Top Wall Street analysts see upside in these stocks as earnings season continues

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In this article

Joel Anderson, CEO, Five Below 
Scott Mlyn | CNBC

The macroeconomic picture – and the longer-term expectations for certain stocks – is becoming clearer as earnings season continues.

To that effect, some of the top Wall Street analysts have high hopes for Toast, Apple, Five Below, Freshworks and IMAX, according to TipRanks, which tracks the best-performing stock pickers. Indeed, Apple and IMAX are among the companies reporting in the upcoming week.

Let’s take a deeper dive into these stocks, and see why the analysts are fans.  

Toast  

These days it appears nearly every aspect of life is moving toward cloud-computing solutions, and for good reason. Many companies offer their customers a medium through which convenience and efficiency are increased, driving enterprises toward their full potential.

This is also true for the restaurant industry, as Toast (TOST) has been leveraging this relatively unpenetrated market to surge to prominence. (See Toast Insider Trading Activity on TipRanks) 

Mayank Tandon initiated coverage on the stock for Needham & Co., writing that Toast “operates a comprehensive restaurant [point of sale] and management platform that combines modern payment processing and software solutions to help restaurants effectively grow and manage day-to-day operations.” 

Tandon rated the stock a Buy, and provided a price target of $70.  

The five-star analyst asserted that the firm has potential to increase its serviceable available market over seven times its current size. He figures this is the case because the company has yet to go international and will most likely have new innovations down the road.  

While Toast offers both software and hardware, Tandon anticipates the former to represent the majority of its revenue generation. After acquiring existing restaurants, TOST can cross-sell its “payroll, online ordering, and loyalty program management.” The analyst believes this positioning is highly advantageous for the company in regard to expanding and recurring revenues.  

After weathering the Covid-19 pandemic by vastly widening its serviced restaurant pool, Toast is prepared for more economic reopening activity to aide in its “land and expand” strategy.  

On TipRanks, Tandon maintains a position of No. 99 out of more than 7,000 financial analysts. His ratings have thus far resulted in success 67% of the time, and have returned an average of 42.8% on each one.  

Apple  

Apple (AAPL) has always had an enthusiastic following of devotees, but now it appears any time the company launches new products, nearly every form of news covers it in some way. This kind of free publicity dramatically lowers Apple’s ad expenses and drives margins. (See Apple News Sentiment on TipRanks) 

Laura Martin of Needham & Co. mentioned this detail in her recent report, adding that the “rabid fandom” surrounding Apple has reached a point where the company can release hours of infomercials in a 30-day span and still get so much free coverage. This is a phenomenon which she asserted is not experienced by any other firm in regard to its brand awareness.  

Martin is bullish on the stock, and rated it as a Buy. The highly ranked analyst decided on a price target of $170.  

Moreover, during the keynote presentation, Apple focused again on benefits seen from its in-house silicon chips, which have been “improving speeds, memory, graphics and editing capabilities and battery life” in its products. Martin contended that the vertical integration raises moats around Apple and insulates it from competitors who are using out-sourced chips.  

Apple’s penetration is also something catalyzing confidence in the company, as iOS devices per user have increased from 1.57 in early 2020 to 1.65 now. This “key leading indicator for AAPL’s upside value” shows an anticipated decrease in churn rates. Additionally, the company has made it particularly difficult for consumers to leave its vast ecosystem, due to stickiness from accessory and add-on hardware and software ecosystems, family plan pricing on services, and financing options for iPhones.  

Out of more than 7,000 analysts, Martin has been placed as No. 191. Her stock picks have resulted in a success rate of 64%, and they have returned an average of 43.4% per pick. 

Five Below  

While shipping constraints impact companies around the globe, the ones that have been protecting themselves from these headwinds could emerge on stronger footing.

The value retailer Five Below (FIVE) has been mitigating rising freight costs with fixed contracts and new fulfillment centers. With macroeconomic challenges mounting, Five Below plans to expand its higher-priced segment, Five Beyond, to more stores, in hopes of maintaining strong inventories as an inflationary hedge.  

