Jefferies names 'turnaround-type' stock picks for 2018

Published Wed, Jan 31 20184:00 PM ESTUpdated Thu, Feb 15 201812:51 AM EST

Jefferies analysts have isolated their top stock picks for 2018, assembling a master list of favorite ideas for their clients. Compiling thoughts from over 20 analysts, Jefferies highlighted "a number of less obvious, less well performing, turnaround-type stocks that ascended the ranks." "All of the selected stocks have one thing in common as far as Jefferies analysts are concerned –operationally, things can get better from here," the team's Wednesday report read. "Some have seen recent improvements, some have seen recent setbacks, but in all cases, there is a path to greater things driven by factors other than just tax." The team mentioned dozens of equities that fit their criteria, complete with price targets and analyst theses. Here are some of the stocks Jefferies selected for their upside potential in the next year. 1) Gap ( GPS ) Analyst Randy Konik has a $45-price target on shares of Gap, reflecting his belief that shares will appreciate 31 percent over the next 12 months from Tuesday's close. "Randy expects the top-line momentum to continue, supported by additional marketing investments, while margins should continue to expand as capital is allocated towards the higher margin divisions. He believes this should drive accelerated earnings growth as management expands the Old Navy and Athleta store bases, continues to gain market share and grows the online business, while closing underperforming Gap and Banana Republic stores." 2) Expedia ( EXPE ) Internet analyst Brent Thill deemed Expedia a frontrunner when it comes to online web reservations. His price target of $170 represents 32 percent upside from Tuesday's close. "Expedia is a market share leader (by gross bookings) that continues returning capital to shareholders through regular dividends and opportunistic stock repurchases. So far in 2018, Expedia is trading in line with the market and Brent expects continued double-digit revenue growth and margin improvement to drive outperformance, most likely in the second half of 2018. While competition remains tough, he doesn't think a tougher recent print reflects a change in Expedia fundamentals, or a behavioral consumer shift to direct bookings or a meaningful impact from alternative accommodations." 3) Ulta Beauty ( ULTA ) Jefferies's Stephanie Wissink is optimistic on Ulta over the near-medium term and forecasts shares rising 33 percent in the next year. "Steph remains positive on Ulta and forecasts 20 percent or more earnings growth over the near-medium term. She believes sales rates are settling into a sustained range and forecasts meaningful margin expansion in the near-term. Steph also notes that the acceleration in cash flow adds capital allocation optionality and company management has hinted at international expansion and the opening of additional metropolitan stores. Assuming Ulta continues to take share in beauty, with improved cost leverage and share buybacks, Steph sees $14 or more of potential annual earnings per share." 4) United Technologies ( UTX ) Sheila Kahyaoglu adds that United Technologies could be set for another strong year thanks to gains in its engine sales. "Sheila highlights that it appears Pratt is making headway on the GTF with its improved engine receiving greater acceptance from airlines. We estimate negative engine mix headwind was roughly $650 million in 2016, increasing to $850 million in 2017 and expect $1.15 billion in 2018. This translates into roughly $350 million mix headwind for 2018 earnings across Pratt's large engine platforms. Operating margins should bottom in 2018 and steadily improve in 2019 and 2020, particularly as volume grows across Commercial, PWC and Military franchises."

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Jefferies analysts have isolated their top stock picks for 2018, assembling a master list of favorite ideas for their clients.

Compiling thoughts from over 20 analysts, Jefferies highlighted "a number of less obvious, less well performing, turnaround-type stocks that ascended the ranks."

"All of the selected stocks have one thing in common as far as Jefferies analysts are concerned –operationally, things can get better from here," the team's Wednesday report read. "Some have seen recent improvements, some have seen recent setbacks, but in all cases, there is a path to greater things driven by factors other than just tax."

The team mentioned dozens of equities that fit their criteria, complete with price targets and analyst theses.

Here are some of the stocks Jefferies selected for their upside potential in the next year.