Weekly Reports | May 09 2025
2025 is proving to be both volatile and a stock pickers market. This week's In Brief looks at three stocks which caught the experts' eye for upside surprises.
-Zip looks to US for strong growth, absent a recession
-AUB Group's history of beating expectations
-Renewables, real estate could squeeze shorts in Maas Group
By Danielle Ecuyer
Quote of the week comes from Lyn Alden's May Newsletter, A Trade Breakdown:
"Paying attention to equity valuations can limit downside risks during major rotations. There are years where valuation doesn't matter, and there are years where it matters significantly. This type of period is where valuations are more likely to matter."
Structural secular growth levers for Zip
Zip Co ((ZIP)) has caught the attention of Goldman Sachs, with the broker initiating coverage of the stock with a Buy rating and $2.50 target price.
Acknowledging the transformation the buy-now-pay-later (BNPL) service provider has undergone, with strategic focus on top-line growth and sustainable earnings, Zip is today considered to be operating from a strong position.
The company repaid the balance of its corporate debt, including via an equity raise in July 2024, which de-risked and simplified the balance sheet. A $50m buyback was also announced on April 23.
The analyst proposes three growth levers for the company, based on the assumption the US economy will be supported by unemployment remaining subdued and credit risk being manageable.
Following on international trends, an ongoing secular switch to more transparent and innovative credit products is expected; ongoing growth on buy-now-pay-later adoption across growth in e-commerce.
Some 16% growth in the US BNPL segment is forecast on a compound annual rate, according to industry estimates; and the leveraging of partner networks to enhance and increase acceptance of BNPL as a greater share of wallet size.
In A&NZ, Goldman Sachs emphasises Zip retains a market-leading position with a robust user cohort. There is an expectation higher-margin products can be adopted against a better fund cost backdrop with falling interest rates.
Over the longer term, the US is anticipated to be the growth lever for the company and primary earnings generator. The analyst forecasts compound average growth rate per annum for US cash earnings (EBTDA) of 20% from FY25 to FY28, compared to 10% for the A&NZ region.
The forecasts are in the medium-term range guidance from management and do not incorporate a recessionary environment across geographies.
Those earnings forecasts do remain sensitive to a recession outlook or negative economic backdrop.
Target price is set at $2.50 with a Buy rating. FNArena daily monitored brokers have a consensus target price of $3.067 with three Buy ratings.
Macro-economic tailwinds support AUB
AUB Group ((AUB)) has upgraded FY25 guidance to the upper end for net profit after tax of $190m$200m, which has resulted in a lift in EPS estimates by Jarden at 1.3% to 1.5% for FY25-FY27.
Given the company's track record of announcing full-year earnings reports above guidance, the analyst believes upside risk to FY25 guidance remains.
Falling interest rates, particularly in the UK, Jarden proposes, could assist with generating double-digit EPS growth from premium rate growth, rising commission rates with volume, and inorganic growth.
Elsewhere, Goldman Sachs sees "favourable trading momentum" via acquisitions, forex tailwinds, and profit commissions, which have yet to be incorporated into the analyst's forecasts for FY26 and beyond.
AUB enjoys a Buy rating at Goldman Sachs with a price target of $37.
Daily monitored broker Ord Minnett explains even though the stock has outperformed since 1H25 results, at current valuations AUB shares trade at a discount to peer Steadfast Group ((SDF)). This broker retains a Buy rating and $35.58 target price.
Consensus target price for FNArena daily monitored brokers stands at $35.758 with three Buy-equivalent ratings and one Hold-equivalent rating.
Almost forgot; Jarden has an Overweight rating (one notch below Buy) with a price target of $36.75.
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