Today's top stock ideas (Thu, Dec 14)

Carvana's Q2 performance, revealing a substantial EBITDA of $155 million, has bolstered our confidence in the company, notably exceeding prior guidance of over $50 million. Their Q3 forecasts predict stable volumes and an EBITDA of least $75 million, evidencing robust cost structure improvements. Carvana's strategy involves three steps: achieving EBITDA profitability, enhancing unit economics, and resuming growth—with the first step accomplished and progress on the second. The company revamped its debt to increase flexibility and reduce cash interest by $430 million over two years, swapping unsecured debt for secured, enhancing shareholder value. Now cash flow positive, Carvana eyes a future resurgence with projected 20% revenue growth in 2024 and $1 billion annual adjusted EBITDA. With ambitions to sell 2-3 million cars annually at a profit of around $2500 each for a potential $5-$7.5 billion annual profit, Carvana's share price stands around $35, while our 5-year price target remains ambitious at $600, reaffirming Carvana as our largest holding.

Read the full article here. Read time: 2 min

Morgan Stanley has initiated an "overweight" rating on DoubleVerify ($DV), echoing my long-standing appreciation for the company's pivotal role in improving advertising efficacy and my confidence in DoubleVerify's management, especially CEO Mark Zagorski. DoubleVerify is uniquely positioned within a rapidly expanding $215 billion Total Addressable Market (TAM), expected to grow at a 7% CAGR through 2027, with potential to increase its market share from 3% to 7%. Predicted revenue growth for $DV is at a 22% CAGR from 2022 to 2027, outpaced within the duopoly by its competitor $IAS (13% CAGR), yet both are expected to sustain robust growth. DV’s innovation, especially with its Activation offering, is anticipated to account for 69% of its revenue growth trajectory through 2027. Morgan Stanley anticipates enduring customer retention and scaling advantages to bolster DV's profitability, forecasting EBITDA margins to rise from roughly 31% to 33% by 2027. Their $40 price target—a 20% upside—reflects a 23x EV/2025 EBITDA multiple, offering a blend of a 45% premium over DV's online ad peers, due to its defensible niche and innovation history, while incorporating a 35% discount relative to enterprise software peers, given DV's less predictable revenue compared to a SaaS model. This valuation also sits well above the 12x EV/EBITDA assigned to IAS, justified by DV's higher growth rates and its primacy in the programmatic Activation sector. The recommendation reflects an optimistic view on both DV and IAS due to the expected continued growth from broader positive trends in the ad verification sector. DV stands out for its leadership in retail media, while IAS has relative strength in CTV, both of which are anticipated to trend positively.

Read the full article here. Read time: 2 min

Stellantis, with a 51.39% rise since January 1st, leads the CAC40 in performance but remains undervalued with a P/E ratio of just 3.35x. Its strong financials include a debt-free balance sheet with cash reserves covering 48% of its market capitalization, and a low goodwill of about 8% of total assets, warranting a 20% premium on the balance sheet. Under CEO Carlos Tavares, Stellantis transformed from a struggling company to a top automotive group, increasing its Free Cash Flows by 7944% in ten years, with EBITDA margins rising by 76% since 2013 and 41% since 2018, justifying a 28.5% premium on track record. Its net margin and FCF margin are impressive at 9.35% and 6.54% respectively, leading to a 2% premium. Despite its industry-leading performance, Stellantis is undervalued compared to peers, with a 12% premium warranted for valuation ratios. Growth has been significant but is expected to slow down, projecting a conservative 2.56% growth between 2023 and 2028, but with a 14% discount due to expected short-term revenue moderation and a nearly 10% earnings drop in the next two years. Market challenges, including evolving regulations and Chinese competitors in Europe, lead to a 15% discount for risk factors. The final valuation is €41.73, a 108% gap from the current price, with strengths in transformation, value generation, and treasury, but facing potential growth slowdown, competitive market threats, and Chinese market entry.

Read the full article here (not in English). Read time: 4 min

Fairlight has added Ulta Beauty to its portfolio, recognizing it as an outlier among retailers for its strong competitive advantage rooted in its distinctive culture. Ulta has shown impressive growth, compounding revenues at 17% and earnings at 28% per annum over two decades, with over 30% cash returns on capital and 15% operating margins. It is the top U.S. beauty retailer with 1,400 stores offering a wide range of beauty products across all categories, anchored by an omnichannel approach and a large loyalty program with over 42 million members. Ulta's culture emphasizes diversity, inclusivity, and employee empowerment, with retention rates (91% for corporate and 62% for store associates) significantly above retail norms—due in part to strategies like non-commissioned product recommendations, significant representation of Black-owned brands, and appreciation bonuses during COVID. This people-first culture has created a virtuous \"cultural flywheel,\" with happy employees leading to customer loyalty and increasing sales, indicative of a widening moat. This aligns with studies from The Wharton School and Tudor Investment Corporation, linking superior cultures to higher ROIC. Therefore, despite the typical competitive and low-margin nature of retail, Ulta’s culture has been a driving force in its exceptional financial performance, akin to Costco and Home Depot, convincing Fairlight of its potential for long-term shareholder returns.

Read the full article here. Read time: 4 min