Credit Suisse's 12 Contrarian Stock Ideas to Sell Now

Credit Suisse is even more pessimistic than Wall Street on 12 sell-rated stocks covered by its equity analysts. These stocks make up more than half of the Swiss investment bank's contrarian stock list.

A March 24 report by Credit Suisse identified companies for which the opinions of its equity analysts differed from the consensus view on each stock, noting "companies where our analysis reveals opportunities that the market has not yet priced in."

The report, titled "Out on a Limb: 23 Contrarian Stock Ideas," considered stocks in Credit Suisse's U.S. coverage universe. It focused on ratings and earnings projections, as well as a high "conviction level" from equity analysts. The report identified 23 stocks in total, of which analysts were more optimistic than Wall Street about 11 (all rated outperform) and more pessimistic about 12 (all rated underperform).

Here's why the Credit Suisse analysts believe investors should sell these 12 stocks.

 

 

 

 

 

Abaxis
Abaxis

Abaxis (ABAX) develops, manufactures, markets and sells portable blood analysis systems for use in human or veterinary patient care settings to provide blood constituent measurements for clinicians worldwide. It has a market cap of $960 million

Credit Suisse has an underperform rating on the stock and a price target of $39. The analysts expect a profit $1.30 a share for 2016, compared with a consensus estimate of $1.32 a share, according to Thomson Reuters.

The Credit Suisse analysts say that Abaxis' new instrument placements are not translating into consumables growth.

"New distributor contracts, a by-product of competitor IDEXX Laboratories' move to direct distribution, have buoyed ABAXIS's core chemistry analyzer placements over the past year, but more recent traction has disappointed, with a 49% drop in placements in F3Q16 on heightened competition and a tough comp, as supported by our survey work," the report said. "Importantly, consumables increased only 6%, despite torrid placement growth over the past year and broader distribution representation, calling into question future consumables revenue streams."

Still IDEXX is gaining traction. "We expect diminishing gains from new distribution relationships with slowing core competitive instrument placements and weaker consumables utilization," the report said. "In human medical, while initiatives are conceptually appealing, the returns on them and timing are broadly uncertain."

Dollar Tree
Dollar Tree

Dollar Tree (DLTR) operates discount variety stores in the U.S. and Canada. Its stores offer merchandise at the fixed price of $1. It has a market cap of $19 billion.

Credit Suisse has an underperform rating on the stock and a price target of $70. The analysts expect a profit $3.72 a share for 2016, compared with a consensus estimate of $3.69 a share, according to Thomson Reuters.

"We believe the Street is underestimating the execution risk surrounding DTLR's acquisition of Family Dollar as well as the level of investment needed to turn around this underperforming asset," Credit Suisse analysts wrote. "Though recent results have been constructive relative to the company's rough start, investments in labor, the alignment of depreciable lives for more conservative accounting, and store divestitures continue to represent headwinds."

"Overall, we remain concerned about the synergy capture and the company's ability to meet market expectations of a rapid improvement in FDO within the next few years," the report said.

American Express
American Express

American Express (AXP) provides charge and credit payment card products and travel-related services to consumers and businesses worldwide. It has a market cap of $58 billion.

Credit Suisse has an underperform rating on the stock and a price target of $62. The analysts expect a profit $5.32 a share for 2016, compared with a consensus estimate of $5.49 a share, according to Thomson Reuters.

"We are more cautious than the Street on costs of rewards given rising competition. We estimated that this could be a drag of as much as $0.85 over time. On Mar 9, 2016, we reduced our 2017 EPS by $0.30 to reflect this," the analysts wrote.

OvaScience
OvaScience

OvaScience (OVAS) is a fertility company that discovers, develops and commercializes new fertility treatment options for women worldwide. It has a market cap of $265 million.

Credit Suisse has an underperform rating on the stock and a price target of $4. The analysts expect a loss of $3.13 a share for 2016 compared to consensus loss of $2.79 a share, according to Thomson Reuters.

