Amid signs of sector rotation, analysts at Bank of America (BAC) recently unveiled a list of nine stocks with significant bullish catalysts coming up for Q3 of 2024. Among BofA’s lineup, three stocks in particular emerge as compelling opportunities, with consensus “Buy” ratings from analysts and room to keep rising to analysts’ upside price targets.
Stock #1: GE Aerospace
Commanding a market cap of about $178.4 billion, Cincinnati-based GE Aerospace (GE), formerly General Electric Company, is soaring as a global leader in aerospace propulsion, services, and systems, with a fleet of 44,000 commercial and 26,000 military aircraft engines.
Shares of GE Aerospace have soared 84.9% over the past 52 weeks, easily outpacing the broader S&P 500 Index’s ($SPX) gain of 25% over the same time frame. Additionally, in 2024, the stock is up 57.4%, overshadowing the SPX’s 16.5% return during the same period.
On June 21, GE Aerospace declared a quarterly dividend of $0.28 per share, set to be distributed to its shareholders on July 25. The company’s annualized dividend of $1.12 per share translates to a 0.69% dividend yield. With a low payout ratio of 6.83%, GE Aerospace leaves ample room for future dividend increases.
Priced at 40.57 times forward earnings, the stock isn't exactly cheap. However, GE’s forward PEG ratio of 1.33 is a discount to the industrial sector median of 1.67, suggesting the shares are priced right for Wall Street’s growth forecasts.
After the spin-off of GE Vernova (GEV) on April 2, GE Aerospace reported its first post-breakup Q1 earnings results on April 23, sparking an 8.3% surge in its shares on the very same day. On a consolidated basis (including GE Vernova), the company reported revenue of $16.1 billion, marking an 11% annual jump, and topping estimates by a 2.2% margin. Its adjusted EPS skyrocketed by a remarkable 203.7% year over year to $0.82, and smashed Wall Street’s projections by a solid 22.4% margin.
During the quarter, GE Aerospace demonstrated a robust performance, even on a standalone basis. The company secured total orders amounting to $11 billion, marking an impressive 34% year-over-year increase. Adjusted revenue surged to $8.1 billion, a 15% annual rise, while operating profit reached $1.5 billion, up 24% from the year-ago quarter.
Encouraged by the strong start to fiscal 2024, GE Aerospace upwardly revised its full-year guidance, and now anticipates operating profit between $6.2 billion and $6.6 billion. Adjusted EPS is forecasted to land somewhere between $3.80 and $4.05, while free cash flow is expected to exceed $5 billion, with over 100% conversion. Management anticipates corporate expenses to be around $1 billion, encompassing both expenses and eliminations.
Analysts tracking GE Aerospace expect the company’s profit to reach $4.02 per share in fiscal 2024, up 43.1% year over year, and rise another 22.6% to $4.93 per share in fiscal 2025.
For the quarter ahead, BofA analyst Ronald J. Epstein believes GE is “strongly positioned to benefit from secular commercial aerospace growth.”
GE stock has a consensus “Strong Buy” rating overall. Of the 15 analysts offering recommendations for the stock, 13 recommend a “Strong Buy,” one advises a “Moderate Buy,” and the remaining one gives a “Hold” rating.
The average analyst price target of $186.71 indicates a potential upside of 16% from the current price levels.
Stock #2: Spotify Technology
Since its launch in 2008, Sweden-based Spotify Technology S.A. (SPOT) has transformed music listening. The Spotify platform enables listeners to discover, manage, and enjoy over 100 million tracks, 6 million podcasts, and 350,000 audiobooks. As the world's most popular audio streaming service, Spotify has over 615 million users, including 239 million subscribers, across 184 markets.
Valued at $59.8 billion by market cap, shares of Spotify have climbed 95.6% over the past 52 weeks and 67.4% on a YTD basis, easily overshadowing the SPX’s gains during both these periods.
On April 23, shares of the audio streaming giant surged 11.4% after its Q1 earnings results, which smashed Wall Street’s projections on both the top and bottom lines. The company’s revenue of €3.6 billion ($3.9 billion) topped estimates by 1.5%. In Q1, the company’s profit stood at €0.97 per share, versus a loss of €1.16 per share in the year-ago quarter.
