Policymakers face a big challenge this week. The Fed will convene for its two-day policy meeting on June 13-14 (Tuesday/Wednesday) to determine whether another rate hike is required in its ongoing efforts to tame persistently high inflation. However, this time around, there might finally be a change in tune.
“For much of last year the Fed was united about the need to lift rates into restrictive territory,” notes Raymond James’ CIO Larry Adam. “But after ten consecutive rate increases, we are starting to see some diverging opinions.”
As the Fed is never too keen on surprising the market, and the fact the market is factoring in a ~72% chance interest rates will stay the same, Adam thinks it’s “reasonable to assume the Fed will stay on hold.”
That’s not to say further rate hikes down the line are out of the question. Adam thinks Fed Chair Powell will leave the door open to “further tightening” but he will also likely stress that the tightening cycle is nearing the end, although that will ultimately depend on what the data shows.
Nevertheless, come next year, Adam sees the real shift coming into play. “While the Fed wants to retain optionality on further hikes and affirm rate cuts are not on the horizon for this year, we anticipate that slowing economic momentum and easing inflation pressures will lead to the beginning of an easing cycle in 2024,” he summed up.
Meanwhile, Adam’s analyst colleagues at Raymond James are not just sitting idly watching the markets ebb and flow. They have been seeking out the equities they believe investors should be loading up on and have earmarked several names as Strong Buys. We ran 3 of these choices through the TipRanks database for a fuller view of their prospects. Here’s what we found.
Emeren Group (SOL)
Let’s first head to the renewable energy space and to Emeren, a leading global developer, owner, and operator of solar projects. With projects and IPP (independent power producer) assets spread across Europe, North America, and Asia, the company has a presence in the fastest-growing solar markets, with teams operating in over 10 countries across the globe. Until a recent rebranding, Emeren used to be known as ReneSola.
The company’s approach revolves around seeking lucrative project development prospects in thriving markets, namely the United States and Europe, where the company holds a dominant position within the industry.
However, it has not all been plain sailing for the solar developer. Delays in project development negatively impacted Q1’s revenue haul. As such, despite revenue increasing by a considerable 267% year-over-year to $12.88 million, the figure missed Street estimates by $20.99 million. GAAP EPADS of $0.00 also fell short of the analysts’ prediction – by $0.06.
However, in a shareholder pleasing move, during the quarter, the company bought $13.2 million of its common shares and intends on continuing it buyback activities, with $17 million remaining on its buyback program. Additionally, Emeren reaffirmed its full-year revenue guidance of $154-174 million, amounting to a 170% increase at the midpoint.
While Raymond James Pavel Molchanov concedes the nature of its business impacts its revenue trajectory, he sees plenty to like here. “Among U.S.-listed solars, Emeren stands out for its substantial European footprint – comprising 69% of the mid/late-stage project pipeline as of 1Q23 – making it one of the most direct ways for investors to get exposure to Europe’s high-visibility solar buildout, bolstered by climate policy and the urgency of energy security,” the 5-star analyst explained. “As a downstream pure-play with a predominantly build-and-sell business model, capital intensity is low, but the flip side is that revenue is lumpy from quarter to quarter.”
All told, Molchanov rates SOL a Strong Buy and backs that up with a $9 price target. Should the figure be met, investors will notch returns of 154% a year from now. (To watch Molchanov’s track record, click here)
Overall, 2 other analysts have recently waded in with SOL reviews, and both are also positive, making the consensus view here a Strong Buy. Going by the $10.17 average target, shares will post growth of ~187% over the next 12 months. (See SOL stock forecast)
Reinsurance Group (RGA)
Let’s now pivot to a leader in an altogether different segment. Reinsurance Group is a global provider of life and health reinsurance solutions. Founded in 1973, the St. Louis, Missouri-based firm has a global presence in more than 100 countries, and specializes in offering risk management and underwriting expertise, helping its clients manage their life and health insurance portfolios effectively.
RGA has two primary areas of focus. The initial one is its traditional reinsurance assistance – the core of its operations since forming. This aspect emphasizes offering reinsurance for mortality and morbidity risks. In addition, RGA has expanded its deal-focused financial solutions business, a development that has occurred more recently.
The company put in a strong performance in its most recently released quarterly readout – for the first quarter of 2023. The company dialed in revenue of $4.25 billion, amounting to an 8.4% year-over-year increase whilst beating the Street’s forecast by $70 million. Likewise, adj. EPS of $5.16 came in well above the $3.35 forecast.
While investors reacted positively to the results, and the shares have managed to stay in the green this year, they have still underperformed the broader markets. As such, RJ analyst Wilma Burdis thinks there’s an opportunity brewing here, which might reveal itself very shortly.
“We think RGA’s diversification and growth profiles are underappreciated and expect the company could provide favorable updates at its upcoming June 15 investor day,” she said. “We expect the company will update its targets for EPS growth and ROE, and see potential upside to RGA’s last cited figures. We think RGA’s EPS should grow 8-10% per year in the intermediate term, based on our expectation for mid- to high- single-digit annual premium growth and supported by capital management and incremental earnings from in-force deals.”
These comments underpin Burdis’ Strong Buy rating while her $199 price target suggests the shares will climb 38% higher over the coming months. (To watch Burdis’ track record, click here)
On the Street, 7 colleagues join Burdis in the bull camp and with 3 additional Holds, the stock claims a Moderate Buy consensus rating. The forecast calls for one-year gains of ~14%, considering the average target clocks in at $164.91. (See RGA stock forecast)
Dave & Busters Entertainment (PLAY)
For our last Raymond James-backed name, we’ll turn to Dave & Buster’s Entertainment, an American restaurant and entertainment chain that combines dining and gaming activities. The company offers an “Eat, Play, Drink, and Watch” experience, available in more than 150 locations across North America. D&B’s offerings target all ages, with an emphasis on providing a fun and interactive environment for casual dining, socializing, and gaming.
That combination has proven to be a recipe for success, and investors appeared to like the company’s latest quarterly readout despite missing on the top-line.
In Q1, revenue increased by 32.4% from the same period a year ago to reach a record $597.3 million, yet still coming in $6.84 million below expectations. Taking into account the revenue generated from Main Event, which the company acquired last year, sales rose just 4%.
Nevertheless, investor fears that the acquisition would temporarily eat into profits were assuaged. Cost cutting and higher menu pricing helped profit margins and at the other end of the scale, EPS of $1.45 easily trumped the $1.28 expected by the analysts. The figure also improved on the $1.35 delivered during 1Q22.
During the quarter, the company also repurchased $125.5 million of stock and through the first weeks of Q2, another $74.5 million.
For Raymond James analyst Brian Vaccaro it all points to a firm making all the right decisions. He writes: “While sales are softening a bit more than we had hoped (broader macro + lapping tough compares), the company is managing controllable costs very well, while also taking advantage of the stock’s very depressed valuation via more aggressive share repo (nearly 12% of the float YTD). We are raising our EPS estimates and believe the stock’s depressed valuation (EV/EBITDA ~5x) remains inconsistent with its strong margins (low teens EBIT margins) and annual high single-digit % unit growth profile.”
Quantifying this stance, Vaccaro rates PLAY shares a Strong Buy alongside a $55 price target. What does this mean for investors? Potential upside of 45% from current levels. (To watch Vaccaro’s track record, click here)
Elsewhere on the Street, the stock collects another 5 Buys and 2 Holds, all coalescing to a Strong Buy consensus rating. Shares are expected to appreciate ~38% in the year ahead, considering the average target stands at $53.29. (See PLAY stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.