3 Reopening Stock Price Target Upgrades: Sherwin Williams, QSR, UPS
Earnings season continues and that triggers changes in analyst signals and price targets. While some take no notice of a change in price targets, they do express changes in analyst prospects towards stocks. Also continuing—in the U.S, not Canada—are reopenings. We look at stocks that have seen notable analyst moves and continue to benefit from the reopening.
Last week, J.D. Power reported that Covid didn’t stop Americans from painting their homes. In fact, 98% of paint consumers said they felt safe while shopping at these stores. The report concluded, “Though we’ve seen a slight increase with exterior paint and stain being purchased online, interior paint shoppers still heavily rely on the consultative in-store experience.” In the next three months as summer arrives, 37% of Americans have or will have a home painting project. Also last week, Sherwin Williams reported an earnings beat of $2.06 vs. the $1.65 street estimate (their last three quarters also beat). Meanwhile, the U.S. housing sector continues to boom.
With all this good news, three analysts on Monday raised their price targets though maintained their neutral, hold and outperform ratings. For example, BMO lifted its price target from $278 to $300. The numbers back up this optimism. EPS growth is above the industry average with the most recent EPS rising nearly 34% over 2020. The company’s ROE of 66.53% is one of the highest in the chemical manufacturing space while its profit margin of 11.23% beats the industry’s 7.86%. However, the street has moderate growth expectations for SHW stock with a forward PE of 30.99x compared to its current 35.5x. And SHW stock’s dividend yield pays only 0.79% though it’s safe at a 24.4% payout ratio.
All things considered, it looks consumers will continue to paint and foot traffic in SHW stores will only increase this summer. This is a buy.
You’d think that during Covid, this collection of fast food brands would have thrived like Domino’s Pizza, for instance. True, Burger King and Popeyes did well, but Tim Horton’s, Canada’s venerable brand, fell off because its breakfast business dropped off. Timmy’s also was healing its wound from its well-publicized battles with its franchisees. However, with Canada expected to reach mass vaccination by mid-summer, Timmy’s breakfast trade should return while the other chains will revive as well.
Last week’s Q1 report holds promise for QSR stock. Timmy’s Q1 revenue of $1.26 billion narrowly beat street expectations. In the U.S., where geographies are opening sooner than in Canada and consumers are spending recent stimulus money, comparable sales at Burger King rose 6.6%, but that’s half the rate of McDonald’s. Meanwhile, Popeyes’ comp sales came in surprisingly flat. Overall, QSR’s EPS came in at $0.55 which beat the consensus by a nickel. You could argue that the comps were easy to beat, but the report did market a (modest) return to growth.
Still, this report and the reopening outlook in Canada and the U.S. inspired a UBS analyst to raise its price target from $74 to $76 and maintain a buy rating. Also on Monday, RBC raised its price target from $68 and $73 and maintain an outperforming signal, while another analyst raised its price target from $65 to $77 with an overweight rating. American shares of QSR stock popped last Friday when the report hit and continued to climb Monday this week to bring QSR-Q to nearly US$70.
If we adjust to the Canadian QSR stock, then the average price target is $88.67 or 5% upside, based on 11 buys and five holds. Analysts aren’t upgrading QSR stock, but they are raising price targets based on an expected rise in foot traffic. Metrics are mixed. Earnings and cash flow lags its peers, though its margins surpasses those peers (15.93% profit margin vs. 10.9%). The dividend of 3.09% beats Domino’s Pizza and McDonald’s, but it carries a high payout ratio of 122%.
The street is counting on more foot traffic and that’s likely. If you already own QSR stock, hold. If you want to enter, consider this a partial buy.
No doubt that delivery companies have thrived during lockdowns. Last week, the evidence was in the numbers as UPS delivered a blowout Q1 report that included a 158% leap in operating profits. Revenue popped 27% year-over-year while total volume rose 14.3% on the quarter, led by growth from small- and medium-sized American businesses. Interesting to note that customers absorbed higher prices which climbed 10.2% in revenue-per-piece in the States.
Of the 15 analysts who have weighed in since that report, one upgraded to a buy, another upgraded to a hold while the rest maintained mostly buys, some holds and a lone sell. There are 11 buys, six holds and one sell with an average price target of $206.29, or 1% upside for UPS stock. Since that Q1 report, UPS stock has jumped from $175.81 to around $213, or 21%.
Is there upside? The reopening may see a leveling off in deliveries, but not a sudden plunge. Consumer e-commerce will remain above pre-Covid levels, and small/medium businesses may well rely more on shipping if predictions of a hybrid workplace (mixing offices and homes) come true, even partially. Day traders can probably eke out a few dollars from UPS stock, but long-term investors (like me) will need to wait for a pullback before stepping in. UPS is a solid company, but the stock has moved far and fast lately.