Earnings season provides food for thought for analysts as they learn more about the impact of macroeconomic challenges on businesses.
Although Wall Street watches short-term stock movements driven by quarterly results, top analysts have their eyes on companies’ long-term prospects.
With that in mind, here are three stocks favored by the Street’s top professionals, according to TipRanks, a platform that ranks analysts based on their past performance.
Netflix
Netflix (NFLX) is this week’s top pick. The streaming giant reported better-than-expected results for the first quarter of 2024. However, investors were disappointed by the company’s decision to stop publishing quarterly subscriber figures. The company said it is focusing more on revenue and operating margin metrics.
Following the first quarter release, BMO Capital analyst Brian Pitz reaffirmed a Buy rating on NFLX stock with a price target of $713. The analyst highlighted the company’s addition of 9.3 million subscribers, well above BMO’s estimate of 6.2 million and the Street’s estimate of 4.8 million.
Pitz added that Netflix has once again proven it can grow in the United States, with 2.5 million net adds reported in the first quarter in the United States and Canada. He expects continued growth in membership, driven by continued paid sharing efforts and content innovation.
Explaining his bullish thesis, Pitz said: “$17 billion in content investments for 2024 positions Netflix well to continue to gain share of wallet as linear TV audiences decline. »
Despite Netflix’s growth investments, the analyst expects operating margin to improve this year and beyond. He also predicts that the company will benefit from its focus on advertising, as $20 billion of linear TV advertising is expected to shift to connected TV (CTV)/online globally over the next three over the next few years, including $8 billion in the United States.
Pitz ranks 155th among more than 8,700 analysts tracked by TipRanks. Its ratings have been profitable 75% of the time, each providing an average return of 18.4%. (See Netflix ownership structure on TipRanks)
General engines
The next step is the car manufacturer General engines (General manager), which reported impressive first-quarter results and raised its full-year guidance, supported by strong performance in North America.
In response to the strong results and outlook, Goldman Sachs analyst Mark Delaney reaffirmed a buy rating on the stock and increased the price target from $50 to $52. The analyst raised its EPS estimates for 2024, 2025 and 2026 to reflect improving margin expectations.
“We believe margins can remain resilient, driven by both cost effectiveness (including executing the remainder of its $2 billion net cost reduction program this year) and relatively strong pricing.” , Delaney said.
The analyst considers General Motors’ progress in terms of profitability of electric vehicles favorable. Of note, GM continues to expect variable profit from its EV business to be positive in the second half of this year and generate earnings before interest and taxes in the mid-single digits in 2025.
Delaney further added that GM’s optimism is based on its current expectations for electric vehicle demand and production growth, with the company forecasting increasing gains from the battery production tax credit and the leverage effect on fixed costs.
Finally, the analyst believes that GM’s capital allocation will continue to play a favorable role. He predicts the company will return higher levels of capital to shareholders beyond 2024, given its aggressive buyback plan aimed at reducing the number of shares outstanding to less than a billion.
Delaney ranks 256th among more than 8,700 analysts tracked by TipRanks. Its ratings were successful 61% of the time, each delivering an average return of 17.5%. (See General Motors stock buybacks on TipRanks)
Wing stop
Finally, there is the restaurant chain Wing stop (WING), which operates and franchises in more than 2,200 locations worldwide. Following a recent analysis of the total addressable market in the United States, Baird analyst David Tarantino said there are benefits to the company’s long-term focus on the domestic market.
WING sees the potential to expand its presence to more than 7,000 locations worldwide in the long term, including more than 4,000 restaurants in the United States. However, Tarantino said Baird’s analysis indicates upside potential over the company’s national goal, with room for at least 5,000 U.S. locations. .
Additionally, BMO’s analysis indicates that it is possible that the estimated TAM could increase over time, given the company’s continued growth in its most penetrated markets over the past several years.
“Overall, a significant domestic runway as well as a relatively open opportunity in international markets (just 288 locations after 2023) seems likely to support double-digit unit growth for many years to come,” Tarantino said while reiterating his Buy rating on WING stock with a price target of $390.
The analyst estimates that Wingstop’s unit-level cash-on-cash returns are already around 70% for U.S. franchise locations and appear well-positioned to increase further this year, driven by unit sales volumes higher means.
Tarantino says WING deserves a significant valuation premium due to its strong near-term operating momentum and attractive long-term growth profile. Looking ahead, the analyst is optimistic about the company’s ability to maintain annual revenue growth around 15%, as well as a very capital-efficient growth model.
Tarantino ranks 264th among more than 8,700 analysts tracked by TipRanks. Its ratings were successful 65% of the time, each delivering an average return of 11.5%. (See Wingstop stock charts on TipRanks)
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