Wall Street has issued downbeat forecasts for the stocks in this article. These predictions are rare - financial institutions typically hesitate to say bad things about a company because it can jeopardize their other revenue-generating business lines like 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 skepticism is well-placed and some better opportunities to consider.
WESCO (WCC)
Consensus Price Target: $375.10 (5.3% implied return)
Based in Pittsburgh, WESCO (NYSE:WCC) provides electrical, industrial, and communications products and augments them with services such as supply chain management.
Why Are We Hesitant About WCC?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- High input costs result in an inferior gross margin of 21.4% that must be offset through higher volumes
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1.5% for the last five years
WESCO is trading at $356.17 per share, or 21.6x forward P/E. To fully understand why you should be careful with WCC, check out our full research report (it’s free).
Fluence Energy (FLNC)
Consensus Price Target: $18.59 (-35.7% implied return)
Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ:FLNC) helps store renewable energy sources with battery systems.
Why Does FLNC Give Us Pause?
- Revenue growth over the past two years was nullified by the company’s new share issuances as its earnings per share fell by 3.6% annually
- Cash-burning history makes us doubt the long-term viability of its business model
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Fluence Energy’s stock price of $28.92 implies a valuation ratio of 30.7x forward EV-to-EBITDA. If you’re considering FLNC for your portfolio, see our FREE research report to learn more.
United Natural Foods (UNFI)
Consensus Price Target: $46.25 (-11.2% implied return)
With a vast network of 55 distribution centers spanning approximately 30 million square feet of warehouse space, United Natural Foods (NYSE:UNFI) is North America's premier grocery wholesaler distributing natural, organic, and conventional products to over 30,000 retail locations across the US and Canada.
Why Are We Out on UNFI?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 1.8% for the last three years
- Incremental sales over the last three years were much less profitable as its earnings per share fell by 29.3% annually while its revenue grew
- 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $52.10 per share, United Natural Foods trades at 17.8x forward P/E. Read our free research report to see why you should think twice about including UNFI in your portfolio.
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