by For more than a year, the markets have been preoccupied with the Fed, focusing entirely on the inflation trajectory and central bank countermeasures to raise rates.
“With this in mind,” said Larry Adam, chief investment officer at Raymond James, “it’s understandable that the market would analyze any development in these two dynamics within the framework of what it means for the Fed.”
But with the spotlight now focused solely on those factors, Adam thinks the increasingly promising economic data is not being “warmly welcomed as it would have been in the past”. Consumer spending has remained robust and mortgage applications are picking up after a pause, while the labor market remains strong. While the “good is bad” narrative applies here and could result in further rate hikes to cool activity and drive inflation down faster, Adam believes it is “important to review economic data that further beyond the immediate impact on the Fed’s next decision.
As a result, Adam continues, “long-term investors may conclude that the recent ‘good news’ is indeed ‘good news’ for the economy and markets, especially if the Fed does not ‘tighten too much. 0.25% (last in May) in this cycle.”
Looking ahead, Adam expects the S&P 500 to reach 4,400 by the end of the year, an 11% gain from current levels.
Against this backdrop, Adam’s fellow analysts at Raymond James have spotted an opportunity in 3 stocks they currently consider Strong Buys. We ran these tickers through the TipRanks database to see if other market experts agree with these picks. Let’s see the results.
Border communication (FYBR)
The first is a telecom company, Frontier Communications. This full-service telecom company operates in 25 states and serves a total of 3.133 million customers. The company offers a wide range of telecom services, including local and long distance telephone lines, broadband internet, digital TV and even computer technical support. Frontier is known for its presence in rural areas, where it is an important service provider, but it is also penetrating more urban areas.
Over the past year, Frontier’s stock performance has been highly volatile, even as the company’s operating performance has led to solid results. In its fourth quarter and full year 2022 results released last week, Frontier reported company records in operating results — for the quarter, Frontier added 76,000 fiber broadband customers and expanded its fiber service to 381,000 locations. For the full year, the company reported a net total of 250,000 new fiber broadband customers – another company record.
On the top line, the company had quarterly revenue of $1.44 billion, down 6% year-over-year, but still better than Street’s forecast, while earnings per share of $0.63 were well above the consensus estimate of $0. .20 lag. For all of 2022, revenue was $5.78 billion, an increase of 38% over 2021. The company’s annual net income, $441 million, was higher than $414 million in the prior year. In the end, Frontier’s diluted earnings per share of $1.80 represented a 7% year-over-year increase.
Analyst Frank Louthan, following Raymond James’ view, thought it appropriate to upgrade FYBR from an Outperform rating to a Strong Buy. The analyst elaborated on his view, writing, “4Q22 saw a continuation of the bend in fiber optic sub-adds, a trend we expect to continue, which should bode well for share price gains. We believe the EBITDA turnaround has begun and year-over-year growth will follow through 2023 as the successful marketing game drives penetration.”
To go along with his Strong Buy rating, Louthan also gives FYBR a price target of $37, implying a gain over the next year of ~34%. (Click here to view Louthan’s track record)
Overall, this telecom company has picked up 5 recent ratings from Wall Street analysts, including 3 Buys and 2 Holds, for a moderate buy consensus rating. The shares are trading for $27.63, and the $32 average price target suggests a one-year upside of ~16%. (To see FYBR stock forecast)
Primo Water Corporation (PRMW)
The second stock on our list, Primo Water, is a pure-play solution provider for fresh drinking water supply. The company specializes in large-format water deliveries—that is, bottles that hold 3 gallons or more—for water cooler dispensers at the customer’s location. Primo supplies both the dispensers and the bottles and supplies both business and private customers. The company generated approximately $2.2 billion in revenue last year and $2.07 billion in 2021.
Primo is active in 21 countries and offers dispensers, bottles, refill services and convenient delivery options. The company can also provide full customer support for its products. Water deliveries provide customers with a range of benefits over standard urban and suburban water pipelines, including cleanliness, reduction of contaminants such as mercury, lead or arsenic, and reduced waste from disposable plastic bottles.
