The US markets are showing some conflicting signals, making forecasting difficult. The main headwind, inflation, has fallen – but the labor market is strong, unemployment is falling and wages are rising. The Federal Reserve raised interest rates at its highest rate since the 1980s, from nearly zero to more than 5% in the past 12 months, risking a recession to try and control prices.
But will the Fed’s efforts come to nothing? Rate hikes tend to hit markets with a lag of 12 to 18 months, and we are now seeing inflation coming down – the latest data for April showed a 4.9% year-on-year increase, well below the 9.1% of peak last year. But that 4.9% is still more than double the Fed’s target rate.
This is the backdrop to recent remarks from Goldman Sachs chief David Solomon, who believes inflation remains a major challenge to the economy.
“I feel like it’s going to get stickier, it’s come off its peak, but it’s going to get stickier and more bouncy. rates to eventually control it a bit more,” Solomon opined.
In such a more persistent inflationary environment, investors naturally turn to defensive stocks, the stocks that can withstand a downturn. Using the TipRanks platform, we gathered details on two names Goldman Sachs analysts recommend as defensive stocks. Here are the details.
Flywire Corporation (FLY)
First up on our list is Flywire, an online payment processing service. The company took an interesting path into the overcrowded online payment niche and started out as a specialist in the education sector. Since then, it has expanded its services to include payment processing through a global network, in addition to education, targeting healthcare, travel and B2B industries. Flywire is equipped to meet customer authentication and security compliance needs and operates in more than 140 currencies.
Flywire boasts a truly global reach, with more than 3,300 corporate customers in 240 countries and territories. The company offers 24-hour service and support in dozens of languages, making the payment process seamless from every perspective. In addition to big names such as Mastercard, Visa and AMEX, Flywire also works with PayPal and Venmo.
As a defensive stock, Flywire is benefiting from the global shift to digital transactions and the paperless office. Businesses of all sizes, from the smallest Mom & Pop stores to industry giants like Mastercard, can realize efficiencies by moving from paper-based transactions to digital processing. As a specialist in electronic payments, Flywire is conveniently positioned at the right time and place. The company’s stock is up about 21% this year, significantly better than the S&P 500’s 8% year-to-date gains. With clear indications of continued expansion in the digital payments industry, Flywire is strongly positioned to support its growth alongside its customer base.
The key result of the company’s Q1 2023 financial release tells the story: Flywire’s revenue grew 46% year over year to $94.4 million — and it beat forecast by nearly $11.48 million . Like many tech companies, Flywire is in net loss, but its first-quarter earnings per share loss of 3 cents compared favorably to its loss of 10 cents per share in the year-ago quarter — and it was 4 cents per share better. than expected. Flywire’s adjusted EBITDA figure is soaring year over year, from $1.9 million to $7 million. Flywire’s first quarter highlights included 170 new customers, making 1Q23 the company’s largest sales quarter ever.
For Goldman Sachs, the key points here are Flywire’s strong defensive foundation and ability to generate growth in the current economy. Analyst Will Nance writes, “Going forward, we believe that FLYW’s strong NRR track record, coupled with its commitment to consistent operating leverage, should position the company well to continue to outperform in the near term. In particular, we see the company’s defensive business mix in education and healthcare, as well as being well positioned to absorb the potential for macro weakness for the remainder of this year.”
“All things considered,” the analyst summarized, “with stocks trading at 47x our EBITDA estimates for 2024, we believe the valuation is attractive in the context of FLYW’s ~30-40% growth rates, the impressive rate margin expansion and the sustainability of its strong NRRs as its record cohorts of recent years continue to rise.
Looking ahead, Nance gives FLYW stock a buy rating with a price target of $38, implying ~28% upside potential for the year ahead. (Click here to view Nance’s track record)
The Goldman approach is hardly an outlier. Out of 8 recent analyst reviews, there is a clear 7 to 1 split in favor of Buy recommendations over Holds, indicating a Strong Buy consensus rating. Currently priced at $29.72, the stock has an average price target of $35, indicating an estimated 18% upside over 12 months. (To see FLYW stock forecast)
Walmart Inc. (WMT)
Now we will shift our focus from a cutting-edge fintech to one of the most traditional retailers of all: Walmart. Walmart has grown from its humble roots in Arkansas to become the largest retail giant in the world by revenue, with sales of more than $611 billion in fiscal year 2023 (for the 12 months ending January 31 of this calendar year). The company owns the Walmart and Sam’s Club retail chains and operates a wide variety of supercenters, discount department stores, and supermarkets in the U.S. and internationally. In total, Walmart has more than 10,500 stores in 24 countries and operates under 46 different names.
Walmart recently released financial results for the first quarter of fiscal year 2024, demonstrating that it is continuing its growth trajectory. The company reported total quarterly revenues of $152.3 billion, up 7.6% year-over-year and coming in at $4.39 billion above estimates. The company’s non-GAAP EPS figure of $1.47 was 15 cents better than expected.
Notable among the results were comp sales in the US, which were up 7.4% year-over-year; e-commerce, which grew a whopping 27%; and the global advertising business, which saw a 30% year-over-year increase.
Also during the fiscal first quarter, Walmart returned $2.2 billion in capital to its shareholders. Much of this came from the company’s dividend, which was last set at 57 cents per common share for a May 30 payout. While the annualized rate of $2.28 per share yields a modest return of just 1.54%, investors should be mindful of the dividend. Reliability: Walmart has been paying dividends since 2003, has not missed a quarter and is increasing the payment every year.
In addition to classically defensive dividend payments, Walmart stocks have shown they can grow even in the face of strong headwinds.
None of this has escaped the attention of Goldman analyst Kate McShane, who says of Walmart: “We believe WMT is a stock that investors will still want to own given its short-term defensive qualities and improving long-term profitability profile. term. ”
To that end, 5-star analyst WMT Shares rates a buy, and her price target, set at $176, suggests the stock will grow 20% over the next year. (Click here to view McShane’s track record)
Wall Street’s biggest names never lack analyst interest, and Walmart is no exception. The stock has picked up 29 recent analyst ratings, including 24 Buys and only 5 Holds, for a Strong Buy consensus rating. Walmart shares are currently trading at $146.16 and have an average price target of $165.64, implying a 13% gain on the one-year horizon. (To see WMT stock forecast)
To find great ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock insights.
disclaimer: The opinions expressed in this article are solely those of the named analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.