It looks like we’re back to a market roller coaster.
The first question, of course, is what spooked investors? After two weeks of mass protests devolving into riots, the coronavirus spiked again – but this time, Treasury Secretary Mnuchin has said that in light of recent experience, there will be no further lockdowns imposed from the Federal level, and even in blue states, public pressure is mounting to reopen economies.
Credit Suisse US equity strategist Jonathan Golub sees last week’s slide as a pullback, nothing more. He notes, “…the factors that boosted the market in recent weeks are still almost entirely in place: a flood of liquidity from the Fed, what’s expected to be better incoming economic data, and consumers and corporations adjusting to life and business in a coronavirus world. Together, they point to improving corporate earnings and justify high valuation multiples.”
In line with Golub’s upbeat look at the market’s forward prospects, Credit Suisse’s stock analysts have been publishing their Top Picks for the rest of the year. We’ve used the TipRanks database to unpack the details on three compelling stocks – each with substantial upside potential.
TreeHouse Foods (THS)
First up is TreeHouse Foods, a $2.6 billion food processing company based in Illinois. The company markets private label brands in a wide range of food products – pasta, baby food, dairy, snacks – to a worldwide customer base. TreeHouse’s niche is secure, and the essential nature of the company’s products allowed it to weather the coronavirus storm.
In the first quarter THS showed positive earnings that beat the forecast. The company reported 37 cents EPS, against estimates of 32 cents. Revenues, too, were above expectations at $1.08 billion. While the Q1 revenues were down sharply from Q4, that was part of the expectation – historically, THS’ lowest-earning quarter is the calendar first.
Backing his stance, Moskow writes of fours points that indicate strength for the stock. His first two points are particularly worth noting: “1) Retail tracking data indicates private label food and beverage grew 22% in the 4- weeks ending April 4, which outpaced branded growth of 19%; 2) We estimate at least 80% of TreeHouse’s categories are geared toward stronger at-home food consumption, especially pasta, broth, single-serve coffee, and snacks…”
Overall, THS shares have a Strong Buy rating from the analyst consensus, showing that Wall Street agrees with Moskow’s assessment. The rating is based on 8 Buys and 2 Holds set in the past month. TreeHouse shares are selling for $48.08, and the average price target, at $57.25, is almost as bullish as Moskow’s, implying an upside of 19% this year. (See TreeHouse stock analysis on TipRanks)
Delta Airlines, Inc. (DAL)
Next up is the world’s second largest airline, Delta. Delta boasts a $19.5 billion market cap and ended 2019 with $47 billion in annual revenue. Despite the heavy hit the travel industry has taken due to the coronavirus pandemic, Delta’s position is secure. The company operates nine US hubs and several regional subsidiaries. This firm foundation will allow the company to rebound as the pandemic restrictions are, hopefully, lifted in 2H20.
Delta managed to beat the earnings expectations in Q1, reporting at 51-cent loss per share, instead of the 72 cents forecast, but that is expected to deepen in the second quarter, to more than $4.
To meet the crisis, Delta made moves back in March to shore up its liquidity. This has been a priority in the airline industry, as expenses remain – aircraft maintenance, fuel, labor, etc. – but revenues are far, far, down. Delta drew $3 billion from its revolving credit facility back in March, and in April announced both a $1.5 billion issue of senior secured notes and a further $1.5 billion in a new credit facility. Delta has also suspended its share buyback and dividend programs for the time being, to preserve cash for operations.
Credit Suisse’s airline expert Jose Caiado is bullish about the company’s ability to survive the current crisis. He writes, “The current Coronavirus crisis represents the most severe crisis in airline industry history, and not even the strongest balance sheets such as DAL were able to navigate it without government assistance and recapitalization. Following the latest proactive actions to shore up cash balances, we believe that DAL’s current liquidity should prove adequate to bridge to a return in demand, later in 2020.”
Caiado gives DAL shares a $42 price target to back his Buy rating, implying a one-year upside of 38%. (To watch Caiado’s track record, click here)
Delta’s Strong Buy analyst consensus rating comes from 11 reviews, breaking down to 9 Buys and 2 Holds. DAL shares have an average price target of $38, indicating a possible premium of 25% from the $30.46 current share price. (See Delta stock analysis on TipRanks)
KBR, Inc. (KBR)
Houston-based KBR is primarily a government contractor. The company, which provides, construction, engineering, and support services for public sector, energy, and petrochemical sectors around the world, is the largest private contractor hired by the US government in Iraq. KBR also holds numerous logistic contracts supporting the US military in Afghanistan.
Contracting for Uncle Sam is big business, and has helped to support KBR’s earnings. The company beat the forecast in Q1, reporting a 39-cent EPS against the estimated 37 cents. KBR also reported, in Q1, an operating cash flow of $41 million and described an existing $500 million revolving credit facility as ‘essentially untapped.’
Jamie Cook, in his notes on KBR for Credit Suisse, writes, “KBR’s government business offers above average earnings visibility, reflective of the long-term nature of the contracts and stable cash flow… Recently, KBR’s stock has overcorrected, in our view, despite significantly reduced and de-risked energy exposure. We believe KBR should trade more in line with the Government Services peer group rather than the energy exposed names.”
Cook rates KBR shares a Buy along with a $31 price target. This shows his confidence in a 21% upside potential. (To watch Cook’s track record, click here)
KBR has the distinction of a unanimous analyst consensus rating – 8 Buys give it a Strong Buy from the Wall Street analyst corps. It’s the lowest priced stock on our list here, trading at $25.67, and the $29.38 average price target implies an upside potential of 14.5%. (See KBR's stock-forecast at TipRanks)
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