For Immediate Release
Chicago, IL – April 29, 2021 – Zacks Equity Research Shares of The Goldman Sachs Group, Inc. (
GS Quick Quote GS - Free Report) as the Bull of the Day, Wayfair Inc. ( W Quick Quote W - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Tri Pointe Homes, Inc. ( TPH Quick Quote TPH - Free Report) , Levi Strauss & Co. ( LEVI Quick Quote LEVI - Free Report) and Target Corporation ( TGT Quick Quote TGT - Free Report) .
Here is a synopsis of all five stocks:
Goldman Sachs is a captain of high finance and the banking sector's knight in shining armor. The firm is known for its quick trading action and best-in-class deal-making investment bank. GS has soared 84%, hitting all-time highs, over the past 6 months. The stock illustrated unbelievable quarterly results in its latest quarterly report (what I said needed to happen to confirm the positive price action), which broke company records across the board. On top of that, it looks like these results are sustainable.
Volatility looks like it may be on its way back into the market, and I have no doubt that Goldman's best-in-class trading & sales team are taking full advantage. The $349 per share that GS is trading at today represents a robust purchase price for a long-term investment in the gold standard of high finance.
As you can see from the Trading View chart below, GS has been utilizing its 50-day moving average (blue line) as its support level. Now, after this extraordinary earnings report, GS looks like it's ready to break through its all-time high of $357, on its way up to my Fibonacci retracement (drawn from its peak to trough in March) price targets of $381 (161.8%) and $420 (261.8%) on an even more bullish look.
The economic downturn and proceeding recovery have been an unexpected tailwind for Goldman, driving the business to record profitability the past 2 quarters, with a robust double-digit topline expansion. Due to Goldman's trading and deal-making profit drivers, the bank didn't see the same margin-pinches from the ultra-low interest rates that commercial banks like JP Morgan and Bank of America did.
GS is expected to continue pushing growth and profitability as a slew of big deals and market action extends into 2021. Analysts have been increasingly optimistic about GS following its record earnings on April 14th, pushing its EPS estimates on every time horizon and propelling the stock into a Zacks Rank #1 (Strong Buy).
The firm illustrated unbelievable results in the wake of economic uncertainty, taking advantage of new market opportunities. GS reported recorded breaking earnings of $18.60 per share, demonstrating 500% year-over-year growth, and blew Zacks Consensus estimates out of the water by 90%. Its sales were quite strong as well, showing $17.70 billion, up 159% from the same quarter last year, beating estimates by 48%.
Equity trading and its deal-making investment banking (IB) segment were the two largest growth drivers for this best-in-class investment bank. Goldman's investment banking sector was up 73% from the first quarter of 2020, and this segment looks like it's just heating up with Q1 IB earnings up 30% from Q4. Its equities-underwriting portion of IB is booming as a record number of businesses hit the public exchanges.
454 companies IPO'd in 2020, raising over $167 billion, far surpassing the previous record made in 1999 amid the dot-com mania, and 2021 is on track to break that record. Goldman will continue to be an enormous beneficiary of this push to the public markets.
GS's global markets division was its biggest topline driver over the past quarter as the business strategically navigated the choppy market waters and drove this segment's revenue up 47% from the first quarter of 2020 and up 78% from Q4. Equities sales & trading at Goldman appear to be still riding a tailwind as the stock market surges to seemingly no end.
What's Next for GS?
David Solomon is proving himself at the helm of this remarkable firm. Since Solomon was named CEO and Chairman of Goldman Sachs on October 1st, 2018, GS shares are up 55%. This may not sound like a lot, but GS has navigated the 2018 year-end sell-off and the most significant economic contraction since The Great Depression.
Investors & traders look to be pulling profits from JPM and BAC following their earnings earlier this month, despite sizable beats by both firms (a trend we have seen more and more often following earnings). GS looks like it could be the expectation as its share price jumps. This is a tremendous buying opportunity, with 9 out 13 analysts calling GS a strong buy today.
Price targets have risen across the board following the record quarter results. The most optimistic price target is looking at $500 a share, representing a 43% upside and even the more conservative recent estimates represent sizable double-digit returns. The large upside potential combined with the firm's 1.5% dividend yield makes GS a strong long-term buy and hold today.
