For Immediate Release
Chicago, IL – September 8, 2020 – Zacks Equity Research highlights Zoom Video (ZM - Free Report) as the Bull of the Day and Avis Budget Group (CAR - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Target (TGT - Free Report) , YETI (YETI - Free Report) and Williams-Sonoma (WSM - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Investors who bought Zoom Video shares at any time during 2020—recent market pullback aside—have likely enjoyed rather impressive returns. The video conferencing platform has benefitted from the perfect set of circumstances that boosted its profile, revenue, and bottom line.
Zoom has proven the naysayers wrong throughout its run over the last five-plus months, highlighted by its 40% post-second quarter earnings release surge. As the economy returns to something closer to normal, the questions about Zoom’s long-term strength might grow louder. But Zoom was expanding well before the pandemic that highlighted the utility of its offerings.
Beyond the Pandemic…
Zoom was thrust into the spotlight early on in the pandemic, as people and businesses quickly searched for ways to connect with coworkers and friends during the stay at home and social distancing push. Zoom’s cloud-based video conferencing platform proved to be a hit because of its ease of use, and it proliferated from there.
Even if Zoom calls between friends and family continue to fade, as people become more comfortable expanding their circles, it doesn’t really impact the firm substantially. ZM revenue comes from subscription-based paying customers that are still using its offerings non-stop in the current remote work and learning environment that could be here for a while.
The possibility of businesses remaining in their current remote capacity for a long time is very realistic, especially for many professional services firms in big cities, where public transportation, elevators, and more hamper reopening plans. More importantly, Zoom’s longer-term success might hinge on companies finding the work-from-home world relatively seamless.
This could see companies permanently cut back on rent and commercial real estate expenses. The numbers already show that people are leaving San Francisco, as some of the biggest tech companies commit to a longer-scale remote work plan.
On top of that, Zoom offers firms the chance to scale down travel, which the pandemic could help normalize. This also has potentially positive environmental impacts that companies might take advantage of for various reasons. Zoom, which went public in April 2019, was highlighting this factor well before the coronavirus.
It is also vital to remember that the company was growing before millions of people were forced to work from home and go to school virtually. For instance, Zoom’s fourth quarter revenue jumped roughly 80% for the three-month period ended on January 31. Meanwhile, its full-year fiscal 2020 revenue climbed 88% to $622.7 million.
Zoom blew away our Q1 estimate in early June. ZM’s sales skyrocketed 170% and its ability to add paying business clients wowed Wall Street.
The firm in July announced its latest business segment: Hardware as a Service, which will make Zoom Rooms and Zoom Phone more accessible. The firm went on to showcase its new Zoom for Home video conferencing screen, in collaboration with DTEN, that’s aimed at workers that want to beef up and further professionalize their home-office experience. The offering is set to retail for $599.
More recently, Zoom on August 31 released its Q2 FY21 financial results that were somehow still able to impress investors despite its massive run. The company’s revenue climbed 355% from the year-ago period, while its customers with 10 or more employees jumped 460% to over 370,000. On top of that, its clients bringing in over $100,000 in TTM revenue jumped another 112% during the period ended on July 31.
All of this growth helped Zoom’s adjusted quarterly earnings soar from $0.08 a share in the year-ago period to $0.92 per share. This topped our estimate by over 100%.
Zoom also boosted its cash position and raised its guidance once again. “Organizations have moved beyond addressing immediate business continuity needs to actively redefine and embrace new approaches to support a future of working anywhere, learning anywhere, and connecting anywhere,” founder and CEO Eric Yuan said on ZM’s Q2 call with analysts.
Analysts have quickly revised their estimates to reflect a more bullish outlook for not just for the third quarter, but for next year as well. The nearby chart showcases that Zoom’s Q3 consensus estimate is up 114% from before its report, with FY21 and FY22 up 78% and 65%, respectively.
Our current Zacks estimates call for Zoom’s adjusted third quarter earnings to jump 733% to $0.75 per share on 313% stronger sales. Overall, its fiscal 2021 EPS figure is projected to climb 546%, while its revenue is expected to jump 283% from $622.7 million to $2.38 billion.
It is this growth outlook that helped ZM shares jump over 40% after its release. The stock climbed from $304 at the open on August 31 to close at $457.69 on September 1. Zoom stock is now up around 445% in 2020.
