For Immediate Release
Chicago, IL – June 15, 2021 – Zacks Equity Research Shares of Pool Corporation (
POOL Quick Quote POOL - Free Report) as the Bull of the Day, Campbell Soup Company ( CPB Quick Quote CPB - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Boyd Gaming Corporation ( BYD Quick Quote BYD - Free Report) , Century Casinos, Inc. ( CNTY Quick Quote CNTY - Free Report) and MGM Resorts International ( MGM Quick Quote MGM - Free Report) .
Here is a synopsis of all five stocks:
We're just a few days from the Summer Solstice and the official start of Astrological Summer. Temperatures are rising across the country, and everyone wants to cool off, socialize with their friends and family and just have some good old-fashioned fun.
Swimming pools have never been more popular, and
PoolCorp distributes and sells absolutely everything that makes having a backyard pool possible.
This is an "ecosystem" story. Apple became a $2+ trillion market cap company not only by selling fancy hardware, but by creating a system in which once a customer makes their first purchase, they keep coming back for more. You bought a phone? How about some earbuds, a watch, some entertainment content, and on and on and on.
Though they might not seem to have much to do with each other on the surface, the swimming pool business works in a similar way. Pool construction was one of the surprise success stories of 2020 as most opportunities to gather in public evaporated, people spent much more time at their own homes
and had additional disposable income left over from cancelled vacations and dinner reservations.
Having a pool in your backyard was a safe way to exercise and have fun outdoors and Americans built a record number of them – 96,000 in 2020, a 25% increase over the previous year. Waiting lists swelled for construction and contractors were taking reservations up to a year in advance. It's estimated that in 2021, an additional 110,000 private pools will be created.
You can't go to PoolCorp's stores unless you're a contractor, but if you
have a pool, there's a good chance the people who built it and who maintain it for you bought most or all of their supplies and equipment at PoolCorp. Through its nationwide network of warehouses and professional-only retail locations, PoolCorp sells literally every part that goes into making a pool. Plumbing, concrete, plaster, pumps, heaters...literally everything.
Not surprisingly, PoolCorp has seen record revenues lately. This year, the consensus estimate is for them to do $4.9 billion in sales – a 25% increase over last year. Thanks to the economies of scale that come with being the biggest fish in the pond (or pool, as the case may be...) 2021 earnings are expected to grow from $8.42/share in 2020 to $12.28/share in 2021.
Rising estimates help earn PoolCorp a Zacks Rank #1 (Strong Buy).
Because those big sales and earnings came partly as a result of an unexpected – and potentially limited – surge in construction, the forecasts for 2022 show only modest growth, up 6% in revenues and 3% in net profits.
I think those analyst estimates are extremely conservative. Even if the pace of construction slows, the pool party is far from over – specifically because of the ecosystem effect. Once your new pool is in the ground, the kids are having diving contests and the margaritas are poured, you're not even
close to being done spending money on it.
Just like other expensive goodies like boats and RVs, pools require a constant outlay for maintenance and repairs. Otherwise, they turn into an ugly and dangerous eyesore. Unlike boats and RVs, you can't easily sell them to someone else without selling your entire house. Consumers don't really have a choice but to keep spending money on their pools.
That "captive audience" aspect is an important part of the ecosystem concept – and PoolCorp's profitability. In an inflationary environment, not only are consumers unable to choose to spend less on maintenance, they also actually have to keep spending unless they want a green swamp in the yard.
That's important because it means that PoolCorp can pass along wholesale price increases straight to consumers. Many other businesses don't have that kind of pricing power and have to strike a balance between losing customers and eating rising costs themselves, hurting gross margins.
A recent fire disaster at the nation's largest producer of chlorine tablets in Louisiana illustrates this point. With supply severely limited, prices skyrocketed for the "tri-chlor" tablets that keep pools clean and clear, but pool owners couldn't simply choose not to buy them. PoolCorp passed along the increase directly with no hit to margins.