I remain a GS buyer despite the run it has already had since the March lows. This company is adaptable and resourceful, and no matter what the economy throws at it, GS comes out on top.
E-commerce platforms have exploded since the pandemic locked the world down and sent consumers online.
Wayfair, a leading digital platform for purchasing furniture and home décor, has been one such beneficiary of COVID-19 with an over 150% share price surge in the past 52-weeks. I think it's time to pull profits off this COVID winner, as society's online-driven home improvement binge decelerates, ahead of its Q1 earnings report next Thursday (5/6).
Analysts have lowered their EPS estimates for the next couple of years, reining in their initial overzealous projections, pushing W into a Zacks Rank #5 (Strong Sell). Let me be clear here, I am not suggesting that you short sell this stock, but if you are a current stockholder, it may be a smart move to take profits here and run.
The Business & My Concerns
Wayfair and its home goods-focused digital platform have been gaining traction for years, with revenue expanding at a compounded annual growth rate (CAGR) of 44%. Still, prior to 2020, the company was experiencing continuously deeper bottom-line deficits the larger its sales grew (for 5 years), pointing to some systemic issues with the business's ability to scale.
2020 was Wayfair's golden year, and you can see this in both its financials and stock price. Its net income flipped from a deficit of $(982) million in 2019 to a robust profit of $242 million. My concern is that this profitability isn't sustainable in the post-pandemic world.
During the lockdown, people were spending way too much time in their homes, which catalyzed this desire to redecorate and engage in do it yourself home projects. There has been a boom in spending on furniture and home goods, and Wayfair's ecommerce platform was perfectly positioned to capture this demand from quarantined customers.
The thing about furniture and housing décor is that many people want to see it in person before dropping a sizable amount of money on a new couch, patio furniture, etc. The argument can be made that customers have become conditioned to purchase things off Wayfair instead of going to their local furniture store. However, the fact of the matter is that even if this is true, people will still not be spending as much money on these items when the economy opens up. Consumers will be pivoting their budgets away from decorative pillows and towards things like travel and restaurants.
I am worried that this company will not be able to maintain its profitability in the post-pandemic world, and even if they do, it will not see the same growth rates that it saw amid the lockdowns.
W currently has 4 sell ratings on it, which is a red flag because sell ratings are not handed out nearly as often as buy/hold ratings (considering that the stock market, on average, always goes up). Wayfair is also sporting a 181% debt-to-total capital ratio with negative shareholder equity, which is another big red flag. If the company is unable to maintain profitable growth, it may be in real trouble. Again, I am not recommending that you short this stock. Just consider pulling profits.
Additional content: Top, Cheap Stocks to Buy at Highs After Strong Q1 Earnings
The last week of April marks one of the most important stretches of the first quarter earnings season, with results from nearly every giant name in technology. The positivity heading into the busy stretch of corporate earnings, which follows a strong early showing from the big Wall Street banks, helped the Nasdaq post its first record since mid-February on Monday.
The benchmark S&P 500 also set its 24
th record of the year to start the week, with Dow hovering just off its recent highs. There could be some selling pressure amid the deluge of results this week given how far the market has come and how quickly the tech-heavy Nasdaq recovered from its correction.
That said, investors with longer-term horizons might want to consider adding to their portfolios given the broad-based positivity in the economy amid the largely successful U.S. vaccine distribution. The possibility of 6% or stronger U.S. GDP expansion this year, coupled with historically low interest rates and perhaps even more government stimulus, creates a bullish tailwind.
Let's dive into two top-ranked Zacks stocks that already reported strong quarterly results and are trading from under $30 a share despite big runs...
TRI Pointe Homes
Prior Close: $23.51 USD
(Monday, April 27)
TRI Pointe Homes is one of the largest public homebuilders in the U.S. The firm designs, constructs, and sells single-family homes and communities across 10 states, including key hubs within California, Texas, Colorado, Arizona, Virginia, and many other locations.
TRI Pointe's revenue climbed by over 16% in both FY17 and FY18, before it slipped by 5% in 2019. The company then bounced back with roughly 6% sales growth in 2020 and its backlog soared as the coronavirus sparked a massive real estate boom.
