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Stock Price Targets
With earnings season underway, we continue to look at stocks that have enjoyed recent stock price upgrades. There’s nothing like an earnings beat or miss to change an analyst’s opinion.
Then again, how accurate are their stock price targets? Take these stock price targets with a grain of salt and instead look at the reasons behind them as well as traditional metrics, including P/E and 90-moving averages. This week we focus on a tech stock and a reopening play with a bullish outlook on the market in the coming month, but are also expecting bumpiness and pockets of buying opportunities.
Twitter, Inc (TWTR-N)
This popular social media platform is often overshadowed by Facebook and has historically underperformed it. Twitter shares rose 173% over the past five years compared to 292% for FB. Historically, Twitter has struggled to monetize its users’ messaging activity until recently. Just a few months ago, there were fears that some users would abandon the platform after disgraced former U.S. President Donald Trump was banned from using it to incite rioting.
However, since President Biden’s inauguration, the opposite has happened. Twitter shares have bounced 49% while Facebook has risen 20% to recent all-time highs. Twitter stock itself reached a high of $77.63 on March 1 but has since peeled back $10 during recent selling of tech stocks. In a nutshell, Twitter moved up too fast too soon and deserved to retrench.
On Monday, Oppenheimer maintained its outperfom rating on the stock, but boosted its stock price target from $70 to $85, based on a bet that global internet advertising will grow 20% YOY in 2021 as economies reopen, particularly in the travel and entertainment industries. Other tailwinds: government pumping stimulus into economies and continuing e-commerce strength. Those are all valid reasons, and 2021 looks sunny for Twitter, but pinpointing a stock price target on this stock is tougher than usual.
Currently, 34 analysts stock price targets are anywhere from $52 to $114, which averages out to $75.41 or 7.5% upside. The consensus is a weak buy, based on 14 buys, 19 holds and one sell. In the past month alone there have been three buys and five holds.
Twitter’s cash flow, profit margin and earnings remain negative, and lag its peers. Twitter stock’s EPS growth is declining, but it remains above the industry average. The EPS itself stands at -$1.45 while the industry average is $14.80. As for growth, Twitter has lost market share as it increases revenues slower than its competitors. This extends the trend from last year when Twitter grew revenues by 27.96% vs. the industry’s 29.46%.
Bottom line: The time to buy this was in mid-January and the money has been made. I wouldn’t be surprised if Twitter retrenched a little further, and only then can an investor initiate. On Monday, Twitter stock had fallen back to its 50-day moving average of $67.52, so it’s time to watch this. (The 200-day is $55.47.) If you already own Twitter stock, hold.
Williams-Sonoma Inc. (WSM-N)
Since March 18, two analysts initiated buys while two others maintained their buy signals on WSM stock. Only three of them offered stock price targets, which averaged $204, which is far above the consensus of $164.25. WSM stock is another weak buy drawn from seven analyst buys, eight holds and one sell, but at $168 the stock continues to trade above its 50-day moving average of $160.25 and 200-day of $123.24. WSM continues to ride the U.S. housing boom which shows no signs of abating.
If anything, housing sales and renos should rise as America pumps more vaccines into arms (on Monday, all adults in the U.S. can get jabbed). The reopening of malls (remember those?) will revive brick-and-mortar sales while WSM’s e-commerce has done well during lockdowns.
Another plus in WSM stock’s favour is its 20.3x PE which is cheap compared to the industry’s 31.5x. Margins also outpace the competition. For example, WSM stock’s profit margin is 10.04% vs. its peers’ 8.3%. WSM stock pays only a 1.39% dividend, but at a safe 24% payout ratio.
EPS growth is outpacing the industry average. Recent EPS was 8.59%, which marks a 90.73% increase over the previous year. In that year, revenue growth slightly lagged the industry’s (24.36% vs. 25.2%), but has reversed the trend since then and as a result has gained market share.
On March 17, WSM stock released Q4 earnings and revenues beats that the street liked. Before it spiked, WSM stock was changing hands around $136. Since then, shares have ranged between $165 and $187. Company revenues should continue to sail in 2021 though there will be mini-pullbacks on days like Monday and Tuesday this week when WSM stock gives back 2.5% so consider an initial position below $165.
