As we move toward the end of Q2, it’s time to start thinking about earnings. Looking back at the quarter, analysts are predicting earnings growth of 8%, which may rise to 11% heading into next year. It’s a rosy picture, but it’s also not a sure thing. GDP contracted in Q1, by nearly 1.5%, and some estimates are showing 0% growth in Q2. Such results would meet the technical definition of a recession – and recession is hardly the usual environment to find robust earnings growth.
Looking at current conditions, Jim Cramer, the well-known host of CNBC’s ‘Mad Money’ program, believes investors should wait for the post-earnings market to bottom out, writing: “Over the next few weeks, before earnings season gets rolling, I expect the analysts to hit us with some preemptive estimate cuts while more companies hit us with negative preannouncements. That’s when we will have not a tradeable bottom like this one, but an investable one.”
In the meantime, there are stocks out there which have already been pushed down hard by today’s bear market. Using TipRanks’ database, we pinpointed three equities which have fallen at least 50% this year – but the Street’s analysts are still rating them as Strong Buys. Not to mention each offers up triple-digit upside potential, despite the challenging market environment. Let’s take a closer look.
Remitly Global (RELY)
We’ll start with Remitly Global, a financial services firm with an interesting niche. Remitly focuses on the facilitation of international transfer payments, ensuring security for senders and receivers and making transactions both safe and accurate. The service is heavily used by immigrant communities worldwide, which have historically used remittance payments to send money ‘back home.’ Remitly operates in 160 countries, basing its services on a mobile app with lower fees than traditional banks.
Remitly has been on the public markets for less than a year, having held its IPO in September 2021. The company’s debut on the stock market went well, with the shares opening above initial expectations and the sale raising some $520 million in gross capital, but the stock has been falling ever since. RELY shares are down 56% year-to-date.
Even though the stock is down, Remitly’s business remains strong. Revenues hit $136 million in 1Q22, a 49% gain year-over-year. The strong revenue gains were driven by a 42% y/y increase in active customers, from 2.1 million to 3 million, and a 43% y/y increase in send volume, which grew from $4.3 billion to $6.1 billion. The company made a slight positive adjustment to its full-year 2022 revenue guidance, from $610 million to $615 million at the midline, representing ~34% y/y growth. On a negative note, the company’s earnings fell as the net loss deepened from $7.8 million to $23.3 million y/y.
JMP analyst David Scharf saw the company’s recent results as a net positive, writing: “The strong momentum that closed out 2021 carried into, and accelerated throughout, the first quarter of 2022. The first quarter’s financial results were almost precisely in line with our forecast, while key operating metrics (active customers, send volume, and volume per customer) exceeded our expectations and were drivers of the modest increase to full-year revenue guidance.”
“Notwithstanding the severe contraction in valuations ascribed to technology and paymentech stocks, and the increased macro uncertainties that are sparking global recessionary fears, RELY’s 30%+revenue growth outlook reflects the secular digital tailwinds that it is enjoying and its long runway of corridor expansion,” the analyst added.
Overall, Scharf believes this is a stock worth holding on to. The analyst rates RELY shares an Outperform (i.e. Buy), and his $22 price target suggests a solid upside potential of ~140%. (To watch Scharf’s track record, click here)
Remitly has also managed to pick up a unanimous Strong Buy consensus rating from Wall Street, based on 4 recent positive reviews. The stock is selling for $9.15 and the $18.75 average price target implies ~105% upside from that level. (See RELY stock forecast on TipRanks)
LendingTree, Inc. (TREE)
The next beaten-down stock we’ll look at is Lending Tree, an online loan broker, connecting lenders and borrowers via an internet platform. Borrowers can follow up on multiple loan options simultaneously, giving added flexibility when seeking terms on everything from credit cards to insurance to loans to deposit accounts. Charlotte-based Lending Tree brought in just over $1.09 billion in total revenues last year, up from $910 million in the prior year.
