlighted the fact that vaccine and therapy development revenue gained in Q4, with “extremely robust” testing demand, including meaningful instrument orders, also observed.
The base business is also expected to post a mid-single digit increase compared to the previous expectation of low to mid-single digits, “which is a reflection of the ongoing recovery from the initial pandemic disruption,” according to Unger.
It should be noted that since the beginning of the pandemic, TMO shares have traded within the range of 23-27x the Street’s FTM EPS and has recently experienced weakness on investor concerns regarding the impact of vaccines on coronavirus testing. “We believe COVID-19 testing demand will remain strong through at least 1H21, regardless of the pace of vaccine distribution in developed countries, and TMO could very well surprise investors with year-over-year COVID-19 testing revenue growth in 2H21,” Unger explained.
Based on his 76% success rate and 37.6% average return per rating, Unger is the #203-rated analyst on TipRanks’ list.
This week, bargain retailer Five Below reported Q3 results and provided an update on trends for the chain, with investors cheering the solid showing.
In the quarter, EPS of $0.36 doubled from $0.18 in the prior-year quarter, beating the Street’s $0.20 call. Total company sales growth came in at 12.8%, compared to the 5.4% consensus estimate, and gross margins landed at 31.7%, versus 31.4% in the year-ago quarter.
Although management didn’t provide Q4 top line guidance, it did indicate that in fiscal Q4, gross margins should normalize to the 39–40% range (from 42.1% in Q4 2019) and SGA margins should deleverage by roughly 50 basis points, upon higher incentive costs and an assumption for a more normalized comparable store sales growth range.
Weighing in on the results, Oppenheimer analyst Brian Nagel opined, “Early in the coronavirus pandemic, we identified FIVE as well-positioned to management headwinds near-term and ultimately emerge from the crisis situated even better within a still shifting retail backdrop… FIVE represents one of the few remaining, larger retailers still aggressively and successfully opening new stores in new and existing markets.”
This prompted Nagel to reiterate a Buy rating and $140 price target on December 3.
Nagel is the 14th best-performing analyst, backed by his 79% success rate and 29% average return per rating.