Wall Street has set ambitious price targets for the stocks in this article. While this suggests attractive upside potential, it’s important to remain skeptical because analysts face institutional pressures that can sometimes lead to overly optimistic forecasts.
Unlike the investment banks, we created StockStory to provide independent analysis that helps you determine which companies are truly worth following. Keeping that in mind, here is one stock where Wall Street’s positive outlook is supported by strong fundamentals and two where analysts may be overlooking some important risks.
Two Stocks to Sell:
Central Garden & Pet (CENT)
Consensus Price Target: $46.50 (26.5% implied return)
Enhancing the lives of both pets and homeowners, Central Garden & Pet (NASDAQ: CENT) is a leading producer and distributor of essential products for pet care, lawn and garden maintenance, and pest control.
Why Do We Pass on CENT?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Estimated sales growth of 1.1% for the next 12 months is soft and implies weaker demand
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Central Garden & Pet’s stock price of $36.76 implies a valuation ratio of 13x forward P/E. Check out our free in-depth research report to learn more about why CENT doesn’t pass our bar.
Western Alliance Bancorporation (WAL)
Consensus Price Target: $98.50 (44.9% implied return)
Operating through five distinct regional banking divisions across the western United States, Western Alliance Bancorporation (NYSE: WAL) provides commercial banking, treasury management, mortgage services, and specialized financial solutions through its banking divisions and subsidiaries.
Why Are We Cautious About WAL?
- Net interest income is projected to tank by 2.5% over the next 12 months as demand evaporates
- Net interest margin dropped by 11.7 basis points (100 basis points = 1 percentage point) over the last two years, implying the firm’s loan book profitability fell as competitors entered the market
- Day-to-day expenses have swelled relative to revenue over the last five years as its efficiency ratio increased by 13.5 percentage points
Western Alliance Bancorporation is trading at $67.96 per share, or 1x forward P/B. Read our free research report to see why you should think twice about including WAL in your portfolio.
One Stock to Watch:
Moelis (MC)
Consensus Price Target: $80 (46.9% implied return)
Founded in 2007 by veteran banker Ken Moelis during the lead-up to the financial crisis, Moelis & Company (NYSE: MC) is an independent investment bank that provides strategic and financial advisory services to corporations, financial sponsors, governments, and sovereign wealth funds.
Why Is MC Interesting?
- Impressive 33.6% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Additional sales over the last two years increased its profitability as the 311% annual growth in its earnings per share outpaced its revenue
- ROE punches in at 40.7%, illustrating management’s expertise in identifying profitable investments
At $54.47 per share, Moelis trades at 15.8x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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