For Immediate Release
Chicago, IL – October 13, 2020 –
Zacks Equity Research Shares of Walmart Inc. ( WMT Quick Quote WMT - Free Report) as the Bull of the Day, Live Nation Entertainment, Inc. ( LYV Quick Quote LYV - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Adobe Inc. ( ADBE Quick Quote ADBE - Free Report) , Intuit Inc. ( INTU Quick Quote INTU - Free Report) and Zoom Video Communications, Inc. ( ZM Quick Quote ZM - Free Report) . Here is a synopsis of all five stocks:
Walmart has shown off its growing e-commerce strength during the coronavirus, as its beefed-up offerings help it shine during the social distancing days.
Walmart earlier this month reportedly agreed to sell its UK grocery chain Asda in a deal worth $8.8 billion. The move came roughly two years after it sold its Brazilian business to a private-equity firm, as it moves away from markets that it believes lack growth and or don’t fit in with its longer-term plans.
Further highlighting WMT’s push toward digital, the company announced in September that it “tentatively agreed to purchase 7.5% of TikTok Global as well as enter into commercial agreements to provide our ecommerce, fulfillment, payments and other omnichannel services to TikTok Global.” Oracle meanwhile, is set to take a 12.5% stake in the Chinese social media firm that has challenged Instagram and others.
Yet most importantly in terms of its core business and longer-term expansion, Walmart in mid-September launched its highly-anticipated subscription service to help it further challenge Amazon. The service, dubbed Walmart+, costs $98 a year vs. Amazon Prime’s $119, and offers unlimited free deliveries on orders worth at least $35. Members also get discounts on fuel and access to new in-store check out offerings.
E-Commerce & Robust Future…
Walmart is the largest U.S. retailer and it likely could have easily survived for years without jumping headfirst into the digital commerce world. Instead, Walmart has gone all-in on the next wave of commerce. The firm has rolled out more delivery and pick up options, as it continues to expand its overall digital business to help fend off Amazon’s encroachment and challenge peers such as Target and Costco.
WMT has purchased and partnered with many smaller online-focused retailers. One of its more recent moves saw it team up with secondhand, e-commerce clothing firm ThredUp. On top of that, the company in July announced that it partnered with digital retail powerhouse Shopify to bring more small businesses to WMT’s third-party marketplace.
The company has also spent money to break into the booming digital advertising business. This includes its 2019 acquisition of Polymorph, which bolstered its “supply-side ad stack to deliver full native ad campaigns and reports to brands.” Walmart hopes to follow Amazon’s lead that’s seen it become the third-largest player in the space behind only Facebook and Google.
All of these moves demonstrate Walmart’s commitment to reach more customers in a quickly evolving retail landscape. Last quarter, Walmart’s U.S. e-commerce sales soared 97%, which topped Q1 FY21’s 74% growth in the category. This strength helped WMT post 9.3% U.S. comps growth in the second quarter, with total revenue up roughly 6%.
Investors should also note that Walmart was growing its digital businesses long before the coronavirus. For instance, the retailer’s U.S. e-commerce sales jumped 37% in fiscal 2020 and 40% in FY19.
It is also worth remembering that e-commerce accounted for only 16% of total U.S. retail sales in the second quarter, despite perfect conditions, up from roughly 11% in the year-ago period. This means the market still has miles of runway left and that Walmart is able to capture the much larger traditional brick-and-mortar market. The company is also ready to benefit from growth in the world’s second largest country, India, through its Flipkart deal.
WMT shares have outpaced Target over the last five years, as the nearby chart showcases, up 116% vs. the S&P 500’s 78%. More recently, Walmart stock has climbed 21% in the last 12 months and 11% in the past three months. WMT closed regular trading Monday at $144.25 per share, which puts it about 4% off its early September highs.
Walmart does trade at a premium compared to its peer group and its industry, as it has for years. But at 25.6X forward earnings, WMT rests near its own 52-week median and not too far off its industry’s 20.9X average. Meanwhile, the retailer’s 1.50% dividend yield roughly matches the S&P 500’s average and the 30-year U.S. Treasury.
Moving on, Zacks estimates call for Walmart’s adjusted Q2 earnings to pop 1.7% to $1.18 a share, despite spending to deal with coronavirus-based demand and the expansion of its lower-margin e-commerce unit.
The company’s revenue is projected to jump roughly 3% in both Q3 and Q4, with its full-year sales projected to pop 5.2% to reach a whopping $551 billion. This would top last year’s 1.9% revenue growth and mark its strongest year since fiscal 2013.
