Investing

Merrill Lynch Raises Price Targets on 5 Stocks With Blow-Out Earnings

Lee Jackson

Published: May 22, 2017 8:25 am

Last Updated: January 12, 2020 11:48 am

The higher the market goes, the harder it is to justify many of the multiples being applied to shares. The big moves in the market since the election last November were due in part to big moves by tech stocks with very large market capitalizations. With tail-risk mounting due to geopolitical situations around the world and some sociopolitical issues here at home, it makes sense for investors to stock with large cap growth stocks.

In a series of new research reports, Merrill Lynch raised its price targets on five quality, large-cap growth stocks that make good sense for growth investors looking to reposition their portfolios to account for perhaps more volatility the rest of 2017. With corporate optimism much stronger than some of the current data, playing it safe makes good sense. All are rated Buy.

Alibaba

Over two years and a half ago, this company was the hottest thing on the planet and getting ready to come public. Alibaba Group Holding Ltd. (NYSE: BABA) runs the largest retail marketplaces (Taobao, TMall) and leading B2B sites (Alibaba.com, 1688.com) in China and Lazada in Southeast Asia. It collects revenues mainly from commissions, marketing services, subscription fees, cloud computing and software, as well as other value-added services. It also owns media and partners with logistics and payment companies to offer delivery, warehousing, payment and financing services for its market participants.

Plain and simple, the dominance in Alibaba’s core business, the very hard barrier to entry for competition and new growth opportunities like cross-border e-commerce make the stock extremely attractive.

The company recently reported huge quarterly numbers, and the driving force for some of the outperformance included social features, customized mobile app for users, cross-platform user tracking and ad targeting for merchants. In fact, growth returned to the levels the company was at when it went public.

The Merrill Lynch price target for the stock was raised to $140 from $125. The Wall Street consensus estimate is lower at $133.17. The shares closed Friday at $123.22.

Applied Materials

Some on Wall Street feel this semiconductor capital equipment leader has the broadest range of exposure to 3D NAND and foundry display. Applied Materials Inc. (NASDAQ: AMAT) is the global leader in precision materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic industries. Applied Material’s technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world.

The company reported second-quarter earnings per share that exceeded the Wall Street consensus estimate. Revenues rose 44.7% from last year and were right in line with the analysts’ view. Looking ahead, Applied Materials forecast third-quarter earnings well ahead of the Wall Street consensus forecast. The company also sees third-quarter revenues much higher than the analysts’ view.

Shareholders of Applied Materials are paid a small 0.9% dividend. The $54 Merrill Lynch price target jumped to $58. The consensus target is $43.89, below where shares closed on Friday, at $44.08.

Salesforce.com

This top company reported solid first-quarter results as billings drastically improved. Salesforce.com Inc. (NYSE: CRM) provides enterprise cloud computing solutions, with a focus on customer relationship management to various businesses and industries worldwide.

It offers enterprise cloud computing applications and platform services, including Sales Cloud that enables companies to store data, monitor leads and progress, forecast opportunities, gain insights through relationship intelligence and collaborate around sales on desktop and mobile devices.

The company also provides Service Cloud, which enables companies to deliver personalized customer service and support, as well as connect their service agents with customers on various devices; and Marketing Cloud, which enables companies to plan, personalize and optimize customer interactions.

The company has recently been upgraded at several top Wall Street firms and looks to be breaking out of a triple top formation.

Merrill Lynch raised its $100 price target to $114, which compares to the $97.89 consensus target. The shares closed Friday at $87.40 apiece.

Shire

This is one of the top picks on Wall Street in specialty pharma, and it came in with huge earnings. Shire PLC (NASDAQ: SHPG) develops, licenses, manufactures, markets, distributes and sells pharmaceutical products. It offers various products for the treatment of attention deficit hyperactivity disorder. The company also focuses on the development of resources projects in various therapeutic areas, including rare diseases, neuroscience, ophthalmics, hematology and gastrointestinal disorders, as well as early development projects, primarily on rare diseases. Shire markets its products through wholesalers and pharmacies.

Many analysts were perplexed by the somewhat mixed market reaction to the Baxalta bid. Baxalta was spun off from Baxter last year. The Baxalta acquisition could produce $13 billion in revenues for Shire’s rare disease portfolio by 2020, according to Bloomberg Intelligence analysis. Sales at the combined entity are projected to reach $20 billion.

Merrill Lynch lifted its price target to $262 from $254, and the consensus target is $241.75. The shares closed most recently at $189.14.

Wal-Mart

The giant retailer has done very well since bouncing off lows for the year in January. Wal-Mart Stores Inc. (NYSE: WMT) operates retail stores in various formats worldwide, including discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, cash and carry stores, home improvement stores, specialty electronics stores, restaurants, apparel stores, drug stores and convenience stores. It also operates via retail websites, such as Walmart.com and SamsClub.com.

Each week, nearly 260 million customers and members visit the company’s 11,535 stores under 72 banners in 28 countries and e-commerce websites in 11 countries. With fiscal year 2016 revenue of $482.1 billion, Wal-Mart employs approximately 2.2 million associates worldwide.

Merrill Lynch said this in its research report after the company reported strong fiscal 2018 first-quarter results:

We believe Wal-Mart’s omni-channel transformation is gaining momentum & should position the company as the other “Everything Store.” The company also continues to execute well on its strategy to improve its core US stores, with a focus on key traffic-driving areas.

Shareholders receive a 2.6% dividend. The Merrill Lynch price target was raised to $90 from $88. The posted consensus target is $77.49, and shares closed above that level on Friday at $78.77.

The strong market rally has lifted many of these companies, so investors may consider buying partial positions and seeing if the market pulls back some. Regardless, beating estimates and raising guidance makes them a good bet going forward.