For Immediate Release
Chicago, IL – December 16, 2021 – Zacks Equity Research shares Ulta Beauty Inc. (
ULTA Quick Quote ULTA - Free Report) as the Bull of the Day, and Freshpet Inc. ( FRPT Quick Quote FRPT - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Cronos Group ( CRON Quick Quote CRON - Free Report) , Canopy Growth ( CGC Quick Quote CGC - Free Report) and Innovative Industrial Properties, Inc. ( IIPR Quick Quote IIPR - Free Report) .
Here is a synopsis of all five stocks:
Headquartered in Bolingbrook, IL,
Ulta Beauty Inc., is a leading beauty retailer in the U.S., offering a wide range of products including cosmetics, fragrance, skincare, hair care, bath and body products, and salon styling tools. Ulta currently sells more than 25,000 products from about 500 well-established and emerging beauty and skincare brands across all categories and price points. Impressive Q3 Earnings
Net sales spiked 28.6% to a record $2 billion, while operating profit increased to 14.2% of sales and diluted EPS grew to $3.94 per share. Sales were 19% higher compared to Q3 2019 as well.
Comparable store sales swelled by 25.8%, driven by strong transaction growth in stores. Total company transactions increased almost 17% and the average ticket jumped 7.7% in Q3; both of these metrics benefitted from a higher average selling price due to favorable category mix shifts and lower promotional levels.
Ulta also expanded its Ultimate Rewards loyalty program membership by 13% to a record 35.9 million members.
The beauty retailer opened seven new stores and launched its partnership with Target (TGT) with 92 in-store shops during the quarter.
Notably, Ulta experienced no major supply chain struggles in Q3, and inventory remained relatively low. As a result, gross profit landed at 39% of sales; management attributed the uptick in profitability to a higher sales footprint and shoppers buying higher-priced makeup, skincare and haircare products.
Can ULTA Surge Higher?
Year-to-date, shares of Ulta have climbed 41%. Estimates have been rising too, and ULTA is a Zacks Rank #1 (Strong Buy) right now.
For fiscal 2021, 14 analysts have revised their bottom-line estimate upwards over the last 60 days, and the Zacks Consensus Estimate has moved up over two dollars to $17.15 per share. Earnings are expected to climb about 268% compared to the prior year, and in 2022, Ulta’s bottom line is forecasted to post positive growth as well.
Looking ahead, Ulta upped its full-year outlook and now anticipates revenue to grow between $8.5 billion and $8.6 billion. Just six months ago, management was eyeing a top line range of $7.2 billion to $7.3 million for the year. Comp sales and profit growth are both expected to be significantly stronger than Ulta had initially planned as well.
This improving outlook, combined with a fast store expansion and the broader beauty industry rebound, could be just the thing to generate meaningful returns for Ulta shareholders in 2022 and beyond. If you’re an investor searching for a retail stock to add to your portfolio, make sure to keep ULTA on your shortlist.
Freshpet Inc. is a pet food company that manufactures and markets natural fresh foods, refrigerated meals, and treats for dogs and cats in the United States and Canada. Freshpet provides meat-based recipes, such as chicken, beef, lamb and salmon; fruits and vegetables like carrots, peas and leafy green vegetables; and high-fiber grains, such as brown rice, oats and barley. It sells its products under the Freshpet, Dognation, and Dog Joy brand names, and is headquartered in Secaucus, New Jersey. Q3 Earnings Recap
Back in early November, Freshpet released third-quarter earnings results that missed the mark, and shares of the pet food stock slid over 15% as a result.
Revenue of $107.6 million fell short of the analyst consensus of $115.5 million, though the top line rose 27.8% year-over-year.
Gross margin decreased to 38.6% from 43.5%, weighed down by wage increases, higher ingredient costs, and other investments.
And because of this, adjusted EBITDA dipped from $17 million to $14.6 million for the period. Freshpet also reported a GAAP loss of $0.05 per share compared to estimates of a loss of $0.07 per share.
What really spurred on the post-earnings sell-off was Freshpet’s disappointing guidance update.
The company now expects full-year revenue of $425 million to $430 million, down from the previous outlook of $445 million. Freshpet also guided adjusted EBITDA to be $42 million (vs. the prior forecast of $50 million).
“Supply chain issues continue to cause new challenges for our business, this time with parts supplies for key packaging components. While we've since solved this issue, it nonetheless caused a temporary decrease in production,” said CEO Bully Cyr.
