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Peloton stock began to soar in mid-March when Wall Street dove into stocks that were viewed as safe bets to grow during the stay-at-home environment. The high-end, connected stationary bike company’s recent quarterly results highlighted its coronavirus strength, and people might not flock back to gyms, even if they open somewhat soon.
Quick Ride
Before we look at its recent results and what to expect going forward, it’s worth quickly reviewing Peloton. The company was founded in 2012 and its high-tech stationary bikes have taken off in popularity since then. Pelton offers users the ability to follow along with classes on their connected TV monitors, and it is part of a growing movement of higher-end workout classes and products.
Peloton’s connected bikes start at $2,245, while its newer treadmills begin at $4,295. Perhaps more importantly when it comes to stable longer-term growth, it makes money from its $39 per month “All-Access Memberships.” Meanwhile, people who don’t own Peloton equipment can pay $12.99 a month for a digital membership that allows them to follow along on classes for indoor cycling, running, strength, and more.
First Quarantine Quarter
The New York-based company’s Q3 fiscal 2020 results—reported on May 6—wowed Wall Street, and they captured the three-month period that ended on March 31, which only included a few weeks of the stay-at-home push in the U.S.
Peloton’s quarterly revenue surged 66% to $524.6 million and easily topped our $487.5 million Zacks estimate. Meanwhile, its connected fitness subscribers jumped nearly 100% to 886,100 and paid digital subscribers grew 64% to over 176,600. Its overall subscription revenue soared 92% to account for 19% of total quarterly sales.
Plus, its average net monthly connected fitness churn came in at its lowest level in four years, at 0.46%. On top of all of that, its users averaged more monthly workouts, and its total workouts soared from 18 million in the year-ago period to over 44 million.
The company also extended its normal 30-day free trial period for its digital subscription up to 90 days, from March 16 through April 30. Since the extension was announced, over 1.1 million people have signed up for the free trial—over 80% of these workouts were in categories that didn’t require a bike or treadmill, such as strength, yoga, and meditation.
Outlook
People are clearly turning to Peloton’s offerings without gyms to go to, and the company expects to keep on growing even though the increased demand has stretched delivery times and raised its costs. But these seem like champagne problems as companies big and small see their sales dry up during the coronavirus.
Peloton said it expected its fourth quarter fiscal 2020 revenue to come in between $500 and $520 million, with the mid-point representing 128% expansion from the year-ago period—which would crush last quarter’s 66% top-line growth. And our Zacks estimate calls for PTON’s quarterly sales to top its own guidance at $522.9 million.
Overall, Peloton’s fiscal 2020 revenue is projected to climb over 90% to reach $1.74 billion. This would come on top of 2019’s 110% expansion. Peeking further ahead, PTON’s fiscal 2021 sales are expected to jump another 45% to hit $2.52 billion.
On the bottom line, Peloton is expected to report adjusted positive earnings of $0.07 a share in Q4. Investors should note that this would mark its first quarter of positive adjusted earnings as a public firm and easily top Q3’s loss of -$0.20 a share.
PTON’s Q4 earnings estimate has climbed from -$0.22 a share to +$0.07 since it posted its results last week. This is part of Peloton’s overall positive earnings revision trend.
Other Fundamentals
Peloton stock is now up over 80% since it went public in late September of 2019. More recently, PTON shares have skyrocketed 140% since March 12, from under $20 a share to around $46 a share on Tuesday. The tech-focused indoor fitness company’s stock has also blown away stay-at-home others over this stretch.
Despite this climb, PTON is trading at a discount against its six-month highs, at 5.3X forward 12-month sales vs. 5.8X. For reference, high-flying Zoom stock is trading at 45.8X forward 12-month sales and NFLX is trading at 7.4X.
Bottom Line
Investors should note that PTON stock is pretty heavily shorted. This means that people covering their short positions could have helped the recent rally, and it might run higher as a ‘prime short squeeze candidate.’
Plus, Peloton is currently a Zacks Rank #1 (Strong Buy), and its balance sheet is solid. It closed the quarter with $1.43 billion in cash and equivalents, against $498 million in long-term debt.
Some investors might want to wait for a pullback, given its recent run. However, Peloton appears to be both a worthy near-term play for its ability to expand during the coronavirus and for its longer-term growth potential.
Dick's Sporting Goods topped our Q4 earnings and sales estimates in early March, and its stock price has surged over 65% since the market’s March 23 lows. Despite the recent climb, DKS shares are down big over the last year and its brick-and-mortar stores have been impacted by the coronavirus. Plus, sports might not return anytime soon.
What’s Going On?
