For Immediate Release
Chicago, IL – December 14, 2020 –
Zacks Equity Research Shares of America's Car-Mart, Inc. ( CRMT Quick Quote CRMT - Free Report) as the Bull of the Day, Caesars Entertainment, Inc. ( CZR Quick Quote CZR - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on American Public Education, Inc. ( APEI Quick Quote APEI - Free Report) , GP Strategies Corp. ( GPX Quick Quote GPX - Free Report) and Lincoln Educational Services Corp. ( LINC Quick Quote LINC - Free Report) . Here is a synopsis of all five stocks: Paradox: An apparent contradiction that nonetheless proves to be true.
2020 has been an unusual year, to say the least. Ordinary life has been turned upside-down by the spread of the Coronavirus and subsequent business closures and stay-at-home orders.
One of the most interesting aspects of this year has been that some businesses that a reasonable person might have expected to suffer in this situation are actually doing quite well. As investors, we can often earn our best returns on the “paradox” trades – buying the shares of companies that seem like they should be performing poorly, but are growing earnings instead.
The used car industry is one of those opportunities. For context, let’s look back to the last major economic shock in the US.
Vehicle sales in the US took a major hit during the great recession of 2008-2009. When times are lean, consumers tend to stretch the useful life of their autos further, making repairs and living with older models instead of committing a big portion of already stretched budgets to newer upgraded vehicles.
In general, when economic conditions improve, new and used vehicle sales increase at about the same rate. Over the past 8 years however, that hasn’t been the case. Used car sales have been outpacing new, especially as the price difference between the categories grows.
In 2013, the average price difference between new and 3-year old vehicles was 56%. That number swelled to 62% - or about $14,000 – by 2019. That difference helped fuel record used car sales of 41 million in 2019.
America’s Car Mart operates 150 dealerships in 12 states, primarily in smaller cities through the Midwest and Southeast. Their direct competition tends to be independent “mom and pop” used car lots that struggle to match the variety of inventory and range of services made possible by greater scale.
CRMT is the big fish in the small pond.
That local presence, high levels of customer service and an increasingly loyal customer base has led to significant increases in top line sales – averaging almost 15%/year. Sales for the first three quarters of 2020 were $172M – 19% higher than the same period in 2019.
Selling cars is only part of the picture however, as America’s Car Mart specializes in offering customer financing, often offering low down payments and payment plans with bi-weekly options.
In the most recent quarter, the average customer sales price increased by 15.3% alongside a $4.1 million increase in interest income collected. Their average vehicle is financed for 32 months at an annual interest rate of 16.5%.
In a low interest rate environment in which US Treasury Bonds with 10 years to maturity yield lower than 1%/year, 16.5% is a truly outstanding figure for loans with less than 3 years remaining.
You might surmise that many customers must have less-than-perfect credit - and you’d be correct – but the high interest rates don’t translate into high losses in the finance division. In fact, America’s Car Mart has been significantly shrinking charge-offs lately, thanks to the rapid new car depreciation figures.
The difference is in the value of the collateral for those auto loans.
The company is selling vehicles that already depreciated significantly over the first few years in service. That translates into a shallower depreciation curve later in the autos’ usable life and an increased chance that in the event America’s Car Mart will recover most or all of their investment in the event that they are forced to repossess a vehicle for non-payment.
America’s Car Mart has been consistently beating analyst estimates over the past several years and the shares have been rallying, yet remain an extremely reasonable on a Price to Earnings basis. Like the rest of the market, CRMT shares took a beating in March and April and have recovered significantly. They haven’t quite reached the 2019 highs yet however – and that may be the opportunity.
With a 12 month forward P/E Ratio of just 10.7X, CRMT is significantly cheaper than the S&P 500 at 28X and its own industry at 15X.
Several recent upwards earnings revisions earn the company a Zacks rank #1 (Strong Buy).
With a competitive advantage in the markets in which it participates and a unique niche in the finance business, America’s Car Mart represents one-stop shopping for its customers as well as investors in the auto-sales industry.
Gaming stocks have had it rough of late with occupancies and gambler visits plummeting. The Covid-19 shutdowns have had a devastating effect on leisure activities and trips that include casinos were among the hardest hit.
Anyone who has visited the US gambling mecca of Las Vegas recently can attest that pure gambling activity has taken a backseat to other entertainment options there. There are more shopping, dining and live entertainment options than ever and the casino is no longer the focus of the multi-billion dollar resorts that are being built.
Prior to 2020, it actually an impressive success story for Las Vegas casino operators. Gambling was once legal only in the state of Nevada (and a small part of New Jersey) and Las Vegas had a monopoly as the go-to destination for serious gamblers. Over the past 20 years however, many states have made various forms of wagering legal and the average American can drive to a casino to bet their money much more easily than they can book a flight to “sin city.”
