As the latest financial quarter ends, earnings season left analysts with their hands ready to work on updating ratings on stocks that stood out. Now that the market is halfway through 2024, these analysts may have had an easier time making sense of these companies' futures, leading them to boost their valuations.
Investors should take analyst ratings with a grain of salt since there is often fear behind showing Main Street the realities of a stock. Analysts often avoid assigning extreme valuations to stocks, even when warranted, to protect their careers. These rate changes merit investor attention and a deeper look into company dynamics.
Those earning Wall Street's love include Airbnb Inc. (NASDAQ: ABNB), Shopify Inc. (NYSE: SHOP), and even United Airlines Holdings Inc. (NASDAQ: UAL). Far from blindly following the herd, investors should first understand these analysts' reasoning. Here are a few pointers.
Starting From the Top Down
The U.S. real estate sector is now in a stalemate, with buyers not finding any reasonable deals and sellers needing to be incentivized to let go of their cheap mortgages and rising home equity.
According to the International Exchange, most U.S. mortgages carry an average interest rate of 3.25%, well below today’s 7.3% average rate. More than that, the average home price of $513,100 is roughly 33% higher than the pre-pandemic average.
Avoiding expensive homes and high mortgage rates, would-be buyers are left with one other choice: rent. Though with the lingering hope of rate cuts later this year, some may not feel comfortable leasing long-term, where Airbnb’s services are helpful for those transitioning into the new housing cycle.
Also, as part of the business services sector, Shopify could be the answer to businesses dealing with high inflation lately, seeing their margins deteriorate. Shopify’s platform allows for scalability and cost savings across many companies, making it a potential scapegoat for many feeling the squeeze.
If money isn’t spent on housing, it is going into travel. The Transportation Security Administration (TSA) saw a record 2.9 million travelers in a single day last week, a number that comes just as the U.S. consumer sentiment index expanded for the first time in four months.
These are just some of the reasons behind analysts' excitement over these companies; here’s how bullish they were on each.
1. Airbnb’s Valuation is Booked Out
Wedbush analysts came out on May 28th with their own price targets after rigorous analysis. Their conclusion? A $165 a share valuation for Airbnb stock, daring it to rally by 12.5% from where it trades today.
Now that the stock trades at 86% of its 52-week high, investors can side with some bullish momentum to help them fulfill these targets. More than that, Airbnb’s short interest declined by 13% over the past month, helping bulls gain more footing in the stock’s future path.
So-called smart money argued for analyst bullish cases this month, as the Vanguard Group boosted its stake in Airbnb by 2.4%, bringing its net investment up to $5.6 billion.
2. Discount Driven Boost for Shopify
After trading down to only 64% of its 52-week high prices, Shopify stock may have landed on analyst radars recently as one easy way to gain future credibility.
Taking roughly 25.5% of the global e-commerce market share, Shopify is a company that should not be trading this cheaply, but that’s where investors can rip out some low-hanging fruit.
As of the first quarter of 2024, the company's financials show enough growth to make today's discount unjustifiable, to say the least. Revenue jumped by 23%, and free cash flow (operating cash flow minus capital expenditures) doubled to give investors a 12% yield.
All told, analysts at Citigroup saw it fit to boost Shopify’s valuation up to $95 a share. The stock must rally 62.4% from where it trades today to prove these targets right.
3. Summer Travel and Low Oil? Better Call United Airlines
Airline stocks could now be setting up for a rip-roaring higher. Low oil prices and upcoming summer travel contributed to the TSA’s record passenger reading.
Among all peers in the industry, United earned Wall Street’s love, not only by trading up to 87% of its 52-week high but also by proposing a double-digit upside despite already delivering a 70% rally in the past six months.
Those at Citigroup believe the airline could fly up to $96 a share, close to the stock’s all-time high of $97.8. Taking that view from today’s stock price, that would represent an additional 87% upside.
More than that, these same analysts expect to see up to 15% earnings per share (EPS) growth for the next 12 months, which would be a welcome path for investors looking to beat today’s sticky inflation rate.