Walmart’s positive earnings revision trend helps it land a Zacks Rank #1 (Strong Buy) at the moment, alongside an “A” grade for Growth in our Style Scores system. WMT is also part of an industry that rests in the top 11% of our more than 250 Zacks industries, and might be worth considering as a continued coronavirus play and a longer-term addition to a balanced portfolio.
Live Nation transformed itself into a global titan of the live music entertainment world. Then, like many industries that count on people being near each other, the coronavirus changed everything. And unfortunately for Live Nation and the music industry, crowded concerts might be some of the last things to come back even as the economy slowly returns to something close to normal.
The Day the Music Died…
The company has edged toward monopoly power in the live music space. Highlighting its sway over the industry, LYV in December 2019
reached an agreement with the Justice Department to resolve concerns that it violated a 2010 antitrust settlement, which originally allowed it to merge with Ticketmaster.
Live Nation operates three different core businesses: Ticketmaster, Live Nation Concerts, and Live Nation Media & Sponsorship. Ticketmaster is LYV’s massive ticket sales platform, and the company also owns venues around the country. On top of that, Live Nation is an event promoter.
Overall, Live Nation operates a lucrative business in the digital music age because even though people pay to use Spotify and Apple Music, there is not enough money for most artists to make a good living. Therefore, bands, big and small, increasingly turn to tours and concerts, with live shows driving money making for the musical talent.
Live Nation did $11.5 billion in revenue in 2019, and the company was projecting another record-breaking year in 2020, and then the coronavirus brought its business to a screeching halt. LYV’s first quarter revenue fell 21% and its second quarter showcased the full and hopefully temporary destruction of the live music world, with Q2 revenue down 98% from $3.16 billion in the year-ago period to $74 million.
Live Nation’s executives are optimistic that things will start to bounce back in 2021, pointing to outdoor shows next summer as a possible turning point. “Our expectations for a robust outdoor summer season in 2021 are also reinforced by the two-thirds of fans keeping their tickets for canceled festivals so they can go to next year’s show, along with strong early ticket sales for festivals in the UK next summer,” the firm wrote in prepared remarks last quarter.
But the road back to crowded shows, even in an outdoor setting, seems somewhat uncertain at the moment, and bands and venues are also reportedly set to face burdens in terms of insurance and potential lawsuits.
Zacks estimates call for LYV’s third quarter revenue to sink 94%, with the fourth quarter projected to come in 84% lower. Meanwhile, the company is projected to swing from adjusted earnings of $0.71 a share in the year-ago period to a loss of -$2.14 a share in the third quarter.
As a whole, Live Nation is projected to swing from a small adjusted loss of -$0.02 per share in FY19 all the way to -$7.81, on 78% lower revenue in FY20. That said, estimates call for the firm’s FY21 revenue to soar 225% above our current year estimate of $2.57 billion all the way up to $8.34 billion. However, that might be too optimistic for some investors.
On top of that, Live Nation’s earnings revision trends help it grab a Zacks Rank #5 (Strong Sell) at the moment. Therefore, those who are high on the near-term future of the industry might want to wait for Live Nation to provide updates, with it expected to release its Q3 results on October 29.
Additional content: 3 Cloud-Focused Stocks to Buy Now and Hold for Years
The market closed out its best week in months Friday, with the S&P 500 now up 4% in the last four weeks, as it regains momentum from its early September drop. The positivity comes as Wall Street grows more hopeful about the possibility of a second stimulus bill, perhaps before the November 3 election.
Meanwhile, some analysts and firms are pointing to the fact that there could be a more decisive victory in the presidential election, which would likely create less uncertainty and volatility. On top of that, the U.S. unemployment rate fell to 7.9% last month, with 11.4 million jobs added since the major layoffs in the spring, and the S&P 500 earnings outlook supports these trends.
Some industries are still being crushed by the coronavirus, such as travel and hospitality. But things are trending in the right direction, even for the worst hit areas of the economy. Clearly, there are still unknowns on the virus front, yet the only logical choice is to learn to live with it the best we can and hope a vaccine comes sooner than later.
There could be more near-term volatility. Luckily, investors with a longer-term horizon don’t really need to try to time the market, as it can prevent them from taking part in the big gains. Think of all the people that sold in early March and didn’t buy back in until late June. The goal is to try to stay as exposed to the market as you can handle, based on your timeline and risk appetite.
