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Sleep Number, Churchill Downs and Automatic Data Processing highlighted as Zacks Bull and Bear of the Day

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For Immediate Release

Chicago, IL – March 3, 2021 – Zacks Equity Research Shares of Sleep Number Corporation (SNBR - Free Report) as the Bull of the Day, Churchill Downs Inc. (CHDN - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Automatic Data Processing, Inc. (ADP - Free Report) .

Here is a synopsis of all three stocks:

Bull of the Day:

We’re over a year into the Covid-19 pandemic and so many aspects of our daily lives have changed that it’s difficult to count them all. While many are negative, there have been a few bright spots as well. With Americans spending more time than ever in their homes and with additional discretionary income left over from not dining out or vacationing, they’re upgrading their living situations like never before.

Sleep Number has been one of the beneficiaries of those home investments.

To be sure, Sleep Number products are not inexpensive. During an economic recession when many are unemployed and budgets are strained, consumers stop buying luxury items first. That’s obvious, right?

As clear as it might seem, it’s also not actually correct.

Sleep Number is in a somewhat unique position of providing products that appeal directly to what people are craving most during unsettling times – a good night’s sleep. It’s a tired cliché to describe a conservative investment as,” “something that lets you sleep at night,”  but in the case of Sleep Number, it’s true – both figuratively and literally.

You’d like your bed firmer? No problem. Softer? That’s fine, too. Warmer, cooler? You can have either. Your partner is snoring and you’d like to give them a nudge but don’t want to wake them up? The Sleep Number bed can be programmed to provide a gentle position adjustment.

Founded more than 30 years ago and quickly becoming the first large-scale manufacturer of high-tech pneumatic mattresses, Sleep Number owns 40 unique patents on the technology and dominates the market. Through a network of more than 600 retail locations, direct marketing and internet sales, Sleep Number has made their name basically synonymous with the concept of adjustable sleep technology.

During a pandemic that has changed the way everyone shops, Sleep Number transitioned seamlessly to a sales model that allows customers to buy what they want online.

Loyal customers support the brand and provide basically free marketing for Sleep Number, using social media to extol the virtues of the company’s technologies and the customizable nature of having your side of the bed exactly the way you like it - even if your partner prefers something much different.

Sleep number isn’t just a compelling story however, it’s also a great business. In the most recent quarter, the Zacks Consensus Earnings Estimate was for profits of $1.53/share and Sleep Number blew it away with a net of $2.19/share.

The last four quarterly reports were beats of 43%, 77%, 25% and 97%.

After hitting an intraday high near $61/share last February, Sleep Number saw its market cap slide by almost 75%, closing at $15.55/share early in April. Since then, the shares have risen over 800% - closing at $143.09/share on Tuesday. 

Despite that incredible rally, the company remains a great value, trading at a forward 12 month P/E ratio of 22X. That’s due in part to a full year 2021 consensus estimate that has risen from $4.32/share to $6.10/share over the past week. The 2022 estimates have risen as well – from $4.79/share to $6.68/share.

Though it might not have seemed like an obvious choice in the past, Sleep Number has emerged as the supplier of some of the most in-demand goods right now, With a strong balance sheet and excellent (and improving) gross margins, the company that specializes in providing comfort during uncomfortable times can also provide a measure of that same comfort in your portfolio.

Bear of the Day:

Though the legal wagering industry in the US has been hindered by a host of moral and ethical concerns and an inconsistent patchwork of regulations, the tide is clearly turning, and there has been a significant expansion of legitimate options for placing wagers.

Almost everyone is familiar with the Churchill Downs as the home of one of the most popular and profitable sporting events in the world – the Kentucky Derby Horse race. Tens of millions of people tune into the “Run for the Roses” each May. It’s so famous that simply watching on TV – whether or not you choose to wear a fancy hat – is basically a rite of passage.

What’s less recognized is that in addition to the most famous track in the world, the CHDN company owns and operates four other tracks, six casinos, numerous OTB facilities in which horse racing fans can bet on far away races, as well as TwinSpires.com, the biggest online wagering business in the US.

Churchill Downs has been coy so far about their plans for expanding online wagering, and with good reason, it wouldn’t make sense to advertise that you’re the leader in activity that remains in a moral and legal grey area.

In May of 2018, the Supreme Court decided 6-3 that the regulation of sports gambling should be left up to individual states, significantly reducing the hurdles that an inconsistent patchwork of laws had placed in the way of legal sports wagering in most jurisdictions.

The case that the court decided was a challenge to a 1992 federal law that disallowed most states from permitting legal sports betting. The Professional and Amateur Sports Protection Act (PASPA) prohibited states from establishing or allowing betting on sporting events, but allowed for “grandfather” provisions that allowed four states to continue licensing and taxing sports gambling operations – most notably Nevada which has been allowing sports betting since the 1940s.

Though it’s impossible to exactly quantify the amount Americans are betting illegally on sports, the most accurate estimates are that something in the area of $150 billion is wagered each year on professional sports and high-level amateur competitions - like the NCAA tournament.

