Earnings season is here, and Wall Street analysts are calling for another decline amid the pandemic.
However, some pros are more optimistic about the fourth quarter earnings season, with Ignacio Cantos, investment director at ATL Capital in Madrid, noting the “next catalyst will be the upcoming earnings season.”
Against this backdrop, Wall Street experts argue that there are exciting plays to be made. But how are investors supposed to spot the most compelling opportunities out there? By looking to the analysts that consistently get it right. TipRanks analyst forecasting service attempts to identify the Street’s best-performing analysts, or the analysts with the highest success rate and average return per rating.
Here are the best-performing analysts’ five favorite stocks right now:
Biotech name BioMarin just released better-than-expected top-line Phase 3 results for Roctavian (valrox), the company’s gene therapy designed to treat hemophilia A. In response to this “significant de-risking event for the asset (and company),” J.P. Morgan analyst Cory Kasimov reiterated a Buy rating and a $ 131 price target on January 10.
Notably, the candidate was able to meet the primary endpoint of a reduction in mean annualized bleed rate (ABR) and all secondary endpoints at one year. Mean ABR was lowered by 84%, versus the standard of care.
According to Kasimov, the ABR result isn’t that surprising. However, he points out that FVIII levels have been “scrutinized” based on the variability witnessed between the releases of the Phase 1/2 and interim Phase 3 results. “On this front, Roctavian demonstrated mean FVIII of 42.9 in the modified ITT population, which we believe is clearly better than prevailing assumptions (at least based on our conversations),” the analyst noted.
Kasimov further argues that the outcome supports “the approvability of Roctavian,” although he will be waiting to see whether or not the FDA will ask for one-year data as required by the EU.
“Either way, however, we believe these results meaningfully de-risk the asset and add to the company’s overall strategic value. We underscore BioMarin’s attractive valuation (trading slightly above the base business) and expect the pipeline to have meaningful contribution to share performance in 2021,” Kasimov opined.
Currently, the top healthcare analyst is tracking a 57% success rate and 21.9% average return per rating.
Media platform Avid Technology just got a thumbs up from Maxim Group’s Jack Vander Aarde, with the analyst recently reiterating a Buy rating on the stock on January 8. In a further bullish signal, the five-star analyst bumped up the price target from $ 14 to $ 23.
At the beginning of the month, the company revealed a new debt refinancing that consists of a $ 180 million term loan and a $ 70 million unfunded revolving credit facility, which mature on January 5, 2026. Vander Aarde points out that this move cuts AVID’s annual interest expense by roughly $ 10 million and adds an incremental $ 0.20 to non-GAAP EPS in 2021.
On top of this, management says 60% of the $ 30 million cost saving initiatives rolled out in 2020 will continue in 2021 and even after.
“While we hold a cautious view for non-recurring product sales in 2021, we continue to expect robust growth in services segment revenue as early-stage subscription revenues continue to ramp at an accelerated pace (up 74% year-over-year in 3Q20, representing ~20% of total 3Q20 revenue). We also remain highly confident in management’s ability to execute on margin expansion and free cash flow generation, even despite near-term top-line pressure from COVID-19 on some of AVID’s core verticals (live events, music festivals/ concerts), which we anticipate will gradually recover by 2H21,” Vander Aarde explained.
Additionally, AVID shares are trading at 13.3x and 10.2x Vander Aarde’s increased 2021 and 2022 non-GAAP EPS estimates, respectively, which represents a discount to peers trading at 20x and 18x consensus 2021 and 2022 non-GAAP EPS estimates, respectively.
“Further underpinning our bullish view on AVID are our that indicate AVID has a strong competitive position in this secular growth market and remains the de facto standard for Hollywood video and audio editing. Other factors supporting our bullish view include a high-quality management team, an increasing mix of high-margin recurring revenue (now 70% + of total revenue), best-in-class product portfolio and recently launched product launches that are focused on SaaS subscription offerings for enterprises,” Vander Aarde added.
With a 75% success rate and a whopping 79% average return per rating, Vander Aarde scores the #111 spot on TipRanks’ list of best-performing analysts.
A player in the semiconductor space, II-VI develops engineered materials, optoelectronic components and optical systems.
