3 unpopular stocks we keep off our radar
When Wall Street turns bearish on a stock, it’s worth paying attention. These calls stand out because analysts rarely issue grim ratings on companies for fear their firms will lose out in other business lines such as M&A advisory.
Whatever the consensus opinion may be, our team at StockStory cuts through the noise by conducting independent analysis to determine a company’s long-term prospects. That said, here are three stocks facing legitimate challenges and some alternatives worth exploring instead.
Keurig Dr Pepper (KDP)
Consensus price target: $36.38 (3.8% implied return)
Born out of a 2018 merger between Keurig Green Mountain and Dr Pepper Snapple, Keurig Dr Pepper (NASDAQ:KDP) is a consumer staples powerhouse boasting a portfolio of beverages including sodas, coffees, and juices.
Why Are We Wary of KDP?
- Free cash flow margin has stayed in place over the last year
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
- High net-debt-to-EBITDA ratio of 5× could force the company to raise capital on unfavorable terms if market conditions deteriorate
Keurig Dr Pepper’s stock price of $35.04 implies a valuation ratio of 14.3x forward P/E. Dive into our free research report to see why there are better opportunities than KDP.
Zions Bancorporation (ZION)
Consensus price target: $72.64 (10.2% implied return)
Founded in 1873 during Utah's pioneer era and named after Mount Zion in the Bible, Zions Bancorporation (NASDAQ:ZION) operates seven regional banks across the Western United States, providing commercial, retail, and wealth management services to over a million customers.
Why Are We Hesitant About ZION?
- Muted 4.2% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Performance over the past five years shows its incremental sales were less profitable as its earnings per share were flat
- Capital trends were unexciting over the last five years as its 1.5% annual tangible book value per share growth was below the typical banking firm
At $65.94 per share, Zions Bancorporation trades at 1.2x forward P/B. Check out our free in-depth research report to learn more about why ZION doesn’t pass our bar.
Home Bancshares (HOMB)
Consensus price target: $32.75 (8.9% implied return)
Founded in Conway, Arkansas in 1998 and growing through strategic acquisitions across the Southeast, Home Bancshares (NYSE:HOMB) operates as the bank holding company for Centennial Bank, providing commercial and retail banking services to businesses and individuals across multiple states.
Why Do We Think Twice About HOMB?
- Annual revenue growth of 6.7% over the last two years was below our standards for the banking sector
- Estimated net interest income growth of 4% for the next 12 months implies demand will slow from its five-year trend
- Annual earnings per share growth of 6% underperformed its revenue over the last five years, showing its incremental sales were less profitable
Home Bancshares is trading at $30.08 per share, or 1.3x forward P/B. To fully understand why you should be careful with HOMB, check out our full research report (it’s free).
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