Have the markets reached the exuberant stage? Bullish sentiment has been the order of the day, and the S&P 500 currently sits at 4,455, reflecting gains of 16% year-to-date.
To date, the index has already exceeded the year-end target of 4,400 set by Raymond James Chief Investment Officer Larry Adam. This realization serves as a bit of vindication to Adam. It went against the prevailing sentiment at the start of the year, which, if you recall, was decidedly bearish due to the pessimistic environment of 2022. Despite this, Adam maintained a positive outlook. Now, with everyone back on the bull train and relative strength indicators moving into “overbought territory”, Adam thinks it’s time to play against the tide again.
“These technical indicators, combined with other Wall Street firms that have been rushing to raise their year-end S&P 500 price targets in recent weeks, have indicated that much of the good news has been priced in – suggesting that the market had entered a more vulnerable position, susceptible to disappointment,” he explained.
Don’t worry too much, though, as Adam’s caution is reserved only for the short term. “Longer term,” he continues, “we remain optimistic and expect the S&P 500 to rise over the next twelve months to at least 4,600 as macroeconomic winds are favorable (i.e. the Fed concludes its tightening cycle, lower interest rates, resilient margins and record liquidity on the margins) provide a more favorable context for equities.
Meanwhile, analysts at Raymond James have been busy alerting investors to stocks poised for growth in the year ahead, and they’ve labeled two names they consider “strong buys.” We scoured these tickers in the TipRanks database to find out what the rest of the Wall Street analyst corps thinks. Let’s check the details.
Engage Smart, Inc. (ESMT)
We’ll start with EngageSmart, a company that specializes in providing custom customer engagement software and integrated payment solutions. With a customer base of over 3,000 businesses and 108,000 health and wellness professionals, EngageSmart caters to various industries with tailored software-as-a-service (SaaS) solutions. Originally created as Invoice Cloud in 2009, the company underwent a rebrand in 2020 and became EngageSmart. The company’s primary focus is to serve large, untapped markets that are increasingly reliant on payment software and technology, particularly in non-cyclical sectors.
EngageSmart operates through two distinct segments: SMB Solutions, which offers comprehensive practice management solutions for the health and wellness industry, and Enterprise Solutions, which provides vertical engagement services for electronic payment of integrated bills and payments in industries such as government, utilities, financial services, healthcare and charitable giving.
EngageSmart has been a public entity for less than 2 years, but throughout the period revenue has steadily improved on a sequential basis. The most recent report, for 1Q23, was no different. Revenue increased 31.2% from the same period a year ago to $88.4 million, while improving on the $83.9 million generated in the prior quarter. Moreover, the figure is $1.73 million higher than the consensus. Ultimately, EPS of $0.02 hit analysts’ forecasts. The total number of customers increased by 23% to 108,200, compared to 87,800,000 at the end of 1Q22.
EngageSmart’s outlook has caught the eye of Raymond James analyst John Davis, who presents a strong bullish deal.
“We believe EngageSmart has a clear multi-year growth roadmap, driven by the convergence of software and payments across its core verticals,” Davis said. “Most importantly, the company has a significant first mover advantage in SMBs and enterprises, allowing it to continue to capture share from legacy actors/processes. More importantly, we believe there is a compelling bull case given the tailwinds in both SMB (pricing + new specialties) and enterprise (bill paying 2.0) that could drive the numbers up significantly. (High NRR of 120s + new mid-teen wins). “
These comments underpin Davis’ Strong Buy rating, while its $25 price target leaves room for 12-month returns of 35%. (To see Davis’ track record, click here)
Let’s now turn our attention to the rest of the street, where, based on 7 buys and 1 hold, ESMT currently carries a strong buy consensus rating. With an average price target of $22.86, analysts predict a 23% upside over the next few months. (See ESMT Stock Forecast)
The Allstate Company (ALL)
Now let’s move from software to one of the largest personal lines insurers in the United States. Allstate is a well-established and leading insurance company with a history dating back to 1931. Over the years, it has become one of the largest in the country. and most recognized insurers. Allstate offers a full range of insurance products and services, including auto, home, renters, life and business insurance, to meet the diverse needs of individuals and businesses.
It is a large operation with 54,700 employees, a market capitalization of $29 billion and revenues of $51 billion in 2022. Judging by the performance of the first quarter of this year, the company is in pass to exceed this figure. First-quarter revenue was $13.79 billion, an 11.8% year-over-year increase, beating consensus estimate of $110 million . However, the company hasn’t fared so well on the other end of the spectrum; adj. EPS of -$1.30 is well below the -$1.01 expected by analysts.
The quarter’s performance reflects the company’s focus in recent years on growth at the expense of profitability. Another recent focus has been to invest in technology and digital know-how to improve operations and meet changing customer demands; the company has developed a range of digital tools and platforms.
This is a point echoed by Charles Peters of Raymond James, who highlights the progress made here. The 5-star analyst writes, “Allstate is at the forefront and committed to the digital transformation of insurance. The company pursues an integrated digital business concept. In this context, Allstate highlights its QuickFoto claims app, where approximately 75% of claims that the company can conduct are resolved within a day. Allstate is also well positioned to reap significant rate benefits and report significantly lower accident frequency rates through the deployment of its Drivewise app.
To that end, Peters assesses Allstate shares a strong buy, while its price target of $155 suggests a 40% upside over the coming year. (To see Peters’ track record, click here)
Elsewhere on the street, the stock claims 6 more buys, 5 holds and 1 sell, all culminating in a moderate buy consensus rating. Based on the average target of $131.08, a year from now investors will be sitting on returns of around 19%. (See Allstate Stock Forecast)
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Disclaimer: The opinions expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.