A Trend Is Unfolding Before Our Very Eyes
It’s not often you can watch a trend as this unfold before your very eyes. It has been, in fact, over two years since the last time we’ve seen such a trend. What am I talking about? The fact that the analyst’s estimates are too low and upward revisions are driving stock prices higher.
This fact began to emerge in the 2nd quarter earnings cycle and since then the bulk of revisions have been upward. The consensus estimate for the S&P 500 EPS growth in 2020 rose 200 basis points since the end of the 3rd quarter and this trend is far from over. Based on what I'm seeing, we can expect upward revisions to persist as a trend through the end of the reporting season at least.
Pepsi Rises On Bubbly Analysts, Earnings, And Outlook
Pepsico (NASDAQ:PEP) is one of those under-loved consumer staples stocks I have come to love. The company is a giant in the soft-drink business but also a diversified play on chips and snacks as well. The company’s positioning allowed it to report revenue and earnings well above the consensus in the calendar 3rd quarter, results that the analysts feel are repeatable.
The company has received not one but four shout-outs from the analyst’s community since the report was released and they are all bullish. The latest comes from Citigroup)which boldly set the Wall Street high price target of $169 after upgrading the stock to Buy from Neutral. Analyst Wendy Nicholson thinks PepsiCo has more room to grow margins than either Procter & Gamble (NYSE:PG) or Coca-Cola (NYSE:KO) as structural issues get worked out for the positive at the food and beverage giant.
Brand Recognition And eCommerce Make Levi Strauss A Winner
Levi Strauss (NYSE:LEVI) proved what a globally recognized brand, quality merchandise, and a healthy eCommerce presence can accomplish. The company suffered a substantial contraction in its calendar 3Q revenue but only half what the analysts were expecting.
The strength was underpinned by eCommerce which grew high-double digits and more than doubled its contribution to total revenue. Looking forward, the company plans to lean heavily on the higher-margin DTC and eCommerce channels which I think a smart move.
Levi Strauss has had three nods from the analysts since it reported results and they all point to double-digit gains for the stock. Citigroup (NYSE:C) and Telsey Advisory Group maintained their buy-ratings but raised their targets to bracket the consensus $19.50, a move that implies 20% upside from recent price action. The latest analyst call comes from Citigroup. Citigroup raised its rating to Overweight from Equalweight citing the company’s margins, response to COVID, and outlook for recovery.
“Impressive revenue acceleration and positive 3Q EPS highlight mgmt's swift response to a pressured retail environment. We come away positive on accelerated margin expansion driven by channel & geographic mix shifts, cost-cutting, and price/average unit retail increases."
Twitter Up After Deutsche Bank Raises Rating, Target
Twitter (NYSE:TWTR) got a nod from Deutsche Bank (DE:DBKGn) that includes an upgraded rating and price target increase. The rating is raised to Buy from Hold while the price target is raised to $56 to $36. The analyst here fell that opportunity for monetization and ad-revenue growth are accelerating. The new $56 price target is not the highest on Wall Street but it is close.
At current price levels, the new rating implies a 16% upside. The consensus is closer to $36 and implies the stock is overvalued. If the analysts at DB are correct and ad revenue does accelerate we can expect to see more analysts stepping off the sidelines to raise targets as well.
Omnicom, A Value Play With Catalysts
Omnicom Group (NYSE:OMC), is a full-service advertising and media company facing several positive catalysts including rising EPS estimates, low valuations, and an outlook for at least low-single-digit growth. JP Morgan reiterated its Overweight rating on the stock but raised its estimates for 3rd and 4th quarter EPS, and the price target. JP Morgan now sees at least 25% upside. Barclays upped its rating to Overweight from Equal Weight ahead of this week’s earnings release. The analysts there think organic revenue growth will impress this year and next.