Zoom is a Zacks Rank #1 (Strong Buy) right now that holds “A” grades for Growth and Momentum in our Style Scores system. The company has also topped our bottom-line estimates by at least 100% in the trailing four quarters, as analysts struggle to keep up.
Clearly, there could be more selling pressure on a market that may be overheated. But the bulls fought back against what looked to be another massive rout Friday, with the Nasdaq closing down just 1.27%, after tumbling big early.
Zoom’s valuation screams growth stock, and many might want to stay away until more of the dust settles. Nonetheless, ZM has established itself as a pandemic winner that could be ready to thrive for years to come as some businesses permanently adopt a few habits they picked up during the coronavirus—that is still with us.
Bear of the Day:
Avis Budget Group, Inc. stock has struggled for the better part of five years, and its volatility alone might make it not worth the average investor’s headaches. CAR shares tumbled, like the rest of the market as coronavirus turned into a global pandemic.
Avis Budget’s shares have soared off its March lows and are up big in the last month. However, its near-term outlook remains rough and it might face a bumpy road ahead as travel remains hamstrung by the virus.
What’s Going On?
Avis Budget is a rental car powerhouse and also owns car-sharing firm Zipcar. The firm’s Q1 sales dipped only 9%. But its second quarter revenue, which it posted in late July, tumbled 67% and it reported an adjusted loss of -$5.60 per share, with misses on both the top and bottom line.
CAR has tried to navigate the completely uncharted and uncertain territory that has seen air travel fall off a cliff. This includes slashing expenses and officially hiring interim CEO Joe Ferraro in mid-June. More recently, the company announced in mid-August that its CFO was stepping down after 18 months on the job. He will be replaced by Avis board member Brian Choi.
The nearby chart highlights CAR’s up and down nature over the past five years. This kind of volatility might be a trader’s dream, but it makes it harder on investors with a buy-and-hold mentality. And it’s not just the swings, it is also the fact that shares of Avis Budget have slipped roughly 18% during this stretch, while the S&P 500 climbed 75%.
Looking ahead, our current Zacks estimates call for the firm’s third quarter sales to sink 50%, which would mark an improvement from Q2. And its full-year sales are expected to slip 42%, with FY21 revenue projected to climb 34% above our current year estimate. This helps show that the recovery might be underway.
At the bottom end, Avis Budget is expected to see its adjusted Q3 earnings sink 99.7% to $0.01 per share. On top of that, its overall earnings estimates have trended heavily in the wrong direction for fiscal 2020 and FY21.
CAR’s negative earnings trends help it earn a Zacks Rank #5 (Strong Sell) at the moment. The stock also holds an “F” grade for Momentum in our Style Scores system and it’s part of an industry that rests in the bottom 11% of our 250 Zacks industries.
Clearly, the stock might be ready to climb if investors prove willing to jump into travel & leisure stocks as a bet on a larger economic reopening and recovery. That said, CAR might be best for more experienced traders that want to get in and out of stocks somewhat quickly.
3 Retailers that Outperformed This Earnings Season
We’ve just finished up a solid earnings season (all things considered), so it’s a good time to revisit the EPS Growth, Revisions & Positive Surprises screen.
We’re looking for Zacks Rank #1s (Strong Buys) with upward earnings estimate revisions and positive surprises. The end of earnings season highlights the hottest stocks in the market that are enjoying upward momentum RIGHT NOW with a good chance of continuing to outperform moving forward.
Below are three stocks that are enjoying the benefits of strong quarterly reports... and they’re all retailers. Take a look at the profiles below, but make sure to click here and see all the stocks that made the list.
The biggest star of this earnings season wasn’t some fancy-schmancy FAANG name or a hip biotech working on a coronavirus vaccine. It was a mostly brick-and-mortar discount retailer that learned how to play – and win -- on Amazon’s turf.
The fiscal second-quarter report from Target was one to be remembered. We already knew the company was making a lot of headway in e-commerce... much more headway than any other traditional retailer. But this is ridiculous (in a good way)!
TGT’s same-day services surged 273%. These services include pandemic favorites like order pick up and drive up, as well as the company’s delivery service Shipt.
Furthermore, digital same-store sales rose 195%, which was a big reason why the company now has a 13-quarter winning streak for comparable sales growth. In other words, consumers now see Target as one of the big players in e-commerce, so it was ready when the pandemic hit. All five core merchandise categories saw strong demand.
