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Earnings season is giving analysts plenty to chew on as they learn more about the impact of macro challenges on companies.
Though Wall Street is watching short-term stock moves spurred by quarterly results, the top analysts have their eyes on companies’ long-term prospects.
Bearing that in mind, here are three stocks favored by the Street’s top pros, according to TipRanks, a platform that ranks analysts based on their past performance.
Netflix
Netflix (NFLX) is this week’s first pick. 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 quarterly subscriber numbers. The company said that it is more focused on the revenue and operation margin metrics.
Following the first-quarter print, BMO Capital analyst Brian Pitz reaffirmed a buy rating on NFLX stock with a price target of $713. The analyst highlighted the company’s addition of 9.3 million subscribers, which handily exceeded BMO’s estimate of 6.2 million and the Street’s expectation of 4.8 million.
Pitz added that Netflix has again proved that it can grow in the U.S., with 2.5 million net additions reported in the first quarter in the U.S. and Canada. He expects continued growth in membership, driven by the ongoing paid sharing efforts and content innovation.
Explaining his bullish thesis, Pitz said, “$17 billion of content investments for 2024 positions Netflix well for ongoing wallet share gains as linear TV viewership declines.”
Despite Netflix’s growth investments, the analyst expects an improvement in operating margin this year and beyond. He also anticipates that the company will benefit from its focus on advertising, given that $20 billion of linear TV ad dollars are expected to shift to connected TV (CTV)/online globally over the next three years, including $8 billion in the U.S.
Pitz ranks No. 155 among more than 8,700 analysts tracked by TipRanks. His ratings have been profitable 75% of the time, with each delivering an average return of 18.4%. (See Netflix Ownership Structure on TipRanks)
General Motors
Next up is automaker General Motors (GM), which announced impressive first-quarter results and raised its full-year guidance, backed by strong performance in North America.
In reaction to the solid results and outlook, Goldman Sachs analyst Mark Delaney reaffirmed a buy rating on the stock and increased the price target to $52 from $50. The analyst raised his EPS estimates for 2024, 2025 and 2026 to reflect improved margin expectations.
“We believe that margins can remain resilient, driven both by cost/efficiencies (including executing on the balance of its $2 bn net cost reduction program this year) and relatively firm pricing,” said Delaney.
The analyst considers General Motors’ progress on electric vehicle profitability to be favorable. It is worth noting that GM continues to expect its EV business’ variable profit to be positive in the second half of this year and generate a mid-single-digit earnings before interest and taxes margin in 2025.
Delaney further added that GM’s optimism is based on its current expectations for EV demand and production growth, with the company projecting increasing gains from the battery production tax credit and fixed cost leverage.
Finally, the analyst thinks that GM’s capital allocation will continue to be a tailwind. He anticipates that the company will return higher levels of capital to shareholders beyond 2024, given its aggressive buyback plan with a goal to reduce its outstanding share count to below 1 billion.
Delaney holds the 256th position among more than 8,700 analysts tracked by TipRanks. His ratings have been successful 61% of the time, with each delivering an average return of 17.5%. (See General Motors Stock Buybacks on TipRanks)
Wingstop
Finally, there is the restaurant chain Wingstop (WING), which operates and franchises in over 2,200 locations worldwide. Following a recent analysis on the U.S. total addressable market, Baird analyst David Tarantino said that there is upside to the company’s long-term target for the domestic market.
WING sees the potential to scale its presence to more than 7,000 global locations over the long term, including over 4,000 restaurants in the U.S. However, Tarantino stated that Baird’s analysis indicates an upside to the company’s domestic target, with room for at least 5,000 U.S. locations.
Further, BMO’s analysis indicates that there is potential for the estimated TAM to move higher over time, given the company’s continued growth in its most penetrated markets in recent years.
“All in, a sizable domestic runway along with a relatively open-ended opportunity in international markets (only 288 locations after 2023) seems likely to support double-digit unit growth for many years to come,” said Tarantino while reiterating a buy rating on WING stock with a price target of $390.
The analyst estimates that Wingstop’s unit-level cash-on-cash returns are already about 70% for U.S. franchised locations and appear well-positioned to increase further this year, driven by higher average unit sales volumes.
Tarantino contends that WING deserves a significant valuation premium due to its solid near-term operating momentum and attractive long-term growth profile. Looking ahead, the analyst is positive about the company’s ability to maintain annual revenue growth in the mid-teens, along with a very capital-efficient growth model.
Tarantino ranks No. 264 among more than 8,700 analysts tracked by TipRanks. His ratings have been successful 65% of the time, with each delivering an average return of 11.5%. (See Wingstop Stock Charts on TipRanks)