Back to top

Image: Bigstock

Facebook, Canada Goose, Fortinet, Zscaler and Check Point Software highlighted as Zacks Bull and Bear of the Day

Read MoreHide Full Article

For Immediate Release

Chicago, IL – June 8, 2021 – Zacks Equity Research Shares of Facebook, Inc. (FB - Free Report) as the Bull of the Day, Canada Goose Holdings Inc. (GOOS - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Fortinet, Inc. (FTNT - Free Report) , Zscaler, Inc. (ZS - Free Report) and Check Point Software Technologies Ltd. (CHKP - Free Report) .

Here is a synopsis of all five stocks:

Bull of the Day:

Facebook, the world's most powerful social media platform, is a more attractive investment today than ever before. Despite FB trading at all-time highs, the stock is sitting at reasonable valuation multiples, trading at a 23x P/E below its 5-year median. Analyst expectations have been soaring following its tremendous Q1 report, which blew estimates out of the water, its most significant top and bottom-line beat ever (at least as far back as 2014, where my ZRS Earnings Surprise data ends). Due to the magnitude of bullish EPS revisions, FB has been propelled to a Zacks Rank #1 (Strong Buy) 

The company is on fire, but its share price remains somewhat hampered by regulatory concern regarding targeted advertising and section 230 (which provides immunity to social media platforms from 3rd party content). Some apprehensive investors aren't considering Facebook's scale and capital to navigate any regulatory changes better than the smaller players. I have no doubt that it already has a team ready to attack any regulatory changes and likely has contingency plans for each potential regulatory shift. If new regulations were to come over the social media space, it would only further FB's already monopolistic positioning.

The Business

Facebook operates the most powerful social media conglomerate on earth, running the largest and fastest-growing social media hubs, including its namesake & Instagram and internationally leading messaging platforms like WhatsApp & FB Messenger.

2.72 daily active people (DAP) and 3.45 monthly active people (MAP) utilizing one of its globally dominating digital platforms. This means that 73% of the internet using economy leverages one of Facebook's portfolio of products monthly, and 58% do so daily. This is an unprecedented level of engagement that makes it the most influential enterprise on earth.

Facebook's level of power over the general population in this herd-driven global society is scary, but as an investor, it's an exciting place to be. The social media powerhouse has navigated the last decade of digital advancement almost perfectly. Facebook's $1 billion acquisition of Instagram in 2012 and its $16 billion purchase of WhatsApp in 2014 were the savviest investments that this company could have made over the past 10 years. These acquisitions solidified FB's control over the social media space.

Finances 

According to people familiar with the matter, Instagram contributes $20 billion (20 times what FB paid for it) to Facebook's 2019 topline, making up more than 25% of total revenue, and it's still a prolific growth story. Facebook doesn't itemize each of its platforms' contributions in its income statements, making it challenging to decipher individual growth figures unless they explicitly say it.

Nevertheless, FB has been experiencing accelerating sales and profitability over the past 4 quarters as engagement surges amid the pandemic. The rapid digitalization of society combined with the recent resurgence in business spending has sent Facebook's top and bottom lines to new highs. The pandemic has conditioned society to be more engaged in the company's 'family' of products than ever before.

Advertisers are willing to pay up to get on FB's platforms, and for a good reason. Its target advertising based on search history is highly effective, and businesses can't afford not to use Facebook as a marketing conduit. Revenue per user accelerates every quarter (on a year-over-year basis) and increased by 29% in its Q1 compared to the same quarter last year. Swelling revenue per user combined with the over 15% increase in daily active users in the past year continues to push this digital powerhouse to new levels of incredible profitability.

Facebook's balance sheet is a fortress with $64.22 billion in cash & equivalents, more than double its total liabilities. This enormous cash pile pooled with its $10s billion in annual free-cash-flow (operating cash-flows post Cap-Ex) gives this enterprise a tremendous amount of financial flexibility for both organic investment and further acquisitions.

Final Thoughts

FB is one rally that may be worth chasing in the tech sector. The social media giant continues to prove itself as a secular growth machine that doesn't slow down no matter what the broader economic conditions throw at it. Analysts are exceptionally bullish on FB as it makes its way up into the trillion-dollar club, with a current market value of $956 billion and growing.

27 out of 30 analysts are calling FB a buy today, with no sell ratings. The shares are 9% below the average price target of $367 (this figure may include some outdated targets) and over 36% below the most bullish price target of $460. It may be time to start a position as FB gains momentum into the new normal.

Bear of the Day:

Canada Goose has had a good rally off its pandemic lows, having more than tripled in price. Still, I am skeptical about this luxury retailer's ability to grow into its currently rich valuation multiple. It’s a very niche and cyclical business with unreliable and inconsistent revenue drivers.

GOOS sold off 8% following a March quarter earnings report that beat analysts' expectations but softer than expected forward guidance. This guidance forced investors to reassess the stock’s current price level. Analysts have been dropping their EPS estimates since the company reported on March 14th, pushing GOOS into a Zacks Rank #5 (Strong Sell).

Unfortunate Timing 

Canada Goose is a high-end coat retailer that may be getting a little too hot going into this highly anticipated summer of restored normalcy. The seasonal nature of this retail enterprise is unfortunately timed with the end of this pandemic. As other luxury brands will likely experience a demand boost from increased foot traffic due to the economic reopening, Canada Goose will probably not capture much of that pent-up demand to spend on big-ticket items.

Seasonally the company does its worst during the summer, as you would reasonably expect from a coat company. As consumers spend that extra cash in their pocket this summer, most will not be thinking of buying a high-end winter coat, and once winter comes around, all that pent-up demand and extra cash will likely have already been spent.

