Deutsche Bank’s 3 Top Stock Picks as Markets Hit Record Highs

November opened with a bang in the markets as several points of good news boosted investor morale.

To start with, the Federal Reserve, at its FOMC meeting, did exactly what everyone expected. It cut rates by 0.25%, and indicated that no further cuts are in the offing. The jobs report on Friday, while not a blockbuster, beat a gloomy expectation by a wide margin, showing 128,000 new jobs in October against a forecast of just 90,000. In addition, revisions to August and September added another 95,000 new jobs. And to top it all off, the S&P 500 hit another record high on November 1, reaching 3,066.

With markets looking good, it’s no wonder that the major investment firms are making ‘Buy’ recommendations. Deutsche Bank, Germany’s largest financial services bank, maintains a highly reputable staff of investment analysts and experts, 337 strong, monitor the markets and advise investors. Their collective success rate of 60%, and their 8.4% average return on recommendations, has ranked Deutsche Bank #8 out of 50 in the TipRanks database of top performing research firms.

We’ve dipped into that database, using the Best Stocks to Buy tool, to find several stocks that Deutsche Bank has recommended as we start the fourth quarter.

Lyft (LYFT)

Uber’s main competitor, Lyft operates across the US and Canada. Through its popular mobile app, Lyft markets a network of on-demand car rides, scooter rental, and bicycle sharing. The company controls a 28% market share in this niche, making it the second largest ride-sharing company in the US. Lyft brought in over $2.16 billion in revenue last year, but, also like Uber, it operates at a net loss.

In its Q3 earnings report last Wednesday, Lyft revealed the extent of that net loss. The results were somewhat mixed, but on whole better than expected. The EPS loss of $1.57 was 5% better than the forecast $1.66, and quarterly revenues were also up, at $955.6 million against the estimate of $915 million. The company boosted its full-year revenue guidance, too, projecting 2019 revenues of $3.57 billion, a significant increase from the previous estimate. The full-year guidance was substantially boosted by a 4% bump in the Q4 revenue estimates, from $943 million to $980 million.

On the negative side of the ledger, company losses of $43.5 million during Q3 were 85% higher than the same quarter last year. Lyft’s net loss has greatly increased during 2019, although losses have lessened since Q1. Increasing revenues have eased investor concerns on this issue, although it remains an asterisk on LYFT.

Deutsche Bank’s 5-star analyst Lloyd Walmsley sees reason for optimism in the earnings report. He noted, “Strong results combined with a faster than expected path to EBITDA profitability, which could come even sooner than recent guidance (we now model 3Q 2021), reaffirms our view that the market is underappreciating the earnings power at Lyft… we think Lyft is well positioned to show continued ramp towards profitability.”

Walmsley rates LYFT stock a Buy along with a $70 price target, which suggests an impressive 70% upside to the stock. (To watch Walmsley’s track record, click here)

LYFT’s overall rating, a Strong Buy on the analyst consensus, is based on 22 Buys given in the last three months. Dissenting opinions include 7 Holds; the last Sell rating on this stock was given 7 months ago. Shares are selling for $42.98, and the average share price is $70. As noted, this gives an upside potential of 70%. (See Lyft stock analysis on TipRanks)

Carrols Restaurant Group (TAST)

It’s not a household name, so you probably haven’t heard of Carrols Restaurant. But there’s a good chance you’ve eaten at one of their locations – the company is the world’s largest owner and operator of Burger King franchises. Starting in 1976, Carrols began acquiring Burger King locations, and converting its eponymous store to the burger franchise. The company now owns over 1000 Burger Kings in 23 US states. In addition, Carrols owns 55 Popeyes chicken locations.

Tomorrow, Carrols is scheduled to report Q3 earnings. Wall Street is looking for an EPS of 10 cents per share, an 11% increase from last year’s Q3 EPS of 9 cents. A 35% gain in revenue, to $401.7 million, is expected to support the EPS gain. To put the quarterly report in some perspective, TAST has reported steady gains in annual revenue since 2010, from $348 million to last year’s $1.18 billion. Burgers might not be a necessity of life, but they are both popular and profitable at scale.

Deutsche Bank analyst Brian Mullan initiated his firm’s coverage of TAST with a Buy rating and a $9 price target. In his analysis, the analyst points out the stock’s valuation, saying, “Following relatively disappointing 2Q19 earnings results last month, we see a dislocation in shares that should correct over the balance of the year simply by assuming that 2H19 SSS can improve (as guided) and that restaurant level margin declines can get “less bad” exiting the year. Should this occur, we believe this “bridges the gap” to a better 2020E and beyond story where Cambridge synergies, ROFR acquisition opportunities, and a ramp in new unit development will all come into greater focus for investors. As such, we believe that the risk-reward for TAST is favorable.” (To watch Mullan’s track record, click here)

TAST is not widely covered by the Street’s analyst corps; among those who do cover the stock, however, the consensus is a Strong Buy. TAST shows an average price target of $12.33, implying room for a robust 62% upside from the current trading value of $7.35. This stock is bargain priced, and plenty of room for growth. (See Carrols Restaurant stock analysis)

LHC Group (LHCG)

Our third bullish call from Deutsche Bank is definitely not a well-known name – but it is a stock worth watching, with plenty of long-term potential. As the population ages, home health and senior care will become an ever-greater necessity, and the companies that offer these services will stand to profit. LHC, based in Louisiana and offering senior health services in 35 states plus DC, is one of these. The company is a high-quality health provider, offering a combination of home health, community services, facility care, and hospice. Its current operations reach 60% of the US senior population.

The expanding customer base and high demand for services has pushed LHCG up. The stock has strongly outperformed the general markets, gaining over 31% year-to-date, against an S&P 500 gain of 22%. Looking ahead to the next earnings report, analysts expect that LHC Group will show $1.08 EPS, 13% higher than the year-ago quarter. Revenues are expected to rise 5% year-over-year, to $532.24 million.

The firm foundation gives this company a strong base to move forward, and that is what has attracted Deutsche Bank to the stock. In an initiation report dated September 14, analyst Justin Bowers says it bluntly: “LHC Group’s organic growth rates have outperformed the industry by 3% per year on average over the last five years and we expect this to continue given the company’s differentiated joint venture model. The company’s seasoned management team has a track record of navigating payment and regulatory reform…” Bowers’ $145 price target indicates confidence in the stock; he sees room for a 17% upside. (To watch Bowers’ track record, click here)

The optimistic Deutsche Bank report on LHCG is in line with other analyst views on the stock. The Strong Buy consensus is based on 7 recent ratings, including 6 buys and only 1 Hold. Shares sell for $123, so it’s not cheap, but the average stock-price forecast of $134 suggests a 9% upside. As analyst Bowers said in the title of his initiation report, “this stock is a marathon, not a sprint.” (See LHC Group stock analysis)

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