Now that the second quarter earnings are mostly in, we can sift through the result to find stocks that are primed for gains in the second half.
In a note from Raymond James, strategist Tavis McCourt has stared the sorting process. McCourt introduces the firm’s picks, noting: “We highlight… stocks/subject areas where stock reactions ran materially counter to Raymond James analyst opinion during 2Q21 earnings season so far. We suspect these names are a good hunting ground for further study as August slows down.”
A look into the TipRanks database shows us that these are Buy-rated stocks, with average upside between 30% and 55% over the coming year. The Raymond James analysts see them gaining at least 50%. Let’s find out why they believe these are compelling buys.
Ping Identity (PING)
The first Raymond James pick we’re looking at is software maker Ping Identity. Ping offers identity management and access management software products, a vital need in the digital world where online access needs to be verified and controlled to close out security risks. The company has global reach, with offices in Boston, Austin, and Denver, as well as London, Paris, Bangalore, and Tokyo. The company has been in business since 2002, and went public two years ago.
In the last couple of months, Ping has announced an expansion of its services – and its own addition as a service provider to the Department of Homeland Security.
The expansion came through the June acquisition of SecuredTouch, a fraud and bot detection platform. The acquisition puts SecuredTouch’s capabilities into Ping’s cloud offerings. And in July, two of Ping’s Identity and Access Management solutions were added to Homeland’s approved products list for continuous diagnostics and mitigation. The addition of Ping to this list brings additional exposure to the company, and puts it in position for Federal contracts.
Earlier this month, Ping reported $78.9 million in total revenue for Q2, up 34% year-over-year. Of that total, 93% was subscription based. The key metric of annual recurring revenue grew to $279.6 million, a yoy gain of 19%. The company’s cash flow for the first half of the year more than doubled yoy, from $21.2 million to $44 million.
And this brings us to the Raymond James. Analyst Adam Tindle tells investors to bust out the popcorn because Ping’s ‘movie is getting good,’
“2Q results… continued a pattern of incremental acceleration in 1) new ARR growth (refutes notion that new cloud products hitting in earnest during 4Q20 are late to market/won’t resonate), and 2) net dollar retention (refutes notion that customers are leaving the platform for something more innovative). Ping founder/ CEO Andre Durand has described the Ping story to us as a “movie” in which believers will do well over the long haul, and we’re encouraged by this current scene,” Tindle wrote.
“In fact,” the analyst added, “new ARR reached record levels as large, long term, strategic deals are accelerating, and these reference customer examples should provide runway to accelerate the flywheel of new customer acquisition.”
To this end, Tindle rates Ping a Strong Buy, and his $42 price target indicates high levels of confidence – and ~73% one-year upside potential. (To watch Tindle’s track record, click here)
Among Tindle’s colleagues, rating wise, the bulls are slightly in front. PING’s Moderate Buy consensus rating is based on 6 Buys and 4 Holds. PING shares are priced at $24.31 with an average target of $33.56, suggesting ~38% upside in the next 12 months. (See PING stock analysis on TipRanks)
Dine Brands Global (DIN)
Next up is Dine Brands, a holding company best known for its two restaurant chains, International House of Pancakes and Appleby’s. Between the two, Dine has some 3,500 restaurants in 16 countries; there are still a few company owned locations, but the overwhelming majority are owned by approximately 350 franchisees.
The company has been regaining revenue as economic restrictions lift, and Dine reported 99% of its restaurants were open in Q2. In the US, same-restaurant sales increased 102% yoy for Appleby’s, and 120% for IHOP. The company’s earnings rebounded from a net EPS loss of $8.33 in 2Q20 to a net profit of $1.69 in 2Q21. At the same time, Dine’s cash flow has surged; in 1H21, the company reported $106 million in cash from operations, compared to just $10.5 million one year earlier.
Turning to the Raymond James review, we check in with restaurant industry analyst Brian Vaccaro, who writes: “…our analysis of third-party data suggests Applebee’s sales (vs. 2019) remain strong while IHOP has likely accelerated and turned positive in July (consistent with broader family dining segment trends). The company is generating strong FCF with a growing unrestricted cash balance (+$75M sequentially to $183M), which should support resuming a meaningful dividend/ share repo later this year (assuming COVID visibility improves).”
Vaccaro puts an Outperform (i.e. Buy) rating on DIN shares, and his $115 target price suggests room for ~51% share appreciation over the coming year. (To watch Vaccaro’s track record, click here)
This stock, based on two popular restaurant chains, gets a unanimous Strong Buy rating from the analyst consensus, based on 4 positive reviews from Wall Street. The stock is trading for $75.95 with an average target of $109.40, which implies a one-year upside of 44%. (See DIN stock analysis on TipRanks)
Bloomin’ Brands (BLMN)
Last but not least is Bloomin’ Brands, the parent company of the Aussie-themed Outback Steakhouse. The company also owns Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Overall, Bloomin’ boasts over 1,450 restaurants in 47 states, along with Puerto Rico and Guam. Internationally, Bloomin’ operates in 20 countries. While most locations are company-owned, some are franchised.
Bloomin’s recent history has been typical of the restaurant industry in general – the company saw steep losses in the first half of last year, but has bounced back strongly this year as the COVID restrictions were eased up. A clear sign of that is the Q2 EPS, which at 75 cents per share was the highest in more than two years – and a far turnaround from the $1.05 per-share loss posted in the year-ago quarter.
In other Q2 results, Bloomin’ reported year-over-year comp sales growth of 65.8% in Outback’s US locations, and more importantly, the comp sales were more than 11% higher than 2019. The total company revenues for the quarter hit $1.077 billion. That top line represents an 86% gain over last year’s second quarter.
This company has drawn attention from Raymond James’s Brian Vaccaro (stated above). The analyst rates BLMN a Strong Buy and sets a price target of $37.50, implying a one-year upside potential of ~50%.
“We confidently reiterate our Strong Buy rating on BLMN following the company’s strong 2Q results and underlying margin fundamentals. Sales remain > 10% above 2019 levels with strengthening dine-in sales partially offset by moderating off premise… we see strong upside to 3Q EBITDA guidance even layering in modestly higher food/labor inflation vs. 1H. We also believe the company’s significant FCF and B/S de-leveraging underway is under-appreciated by investors, a key third leg of our “higher quality business in a post-COVID world” thesis,” Vaccaro wrote.
Once again, we’re looking at a stock with a Strong Buy consensus rating, so Vaccaro is hardly an outlier about Outback. There have been 8 recent reviews, which break down 6 to 2 in favor of Buy versus Hold. The average price target of $33 suggests ~30% upside this year from the trading price of $25.33. (See BLMN stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.