Right now, blue-chip bank Lloyds (LSE: LLOY) (NYSE: LYG.US), pharmaceuticals growth stock Shire (LSE: SHP) (NASDAQ: SHPG.US) and AIM-listed fashion e-tailer Boohoo (LSE: BOO) are winning plaudits from professional analysts.
Boohoo
Boohoo joined the stock market in March last year. The shares traded on a ridiculously high rating, but tumbled on a profit warning in January. Annual results last week were in line with the lowered expectations.
Veteran retail analyst Nick Bubb was not alone in identifying a key feature in the results: “importantly, momentum in the UK has returned in response to increased marketing spend, and momentum has also been good Internationally, thanks to greater focus”. Analysts at Stifel believe “the business is well positioned for growth” and see “upside potential from the current share price [around 28p]”. Similarly, Investec’s analyst noted: “Valuation not reflective of longer term opportunity, trading on 15x consensus CY15 EV/EBITDA, vs. online peers on 36x”.
According to financial data provider Digital Look, eight analysts rate Boohoo a “Buy”, with one “Neutral” and no “Sell”.
Shire
City experts were already keen on the prospects for Shire, before the company released Q1 results on 30 April. Price targets were well above the current share price of 5,190p — being nearer to 6,000p — and most analysts reiterated their recommendations when the Q1 results showed the drugs company to be in rude health. Almost three-quarters of analysts rate Shire a “Buy”, and I can find no “Sell” recommendation.
Analysts at Jefferies were sufficiently impressed by the results to lift their target price on the shares from 5,800p to 6,150p. Noting that Q1 profit was 9%-10% ahead of City expectations, Jefferies said: “We foresee numerous pipeline catalysts this year to drive potential earnings upgrades, more than offsetting the relatively anaemic, by Shire’s standards, growth in the coming quarters”.
Shire currently trades on 21x current-year forecast earnings, and the multiple comes down to 18x for 2016, with analysts expecting high-teens earnings growth.
Lloyds
Lloyds has had its fair share of fans in the City for some time, but has been winning more friends recently. And not just because of what analysts at Nomura called the “business/banking friendly outcome” of the UK election.
No, it was Lloyds’ ahead-of-expectations Q1 results on 1 May that provided the catalyst for several upgrades. The cost-to-income ratio, net interest margin and return on equity all came in for positive comment in various quarters, but there was one theme that seemed to particularly excite all the analysts I read; namely, in the words of Morgan Stanley, “very strong capital build”.
Analysts at Deutsche enthused: “Capital formation again extremely strong, excess capital will be delivered sooner and in larger quantum than the market is giving the stock credit for, we think”. UBS was marching to the same beat, noting that “capital build continues and it should only be a matter of time before the excess capital comes out”.
Jefferies’ analysts reckon that, in addition to paying 12p of dividends over 2015-17, Lloyds could have £6bn of excess capital, which could be used to repurchase shares. This was one of the key factors in the decision of Jefferies to raise its rating on Lloyds to “Buy” from “Hold” and lift its target price to 102p from 88p. Jefferies’ target is one of the more bullish, but out of more than three dozen analysts, only an odd one or two now remain negative on the bank.
