For Immediate Release
Chicago, IL – March 25, 2019 – Zacks Equity Research Unilever (UL - Free Report) as the Bull of the Day, ADT Inc. (ADT - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Levi Strauss & Co. LEVI and Stitch Fix (SFIX - Free Report) .
Here is a synopsis of all four stocks:
Bull of the Day:
It’s feeling a little uncertain in the markets again these days. President Trump and Fed Chairman Powell seem to be on the same page and in the most recent meeting, the Fed chose to leave short-term rates unchanged and also hinted that they had almost no appetite for any raises in the near future.
Powell pointed to the lingering effects of the trade war, slowing growth in Europe and China and an end to the natural stimulus of the 2017 tax cuts.
The Central Bank also lowered 2019 GDP growth estimates from 2.3% to 2.1% that's pretty significantly at odds with the 3.2% expected from the White House.
While the equity markets initially cheered to Fed’s actions, reality quickly sank in and industrials, materials and financials all took a hit as investors prepared themselves for a slowdown in the economy.
So maybe you're thinking about getting defensive. That doesn’t mean you turn all your holdings into cash and bury it in the backyard! It means taking the time to find the companies that provide the best shareholder value possible even while weathering changing conditions.
How about a company who’s brands are used by 2.5 billion people every day? Nutritious foods, soaps and lotions, dental care, cleaning supplies, literally everything we all use all the time.
Thanks to decades of aggressive acquisition, Unilever has become totally ubiquitous on the supermarket shelves. After all, this is the company that acquired both the “Slim Fast” and “Ben and Jerry’s” brands at the same time. That’s diversification. (They’ve since reduced their stake in Slim Fast to a small minority interest.)
The company estimates that 70% of households in the world currently has at least one Unilever product in their home.
With that type of market share, Unilever could easily rest on their laurels, but instead takes the opposite approach - constantly innovating to improve their internal processes, attract and retain the best employees and provide the most attractive selection of products to their customers.
Those customers remain loyal in no small part because of Unilever’s “Sustainable Living Plan,” which the company describes as the “recognition that growth at the expense of people or the environment is both unacceptable and commercially unsustainable.”
Their stated commitment is to:
· Help more than a billion people to improve their health and well being
· Halve the environmental footprint of our products
· Source 100% of our agricultural raw materials sustainably and enhance the livelihoods of people across our value chain.
There’s more “feel good” stuff that we could talk about, but let’s make sure we also feel good about the financials.
Even during a year in 2018 that challenged many global corporations with currency fluctuations, commodity price uncertainty and general consumer discomfort.
While we fretted about trade wars, Brexit and other geopolitical uncertainty, Unilever grew sales by 3.1%, improved operation margin 90bps to 18.4% and turned in healthy free cash flow of €5 billion.
Though price and volume growth was fairly evenly distributed across the company, the company reported that they “saw the brands with the most distinct and well-articulated social and environmental purpose grow significantly faster than out other brands.”
We’re expecting earnings growth of 2.87% in the current year and 3.16% next year, and the Zacks Rank #1 (Strong Buy) stock also pays a 3% annual dividend yield.
Even in a defensive sector, Unilever stands out. Just take a look at how it performed compared to the Consumer Staples Sector and the S&P 500 at the end of 2018 when things looked the darkest. In uncertain conditions, it’s literally the best of the best.
Bear of the Day:
Home Security is one of those things that we know is necessary, but don’t really like to think about.
You know that in an uncertain and sometimes dangerous world, you need to protect your family, home and belongings. Until fairly recently that meant hiring a security company to install equipment in your home and then also paying them to monitor the signals from that equipment and alert you and/or the appropriate authorities when there was a problem.
It was a great business – they got to sell you the original equipment and then also collect fees for the monitoring services on a continuing basis. Though there were plenty of local firms that could do that, there was one undisputed national leader in the business – ADT Inc.
The "internet of things" has changed that.
