For Immediate Release
Chicago, IL – October 2, 2020 –
Zacks Equity Research Shares of YETI Holdings, Inc. ( YETI Quick Quote YETI - Free Report) as the Bull of the Day, Spirit Airlines, Inc. ( SAVE Quick Quote SAVE - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Global Partners LP ( GLP Quick Quote GLP - Free Report) , Holly Energy Partners, L.P. ( HEP Quick Quote HEP - Free Report) and CrossAmerica Partners LP ( CAPL Quick Quote CAPL - Free Report) . Here is a synopsis of all five stocks:
Upstart retail brands have been disrupting the market during the digital-commerce age, as shopping habits change and new generations enter their prime spending years. Yeti is a high-end cooler firm that fits this mold and it has expanded its portfolio to more everyday items.
Yeti was founded in 2006 and its heavy-duty, high-end coolers—which can cost up to $1,299—became popular with commercial fishermen and the like.
The Austin-Texas-based company’s signature white coolers then became a staple at tailgates, backyard cookouts, and campfires. These days, Yeti has expanded its color palette and it now sells a variety of coolers in various shapes and sizes.
More importantly, since the cooler market is pretty niche, Yeti’s portfolio includes drinkwear such as tumblers and mugs, as well as chairs, backpacks, hats, and more. In fact, 57% of its revenue came from its drinkwear unit last quarter.
Yeti has slowly built out its brick-and-mortar business beyond its flagship store in Austin. The company currently has locations in Denver, Charleston, Chicago, and a few other strategic locations. Yeti coolers and everything else can also be found everywhere from Dick’s Sporting Goods and REI to other retailers that fit its brand image.
Investors might want to think of Yeti in the same breath as Lululemon. Both companies are new-age, higher-end retailers that have built strong brand loyalty in the social media age and are taking on the old guard as they expand internationally.
Yeti topped our second revenue and earnings estimates in early August, with adjusted earnings up 38%. The retailer’s sales popped 7% for the period ended June 27, with direct-to-consumer revenue up 61% amid challenging times for many brick-and-mortar retailers. Yeti’s gross profit popped 18%, driven by expansion in its higher-margin DTC businesses, product cost improvements, and more.
The cooler firm’s top-line outlook appears even more impressive heading into the holiday shopping season. Our Zacks estimates call for its Q3 FY20 revenue to jump 15.5%, with fourth quarter sales expected to surge 14.5% to reach $340.4 million.
Taking a broader view, Yeti’s fiscal 2020 sales are expected to surge 12.2% to reach $1.03 billion, while FY21 is projected to pop another 13.5%. Both of these figures come on top of FY19’s 17% revenue growth.
At the bottom-end of the income statement, Yeti’s adjusted FY20 earnings are projected to climb 19.2% to $1.43 per share, with FY21 expected to come in another 20% higher. And the chart below showcases the company’s recent strong earnings revisions activity, with its FY20 estimate up 38% and FY21 up over 27%
Yeti’s impressive adjusted earnings revisions help it grab a Zacks Rank #1 (Strong Buy) right now. Yeti also sports a “B” grade for Growth and an “A” for Momentum in our Style Scores system. Plus, its Leisure and Recreation Products space sits in the top 12% of our over 250 Zacks industries, and it boasts a solid history of earnings beats.
Overall, Yeti has outpaced Lululemon since its October 2018 IPO, up 167%. This run includes a 190% surge off the market’s March lows. The stock closed regular trading Thursday at $46.53, which gives its nearly 15% more room run before it climbs back to its early September highs.
Yeti also trades at 28.7X forward earnings. This roughly matched its one-year median and marks a solid discount against its industry’s 38X average and Lululemon’s 58.9X.
The travel industry has been hit hard during the coronavirus and even though the airline industry’s outlook is slowly improving, investors might want to wait for stronger signs of a comeback before they buy airline stocks. This brings us to why Spirit Airlines, Inc. is Friday’s Bear of the Day.
Spirit is a low-cost airline with destinations throughout the U.S., the Caribbean, and Latin America. The company’s sales fell nearly 10% in the first quarter, as the pandemic abruptly brought the industry to as near a halt as possible, starting in March. Spirit’s second quarter revenue then tumbled 86%, as people cut back on everything but the most essential of air travel.
SAVE reported an adjusted loss of -$3.59 per share for the three-month period ended on June 30. This came in far worse than our estimate and marked a sharp drop from the year-ago period’s +$1.69.
Clearly, there was nothing that Spirit or any of the airlines from United to Southwest could do amid this unprecedented situation. But investors can’t worry about that, and instead should look to reports that
predict traffic might not fully recover until 2024. What’s Next?
SAVE shares have jumped 64% off their March lows, which falls slightly behind its industry’s 70%. This might sound like an encouraging sign, but the stock is down 5% in the past three months, against the Air Travel market’s 33% climb and the broader Transportation industry’s 20%.
Spirit closed regular trading Thursday at $16.38 per share, down 64% from the 52-week highs it hit in February. And investors can also see that SAVE shares were trending in the wrong direction before the Covid-selloff.
