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.
Unlike the investment banks, we created StockStory to provide independent analysis that helps you determine which companies are truly worth following. Keeping that in mind, here are three stocks where Wall Street’s estimates seem disconnected from reality and some better opportunities to consider.
Charter (CHTR)
Consensus Price Target: $373.60 (46.3% implied return)
Operating as Spectrum, Charter (NASDAQ: CHTR) is a leading telecommunications company offering cable television, high-speed internet, and voice services across the United States.
Why Does CHTR Give Us Pause?
- Sluggish trends in its internet subscribers suggest customers aren’t adopting its solutions as quickly as the company hoped
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- ROIC of 9.8% reflects management’s challenges in identifying attractive investment opportunities
Charter is trading at $255.28 per share, or 6.4x forward P/E. Read our free research report to see why you should think twice about including CHTR in your portfolio.
Worthington (WOR)
Consensus Price Target: $68.20 (20.5% implied return)
Founded by a steel salesman, Worthington (NYSE: WOR) specializes in steel processing, pressure cylinders, and engineered cabs for commercial markets.
Why Do We Steer Clear of WOR?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 16.2% annually over the last five years
- Earnings per share have contracted by 27.4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Worthington’s stock price of $56.60 implies a valuation ratio of 15.6x forward P/E. To fully understand why you should be careful with WOR, check out our full research report (it’s free for active Edge members).
Meritage Homes (MTH)
Consensus Price Target: $83.88 (21.5% implied return)
Originally founded in 1985 in Arizona as Monterey Homes, Meritage Homes (NYSE: MTH) is a homebuilder specializing in designing and constructing energy-efficient and single-family homes in the US.
Why Do We Pass on MTH?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 36.5% declines over the past two years
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.6 percentage points
- Eroding returns on capital suggest its historical profit centers are aging
At $69.05 per share, Meritage Homes trades at 9.5x forward P/E. Dive into our free research report to see why there are better opportunities than MTH.
High-Quality Stocks for All Market Conditions
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