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Last week, the US Centers for Disease Control (CDC) significantly rolled back its guidance about the necessity of wearing protective face coverings and maintaining social distance in most situations for people who had already been fully vaccinated against Covid-19. States, municipalities, and private businesses are in the midst of revising their own restrictions to match the new CDC rules. It’s certainly too early to declare the pandemic “over” but it’s undeniable that the reopening of the US economy is well underway.
After the initial shock of the abrupt closures last Spring – and the steep selloff in equities that resulted – investors quickly turned their attention to the companies that would be in a position to provide the goods and services that a nation of “locked-down” customers would demand. From the lows in March 2020, many stocks have risen 100%, 200% and even more - especially the companies that didn’t simply hold their ground but actually saw big increases in sales and earnings because of changes in consumer behavior.
The “pandemic trade” was born.
Now that hundreds of millions of people are headed back out into the world, faces uncovered – to school, jobs, restaurants, bars, entertainment venues and every other situation that saw limited participation over the past 14 months - the “re-opening trade” is heating up.
Just as we saw at the beginning of the pandemic, sometimes valuations can become stretched when many investors are looking for a way to enter the “trade du jour” all at once, so it’s important to make sure you’re not piling in after the bulk of that share price appreciation has already happened.
Price momentum is great, but it’s even better when it’s coupled with an attractive valuation based on sales and earnings – indicating that the shares have more room to run. That’s a big part of why Sally Beauty Holdings (SBH - Free Report) is today’s Bull of the Day.
First, let’s take a look at the market conditions that are lining up in Sally Beauty’s favor. Overall, the US consumer is in great shape. After over a year with limited opportunities to dine out or travel, disposable income is near all-time highs. As for personal grooming habits - well let’s just say they are not near all-time highs.
Jokes about people working from home in their sweatpants and forgetting to take daily showers have become a cliché.
As people head back out into the world with their faces uncovered, they’ll be consuming all kinds of health and beauty products to get their public appearance back in shape. During their most recent earnings conference call, the CEO of Walmart (WMT - Free Report) shared that hygiene products like teeth whiteners are flying off the shelves.
Sally Beauty sells all of those things – in more than 5,000 branded retail locations and online, as well as to salons and nail professionals through it’s Beauty Systems Group. Revenues are relatively evenly split between retail and sales to the professional trades.
And those sales are a lot higher than you might think. In the year ended September 2020, SBH had total sales of $3.5 billion. This year, that’s expected to increase to $3.8 billion. Net earnings are rising even faster - from a net of $1.22/share last year to a Zacks Consensus Earnings Estimate of $2.07 this year. That’s up from consensus expectations of $1.70/share 30 days ago and those upward revisions earn Sally Beauty Holdings a Zacks Rank #1 (Strong Buy).
With a share price under $23, those earnings translate to a forward P/E Ratio of just 11X – less than half the multiple of the S&P 500 or the big box stores like Walmart, Target (TGT - Free Report) or Costco (COST - Free Report) .
After 3 earnings beats in a row, SBH shares have been riding a wave of momentum since late in 2020, yet the price still reflects a discount to the competition. That’s a sweet spot to be in, and it makes Sally Beauty Holdings a great potential holding for a value-oriented investor who also wants that re-opening exposure.
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Bull of the Day: Sally Beauty Holdings (SBH)
Last week, the US Centers for Disease Control (CDC) significantly rolled back its guidance about the necessity of wearing protective face coverings and maintaining social distance in most situations for people who had already been fully vaccinated against Covid-19. States, municipalities, and private businesses are in the midst of revising their own restrictions to match the new CDC rules. It’s certainly too early to declare the pandemic “over” but it’s undeniable that the reopening of the US economy is well underway.
After the initial shock of the abrupt closures last Spring – and the steep selloff in equities that resulted – investors quickly turned their attention to the companies that would be in a position to provide the goods and services that a nation of “locked-down” customers would demand. From the lows in March 2020, many stocks have risen 100%, 200% and even more - especially the companies that didn’t simply hold their ground but actually saw big increases in sales and earnings because of changes in consumer behavior.
The “pandemic trade” was born.
Now that hundreds of millions of people are headed back out into the world, faces uncovered – to school, jobs, restaurants, bars, entertainment venues and every other situation that saw limited participation over the past 14 months - the “re-opening trade” is heating up.
Just as we saw at the beginning of the pandemic, sometimes valuations can become stretched when many investors are looking for a way to enter the “trade du jour” all at once, so it’s important to make sure you’re not piling in after the bulk of that share price appreciation has already happened.
Price momentum is great, but it’s even better when it’s coupled with an attractive valuation based on sales and earnings – indicating that the shares have more room to run. That’s a big part of why Sally Beauty Holdings (SBH - Free Report) is today’s Bull of the Day.
First, let’s take a look at the market conditions that are lining up in Sally Beauty’s favor. Overall, the US consumer is in great shape. After over a year with limited opportunities to dine out or travel, disposable income is near all-time highs. As for personal grooming habits - well let’s just say they are not near all-time highs.
Jokes about people working from home in their sweatpants and forgetting to take daily showers have become a cliché.
As people head back out into the world with their faces uncovered, they’ll be consuming all kinds of health and beauty products to get their public appearance back in shape. During their most recent earnings conference call, the CEO of Walmart (WMT - Free Report) shared that hygiene products like teeth whiteners are flying off the shelves.
Sally Beauty sells all of those things – in more than 5,000 branded retail locations and online, as well as to salons and nail professionals through it’s Beauty Systems Group. Revenues are relatively evenly split between retail and sales to the professional trades.
And those sales are a lot higher than you might think. In the year ended September 2020, SBH had total sales of $3.5 billion. This year, that’s expected to increase to $3.8 billion. Net earnings are rising even faster - from a net of $1.22/share last year to a Zacks Consensus Earnings Estimate of $2.07 this year. That’s up from consensus expectations of $1.70/share 30 days ago and those upward revisions earn Sally Beauty Holdings a Zacks Rank #1 (Strong Buy).
With a share price under $23, those earnings translate to a forward P/E Ratio of just 11X – less than half the multiple of the S&P 500 or the big box stores like Walmart, Target (TGT - Free Report) or Costco (COST - Free Report) .
After 3 earnings beats in a row, SBH shares have been riding a wave of momentum since late in 2020, yet the price still reflects a discount to the competition. That’s a sweet spot to be in, and it makes Sally Beauty Holdings a great potential holding for a value-oriented investor who also wants that re-opening exposure.
Infrastructure Stock Boom to Sweep America A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made. The only question is “Will you get into the right stocks early when their growth potential is greatest?” Zacks has released a Special Report to help you do just that, and today it’s free. Discover 7 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale. Download FREE: How to Profit from Trillions on Spending for Infrastructure >>