With an expensive and bloated stock market, the last thing you want to happen when earnings season rolls around is have stocks in your portfolio that miss earnings estimates or give weak forward guidance. While most on Wall Street are reasonably positive on earnings for the just completed third quarter, it makes sense to review holdings that look vulnerable and add stocks that could beat estimates.
In a new research report, Merrill Lynch analyst Justin Post and his team reviewed 25 companies in the firm’s internet/e-commerce universe, comparing the Merrill Lynch estimates versus Wall Street’s numbers. He thinks four top companies can beat estimates on the top and bottom line. All four make sense for aggressive growth accounts with a degree of risk tolerance, and all are rated Buy at Merrill Lynch.
The huge social media leader has continued to post gigantic numbers, and it is the top pick in internet media for 2017 at Merrill Lynch. Facebook Inc. (NASDAQ: FB) operates as a mobile application and website that enables people to connect, share, discover and communicate each other on mobile devices and personal computers worldwide.
Its solutions also include Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application for mobile and web on various platforms and devices, which enable people to reach others instantly, as well as enable businesses to engage with customers; and WhatsApp Messenger, a mobile messaging application.
Merrill Lynch feels that Facebook’s long-term forecasts are more easily attainable, especially as the company continues to grow and employ new platforms for online advertising. Wall Street estimates are likely moving higher for 2018 as the company ramps monetization in Instagram, including Stories ads, rolls out more Facebook original video content, begins to monetize Messenger and sees slightly lower than forecast operating expense and capital expenditure growth.
The Merrill Lynch price target for the stock is $190. The consensus target is $172.62. The shares closed trading on Wednesday at $172.74.
Match Group
Merrill Lynch is so positive on this company’s prospects that the firm raised its price target in front of third-quarter results. Match Group Inc. (NASDAQ: MTCH) is the worldwide leader in online dating products in terms of revenue, monthly active users and paid members. Its portfolio of dating sites includes several of the most popular products, such as Match, Meetic, OKCupid, Tinder, POF and Twoo. It has four of the top five highest-grossing dating apps in North America and three of the top five worldwide.
With more and more millennials turning to online dating, the prospects for this company are incredibly strong. Toss in the computer literacy of younger Americans, and it makes sense that the stocks in this area would show robust growth. Some top analysts on Wall Street feel that as much as a stunning 50% of all dates will begin online by 2022.
Merrill Lynch raised its price target to $30 from $21, and the consensus target is $23.53. The stock closed trading on Wednesday at $26.05.
Wayfair
The combination of new homeowners and replacement buying by flood victims could create a big jump in this company’s earnings for the quarter. Wayfair Inc. (NYSE: W) is a multi-brand e-commerce company that offers one of the widest selections of furniture, home goods, home decor and housewares online. Wayfair operates six e-commerce brands: Wayfair.com, Perigold, Joss & Main, AllModern, Dwell Studio and Birch Lane. Wayfair exited 2016 with more than 8 million active customers and shipped more than 14 million orders.
With many customers using online shopping to replace home furnishings, Wayfair stands out as one of the largest and fastest growing players in the business.
Merrill Lynch has a whopping $90 price target, and the consensus target is $83.50. The stock closed Wednesday $66.22.
Zillow
This is the preeminent online real estate company and has posted outstanding growth. Zillow Group Inc. (NASDAQ: Z) is the category leader for online real estate advertising, with over 168 million average monthly unique users across multiple sites. Zillow operates the top two online and mobile real estate lead generating services Zillow.com and Trulia.com, as well as high-growth segments in rentals and mortgage lead generation.
Merrill Lynch analysts are very positive on the shares, especially as mortgage rates remain at generational lows. They also believe Zillow occupies a lucrative position in the market relative to competitors due to its dominant and growing share of user traffic and advertiser spending.
The $53 Merrill Lynch price target compares with the consensus price objective of $43.67 and the most recent close at $41.41.
Four top companies to buy that look poised to beat both top and bottom line estimates for the quarter. While more suited for aggressive accounts, they have established business lines and should continue to show positive growth metrics for years to come.
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