Dick’s was one of countless retailers that closed its brick-and-mortar stores in an effort to slow the spread of the coronavirus. The company, like many firms deemed non-essential has continued to operate its direct-to-consumer business. DKS is also currently offering contactless curbside pick up in most states around the U.S.
Dick’s has slowly started to reopen stores in states “where local guidelines and public health considerations allow,” while operating under various social distancing protocols and more. Despite trying to return to something close to normal operations where it can, Dick’s might face a larger dilemma: When will people return to gyms, and when will sports leagues start again?
Even before the coronavirus, DKS faced broader headwinds in the "Amazon Age," as giants such as Nike and Adidas continue to expand their own e-commerce businesses. Meanwhile, Lululemon and other brands have expanded without any presence in traditional wholesale sporting goods retail shops.
Outlook
Our current Zacks estimates call for the retailer’s first quarter revenue to fall 19.5% from the year-ago period, with its Q2 sales projected to sink nearly 14%.
At the bottom end of the income statement, DKS adjusted Q1 earnings are projected to tumble from +$0.62 in the year-ago period to a loss of -$0.09 a share.
Peeking ahead, the company’s adjusted second quarter earnings are projected to fall roughly 44%, with its fiscal year EPS figure expected to tumble over 48%.
Bottom Line
Dick’s is currently a Zacks Rank #5 (Strong Sell), based on its negative earnings revision trends. Clearly, the company has the ability to bounce back when things start to return to normal, but its near-term outlook makes DKS a risker pick.
Investors will get a more complete picture of the pandemic’s impact on DKS when it reports its Q1 fiscal 2020 financial results on June 2.
Additional content:
General Mills (GIS - Free Report) Raises 2020 Guidance on Coronavirus-Led Demand
The coronavirus outbreak has compelled people to stay indoors and step out just for purchasing essentials. As consumers are unable to gauge the severity and duration of this pandemic, they are stockpiling goods, especially staple items to avoid venturing out often. This, in turn, has been spiking up demand for products of General Mills, which raised its guidance for fiscal 2020 amid this hour of crisis.
In March, General Mills witnessed heavy demand for at-home food (nearly 85% of net sales), especially in North America Retail as well as Europe and Australia segments owing to coronavirus-led stockpiling. Although the magnitude of the rising demand had moderated in April, it was still high when compared with the pre-pandemic periods. Markedly, the company’s Nielsen-measured U.S. retail revenues rallied45% and 32% year-over year in March and April, respectively.
However, the company’s away-from-home food (nearly 15% of net sales) business is exposed to challenges. In this regard, softness in General Mills’ convenience stores and Foodservice segment as well as Asia and Latin America segments is a threat to its performance.
Nevertheless, General Mills is undertaking initiatives to maintain an undisrupted supply chain to support higher demand for at-home food segment. In this regard, management is focused on increasing capacity and product availability. Consequently, the company has seen market share gains in various regions for at-home food segment. We note that shares of this Zacks Rank #2 (Buy) company have gained 15.8% in the past three months against the industry’s decline of 9.9%.
Certainly, the stockpiling works well for consumer staple players like General Mills. Other food players like Kraft Heinz and TreeHouse Foods are also benefiting from the coronavirus-induced stock hoarding.
Forecasts Revised Upwards
Coming back to General Mills, higher demand from customers in at-home food segment for March and April caused the company to pull up its forecasts for fourth-quarter fiscal 2020. Although, it expects this trend to moderate in the month of May, it is still likely to remain higher when compared with the pre-pandemic periods. General Mills expects organic sales to grow by double digits year over year in fiscal fourth quarter, thanks to strength in North America Retail and Pet segment. Moreover, adjusted operating profit at constant currency (cc) is anticipated to increase at a faster rate when compared with organic net sales during the quarter. In its third-quarter earnings call, management stated that it expects organic sales to grow in the fourth quarter, courtesy of an extra month of Pet segment results.
Further, management now anticipates exceeding its previously provided fiscal 2020 guidance. General Mills had earlier anticipated organic sales to improve 1-2%. Further, adjusted operating profit (at cc) was expected to improve 4-6%. Moreover, the company had envisioned adjusted earnings per share growth (at cc) of 6-8%.
However, owing to strong U.S dollars, the combined impact of divestitures, currency translations and contributions from the 53rd week is likely to boost net sales by nearly 0.5 percentage point. Earlier, the company had envisioned a percentage point benefit from such factors for fiscal 2020.
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.
