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.

At StockStory, we look beyond the headlines with our independent analysis to determine whether these bearish calls are justified. Keeping that in mind, here are three stocks where the outlook is warranted and some alternatives with better fundamentals.

Bally's (BALY)

Consensus Price Target: $16.75 (-4.9% implied return)

Headquartered in Providence, Rhode Island, Bally's Corporation (NYSE: BALY) is a diversified global casino-entertainment company that owns and manages casinos, resorts, and online gaming platforms.

Why Do We Avoid BALY?

1. Annual revenue growth of 2% over the last two years was below our standards for the consumer discretionary sector
2. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

Bally’s stock price of $17.61 implies a valuation ratio of 11.9x forward EV-to-EBITDA. If you’re considering BALY for your portfolio, see our FREE research report to learn more.

Horace Mann Educators (HMN)

Consensus Price Target: $50.67 (9% implied return)

Founded in 1945 and named after the 19th-century education reformer known as the "father of American public education," Horace Mann Educators (NYSE: HMN) is an insurance company that specializes in providing auto, property, life, and retirement products tailored for educators and other public service employees.

Why Should You Dump HMN?

1. Net premiums earned expanded by 5.3% annually over the last five years, falling below our expectations for the insurance sector
2. Products and services are facing significant credit quality challenges during this cycle as book value per share has declined by 3.2% annually over the last five years
3. Underwhelming 6.7% return on equity reflects management’s difficulties in finding profitable growth opportunities

Horace Mann Educators is trading at $46.48 per share, or 1.3x forward P/B. Read our free research report to see why you should think twice about including HMN in your portfolio.

Banc of California (BANC)

Consensus Price Target: $21.86 (11% implied return)

Originally established in 1941 and now operating with a tech-forward approach that includes its SmartStreet platform for homeowner associations, Banc of California (NYSE: BANC) is a California-based bank holding company that provides banking services to small and middle-market businesses, entrepreneurs, and individuals.

Why Is BANC Risky?

1. Flat net interest income over the last five years suggest it must find different ways to grow during this cycle
2. Day-to-day expenses have swelled relative to revenue over the last five years as its efficiency ratio increased by 21.8 percentage points
3. Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 3.6% annually over the last five years

At $19.71 per share, Banc of California trades at 1x forward P/B. Check out our free in-depth research report to learn more about why BANC doesn’t pass our bar.

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