FRPT is now a Zacks Rank #5 (Strong Sell).
Six analysts have cut their full year earnings outlook over the past 60 days, and the consensus estimate has fallen 43 cents to a loss of $0.57 per share. Freshpet’s earnings are expected to decline considerably year-over-year, down over 600%, but it looks like bottom-line growth will pick back up next fiscal year.
Shares are down over 32% year-to-date compared to the S&P 500’s gain of 27+%.
Despite Q3’s lackluster performance, Freshpet’s management is confident as the company heads into the new year, adding that key metrics are improving. Its long-term growth model remains intact, as the team believes its current challenges are temporary in nature.
Some Wall Street analysts think the same. Stifel analyst Mark Astrachan lowered his price target on FRPT but maintained a buy rating, telling clients in a note that Freshpet’s “end-demand” remains sound.
FRPT may continue to experience some ups and downs as the supply chain crisis lingers, so potential investors should proceed with caution.
Additional content: Rise the Cannabis Legalization Wave with These 3 Stocks
This year has been tough for cannabis stocks, with the Cannabis ETF tanking more than 44%. Investors were pretty hopeful of a federal reform soon. However, President Biden, unfortunately, didn’t follow through with his campaign oath to decriminalize cannabis. In fact, lawmakers disapproved of a law that would permit marijuana companies to access the banking system in the country.
But things aren’t that gloomy for the cannabis industry heading into next year. Let’s admit that both parties have already wished for legislation to legalize marijuana. In reality, almost two-thirds of Americans want marijuana to be legal, per a recent Gallup poll, citing a
business insider article. Additionally, Pew Research Center’s study showed that a staggering 91% of adults in the United States favor legalizing cannabis, as mentioned in a route-fifty article.
Thus, investors can expect cannabis legalization to happen sooner than later. Chuck Schumer, the Senate majority leader, is already leading the reform efforts. He is determined to pass a comprehensive cannabis legalization bill, not a smaller bill like the SAFE Banking Act. What’s more, Canadians have also started to bet on U.S. cannabis legalization.
Some of the major Canadian cannabis companies have decided to acquire a stake in their U.S. counterparts if, or when, marijuana gets legalized federally in the United States. In fact, these companies are now willing to venture into the U.S. market as their scope for growth in the Canadian market is limited, thanks to cannabis being already legal in their country.
In the United States, nonetheless, 18 states have already legalized the recreational use of marijuana, while 36 states have legalized it for medical purposes. In recent times, many lenders are also increasingly confident about the cannabis companies’ financial stability and are now willing to offer them better deals, a tell-tale sign that a banking reform on marijuana is in the cards.
To top it, the broader cannabis industry is widely projected to expand in the near future. To put things into perspective, analysts from investment bank Cowen expect the marijuana industry to touch $100 billion in market value by 2030, quoting the business insider article.
Similarly, in the United States, cannabis consumers are likely to grow to 50 million by 2025, as mentioned in a
statista article. But it’s just not in the United States, the global cannabis market is projected to see a CAGR of 26.19% to $128.92 billion by 2028, citing a globenewswire article.
With the cannabis industry positioned to expand and legalization of marijuana in the cards, stocks like
Cronos Group, Canopy Growth and Innovative Industrial Properties, Inc. are sure to benefit.
Cronos engages in the investment in firms that are licensed to produce and sell medical marijuana. This Canadian company is expected to acquire a stake in PharmaCann once cannabis gets legalized in the United States. Cronos’ shares, by the way, are down this year but its expected earnings growth rate for the next year is a solid 38%. The Zacks Consensus Estimate for its next-year earnings has moved up 8.8% over the past 60 days.
Canopy Growth is a cannabis company in Canada, which is also expected to make in-roads in the U.S. market once marijuana is legalized. Canopy Growth offers dry cannabis and oil products, primarily under the Tweed brand. Canopy Growth’s expected earnings growth rate for the next quarter is a promising 71.2%. In fact, its projected earnings growth rate for the next five-year period is 44.1%.
Innovative Industrial Properties is a real estate investment trust. It is focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for medical-use cannabis facilities. In this process, Innovative Industrial Properties is reaping rental income. Innovative Industrial Properties’ expected earnings growth rate for the next quarter and year is an encouraging 36.7% and 31.9%, respectively.
Currently, Cronos, Canopy Growth and Innovative Industrial Properties have a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Zacks Top 10 Stocks for 2022
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