As analysts learn more about the impact of macro challenges on businesses, earnings season has given them plenty of room to think.
The Zhitong Finance App notes that although Wall Street focuses on short-term stock trends stimulated by quarterly results, top analysts are more concerned about the company's long-term prospects.
Here are three stocks that top Wall Street professionals love.
Netflix (NFLX.US)
Netflix is analysts' top pick this week. The streaming giant reported better-than-expected results for the first quarter of 2024. However, investors were disappointed with the company's decision to stop reporting the number of quarterly subscribers. The company said it is more focused on revenue and operating margin metrics.
After announcing results for the first quarter, BMO Capital analyst Brian Pitz reiterated a “buy” rating for Netflix shares, with a target price of $713. The analyst emphasized that the company added 9.3 million new users, easily exceeding BMO's estimate of 6.2 million users and Wall Street's estimate of 4.8 million users.
Pitz added that Netflix once again demonstrated its ability to grow in the US, with a net increase of 2.5 million users in the US and Canada in the first quarter. He anticipates that the number of members will continue to grow, driven by paid sharing and content innovation.
Explaining his bullish views, Pitz said, “As linear TV ratings decline, Netflix's $17 billion content investment in 2024 will continue to grow its wallet share.”
Despite Netflix's growth investments, the analyst expects operating margins to improve this year and beyond. He also anticipates that the company will benefit from a focus on advertising business, as over the next three years, $20 billion of global linear TV advertising revenue will shift to connected television (CTV) /online advertising, including $8 billion from the US
General Motors (GM.US)
GM reported impressive first-quarter results and raised full-year expectations, thanks to strong performance in the North American market.
Given the company's strong results and prospects, Goldman Sachs analyst Mark Delaney reaffirmed the stock's “buy” rating and raised the target price from $50 to $52. The analyst raised earnings per share estimates for 2024, 2025, and 2026 to reflect increased profit margin expectations.
“We believe profit margins will remain elastic, driven by costs/efficiency (including the balance of implementing this year's $2 billion net cost reduction plan) and relatively stable pricing,” Delaney said.
The analyst believes GM's progress in electric vehicle profitability is favorable. Notably, GM still anticipates that the variable profit of its electric vehicle business will be positive in the second half of this year, and that by 2025, its profit margin before interest and tax will reach around single digits.
Delaney further added that GM's optimism is based on its current expectations for increased demand and production for electric vehicles, and the company expects battery production tax credits and fixed cost leverage to bring increasing benefits.
Finally, the analyst believes that GM's capital allocation will continue to be a ride. He expects that given the company's aggressive repurchase plan, the goal is to reduce the number of its outstanding shares to less than 1 billion shares, and that after 2024, the company will return a higher level of capital to shareholders.
Wingstop (WING.US)
Finally, there's the restaurant chain Wingstop (WING), which operates and franchises in more than 2,200 locations around the world. After recently analyzing the potential US market, Baird analyst David Tarantino said that the company's long-term goals in the domestic market have room for improvement.
In the long run, Wingstop believes it is possible to expand its business to more than 7,000 stores worldwide, including more than 4,000 restaurants in the US. However, Tarantino said Baird's analysis showed that the company's domestic target is advantageous, with space for at least 5,000 US stores.
Furthermore, BMO's analysis suggests that the estimated TAM is likely to rise over time, given the company's continued growth in its most penetrating market in recent years.
“All in all, the huge domestic runway and relatively open international market opportunities (only 288 stores after 2023) seem likely to support double-digit sales growth for many years to come.” He also reiterated his “buy” rating for Wingstop, with a target price of $390.
The analyst estimates that Wingstop's return on unit-level cash at US franchisees has reached about 70%, and is expected to increase further this year, driven by an increase in average unit sales.
Tarantino believes that due to Wingstop's recent strong operating momentum and attractive long-term growth prospects, it should receive a significant valuation premium. Looking ahead, the analyst is optimistic that the company will be able to maintain annual revenue growth of around 15% while having a very capital-efficient growth model.