October 4, 2020 | technology | No Comments
November 3 is just around the corner, and Wall Street’s gaze has locked in on the race to the White House. Biden currently leads in the polls, but it’s still anyone’s race.
Now, with President Trump’s COVID-19-related hospitalization rocking the last leg of the 2020 presidential election campaign, and Senate control also up for grabs, fears regarding a divided government are circling the Street.
That said, this might not be such a bad thing, if you ask Goldman Sachs. “A divided government scenario would lead to a smaller change in interest rates and a reduction in political uncertainty,” the firm’s chief equity strategist David Kostin wrote. The strategist argues that such an outcome could push the S&P 500 to 3,700, which would reflect an 11% gain, with the index reaching 4,000 by mid-2021.
But what will happen if Biden comes out on top? Kostin believes a blue wave wouldn’t be as bad for the market as some might think, with it actually having a “modestly positive net impact.” He explained, “A large increase in fiscal spending, funded in part by increased tax revenue, would boost economic growth and help offset the earnings headwind from higher tax rates.”
Taking Kostin’s outlook into consideration, we wanted to take a closer look at two stocks getting a round of applause from Goldman Sachs. As the firm’s analysts think each has more room to run, we used TipRanks’ database to find out even more about both tickers.
Hoping to overcome challenges and unlock the potential of innovation and sustainability, Avient works to create specialized and sustainable materials that enhance performance and protect the environment. Based on the strength of its core business, Goldman Sachs is pounding the table.
Representing the firm, five-star analyst Robert Koort acknowledges that shares have been somewhat volatile over the last twelve months as investors feared that its acquisition of the Clariant Masterbatches business wouldn’t be finalized. COVID-related demand weakness also reflected a concern.
“With the deal successfully closed, the acquired business showing excellent resilience and synergy targets lifted, we find the still impaired equity price an attractive entry point,” Koort commented.
On top of this, Koort told clients, “Following the low-water mark in Q2 2020 reflecting the height of pandemic shock on the global economy, we anticipate a rapid recovery in AVNT’s margins and earnings. A preview of this profit leverage was provided in the company’s impressive Q3 2020 positive pre-announcement on September 24, 2020, that suggested the combination of the accretive Clariant deal that closed at the start of the quarter with the signs of cyclical recovery in the Engineered Materials (Automotive, Consumer Durables) were driving higher earnings.”
Adding to the good news, volumes across most of AVNT’s portfolio trended positive year-over-year in September, setting up for strong momentum into Q4 and beyond, in Koort’s opinion. Moreover, with Clariant synergies mounting, the cyclical recovery gaining traction and secular growth drivers such as healthcare, 5G and lightweighting support volume growth, he expects margins to expand 100 basis points per year in 2021 and 2022.
Highlighting the valuation, Koort points out that shares are trading at 8.1x EV/2021E EBITDA, versus its peers trading at an average of 10.5x and AVNT’s own historic three-year average multiple of 9.4x prior to its recent deals, a period in which “the quality of the enterprise was lesser than today,” according to the analyst.
Summing it all up, Koort commented, “AVNT’s transformation has been impressive but is clearly underappreciated by investors. Over the course of the coming quarters, we expect the company to drive rapid earnings growth and validate a likely more voluble assertion of its improved portfolio.”
Everything that AVNT has going for it convinced Koort to upgrade his rating to Buy. Along with the call, he bumped up the price target from $32 to $39, suggesting 36% upside potential. (To watch Koort’s track record, click here)
Turning to the rest of the Street, opinions are split almost evenly. With 4 Buys and 3 Holds assigned in the last three months, the word on the Street is that AVNT is a Moderate Buy. At $34.29, the average price target implies 19% upside potential. (See Avient stock analysis on TipRanks)
Moving on to Shopify, it is an all-in-one eCommerce platform. Given the long-term opportunity on the table here, Goldman Sachs thinks that now is the time to get on board.
Firm analyst Christopher Merwin sees its fiscal Q2 as a “landmark quarter” for the company in several ways. Pointing to gross merchandise value (GMV), it accelerated to 119% growth at a roughly $120 billion-plus annual run rate due to a step-function change in eCommerce penetration from COVID.
Additionally, SHOP continues to innovate rapidly in solving key issues for merchants.
To this end, Merwin believes merchant solutions will continue to grow as a percentage of Shopify’s total revenue. It should also be noted that the SMB segment currently accounts for the vast majority of merchants, which is also expected to continue. The analyst forecasts that the SMB customer base will expand to 4 million by FY40, from an estimated 1 million at FY19. “This repents roughly 9% of the 47mn retailers globally estimated by Shopify. Stronger than expected adoption internationally could drive upside to our base case estimates, in our view,” he added.
Looking ahead, Merwin doesn’t see the tailwinds from the lockdowns as one-time in nature. Rather, he argues that new buyers brought online due to the impacts of COVID-19 are likely to recur as customers are given unmatched selection and average shipping times decline.
Expounding on this, the analyst stated, “Our longer term GMV growth estimates are based on our assumption that Shopify will continue to increase its share of penetration of the global ecommerce market from a relatively low penetration. Currently, Shopify GMV represents less than 3% of global e-commerce GMV. We estimate this will reach 5% by FY23, based on our Internet team’s forecast of ~$5 trillion by FY23.”
Along with GMV growth, take-rate, or Merchant Solution revenue/GMV, could play a major role. According to Merwin, the steady growth in value-added services offered by SHOP has significantly expanded the company’s opportunity per merchant, with Shopify Payments representing the largest component of Merchant Solutions.
However, the introduction of newer services such as Fulfillment Network, Balance and Installment Pay could be key components in driving take-rate higher over time. “Furthermore, we believe international GMV has a meaningfully lower take-rate relative to the U.S. as key international regions are still early in terms of attachment of Payments, Capital and other services. We believe that an increase in the international penetration of these services will be an increasing driver of Merchant Solutions growth,” Merwin explained.
Given all of the above, Merwin stayed with the bulls. Along with a Buy rating, he keeps a $1,318 price target on the stock. Investors could be pocketing a gain of 28%, should this target be met in the twelve months ahead. (To watch Merwin’s track record, click here)
Looking at the consensus breakdown, 10 Buys, 14 Holds and 1 Sell have been issued in the last three months. Therefore, SHOP gets a Moderate Buy consensus rating. Based on the $1,120.64 average price target, shares could surge 9% in the next year. (See Shopify price targets and analyst ratings on TipRanks)
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.