Investing

Raymond James Makes Huge Contrarian Addition to Analyst Current Favorites

Darden Restaurants

With phase two opening procedures in place in some areas, the restaurant industry is close to leaving the horror of being shut down except for carryout and delivery. Darden Restaurants Inc. (NYSE: DRI) owns and operates full-service restaurants in the United States and Canada.

As of November 24, 2019, the company owned and operated approximately 1,799 restaurants, which included 867 under the Olive Garden, 518 under the LongHorn Steakhouse, 166 under the Cheddar’s Scratch Kitchen, 79 under the Yard House, 59 under The Capital Grille, 45 under the Seasons 52, 42 under the Bahama Breeze and 23 under the Eddie V’s Prime Seafood brands.

The company reinforced its balance sheet by completing a $460 million equity raise ($400 million common, $60 million greenshoe). That highlights Darden’s growing cost of capital advantage to peers, given years of a more conservatively run balance sheet. Despite the 6% dilution, Wall Street thinks Darden’s war chest will help it muscle out peers after the pandemic.

The company has suspended the dividend for now. The $90 Raymond James price target is higher than the $86.11 consensus price objective. Darden Restaurants stock ended last week at $72.09 a share.

Kansas City Southern

This top railroad stock could have a very solid second half of the year with an improving economy. Kansas City Southern Inc. (NYSE: KSU) is a Class 1 North American railroad, with a nearly 6,000-track mile network, serving 10 states in the central and south-central United States, as well as Mexico.

With a network spanning across the U.S./Mexico border through Laredo, Texas, the company provides a direct connection between the United States and the industrial centers of Mexico. The company’s Mexican operating subsidiary, Kansas Southern de Mexico, is one of the two largest primary Mexican rail carriers.

The company is expected to generate $500 million in free cash flow for 2020, and analysts expect strong operating leverage potential as volumes start to rebound with an improving economy.

Shareholders receive a 1.11% dividend. Raymond James has set a $169 price objective. The consensus target price is $156.72, and Kansas City Southern stock close at $143.74 on Friday.

Wesco

This may be a very solid play for investors looking toward the potential infrastructure build-out. Wesco International Inc. (NYSE: WCC) is a distributor of products and provider of supply chain management and logistics services used in industrial, construction, utility and commercial, institutional and government markets.

The company is a provider of electrical, industrial and communications maintenance, repair and operating and original equipment manufacturers products, construction materials and supply chain management and logistics services. It also offers construction materials, and supply chain management and logistics services. Product categories include general supplies, wire, cable and conduit, communications and security, electrical distribution and controls, lighting and sustainability, as wel as automation, controls and motors.

The Raymond James price target is a huge $60. The posted consensus target was last seen at $45.90, and Wesco International stock closed most recently at $35.73 per share.

These five stocks from the Analyst Current Favorites list at Raymond James all have a degree of a contrarian play to them, and all offer outstanding value in a time when the stock market is very rich and overbought.