Let’s also remember there have been
24 market corrections since November 1974. And only five of them turned into bear markets. This means that downturns are a healthy part of the market. Plus, the Fed’s decision to keep its interest rate pinned near zero through at least 2023 likely creates a prolonged TINA effect—there is no alternative—as Wall Street hunts for returns in a yield-starved market.
Now let’s dive into three cloud-focused tech stocks that stand to grow for years to come that investors might want to buy now and hold for the future…
Adobe topped our Q3 estimates in mid-September, with revenue up 14% for the second quarter in a row, while its adjusted earnings jumped 25%. The company’s ability to grow during these rough economic conditions shows how important its offerings are to its customers and highlights the strength of the broader cloud model.
Adobe’s suite of subscription-based creative and design software from Photoshop to Illustrator are often regarded as nearly irreplaceable by many individuals, businesses, and schools. ADBE’s Creative Cloud offerings can be viewed in a similar light to Microsoft’s Office Suite, which helps provide a solid moat.
ADBE has also expanded its business-focused platforms and solutions for marketing and commerce, while its PDF and e-signature units remain important. ADBE has expanded its full-year sales by over 22% in each of the past four years, with 15% growth in FY15.
Looking ahead, Zacks estimates call for its FY20 revenue jump 14.5% to reach $12.79 billion, with FY21 expected to come in another 15.3% higher to stretch its streak of double-digit sales growth to seven years. The creative software firm’s adjusted earnings are projected to jump 26% and 13%, respectively over this same stretch.
Adobe is a Zacks Rank #3 (Hold) at the moment that lands a “B” for Growth and an “A” for Momentum in our Style Scores system. The firm has also seen its overall earnings revisions picture improve since its last report.
The cloud software firm also continued to buy back stock during the quarter to highlight its stability and strength and return value to investors. ADBE shares have surged 50% in 2020.
Intuit, like Adobe, is part of the ever-growing cloud-based SaaS industry. The pandemic then highlighted how vital these software firms have become to businesses, big and small.
INTU offers a variety of financial services and it is arguably most famous for its online tax software, TurboTax. The company also sells software geared toward accounting, small business money management, and personal finance, which include QuickBooks and Mint.
Intuit boasts roughly 50 million customers globally and has seen its annual revenue grow by between 11% and 16% for the last five years. The firm topped our Q4 FY20 estimates in late August, with FY20 revenue up 13%. Zacks estimates call for its FY21 revenue to pop 7.4%, with FY22 projected to come in 11.3% higher to reach $9.18 billion. Meanwhile, INTU’s adjusted earnings are projected to climb by 9% this year and 14% in FY22.
Intuit grabs a Zacks Rank #2 (Buy) right now, alongside a “B” grade for Growth. INTU has popped 30% in 2020 and 140% over the last 36 months to blow by its Software Services market’s 55%. Plus, the stock has outpaced SaaS standout Salesforce over the last five years, up 266%.
Intuit's dividend yield roughly matches the 10-year U.S. Treasury. In the end, Intuit’s tax-focused offerings are unlikely to go out of style and its ability to expand its portfolio of financial services should help it continue to grow in our digitalized world.
Zoom became the breakout star of the coronavirus as businesses, schools, and people raced to stay as connected as possible. The company continues to outperform expectations even as the economy slowly returns closer to normal and friends and family cut back on their use. The reason is simple: ZM makes money from subscription-based paying customers that are still using its offerings non-stop in the current remote work and learning environment that will likely be here for a while—in some capacity.
Zoom also allows firms to scale down travel, which the pandemic could help normalize. And investors should know that Zoom, which went public in April 2019, was growing long before the virus, with fiscal 2020 sales up 88% for the period ended on January 31. ZM’s Q2 FY21 revenue skyrocketed 355% as it continued to add business customers. It’s also worth noting that Zoom has rolled out a Hardware-as-a-Service line of devices that are aimed at professionals that want to beef up their remote capabilities.
Zacks estimates call for Zoom’s Q3 revenue to climb 317% and Q4 to surge 281%. The company’s FY21 revenue is projected to soar 286% to reach $2.40 billion, with its adjusted earnings set to skyrocket 609% to $2.48 a share. And its FY22 revenue is projected to climb another 32%, or $760 million higher, which is more than the $623 million it made in all of FY19.
Zoom is a Zacks Rank #1 (Strong Buy) at the moment and sports an “A” grade for Growth and a “B” Momentum. ZM has crushed our bottom-line estimates by at least 100% in the trailing four quarters, and the stock is now up 622% in 2020 and roughly 30% in the last month.
The possibility of businesses remaining in their current remote capacity for a long time is 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, and have employees on something like half-in, half-home schedules.
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