Analysts have significantly dropped their EPS expectations for the current quarter in anticipation of weak demand.

Will Demand Growth Last?

From my point of view, it seems like almost everyone who wants a Canada Goose coat has already gotten one. This type of niche retail business model doesn't have the reliable, consistent revenue I like for a long-term investment. It is also a fashion brand that could quickly go out of style with shifting trends.

GOOS's over 36x forward P/E is exceedingly difficult for me to justify under the conditions I laid out above. I am not suggesting that you short sell this stock, but it may be prudent to take profits or reduce your exposure to this position at these levels if you are long.

Additional content:

3 Cybersecurity Stocks to Watch Amid Rising Cyber Attacks

Cybersecurity companies are benefiting from rising demand for IT security solutions owing to the surging number of data breaches. Last month’s ransomware attack on Colonial Pipeline Co. has resurfaced the rising threat that cybercrime poses worldwide. This followed the December 2020 hacking incident at SolarWinds Corp. supply chain.

Accelerated Digitization Boosts Cybersecurity Demand

Increasing requirement for privileged access security on the back of digital transformation and cloud migration strategies are also fueling demand for cybersecurity solutions. The COVID-19 pandemic further prompted the incidence of cyber onslaughts as businesses of all sizes are transitioning their operations to various online platforms.

Now from education to entertainment, working to spending, and even healthcare and much more went virtual causing high technology percolation in everyday lives. This puts not only businesses but also schools, hospitals and other organizations at the receiving end of online assaults.

While public institutions and large companies have always been the target of hackers, smaller organizations with lower security standards are  also reaching their radars.

Further, the advent of 5G will enable other devices to connect to the Internet, thereby expanding the scope for Internet of Things (IoT) and artificial intelligence (AI). While IoT and AI will simplify things, it will also aggravate the rate of cybercrime with accessibility of wider options as more and more activity becomes technology reliant.

Investors Should Bank on This Opportunity

Though billions of dollars and data are lost due to cybercrime, there is a positive side to it. Cyber-security companies stand to gain from data breaches as the chances of security-related purchases shoot up.

Furthermore, with rapid technological advancement, organizations are increasingly adopting the Bring Your Own Device (BYOD) policy to enhance employee productivity, with anytime/anywhere access. This trend, in turn, calls for stricter data security measures.

We believe the urgency for tighter security measures will compel enterprises, as well as governments to increase spending on cyber-security software.

Furthermore, besides corporates and government agencies, even individuals are being increasingly exposed to cyberattacks as their personal information is being hacked. This is because the shift to digitization also means that individuals now store their personal and financial details on cloud-based servers. This has resulted in increased threat of such information being hacked and sold online at the cost of the safety of the individual.

Reflective of these developments, a report by Grand View Research stated that the global cybersecurity market is expected to witness a CAGR of 10.9% from 2021 to 2028. Moreover, the report stated that growth of the market will be driven by factors like the rising sophistication of cyberattacks.

Stocks to Focus On

Considering the above-discussed factors, it makes sense to stay invested in this hot industry group as cybersecurity players are likely to witness sturdy growth in the near term.

Here we focus on three stocks that are anticipated to benefit from this elevated spending.

Fortinet solutions provide multiple levels of security protection. Demand for the company’s products, such as firewall, virtual private networking (VPN), antivirus, intrusion prevention (IP), web filtering, anti-spam and wide area network (WAN) acceleration has gained momentum amid the pandemic.

Per IDC, in terms of revenues, Fortinet ranks third in Unified Threat Management (UTM) and is one of the fastest growing segments in Network Security. The company’s focus on enhancing its UTM portfolio will boost its market share as well as maintain the leadership position.

Also, the growing uptake of Software-Defined Wide Area Network (SD-WAN) solutions is likely to be a key catalyst for Fortinet in the long run. The buyouts of AccelOps, Meru Networks, Coyote Point, XDN, ZoneFox and Bradford Networks will stoke long-term growth.

Fortinet’s huge customer base of more than 450,000 helps it upsell products within its installed user base. It is currently focusing on selling more subscription-based services, which will generate stable revenues and bolster its margins as well.

The firm’s robust balance sheet with ample liquidity position and no debt obligations is very impressive, which, in turn, will support business growth.

The stock carries a Zacks Rank #3 (Hold), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The consensus mark for 2021 earnings has been revised upward to $3.74 per share from $3.69 in the past 60 days.

Zscaler offers a full range of enterprise network security services and the company is benefiting from the pandemic-buoyed demand for its products and services. Growing adoption of SD-WAN solutions could be a key driver for Zscaler over the long run as it is one of the few vendors offering this solution.

Its acquisitions of Smokescreen and Trustdome bode well for the long haul. Additionally, Zscaler’s inherent strength, reflected by a strong balance sheet with ample liquidity position and less debt obligations, will help it record long-term growth.

The consensus mark for fiscal 2021 earnings is pegged at 47 cents per share, having been raised 17.5% over the past 30 days. The stock currently holds a Zacks Rank of 3.

Check Point Software Technologies offers a comprehensive range of software and combined hardware and software products aimed at IT security. The company is riding on the rising demand for security and networking products amid the coronavirus mayhem.

Moreover, surging demand for network security gateways to support higher capacities is aiding the adoption of its remote access VPN solutions. Several Infinity deals in various industries, including government, telecommunication and industrial, are positives.

The consensus mark for the ongoing-year earnings has been revised upward to $6.76 per share from $6.70 in 60 days’ time. Check Point presently carries a Zacks Rank #3.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

https://www.zacks.com

 

Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.

 

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.