The quarter included earnings per share of $3.38, which blew past the Zacks Consensus Estimate by over 106% for a sixth straight positive surprise. It now has a four-quarter average beat of more than 37%. Total revenue of $22.9 billion improved nearly 25% year over year and beat our expectations for the second straight quarter.
Perhaps most impressive, though, is comparable sales soaring 24.3% as Target became a ‘go-to’ retailer for consumers during this shut-down.
Analysts have been showing their appreciation for the quarter by raising their earnings expectations. The Zacks Consensus Estimate for this fiscal year (ending January 2021) is up 44.1% to $7.15. That’s in less than 30 days!
Understandably, expectations for next year are not as energetic, since we’ll hopefully be done with the coronavirus by then. However, the consensus for the year ending January 2022 has still improved 15.1% in the past 30 days to $7.69.
This amazing quarter came during unprecedented times, which makes investors wonder how sustainable it is. That’s a great question. More importantly though, Target has succeeded in becoming a force in e-commerce... and that IS definitely sustainable moving forward.
If you’re going into the woods for a socially-distant getaway, then you better take a YETI with you... and we’re not talking about a Himalayan bigfoot-type creature (though that would be cool).
Instead, we’re talking about the maker of outdoor and recreational products that has surged approximately 219% off the coronavirus low on March 23. The company is probably best known for its coolers, but it also makes things like drinkware, backpacks and bags for all types of outdoor excursions whether it’s the wilderness or the beach.
But these days YETI has become one of those popular brands with loyal customers who enjoy showing off the logo, even if they just want to keep coffee warm in the office or on a short walk from the house to the car.
Revenue in the second quarter improved 7% year-over-year to $246.9 million, which topped the Zacks Consensus Estimate by nearly 30%. Direct-to-consumer sales jumped 61% as people headed outdoors. That’s why the leisure & recreation products space is in the top 8% during a pandemic.
YETI has never missed earnings expectations since going public, marking 8 straight beats. It reported 41 cents most recently, which destroyed the Zacks Consensus Estimate by approximately 173%. The company now has a four-quarter average surprise of nearly 60%.
As is par for the course these days, the company didn’t offer a 2020 guidance given all the uncertainty. But analysts are expecting more of the same from YETI.
The Zacks Consensus Estimate for this year is $1.39, which has jumped more than 33% in just the paSt 30 days. Expectations for next year are up 24% in that time to $1.68.
So apparently analysts don’t see YETI to be merely a “pandemic pick”. Hopefully, we’ll be done with all this sometime in 2021, and yet earnings are still expected to jump nearly 21% from this year.
One of the interesting things about this pandemic is that consumers haven’t been afraid to spend money... assuming they were fortunate enough to keep their jobs, of course.
If you’re stuck at home and have extra cash from all the restaurants and events that you HAVEN’T been attending, then you might as well splurge a bit and spend a few hundred dollars on new cookware or maybe a pizza oven for your kitchen.
That’s when you call Williams-Sonoma, a specialty retailer of high-quality products for the home. In addition to its namesake, some of its other brands include Pottery Barn and West Elm. Shares have jumped 133% from the coronavirus low in late March.
WSM reported a strong fiscal second quarter late last month... and you can probably guess why. As with any retailer performing well in these difficult circumstances, the company has learned how to become an effective e-tailer.
E-commerce grew 46% in the quarter. Overall comps were up 10.5% with online penetration at an all-time high of almost 76% of total company revenues. One of the company’s goals moving forward is to further accelerate this digital growth, because it expects the behavioral changes and industry shifts to continue in the future even after the pandemic.
Speaking of the total revenue, it came to $1.49 billion, which increased 8.8% from last year and 4.5% above the consensus.
Earnings per share of $1.80 beat the Zacks Consensus Estimate by more than 81% and brought the four-quarter average to an impressive 202%. WSM has now beaten for 11 straight quarters.
WSM isn’t offering a guidance for the year, as you’d expect. However, analysts are feeling pretty good about its future. The Zacks Consensus Estimate for this fiscal year (ending January 2021) is $6.18, which has jumped 35.2% over the past 30 days. A lot of that gain has come in just the past week.
Expectations for next fiscal year (ending January 2022) are up nearly 22% in that time to $5.95. That’s less than the current fiscal year, but should change if WSM continues reporting solid quarterly results.
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