These 7 were selected because of their superior potential for immediate breakout.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Peloton, Dick's, General Mills, Kraft Heinz and TreeHouse as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – May 13, 2020 – Zacks Equity Research highlights Peloton (PTON - Free Report) as the Bull of the Day and Dick's Sporting Goods (DKS - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on General Mills (GIS - Free Report) , Kraft Heinz (KHC - Free Report) and TreeHouse Foods (THS - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Peloton stock began to soar in mid-March when Wall Street dove into stocks that were viewed as safe bets to grow during the stay-at-home environment. The high-end, connected stationary bike company’s recent quarterly results highlighted its coronavirus strength, and people might not flock back to gyms, even if they open somewhat soon.
Quick Ride
Before we look at its recent results and what to expect going forward, it’s worth quickly reviewing Peloton. The company was founded in 2012 and its high-tech stationary bikes have taken off in popularity since then. Pelton offers users the ability to follow along with classes on their connected TV monitors, and it is part of a growing movement of higher-end workout classes and products.
Peloton’s connected bikes start at $2,245, while its newer treadmills begin at $4,295. Perhaps more importantly when it comes to stable longer-term growth, it makes money from its $39 per month “All-Access Memberships.” Meanwhile, people who don’t own Peloton equipment can pay $12.99 a month for a digital membership that allows them to follow along on classes for indoor cycling, running, strength, and more.
First Quarantine Quarter
The New York-based company’s Q3 fiscal 2020 results—reported on May 6—wowed Wall Street, and they captured the three-month period that ended on March 31, which only included a few weeks of the stay-at-home push in the U.S.
Peloton’s quarterly revenue surged 66% to $524.6 million and easily topped our $487.5 million Zacks estimate. Meanwhile, its connected fitness subscribers jumped nearly 100% to 886,100 and paid digital subscribers grew 64% to over 176,600. Its overall subscription revenue soared 92% to account for 19% of total quarterly sales.
Plus, its average net monthly connected fitness churn came in at its lowest level in four years, at 0.46%. On top of all of that, its users averaged more monthly workouts, and its total workouts soared from 18 million in the year-ago period to over 44 million.
The company also extended its normal 30-day free trial period for its digital subscription up to 90 days, from March 16 through April 30. Since the extension was announced, over 1.1 million people have signed up for the free trial—over 80% of these workouts were in categories that didn’t require a bike or treadmill, such as strength, yoga, and meditation.
Outlook
People are clearly turning to Peloton’s offerings without gyms to go to, and the company expects to keep on growing even though the increased demand has stretched delivery times and raised its costs. But these seem like champagne problems as companies big and small see their sales dry up during the coronavirus.
Peloton said it expected its fourth quarter fiscal 2020 revenue to come in between $500 and $520 million, with the mid-point representing 128% expansion from the year-ago period—which would crush last quarter’s 66% top-line growth. And our Zacks estimate calls for PTON’s quarterly sales to top its own guidance at $522.9 million.
Overall, Peloton’s fiscal 2020 revenue is projected to climb over 90% to reach $1.74 billion. This would come on top of 2019’s 110% expansion. Peeking further ahead, PTON’s fiscal 2021 sales are expected to jump another 45% to hit $2.52 billion.
On the bottom line, Peloton is expected to report adjusted positive earnings of $0.07 a share in Q4. Investors should note that this would mark its first quarter of positive adjusted earnings as a public firm and easily top Q3’s loss of -$0.20 a share.
PTON’s Q4 earnings estimate has climbed from -$0.22 a share to +$0.07 since it posted its results last week. This is part of Peloton’s overall positive earnings revision trend.
Other Fundamentals
Peloton stock is now up over 80% since it went public in late September of 2019. More recently, PTON shares have skyrocketed 140% since March 12, from under $20 a share to around $46 a share on Tuesday. The tech-focused indoor fitness company’s stock has also blown away stay-at-home others over this stretch.
Despite this climb, PTON is trading at a discount against its six-month highs, at 5.3X forward 12-month sales vs. 5.8X. For reference, high-flying Zoom stock is trading at 45.8X forward 12-month sales and NFLX is trading at 7.4X.
Bottom Line
Investors should note that PTON stock is pretty heavily shorted. This means that people covering their short positions could have helped the recent rally, and it might run higher as a ‘prime short squeeze candidate.’
Plus, Peloton is currently a Zacks Rank #1 (Strong Buy), and its balance sheet is solid. It closed the quarter with $1.43 billion in cash and equivalents, against $498 million in long-term debt.
Some investors might want to wait for a pullback, given its recent run. However, Peloton appears to be both a worthy near-term play for its ability to expand during the coronavirus and for its longer-term growth potential.
Bear of the Day:
Dick's Sporting Goods topped our Q4 earnings and sales estimates in early March, and its stock price has surged over 65% since the market’s March 23 lows. Despite the recent climb, DKS shares are down big over the last year and its brick-and-mortar stores have been impacted by the coronavirus. Plus, sports might not return anytime soon.
