Analyst upgrades as well as downgrades typically get stock investors’ attention on Wall Street. When analysts upgrade companies, a ‘hold’, or neutral, opinion usually becomes a ‘buy’ conviction, with a new price target. And a downgrade involves an opposite move.
Such a change in the conviction of a market professional who follows a given stock closely can affect the share price of a company significantly. Therefore, today I’ll discuss seven stocks that recently had analyst upgrades.
Broader indices have been making record highs, in part fueled by the strength in quarterly earnings. For instance, the S&P 500 Index started November with a new all-time high (ATH). The index, which is seen as a gauge of the health of the overall stock market, is up close to 23% year-to-date (YTD). As a result, many stocks now have historically overstretched valuation levels.
Nonetheless, many market participants wonder how long the optimism in equities can last. After all, growing worries about inflation, prospects for a hawkish FED, supply chain disruptions, including the chip shortage, are part of the daily life on the Street, too.
Hence, investors should focus on identifying potential buying opportunities in high-quality stocks. And that is where rating changes could be helpful. Investors might want to do further due diligence on companies that have recently been upgraded (or downgraded) to better understand a company’s operations as well as future prospects.
Against this backdrop, here are seven analyst upgrades to buy in November:
- Check Point Software Technologies (NASDAQ:CHKP)
- Horizon Bancorp (NASDAQ:HBNC)
- LendingClub (NYSE:LC)
- Merck (NYSE:MRK)
- Peabody Energy (NYSE:BTU)
- Silicon Motion Technology (NASDAQ:SIMO)
- Xcel Energy (NASDAQ:XEL)
Stocks With Analyst Upgrades: Check Point Software Technologies (CHKP)
52-week range: $109.07 – $139.26
American-Israeli software specialist Check Point Software Technologies provides cybersecurity solutions for a wide range of clients, mainly through its Infinity Platform. It also recently acquired Avanan, a cloud email and collaboration security firm, enhancing its security offering for email systems and Software-as-a-Service (SaaS) collaboration suites.
Check Point Software announced Q3 results on Oct. 28. Total revenue grew 5% year-over-year (YOY) to $534 million. Non-GAAP net income came in at $220 million, or $1.65 per diluted share, compared to a non-GAAP net income of $231 million, or $1.64 per diluted share, a year ago.
Cash balances, marketable securities, and short-term deposits ended the quarter at $3.8 billion. The company also repurchased 2.6 million shares for about $325 million during the third quarter.
On the results, CEO Gil Shwed said, “Revenues came in toward the high-end of our projections and Non-GAAP earnings per share exceeded projections. Subscription revenues increased by 13 percent driven by triple-digit growth in Infinity platform sales and double-digit growth in Harmony and CloudGuard.”
Deutsche Bank (NYSE:DB) upgraded Check Point Software to a ‘buy’ rating in late October. The company has an average rating of ‘hold’ and a median price target of $131.50.
CHKP stock hovers at $120 territory, down 12% YTD. Shares are trading at 17x forward earnings and 7.5x trailing sales. Given the increasing reliance on cloud-based cybersecurity products, the current valuation may offer an attractive opportunity for growth investors to go long on CHKP shares.
Horizon Bancorp (HBNC)
52-week range: $12.14 – $20.17
Dividend Yield: 3.11%
Michigan City, Indiana-based Horizon Bancorp provides retail and commercial banking services as well as trust and agency services. Investors have been following the news that Horizon recently acquired “14 TCF National Bank (“TCF”) branches in 11 Michigan counties with approximately $976 million in deposits and $278 million in associated loans,” The group aims to increase the retail franchise and expand its deposit and funding potential.
Horizon announced Q3 results on Oct. 27. Net interest income increased to a record $46.5 million, up 7.3% YOY. Adjusted net income grew 13.6% YOY to $23.1 million, or 52 cents earnings per diluted share, up from $19.4 million, or 46 cents earnings per diluted share, in the prior-year quarter.
“Organic commercial and consumer loan growth, the extension of Horizon’s Michigan franchise with our branch acquisition completed last month, record net interest income, Horizon’s low–cost deposit franchise, and our efficient operations all contributed to significant growth in pre–tax, pre–provision net income and bottom–line earnings,” CEO Craig M. Dwight remarked.
Raymond James Financial (NYSE:RJF) upgraded Horizon Bancorp in recent days. The group has a average rating of ‘buy’ and a consensus price target of $23.00.
