The year’s final week is upon us, and after a nail-biting weekend, on Sunday night, Trump at last signed off on the $900 billion Covid relief deal. In doing so, the danger of a government shutdown was avoided and stimulus checks of $600 will make their way to the millions dependent on the much needed coronavirus related aid.
With disaster narrowly averted and the rollout of vaccines at play, the outlook for 2021 remains optimistic. Investors can plan ahead and Street analysts are already assessing the names which can potentially deliver returns in 2021.
Deutsche Bank analysts have lined up three stocks which they see as a compelling buying opportunity for the upcoming year. We ran the three through TipRanks database to see what other Wall Street’s analysts have to say about them.
Tenet Healthcare (THC)
We’ll start with Tenet Healthcare, a Dallas, Texas based medical facilities operator. With 65 hospitals, and 500 various healthcare facilities, Tenet is the U.S.’s third-largest hospital company by revenue, and the owner of the third-largest number of hospitals.
The company has made several strategic acquisitions throughout the years, the latest of which was announced earlier this month. The company disclosed it will purchase up to 45 ambulatory surgery centers (ASCs) from SurgCenter Development (SCD), to be operated by Tenet’s United Surgical Partners International (USPI) subsidiary.
The 45 centers are spread out across the U.S. – in Arizona, Florida, Indiana, Louisiana, Maryland, Ohio, New Hampshire, Texas, and Wisconsin.
Deutsche Bank analyst Pito Chickering says the acquisition is “highly complementary to THC’s / USPI’s current geographic footprint,” and calls the $1.1 billion cash transaction an “efficient use of capital.”
The acquisition is partly why the analyst recently upgraded his rating on THC from Hold to Buy. The analyst also set a $69 price target, which represents possible upside of a strong 72%. (To watch Chickering’s track record, click here)
“ASC EBITDA is approaching 50% of THC’s EBITDA, however the Street continues to value THC as a discounted hospital company; Free cash flow should accelerate over the next 2-3 years because ASCs generate significantly higher FCF per EBITDA dollar versus the hospital segment (due to lower capex requirements). Lastly, the ‘new’ management team under CEO Rittenmeyer still hasn’t received the multiple that they deserve, despite three years of strong performance,” Chickering noted.
While the rest of the Street is not quite as bullish, the overall forecast is for more upside; The average price target is set at $45.1 and suggests room for a 13% uptick over the next months. All in all, the stock has a Moderate Buy consensus rating, based on 6 Buys and 4 Holds. (See THC stock analysis on TipRanks)
State Street Corp (STT)
From healthcare we move along to finance, where we encounter State Street. The bank holding company is the U.S.’s second-oldest continually operating bank, and has $36.6 trillion in assets under custody and administration, making it the world’s second largest custodian bank.
It is also a stalwart of corporate America, and together with Vanguard and BlackRock, State Street is deemed one of the U.S.’ Big Three index funds.
The company’s asset management business, State Street Global Advisors (SSGA), manages $3 trillion of assets, including the first U.S. ETF – the SPDR S&P 500 ETF Trust – the world’s largest ETF with assets worth roughly $320 billion.
However, State Street has been in the news recently with reports it is looking to sell SSGA to a rival, with both UBS and Invesco mentioned as possible partners. While the talks have led to nothing so far, the company continues to work with an advisor to assess its options.
Deutsche Bank’s Brian Bedell believes a possible merger could be a harbinger of things to come in the industry.
“We believe asset management industry consolidation will continue, for a variety of reasons, but mostly to reduce the inefficiencies of a somewhat highly fragmented industry amid continued substantial competitive pressures,” the analyst said.
State Street has been under pressure from other macro elements in 2020. While the company delivered solid Q3 results in its latest quarterly report, it has struggled this year, as low interest rates have affected the company’s net interest income. The stock has felt the impact, too, and shares are down 7% year-to-date.
Merger or not, either way, the risk/reward is currently favorable, according to Bedell. The analyst rates STT a Buy along with a $96 price target, which suggests upside of a decent 33% from current levels. (To watch Bedell’s track record, click here)
State Street currently gets mixed reviews from Bedell’s colleagues, with the bulls edging ahead. With 5 Buys and 6 Holds the stock has a Moderate Buy consensus rating. The forecast is for 12% upside over the coming months, given the average price target clocks in at $80.55. (See STT stock analysis on TipRanks)
DuPont de Nemours (DD)
Last but not least, we have chemical giant DuPont. The company was formed from the merger of Dow Chemical and E. I. du Pont de Nemours in 2017, and prior to the spin offs of Dow and Corteva, was the largest chemical company in the world by sales.
Earlier this month, the Delaware Supreme Court upheld a lower court’s dismissal of a lawsuit from Chemours (spun off from DuPont in 2015) which accused DuPont of deliberately saddling it with potentially billions of dollars of liabilities linked to PFAS, known as “forever chemicals.”
Deutsche Bank analyst David Begleiter anticipates a negotiated settlement between Chemours and DuPont, which “should be well received by investors.”
Along with the removal of this specific overhang, Begleiter sees other causes for optimism.
“Continued improvement in its core operations,” has the analsyt raising Q4 and 2021 estimates, and with the anticipated merger between International Flavors & Fragrances (IFF) and DuPont’s Nutrition & Biosciences expected to close over the next 6 weeks, there is an additional tailwind.
“We believe there will be increased interest in the potential next step of DuPont’s portfolio transformation – a tax efficient separation of Electronics & Imaging as peers trade at 20x-plus ’21 EBITDA versus Remainco (DuPont) at 11x,” the 5-star analyst said.
To this end, Begleiter rates DD a Buy along with a $90 price target. This figure implies a 30% upside from current levels. (To watch Begleiter’s track record, click here)
The Street appears fully behind DuPont, with all current ratings – 6, overall – saying Buy. DD’s Strong Buy consensus rating is backed by a $74 average price target, suggesting upside of 7.5%. (See DuPont stock analysis on TipRanks)
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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.
