The U.S. economy has been exhibiting a solid recovery this year, as evidenced by 6.4% annual GDP growth in the first quarter of 2021. Among other favorable economic data, consumer spending is steadily returning to pre-pandemic levels thanks to fiscal stimulus packages and steady job growth. However, rising purchasing power is generating inflationary pressure in the economy and thus keeping the markets volatile.
In these circumstances, we think it is wise for investors to target stocks in which analysts express solid confidence.
Wall Street analysts expect Salesforce.com Inc (CRM), QUALCOMM Incorporated (QCOM), Chipotle Mexican Grill, Inc. (CMG) and L Brands, Inc. (LB) to rally in the near-term. Their strong fundamentals and sound business models are the basis of the analysts’ positive sentiments.
Salesforce.com Inc (CRM)
CRM is the global leader in Customer Relationship Management (CRM), bringing companies closer to their customers in the digital age. CRM enables companies of every size and industries to take advantage of powerful technologies, including cloud, mobile, social, internet of things (IoT), artificial intelligence (AI), voice and blockchain, to create a 360-degree view of their customers. It operates through two segments– Subscription & Support and Professional services & Other.
CRM’s subsidiary, MuleSoft, is the provider of the world’s #1 integration and API platform. It recently introduced the next major release of its Anypoint Platform with DataGraph. As part of the update, developers can now instantly access data from multiple existing APIs with a single query without writing additional code. Furthermore, on May 5, CRM entered an innovation partnership with The Walt Disney Studios StudioLAB to explore new ways to use technology to manage and accelerate the content production lifecycle and support the creation of content.
On May 27, CRM is scheduled to release earnings for its fiscal first quarter, ended April 30, 2021. The company’s revenue in its fiscal fourth quarter grew 19% year-over-year to a record $5.82 billion. Its subscription and support segment generated $5.48 billion in revenue, rising 20% compared to the prior year. Its remaining performance obligations ended the fourth quarter at approximately $36.1 billion, an increase of 17% year-over-year. CRM’S non-GAAP EPS came in at $1.04.
Cloud computing has become a necessity because of the coronavirus pandemic. CRM is aiming to create an operating system for a new way to work, uniquely enabling companies to grow and succeed in the all-digital world by acquiring one of the most innovative enterprise communications platforms, Slack Technologies, Inc. (WORK), this year. In fact, the company’s market dominance and superior pace of expansion is allowing it to efficiently reimagine its service cloud and sales cloud to transform customer service and drive growth in a Sell-from-Anywhere world.
Analysts expect CRM’s revenue and EPS for the first quarter to rise 21.5% and 25.7%, respectively, year-over-year. In fact, the top-line for the current year is expected to improve 21.7%. Shares of CRM have returned 27.6% over the past year. Notably, the stock generated a 2% intraday gain yesterday to close the session at $226.99. Of the 41 Wall Street analysts rating the stock, 31 have given it either a Strong Buy or a Buy rating. The average price target for the stock is $274.53, indicating 21% upside potential from the current price level.
CRM’s POWR Ratings are consistent with this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
CRM also has a grade of B for Growth, Sentiment and Quality. The stock is currently ranked #18 in the 124-stock Software – Application industry.
In total, we rate CRM on eight different levels. Beyond what we’ve stated above, we have also given CRM grades for Value, Momentum and Stability. Get all of CRM’s ratings here.
Click here to check out our Software Industry Report for 2021
QUALCOMM Incorporated (QCOM)
QCOM develops and commercializes foundational technologies and products that are used in mobile devices and other wireless products, including network equipment, broadband gateway equipment, consumer electronic devices, and other connected devices worldwide. It operates through two segments–Qualcomm CDMA Technologies (QCT) and Qualcomm Technology Licensing (QTL).
QCOM, through its subsidiary Qualcomm Technologies, Inc., recently completed the acquisition of the world-class CPU and technology design company NUVIA for $1.4 billion. As part of the deal, QCOM expects to integrate next generation CPUs across a wide portfolio of products, including powering flagship smartphones, laptops, and digital cockpits, as well as Advanced Driver Assistance Systems, extended reality, and infrastructure networking solutions.
In QCOM’s fiscal second quarter (ended March 28, 2021), the company’s revenue grew 52% year-over-year to $7.935 billion, driven by sustained demand for smartphones globally and the company’s ability to increase the scale of its non-handset revenues. Its QCT segment revenue also increased 53% year-over-year, due to strong 5G demand in handsets and growth in its RF front-end, automotive and IoT adjacencies. In fact, RF front-end revenues were strong last year, driving record earnings in its chip business. QCOM reported EPS of $1.53 for the quarter, surging 273% compared to the $0.41 year-ago value.
The semiconductor space capitalized on the pandemic due to an increased dependence on technology that requires microchips to run. Though the industry is currently facing supply constraints, the global semiconductor market is all set to witness robust, decade-long growth over the long term due to the fast-paced progress on technologies such as AI, 5G, cloud computing, IoT and autonomous driving. In fact, QCOM is already at the forefront of the 5G revolution and has begun its deployment of the first-ever 5G mmWave network by collaborating with telecom leaders across the world to accelerate 5G ecosystem expansion.
The market expects QCOM’s EPS to rise 44.3% year-over-year in the current quarter. Analysts further expect the company’s current-year revenue and EPS to improve 48.6% and 85.4%, respectively. QCOM has returned nearly 70% over the past year. However, the stock has lost 1.9% over the past month due to the ongoing chip shortage, closing yesterday’s trade at $132.91. Twenty four out of the 33 Wall Street analysts rating the stock have given it a Strong Buy or a Buy rating. The average price target of $171.30 indicates 28.9% upside potential from its current price.
