The market tends to react one way or another when a major Wall Street analyst changes a rating for a stock or adjusts the 12-month price target. Whether they are ultimately right or wrong, their research notes and updates are certainly worth reading -- that's assuming you can access them, as most only go to institutional investors or are behind a paywall.
The commentary, while valuable, is often more short-term focused, and that doesn't always help long-term investors.
But when you get multiple analysts saying generally the same thing about a stock -- whether they are bullish or bearish or somewhere in between -- it can be a helpful resource alongside your own research.
When there is an overwhelming bull consensus among Wall Street analysts on a stock, it is typically called a "strong buy." Two such strong buys in the financial sector right now are S&P Global(NYSE: SPGI) and Global Payments(NYSE: GPN). Let's look at these two stocks that analysts love. Should you love them, too?
Overwhelmingly bullish on S&P Global
S&P Global, which runs the S&P indexes and provides credit ratings as well as market intelligence, has a buy rating from all 13 analysts who cover it. The stock trades at about $392, and the consensus price target among those analysts is $452, a 15% projected gain.
S&P Global has been a juggernaut over the years, consistently generating high returns for investors. Last year, when it fell 28%, was the first year since 2008 that it had a down year. Over the past 10 years, S&P Global has posted an average annual return of about 21%.
The reason it is such a strong and resilient stock is its dominant presence in three key markets and its business model. It is the leading corporate credit rater along with Moody's, with the two holding 80% of the entire market. It is also provides some of the leading stock market indexes, as it runs the S&P family of benchmarks. It also is among the premiere providers of market intelligence and commodities data.
Its component businesses tend to balance each other out, performing well in various market cycles, and most of the revenue is subscription- and fee-based. That provides lots of cash flow and high operating margins to fund investments and a dividend that has increased for 50 straight years.
One concern with S&P Global is its high price-to-earnings (P/E) ratio of 55, more than twice what it was in June 2022. The forward P/E is 31, which is more in line with its historical range. The stock is up about 17% year to date, and while it could sputter in the near term due to market uncertainty and its high valuation, it is one of the most solid, dependable stocks you can own over the long term. Count me among those who rate it as a buy.
Global Payments is a great value
Global Payments is not the household name among investors that S&P Global is, but analysts are almost equally bullish on it. Of the 20 analysts who cover it, 16 rate it as a buy, with four calling it a hold. It trades at about $127 per share, and the consensus price target among analysts is around $152, about a 20% increase over its current price.
This fintech, which provides payment processing services to merchants and businesses, is up 28% year to date, following two down years in 2021 and 2022, when it dropped 26% and 37%, respectively. But the long-term numbers are strong, with a 18% annualized return over the past 10 years.
There are a few key reasons analysts like Global Payments. First, it is one of the leading merchant payments processors in the world with more than 4 million clients in more than 100 countries. Also, it is coming off a strong second quarter in which revenue jumped 7.5% year over year to $2.5 billion and net income was $274 million, a reversal from a net loss of $673 million a year earlier. Adjusted earnings per share (EPS) gained 11% year over year to $2.62.
Even better, Global Payments raised its earnings and revenue expectations for 2023. It sees net revenue growing 7% to 8% in 2023 to a range of $8.66 billion to $8.74 billion, and adjusted EPS jumping 11% to 12% to a range of $10.35 to $10.44.
The other thing to really like about it is its valuation. With a forward P/E ratio of just 12 and a five-year price/earnings-to-growth (PEG) ratio of 0.74, the stock seems undervalued. With the earnings momentum it has, and its low valuation, it looks like it has some room to run. I would also agree that this stock looks like a good buy right now.
Of the two, S&P Global is probably more durable, able to weather various market cycles because of its diversity of revenue. Global Payments tends to be more cyclical and affected by economic trends. But as noted in the introduction, it is important to do your own research and perhaps use analysts' ratings as a starting point.
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Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Moody's and S&P Global. The Motley Fool has a disclosure policy.