Throughout 2022, Primo sold approximately 1 million dispensers to customers and saw a 7% year-over-year increase in its revenue. The company’s Water Direct and Water Exchange services drove those gains, up 17% year-over-year. Ultimately, Primo saw an adjusted net income for 2022 of $108.2 million, or 67 cents per share. This marked a strong annual increase over 2021 figures of $91 million and 56 cents per share. Looking ahead, Primo expects between $2.3 billion and $2.35 billion in revenue for 2023.
Pavel Molchanov follows this stock for Raymond James, and his most recent comment is interesting. Molchanov sees nothing spectacular here, but he does see a profitable company with a solid niche in a company with a solid foundation based on consumer needs. The 5-star analyst writes: “Primo’s multi-faceted sales strategy enables consumers and businesses to get high-quality drinking water at a lower price than single-use plastic bottles, and to avoid the associated waste — hence the sustainability aspect of the story. The recurring revenue model is supported by tucked-in M&A that incrementally raise estimates. While there are few operational catalysts, regulatory action against plastics in jurisdictions such as California and Canada should eventually lead to even higher demand.”
Higher long-term demand justifies the Strong Buy rating Molchanov puts here, and his $21 price target indicates he’s confident in a ~39% share appreciation over the next year. (Click here to view Molchanov’s track record)
The 4 recent analyst ratings on this stock show an even split, 2 buy and 2 hold, for an average buy consensus. PRMW shares are currently trading for $15.12 and the $19.50 average price target implies ~29% upside potential over a year. (To see PRMW stock forecast)
Sunnova Energy International (NOVA)
Last on our list is Sunnova Energy, a provider of residential solar energy installations to the US markets. Sunnova is involved in every stage of the solar home installation process, from installing roof panels to making the connections to the home power system to installing batteries, as well as providing repairs, adjustments and replacement of equipment as needed to keep the installation running smoothly. in good running order and up to local code requirements. Customers can even finance their purchase of a solar installation with Sunnova, and purchase maintenance plans and insurance.
Sunnova operates in 40 US states and territories, serving more than 279,400 customers through a network of 1,116 dealers, sub-dealers and builders. The company has expanded its customer base in recent months, boasting 33,000 new customers in 4Q22. For the whole of 2022, the company had 87,000 new customers. Looking ahead, the company expects to add between 115,000 and 125,000 new customers by 2023.
Customer additions led to higher revenues last year. In the fourth quarter, Sunnova’s revenue grew $130.6 million year over year to $195.6 million. Full-year revenue of $557.7 million was $315.9 million higher than in 2021. The company attributed its gains to the increase in the number of solar installations it has in operation, inventory sales to dealers and other customers and the acquisition in April 2021 of Zonnestraat.
Checking in again with Pavel Molchanov from Raymond James, who says of Sunnova: “A more decentralized power grid, with rooftop solar playing a key role, has economic benefits and also supports energy resilience, a facet of climate adaptation. Sunnova is one of the top players in the residential segment of the US PV market. The current penetration rate is only 4%. — compared to Germany in the mid-teens and Australia nearly 25% — and battery adoption is even at an earlier stage. The long-term growth story must be weighed against the company’s reliance on massive amounts of outside capital: securitizations and tax equity funds.”
The projected growth outlook earns it a Strong Buy rating, and Molchanov’s $30 price target implies a gain of ~70% on the one-year horizon.
All in all, this solar player has caught the attention of no less than 11 Wall Street analysts, whose ratings are divided into 9 Buy and 2 Holds – for a Strong Buy consensus rating. The shares have an average price target of $30.60, suggesting a potential one-year gain of ~74%. (To see NOVA stock forecast)
To find great ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that unites all of TipRanks’ stock insights.
Disclaimer: The opinions expressed in this article are solely those of the recommended analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.