For BofA Securities analyst Vivek Arya, II-VI is his top SMid-cap pick, thanks to “its leading position in the optical market well levered to 5G/cloud complimented by a strong silicon carbide (SiC) portfolio that will rapidly expand with the proliferation of EVs and 5G base stations.” To this end, the five-star analyst keeps a Buy rating and $ 100 price target on the stock.
Specifically, Arya highlights the fact that using its increased scale from the Finisar acquisition, the company has been able to enhance its product portfolio within its communications business as well as strengthen its manufacturing footprint within and outside China “to adequately serve customers worldwide despite uncertainty surrounding trade tensions and COVID-19.”
What’s more, II-VI scaled the 3D sensing operations to support all of the current market, which Arya believes could help it take even more market share. All of this prompted the analyst to comment, “II-VI remains in position to achieve a double-digit sales/EPS CAGR (through CY22).”
Speaking to the SiC opportunity, Arya acknowledges that this area of the business is still in its “infancy,” but argues that the ongoing 5G rollouts could push the company’s TAM to $ 30 billion in about 10 years-time.
“While historically supplying the market with SiC-based substrates, recent acquisitions (Ascatron, INNOViON) and partnerships (GE) are enabling II-VI to establish a vertically integrated portfolio capable of producing SiC modules and devices. While SiC accounts for a modest mid-single digit percentage of sales today, the technology can enable long-term topline/margin outperformance,” Arya explained.
Based on his 69% success rate and 26.7% average return per rating, Arya lands among the top 125 analysts tracked by TipRanks.
Ultra Clean Holdings
Wall Street’s best-performing analyst, Quinn Bolton, sees Ultra Clean Holdings as a compelling play, with the analyst maintaining a Buy rating and $ 43 price target on January 13.
The company just pre-announced that its Q4 2020 revenue and NG EPS are expected to come in above the midpoint of the original guidance range. Additionally, UCTT noted that for Q1 2021, it estimates revenue will land within the range of $ 370-$ 400 million. This is 3-11% above the midpoint of its Q4 2020 revenue guidance, and “represents strong sequential growth,” in Bolton’s opinion.
Additionally, management thinks that wafer fab equipment (WFE) mix will shift away from NAND and towards DRAM and foundry/logic, with some moderation in NAND potentially coming later in 2021.
“UCTT currently sees demand remaining strong through the year and does not see H/H changes at this point, thanks to the good visibility. The company sees NAND investment remaining focused on node conversions and believes NAND players are cautious about the timing of volume investments, which could keep the industry in a healthy position,” Bolton stated.
Summing it all up, Bolton said, “As global WFE grows and semiconductor manufacturing sector consolidates, there is a pressing need for original equipment manufacturers (OEMs) to consolidate the fragmented subsystems supply chain to better cope with the cyclical growth demand of WFE. Ultra Clean provides turnkey solutions and operational excellence to OEMs and should see an increasing share of content in WFE as WFE grows.”
The #1-rated analyst more than earns his ranking based on his 80% success rate and 45.6% average return per rating.
Intel just revealed a management shakeup that will see former Intel CTO and VMware CEO Pat Gelsinger succeed Bob Swan as CEO, effective February 15. In response to this development, J.P. Morgan analyst Harlan Sur reiterated a Buy rating and $ 70 price target on January 13.
“We view the management change positively given Mr. Gelsinger’s track record at VMware, EMC and also considering his instrumental roles as Intel’s first CTO and head of Intel’s desktop and server CPU businesses (key contributor to the flagship Core and Xeon platforms)â¦ We believe he is well-respected by the investment community and has the right background to navigate the company through what is arguably one of the most challenging periods of the company’s existence,” Sur explained.
Additionally, INTC stated that Q4 2020 revenue and EPS will surpass its previous guidance on the back of “strong progress” on its 7nm process technology, with Sur expecting the company to utilize a hybrid insourced/outsourced manufacturing strategy.
According to Sur, the company likely saw upside in the client compute segment, with the data center business also potentially posting a gain.
“Looking ahead, we anticipate better than seasonal demand for PCs and for cloud data center investments to inflect positively in 1H21, which bodes well for Intel. We also note that during the CES, Intel announced that Ice Lake (10nm) is in productionâ¦ we believe Intel has a strong roadmap of future products and, assuming, they can execute on their roadmap without further delays, we think the company will stem share loss,” Sur commented.
As evidence of his impressive stock picking abilities, Sur boasts a 69% success rate and 21.7% average return per rating.