In fact, despite rising wholesale costs, gross margins in Q1 2021 rose from 28% to 28.4% YoY. Those tablets are too expensive? Your pool professional might buy alternate sanitizing products like liquid chlorine, or he might even recommend that you convert to a salt system that turns ordinary table salt in your pool into free chlorine to sanitize it.
Where does he buy those other products and equipment to sell to you? You guessed it – from PoolCorp.
And that doesn't even scratch the surface of the demand that's being created for equipment. Pumps, filters, heaters and everything else that makes a pool work tend to break on a fairly regular basis.
So although POOL shares might seem to be fully valued given that they have almost doubled over the past 52 weeks, the future is as bright as a sparkling swimming pool during the dog days of Summer. With at least 200,000 brand new customers having been created over a two-year period, PoolCorp is an inflation-proof and recession-proof titan in an industry you may have never even considered before.
Today's Bull of the Day is in a great position because it has the ability to pass along wholesale price increases to customers who don't have a choice except to accept them and keep buying.
Campbell Soup Co. does not enjoy that sort of market pricing power and it's weighing heavily on earnings expectations.
Frankly, it seems almost un-American to make Campbell's the Bear of the Day. I'm guessing there's almost nobody reading this that didn't grow up having Campbell's chicken noodle soup when they were home sick from school or enjoying a grilled cheese sandwich with Campbell's tomato soup. It's a delicious, nutritious, and affordable meal. The brand is so iconic that the red-labeled cans are what most people visualize when you say "soup."
The relatively low retail cost that's an asset for tight family budgets is also a liability in an environment of rising commodity prices. The prices of things like chicken and tomatoes have been rising, but there's an upper limit on how much you can charge for a can of soup before customers simply walk to a different aisle in the grocery store and buy something else.
It's a basic economic concept. The price elasticity of a good is directly related to the number of substitutes that are available.
With PoolCorp, we see that consumers don't have a readily available substitute. They have to choose between paying the company's prices or seeing their expensive investment turn into a backyard swamp.
The supermarket is a very common Econ 101 example for the concept of substitution. When the price of one good rises, consumers can simply choose something else that's often only a few feet away. People buy a
lot of food – we need it to live, after all – so manufacturers can still thrive in an environment of intense price competition and low margins because of high volume.
Those manufacturers are vulnerable to fluctuations in the prices of raw materials that are largely beyond their control.
After beating the Zacks Consensus Earnings Estimate for thirteen consecutive quarters, Campbell reported disappointing revenues and earnings last week, netting $0.52/share on $1.984B in sales. Analysts had been expecting $0.55/share and $1.998B, respectively. Those misses weren't terribly significant, but the accompanying reduction in guidance was.
CEO Mark Clouse stressed ongoing strength in brand loyalty, but also noted an inflationary environment, contracting margins and short-term supply chain difficulties. The company reduced full year earnings guidance from a range of $3.03 - $3.11/share down to $2.90 – $2.93/share.
If you're a technology growth stock investor, a company dropping guidance by thirteen cents might seem like a rounding error, but for a huge food conglomerate, it matters a lot. Cost reduction efforts promise to limit the damage, but the revenue and earnings picture going forward can easily be described as "underwhelming."
Those red cans will be on the shelves of your local store for a long time, but from the perspective of an investor, there's so much growth available elsewhere that it doesn't make much sense to hold CPB shares right now.
Additional content: Pandemic Boosts iGaming Prospects: 3 Stocks to Watch
Following the unfolding of the pandemic scenario in the past year, the casino industry has begun to recover.
With the easing of government-mandated restrictions coupled with widespread deployment of vaccines, the casino industry is witnessing pent-up demand in gaming and entertainment offerings. Notably, stronger visitation from younger demographics coupled with increased spend per visit have been aiding the industry. Although guest counts from destination travelers remain below pre-pandemic levels, higher rates of hotel reservations coupled with a pent-up demand for non-gaming amenities are indicating revival of growth.
Meanwhile, casino operators continue to focus on a disciplined operational approach through streamlining of business, optimization of marketing initiatives as well as renegotiation of vendor and third-party agreements. Also, the companies have increased their focus on the levels of services and staffing to welcome gamers with enhanced safety and social-distancing protocols.