Premium revenue for the quarter soared by 20% year-over-year to €3.3 billion ($3.6 billion), fueled by a 14% spike in subscribers and a 5% rise in Premium Average Revenue Per User (ARPU). The ARPU boost was fueled by price hikes, slightly offset by product and market mix. In addition, ad-supported revenue surged by 18% annually.
During the quarter, Spotify’s total Monthly Active Users (MAUs) rose 19% annually to 615 million, while Premium Subscribers jumped 14% year over year to 239 million. As of March 31, the company’s free cash flow stood at €207 million ($223.6 million), up significantly year over year.
For Q2, management anticipates adding 16 million net new MAUs, bringing the total to 631 million. Plus, the company expects to gain 6 million net new Premium Subscribers, raising the total count to 245 million. Gross margin is projected to come in at 28.1%, fueled by improvement in music and podcasting.
Analysts tracking Spotify expect the company’s profit to reach $4.92 per share in fiscal 2024, reversing its prior-year loss, with EPS climbing 45.2% to $7.20 per share in fiscal 2025.
As for Q3, BofA analyst Jessica Reif Ehrlich argues that Spotify is “clearly at an inflection point, which is driving share price performance over the past year and a half.”
SPOT stock has a consensus “Moderate Buy” rating overall. Out of the 25 analysts covering the stock, 15 recommend a “Strong Buy,” two advise a “Moderate Buy,” and the remaining eight give a “Hold” rating.
The average analyst price target of $334.44 indicates a potential upside of 6.2% from the current price levels. The Street-high price target of $400 suggests that the stock could rally as much as 27.1%.
Stock #3: Vertiv Holdings
With a market cap of $34.3 billion, Ohio-based Vertiv Holdings (VRT) addresses the most critical challenges in modern data centers, communication networks, and commercial and industrial facilities. Amid surging energy demand, Vertiv has previously been called out by BofA as a top stock to trade the rapidly growing electrification trend.
Shares of Vertiv have rallied nearly 280% over the past 52 weeks and 91.8% on a YTD basis, easily dwarfing the broader SPX’s returns during both these time frames.
On June 26, Vertiv paid its shareholders a quarterly dividend of $0.025 per share. The company’s annualized dividend of $0.105 per share translates to a 0.11% dividend yield. Much like GE Aerospace, Vertiv also maintains a low payout ratio of 2.48%, providing plenty of room for future dividend hikes.
Following the announcement of its better-than-expected Q1 earnings results on April 24, shares of Vertiv climbed 6.8%. Net sales of $1.6 billion rose 7.8% year over year, narrowly edging past estimates. On an adjusted basis, the company earned $0.43 per share, up79.2% annually, and topping projections by a 16.2% margin.
During the quarter, Vertiv's operating activities generated $138 million in net cash, up by nearly $96 million from the same period in fiscal 2023. Adjusted free cash flow skyrocketed to $101 million, fueled by higher adjusted operating profit, improved working capital management, and lower interest expenses.
CEO Giordano Albertazzi highlighted a robust 60% increase in orders, noting, “We are seeing order patterns with longer lead times based on customer build schedules, largely in 2025 and beyond, suggesting AI is starting to scale.”
For Q2, management expects net sales to range between $1.90 billion and $1.95 billion, while adjusted EPS is forecasted to land between $0.53 and $0.57. Looking forward to fiscal 2024, net sales are projected to range from $7.54 billion to $7.69 billion, while adjusted EPS is anticipated to range between $2.29 and $2.35. Vertiv aims for adjusted free cash flow of $800 million to $850 million.
Analysts tracking Vertiv expect the company’s profit to reach $2.43 per share in fiscal 2024, up 37.3% year over year, and rise another 30.5% to $3.17 per share in fiscal 2025.
In terms of immediate drivers, as AI systems evolve in complexity, the need for efficient cooling solutions becomes increasingly critical. Vertiv's innovative liquid cooling offerings are essential to ensuring the seamless performance and reliability of AI infrastructure. According to BofA analyst Andrew Obin, Vertiv is well-positioned to capitalize on the rising demand for its thermal products fueled by the adoption of AI chips, which operate at temperatures three to four times hotter than traditional chips.
VRT stock has a consensus “Strong Buy” rating overall. Out of the 11 analysts covering the stock, 10 recommend a “Strong Buy,” and the remaining one gives a “Hold” rating.
The average analyst price target of $103.20 indicates a potential upside of 12.4% from the current price levels.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
