Investing

Raymond James Makes Huge Contrarian Addition to Analyst Current Favorites

Lee Jackson

Published: July 13, 2020 7:58 am

Last Updated: July 13, 2020 8:36 am

All the Wall Street firms that we cover here at 24/7 Wall St. keep a list for their institutional and retail clients of high-conviction stock picks. These are generally the companies they not only like on a longer-term basis, but those that usually have big upside to the assigned target price. Since the start of the second half of the year, many firms on Wall Street have tweaked their lists to account for potential changes in 2020.

In a recent Raymond James research note, the analysts made a big contrarian move by adding an ultra-low-cost air carrier to the firm’s well-respected Analyst Current Favorites list of stocks to Buy.

Here we cover this new addition, and we also screened the list for other companies that are in sectors that have struggled some but could have big second-half upside potential. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision. 

Allegiant Travel

This low cost carrier flies to many cities, and it is the newest addition to the Analyst Current Favorites list. Allegiant Travel Co. (NASDAQ: ALGT) has a unique business strategy: flying where other airlines do not. It connects 136 city pairs and typically flies each leisure route only a few times a week, using older planes with low capital costs. An early unbundler, the company generates more fees per passenger than any U.S. airline. Its largest market is Las Vegas, followed by Orlando and Phoenix.

The company announced earlier this year the largest service expansion in its history, which includes 44 new nonstop routes, including 14 routes to three new cities: Chicago, Boston and Houston. This major addition to service is driven by Allegiant’s goal of connecting leisure travelers in underserved cities to popular destinations around the country. Most of the 44 new routes are non-competitive, with no other airline providing service between those airports.

The Raymond James price target for the shares is $135, while the consensus target across Wall Street is $112.78. Allegiant Travel stock was last seen trading at $110.29, up over 8% on Friday.

Cigna

This is a solid value buy in the health care sector. Cigna Corp. (NYSE: CI) is a major health services organization that provides insurance and related products and services in the United States and internationally. All products and services are provided exclusively by or through operating subsidiaries of Cigna, including Cigna Health and Life Insurance Company, Life Insurance Company of North America, Cigna Life Insurance Company of Canada and their affiliates.

The health care giant offers an integrated suite of health services, such as medical, dental, behavioral health, pharmacy, vision, supplemental benefits and other related products, including group life, accident and disability insurance. Cigna maintains sales capability in 30 countries and jurisdictions, and it has approximately 86 million customer relationships throughout the world.

Cigna has a partnership relationship with (and an equity stake in) MDLive for telehealth. Increased telehealth adoption should also translate to a shift in prescription fulfillment to nonphysical pharmacy locations, which should benefit the company’s Express Scripts business, which operates the largest mail pharmacy in the United States.

Raymond James has price target of $240, a bit below the consensus figure of $243.76. Friday’s last trade for Cigna Stock was reported at $175.54.

With phase two opening procedures in place in some areas, the restaurant industry is close to leaving the horror of being shut down except for carryout and delivery. Darden Restaurants Inc. (NYSE: DRI) owns and operates full-service restaurants in the United States and Canada.

As of November 24, 2019, the company owned and operated approximately 1,799 restaurants, which included 867 under the Olive Garden, 518 under the LongHorn Steakhouse, 166 under the Cheddar’s Scratch Kitchen, 79 under the Yard House, 59 under The Capital Grille, 45 under the Seasons 52, 42 under the Bahama Breeze and 23 under the Eddie V’s Prime Seafood brands.

The company reinforced its balance sheet by completing a $460 million equity raise ($400 million common, $60 million greenshoe). That highlights Darden’s growing cost of capital advantage to peers, given years of a more conservatively run balance sheet. Despite the 6% dilution, Wall Street thinks Darden’s war chest will help it muscle out peers after the pandemic.

The company has suspended the dividend for now. The $90 Raymond James price target is higher than the $86.11 consensus price objective. Darden Restaurants stock ended last week at $72.09 a share.

Kansas City Southern

This top railroad stock could have a very solid second half of the year with an improving economy. Kansas City Southern Inc. (NYSE: KSU) is a Class 1 North American railroad, with a nearly 6,000-track mile network, serving 10 states in the central and south-central United States, as well as Mexico.

With a network spanning across the U.S./Mexico border through Laredo, Texas, the company provides a direct connection between the United States and the industrial centers of Mexico. The company’s Mexican operating subsidiary, Kansas Southern de Mexico, is one of the two largest primary Mexican rail carriers.

The company is expected to generate $500 million in free cash flow for 2020, and analysts expect strong operating leverage potential as volumes start to rebound with an improving economy.

Shareholders receive a 1.11% dividend. Raymond James has set a $169 price objective. The consensus target price is $156.72, and Kansas City Southern stock close at $143.74 on Friday.

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Wesco

This may be a very solid play for investors looking toward the potential infrastructure build-out. Wesco International Inc. (NYSE: WCC) is a distributor of products and provider of supply chain management and logistics services used in industrial, construction, utility and commercial, institutional and government markets.

The company is a provider of electrical, industrial and communications maintenance, repair and operating and original equipment manufacturers products, construction materials and supply chain management and logistics services. It also offers construction materials, and supply chain management and logistics services. Product categories include general supplies, wire, cable and conduit, communications and security, electrical distribution and controls, lighting and sustainability, as wel as automation, controls and motors.

The Raymond James price target is a huge $60. The posted consensus target was last seen at $45.90, and Wesco International stock closed most recently at $35.73 per share.

These five stocks from the Analyst Current Favorites list at Raymond James all have a degree of a contrarian play to them, and all offer outstanding value in a time when the stock market is very rich and overbought.