Top stock ideas for September 18

The author believes Adyen is significantly undervalued after crashing 75% in the last year and has a highly bullish outlook. They argue Adyen's comprehensive payment processing platform solves the fragmented challenges merchants face by consolidating transactions, risk management, authentication, and issuing into one integrated solution. Adyen boasts an impressive history of 44% volume growth driven by expanding existing customer relationships, highlighting strong retention. Though facing risks of competition and commoditization, Adyen is poised to benefit from booming digital payment tailwinds like increased mobile usage and digital wallets. The author sees Adyen leveraging its innovative approach to support emerging technologies and differentiate itself through value-added services. They forecast continued 20%+ revenue growth, see potential for margins to improve back to 55-65%, and model conservative dilution of just 3% annually. Using a 10% discount rate and 17x terminal EBITDA exit multiple, their detailed DCF analysis yields a $9.28 fair value, 24% above the current share price. Given Adyen's growth, margins, reasonable valuation, and leading platform, the author concludes it represents an extremely compelling long-term investment opportunity.

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The author believes AerSale is dramatically undervalued and has an extremely bullish outlook, forecasting shares could nearly triple. They argue AerSale's game-changing AerAware enhanced flight vision system has completed final FAA flight tests and expects imminent approval within 30 days, given the technology passed hundreds of test flight hours. The author then expects AerSale to announce multiple large initial orders, including United Airlines placing a massive 250+ unit order based on management comments and flight data analysis. They project just this single order could generate $62 million in incremental EBITDA for AerSale in 2024, given AerAware's $400K ASP and 60-70% margins. Furthermore, the author sees AerSale's core business poised to hit record results in 2024, fueled by $250 million in feedstock purchases to capitalize on bullish industry tailwinds. They conservatively model $93 million core business EBITDA in 2024 based on historical ROIC. Combined, the author forecasts total 2024 EBITDA of $155 million, a massive 227% increase over 2023 guidance midpoint. Applying a conservative 15x EBITDA multiple, they reach a $45.90 price target, 197% above the current share price.

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Euronav, leveraging its modern fleet, holds a commanding position in the shipping sector. This is amplified by the aging global fleet and the paucity of new petro-shipping vessels. Euronav's low debt, high dividend approach, and a strategic reaction to rising global oil demand, chiefly from China's crude initiatives, solidify its investment allure. The potential re-entry of Iran into the oil market could further boost Euronav's position. Maintaining VLCC rates at approximately $35k per day and Suezmax's impressive breakeven, Euronav is set for profitable quarters. Their recent decision to raise the payout ratio to 100%, declaring a $0.80 dividend in Q2, and the addition of three new VLCCs further underpins their growth trajectory, supported by a promising $20 price target.

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The author is bullish on Recursion Pharmaceuticals (RXRX), a clinical-stage biotechnology company which combines experimental biology, bioinformatics, and AI, primarily emphasizing their multifacted Recursion OS platform and their vast pipeline of over 40 developmental programs. The company's close collaborations with industry giants like Roche/Genentech, Bayer, Takeda, and Nvidia underscores its technological potential. The company's leading drugs are poised to deliver several catalysts by 2024, ranging from treatments for rare vascular disorders, genetic disorders impacting the nervous system, to diabetic macular edema. Predicated on the conservative estimate that the company's key target markets could generate $76 billion/year of revenue opportunity in the U.S alone, the article claims that RXRX's current enterprise value ($1.58 billion) is significantly undervalued, as most biotech companies trade on an average EV/sales ratio of 6-7. RXRX's mean price target is $17, representing almost a 100% upside, with the highest projected target being $35, hinting at a 300% upside. Despite near-term upside, the author flags potential risks such as the early developmental stage of many drugs, unknown side effects, and potential disruption to their strategic partnerships.

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The author believes Arbor Realty Trust, a REIT focused on bridge lending for multifamily properties, faces existential challenges due to its ballooning balance sheet during the peak of the real estate cycle in 2021-2022. With rising interest rates and declining rent growth, the author argues the value of Arbor's assets is likely seriously impaired. The short-term nature of Arbor's loans, paired with their highly leveraged and inflexible balance sheet, will force a reckoning relatively soon, in the author's view. Specifically, many properties financed will be unable to meet debt service coverage ratio requirements for refinancing as rate caps expire, especially as rents are no longer increasing. Extensions would require new appraisals showing lower values. With CLO and repo debt coming due, along with upcoming maturities on many loans originated in 2021, the author believes the math clearly shows Arbor's equity could be entirely wiped out even in a base case scenario. Absent a sharp decline in rates or continued equity issuance to an unsophisticated retail base, the author sees Arbor's dividend being cut and its equity severely impaired or wiped out upon marking its book to economic reality.

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The author recommends a 'buy' rating for Luminar Technologies (LAZR), believing that its journey towards meeting its stated fiscal year 2030 (FY30) targets, along with its current valuation, presents an attractive risk-reward scenario for investors. LAZR is progressing well on both its commercialization efforts, with collaborations with Mobileye, Polestar, and Nissan, and its R&D initiatives, including the development of a proprietary mapping engine using LiDAR sensor data. The author is not overly concerned with the company's missed gross margin expectations as they believe the positive aspects, including continued partnerships and technological advancements, outweigh the occasional financial misses. The article also highlights LAZR's potential for creating a new revenue stream via a jointly developed technology with a major OEM. The author acknowledges risks, including underperformance of Level 3 autonomous vehicles and hesitations from OEMs to adopt higher-level software components offered by LiDAR vendors. Despite these risks and with a potential requirement for raising more debt or equity, the author believes LAZR's intrinsic value lies in its long-term potential.

Read the full article here (5 free per month). Read time: 4 min