Starting with what were essentially just “smart” doorbells that allowed customers to see who was coming to the door, home security options have now expanded into a vast universe of interconnected products that provide security services - but also allow you to control locks, lights, garage doors, climate control systems, and even items like pet food dispensers – and all from a smartphone.
There are choices for every level of customer, from basic DIY components that you can purchase and install yourself, to professional-quality total automation systems. Most of them are also modular, meaning you can start with a basic setup and then add components as needed that are basically plug-and-play.
If you want professional monitoring, that will still cost money of course, but in most cases, it’s much less expensive than ADT. SimpliSafe charges $14.99/month. Nest is $29/month, but that drops to $19 if you commit to a three-year contract, and Ring’s Protect Plus is only $10/month.
ADT Pulse starts at $28.99/month (with a three-year contract) and can easily grow to $60 with added features.
(Note: The above prices are from a February 2019 survey by PCMag.com and may have changed.)
So where does all this leave ADT? In a pretty ugly place -- Zacks Rank #5 (Strong Sell) territory.
Home security and automation is becoming a crowded industry and that’s great news for homeowners who have more options than ever for keeping the people and things that are dear to them safe, but it’s bad news for ADT.
How Did Levi Strauss’ IPO Go?
Levi Strauss & Co. went public Thursday of last week, opening at $22.22, trading as high as $23.24 and as low as $22.00.
Levi Strauss is an American clothing brand that has been a household name for as long as jeans have existed. In fact Levi Strauss actually created the first pair of jeans in 1873. This company started in 1853 in San Francisco. Jeans gained its fame in the “dude ranch” era in the early 1900s and were quickly adopted by younger edgier generations until they became the societal norm we see today, with Levi leading the charge in this culture shift. Now Levi’s can be found in 50,000 retail stores across 110 countries.
Now after 166 years of operation they decide to open up ownership of the company to the public, again. They went public initially in 1971 to give the heirs of this empire a chance to cash out raising about $50 million. The family decided to take it private in 1985 through a $1.7 billion leveraged buyout, making it the largest buyout ever at the time. This 2019 IPO, raising $623.3 million and valuing the company at $6.55 billion, couldn’t have come at a more opportune time for Levi considering that their operational performance appears to be at an all-time high. Levi has had consistent top-line growth over the past 4 years as well as a 167% bottom line growth over the past 5 years. What some retail investors don’t know is that an IPO is most beneficial when a company is valued at its highest because the company only receives capital on the day of the IPO. An enterprise doesn’t collect on a soaring stock price. Only the shareholders do. With market valuations high, this appeared to be an ideal time for Levi to recapitalize.
As a potential shareholder we need to ask ourselves if this is the peak, or does Levi Strauss still have room for growth. This surge of $623.3 million into their balance sheet should help innovative CEO Charles V. Bergh further diversify Levi’s portfolio and reduce inefficiencies in its supply chain. This company has already been working to grow beyond its leading category of men’s bottoms and will further invest in tops and women’s apparel. Levi plans to dig its nails deeper into its emerging markets business, specifically China and India where they plan to open new stores and build rapport with their consumers. Just like every other retail business, they will focus on building out their e-commerce sites. Levi is also going to reduce time to market for new products to stay in front of trends.
One risk associated with any retail-apparel business is the amount of consumer discretionary spending that the economy has to spend. With unemployment close to the lowest it’s been in 50 years, and steady wage growth, businesses that rely on consumer discretionary spending don’t have anything to worry about yet. One thing that we can all agree on is that jeans aren’t going out of style anytime soon.
Stitch Fix is another retail-apparel company that just went public in November of 2017. Stitch Fix is an online business that helps consumers pick their wardrobe that fits their style and who they are. SFIX is up 85% since its IPO and looks to have room to grow based on its Zacks Rank #2 (Buy). As you can see below estimates for three consecutive quarters following the current quarter EPS estimates have been revised up. This a signal for consumer discretionary spending growth as well as a positive sign for an apparel IPO.
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