As the year winds down, it’s time to check in with the Street’s analysts for their top picks heading into 2023. It’s an annual tradition, but a fun one, to take a look back at where we’ve been and a look ahead at where we’re going – and on Wall Street, the analysts add in the potential for profit, by recommending stocks that they see as winners in the new year.
The professional stock analysts check every pick carefully, and for their Top Picks they’ll offer a consolidated view of performance trends, management plans, and concrete results, all the data that investors need to make sense of where an equity stands and where it’s likely to go. The ‘Top Picks’ make a sound starting point for working up a remunerative portfolio going forward.
Using the data platform at TipRanks, we’ve pulled up the latest details on three of these analyst choices, the ones they’ve tapped as the best stocks to start with for 2023. Will these stocks make sound investments? Time will tell. In the meantime, let’s dive in, and get a clearer idea as to their potential.
Udemy, Inc. (UDMY)
We’ll start with Udemy, an online learning company offering an array of courses designed to fit in with today’s digital world: courses in the Python coding language; IT and software; design, including Photoshop; web development; and business applications. The company was founded in 2010, and as of this past November it boasted over 57 million students, 213,000 courses, and 74,000 instructors in a world-wide learning network. Udemy offers courses in more than 75 languages and has seen more than 773 million enrollments over the years.
Last year, the company saw total revenues of $516 million, with 1.32 million monthly average buyers, and over 13,400 business customers. For 2022, Udemy is well on its way to beating last year’s revenue total. The company reported more than $150 million at the top line in each quarter of this year, with Q3, the most recent, coming in at $158.4 million, up 22% year-over-year. That solid gain came even as a strong dollar knocked 5% off the total due to foreign currency exchange rates.
Udemy’s results in the quarter were driven by strong business demand. The company saw business revenue from multi-year deals grow 135% y/y, to make up 40% of the total business revenue.
Naming Udemy as a “new top pick” for Cantor Fitzgerald, analyst Brett Knoblauch writes, “We continue to believe that the market is underappreciating Udemy’s enterprise segment, Udemy for Business (UB). UB ended the quarter with $350m in ARR growing 68.8% y/y. We expect upside in shares to come from the market assigning a more appropriate multiple to this segment, as we currently believe it is being valued at 2.1x 2023 EV/Sales, and we believe it should be valued at a premium to broader software…”
Looking forward, and quantifying his stance on the stock, Knoblauch rates UDMY as Overweight (a Buy) with a $20 price target to imply a 101% gain in the next 12 months. (To watch Knoblauch’s track record, click here.)
Overall, this stock gets a Moderate Buy from the Street’s analyst consensus, based on 6 analyst reviews that include 4 Buys and 2 Holds. The stock is selling for $10.10 and its $16.75 average price target suggests an upside potential of 66% on the one-year horizon. (See Udemy’s stock forecast at TipRanks.)
PROS Holdings, Inc. (PRO)
Sticking with the digital tech sector, we’ll look at PROS Holdings, a software company offering cloud-based products on the SaaS model. PROS’ product line features AI-based cloud software for price optimization, revenue management, and sales effectiveness, all designed to streamline shopping and selling interactions from both the merchant and customer ends. The company’s clientele are enterprise customers in the airline, automotive, consumer goods, energy, food & beverage, manufacturing, healthcare, and logistics industries.
In the last quarter, 3Q22, PROS saw its total revenue grow by 12% y/y and reach $70.3 million. The gain was driven by a 17% increase in subscription revenue, which made up $51.8 million of the total. The company saw a gross profit of $42.7 million, up 17% from the year-ago quarter, but net income came in at a net loss of $13.9 million. This was an improvement over the $17.5 million net loss from 3Q21. On a per-share basis, the 3Q22 EPS of ($0.31) was a 20% improvement y/y.
During the quarter, PROS had several important business developments to announce, including large new customers such as GE Healthcare, Phillips Pet Food, and Summit Electric and Supply. In addition, PROS launched a new service, buildwithpros.com, a developer portal that allows users to embed PROS data, insights, and services within their own business applications.
Looking ahead, PROS has published full-year 2022 revenue guidance of $273.75 million to $274.75 million, an increase of 9% over the previous year. The company expects subscription revenue for the full year to grow by 14%, to the range of $203 million to $203.5 million.
Nehal Chokshi, 5-star analyst with Northland Securities, reiterates PRO as his Top Pick for next year in his recent note on the stock. Backing his stance, Chokshi writes, “While sales cycles have not been immune to increased deal scrutiny, the relevancy of PRO’s solutions has greatly increased, particularly with the C-suite, due to persisting market volatility and elevated inflation as PRO customers & prospective customers seek to better manage uncertainty. As such, PRO management noted a record-level of engagement with CFOs, resulting in deal count doubling YTD within each quarter of CY22, which has been primarily driven by sustaining B2B momentum, which was also above initial expectations.”
Using these comments as a base, Chokshi rates PRO as Outperform (a Buy), backed by a price target of $51, suggesting a robust upside potential of 121% for the year ahead. (To watch Chokshi’s track record, click here.)
This stock holds a Moderate Buy consensus rating from the Street, based on 2 positive recent analyst reviews. The shares are selling for $23.10 and their $33.50 average price target implies a one-year gain of 45% from that level. (See PROS’ stock forecast at TipRanks.)
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First Commonwealth Financial (FCF)
Last on our Top Pick list is a banking firm, First Commonwealth. This company, based in Indiana, Pennsylvania – not far from Pittsburgh – boasts 119 offices in 28 counties throughout west and central Pennsylvania and Ohio. The bank has $9.57 billion in assets, a total that increased by $100 million between 3Q21 and 3Q22. The bank offers a full range of services to retail and commercial customers.
Getting into some details for the last reported quarter, 3Q22, First Commonwealth reported net income of $33.9 million; this was down approximately $1 million y/y, but was up approximately $3 million, or 10%, from the second quarter. Diluted EPS came in at 36 cents, flat year-over-year and up by 9% q/q. The bank’s return on average assets for the quarter was 1.41%, in-line with results over the past year.
First Commonwealth pays out a regular dividend, and has kept the payment reliable for the past 13 years. In the recent Q3, the last quarter the dividend was paid out, the company declared a 12-cent per common share cash payment, or 48 cents annualized. This was up 4.3% y/y and gives a yield of 3.5%, nearly double the average dividend yield found among S&P-listed firms.
Looking ahead to the coming year, D.A. Davidson analyst Manuel Navas lays out the bull-case. He writes, “First Commonwealth Financial (FCF) is our top pick in the Mid-Atlantic for 2023 due to well-above peer returns that are built on above peer organic loan growth and specific earning asset yield expansion and deposit cost protection catalysts. These come together, along with a pending deal that closes in 1Q23 (Centric Financial merger), to drive Y/Y NII growth (+34% in ’23E) that should stand out for a name that has undeservedly underperformed -3.5% YTD in 2022 vs. the KRX, and sets up shares for a better 2023.”
Accordingly, Navas rates the shares as a Buy, and his price target of $19 indicates potential for 37% upside going forward. (To watch Navas’ track record, click here.)
Overall, First Commonwealth gets a Strong Buy consensus rating based on three positive recent analyst reviews. FCF shares are currently trading for $13.89 and have an average price target of $17.33, suggesting 25% one-year upside potential. (See First Commonwealth’s stock forecast at 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.
