With inflation running near a 40-year high, and the Fed expected to tighten the monetary reins considerably throughout the rest of the year, Larry Adam, Chief Investment Officer at Raymond James believes “expectations of aggressive Fed tightening are taking some wind out of the sails of the economy.” This is clearly evident in the depressed sentiment amongst investors and in areas of the economy where interest rates are “sensitive” such as the housing market, which has cooled down too.
But it’s not all doom and gloom. In fact, Adam is upbeat about where the economy is heading, noting the “fundamentals support positive future.”
“Despite current inflationary headwinds and depressed sentiment, the consumer has not stopped spending,” Adam wrote. “This is because consumer balance sheets have rarely been in better shape. Robust job gains, strong wage growth and a significant amount of accumulated savings since the pandemic began continue to provide plenty of firepower to support consumption.”
Mirroring Adam’s confident take, Raymond James’ 5-star analyst Brian Gesuale has homed in two equities which he believe are primed to push ahead over the coming months. And by push ahead, we mean deliver very strong returns – in the order of 80% or more. Let’s take a closer look.
Cognex Corporation (CGNX)
The first stock we’ll look at is Cognex, a provider of machine vision solutions and a leader in its field. Its offerings allow customers to capture and analyze – all the way from identifying to measuring, counting, inspecting and guiding – materials as they move through the supply chain. The company touts its machine vision and industrial barcode reader systems as being able to improve any production process instantly, allowing products to be created faster, with fewer faults, and at a cheaper cost.
“Supply chain” has been a buzzy term as of late, and not in a positive way. Supply bottlenecks have been a bane for a host of industries in recent times and Cognex has felt the pain too. The shortage of semiconductors and other critical components is affecting its main automotive and consumer electronics customers and causing them to pause spending on production lines. These issues have been worsened by Russia’s invasion of Ukraine and the Covid-19 lockdowns in China. And while the company managed to beat expectations in its latest quarterly statement, these issues are set to stunt near-term growth.
In Q1, revenue increased by 18.1% year-over-year to reach $282.41 million, coming in slightly above the $277.23 million estimate. Non-GAAP EPS also outdid expectations, coming in at of $0.42, higher than the Street’s $0.39 call. However, that mattered little to investors who weren’t impressed with the outlook. The company expects revenue between $265 million and $285 million in Q2, but Wall Street was looking for $293 million.
Shares drifted lower in the post-earnings session, and in total, so far this year the stock has shed 37% of its value. However, for Raymond James’ Brian Gesuale, it’s of the essence to look at the bigger picture when considering this company’s prospects.
“Cognex has a loaded balance sheet and is positioned across multiple end markets that are as healthy as we’ve seen in a decade – even including the Consumer Electronic Super Cycle in 2017. A more challenging long-term labor environment and the ‘regionalizing’ of supply chains to unwind decades of globalization, along with new investments to decentralize global supply chains, make automation an imperative longer term,” Gesuale opined.
These comments form the basis of Gesuale’s Strong Buy rating while his $90 price target makes room for 12-month growth of ~88%. (To watch Gesuale’s track record, click here)
Overall, the Wall Street analysts are taking a range of views on this stock, as shown by the 10 recent reviews – which include 4 Buys and 6 Holds. Added up, it comes out to a Moderate Buy analyst consensus rating. The average price target, at $70.40, implies a 47% one-year upside from the current trading price of $47.90. (See Cognex stock forecast on TipRanks)
Byrna Technologies (BYRN)
Let’s transition now to a company with an entirely different value proposition. Byrna is a manufacturer of non-lethal weapons, focusing on various areas including personal security devices and private security. Via its Byrna Law Enforcement Division, Byrna also sells less lethal munitions to the military and to law enforcement and correction agencies.
The company offers the Byrna Launcher, which is not a firearm, but is still a very powerful self-defense device. It is powered by compressed air (CO2), discharges .68 caliber round kinetic and chemical irritant projectiles with an effective range of up to 60 ft. The company also offers various accessories and boasts more than 22,000 web sessions a day on its website.
Due to the ongoing gun violence, increasing regulatory scrutiny and awareness, there’s a growing demand for firearm alternatives for self-defense. However, Byrna’s ability to cater to the demand has been stunted by the supply chain constraints and the ramping of a new manufacturing facility in Fort Wayne. These developments played their part in a disappointing FQ1 report.
The company missed expectations on both the top-and bottom-line. Revenue fell by 10.4% year-over-year to $7.97 million, below the $8.57 million estimate. EPS of -$0.14 came in shy of the -$0.10 the analysts anticipated. However, the company just released preliminary top-line results for F2Q with revenue increasing sequentially by 44% to $11.5 million. The company also stuck to its FY22 outlook of revenue between $55 million to $60 million, which at the midpoint is ~5% above Street models.
With momentum across all sales channels appearing to be in good health and the company offering proper alternatives to self-defense, Raymond James’ Gesuale thinks Byrna is “poised to benefit from rapidly expanding product awareness and significant secular tailwinds.”
“There is increasing global demand for non-lethal personal defense solutions coupled with a significant portion of the population that is hesitant to look to traditional firearms as the answer,” the analyst went on to say. “We believe Byrna is ideally positioned to fill this void and will benefit from scale, increased profitability, and market share gains… All in, fundamentals are strong, and we continue to track favorable trends in web sessions, sales, macro trends, inventory levels, and new product innovation.”
Gesuale’s rating here is also a Strong Buy and is backed by a $20 price target. Should the figure be met, investors will be sitting on returns of a hefty 121% a year from now.
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.