HBNC stock is up almost 25% YTD. Shares are trading at forward earnings of 10.5x and 3.7x trailing sales. Potential investors could consider buying the dips in shares.
Stocks With Analyst Upgrades: LendingClub (LC)
52-week range: $4.98 – $49.21
Through its platform, LendingClub offers loan products mostly to individuals and small businesses. Earlier in the year, management finalized the acquisition of Radius Bancorp as well as its digital bank subsidiary, Radius Bank.
An immediate benefit of this deal is the reduction in bank fees and funding costs for LendingClub. In addition, the financial technology (fintech) resources of Radius Bancorp will likely help LendingClub grow its reach in multiple ways.
The company released Q3 results on Oct. 27. Total net revenue surged 246% to $246 million YOY, driven by a 14% increase in loan originations to $3.1 billion. Net interest income increased 42% sequentially to $65 million. Consolidated net income stood at $27 million, or 26 cents earnings per diluted share, compared to a net loss of $34.3 million, or 38 cents loss per diluted share, in the prior-year quarter.
On the metrics, CEO Scott Sanborn remarked, “Our success continues to be driven by our competitive advantages, including our growing base of 3.8 million members, our exceptional data science capabilities, and our proven marketplace model.”
Thanks to its booming loan origination volumes as well as the improving bottom-line, LendingClub raised full-year guidance. Now, management anticipates net income of $9 million to $14 million, up from a loss of $13 million to $3 million.
On Oct. 29, Compass Point upgraded Lending Club to ‘buy’ with a price target of $55. The company has a average rating of hold’ and a consensus price target of $45.
LC stock hit a multi-year high in recent days and hovers shy of $47. It is up 350% YTD, and 850% over the year. Shares are trading at 32x forward earnings and 10.4x trailing sales. Potential buy-and-hold investors could regard declines as opportunity to invest in the lending platform.
Merck (MRK)
52-week range: $68.44 – $90.42
Dividend Yield: 2.92%
Investors in the pharma giant Merck saw robust returns in October. So far in the year, the shares are up about 14%, and most of the gains were in the past month. On Oct. 1, management announced encouraging results against Covid-19 from its investigational oral antiviral drug Molnupiravir.
The drug is being developed together with Ridgeback Biotherapeutics. In the coming weeks, the U.S. Food and Drug Administration’s (FDA) Antimicrobial Drugs Advisory Committee (AMDAC) will discuss Merck’s request for obtaining an Emergency Use Authorization (EUA).
On Oct. 28, the pharma group released Q3 metrics. Global revenue was $13.15 billion, up 20% YoY. Regular InvestorPlace.com readers would know that Merck issues sales metrics in two main segments:
- Pharmaceutical (revenue of $11.49 billion, up 18% YoY)
- Animal Health (revenue of $1.41 billion up 16% YoY)
Wall Street also noted that revenue for Keytruda, its widely-followed cancer immunotherapy, went up by 22% and reached $4.53 billion. These robust metrics coupled with management’s upbeat tone have pleased investors. An approval by the FDA could also bring extra revenues of up to $7 billion by the end of 2022.
On Nov. 1, Argus Capital (NASDAQ:ARGUU) upgraded Merck. The company has a average rating of ‘buy’ and a consensus price target of $96.50. MRK stock’s forward price-to-earnings (P/E) and price-to-sales (P/S) ratios stand at 13x and 4.4 respectively. Despite the recent gains, given its pipeline and potential approval of Molnupiravir, the shares belong in long-term portfolios.
Stocks With Analyst Upgrades: Peabody Energy (BTU)
52-week range: $0.80 – $19.83
St.Louis, Missouri-based Peabody Energy mines and sells coal in the U.S. and Australia. The group also markets and and trades coal and freight-related contracts through global offices.
According to the U.S. Energy Information Administration (EIA), “Most coal is purchased for power plants. In 2020, the electric power sector accounted for about 91% of total U.S. coal consumption… In addition to producing electricity, coal is also used to produce coal coke, or coke, which is used in smelting iron ore to make steel.”
Peabody Energy released Q3 results on Oct. 28. Revenue was up 1% YOY to $679 million. Net loss came in at $44 million, or 38 cents net loss per diluted share, compared to a net loss of $67 million, or 69 cents per diluted share, in the prior-year quarter. Cash and equivalents ended the quarter with $587 million, down 28% YOY.