For 1Q22, Lending Tree reported $283.18 million at the top line, a modest gain of 4% from the year-ago quarter. Earnings came in negative for the quarter, at a GAAP loss of 84 cents per share. This was a turnaround from the net profits reported in 4Q21 and 1Q21, and the deepest net loss shown since 3Q20.
A look into the details of Lending Tree’s earnings release shows an interesting pattern. The company’s Home segment showed a 20% decline year-over-year, with mortgage product revenue falling by 33%. Revenue in the Insurance segment also fell, by 8% from 1Q21. At the same time, consumer credit business was up; credit card revenue grew 69% and personal loans went up by an impressive 137% y/y. We should note that TREE shares are down by 55% so far this year.
This pattern caught the attention of Truist’s 5-star analyst Youssef Squali. Describing the situation, Squali wrote: “While mortgage and refi products remain pressured in a rising rate environment, and inflation pushes insurance premiums higher, TREE did not see the same negative impact to its Consumer business for 2Q. The company expects revenue growth of ‘approximately 40%’ y/y in 2Q, which is in-line with our prior expectations following 1Q earnings. We believe this highlights the continued strength TREE is seeing in verticals, such as SMB and personal loans (TREE’s highest margin business), as well as credit cards, given the absence of stimulus checks and higher spending levels from consumers this year.”
“These trends are likely to last a few more quarters as rates continue to climb, but easier comps starting in 4Q22 should lead aggregate growth to re-accelerate in 2023. In the meantime, reset expectations, muted valuation and an active buyback should keep the stock in check,” Squali summed up.
This reinforces the analyst’s view that TREE is a stock to “buy,” and worth a $130 target price. At current levels, this target suggests ~137% upside for the year ahead. (To watch Squali’s track record, click here)
All in all, TREE has picked up 7 recent analyst reviews in recent weeks, with 6 Buys and 1 Hold making for a Strong Buy consensus rating. The stock’s $137.50 average price target suggests it has a robust 150% upside from the current trading price of $54.87. (See TREE stock forecast on TipRanks)
Oportun Financial Corporation (OPRT)
We’ll wrap up with one more online financial company. Oportun uses AI to power its digital banking platform, offering affordable financial services to some 1.7 million members. Oportun’s customers use the platform to access a full range of banking services, including savings accounts and investing services – but especially short-term personal loans and credit. Sub-prime borrowers frequently have to recourse to high-risk services such as payday loans, but Oportun offers a range of alternatives. These include personal loans between $300 and $10,000, with payment between 1 and 4 years, and credit cards with limits between $300 and $1,000.
At the end of last year, Oportun moved to expand its footprint and customer base through the acquisition of Digit, an online neobanking platform. The acquisition was a cash and stock deal worth approximately $112.6 million.
Last year saw a generally bullish consumer environment, and Oportun benefited with four quarters in a row of sequentially increasing revenues. The most recent quarterly report, 1Q22, showed $214.72 million at the top line, the best in more than two years and up 59% year-over-year. The active member total, of 1.7 million, represented 48% y/y growth. Earnings were also up, to $1.58 per share on a GAAP adjusted basis, up from 41 cents in the year-ago quarter for a hefty gain of 285% y/y.
Despite these solid results – and record EPS – Oportun’s shares are down by 58% so far this year. The share losses haven’t worried BTIG analyst Mark Palmer, who writes, “We believe the company’s long-term prospects for growth and profitability have been bolstered by its acquisition of Digit, its partnership with MetaBank, and the benefits to its cost structure from its emphasis on its digital strategy, and that the pullback in the company’s share price has created a compelling buying opportunity.”
To this end, Palmer rates OPRT shares a Buy, with a $27 price target that shows his confidence in a strong 218% upside for the coming months. (To watch Palmer’s track record, click here)
Wall Street likes Oportun, as is clear from the unanimous 5 positive analyst reviews, backing up the Strong Buy consensus rating on the stock. Shares are priced at $8.49 and their $25.50 average price target suggests a one-year upside of ~197%. (See ORPT stock forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Source: https://finance.yahoo.com/news/jim-cramer-says-earnings-estimate-132722439.html