Growth stocks with staying power.
The stock market hit a bump in the road in the second half of 2018 on concerns the U.S. economy was at risk heading into 2019. It’s relatively easy for companies to generate revenue and earnings growth in the middle of an economic boom, but only the biggest and best growers can thrive in a difficult economic environment. These seven growth stocks are included in CFRA’s screen of high-quality stocks that have generated average annual earnings per share growth of at least 15 percent and average annual revenue growth of at least 8 percent over the past five years.
Centene Corp. (ticker: CNC)
Analyst Colin Scarola says there are several catalysts for above-average earnings growth for Centene in coming years, including a favorable environment for Medicaid insurers, integration of Centene’s recent acquisitions and the company’s latest cost management measures. Centene was able to grow earnings per share at a compound annual growth rate of 34 percent from the end of 2015 to the beginning of January 2018 thanks to its Health Net acquisition, and Scarola says the 2018 buyout of Fidelis Care could produce a similar effect. CFRA has a “strong buy” rating and $85 price target for CNC stock.
D.R. Horton (DHI)
Analyst Kenneth Leon says there are certainly concerns related to the strength of the U.S. housing market in 2019, and D.R. Horton is not immune to a slowdown. The company cut its 2019 guidance in December and said it is seeing strong demand in only its entry-level homes. However, Leon says demand should bottom in the fiscal first quarter, and the stock has some upside at an earnings multiple of less than nine times CFRA’s fiscal 2019 EPS estimates. CFRA has a “hold” rating and $39 price target for DHI stock.
Fortune Brands Home & Security (FBHS)
Fortune Brands is a market leader in home security and security products, and analyst Matthew Miller says the company has impressive fundamentals and cash flow. Fortune Brands has significant exposure to a potential slowdown in residential home construction, but Miller says the company has excellent brand recognition value. CFRA is projecting organic revenue growth of between 3 percent and 5 percent in 2019, and Miller says Fortune’s housing repair and remodel markets are less cyclical in nature than the housing construction market. CFRA has a “hold” rating and $46 price target for FBHS stock.
National Beverage Corp. (FIZZ)
National Beverage is the fifth-largest beverage company in the U.S., and its brands include Shasta, Faygo, Rip It and LaCroix Sparkling Water. Analyst Garrett Nelson says La Croix is one of the fastest-growing beverage brands in the U.S. National’s growth and its modest market capitalization of only $3.4 billion make it a prime takeover target for its much larger competitors, Nelson says. He says a difficult North American soft drink business and National’s pristine balance sheet add to National’s buyout appeal. CFRA has a “buy” rating and $95 price target for FIZZ stock.
O’Reilly Automotive (ORLY)
While the global auto market is experiencing a cyclical slowdown, Nelson says the rise in popularity of used vehicles and the increasing age of the overall U.S. vehicle fleet will make auto parts retailers like O’Reilly the top performers in the auto group in 2019. Nelson says O’Reilly’s will outpace its peer group in terms of square footage, sales and earnings growth for at least the next several years. He also likes the company’s focus on commercial customers in addition to retail customers. CFRA has a “hold” rating and $350 price target for ORLY stock.
Ulta Beauty (ULTA)
Analyst Camilla Yanushevsky says Ulta management has a unique and innovative style that includes focusing on independent brands and strategic partnerships with celebrities including Kylie Jenner and Kim Kardashian and popular media companies like NBC and E! Network. While the makeup industry has gotten intensely competitive, Yanushevsky says Ulta should be able to produce 13.9 percent revenue growth and 8 percent same-store sales growth in fiscal 2019 and another 12 percent revenue growth and 7 percent same-store sales growth in fiscal 2020. CFRA has a “buy” rating and $351 price target for ULTA stock.
WellCare Health Plans (WCG)
Analyst Colin Scarola says managed care company WellCare is well-positioned for long-term growth given its merger and acquisition strategy and its heavy focus on Medicaid. Scarola says near-term growth is likely already reflected in the stock price at a recent valuation of around 19 times projected 2019 EPS. Still, WellCare has plenty of growth catalysts remaining, including the addition of 5.5 million members from its Meridian buyout and 2.2 million members from its acquisition of Aetna’s Medicare Part D business. CFRA has a “hold” rating and $294 price target for WCG stock.
High-quality growth stocks to buy for long-term investors.
These seven growth stocks have generated average annual earnings per share growth of at least 15 percent and average annual revenue growth of at least 8 percent over the past five years.
— Centene Corp. (CNC)
— D.R. Horton (DHI)
— Fortune Brands Home & Security (FBHS)
— National Beverage Corp. (FIZZ)
— O’Reilly Automotive (ORLY)
— Ulta Beauty (ULTA)
— WellCare Health Plans (WCG)
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