Randal Konik of Jefferies delineated his bullish opinions on the company, writing that Five Below has been “quickly scaling and investing in its supply chain.” He believes the company is better protected from climbing shipping costs than its peers, and that the realized impacts are “likely be fairly minimal.” (See Five Below Risk Factor Analysis on Tipranks) 

Konik rated the stock a Buy and assigned a price target of $300.  

The five-star analyst explained that Five Below has recently opened a new Arizona fulfillment center, which became operational during the currently unreported quarter. Additionally, the company has announced plans for another center in Indiana, set to open mid-2022. This kind of vertical integration creates confidence in Konik that the company will have even smoother delivery, with shorter lead-times.  

The implementation of Five Beyond has already taken hold in over 270 stores, and is expected to rise to about half of Five Below’s stores by the end of 2022. Konik is enthused that Five Beyond has been established in so many stores before the holiday shopping season begins to kick off for retail.  

Financial aggregator TipRanks has placed Konik as No. 415 out of over 7,000 professional analysts. He has been successful in his ratings 63% of the time, and has returned an average of 22.1% on each one.  

Freshworks  

When it comes to customer engagement technology, small and mid-sized businesses are typically at a disadvantage. As the world trends toward digital life, a data-driven consumer relationship management tool is necessary to gain any edge over one’s competition. For this service, some companies have been turning to the SaaS platforms developed by Freshworks (FRSH).  

Initiating his coverage on the stock is Brian Schwartz of Oppenheimer & Co., who wrote that Freshworks has “blossomed into a true platform success story of substantial scale with an accelerating growth trajectory.” He asserted that the company can maintain a consistent industry-leading growth rate, as small and mid-sized businesses using outdated technology move to its platforms. (See Freshworks Stock Analysis on TipRanks) 

Schwartz rated the stock a Buy, and calculated a price target of $50.  

The analyst explained that Freshworks is on the verge of tapping into hundreds of thousands of customers who are “struggling to modernize and automate their customer engagement strategy.” Evidently, the company has a long ramp for potential organic growth.  

Lead by its strong management team, Schwartz added that Freshworks has been experiencing high levels of billings and revenues for years. He was enthused by the firm’s strong business performance and the company’s ability to outpace its “desk and service” peers considerably. The analyst expects further upside as the company continues to reap success from its innovations and initiatives.  

Schwartz did advise caution that high competition from established CRM players could pose a risk if they were to exert energy toward small and mid-sized businesses. Furthermore, the company is facing difficult comparisons ahead, after experiencing so much momentum in the past.  

TipRanks’ calculations place Schwartz as No. 2 out of more than 7,000 financial analysts. His stock ratings have seen success 88% of the time, and have returned him an average of 67.4% on each one.  

IMAX  

Even with Covid-19 woes lingering, a strong movie slate from studios has drawn consumers back into theaters. For the IMAX (IMAX), box office sales have already returned to pre-pandemic levels, and October is on track to be its best ever. Moviegoers seem to have learned to live with the virus in mind, but some analysts think IMAX is going overlooked by investors.  

Eric Wold of B. Riley Securities believes that while the company and larger movie industry are emerging from the pandemic better than expected, the stock has been underperforming the market. He notes that stronger partnerships with studios, more theatrical releases, and an increased screen count can catalyze upside in IMAX before its upcoming third-quarter earnings report late October. (See IMAX Earnings Results on TipRanks) 

Wold rated the stock a Buy and assigned a price target of $30.  

The five-star analyst explained that throughout the pandemic, several methods of movie releases were attempted, and it appears that the one that benefits IMAX appears to also be the best for the industry. Releasing movies concurrently in theaters and on streaming services, or the “day-and-date” model, as Wold deemed it, was not as successful as expected.  

Instead, Wold wrote, “all the major studios …have agreed to implement exclusive theatrical windows for their film slates.” He was enthused by the prospect of IMAX being called on to push big movie releases in shorter, more demand-intensive windows. With IMAX’s greater screen counts, the company is well-positioned to capture this opportunity.  

Wold is rated by TipRanks as No. 209 out of over 7,000 other analysts. He has been successful 67% of the time, and has an average return of 35.1% per trade. 

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