Earnings season gives analysts a lot to learn as they learn more about the impact of macro challenges on companies.
Although Wall Street is watching short-term stock movements supported by quarterly results, top analysts have their eyes on the companies' long-term prospects.
With that in mind, here are three stocks favored by the Street's top pros, according to TipRanks, a platform that ranks analysts based on their past performance.
Netflix
Netflix (NFLX) is this week's No. 1 pick. The streaming giant reported better-than-expected results for the first quarter of 2024. However, investors were disappointed by the company's decision to stop reporting quarterly subscriber numbers. The company said it is focusing more on revenue and operating margin metrics.
Following the Q1 print run, BMO Capital analyst Brian Betz reiterated a Buy rating on NFLX stock with a price target of $713. The analyst highlighted the company's addition of 9.3 million subscribers, which easily exceeded BMO's estimate of 6.2 million and the Street's forecast of 4.8 million.
Netflix has once again proven its ability to grow in the US, with 2.5 million net additions reported in the first quarter in the US and Canada, Betz added. He expects continued growth in membership, driven by ongoing paid engagement efforts and content innovation.
Explaining his bullish thesis, Betz said, “Content investments of $17 billion for 2024 position Netflix well for continued share-of-wallet gains as linear TV viewership declines.”
Despite Netflix's growth investments, the analyst expects operating margin to improve this year and beyond. The company is also expected to benefit from its focus on advertising, given that $20 billion in linear TV ad dollars is expected to shift to connected TV (CTV)/online globally over the next three years, including $8 billion in the US.
Betz is ranked No. 155 out of more than 8,700 analysts tracked by TipRanks. His evaluations were profitable 75% of the time, with each generating an average return of 18.4%. (See Netflix's ownership structure on TipRanks)
General Motors
Next is the automaker General Motors (GM), which reported impressive first-quarter results and raised its full-year guidance, supported by strong performance in North America.
In response to the strong results and outlook, Goldman Sachs analyst Mark Delaney reaffirmed a buy rating on the stock and raised his price target to $52 from $50. The analyst raised EPS estimates for 2024, 2025 and 2026 to reflect improved margin expectations.
“We believe margins can remain resilient, driven by both cost/efficiency (including execution on the balance of the $2 billion net cost reduction program this year) and relatively flat pricing,” Delaney said.
The analyst considers the progress achieved by General Motors in the profitability of electric cars to be favorable. Notably, GM continues to expect variable earnings for its electric vehicle business to be positive in the second half of this year and to achieve mid-single-digit earnings before interest and tax margin in 2025.
Delaney also added that GM's optimism is based on its current outlook for electric vehicle demand and production growth, as the company expects increased gains from the battery production tax credit and fixed cost leverage.
Finally, the analyst believes GM's capital allocation will continue to be a tailwind. The company is expected to return higher levels of capital to shareholders after 2024, given an aggressive buyback plan that aims to reduce the number of its outstanding shares to less than 1 billion shares.
Delaney ranks 256th out of more than 8,700 analysts tracked by TipRanks. His evaluations were successful 61% of the time, with each generating an average return of 17.5%. (See GM stock buybacks on TipRanks)
The wing stopped
Finally, there are chain restaurants The wing stopped (WING), which operates and franchises more than 2,200 locations worldwide. After a recent analysis of the total addressable U.S. market, Baird analyst David Tarantino said there is upside to the company's long-term target for the domestic market.
WING sees the potential to expand its footprint to more than 7,000 global locations in the long term, including more than 4,000 restaurants in the United States. However, Tarantino stated that Baird's analysis indicates an upside for the company's domestic target, with room for at least 5,000 locations in the US. .
Furthermore, BMO's analysis suggests that there is potential for the estimated TAM to rise over time, given the company's continued growth in more penetrated markets in recent years.
“Overall, a large domestic runway combined with a relatively open opportunity in international markets (only 288 locations after 2023) appears likely to support double-digit unit growth for many years to come,” Tarantino said. WING stock has a target price of $390.
The analyst estimates that Wingstop's unit-level cash returns are already around 70% for franchised locations in the U.S. and appear well-positioned to increase further this year, driven by higher average unit sales volume.
Tarantino asserts that WING deserves a significant valuation premium given its strong near-term operating momentum and attractive long-term growth profile. Looking ahead, the analyst is positive on the company's ability to maintain annual revenue growth in the mid-teens, coupled with a highly capital efficient growth model.
Tarantino is ranked No. 264 out of more than 8,700 analysts tracked by TipRanks. His evaluations were successful 65% of the time, with each generating an average return of 11.5%. (See Wingstop stock charts on TipRanks)
