The first quarter ended Friday, and despite the overall outstanding gains for the quarter, the gains were all in January and February as March was essentially flat. With earnings reporting starting this week and really picking up next week, we will start to get an idea how business was for the quarter. One thing is for sure, with stocks elevated in price, companies that don’t deliver or that offer poor guidance could get hammered.
The Jefferies analysts remain reasonably bullish, and in their top growth picks for the week the firm focuses on some stocks that could be top momentum stories for the second quarter. All of course are rated Buy.
At Home Group
This company came in with some stellar numbers, but guidance tempered analysts. At Home Group Inc. (NYSE: HOME) operates over 100 warehouse-style home furnishing stores in 29 states. The company utilizes low-cost big-box locations (120,00 square feet on average) with five to six times the floor space of competitors to offer over 50,000 stock keeping units (SKUs) per store and 20,000 new SKUs introduced annually.
As the “fast fashion” of home décor, At Home produces lower-price, lower-quality products that mimic designs of higher-end brands to cater to price-conscious consumers who enjoy frequently changing up the look of their homes.
Jefferies feels the stock is cheap at current levels, trading at 8.8 times enterprise value to EBITDA when other growth retailers are in the low to mid-teens. The firm also looks for a 30% earnings per share compounded annual growth rate and 20% store growth.
The Jefferies price target for the stock is $20, and the Wall Street consensus target is $18.90. Shares closed last Friday at $15.16.
Ollie’s Bargain Outlet
This was a hot IPO back in 2015, and another retail stock Jefferies likes. Ollie’s Bargain Outlet Holdings Inc. (NASDAQ: OLLI) is one of the largest closeout retailers. It has an assortment of 130k SKUs spanning housewares, food, flooring, toys, home improvement, pet supplies, sporting goods and more. Brand name and closeout merchandise represents 70% of sales.
With 202 stores in the eastern United States, the company has a long runway for growth as it expands its network contiguously to 950 stores in the long term. Its 5.2 million strong “army” of loyalty members generates 55% of revenue and has grown at a 37% compounded annual growth rate since 2006.
The company reported its fourth-quarter numbers last week, and sales and earnings came in above estimates. Jefferies raised the fiscal 2018 earnings estimates, and as it is a closeout retailer, the firm feels that the company will benefit from an excess of U.S. inventory.
Jefferies has a $38 price target, while the consensus target is $35.89. Shares closed Friday at $33.50.
This recent tech IPO was red-hot out of the gate and then fell back to earth fast. Snap Inc. (NYSE: SNAP) is a social media company consisting of leading social media platform Snapchat and hardware device Spectacles. Through Snapchat, the company facilitates communication through visual media, enabled by the mobile camera.
Users are able to share photos, videos and text and are exposed to publisher content from top media companies such as the Wall Street Journal, Vogue, People, MTV and CNN. Advertisers use the platform to promote products that have a strong reach with the coveted millennial demographic.
Jefferies said this in its initiation of the stock:
We believe the company is well positioned for growth as advertisers continue to target millennials in high value ad markets. Currently, SNAP’s average revenue per user is $2.70, Facebook’s is 9x higher, and we expect this gap to narrow as the company scales its ad business.
The $30 Jefferies price target is well above the consensus target of $23.36. Shares closed Friday at $22.53.
Long considered a buyout candidate, after the mauling this stock took in the biotech selling to start the year, it is even more of a candidate now. Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) engages in discovering, developing, manufacturing and commercializing small molecule drugs for patients with serious diseases in specialty markets. The company focuses on developing and commercializing therapies for the treatment of cystic fibrosis (CF) and hepatitis C.
Wall Street as a whole has long been very positive on the stock, and some have indicated that the company could have as much as $10 in potential earnings-per-share power. The consensus also expect that Vertex should receive FDA approval for the company’s CF drug Lumacaftor, or as it is known, VX-‘809, which some think could generate billions in revenues.
The analysts noted:
Data released last week from two Phase III studies of ‘661/Kalydeco for CF showed better efficacy and safety than Orkambi, despite needing just comparable results. We believe this sets up a clear path for triple-combos, potentially de-risks a third CF segment, places Vertex even further away from the competition and demonstrates long-term sustainability of the CF franchise. We’d be buyers into strength and see high teens to 20% revenue growth over the next few years.
The Jefferies price target is $130. The consensus is at $109.86, and shares closed Friday at $109.35.
These four companies all have the ability to deliver for shareholders this quarter and beyond. These stocks are more suited for very aggressive growth accounts.