When Wall Street turns bearish on a stock, it’s worth paying attention. These calls stand out because analysts rarely issue grim ratings on companies for fear their firms will lose out in other business lines such as M&A advisory.

At StockStory, we look beyond the headlines with our independent analysis to determine whether these bearish calls are justified. Keeping that in mind, here are three stocks facing legitimate challenges and some alternatives worth exploring instead.

Kyndryl (KD)

Consensus Price Target: $14.20 (5.7% implied return)

Born from IBM's managed infrastructure services business in a 2021 spinoff, Kyndryl (NYSE: KD) is the world's largest IT infrastructure services provider that designs, builds, and manages technology environments for enterprise customers.

Why Does KD Give Us Pause?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 5% annually over the last five years
2. Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
3. Negative returns on capital show that some of its growth strategies have backfired

Kyndryl’s stock price of $13.44 implies a valuation ratio of 5.3x forward P/E. Read our free research report to see why you should think twice about including KD in your portfolio.

First Financial Bankshares (FFIN)

Consensus Price Target: $36.67 (10.3% implied return)

With roots dating back to 1890 and a network spanning over 70 locations across the Lone Star State, First Financial Bankshares (NASDAQ: FFIN) is a Texas-focused regional bank providing commercial banking, trust services, and wealth management across numerous communities throughout the state.

Why Are We Cautious About FFIN?

1. 5.7% annual revenue growth over the last five years was slower than its banking peers
2. Annual net interest income growth of 8.1% over the last five years was below our standards for the banking sector
3. Incremental sales over the last five years were less profitable as its 3.5% annual earnings per share growth lagged its revenue gains

At $33.23 per share, First Financial Bankshares trades at 2.3x forward P/B. Check out our free in-depth research report to learn more about why FFIN doesn’t pass our bar.

Truist Financial (TFC)

Consensus Price Target: $55.36 (11.4% implied return)

Born from the 2019 merger of BB&T and SunTrust in one of the largest banking combinations since the 2008 financial crisis, Truist Financial (NYSE: TFC) is a bank holding company that offers a wide range of financial services including consumer and commercial banking, wealth management, insurance, and lending solutions.

Why Do We Think TFC Will Underperform?

1. Scale is a double-edged sword because it limits the firm’s growth potential compared to its smaller competitors, as reflected in its below-average annual net interest income increases of 1.9% for the last five years
2. Projected net interest income growth of 1.7% for the next 12 months suggests sluggish demand
3. Earnings per share have dipped by 1.6% annually over the past five years, which is concerning because stock prices follow EPS over the long term

Truist Financial is trading at $49.72 per share, or 1x forward P/B. To fully understand why you should be careful with TFC, check out our full research report (it’s free).

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