We’re a little over one week past the Presidential election, and the market reaction shows that that investors are pleased. While the election margins were razor thin, the will of the voters came through: they rejected Donald Trump, and his brash, in-your-face style, but they also rejected the Democratic Party on policy; the Dems lost seats in the House, will likely not take control of the Senate, and also lost ground at the State level. America’s voters seem to be tired of drama, whether it comes from Donald Trump or the Democrats’ push to the political left. They want a government that will simply plod straight along.
And it looks like they will get just that. With power split in the White House and the Chambers of Congress, we’re about to be reminded of a feature of the checks and balance system: that gridlock is a result of a closely divided electorate. Change won’t happen unless one side or the other gets a large majority, or a small majority over several terms. Neither of those is in the cards for now.
The immediate result is a multi-day market rally. The implication is clear – the markets sentiment has calmed since the election, and investors look forward to government settling into a more normal mode in the coming months.
To this end, investors are sure to find solid options in the near term. Writing from Raymond James, analyst Ric Prentiss has recently published three reviews on mid-cap stocks, pointing out why, in his view, they offer high return potential with more settled markets in the coming year. The stocks all fit a profile: they are at the lower end of the mid-cap range, with market valuations between $2 billion and $3 billion; they inhabit the telecom ecosystem, and they all have, according to Raymond James, over 80% upside potential.
We ran the three through TipRanks database to see what other Wall Street’s analysts have to say about them.
Telephone & Data Systems (TDS)
First on our list, Telephone & Data Systems, is a Chicago-based company providing a range of telecom services to over 6 million customers. The company offers broadband over cable and wireline, wireless products and services, and TV and voice services. TDS operates the country’s fifth-largest cellular carrier.
TDS has dramatically outperformed expectations in 2020, despite the ongoing coronavirus. Revenues, at $1.32 billion, are about level with the pre-corona report ($1.34 billion in Q4 2019), while earnings jumped in 1Q20 and have remained high ever since. The Q3 earnings, at 66 cents, beat the forecast by 153%. It was an impressive performance, made more so by the 266% year-over-year growth.
On another bright note for investors, TDS has maintained its dividend payment through the year. The 17-cent per common share payout annualizes to 68 cents, and offers a yield of 3.6%, nearly double the average yield found among S&P-listed companies.
TDS has shown strong business through the year, but its weak point has been in the fiber and wireline niche. However, Raymond James’ Ric Prentiss looks at the half-full glass, noting: “WFH policies have continued to result in some slower approvals from municipalities and electrical utilities associated with building aerial fiber. And in some cases, TDS is pivoting to alternatives with better economics. Still, TDS Telecom grew fiber service addresses 5% y/y and is seeing better-than-expected take rates around 30-40%, depending on the market. Moreover, 34% of Wireline customers are now served by fiber, compared to 29% a year ago, and TDS expects acceleration throughout the rest of 2020.”
Prentiss rates TDS as a Strong Buy, and increased his price target by 6% to $34. At that level, he sees an 81% upside for the stock over the next months. (To watch Prentiss’s track record, click here)
This stock also holds a Strong Buy rating from the analyst consensus, based on 3 unanimous Buy reviews set in recent weeks. Shares are priced at $18.73 and the average target of $34.83 suggests a one-year upside of 85.5%. (See TDS stock analysis on TipRanks)
ViaSat, Inc. (VSAT)
Next up, ViaSat, is a high-speed satellite broadband provider. The California company serves commercial and defense markets, building on the broad need, across industries, for secure communications.
Social lockdown measures took a toll on the company’s business, especially the shutdowns of airlines. Commercial air traffic relies heavily on satellite communications, and that slowdown is still weighing on ViaSat.
The headwinds are partially offset by a backlog in services ordered. Revenues have remained stable over the past four quarters, between $530 million and $588 million, with the $554 million recorded in Q3 being solidly in the middle of that range. Earnings have bounced back into positive territory after turning negative in Q2. The third quarter EPS was only 3 cents, but that was a dramatic sequential improvement from the previous 20-cent net loss.
In his look at VSAT, Prentiss notes, “Government Systems and Commercial Networks remain strong, while the IFC business continues to navigate significant headwinds related to COVID-19… On the positive side, social distancing and Safer-At-Home policies are driving more residential broadband data usage and pushing ARPUs higher…”
Prentiss rates VSAT an Outperform (i.e. Buy) while his $63 price target suggests an 87% upside potential.
Overall, ViaSat gets a Moderate Buy rating from the analyst consensus, based on 3 reviews that include 2 Buys and 1 Hold. The shares have an average price target of $53.33, which implies a 12-month upside of 59% from the trading price of $33.39. (See VSAT stock analysis on TipRanks)
EchoStar Corporation (SATS)
Last but not least is EchoStar, another satellite operator. This company controls a constellation of communications satellites, offering satcom capabilities to the media and private enterprises, as well as both civilian and military US government agencies. In addition, EchoStar provides satellite broadband in 100 countries around the world.
At the top line, EchoStar’s revenues have held steady for the past three quarters, coming in at $465 million, $459 million, and $473 million. And while earnings were negative in Q1 and Q2, the Q3 results showed a net profit of 26 cents per share.
The sequential Q3 improvements at the top and bottom lines come along with increases in the EchoStar’s subscriber base, to more than 1.54 million in total. The company also boasts a strong balance sheet, having more than $2.5 billion in cash on hand and no net debt.
Covering SATS, Ric Prentiss is upbeat about near- and mid-term prospects. He writes, “SATS [has] strategic optionality in a time when others, especially higher levered satellite companies, are cash starved facing significant maturities or capex programs… we think a number of organic and inorganic growth options are being considered, including the future deployment of SBand spectrum after lining up anchor tenant(s). Lastly, we believe EchoStar’s recently announced collaboration with Inmarsat to provide capacity for In-Flight Connectivity should provide over time high margin cash flows, and we note the deal is not exclusive.”
These comments back another Strong Buy rating, and Prentiss’s $57 target price indicates room for 123% growth in the next year.
In terms of other analyst activity, it has been relatively quiet. 1 Buy and 1 Hold ratings assigned in the last three months add up to a ‘Moderate Buy’ analyst consensus. In addition, the $43.50 average price target puts the upside potential at ~74%. (See SATS stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.