Given the current macroeconomic context, S&P 500 There is little room for further profits. That is the opinion of analysts at Citi, who in a recent note stated that the bellwether index is reaching a valuation level that will reduce the possibility of further upside.
Based on current rates and various “macro inputs” such as growth and inflation, Citi’s premium fair value framework shows a price-to-earnings ratio of 18.5x for the S&P 500. With the S&P 500’s lingering price-to-earnings ratio now hovering near 18.2x, the company’s experts see little room for profit here.
“For now,” the analysts wrote, “we suspect valuation could put a short-term limit on upside momentum. Based on our fair value framework, valuations much higher than current levels are unsustainable unless there is a significant change in the macro landscape.”
This is not great news for investors hoping for a proper change in sentiment. However, that does not mean that the upside potential of all stocks is limited. In fact, the securities experts at the banking giant have pinpointed opportunities in two names that they think might perform better in the current environment. Let’s take a closer look.
Mobileye Global Inc. (MBLY)
We’ll start with one of last year’s hottest IPOs. Mobileye is a leader in ADAS (advanced driver assistance systems) and was spun off from parent company Intel in October in an over-targeted IPO; The stock made a big splash on the first day of trading, ending the session up 38% from the listed price.
Founded in 1999, the Israeli company’s driver assistance technology has been used in more than 125 million vehicles. By 2030, the company expects to have an additional 270 million vehicles using its products. While Mobileye has claimed a dominant position in ADAS, it has also set its sights on becoming the leader in the self-driving car market, although it may be a while before services are available. thus becoming popular.
On the financial front, the company has released its third quarter financial report income in December (for the quarter ending October 1). Mobileye generated $450 million in revenue, up 38% year-over-year while delivering an EPS of -0.06. Both figures beat Street expectations. With a promising FQ4, the company is calling for revenue between $527 million and $545 million, exceeding the $483 million Wall Street forecast. For the full year, the company predicts revenue north of $1.83 billion, well above forecasts of $1.78 billion, and operating income of at least $637 million.
For Citi analyst Itai Michaeli, the bullish case for the ADAS leader is clear. “Mobileye is at the heart of what we have long viewed as the most ethical incremental content cycle to ever happen in the industry,” the analyst said. “We believe the company’s competitive advantage has only grown in recent years, led by its innovative data loop and highly scalable ADAS-AV product suite. We see 2030E revenue of >$50 billion (compared to ~$2 billion today) and expect a domino effect of ADAS/AV adoption to create a catalyst-rich environment for the stock. .”
Michaeli’s long-term outlook is very bright for MBLY stock and he backs it with a Buy rating and $77 price target, implying a one-year upside potential of ~123% for the stock. (To see Michaeli’s achievements, click here)
Michaeli is the Street’s most prominent MBLY bull but many others are backing his case. The stock is rated Strong Buy consensus, based on 14 Buys vs 3 Holds. The median target is $43, which implies that the stock has a 25% growth potential in 12 months. (See MBLY stock forecast)
Boston Science (BSX)
Next on our Citi-backed list is Boston Scientific, a global medical device company focused on developing, manufacturing, and bringing to market products designed to improve health. of the patient. The products have a wide range of indications, from cardiology to endoscopy, gynecology to neurology, urology and others. The result of its relentless R&D efforts is a diverse product portfolio that is sold to companies around the globe. It’s a massive operation with 40,000 employees and a market capitalization north of $65 billion.
In its latest quarterly report, for Q3 FY22, BSX reported revenue of $3.17 billion, up 8.2% year-over-year, while beating Street forecasts. is 30 million dollars. The company just missed profit when it delivered EPS of $0.43, below analyst expectations of $0.44.
The guidance was also a bit disappointing, with the company revising both the top and bottom forecasts to the bottom. Still, the stock outperformed the market significantly last year, delivering a 9 percent return throughout 2022.
The company has also been a mass buyout company, and most recently announced it would buy MedTech company Apollo Endosurgery for nearly $615 million — or $10 per share. The all-cash deal is expected to close in the first half of this year.
Along with hitting the target over the past year, the potential for further buybacks is one of the reasons Citi’s Joanna Wuensch thinks investors should take note.
The 5-star analyst wrote: “Management’s strategy has benefited BSX in 2022, delivering 9.2% year-over-year organic revenue growth and 11.5% in Q3 in 2022, compared to the 2022 forecast of 8-10% and an LRP of 6-8%. Some of this may simply be due to its end markets, which have largely recovered from the pandemic, or ~70% of its products sold in ASCs that have fewer staffing issues than sick ones. institute, but it is also capable of performing successful management.
“Looking at 2023,” added Wuensch, “the pipeline chart for BSX is one of the most robust in our coverage, and that may not be coincidental. Therefore, we anticipate that while we will spend some time thinking about the macro for BSX, we will also think about the process (still) specifically as it involves Structural Heart, CRM, Watchman Its next generation and the continuation of Tuck. -in acquisitions.”
Ultimately, Wuensch rates BSX stock as a Buy while her $54 price target implies a one-year share price gain of 18%. (To see Wuensch’s achievements, click here)
Wuensch’s thesis received almost complete support on Wall Street; skepticism aside, all 13 other recent reviews have been positive, making the consensus here a Strong Buy. Under the $51 average target, the stock should generate an 11% return next year. (See BSX stock forecast)
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Disclaimer: The opinions expressed in this article are those of the featured analyst only. Content is used for informational purposes only. It is very important that you do your own analysis before making any investment.
