1 of Wall Street’s Favorite Stocks on Our Watchlist and 2 We Find Risky
Wall Street has set ambitious price targets for the stocks in this article. While this suggests attractive upside potential, it’s important to remain skeptical because analysts face institutional pressures that can sometimes lead to overly optimistic forecasts.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bullish calls are justified. That said, here is one stock where Wall Street’s excitement appears well-founded and two where analysts may be overlooking some important risks.
Two Stocks to Sell: Carrier Global (CARR)
Consensus Price Target: $77.82 (24.2% implied return)
Founded by the inventor of air conditioning, Carrier Global (NYSE:CARR) manufactures heating, ventilation, air conditioning, and refrigeration products.
Why Do We Think CARR Will Underperform?
Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
Earnings per share have contracted by 8.4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
Diminishing returns on capital suggest its earlier profit pools are drying up
At $62.64 per share, Carrier Global trades at 20.6x forward P/E. Read our free research report to see why you should think twice about including CARR in your portfolio, it’s free.
Elanco (ELAN)
Consensus Price Target: $31.21 (32.4% implied return)
Originally established as a division of pharmaceutical giant Eli Lilly before becoming independent in 2018, Elanco Animal Health (NYSE:ELAN) develops and sells medications, vaccines, and other health products for pets and farm animals across more than 90 countries.
Why Are We Hesitant About ELAN?
Muted 2% annual revenue growth over the last five years shows its demand lagged behind its healthcare peers
Efficiency has decreased over the last five years as its adjusted operating margin fell by 3.5 percentage points
Negative returns on capital show management lost money while trying to expand the business
Elanco is trading at $23.57 per share, or 19.1x forward P/E. To fully understand why you should be careful with ELAN, check out our full research report (it’s free).
One Stock to Watch: Ulta (ULTA)
Consensus Price Target: $623.42 (21.9% implied return)
Offering high-end prestige brands as well as lower-priced, mass-market ones, Ulta Beauty (NASDAQ:ULTA) is an American retailer that sells makeup, skincare, haircare, and fragrance products.
Why Are We Positive on ULTA?
Fast expansion of new stores to reach markets with few or no locations is justified by its same-store sales growth
Locations open for at least a year are seeing increased demand as same-store sales have averaged 3.5% growth over the past two years
Industry-leading 32.6% return on capital demonstrates management’s skill in finding high-return investments