Following the announcement, CEO Jim Grech remarked, “We are capturing opportunities provided by current robust coal market dynamics with strong operational performance which is resulting in expanded margins across our portfolio.”
In early October, B Riley Financial (NASDAQ:RILY) upgraded Peabody Energy. The company has an average rating of ‘hold’ and a consensus price target of $15.
Peabody is well-positioned to gain from the rally in coal prices, which recently hit a record high of $269.5 per metric ton. In January, it was around $80 per metric ton. As a result, the group’s revenue derived from coal surpassed $900 million this quarter. Admittedly, coal also witnessed a massive drop, shedding over a third of its value. However, it is beginning to trend upward again.
However, following the results, BTU stock fell after missing analyst estimates on top and bottom-line performance. Peabody reported a $238 million net loss on hedges contracted earlier for coal from a mine in Australia.
BTU shares hover at $12 territory, up 390% YTD and 810% over the year. The stock is trading at nearly 60x forward earnings and about 0.4x trailing sales. Interested readers could consider buying BTU around these levels.
Silicon Motion Technology (SIMO)
52-week range: $35.16 – $81.87
Dividend yield: 2.8%
Taiwan-based Silicon Motion Technology is a leading player in the semiconductor industry. It designs controllers for managing NAND flash memory used in embedded storage applications.
Its products are mainly used in flash drives, smartphones, tablets, PCs and data centers. The company continues to benefit from surging demand for its solid-state drive (SSD) controllers and diverse product mix.
Silicon Motion announced Q3 results on Oct. 28. Revenue increased 102% YOY and 15% sequentially to $254 million. SIMO reported a non-GAAP income of $74.8 million, or $1.70 per diluted American depositary share (ADS), up from $64.5million, or $1.50 per diluted ADS, in the prior-year quarter.
Cash and equivalents ended the period at $419.5 million. The board also recently approved a 43% increase in annual dividend to $2.00 per ADS.
Following the Q3 results, CEO Wallace Kou said, “We continued to optimize our scarce foundry wafer capacity and product allocation to customers and delivered $1 billion in Revenue Run-Rate, a quarter ahead of plan. Our third quarter results were driven by strong sales of eMMC+UFS controllers used primarily in smartphones and other smart devices.”
Silicon Motion Technology has recently been upgraded by Susquehanna Community Financial (OTCMKTS:SQCF), Morgan Stanley (NYSE:MS) and Cowen (NASDAQ:COWN). The company has a average rating of ‘buy’ and a consensus price target of $100.
SIMO shares hover at $71, up 47% YTD and almost 89% over the past year. The stock price also supports a dividend yield of 2.8%. Forward P/E and P/S ratios stand at 10.54x and 14.82x respectively.
Stocks With Analyst Upgrades: Xcel Energy (XEL)
52-week range: $57.23 – $76.44
Dividend yield: 2.83%
Our final stock for today is the Minneapolis, Minnesota-based Xcel Energy. Many of our readers might know it as a public utility holding company serving 3.7 million electric customers and 2.1 million natural gas customers.
It is also one of the largest renewable energy providers stateside, as one-third of electricity sales come from alternative energy sources. The utility operates four subsidiaries that serve electric and natural gas clients in eight states.
Xcel Energy announced Q3 results on Oct. 28. Revenue increased 9% YOY to 3.5 billion. GAAP earnings came in at $609 million, or $1.13 per share, compared with $603 million, or $1.14 per share, in the prior-year quarter.
CEO Bob Frenzel remarked, “Xcel Energy posted strong year-to-date results, so we’re narrowing our 2021 earnings guidance to $2.94 to $2.98 per share… In addition, we are initiating 2022 earnings guidance of $3.10 to $3.20 per share, which is consistent with our long-term growth objective.”
Xcel Energy has pledged to become carbon-free by 2050. The company continues to retire its coal power plants, replacing them with cleaner energy alternatives. Management is also heavily investing in charging stations as well as other electrification infrastructure.
In late October, Bank of America (NYSE:BAC) upgraded Xcel Energy. The company has an average rating of ‘hold’ and a consensus price target of $71.50.
XEL stock currently trades at around $63 per share, down 5% YTD. Shares are trading at 20.5x forward earnings and 2.7x trailing sales. Given its stable cash flow and potential upside, current valuation represents a good entry point for investors looking for a position in the renewable energy market.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
