Top Wall Street analysts think these stocks have more room to run
16 May 2021
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With fears of inflation on the rise, investors are searching for strategies to pinpoint compelling opportunities.
One such strategy is to look for stocks that appear underappreciated by the Street and have plenty of room to run. The following names meet the requirements and have the support of analysts with an impressive track record of success. TipRanks’ analyst forecasting service attempts to identify the best-performing analysts on Wall Street. These are the analysts with the highest success rate and average return per rating, taking into account the number of ratings each analyst has published.
Here are the best-performing analysts’ top stock picks right now:
When Carvana shares dipped lower in after-hours trading following its earnings release, Wells Fargo analyst Zachary Fadem was taken aback, noting “we are scratching our heads.” The online used car retailer, which has fallen 24% in the last three months, reported better-than-expected retail unit growth and beat his GPU estimate by 6%. It also posted a 50% narrower EBITDA loss than previously expected.
As such, Fadem reiterated a Buy rating. In addition, he left the $340 price target as is, suggesting 50% upside potential.
Fadem commented, “CVNA continues to fire on all cylinders as average weekly units stepped up by +1,600/week (vs. +600-700 in Q3/Q4) suggesting throughput bottlenecks are alleviating, demand remains elevated and underlying business productivity is also tracking better-than-expected.”
Looking ahead, the company is on track to accelerate revenue and unit growth. What’s more, in Q2, CVNA believes that revenue growth will exceed retail unit growth.
So, what is behind the recent pullback? Fadem points to a rising rate environment, the shift to value from growth as well as a higher valuation.
That being said, the analyst remains optimistic. Expounding on this, he stated, “Yet in our view, we would be hard-pressed to find a company of this size growing triple digits; and we see an attractive entry point for a long-term leader in a high growth, attractive category with considerable upward revisions on tap.”
Scoring a top-30 position on TipRanks’ list of best-performing analysts, Fadem boasts a stellar 78% success rate and 31.2% average return per rating.
With former chief financial officer Ray Winborne “passing the baton” to new CFO Mark McCaffrey, GoDaddy reported a beat-and-raise quarter, thanks to strong product execution across domains, commerce and web-pros initiatives.
On top of this, Deutsche Bank analyst Lloyd Walmsley says the fact that the customer cohort from the first quarter of 2021 looked similar to the size of the Q2 2020 and Q3 2020 cohorts suggests that most of his key concerns were addressed. To this end, the analyst reiterated a Buy rating and $89 price target (11% upside potential).
“One of our primary concerns exiting Q4 2020 results for the web presence space was whether new subscriber cohorts would shrink. This does not sound like it’s the case on either subscribers or the dollar size of the cohort. CFO Ray Winborne flagged that while they are seeing difference in demand around the world, there is a robust new business formation backdrop in the US,” Walmsley commented.
Additionally, domains revenue growth reached 19% year-over-year, and according to Walmsley, GoDaddy “positioned these results as a function of innovation, particularly within the aftermarket space which now represents a double-digit share of the business vs historically single-digit.”
The analyst added, “We believe there is room for further innovation in the segment through out the year as they look to experiment more here. As such, we believe the ‘double-digit’ full year guidance for the segment may prove conservative as it implies Q4 2021 would go negative assuming that they are able to effectively hold the 2-year stack in Q2 and Q3. We believe after market domains sales are booked as gross revenue and thus lower margin and somewhat less predictable.”
It should also be noted that there is a new $770 million repurchase authorization, but Walmsley doesn’t think the recent repurchasing activity implies a change to GDDY’s flexibly capital allocation strategy.
Based on his 66% success rate and 29.3% average return per rating, Walmsley is ranked #112 out of over 7,000 analysts tracked by TipRanks.
Select Medical Holdings
For RBC Capital analyst Frank Morgan, Select Medical Holdings is a stand-out in the healthcare facilities and services space. With this in mind, the analyst maintained a Buy rating as well as increased the price target from $42 to $45. This puts the upside potential at 26%.
“SEM‘s diversified post-acute platform appears very well positioned to continue driving solid growth over the next few years,” Morgan wrote.
The analyst specifically highlights the company’s inpatient businesses as key points of strength. Looking at its CIRHs, occupancy, volume and rate growth have held up strong, fueling 19% top-line growth.
“The company continues to benefit from its demonstrated high-acuity patient care capabilities, leading to increased business with new and existing referral sources. While higher agency hourly staffing rates continue to pressure the SWB line, the segment drove solid margin improvement on the top-line performance, and SEM has not needed to institute bed-holds,” Morgan told investors.