High Hopes on iGaming Business
Given that the pandemic had stopped customers from entering casinos in 2020, there has been a notable migration from offline to online gambling activities. It comes as no surprise that iGaming usage has spiked on the idea of providing a digital platform to gamble as well as to stay entertained and connected with friends.
In this regard, casino operators are investing heavily in digital initiatives to improve reliability and customer services. Also, partnerships are being formed to handle the spurt in demand for online casino platforms.
Given the evolving trends in digitalization, companies have started accepting blockchain and cryptocurrencies in return for their services. Markedly, the approach makes it an industry (first of its kind) to open doors for potential new forms of payments.
Owing to the actions and perseverance of the companies, it is worth mentioning that sports betting and iGaming have not only boosted April figures but have also moved the overall gaming revenues past pre-pandemic levels.
Per the American Gaming Association, commercial gaming revenue in April 2021 increased more than 26% compared with 2019 levels. The upside was primarily driven by a surge in iGaming gross revenues, which contributed $299.9 million in April 2021, thereby surging 714% from 2019 levels.
Nonetheless, the Zacks
Gaming industry has outperformed the S&P 500 index in the past six months. Notably, the industry has rallied 20.2% in the past six months compared with the S&P 500's 16.8% growth. Our Take
Given the positive feedback for online platforms along with state-wide regulatory acceptance, we believe that the gaming industry will outperform in the upcoming periods as well. Notably, much upside potential persists as companies are likely to tap on growth prospects on account of more live online casino game introductions.
Investing in the gaming sector might sound profitable right now. It is worth noting that the Zacks Gaming industry is currently at the top 48% (with the rank of 119) of the 250 Zacks industries, which hints at further growth.
3 Solid Picks
Here, we have highlighted three stocks that have not only performed better than the industry in the past six months but also boast solid prospects. You can see
the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. Boyd Gaming Corp.: Boyd Gaming is a multi-jurisdictional gaming company. The Zacks Rank #1 company owns and operates gaming entertainment properties in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio and Pennsylvania.
Given a high promotional capital-intensive and competitive landscape, we believe that partnership with FanDuel is likely to drive positive cash flows in the upcoming periods. This along with legalization of sports betting in additional states is likely to add to the positives.
Apart from FanDuel, the company continues to focus on the Stardust brand to expand its online gaming presence. Nonetheless, the Zacks Consensus Estimate for the company's current-year earnings has been revised 53.3% upward in the past 60 days. The stock has returned 54.3% in the past six months.
Century Casinos: Century Casinos primarily engages in developing and operating gaming establishments as well as related lodging, restaurant and entertainment facilities. The Zacks Rank #2 (Buy) company operates in the United States, Canada and Poland.
In terms of online gaming, the company is optimistic owing to partnerships with Circa Sports, William Hill, bet365, Rush Street and Tipico. Moreover, the potential licensing for online sports betting in Canada could provide significant upside as well.
Going forward, the company expects to enter the online space with its own brand. The Zacks Consensus Estimate for its current-year earnings has been revised 346.2% upward in the past 60 days. On a year-over-year basis, its earnings estimates for 2021 indicate year-over-year growth of 119.9%. The stock has returned 149.6% in the past six months.
MGM Resorts: MGM Resorts owns and operates casino resorts through wholly-owned subsidiaries.
Ever since the launch of BetMGM (online gaming) in 2018, the company has done extremely well. With operations in 12 states, BetMGM continues to gain market share. During first-quarter 2021, BetMGM reported solid results on the back of market share gains in existing markets as well as new entries such as Iowa, Michigan and Virginia.
As of February 2021, BetMGM's market share stood at 22% in its active markets. It also displayed strengthening of position in New Jersey with market share gains of more than 30%. Meanwhile, BetMGM operations contributed $163 million to net revenues during first-quarter 2021.
The operation results are encouraging compared with total net revenues of $178 million in 2020. The Zacks Rank #3 (Hold) company is expected to report year-over-year earnings growth of 15.4% in 2021. The stock has returned 46.4% in the past six months.
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