Looking at the nuts and bolts of a rising stock can be an interesting exercise for investors. Stock upgrades are the new opportunities that Wall Street's top analysts believe will bring the profits in coming months.
We've used TipRanks Daily Analyst Ratings to find the latest upgrades, and sorted through them for the most compelling buys. Their situations vary, as do the reasons given by the analysts for their improved stock ratings. But all show plenty of reason for optimism, and that makes them stand out in any market environment.
Comcast Corporation (CMCSA)
With the rapid rise of online streaming, you might not look at the cable company as your first choice for a go-to investment. But Comcast is here to prove you wrong. The largest company on this list, with a market cap of nearly $200 billion, Comcast also has the strongest rating and the highest potential upside. This is based on its position as the world’s second largest cable television provider and broadcasting company, and the largest cable and internet provider in the US market. Comcast is also the US’ third largest provider of residential landline telephone service. In short, it’s not just the cable company, it’s a telecommunications behemoth with firm position in a profitable business.
All of that lies behind Goldman Sachs analyst Brett Feldman’s decision, on July 10, to publish an upgrade to CMCSA’s status, moving the stock from neutral to buy, and boosting the price target 22% to $54. Supporting his upgrade, Feldman cites “the solid fundamentals, management’s financial flexibility, and upside from an attractive entry point.” Put simply, CMCSA is a fairly cheap cash cow.
Feldman was not the only analyst to give Comcast an improved outlook. Two weeks earlier, Pivotal’s Jeffery Wlodarczak also raised his price target to $54. In his comments, Wlodarczak said, “We view the current 12.4X ’20 free cash flow multiple for Comcast stock as quite attractive for an operator that controls the likely dominant fixed way most consumers/businesses will access the Internet for the foreseeable future.” The $54 price target suggests an impressive upside of 23% for this stock.
Shares in Comcast are, as Feldman noted, priced attractively. At $43, the stock is relatively cheap. The average price target, $49, indicates 13% potential on the upside. And with 9 buys and 2 holds given it in the last three months, CMCSA gets a strong buy rating from the analyst consensus.
Six Flags Entertainment Corporation (SIX)
Here's a wow! factor for you: Six Flags just got three upgrades in a row. This rarely happens; it's the market equivalent of being dealt a full house in five card draw. Drilling down, we can learn why the amusement park leader is surging in the market.
Few industries are more seasonal than amusement parks, as is obvious from a look at Six Flags’ quarterly earnings history:
The pattern is immediately clear: SIX reports losses in its fiscal first quarter, which encompasses the winter months when parks close down for weather and maintenance, rises rapidly through the summer and fall when park attendance and profits peak, and drops again in fiscal Q4. SIX will be reporting its Q2 earnings on July 24, and is expected to post an EPS of $1. In the previous quarter, despite the operating loss, SIX beat the expectations by 4.6%; that is, the parks did not lose as much as expected.
Heading into the earnings report, SIX has certain advantages: positive results from capital spending in the Membership 2.0 program, and good news on international expansion. According to Wedbush’s James Hardiman, “While none of these are a sure thing, any of them likely results in meaningful upside to SIX shares, particularly given the sell-off of the past year that has resulted in a discounted valuation with respect to the sizable dividend.”
The dividend noted by Hardiman yields a robust 6.15%; at the stock’s $53 valuation, the payout is $3.28 annually. Considering SIX’s background, share price, and dividend, Hardiman upgraded his rating on the stock from neutral to buy, as he expects it will outperform the market in coming months. His price target, $62, suggests upside growth of 16%.
Writing from Wells Fargo, Timothy Conder also upgraded his rating on SIX. Conder says of the stock, “Modest multiple re-expansion will come from potential upside catalysts of improved weather entering July-August months, upward Street revisions to China and improved understanding of tax related cash flow.” Conder adds that “Capital expenditure expensing combined with the ability to keep prior accelerated depreciation will minimize cash taxes to a greater degree than previously assumed.”
In line with his bullish outlook, Conder gives SIX a price target of $56. At just 5%, the upside is modest, but Conder sees the real value of the stock in the potential for Six Flags to increase its already generous dividend and boost share price through repurchases over the next five years.
SIX shares hold a strong buy rating from the analyst consensus, based on 5 buys and 1 hold given over the last three months. The average price target indicates a possible 11% upside to the current trading price of $53.
elf Beauty, Inc. (ELF)
At first glance, a discount cosmetic supplier catering to teens and young adults – and one with a 20% downside based on the share price and average price target – probably doesn’t seem like a good candidate for an upgrade. But simple share prices and targets don’t tell the whole story. Retail numbers play a major role in the consumer goods sector, and that is where elf Beauty just got a major boost.
The analysts have noted improved retail numbers for ELF in recent days, and have revised their projections accordingly. At the same time, investors have noticed the improved outlook, and the stock’s share price has gained 19%, pushing it right through the now-outdated price target.
The first analyst revision came from Andrea Faria Teixeira, of J.P. Morgan. On July 9, Teixeira noted that, “According to Nielsen data, which tracks against more than 2/3 of the company’s sales, consumption of ELF’s products increased +9.0% YOY in the 12 weeks ending 6/29/19, which is significantly ahead of the - 4% to - 8% decline [in] the company’s original guidance.” In line with this, she raised her outlook from neutral to overweight (equivalent to buy) and set a price target of $17. Her target may have been too low, as the stock’s gain since her upgrade has pushed the share price right up to it.
DA Davidson’s Linda Bolton Weiser had already rated ELF a buy, but with the retail performance news, she bumped her price target up by 18%, to $19. She backed her higher target with the retail data, which showed that “sales … increased 14.6% in the final week of June and 13.6% in the 4 weeks ended on June 30th relative to last year, a vast improvement from the 1.8% decline registered for 2018.” Weiser’s new price target suggests room for a 12% upside to ELF shares.
ELF is an excellent example of a stock in transition. The company just reported good sales figures, the analysts have done their part to disseminate it, and investors are acting accordingly – but the average data still reflects last week’s conditions, and the old price target of $13.50 would suggest a 20% downside. The current share price, $16.95, reflects buying activity from the past two days, after the sales numbers went public.
The analyst consensus reflects the same, with 3 buys, 4 holds, and 1 sell giving ELF a moderate buy. The next few days will show if the stock’s new conditions will hold up, or if the analysts were too optimistic.
Fundamental strength, seasonal earnings gains, and unexpected sales success – the reasons for a stock upgrade are never predictable, but always logical in hindsight.
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