While overall commercial gaming revenues in the US hit an all-time high of $43.6 billion in 2019, the proliferation of gambling venues all over the country means the pie is being split more ways than ever and smaller operators are seeing a reduction in gambling profits.
(That same heavy focus on gambling used to be the dominant model in Las Vegas as well, but resorts there now make significant profits on lodging, food and beverage and other attractions rather than basically giving them away.)
The legalization of online sports betting also threatens to infringe on what was once a Vegas monopoly, though the relative dearth of live sporting events in 2020 has made a careful analysis of the true effects of electronic gaming difficult.
This year, two domestic casino operators combined operations and though the deal was proposed well before the pandemic, the merger almost couldn’t have happened at a worse time.
Eldorado Resorts casinos were primarily in smaller markets adjacent to urban centers and nine of its casinos were acquired during an M&A binge in 2018. The total cost was just a hair over $1.2B. In fact, all but 7 of Eldorado’s properties were acquired in the past three years. Total debt at the company increased from $800M at the end of 2016 to $3.26B at the end of 2018.
In 2019, Eldorado announced the deal in which they would purchase
Caesars Entertainment in a bid to compete with larger Las Vegas operations like Wynn Resort and Las Vegas Sands. Caesars emerged from Chapter 11 bankruptcy just three years ago after its own struggles in the new era of gambling.
The cash and stock deal was worth approximately $17B including Eldorado’s assumption of Caesar’s $8.8B in debt and closed in July 2020. The combined company took the better-known "Caesar’s" name.
It’s been somewhat of a bloodbath. Caesar’s is expected to lose a whopping $11.91/share in 2020, down from a net profit of $1.47/share in 2019. Though a bounce off of those lows is predicted in 2021, the Zacks Consensus Earnings Estimate for next year still anticipates a loss of $2.17/share.
Recent downward earnings revisions for full-year 2020 earn Caesars Entertainment a Zacks Rank #5 (Strong Sell). The Caesar’s deal added so much debt to the Eldorado balance sheet that their ability to compete in the competitive gaming space is being seriously questioned by analysts.
The casino gaming industry faces serious challenges. The best bets include companies with significant online operations and/or overseas properties.
Additional content: 3 Online Education Stocks to Buy as Coronavirus Fears Rise
Schools have once again started closing down in the United States as coronavirus cases continue to rise. States are reimposing restrictions and most schools, which had opened in the fall, have once again closed their gates, with the picture akin to the showdown period.
Naturally, parents will be hesitant in sending their children to schools even if they open in the near term. Hence, online education, which has been growing in popularity, will remain the best and only option for millions of students in the United States for now.
U.S. Reports Record Deaths
If all-time high coronavirus cases were not enough, the United States has now reported record single-day deaths from the virus. According to data from Johns Hopkins University, the country suffered a record 3,124 deaths on Wednesday. The numbers are not only shocking but also higher than the total deaths suffered in the 9/11 attacks.
And if experts are to be believed, the situation can turn worse by the turn of the year. This has once again brought back fears among millions. Although the country is gearing up to vaccinate millions of its citizens following the FDA approval of the COVID-19 vaccine developed by Pfizer, in partnership with BioNTech on Dec 10, parents don’t want to take an immediate risk.
Online Education Is the Only Option
Although public education is among Americans’ top priorities, most students feel that they should continue their education through some form of distance learning.
Needless to say, the education pattern has witnessed a sea change within a short span, with students learning via various video lectures and even appearing for online tests. This is where online education is proving to be a game-changer. Adopting the e-learning method has so far proven fruitful for students.
The adoption of online solutions in recent months has been unprecedented. Even if the government starts vaccinating people in the coming days, it will take months for the situation to get back to normalcy. Given this scenario, it is prudent to keep a close watch on these three online education providers that are poised to grow.
American Public Education is an online provider of higher education, focused primarily on serving the military and public service communities.
The company’s expected earnings growth rate for the current year is 12.8%. The Zacks Consensus Estimate for current-year earnings has improved 7.9% over the past 60 days. American Public Education has a Zacks Rank #2 (Buy).
GP Strategies Corp. is a global provider of training and e-learning solutions, management consulting, and engineering services, improving the effectiveness of organizations by customizing solutions that enhance an organization's people, processes or technology.
The company’s expected earnings growth rate for next year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. GP Strategies Corporation has a Zacks Rank #2.
Lincoln Educational Services is a leading and diversified for-profit provider of career-oriented, post-secondary education headquartered in West Orange, NJ.
The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 42.1% over the past 60 days. Lincoln Educational carries a Zacks Rank #2.
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