3 of Wall Street’s Favorite Stocks Walking a Fine Line

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 are three stocks where Wall Street may be overlooking some important risks and some alternatives with better fundamentals.

DNOW (DNOW)

Consensus Price Target: $16 (20.9% implied return)

Spun off from National Oilwell Varco, DNOW (NYSE:DNOW) provides distribution and supply chain solutions for the energy and industrial end markets.

Why Is DNOW Not Exciting?

1. Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 6.9 percentage points

2. Revenue growth over the past two years was nullified by the company’s new share issuances as its earnings per share fell by 13.9% annually

3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

DNOW’s stock price of $13.24 implies a valuation ratio of 0.5x forward price-to-sales. If you’re considering DNOW for your portfolio, see our FREE research report to learn more.

Trimble (TRMB)

Consensus Price Target: $87.33 (58.6% implied return)

Playing a role in the construction of the Paris Grand, Trimble (NASDAQ:TRMB) offers geospatial devices and technology to the agriculture, construction, transportation, and logistics industries.

Why Does TRMB Worry Us?

1. Annual sales declines of 2% for the past two years show its products and services struggled to connect with the market during this cycle

2. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion

3. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its falling returns suggest its earlier profit pools are drying up

Trimble is trading at $55.05 per share, or 15.2x forward P/E. Read our free research report to see why you should think twice about including TRMB in your portfolio, it’s free.

Surgery Partners (SGRY)

Consensus Price Target: $17.95 (28.6% implied return)

With more than 180 locations across 33 states serving as alternatives to traditional hospital settings, Surgery Partners (NASDAQ:SGRY) operates a national network of outpatient surgical facilities including ambulatory surgery centers and short-stay surgical hospitals.

Why Does SGRY Fall Short?

1. Weak unit sales over the past two years suggest it might have to lower prices to accelerate growth

2. Estimated sales growth of 3.2% for the next 12 months implies demand will slow from its two-year trend

3. High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $13.96 per share, Surgery Partners trades at 29.2x forward P/E. To fully understand why you should be careful with SGRY, check out our full research report (it’s free).

Stocks We Like More

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