It appeared that everything was lined up for Churchill Downs, but the reality has instead been something of a disaster.

As tends to be the case when any (previously restricted) activity goes mainstream, there are a wide range of options for consumers. In keeping with the tradition of their iconic namesake facility, Churchill Downs has chosen to address the high end of the market.

Their state-of-the-art Derby City casino, opened in the Fall of 2018, is Louisville’s only legal gaming facility and features 900 gambling machines in 70 different themes as well as two locally-inspired restaurants and a vast gaming bar and outdoor patio spread over 85,000 square feet.

Derby City is only one of Churchill Downs’ physical facilities, but it’s an important testament to the company’s strategy. In an environment that is bound to include an increasing amount of options for gaming customers, CHDN was betting that those customers don’t simply want to make bets; they also want an all-inclusive entertainment experience that includes dining, music and other amenities.

The high-end, in-person segment of the market has been tough for the past year.

Online Presence

Named after the distinctive architectural profile of the racetrack itself, TwinSpires.com is Churchill Downs’ online portal for wagering. Offering gamblers the opportunity to watch high-resolution live video from five tracks, up-to-the-minute odds, handicapping data and access to all sorts of wagers – from the traditional “win-place-show” tickets as well as a wide array of more exotic bets.

The Financials

The most recent quarterly report for full-year 2020 shows just how much Churchill Downs has been negatively affected by the pandemic. Though TwinSpires revenues was up 39%, overall revenues were down a whopping 21% over the previous year.

A net loss of $81.9 million was a shocking reversal of a $137 million profit in 2019. The patchwork of state and local regulations around the US meant that many of the company’s properties were closed for significant periods.

Not surprisingly, future earnings estimates fell. It was a surprise however, CHDN shares continued to rise.  With the Zacks Consensus Earnings Estimate for the current quarter declining from $0.97/share to a loss of ($0.20) a share and the full-year consensus going from $5.91/share to $4.31/share, CHDN gets a Zacks Rank #5 (Strong Sell).

After an initial selloff, CHDN shares have actually risen 1% since the report on February 24th. Investors seem optimistic that in-person experiences will come roaring back in 2021, but that’s far from certain.

Owners of CHDN shares should consider themselves lucky that the markets haven’t punished the value of their holdings. They should also probably seek out better-positioned gaming stocks

Additional content:

Fed Discusses 10-Year Rate, Market Rescinds Some Gains

Stock trading in Tuesday’s regular session represents something of a mirror-image of how markets performed Monday, which was the strongest single-day of equities growth so far this year: while the Dow fell 0.46% and the S&P 500 was -0.81% yesterday, the Nasdaq underperformed, down 1.69%, while the small-cap Russell 2000 closed down 1.92%. None of these levels were enough to erase Monday’s gains; a sluggish couple weeks prior is keeping markets off their all-time highs.

There wasn’t a lot we learned yesterday that we didn’t know the day before, suggesting any up or down days in the markets under these conditions is searching for a comfortable plateau. About the only intra-day newsworthy item had to do with Fed Governor Lael Brainard’s address both Monday and Tuesday, in which she became the first Fed officer to directly acknowledge higher 10-year rates appearing on economists’ radar screens.

Brainard was clear to emphasize the Fed was “far from its goals” in terms of targeted inflation and employment. Though a recent “surge” above 1.5% on the 10-year last week brought about a host of new hypotheticals for market participants, it’s still a ways off the 2% the Fed has been grooming conditions to reach. She told her audience it will take “some time” for the economy to match the progress the Fed is looking for.

That said, a “burst of transitory inflation,” ostensibly from a sudden surge toward herd immunity from the coronavirus in the U.S. brings about a host of economic growth, job gains and increased pricing may prod the Fed into active mode. Brainard finds this a more likely scenario than a persistent hotter-than-expected longer term 10-year rate notably above 2%. Beyond this initial burst as Americans put the pandemic in their rear-view mirror, it is implied the future is less certain.

Thus, the Fed’s ongoing plan to buy back $120 billion in t-bills and mortgage-backed securities — and projected out through all of this year and next — is currently undisturbed. This is not so much an explanation of why we may be seeing today’s market sell-off as perhaps a reason not to worry too much about it; just because somebody at the Fed utters the word “inflation” doesn’t mean any magic spell has been cast.

Wednesday we get our first look at job gains for the month of February, with the Automatic Data Processing private-sector payroll numbers out ahead of the opening bell. Expectations are for 225K new private-sector (non-government) jobs having been created last month, following 174K reported in January. For Friday’s non-farm payroll numbers from the U.S. federal government, 210K new jobs are projected for the headline, up from just 49K reported for the prior month.

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See More Zacks Research for These Tickers


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Automatic Data Processing, Inc. (ADP) - free report >>

Churchill Downs, Incorporated (CHDN) - free report >>

Sleep Number Corporation (SNBR) - free report >>

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