What’s Going On?
Dick’s was one of countless retailers that closed its brick-and-mortar stores in an effort to slow the spread of the coronavirus. The company, like many firms deemed non-essential has continued to operate its direct-to-consumer business. DKS is also currently offering contactless curbside pick up in most states around the U.S.
Dick’s has slowly started to reopen stores in states “where local guidelines and public health considerations allow,” while operating under various social distancing protocols and more. Despite trying to return to something close to normal operations where it can, Dick’s might face a larger dilemma: When will people return to gyms, and when will sports leagues start again?
Even before the coronavirus, DKS faced broader headwinds in the "Amazon Age," as giants such as Nike and Adidas continue to expand their own e-commerce businesses. Meanwhile, Lululemon and other brands have expanded without any presence in traditional wholesale sporting goods retail shops.
Outlook
Our current Zacks estimates call for the retailer’s first quarter revenue to fall 19.5% from the year-ago period, with its Q2 sales projected to sink nearly 14%.
At the bottom end of the income statement, DKS adjusted Q1 earnings are projected to tumble from +$0.62 in the year-ago period to a loss of -$0.09 a share.
Peeking ahead, the company’s adjusted second quarter earnings are projected to fall roughly 44%, with its fiscal year EPS figure expected to tumble over 48%.
Bottom Line
Dick’s is currently a Zacks Rank #5 (Strong Sell), based on its negative earnings revision trends. Clearly, the company has the ability to bounce back when things start to return to normal, but its near-term outlook makes DKS a risker pick.
Investors will get a more complete picture of the pandemic’s impact on DKS when it reports its Q1 fiscal 2020 financial results on June 2.
Additional content:
General Mills (GIS - Free Report) Raises 2020 Guidance on Coronavirus-Led Demand
The coronavirus outbreak has compelled people to stay indoors and step out just for purchasing essentials. As consumers are unable to gauge the severity and duration of this pandemic, they are stockpiling goods, especially staple items to avoid venturing out often. This, in turn, has been spiking up demand for products of General Mills, which raised its guidance for fiscal 2020 amid this hour of crisis.
In March, General Mills witnessed heavy demand for at-home food (nearly 85% of net sales), especially in North America Retail as well as Europe and Australia segments owing to coronavirus-led stockpiling. Although the magnitude of the rising demand had moderated in April, it was still high when compared with the pre-pandemic periods. Markedly, the company’s Nielsen-measured U.S. retail revenues rallied45% and 32% year-over year in March and April, respectively.
However, the company’s away-from-home food (nearly 15% of net sales) business is exposed to challenges. In this regard, softness in General Mills’ convenience stores and Foodservice segment as well as Asia and Latin America segments is a threat to its performance.
Nevertheless, General Mills is undertaking initiatives to maintain an undisrupted supply chain to support higher demand for at-home food segment. In this regard, management is focused on increasing capacity and product availability. Consequently, the company has seen market share gains in various regions for at-home food segment. We note that shares of this Zacks Rank #2 (Buy) company have gained 15.8% in the past three months against the industry’s decline of 9.9%.
Certainly, the stockpiling works well for consumer staple players like General Mills. Other food players like Kraft Heinz and TreeHouse Foods are also benefiting from the coronavirus-induced stock hoarding.
Forecasts Revised Upwards
Coming back to General Mills, higher demand from customers in at-home food segment for March and April caused the company to pull up its forecasts for fourth-quarter fiscal 2020. Although, it expects this trend to moderate in the month of May, it is still likely to remain higher when compared with the pre-pandemic periods. General Mills expects organic sales to grow by double digits year over year in fiscal fourth quarter, thanks to strength in North America Retail and Pet segment. Moreover, adjusted operating profit at constant currency (cc) is anticipated to increase at a faster rate when compared with organic net sales during the quarter. In its third-quarter earnings call, management stated that it expects organic sales to grow in the fourth quarter, courtesy of an extra month of Pet segment results.
Further, management now anticipates exceeding its previously provided fiscal 2020 guidance. General Mills had earlier anticipated organic sales to improve 1-2%. Further, adjusted operating profit (at cc) was expected to improve 4-6%. Moreover, the company had envisioned adjusted earnings per share growth (at cc) of 6-8%.
However, owing to strong U.S dollars, the combined impact of divestitures, currency translations and contributions from the 53rd week is likely to boost net sales by nearly 0.5 percentage point. Earlier, the company had envisioned a percentage point benefit from such factors for fiscal 2020.
You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.
These 7 were selected because of their superior potential for immediate breakout.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.