Zacks estimates call for Spirit’s Q3 revenue to sink 63% from the year-ago period and 43% in the fourth quarter. Meanwhile, its full-year FY20 revenue is expected to fall 52%.
Spirit’s earnings revisions have trended in the wrong direction. This helps it hold a Zacks Rank #5 (Strong Sell) at the moment. And the Transportation – Airline space rests in the bottom 10% of our over 250 Zacks industries.
On the positive side, SAVE’s FY21 revenue is projected to surge 73% above our current year-estimate, which clearly means that the appetite for air travel is expected to heat up in a big way. But investors might want to hold off on Spirit.
Additional content: 3 Pipeline Stocks for Double-Digit Yields with Less Risk
Energy investors are in a rough spot with oil and gas stocks being decimated due to the unprecedented demand destruction associated with the ongoing coronavirus pandemic.
Ripple Effects of the Pandemic Continue to Frustrate Energy Investor
From upstream (exploration and production) to downstream (refining and distribution), no subset of the energy space has been immune to the coronavirus-induced downturn. While the price slump has greatly impacted the results of E&P companies for obvious reasons, refiners’ numbers are being dragged down by lower utilization due to a collapse in consumption for jet fuel and gasoline. Further, the trough in prices and demand has pushed drilling activity lower. This automatically translates into lesser work for the oilfield service firms — companies that make it possible for upstream players to drill for oil and gas.
Energy investors have been running for cover as the demand erosion caused by efforts to stem the spread of the coronavirus whipsawed stocks and futures. While oil prices have rebounded from the coronavirus-induced lows in late April to more than $40 per barrel now, they are still around 30% below pre-COVID-19 levels. Moreover, a surge in fresh coronavirus cases threatens to derail the commodity’s recovery.
Pipeline Stocks Provide a Safer, Less Volatile Option
Considering the uncertainty in oil right now, a safer way of playing the sector would be to utilize Master Limited Partnerships (MLPs), which offer considerable returns at significantly lower risk.
The assets that these partnerships own — oil and natural gas pipelines and storage facilities — typically bring in stable fee-based revenues under long-term contracts and have limited, if any, direct commodity-price exposure. In the longer term, these agreements result in steady cash flow through the boom and bust cycle. Even within fee-based contracts, a significant portion is of a take-or-pay type, meaning that the MLPs get paid irrespective of the volume of commodities that get transported.
Moreover, the space has benefited from some constructive developments over the past few years. These include major project completions, elimination of incentive distribution rights (“IDR”) leading to a reduction in cost of capital, merger agreements between general partners and limited partners aiding unitholder interests, and the switch to a self-funding business model.
They Also Offer Generous Yields
As the coronavirus crisis crushed fuel demand, even Big Oil companies were forced to reduce their payouts in a bid to preserve liquidity. Meanwhile, the MLPs represent an attractive investment option for income-focused investors in the current environment. In addition to high yields, MLPs are structured as pass-through entities.
This means that they typically distribute nearly all of their cash flows back to their unitholders. The MLPs are not required to pay a corporate income tax as the tax liability of the entity is passed on to its owners (or unitholders) in the form of a cash dividend (distribution). This allows the MLPs to offer very attractive yields to their investors.
3 High-Quality MLPs to Invest in
Although the benefits of dividend investing cannot be stressed enough, one should keep in mind that not every company can keep up with its dividend-paying momentum. Hence, a cautious strategy needs to be followed in order to select the best dividend stocks with the potential for steady returns.
To guide investors to the right picks, we highlight three pipeline operators that carry a Zacks Rank of #1 (Strong Buy) or 2 (Buy). The Zacks Rank is a reliable tool that helps you to trade with confidence regardless of your trading style and risk tolerance. To learn more about how you can use this proven system for market-beating gains, visit Zacks Rank Education.
You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Finally, the stocks that we shall cherrypick offer current distribution yield of more than 10% and carry a coverage ratio above 1.0X. This reflects the partnerships’ ability to continue paying or growing its quarterly distribution.
Global Partners LP is a vertically integrated energy partnership focused on the distribution of gasoline, distillates, residual oil and renewable fuels, apart from owning several refined-petroleum-product terminals. Unlike most energy operators, which have maintained their payouts, Global Partners is among a minority that has continued to increase its distributions in 2020. The #1 Ranked stock’s estimated distribution yield (at 45.875 cents per quarter) is around 14%. Global Partners registered a distribution coverage ratio of 2.4X last quarter, implying a sufficiently covered payout with room for growth. Holly Energy Partners owns and operates a system of pipelines and distribution terminals in the western United States. The partnership currently pays out 35 cents quarterly distribution ($1.40 per unit annually), which gives it a 11.5% yield at the current stock price. For the second quarter, distribution coverage for Holly Energy Partners was 1.5X, implying a 90% cushion for future payouts. The partnership carries a Zacks Rank #1. CrossAmerica Partners LP is a wholesale distributor of motor fuels. It carries a Zacks Rank #2 and pays out a quarterly distribution of 52.50 cents per unit. At the current price of $14.87, this gives the partnership an annualized distribution yield of 14.1%. Finally, CrossAmerica Partners’ distribution coverage, at 1.31X, remains healthy. Zacks’ Single Best Pick to Double
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