On top of this, according to management, hourly rates appear to be dropping and its IRF segment has delivered a solid performance, with top-line growth of 14% and 310 basis points of margin expansion.
Although there were some concerns about how the fading of the Covid-19 pandemic will impact this area of the business, management isn’t expecting a slowdown. Based on Medicare data, there are roughly 325,000 to 350,000 patients who are eligible for the services that SEM’s facilities provide. However, every year, there are only 69,000 discharges industrywide, which implies that the penetration of the total addressable market is relatively low at 20%.
“Additionally, SEM has proven its ability to provide care for some of the most complex patients, so management expects acuity (and pricing) to remain high,” Morgan said.
When it comes to SEM’s outpatient segment, it improved significantly in March and April. As such, given the “the strong start to the year with continued momentum in CIRHs and IRFs, and the improving trends in Concentra and Outpatient Rehab,” Morgan thinks SEM’s adjusted EBITDA guidance range “could still prove conservative.”
A 70% success rate and 23.3% average return per rating result in a #73 ranking on TipRanks’ list for Morgan.
Following a strong first quarter for the online sports betting company, Northland Capital analyst Greg Gibas reiterated a Buy rating. In addition, the five-star analyst left his $70 price target as is, implying that shares could gain 66% from current levels.
In Q1 2021, DraftKings generated $312.3 million in revenue, reflecting a gain of 175% year-over-year and beating the $237 million consensus estimate. Additionally, the B2C segment saw revenue of $280.8 million, up 217% year-over-year.
According to management, the impressive business-to-consumer showing was driven by a 114% increase in monthly unique payers (MUPs) to 1,542, which came as a result of “strong unique payer retention and acquisition across the DFS, OSB, and iGaming segments.”
Gibas added, “Average Revenue per Monthly Unique Payer (ARPMUP) increased to $61 from $41 a year ago, which was positively impacted by increased user engagement with iGaming and mobile sports betting product offerings, in addition to successful cross-selling efforts.”
Given the way DraftKings kicked off the year, management bumped up the revenue guidance for 2021 from $900 million-$1 billion to $1.05 billion-$1.15 billion. This would reflect a 63% to 79% gain from 2020.
It should be noted that during the most recent quarter, DKNG launched mobile sports betting and iGaming in Michigan as well as mobile sports betting in Virginia. Gibas also points out that so far in 2021, “25 state legislatures have introduced legislation to legalize mobile sports betting, five have introduced legislation to expand existing sports wagering frameworks and one introduced legislation to legalize retail sports betting.”
“We expect this legislative momentum to continue for the remainder of 2021 and beyond,” Gibas said.
Based on data from TipRanks, Gibas has achieved a 49.4% average return per rating and a 59% success rate.
TuSimple, which provides autonomous technologies designed specifically for semi-trucks, just got a thumbs up from Oppenheimer’s Colin Rusch. Less than a month after its April 15 initial public offering, the top analyst initiated coverage of the stock with a Buy rating and $55 price target (52% upside potential).
“While still a development stage company, we view TuSimple (TSP) as the global leader in autonomous trucking leveraging integrated hardware, motion planning and control algorithms, and infrastructure to address key pain points within the transportation and logistics (T&L) sector,” Rusch said.
This vertical integration, according to Rusch, “is unique and essential to the success of the platform.” Additionally, TuSimple has over 3.7 million miles of on-road testing and 6,775 customer reservations.
What’s more, the company is working to address labor issues, as Rusch points out that driver shortages have posed a significant challenge for the industry and have in part led to driver wage inflation increasing at a rate faster than any other dollar per mile cost.
“We expect TuSimple’s subscription rate to represent a 10% to 15% discount relative to the dollar per mile rate charged by traditional freight carriers while alleviating one of the industry’s core bottlenecks,” the analyst commented.
It should be noted that within the freight economy, “route density is a key driver of value/mile,” in Rusch’s opinion.
“Given the integration of terminals and route characterization underpinning TuSimple’s business, we believe a focus on high volume corridors is crucial to both adoption rates and earnings leverage in its multi-pronged business model,” the analyst added.
Rusch argues that it will also be important to watch for developments surrounding the rollout of its L4 trucks.
One of the five best-performing analysts on the Street, Rusch boasts a 60.5% average return per rating and a 61% success rate.