September is known for being a seasonally volatile month, but long-term, some are looking at the glass half full. Goldman Sachs has become more optimistic about U.S. economic growth, as it expects that by Q2 2021, an effective COVID-19 vaccine will be “widely distributed.” Based on this assumption, the firm’s chief economist Jan Hatzius bumped up his 2021 U.S. GDP forecast from 5.6% to 6.2%.
On top of this, 2021 unemployment levels also might not be as dismal as previously expected, with the economist calling for the figure to land at 6.5%, versus his previous 7% estimate. This modest revision is driven by the conclusion that “consumer services spending accelerates in the first half of 2021 as consumers resume activities that would previously have exposed them to COVID-19 risk.”
That said, the firm does issue a warning. “We still expect a package worth at least $1.5 trillion to become law... but the risk of no further legislative action has increased and could pose a threat to the budding recovery,” Hatzius wrote.
As the analysts from Goldman Sachs have pointed to two stocks in particular that could gain over 30% in the next year, we wanted to dig a little deeper. By using TipRanks’ database, we found out that both have received Buy ratings from the rest of the Street as well.
Vasta Platform (VSTA)
First up we have Vasta Platform, which is an education company in Brazil that provides end-to-end educational and digital solutions to cater to the needs of private schools operating in the K-12 educational segment. Based on the strength of its product offering, Goldman Sachs is pounding the table on this name.
Representing the firm, analyst Diego Aragao argues “VSTA’s learning platform is helping to fundamentally change the nature and process of the overall learning experience within private K-12 schools in Brazil.”
The analyst added, “In addition, as its digitally native technological platform evolves, we see a solid opportunity for all stakeholders in the K-12 ecosystem to benefit from the ongoing digitalization trend that creates solid growth prospects and improved returns for the company over the coming years.”
Part of what makes the company stand out, in Aragao’s opinion, is that it boasts “a distinctive asset-light business model, that combines recurrence, predictability and scalability by providing a strong portfolio of solutions that fully integrates the K-12 ecosystem in Brazil.” Additionally, the market for core K-12 content is very fragmented, with the after-school market still very much underpenetrated. To this end, the analyst believes there is a substantial top-line opportunity for VSTA.
Not to mention the company has made a significant investment in enhancing its technological offering with digital management solutions focused on schools. According to Aragao, this reflects a greenfield opportunity that VSTA’s different go-to-market could address.
“Lastly, we see M&A as an optionality in the next 12 months (that could add up to U.S. $4.0/share), while the potential for scaling-up Plurall — the company’s super app — is an opportunity in the mid-to-long run,” Aragao also mentioned.
It should come as no surprise, then, that Aragao joined the bulls. Kicking off his VSTA coverage, he put a Buy rating and $26 price target on the stock. Should this target be met, a twelve-month gain of 70% could be in the cards. (To watch Aragao’s track record, click here)
All in all, other analysts echo Argao’s sentiment. 4 Buys and no Holds or Sells add up to a Strong Buy consensus rating. With an average price target of $22.13, the upside potential comes in at 44%. (See Vasta Platform stock analysis on TipRanks)
Halliburton Company (HAL)
With operations in more than 70 countries, Halliburton counts itself as one of the largest oil field services companies in the world. Following a conversation with management, Goldman Sachs is even more confident about its long-term growth prospects.
Firm analyst Angie Sedita tells clients that she has several takeaways from the meeting with HAL’s leadership team. First of all, it is estimated that the industry would need to drill 6,000 oil wells, implying 500 drilling rigs and roughly 200 frac fleets are required to keep U.S. production flat. Many E&Ps are placing a significant focus on keeping production flat, meaning that the frac count could more than double next year. The analyst added, “HAL expected a ‘fast start’ to U.S. activity in 2021, vs a ‘slow build’.”
On top of this, Sedita stated, “The company believes the U.S. market comes back at two-thirds of the level of prior activity, but the overarching goal is to generate higher EBITDA, and more importantly higher FCF in a structurally smaller market. Given the right-sizing of their structural costs ($1.3 billion in structural cost-cutting in 2019-2022), the company believes normalized margins in the mid-teens are achievable.”
Additionally, as demand for oil and gas bounces back, activity increases and there are fewer players in the market, margins could experience a meaningful recovery in 2022. Speaking to the reduction of competitors, the cost of capital is growing for smaller names, and the sector is seeing large quantities of equipment leave the market as more companies face headwinds. Sedita explained, “The market could see consolidation merely to increase access to capital, vs gain scale.”
When it comes to international markets, 2021 is expected to start off at a slower pace, but Sedita believes it will pick up. “HAL noted that the ‘most economic’ barrels are in the International markets, and not in the U.S. and expected the International markets to be long-term drivers of growth. Artificial lift (ESPs in particular) and chemicals should continue to see growth, as well as completion technology,” she commented.
For pricing, there isn’t “a lot to give back,” so there should be limited pricing pressure, in Sedita’s opinion. HAL also thinks margins will trend higher over time in the international markets.
Variable costs are slated to return at lower levels, with debt reduction and returning capital to shareholders remaining key priorities, so the deal is sealed for Sedita. To this end, she reiterated her Buy rating. The price target was also lifted from $20 to $22.50, implying shares could gain 38% in the next twelve months. (To watch Sedita’s track record, click here)
Looking at the consensus breakdown, 6 Buys and 10 Holds have been published in the last three months. Therefore, HAL gets a Moderate Buy consensus rating. Based on the $15.70 average price target, shares could drop 4% in the next year. (See Halliburton stock analysis on TipRanks)
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.
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