It has become mainstream to predict a recession this year. The Federal Reserve is on a steady path of interest rate hikes – the latest was a 25 basis point hike announced today – to fight inflation, and the central bank has already indicated it will stay on that course until the l inflation hasn’t really come down. By definition, this will cause the cost of capital to rise to stifle the money supply and likely trigger a downturn in business.
But not everyone is jumping on that train. Observing the situation from investment banking giant Credit Suisse, Jonathan Golub, US chief equity strategist, takes a contrarian stance. Expecting a lackluster year for equities, rather than an outright crash, Golub said, “If I’m right in how we avoid this short-term recession, the market will continue to give you some relief. So the requirement is that multiples go up a little bit, earnings go down a little bit, and then you end up with a very unattractive 3-4% yield for equities through the end of the year.”
What investors need to remember here is that Golub’s “uninspiring return” represents an average — and there will be plenty of stocks that outperform that average and bring serious growth to the table. His fellow equity analysts at Credit Suisse are highlighting this fact, issuing recommendations for stocks they believe will deliver 30% gains and rise from there. In any market condition, growth like this will earn investors a second look.
For our part, we can take a second look at these Credit Suisse picks. Using TipRanks’ data tools, we gathered details on two of them; here they are, along with the analyst’s commentary.
Exelixis, Inc. (EXEL)
The first company we’re looking at is Exelixis, a biotech company that has reached the brass ring: It has a line of market-approved drugs, generates consistent revenue, and has a recent history of positive quarterly earnings. Exelixis’ drug portfolio is focused on cancer treatment, and the company bills itself as a “resilient leader” in oncology.
The flagship product is cabozantinib, a drug used in the treatment of thyroid and kidney cancers. Exelixis markets the drug under two brand names, Cabometyx and Cometriq, and these, together with Cotellic’s cobimetinib formulation – marketed in partnership with Genentech – form the current core of the company’s business.
It is also a profitable core. Exelixis reported total revenue of $1.6 billion last year, compared to a top-line total of $1.4 billion in 2021, according to the recently released 4Q22 and full-year 2022 preliminary financial results. Looking forward, the company is heading for a top line of $1.575 billion to $1.675 billion for 2023. The most recent background numbers are from 3Q22, when Exelixis reported GAAP net income figure of 23 cents per share, beating the consensus estimate of 20 cents a share. Exelixis will report its complete data for 4Q22 on February 7.
Moving forward into 2023, Exelixis’ top priority will be to conduct the clinical trial program to expand the product line. Coming later this year, the company will have a data readout for a Phase 3 clinical study of cabozantinib in the treatment of metastatic non-small cell lung cancer. This study is being conducted as a combination therapy with atezolizumab and enrolled 366 patients. Also in a Phase 3 study is zanzalintinib, a new drug candidate (formerly called XL092) for the treatment of advanced unclear cell renal cell carcinoma. The study has 291 patients and is due for expansion.
The pipeline isn’t cheap, but in addition to its revenue stream, Exelixis has deep pockets. The company ended 3Q22 with $2.1 billion in cash and liquid assets, up from $1.9 billion available at the end of 2021.
Joining the bulls, Credit Suisse analyst Geoffrey Weiner takes an optimistic stance on this company and its stock.
“Based on our conversations with key opinion leaders (KOLs) and analysis of the renal cell carcinoma (RCC) landscape, we expect product sales could grow to ~$2 billion in 2025, even without potential expansions of the label,” Weiner noted.
“EXEL has sufficient cash flow to bridge the gap between cabo and value creation from its pipeline, which includes several clinical-stage candidates and an undervalued/growing antibody drug conjugate (ADC) pipeline… We believe that the prospects for domestic production assets zanzalintinib/XL092 (next generation cabo-like TKI) and XB002 (TF-ADC) are overlooked, as is EXEL’s move to build an ADC pipeline in two years,” the analyst added.
Looking to the near future, Weiner sees fit to rate EXEL stock as Outperform (aka Buy), with a $29 price target indicating potential for a robust 65% share appreciation over the next year.
Overall, EXEL shares maintain a Strong Buy analyst consensus rating, based on 13 recent reviews. These reviews factor out 11 to 2 in favor of Buys over Holds, and the company’s $25.33 average price target implies 44% upside potential from its current $17.55 share price. (See EXEL stock forecast)
Boyd Game Company (BYD)
The next Credit Suisse pick we’re looking at is Boyd Gaming, one of the leading casino operators in the gaming industry. Distributed from his Las Vegas home, Boyd now has 28 gaming facilities and properties in 10 states and, in addition, the company holds a 5% stake in FanDuel Group, a major sports betting operator. Boyd’s experience also led the company to a management agreement with a tribal casino in Northern California.
This string of properties provided Boyd with a strong income and income stream. The company will report its full-year 2022 results tomorrow after market close, but looking back at 3Q22, we see Boyd had $877.3 million at the top. That’s up 4% year over year, and with total 9-month revenue of $2.63 billion, the company is on track to beat last year’s figure. Bottom line, Boyd’s third-quarter adjusted earnings of $1.48 per share were up more than 13% year over year.
Boyd has received a boost from strong consumer spending since the pandemic. Whether that will hold up moving forward remains to be seen; a reduction in the inflation rate will support the consumer discretionary segment in general.
Of interest to investors, Boyd reinstated quarterly dividend payments this year. The company had suspended dividends as of 2020 but resumed payments in 1Q22. The current dividend is 15 cents per common share, more than double the last payout in 2019. At this rate, the payout annualizes at 60 cents and yields a small 1% yield.
5-Star analyst Benjamin Chaiken, in his article on Boyd for Credit Suisse, lays out several reasons why this stock should do well going forward: “(1) Growth in the downtown Las Vegas market and BYD’s investment in the Freemont property We believe the Downtown market could soar as corporate demand returns to the Strip… (2) BYD is spending $100 million to move its Treasure Chest casino from a riverboat to a newly developed land-based facility adjacent to the existing property, amenities, better access, and a more cohesive casino floor could drive 20-30% ROI.(3) BYD bought Pala Interactive in Nov ’22, so the annualization of the acquisition should be a little wind favorable in ’23… (4) BYD has a tribal management contract for the Sky River Casino, which we estimate will lead to $36 million in management fees in ’23…”
Based on these four reasons, Chaiken rates BYD shares an Outperform (aka Buy) rating, along with an $82 price target that suggests a 12-month upside potential of 31.5%. (To see Chaiken’s track record, click here)
Overall, this stock gets a Moderate Buy by Street Analyst Consensus, based on 7 analyst reviews that include 4 buys, 2 holds, and a single sell. The stock sells for $62.35, and its average price target of $71.33 suggests about 14% upside potential over a one-year horizon. (See BYD stock forecast on TipRanks)
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Disclaimer: The views expressed in this article are solely those of the analysts featured. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.