The US markets are showing some contradictory signs, which makes predictions difficult. The main headwind, inflation, is falling, but the labor market is strong, unemployment is falling and wages are rising. The Federal Reserve has raised interest rates at the fastest rate since the 1980s, taking them from near zero to more than 5% over the past 12 months, risking a recession as it tries to keep the price cap in check.
But will the Fed’s efforts be in vain? Interest rate rises tend to hit markets with a 12- to 18-month lag, and we’re seeing inflation coming down now; The latest April data showed an annual growth rate of 4.9%, well below last year’s 9.1%. peak. But that 4.9% is still more than double the Fed’s target rate.
That’s the basis for recent comments from Goldman Sachs chief David Solomon, who believes inflation is still a significant challenge for the economy.
“I feel like it’s going to be stickier, it’s off its peak, but it’s going to be stickier and more durable, so we expect that while the Fed may be holding back and depending on the data, you can can you see higher? to ultimately control prices more,” Solomon opined.
In such a stickier inflation environment, investors are naturally going to move to defensive stocks that can resist a downturn. Using the TipRanks platform, we’ve detailed two names that Goldman Sachs analysts recommend as defensive stocks. Here are the details.
Flywire Corporation (FLYW)
First on our list is Flywire, an online payment processing service. The company took an interesting path into the crowded online payments space, starting out as an education specialist. Since then, it has expanded its services to include payment processing across a global network that serves the healthcare, travel and B2B industries in addition to education. Flywire is equipped to handle the verification and security compliance needs of customers operating in over 140 currencies.
Flywire boasts a truly global reach with more than 3,300 business customers in 240 countries and territories. The company offers services and support in dozens of languages around the clock, making the payment process seamless from any perspective. In addition to big names like Mastercard, Visa, and AMEX, Flywire also has partnerships with PayPal and Venmo.
As a defensive stock, Flywire is benefiting from the global shift toward digital transactions and the paperless office. Businesses of all sizes, from the smallest Mom & Pop shops to industry giants like Mastercard, can gain efficiencies by moving from paper transactions to digital processing. As a specialist in electronic payments, Flywire is advantageously positioned at the right time and in the right place. The company’s shares are up roughly 21% this year, far outpacing the S&P 500’s 8% gain over the past year. With clear indications of continued expansion in the digital payments space, Flywire is strongly positioned to maintain its growth along with its customer base.
The headline result from the company’s Q23 financial release is telling. Flywire’s top-line revenue rose 46% year-over-year to $94.4 million, beating forecasts by nearly $11.48 million. Like many tech companies, Flywire does have a net loss, but its Q1 EPS loss of 3 cents compares favorably to last quarter’s loss of 10 cents per share, and it was better by 4 cents per share. than expected. Flywire’s adjusted EBITDA expanded sharply year-over-year, from $1.9 million to $7 million. Highlights of Flywire’s first quarter included 170 new customer signings, making Q1-23 the company’s biggest sales quarter ever.
For Goldman Sachs, the key points here include Flywire’s strong defensive base and its ability to drive growth in today’s economy. Analyst Will Nance writes: “Looking forward, we believe FLYW’s strong NRR experience, coupled with its commitment to consistent operating leverage, should position the company well to continue to outperform in the near term. In particular, we see the company’s defensive business mix in the education and healthcare sectors as well positioned to absorb the potential for macro weakness in the rest of this year.”
“Putting this together,” the analyst concluded, “with the stock trading at 47 times our 2024 EBITDA estimates, we believe the valuation is attractive given FLYW’s ~30-40% growth rate, its impressive rate of margin expansion and sustainability.” in context. his strong NRRs as his record groups from recent years continue to grow.”
Nance gives FLYW stock a Buy rating with a $38 price target, implying a 28% upside potential over the coming year. (Click here to view Nance’s record)
Goldman’s hypothesis is hardly outlandish. Among the last 8 analyst reviews, there is a clear split of 7 to 1 in favor of Buy recommendations versus Holds, indicating a strong consensus rating of Buy. Currently priced at $29.72, the stock maintains an average target price of $35, indicating a 12-month upside estimate of about 18%. (See: FLYW stock forecast)
Walmart, Inc. (WMT)
We will now shift our focus from cutting-edge fintech to one of the most traditional retailers, Walmart. Growing from its humble roots in Arkansas, Walmart has become the world’s largest retail giant by revenue, generating more than $611 billion in fiscal year 2023 (covering the 12 months ending January 31 of this calendar year). The company owns both the Walmart and Sam’s Club retail chains, which operate a wide variety of supercenters, discount department stores and grocery stores in the United States and internationally. In total, Walmart has more than 10,500 stores in 24 countries and operates under 46 different names.
Walmart recently released its financial results for the first quarter of fiscal year 2024 and showed that it is maintaining its growth trajectory. The company’s total quarterly revenue was $152.3 billion, which increased by 7.6% year-on-year and surpassed forecasts by $4.39 billion. The company’s non-GAAP EPS of $1.47 was 15 cents better than expected.
Highlights of the results included US compact sales, which were up 7.4% year-over-year; e-commerce, which expanded an impressive 27%; and the global advertising business, which posted 30% year-over-year growth.
Also, during the fiscal 1st quarter, Walmart returned $2.2 billion in capital to its shareholders. Most of that came from the company’s dividend, which was last announced for a payout of 57 cents per common share on May 30. While annual interest of $2.28 per share only yields a modest 1.54%, investors should keep an eye on the dividend. reliability. Walmart has paid a dividend since 2003, hasn’t missed a quarter, and raises the payout every year.
In addition to its classic defensive dividend payouts, Walmart stock has shown the ability to grow even against strong headwinds.
None of this has escaped the attention of Goldman analyst Keith McShane, who says of Walmart: “We believe WMT is a stock that investors still want to own given its defensive qualities in the near term as well as its improving profitability profile over the long term. »
To that end, the 5-star analyst rates WMT stock a Buy, and his price target of $176 suggests the stock will grow 20% in the coming year. (Click here to view McShane’s record)
Wall Street’s biggest names never lack for analyst interest, and Walmart is no exception. The stock received 29 recent analyst reviews, including 24 Buys and just 5 Holds for a consensus rating of Strong Buy. Walmart stock is currently trading at $146.16 and has an average price target of $165.64, suggesting a 13% gain over a one-year horizon. (See: WMT stock forecast)
To find good ideas for trading stocks at attractive valuations, visit TipRanks’ “Best Stocks to Buy,” a tool that aggregates all of TipRanks’ equity insights.
DisclaimerThe 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.