Raymond James says inflation may be falling;  Tap 2 stocks to buy

The unfortunate buzzword for 2022: inflation. Wherever you went, it was hard to avoid this hot topic as inflation soared to heights not seen in decades, with the central bank eventually announcing it would do whatever it took to tame it.

The combination of high inflation, accompanying interest rate hikes and recession fears also spooked markets, which had been in a downward trend for most of the year.

With August inflation reports this week (CPI on Tuesday and PPI on Wednesday), markets will want to know the results.

The good news is that the investment firm’s research report “projects signs of improvement,” according to Raymond James CIO Larry Adam. Why? “There is a full range of indicators reflecting easing inflationary pressures – even a few of the stickier areas of inflation.”

Among them are the continued normalization of the money supply, a strong dollar that “drastically lowers the cost of imported goods,” lower shipping costs and improved supply chains. Not to mention that gasoline prices have fallen for 86 consecutive days, the longest such decline since 2015.

Against this backdrop, Raymond James analysts are looking for opportunities for investors while inflation is expected to ease. They have settled on two names that they believe are ready to move forward.

According to TipRanks platform, they are also rated Buy by the analyst consensus and are poised to generate some handsome earnings in the coming months. Let’s see what makes them attractive investment choices right now.

V2X (VVX)

The first stock we’ll look at is from a start-up company; V2X is the result of a merger of equals between the public entity Vectrus and the private Vertex, which took place in July. The newly formed company offers complete mission support services and solutions for defense and national security customers worldwide, including logistics, training, facility operations, aerospace MRO and technology services. Combined, the pair have 120 years of ongoing mission support while employing 14,000 personnel.

The new combination has yet to report quarterly earnings, but we can look at Vectrus’ recent results and outlook to understand the impact the merger will have.

In the second quarter, the company generated revenue of $498 million, representing a 6% year-over-year increase and 9% sequential growth. Adjusted EBITDA was $24.7 million (5.0% margin), up $6.5 million quarter-over-quarter and up 100 basis points.

However, these figures will become much larger in the second half of the year, when the results will take the merger into account. Revenue for the second half is expected in the range of $1.9 billion – $1.94 billion, adjusted EBITDA in the range of $140 million – $150 million and operating cash flow in the range of $130 million – $150 million (operating cash flow in Q2 was $46 million).

The potential of the merger is what excites Raymond James Brian Gezuale most, who believes that the combination of Vectrus and Vertex “far exceeds the quality of either business on a stand-alone basis.”

“We won’t go overboard with the 1+1 = 3 cliché, but it would be remiss not to point this out, given that the institutional investor’s memory probably defaults to Vertex/L3 or Vectrus/Exelis as stand-alone entities,” said 5 -the star analyst of say. “V2X is broader in terms of customer and concentration, faster growing, more diversified and has a higher margin profile than Vectrus. Importantly, the stock still trades like traditional Vectrus and at a huge discount to rivals. As investors become familiar with the new entity and as management executes functions, the multiple can expand by ~2 turns on an EV/EBITDA basis and still remain a double-digit discount to most competitors.”

Join seems to be the message from Gesuale, who rates the stock as a Strong Buy, while his $50 price target gives room for one-year gains of ~32%. (To watch Gezuale’s record, Press here)

Only two other analysts have tracked this company’s progress, but both are positive, giving VVX a consensus rating of Strong Buy. Moving to the average target of $52.33, the stock is expected to return ~38% over the 12-month period. (Check out the V2X stock forecast at TipRanks)

Allegiant Travel Company (ALGT)

Let’s now turn to the airline industry, the fourteenth largest commercial airline in North America, ultra-low-cost Allegiant.

The airline industry is currently in the process of recovering from the catastrophic effects of the pandemic. Although global air traffic is still around three-quarters of 2019 levels, the latest IATA data for July shows a significant rebound from 2021 levels, and the improvement is expected to continue into 2023.

This is reflected in Allegiant’s preliminary passenger traffic results for July, which show the airline carried a total of 1.94 million passengers during the month, compared to 1.75 million in July before COVID 2019. The preliminary traffic data, or revenue from passenger miles increased by 15.4% from July 2019 to 1.71 billion.

These results come on the heels of a second quarter performance in which Allegiant posted its highest quarterly revenue ever. At $629.8 million, the figure represents a 28% increase over the 2Q19 display. Additionally, total revenue per available seat mile increased more than 15% from the second quarter of 2019, even as rising fuel prices and operational issues impacted the bottom line; adj. EPS of $0.62 not only missed cor. EPS of $1 expected by Wall Street, but also narrowed significantly from the $3.46 delivered in the same period a year ago.

On the other hand, the company has recently expanded into the resort industry. Sunseeker Resort Charlotte Harbor, Allegiant’s first vacation rental property in Florida, is scheduled to debut in May 2023 and more than 1,100 rooms have already been booked.

With many of the previous concerns easing, analyst Raymond James Savanti City believes it is time to reassess this company’s prospects.

“In early January, we downgraded ALGT from Strong Buy to Market Perform due to ‘increasing risks on the horizon’, particularly idiosyncratic risks related to operations (ie high cancellation rates), pressure on pilot costs, capex/escalation of Sunseeker’s spending and the introduction of a second fleet type,” explained the analyst. “There are encouraging signs that operational execution has improved with cancellation rates declining from ~7% in 1Q22 and ~4% in 2Q22 to ~1% QTD (vs. industry average of 4%/2%/1%). Additionally, Sunseeker’s capex increase has now materialized and we believe the share price better reflects the risks around the second type of fleet.”

“Compelling risk reward” prompts Syth to upgrade its rating from market perform (i.e., hold) to outperform (i.e., buy), while its $150 price target suggests the stock will rise ~48% over next year. (To watch Syth’s record, Press here)

And what about the rest of the street? Ratings show 6 to 4 in favor of buys over holds, making the consensus view a moderate buy. The forecast calls for one-year gains of 44%, given an average price target of $146.50. (See the Allegiant stock forecast at TipRanks)

To find good stock trading ideas at attractive valuations, visit TipRanks’ The best stocks to buya recently launched tool that brings together all of TipRanks equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analystc. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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