The coronavirus helped drive U.S. home sales to their highest level in 14 years, as people searched for more space and capitalized on low interest rates. Furthermore, millennials are finally driving the home-buying market, which could give the current run even more legs.
The tight market has spurred new home construction, but there is still a need for millions of more homes. In fact, the U.S. housing market is
nearly 4 million single-family homes short of what is needed to meet demand, according to a Freddie Mac report released in mid-April.
Given this backdrop, Tri Pointe topped Q1 estimates on April 22, with revenue up 21% and backlog units 56% higher. The company also beat our adjusted EPS estimate by 28% to extend its string of impressive earnings beats. Tri Pointe's strong guidance pushed its FY21 and FY22 consensus EPS estimates up by roughly 20%.
The bottom-line strength helps the stock land a Zacks Rank #1 (Strong Buy) right now, alongside its "B" grade for Momentum in our Style Scores system. Zacks estimates call for TPH's FY21 sales to jump 20% to $3.88 billion to help lift its adjusted ESP by 45%, with more growth expected in 2022.
Tri Pointe is part of the Building Products-Home Builders space that sits in the top 12% of our over 250 Zacks industries. The firm also announced last November a new stock repurchase program of up to $250 million. And the stock lands an "A" grade for Value, while trading at a solid discount to its industry in terms of both forward earnings and sales.
TPH's value compared to its peers comes despite the fact that TPH stock has outpaced its industry in the last year, up 112% vs. 90%. This run includes a 20% jump in the last month alone that helped it hit another record high on Tuesday.
Prior Close: $28.95 USD
(Monday, April 27)
Levi Strauss, like Tri Pointe, beat our first quarter earnings estimates earlier this month and investors helped push the stock to yet another high Tuesday. Before we get into its recent performances and outlook, let's quickly review the historic clothing maker.
Levi's denim brand has been an industry leader for decades and today it sells various offerings for men, women, and kids around the world, under its namesake brand, as well as Dockers and others.
Levi returned to the public markets in 2019 and it has spent much of the last year improving its digital businesses, which helped during coronavirus-based setbacks. The company has also focused on diversifying beyond denim bottoms to adapt to changing fashion habits that includes the rise of athleisure. "In 2015, our top business represented 11% of our total business. In 2020, it was 21% of revenues," CEO Chip Bergh said on its Q4 earnings call.
The company's chief executive went on to say that Levi expects half of its revenues will come from "products that are not denim bottoms" over the next decade. Levi beat our adjusted earnings estimate by 41% in Q1 to boost its average beat to 54% in the trailing four periods. The company's revenue did still slip by 13%, but its outlook finally shows a return to growth.
Zacks estimates call for Levi's Q2 revenue to skyrocket 144% from last year's easy to compare period. This top-line positivity is projected to help the company swing from an adjusted loss of -$0.48 a share in the year-ago period to +$0.08. Longer-term, the clothing company's fiscal 2021 sales are projected to climb by over 24% to $5.5 billion, with another 10% growth expected in FY22 to see it reach $6.1 billion—to come in well above its pre-pandemic levels of $5.8 billion.
At the bottom-end, its adjusted earnings are projected to soar by 430% this year to reach $1.11 a share, with FY22 set to pop 20% higher. On top of that, Levi's consensus earnings outlook has improved since its April 8 report to help it land a Zacks Rank #1 (Strong Buy), alongside a "B" grade for Growth in our Style Scores system.
On top of bolstering its non-denim business, the company is expanding partnerships with retail titans such as Target. This partnership features its recently-launched lifestyle collection that ranges from home goods to and pet supplies.
Wall Street is also rather bullish about the likelihood people will revamp their wardrobes from more comfortable clothes to denim and more as the economy reopens. And pent-up demand has already started to show up in consumer spending.
As we touched on, Levi stock jumped again Tuesday to reach another record. LEVI shares have now soared nearly 30% in the past month and 50% in 2021 to crush its highly-ranked Retail-Apparel and Shoes industry's 28% climb. The stock has now climbed 130% in the last year and it broke above its post-IPO highs in February.
The recent run has stretched its valuation and lifted it slightly above overbought RSI levels. Therefore, a bit of a pullback could be in order, but Levi might be a long-term reopening play that's due for a boost in the ever-changing world of fashion. And the company raised its dividend for the second quarter.
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