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. Keeping that in mind, here is one stock where Wall Street’s positive outlook is supported by strong fundamentals and two where its enthusiasm might be excessive.
Two Stocks to Sell:
Hormel Foods (HRL)
Consensus Price Target: $26.75 (33.2% implied return)
Best known for its SPAM brand, Hormel (NYSE: HRL) is a packaged foods company with products that span meat, poultry, shelf-stable foods, and spreads.
Why Are We Out on HRL?
- Falling unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
- Gross margin of 16.2% is below its competitors, leaving less money to invest in areas like marketing and production facilities
- Sales over the last three years were less profitable as its earnings per share fell by 8.8% annually while its revenue was flat
Hormel Foods is trading at $20.09 per share, or 13.2x forward P/E. Read our free research report to see why you should think twice about including HRL in your portfolio.
Walker & Dunlop (WD)
Consensus Price Target: $68.67 (29.6% implied return)
Originating as a small mortgage banking firm during the Great Depression in 1937, Walker & Dunlop (NYSE: WD) provides commercial real estate financing, property sales, appraisal, and investment management services with a focus on multifamily properties.
Why Do We Think WD Will Underperform?
- Customers borrowered less money this cycle as its net interest income declined by 37.8% annually over the last five years
- Earnings per share fell by 14.4% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 7.5% annually over the last five years
Walker & Dunlop’s stock price of $52.97 implies a valuation ratio of 1x forward P/B. If you’re considering WD for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Lululemon (LULU)
Consensus Price Target: $179.36 (47.9% implied return)
Originally serving yogis and hockey players, Lululemon (NASDAQ: LULU) is a designer, distributor, and retailer of athletic apparel for men and women.
Why Should You Buy LULU?
- Locations open for at least a year are seeing increased demand as same-store sales have averaged 2.6% growth over the past two years
- Collection of products is difficult to replicate at scale and results in a best-in-class gross margin of 57.9%
- Highly efficient business model is illustrated by its impressive 21.7% operating margin
At $121.24 per share, Lululemon trades at 9.8x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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