It’s no surprise that QCOM has an overall B rating, which translates to Buy in our POWR Ratings system. QCOM has a B grade for Growth, Sentiment and Quality as well. In the 98-stock, B-rated Semiconductor & Wireless Chip industry, it is ranked #5.
In addition to the POWR Ratings grades I’ve just highlighted, you can see QCOM’s ratings for Value, Momentum and Stability here.
Click here to checkout our Semiconductor Industry Report for 2021
Chipotle Mexican Grill, Inc. (CMG)
CMG develops and operates fast casual and fresh Mexican food restaurants. It has more than 2,800 restaurants in the United States and internationally and is the only restaurant company of its size that owns and operates all its restaurants. CMG operates primarily via two segments—Food and beverage, and Delivery services.
As consumer demand for fast-food and foot traffic at quick service restaurants (QSRs) are steadily returning to pre-pandemic levels, CMG is on a hiring spree and wants to hire 20,000 new hourly employees this year. Workers at CMG’s company-owned U.S. locations will also benefit from pay raises and a referral bonus system over the next several months. In fact, the chain is accelerating its growth opportunities and plans to open more than 200 new restaurants this year.
CMG’s revenue for the first quarter of 2021 grew 23.4% year-over-year to $1.7 billion. A significant portion of the revenue increase came from its digital sales, which surged 133.9% year-over-year and accounted for more than half of its top-line. Notably, comparable restaurant sales increased 17.2%, and the company opened 40 new restaurants during the quarter while closing five. CMG’s adjusted EPS came in at $5.36, rising 74% year-over-year.
CMG’s significant market share in the global food-service industry and large scale of operations helped it rise sharply with the recovery in the QSRs market. The chain managed to stay afloat amid the pandemic by rapidly integrating digital sales, delivery services and takeaways. In fact, CMG opened its first-ever digital-only restaurant called the Chipotle Digital Kitchen in New York in December last year to facilitate pick-up and delivery only.
CMG is further benefiting from its expansion efforts, compensation growth and menu innovation. Its new Digital Kitchen and Chipotlane prototypes should allow the company to enter more urban areas that wouldn’t support a full-size restaurant and allows for flexibility with future locations. As such, analysts expect the company’s current year revenue and EPS to improve 23.1% and 128.9%, respectively.
Shares of CMG have returned 27.2% over the past year. The stock closed yesterday’s trading session at $1,342.36, gaining 6.3% over the past six months. Of the 32 Wall Street analysts rating the stock, 20 have given it either a Strong Buy or a Buy rating. The average price target for the stock is $1,719.65, indicating 28% upside potential from the current price level.
CMG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. CMG has an A grade for Growth, and B for Quality. It is ranked #19 in the 47-stock, A-rated Restaurants industry.
Click here to see the additional POWR Ratings for CMG (Value, Momentum, Stability and Sentiment).
L Brands, Inc. (LB)
LB is a specialty retailer of women’s intimate and other apparel, beauty and personal care products, home fragrance products, and accessories. The company operates in two segments—Bath & Body Works and Victoria’s Secret. It sells its merchandise through company-owned specialty retail stores, Websites and international franchise, license and wholesale partners. Notably, LB operates 2,681 company-operated specialty stores in more than 700 franchised locations across the United States and internationally.
On May 11, LB’s board approved a plan to separate the company’s two operating segments into standalone and independent public companies. The decision came after a prolonged period of strategic analysis of the Victoria’s Secret business, including its sale. Anyway, the company expects to create these companies through a tax-free spin-off of Victoria’s Secret to LB’s shareholders. According to management, “The spin-off will enable each company to maximize focus and financial flexibility to thrive in an evolving retail environment and deliver profitable growth.”
LB’s net sales increased 82.8% year-over-year to $3.02 billion for its fiscal first quarter, ended May 1, 2021. Bath & Body Works net sales were $1.469 billion for the quarter, while the Victoria’s Secret segment contributed the balance. Comparable sales, including both stores and direct, came in at 21%, compared to their 4% year-ago value, driven by continued recovery in both segments. LB reported EPS of $0.97, compared to a loss of $1.07 per share in the year-ago period.
A better-than-expected mass vaccination drive has sparked a steady recovery of consumer spending on discretionary items, representing a positive signal for the industry. Consumers are now stepping out to shop and the world is moving back towards the ‘old normal.’ As such, LB has reduced its promotional activities in the last reported quarter, helping it to deliver substantial increases in its merchandise margin rates. Wall Street analysts estimate LB’s revenue and EPS for the current year to grow 21% and 68.8%, respectively.
LB has surged 78% so far this year. The stock gained 2.2% intraday yesterday to close the session at $66.21. In fact, the stock has returned 28.2% over the past three months. Ten out of the 23 Wall Street analysts rating the stock have given it a Strong Buy or a Buy rating. Their $75.30 average price target indicates 13.7% upside potential from the current price level.
LB’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The stock has an A grade for Quality, and a B grade for Growth. LB is ranked #9 of 65 stocks in the A-rated Fashion & Luxury industry.
We have also graded LB for Value, Sentiment, Momentum and Stability. Click here to access all LB’s ratings.
Click here to checkout our Retail Industry Report for 2021
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REVISED: 2023 Stock Market Outlook (includes top 7 picks)
CRM shares were trading at $227.95 per share on Tuesday morning, up $0.96 (+0.42%). Year-to-date, CRM has gained 2.44%, versus a 12.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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