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Imperial Capital's Best Investment Ideas Contains Several Surprises

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Imperial Capital's Best Investment Ideas Contains Several Surprises

In a report published Wednesday, Imperial Capital analysts released their top equity ideas across various sectors with an average upside potential of 84.5 percent.

ADT: Industry-Leading Company

First on the list is ADT Corp (NYSE: ADT) (Outperform rated, $43 price target), which is an "industry-leading" home services company with "very high unaided" brand recognition.

The analysts believe that recent announcements of new partnerships with strategic device companies (e.g., Nest) will "continue to attract best in breed" technology companies that find it advantageous to partner with ADT. As such, the company is likely to add 25 million new accounts over the next six to seven years (on top of its current base of 25 million), while also garnering better customer retention.

Related Link: Focusing On Quality With This ETF In September

Cenveo: Much Improved 2015 Expected

According to the analysts, Cenveo, Inc. (NYSE: CVO) (Outperform rated, $3.75 price target) will deliver a "much improved" performance in 2015, as it passes integration-related issues stemming from its acquisition of National Envelope in 2013.

Specifically, the analysts are projecting: 1) EBITDA of up to $190 million in 2015; 2) potential asset sales, which may include the divesture of its packaging business as soon as September; 3) improved margin restoration.

Finally, the company's management team is prepared to manage its balance sheet in a "prudent manner" and create "new equity value" through de-leveraging to 5.9x in 2015 from 7.6x in 2014 while generating $64 million of overall free cash flow in 2015.

Diamond Resorts: Discounted Valuation

Shares of Diamond Resorts International Inc (NYSE: DRII) (Outperform rated, $42 price target) are trading at 5.8x total enterprise value (based on the analyst's 2016 estimates), which is a discount to its peers, some of which trade at an 8.5x valuation multiple.

In addition, the analysts noted that the company has generated "strong growth" in adjusted EBITDA over the past few quarters, while its "asset light" strategy continues to generate "tremendous" free cash flow.

Finally, the analysts stated that they "really like" the recent acquisition of Gold Key Resorts, which the company can fund with debt and keep its net leverage low.

McDermott International: Benefit From Growing Demand

McDermott International (NYSE: MDR) (Outperform rated, $5.50 price target) stands to benefit from growing demand for offshore oil and gas construction services, given its "strong" asset base and "attractive" geographic presence.

The analysts added that the company's liquidity is "sufficient" to support a turnaround plan. In addition, the company's award prospects are "improving" and could gain traction, especially if commodity prices stabilize.

Related Link: U.S. Trade Balance News Release Trade Tip

Southwest Airlines: Top Airline Pick

According to the analysts, shares of Southwest Airlines Co (NYSE: LUV) (Outperform, $64 price target), along with other airliners, have traded closer to PRASM (passenger revenue per available seat mile) commentary rather than operating margins, earnings per share results and "record" 2015 expectations.

The analysts further suggested that Southwest will likely be the first legacy carrier to guide towards positive PRASM growth as early as the fourth quarter. As such, investors should "accumulate" shares ahead of the upcoming "change" in investor sentiment.

Synergy Resources: Small Cap Poised To Prosper

Synergy Resources Corp (NYSE: SYRG) (Outperform rated, $16.50 price target) is "one of the best positioned" small cap E&Ps to "prosper" in a continued environment of low commodity prices.

The analysts suggested that the company would grow due to its operational efficiencies, unlevered balance sheet (with a strong liquidity position) and an upturned drilling program (with the addition of a second drilling rig in September). As such, the company will be "one of very few" E&Ps to target "significant" production growth through the drill bit as remain "postured" for potential M&A opportunities.

VeriFone Systems: Different Company Today

VeriFone Systems Inc (NYSE: PAY) (Outperform rated, $53 price target) is "a very different company" today than it was in 2013, according to the analysts who spent "several months" speaking with the management team.

The analysts noted that the company's reinvestment of run-rate savings back into the three "critical" initiatives (product portfolio management, R&D re-engineering and cost optimization) could prove to be beneficial in creating a "stronger" competitive moat.

Whole Foods: Misunderstood Story

Whole Foods Market, Inc. (NASDAQ: WFM) (Outperform rated, $53 price target) is trading at an "attractive" long-term entry point, as the company is a "high quality" and "differentiated" premium retailer that continues gaining market share in the fastest growth segment in consumer staples.

According to the analysts, investors are "misunderstanding" the story for three reasons: 1) viewing the company as a grocery store "ignores" its premium brand value in natural/organic, 2) the store pipeline growth calls for 10 percent annual square footage growth and 3) new "365" store concepts expands the company's total addressable market.

However, the analysts added that the stock "lacks a near-term catalyst," but the "overly negative sentiment" is a "good setup" heading into year-end.

WPX Energy: Premium Drilling Inventory

Finally, WPX Energy Inc (NYSE: WPX) (Outperform rated, $25 price target)'s recent $2.75 billion acquisition in the oil-laden Delaware Basin was finalized "near the bottom" of the current oil price cycle.

The analysts added that the purchase of RKI Exploration & Production's properties at a cost of $12,500 per net acres adds "a premiere drilling inventory of long duration" while also accelerating the company's portfolio transition to higher crude oil exposure. With that said, the analysts argued that the company is "one of the pre-eminent" U.S. oil sale participants.

Image Credit: Public Domain

Latest Ratings for ADT

DateFirmActionFromTo
Nov 2020Credit SuisseMaintainsOutperform
Oct 2020CitigroupUpgradesNeutralBuy
Oct 2020Morgan StanleyMaintainsEqual-Weight

View More Analyst Ratings for ADT
View the Latest Analyst Ratings

 

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