As usual, many top brokers have been putting out research notes over the past couple of weeks. This is when they share their analysis of and assign ratings to various shares, including FTSE 100 stocks.
Now, I’d personally take share price targets from City analysts with a pinch of salt. But they can be useful in determining how undervalued (or not) they think a stock is at any given moment.
Here are two Footsie shares that some brokers rate as buys right now.
Entain
According to a note out of Shore Capital on 25 September, its analysts have reiterated their buy rating on shares of Entain (LSE: ENT).
This followed an unscheduled update from the gambling group warning that its online gaming revenue had been slowing recently. It also gave us a heads-up about adverse sporting results impacting margins during September.
The outcome is that online net gaming revenue in Q3 is now set to be lower by a “high single-digit” percent from the quarter last year.
However, Shore Capital analyst Greg Johnson thinks the stock looks good value, trading at just six to seven times 2023 EBITDA forecasts.
He commented that the “valuation metrics are low compared to peers…Today is clearly disappointing in this journey although the implied sum-of-the-parts valuation remains attractive in our view“.
No share price target was set, though fellow broker Peel Hunt has a target price of 1,700p. This is 79% higher than the current 948p share price.
I’m also bullish on Entain shares long term. The firm owns Ladbrokes and Coral, both well-established in the UK, and has a 50% stake in BetMGM. The latter is a leading sports betting operator in the US, where many states are in the process of legalising this form of gambling.
This makes it a high-growth market, with Statista estimating that revenue from US sports betting could exceed $10bn by 2028.
In the UK though, one risk is the likely implementation of affordability checks for customers of online gambling sites. This could impede growth and increase costs as the firm complies with the regulation.
Still, if I wanted exposure to the growth of online betting worldwide, I’d consider buying the stock.
InterContinental Hotels Group
Next, analysts at Bank of America resumed coverage of InterContinental Hotels Group (LSE: IHG) on 19 September with a buy rating. They set a 7,200p target price, which is nearly 20% higher than the current share price of 6,018p.
The note said the stock was trading on an EBITDA multiple that was at a 14% discount to peers. This was wider than its historical norm and therefore “unjustified“.
The broker also noted that IHG’s average return on invested capital is over 30% and its estimated earnings growth between 2023 and 2027 is 11%. And the hotel giant’s strong cash flow could enable it to return around 26% of its market value in dividends and share buybacks during that period.
Despite the risk of a recession hitting the hospitality sector, I think IHG shares should do well in future. The firm has a solid portfolio of brands, including Holiday Inn, with thousands of franchised properties worldwide.
Unfortunately though, I feel the 1.9% dividend yield is too low for me. I’d rather invest in high-quality financial stocks yielding 6%-9% right now.
