Right now, Barclays (LSE: BARC) (NYSE: BCS.US), Sports Direct (LSE: SPD) and Hikma Pharmaceuticals (LSE: HIK) are among the favoured FTSE 100 stocks of professional analysts.
Barclays
There has been much shifting in City sentiment over the past year towards the different banks that make up the Footsie’s big five. HSBC and Standard Chartered have fallen out of favour, while Lloyds and RBS have won some new friends. However, Barclays remains the City’s firm favourite — as it has been for a good few years.
Data provider Digital Look‘s sample of brokers currently shows 18 Buy recommendations, 6 Neutral and 1 Sell. So, 72% of analysts are bullish on Barclays.
Barclays’ shares are making a new 52-week high of 275p as I write, but remain undervalued on some of the measures cited by analysts. For example, the shares trade at a discount to the value of the company’s assets, having a price-to-tangible book ratio of 0.95. A current-year forecast price-to-earnings (P/E) ratio of around 12, falling to less than 10 next year on the back of strong forecast earnings growth, also looks attractive.
Two bullish brokers — Deutsche Bank and Citigroup — recently reiterated their buy recommendations and price targets of 305p and 310p, respectively.
Sports Direct
The relationship between Sports Direct founder Mike Ashley and the City has been an uneasy one, to put it mildly. Nevertheless, City analysts are fans of the business — the UK’s leading sportswear retailer — and bullish on the stock at current price levels.
According to Digital Look, 78% of analysts rate Sports Direct a Buy, and there are no Sell recommendations. Analysts at RBC Capital Markets are the latest to join the bull camp, having this week upgraded the stock to Outperform and the target price to 800p from 650p (versus a current share price of 725p). More bullish analysts have targets of 850p and 900p.
RBC points to a number of positives — including online initiatives, reduced risks around zero-hour contracts post the General Election, and lower interest and depreciation charges — and says:
“We now expect Sports Direct to achieve an earnings CAGR [compound annual growth rate] of c.13% between 2014 and 2017, up from our previous estimate of 10% and ahead of the sector average of 10.5%. This gives Sports Direct one of the lowest P/E to growth ratios in the sector. We also think Sports Direct looks better value now versus its peer group, particularly other sports chains and global peers …”
Hikma Pharmaceuticals
Hikma Pharmaceuticals — a drugs group whose revenues come largely from the US, the Middle East and North Africa — was promoted to the FTSE 100 in March, shortly after its shares hit a new high of 2,574p. Few in the City were bearish on the company during its inexorable march up to the top index, although we did see some analysts — including house broker Citigroup — move from Buy to Neutral on valuation grounds as the shares soared.
However, Hikma’s shares are now 25% off their high — currently trading at 1,940p — and the valuation is looking more attractive again. Citi has recently moved back to a Buy recommendation, saying:
“Despite our estimates being modestly below consensus, the shares at 22x 2016e/19x 2017e provide what we see as an attractive entry point in light of a five-year organic earnings compound annual growth rate of 14%”.
Like other analysts, Citi — which has a 2,400p price target on the stock — also points to Hikma’s $1bn firepower, which gives the company the ability to make earnings-enhancing acquisitions.
