For Immediate Release
Chicago, IL – September 1, 2020 – Zacks Equity Research highlights Salesforce.com (CRM - Free Report) as the Bull of the Day and CME Group (CME - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Zoom Video(ZM - Free Report) .
Here is a synopsis of all three stocks:
During the disruptions caused by the continued outbreak of Covid-19, most businesses have had to adapt to the new environment in ways they hadn’t even considered prior to the pandemic.
Businesses that used to rely primarily on in-person transactions with customers have had to make the most drastic changes - rearranging staff, supply chains and customer interactions just to survive in the new environment.
On the other side of that coin are companies that already had a structure that allowed them to deliver goods and services to their customers with little or no disruption. In fact, in some cases these firms have realized that they could actually run more efficiently in a configuration that was originally mandated by social distancing. Unnecessary or extraneous real estate, personal and other assets could be jettisoned without affecting the overall performance of core business lines.
Salesforce.com is one of the lucky ones. After two quarters of Covid-affected results, it looks like they’ll not only easily survive the crisis, they’ll emerge on the other side better than ever.
The most recent presentation included huge earnings beat on modest revenue gains. That earnings number was padded somewhat by an unrealized investment gain in a cloud-based software company that went public during the quarter, but it was pretty much a blowout quarter even excluding that item.
Revenue grew to $5.15 billion – the second consecutive quarter of a 29% Y-o-Y increase and above the (already upwardly revised) consensus estimate of $4.9B. Earnings of $1.44/share more than doubled the Zacks Consensus Estimate of just $0.67/share.
Just as he’s done over the entire history of the company he founded after leaving now-competitor Oracle, CEO Marc Benioff didn’t simply deliver a great quarter, he and the company also raised full-year guidance to $3.73/share in earnings on $20.75B in revenues.
Benioff once made a list of “CEOs we’d like to have as (US) President” in an industry publication.
The company also made the decision to eliminate 1,000 positions – or about 2% of the total workforce – to improve on recently realized gains in operational efficiency. In typical Benioff style – he’s regarded as one of the most accessible CEOs in any industry – employees who were laid off were offered generous severance packages as well as the opportunity to find new positions inside the organization.
The analyst community jumped on the increased guidance. Fifteen out of fifteen analysts included in the Zacks rank raised their estimates, increasing the full year Zacks Consensus Earnings Estimate from $2.97/share all the way to $3.74/share – a penny over the company’s own estimate, and a 25% gain.
Finally, there’s the recent inclusion of Salesforce into the Dow Jones Industrial Average.
Though inclusion in the granddaddy of equity indices doesn’t do anything to materially change the value of an enterprise, it does confer a sense of legitimacy as one of the 30 most prestigious industrial stocks in the US. It also means that new investments in Dow-indexed funds and ETFs will force managers into buying CRM shares.
“Industrials” included purveyors of products like rubber and leather 100 years ago, now cloud computing and Software as a Service have a seat at the table. Salesforce.com is one of the best in the breed.
Traders of financial instruments tend to find periods of volatility to be the most profitable. The increased volumes, uncertainty of prices and wide bid-ask spreads tend to create opportunity for professional trading firms.
They’re not the only ones who profit from volatility, however. With $5 billion in annual revenues, CME Group is the world’s largest What began as the tiny “Chicago Butter and Egg Board” for trading agricultural commodities in Chicago grew into the Chicago Mercantile Exchange, which demutualized and sold shares in 2002 and then went on an acquisition spree, buying its crosstown rival the Chicago Board of Trade as well as New York commodity exchanges NYMEX and COMEX.
The CME pioneered trading in financial derivatives – futures and options on currencies, interest rates and stock indices rather than just physical commodities. As the clearing house for trading in such a wide variety of instruments, the CME also developed a software algorithm for determining the risk being taken by each market participant and mandating performance bond requirements that eliminate counter-party risk.
“SPAN” margin software – a commercially available suite employing the CME’s risk control logic - is used by over 50 exchanges, clearing agents and regulatory agencies around the world.
As an investment, CME shares can act as essentially a hedge against market volatility. When stocks and interest rates are moving significantly every day, traders around the world have an immediate and pressing need for the instruments available on the exchange and CME acts as a gatekeeper, collecting a tiny toll on millions and millions of transactions every day.
At the beginning of the Covid-19 epidemic, many industry observers expected CME Group to perform especially well as traders and investors used derivatives to hedge exposure as well as speculate on the prices of equities and interest rates.
The chaos was short-lived.
An exchange thrives on uncertainty and the actions of the US Federal Reserve have – quite intentionally – reduced that uncertainty with the intent of stabilizing markets and reassuring participants.
Unfortunately for the CME, when the Fed is largely in control of interest rates, there’s not much need for trading in derivative securities based on short term rates or longer term government debt securities.
Similarly, as stocks have staged a steady rally off the March lows, recently making several new all-time highs, traders have less use for derivatives on the S&P 500 and NASDAQ 100 indices.
Agriculture prices have been similarly steady for unrelated reasons. The same goes for oil. One bright spot is precious metals, but there’s not enough volume in those products to make up the shortfall.
The result is forecasts for revenues and earnings that are relatively flat in 2020 as well as in 2021.
The Zacks Consensus Estimate for 2020 revenues is $5.05B and for 2021 it’s $5.03B. It’s much the same story on the bottom line. Earnings estimates have been revised down to a consensus of $7.07/share, earning CME Group a Zacks Rank #5 (Strong Sell). For 2021, the consensus earnings estimate grow only three cents to $7.10/share.
CME Group is a solid company with over 100 years of tradition, but in the present situation – and compared to stocks that have been on a real tear lately – CME Group looks stuck in the mud.
Zoom (ZM - Free Report) Breaks Barriers on Q2 Earnings
Another new record closing high for the Nasdaq this Monday, with Tech and Consumer Discretionary stocks having a solid trading day. The tech-heavy index concludes its month of August with 0.68% gains on the day, bringing the full-month total to nearly 10%. The Dow slipped 226 points on the day (-0.78%), closing lower for the first time in the past 4 sessions.
The S&P 500 had been modestly positive most of the day, but skidded slightly into the red in the minutes before the closing bell, breaking a 7-day winning streak. The index was up 7.4% for the month, but came in down 0.23% on the day. Energy, Materials and Industrials led the index on the downside. Financials also underperformed the broader market on the day.
After the closing bell Monday, Zacks Rank #2 (Buy)-rated Zoom Video zoomed past expectations in its fiscal Q2 earnings report on both top and bottom lines: 92 cents per share more than doubled the 45 cents in the Zacks consensus, while the cloud video company’s revenues of $664 million simply obliterated the $498 million analysts were looking for. Customers spending more than $100K in the quarter grew more than 100% year over year.
This amounts to 1150% earnings growth from the year-ago quarter, with the top line posting 355% growth. Clearly, Zoom came along at the right time to service work and school offices during the coronavirus pandemic (which continues), but even the lofty expectations set by analysts covering the company were blown out of the water. Guidance furthers the exceptional strength the company has been exhibiting, with 73-74 cents expected next quarter on between $685-690 million in sales leaves the respective estimates of 36 cents per share and $489 million in the dust.
Obviously, we expect a strong trend of upward revisions for Zoom, including for the full fiscal year. The company was already considered an “earnings all-star;” let’s consider today’s report a grand slam. Shares are up 9% in late trading, after a regular Monday session +8.6%. Shares are up 74% from this time a year ago.
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