We’re wrapping up Q3 earnings, and investors are starting to focus on Q4 happenings – which may cause some anxiety, considering recent history. Last year, Q4 saw a 9% collapse in the S&P 500, the worst market drop since the Great Depression. Michael Wilson, equity strategist with Morgan Stanley, sees a definite possibility for a repeat, especially in light of the ongoing US-China trade war: “The bottom line is that without a significant roll-back of existing tariffs, we don’t see [a change in] the currently negative trajectory of growth in both the economy and earnings.”
If Wilson is right, then now may be time to sort the grain from the chaff in your portfolio. We’ll take a look at three stocks that are getting sell-side recommendations from Wall Street’s analysts. And as for the rest? As usual, TipRanks has a tool to find the keepers – after you read up on some stocks to unload, check out the Best Stocks to Buy.
Webster Financial Corporation (WBS)
New England-based Webster is a holding company, owning Webster Bank along with related insurance, lending, and finance companies and assets. The company’s largest segment, Webster Bank, has 177 branches in Massachusetts, Rhode Island, and Connecticut, as well as the adjacent Westchester County, New York. Webster Bank provides both business and consumer services in banking, mortgages, financial planning, and investments.
In its Q3 2019 earnings release, WBS reported a 2.6% revenue increase, to $310.5 million, as well as growth in loan business to $1.2 billion and account deposit growth of 5.8% to $1.3 billion. Despite the good news, however, there was a slip in EPS from $1.06 last year to $1.00 in the current quarter. Along with the EPS slip, WBS shares are down 2.41% year-to-date.
This stock’s shaky situation has Stephens analyst Matthew Breese decidedly bearish. In his recent report on WBS, Breese wrote, “As one of the most asset sensitive banks in the Northeast, we believe Webster has a challenging 12-18 months ahead… Considering how WBS is set up for the current interest rate environment… we believe anticipated margin pressure is enough for the stock to underperform.”
Breese gives this stock a Sell rating along with a $42 price target, indicating his belief that it will show a considerable downside, 12%, in the coming year. (To watch Breese's track record, click here)
Looking at the TipRanks' stock analysis on WBS, we find that the stock is negative on both the technical and fundamental indicators. The 20-day moving average is lower than the 200-day, a sign that the stock is trending down, while the stock’s asset growth is a low 9.32%. Also important to note, insider activity on this stock is decidedly negative, with insiders unloading more than $200,000 worth of WBS shares in the last three months.
Breese is more bearish than most on WBS. The analyst consensus here is a Hold, based on 3 Holds and 1 Sell set in the last three months. The stock is trading for $48, and the $46.67 average price target implies a 3% downside.
Cullen/Frost Bankers (CFR)
Another financial holding company, Cullen/Frost controls over $33 billion in assets. All of the company’s operations are in the state of Texas, underscoring the sheer size of the second largest state. As with most large, full-service banks, Cullen/Frost provides banking, investment, and insurance services to both business and individual clients and account holders.
CFR posted an earnings beat in its recent Q3 report, showing $1.73 EPS against the forecast of $1.69. While the 2.4% beat was welcome news, EPS was down 5 cents compared to the year-ago quarter. Quarterly revenue, at $365.8 million, was in-line with the estimates, and 3.5% higher than last year’s Q3. The stock is up 6.3% year-to-date, which makes sense considering the solid earnings.
On the negative side, CFR’s expenses were up even more steeply than the revenues. Non-interest expenses leapt up 7.8% in the last 12 months, reaching $208.9 million.
The sharp jump in expenses was on the mind of Wedbush analyst Peter Winter, when he took the step of downgrading CFR from Hold to Sell. Winter wrote, “While most banks are looking for ways to slow expense growth in a tougher revenue environment, CFR has no plans to curtail investment spending as they believe it will lead to long-term gains. As a result, they will incur some near-term pain as 2020 expense growth will increase north of 8%...” Winter expects the ‘pain’ of high expenses to continue into 2021, and to push EPS down for the next three years. In line with his bearish stance, Winter cut his price target on CFR by 6%, to $82. This implies a 12% downside. (To watch Winter's track record, click here)
Ultimately, the word on the Street points to a sidelined majority on CFR. In the last three months, the stock has landed 2 "buy," 2 "hold," and 2 "sell," ratings. It’s clear that Wall Street is largely divided between the bulls, bears and the fence sitters when it comes to CFR's prospects. Meanwhile, the consensus average price target points to $92.17 -- a slight downside potential from Monday's closing price. (See CFR stock analysis on TipRanks)
With a $16 billion market cap, CenturyLink is the largest of the stocks in this list. The Louisiana-based tech firm cloud and communication services, network solution, and online security services. CenturyLink does $23.4 billion worth of business annually, in North America, Latin America, and the Asia-Pacific region.
Despite inhabiting a rich niche in the tech industry, CTL reported decidedly mixed results in Q3. Revenues, at $5.6 billion, were down 3.6% year-over-year but still beat the forecast by a slim 1%. EPS benefited from higher lower interest expenses in the quarter, and the 28 cents reported was significantly better than the 25 cents reported in the year-ago quarter. Even so, EPS missed the forecast by 1 cent.
Mike McCormack, 5-star analyst with Guggenheim, is less than impressed with CTL. In fact, he has downgraded his rating on this stock to Sell, with a low $10 price target suggesting a downside of 33%. He points out that CenturyLink will suffer from wireline downsizing at AT&T and Verizon, and writes, “When we wrote our 3Q19 preview, we noted that despite a hope that the macro environment was improving, our checks were indicating that little in fact was changing and that pricing remained under severe pressure… we don’t expect to see any fundamental improvement.” (To watch McCormack's track record, click here)
In overall stock performance, CTL is down 0.6% in 2019, while the 12-month asset growth has declined by 11.78%. Return on equity for the trailing 12 months is a stunning -43.34%. This is a company whose momentum is turning downwards, and quickly.
Similarly to CFR, the stock received 2 "buys," 2 "holds," and 2 "sells" in the past three months, giving it a consensus rating of Hold. The $13.60 average stock-price forecast indicates about 10% downside to the stock, declining from the current trading price of $15.06. (See CenturyLink stock analysis on TipRanks)