"We view OVAS as an Underperform given technological uncertainty and commercial execution risks," the analysts wrote. "In our view the AUGMENT procedure has yet to demonstrate superior efficacy to standard IVF in an appropriately designed clinical trial. Data to-date suggests that AUGMENT is largely in-line with clinic-reported IVF pregnancy rates, and in fact may be inferior, to standard IVF live birth rates."

"In addition to clinical uncertainty, we note commercial risk with only 22 commercial AUGMENT procedures performed in 2015, well below the 1,000 initially guided by management," the report said. "We anticipate additional headwinds to AUGMENT's re-launch in 2016 (all AUGMENT clinics were acquired in '15), and note management guides for only 'modest' growth in '16 and a pricing discount which could reduce revenues."

Ford Motor
Ford Motor

Ford Motor (F) designs, manufactures, markets, finances and services automobiles. It has a market cap of $52 billion.

Credit Suisse has an underperform rating on the stock and a price target of $13. The analysts expect a profit $1.92 a share for 2016 compared to consensus estimate of $1.96 a share, according to Thomson Reuters.

Ford is likely to underperform other original equipment manufacturers especially General Motors given their "divergent positioning and strategies," Credit Suisse said.

"Unlike GM, F's fixed costs have been increasing and have been a large offset to pricing/mix benefits from new product launches, resulting in flat NA margin on an 8% volume increase and strong product cadence," the report said. "On inventory, F has allowed its inventory to climb (not just in NA, but globally) and get out of step with demand, while GM has been uniquely adept at keeping its inventory down. Relative to the Street, we see downside risks to F's global production estimates and NA EBIT guidance given elevated inventories and rising fixed costs."

Big Lots
Big Lots

Big Lots (BIG) through its subsidiaries, operates as a non-traditional, discount retailer in the U.S. It has a market cap of $2.2 billion.

Credit Suisse has an underperform rating on the stock and a price target of $39. The analysts expect a profit $3.30 a share for 2016 compared to consensus estimate of $3.30 a share, according to Thomson Reuters.

"While the company's performance has improved, we are still not sold on the long-term sustainability of its recovery and believe it is only a matter of time before momentum slows," Credit Suisse analysts wrote.

"Visibility on incremental merchandising initiatives from here is low, credit-driven sales gains are likely to be more temporary in nature, and comparisons will eventually become difficult in key categories like furniture and food," the note said. "While BIG does have some differentiation in its value price points and close-out offering in food, the overall store experience does not seem strong enough in our view to drive long-term traffic gains against an intensely competitive industry backdrop. The fact that recent comp gains have only been in the 2% range despite numerous sales efforts seems to support this view, and traffic remains negative."

 

Buffalo Wild Wings
Buffalo Wild Wings

Buffalo Wild Wings (BWLD) engages in the ownership, operation and franchise of restaurants worldwide. The company's restaurants provide various food products and alcoholic beverages. As of Dec. 27, 2015, it had 590 Buffalo Wild Wings, four R Taco and two PizzaRev restaurants in the U.S. and Canada. It has a market cap of $2.8 billion.

Credit Suisse has an underperform rating on the stock and a price target of $142. The analysts expect a profit $6.08 a share for 2016, compared with a consensus estimate of $6.15 a share, according to Thomson Reuters.

Buffalo Wild Wings valuation relative to its peers has remained elevated compared to peers, which Credit Suisse does not think is warranted.

"While the Street is modeling a recovery in the pace of traffic growth, we see opportunity for near-term traffic trends to disappoint," Credit Suisse said. "Traffic has clearly been on a downward trend in recent quarters and BWLD's consistently aggressive pricing over the past few years may finally be driving the value-conscious segment of the company's customer base to more affordable alternatives."

As well, the cost of chicken wings "remain stubbornly high and an absence of price relief in the near-term could drive downward 2016E earnings revisions," the analysts said.

Expeditors International
Expeditors International

Expeditors International of Washington (EXPD) provides logistics servicess, including airfreight services, ocean freight and ocean services and customs brokerage services. It has a market cap of $8.9 billion.

