3 of Wall Street's Favorite Stocks We Steer Clear Of

Wall Street has set ambitious price targets for the stocks in this article. While this suggests attractive upside potential, it’s important to remain skeptical because analysts face institutional pressures that can sometimes lead to overly optimistic forecasts.

Luckily for you, we at StockStory have no conflicts of interest - our sole job is to help you find genuinely promising companies. Keeping that in mind, here are three stocks where Wall Street’s enthusiasm may be misplaced and some other investments worth exploring instead.

Churchill Downs (CHDN)

Consensus Price Target: $132.43 (25.1% implied return)

Famous for hosting the Kentucky Derby, Churchill Downs (NASDAQ:CHDN) operates a horse racing, online wagering, and gaming entertainment business in the United States.

Why Are We Wary of CHDN?

1. Estimated sales growth of 4.5% for the next 12 months implies demand will slow from its two-year trend
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. ROIC of 7.8% reflects management’s challenges in identifying attractive investment opportunities

Churchill Downs’s stock price of $105.85 implies a valuation ratio of 16.4x forward P/E. Dive into our free research report to see why there are better opportunities than CHDN.

Jazz Pharmaceuticals (JAZZ)

Consensus Price Target: $185.73 (61.5% implied return)

Originally founded in 2003 and now headquartered in Ireland following a 2012 tax inversion merger, Jazz Pharmaceuticals (NASDAQGS:JAZZ) develops and markets medicines for sleep disorders, epilepsy, and cancer, with a focus on treatments for patients with limited therapeutic options.

Why Does JAZZ Give Us Pause?

1. 4.3% annual revenue growth over the last two years was slower than its healthcare peers
2. Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 6.7 percentage points
3. ROIC of 5.3% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam

At $115 per share, Jazz Pharmaceuticals trades at 4.9x forward P/E. To fully understand why you should be careful with JAZZ, check out our full research report (it’s free).

Maximus (MMS)

Consensus Price Target: $103 (44.4% implied return)

With nearly 50 years of experience translating public policy into operational programs that serve millions of citizens, Maximus (NYSE:MMS) provides operational services, clinical assessments, and technology solutions to government agencies in the U.S. and internationally.

Why Does MMS Fall Short?

1. Demand will likely fall over the next 12 months as Wall Street expects flat revenue
2. 5.9 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its falling returns suggest its earlier profit pools are drying up

Maximus is trading at $71.34 per share, or 11.1x forward P/E. Check out our free in-depth research report to learn more about why MMS doesn’t pass our bar.

High-Quality Stocks for All Market Conditions

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