Credit Suisse has an underperform rating on the stock and a price target of $42. The analysts expect a profit $2.36 a share for 2016, compared with a consensus estimate of $2.43 a share, according to Thomson Reuters.

"The market-implied expectations for the stock remain at historically high levels after EXPD was the only stock in our coverage universe to post a gain in 2015," Credit Suisse analysts wrote. "As such, we expect that the stock will underperform our broader coverage universe over the next 12 months. Our downwardly revised EPS forecasts are now ~3% below the current consensus for FY16."

Potash
Potash

Potash Corporation of Saskatchewan (POT) produces and sells fertilizers and related industrial and feed products worldwide. It has a market cap of $14.5 billion.

Credit Suisse has an underperform rating on the stock and a price target of $15. The analysts expect a profit of 95 cents a share for 2016, compared with a consensus of 99 cents a share, according to Thomson Reuters.

"While the market has begun to acknowledge the reality of weak potash prices, we are even more cautious than consensus as global inventories remain abundant and demand is likely to be weaker than expected," the analysts wrote. As well, "significant new capacity is also set to come online in 2017 (both for POT and competitors), which we believe will keep global operating rates consistently below ~80%, keeping pressure on forward prices, particularly in EM."

Valmont Industries
Valmont Industries

Valmont Industries (VMI) produces and sells fabricated metal products in the U.S. and internationally. It has a market cap of $2.8 billion.

Credit Suisse has an underperform rating on the stock and a price target of $106. The analysts expect a profit of $6.32 a share for 2016, compared with a consensus of $6.24 a share, according to Thomson Reuters.

"Our differentiated call on VMI stems from our view that a number of VMI's businesses (Energy & Mining, Utility, Irrigation) still remain cyclically challenged with limited visibility for improvement," Credit Suisse analysts wrote. "We believe that the market is expecting a much more accelerated recovery than is prudent, given the high multiple and rapid EPS expansion. Significant execution risk exists for the company as it tries to 'right-size' its businesses."

Virtu Financial
Virtu Financial

Virtu Financial (VIRT) provides market making and liquidity services to the financial markets worldwide. It has a market cap of $757 million.

Credit Suisse has an underperform rating on the stock and a price target of $20. The analysts expect a profit of $1.29 a share for 2016, compared with a consensus estimate of $1.36 a share, according to Thomson Reuters.

The note said:

"We believe 1) opportunities that arise from electronification are misunderstood, for Virtu to prosper the company has to be willing to be exposed to the risk attached to trafficking in illiquid asset classes or asset classes have to move to a highly electronic stage, moving from voice to partially electronic doesn't cater to Virtu's business model; 2) opportunities in China and India will take much longer to materialize as regulation (transaction taxes, cautious regulators) is an underappreciated hurdle and 3) consensus does not appreciate the fierce competition the firm has and will continue to face (Citadel and KCG in equities and fixed income, Flow Traders in Europe, Optiver in Asia, Interactive Brokers and Susquehanna in options etc.)."

Willbros Group
Willbros Group

Willbros Group (WG) operates as a specialty energy infrastructure contractor serving oil and gas and power industries in the U.S. and Canada. It has a market cap of $128 million.

Credit Suisse has an underperform rating on the stock and a price target of $1.90. The analysts expect a loss of 20 cents a share for 2016, compared with consensus estimates for a loss of 12 cents a share, according to Thomson Reuters.

"The oil and gas segment continues to be negatively impacted by problems projects and posted its fifth consecutive loss last quarter," the report said. "Moreover, Q1'16 results are expected to be similar to Q4, tied to project execution and weaker end market demand. Canada results also continue to underwhelm tied to weaker demand and the segment is expected to post another operating loss next quarter."

"Utility T&D is a relative bright spot, though profitability is not expected to be enough to offset declines in other segments and commentary from other E&C's suggest that the space is becoming increasingly competitive as large projects continue to see delays and contractors compete to chase smaller transmission projects," the analysts added. "Finally, leverage continues to be an issue hamstringing WG from tapping the balance sheet to return value to shareholders and mitigate challenged operational results."

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