For Immediate Release
Chicago, IL – August 5, 2019 – Zacks Equity Research Garmin (GRMN - Free Report) as the Bull of the Day, Harley-Davidson (HOG - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Uber (UBER - Free Report) , Lyft (LYFT - Free Report) and Amazon (AMZN - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Garmin reported earnings Wednesday morning and posted stronger than expected results beating both top and bottom-line estimates. Management was very optimistic in the earnings call with Garmin CEO Clifton Pemble asserting that this past quarter’s “strong results give us confidence to raise our full year guidance.” Sell-side analysts have been boosting EPS estimates for GRMN propelling this stock into a Zacks Rank #1 (Strong Buy).
A company that started as a pure-play GPS business was able to survive the smartphone revolution and now operates a diverse portfolio of recreational technology. Garmin produces a wide breadth of tech from smartwatches for golfing to marine trolling motors. The company is separated into 5 segments: fitness, outdoor, auto, aviation, and marine with revenue share being in that order.
Garmin is expected to post its strongest annual sales figures since the inception of the business in 2019, proving its ability to evolve to meet consumer demands successfully.
Garmin just posted a record high Q2 sales, its most robust quarterly revenues since 2009 demonstrating a 7% increase. The firm is dialing back its low margin auto segment, and if you adjust revenue for that decline, the firm exemplified 12% year-over-year sales growth. Since 2016 Garmin has been able to grow its topline year-over-year every quarter consistently.
Gross margins have continued to expand as the business realizes economies of scale. I believe this trend will continue as Garmin grows and focusses on higher margin production. As the firm dials back on its low margin auto segment, it focuses on growing its highest margin aviation division which grew 20% this past quarter and management is estimating that its full-year growth will be around 17%.
Garmin is now attempting to enter the commercial aircraft space, which would significantly increase demand for its high margin aviation products. If it can penetrate this market successfully, I believe Garmin’s share price will skyrocket.
Performance and Valuation
GRMN has grown 21% thus far in 2019, outperforming the broader market by 3.5% percentage points. I am confident that this stock has much more room to appreciate. Below is a 52-week performance chart for GRMN.
Garmin Ltd. Price and ConsensusGRMN is being valued at a 20.6x forward P/E, which is on the higher end of it 5-year trend and above the electronics industry average, though GRMN has consistently traded at premium to the broader electronics market.
Garmin shares are trading 36% off of its all-time high which it reached back in 2007. The annual EPS in 2017 was $3.82 with a dividend of less than 1%. Garmin analysts are estimating an EPS of $3.77 for 2019 with a dividend of 2.9%. GRMN has had EPS beats every quarter for as far back as I can see (2015), and I expect this trend will continue and 2019 EPS could hit record levels.
GRMN looks much more attractive today than it did back in 2007, but investors aren’t as excited about this ostensibly archaic name. Garmin is a sleeper that I predict will continue to outpace the broader market.
Garmin CEO Clifton Pemble has driven this company to solid levels of profitability through savvy acquisitions and strong organic growth. I personally never would have thought this GPS company would have survived the smartphone revolution, but Pemble and his management team proved me wrong with sales expected to hit record highs this year.
Keep in mind that Garmin is a consumer-discretionary company meaning that it does well when consumers have extra cash to spend but is subject to sharp revenue declines in the case of an economic downturn.
If the economy can keep its status quo, I am confident that GRMN will continue to drive profitability to new levels. Garmin’s penetration into the commercial aircraft space would start a whole new growth chapter for the firm.
Bear of the Day:
Harley-Davidson just posted its worst 2nd quarter sales figures since 2011 as this firm continues its descent into the abyss. HOG has lost over 35% of its value in the past 5 years, and sell-side analysts continue to lower EPS estimates pushing this stock into a Zacks Rank #5.
The primary issue with Harley-Davidson is its aging demographic. Millennials are now the largest consuming generation they are not interested in the archaic gas-guzzling chopper. Millennials are much more likely to buy a smaller crotch rocket that is likely electric because this generation is saving the planet from the devastating climate change.
Harley is attempting to pivot with the shifting consumer. The firm has an electric motorcycle in their product line that is being marketed to the millennial, but the issue is the Harley brand. It is not easy to shift a brand image that has been instilled in Americans for as long as Harley-Davidson has.
Harley hit its peak levels of profitability in 2006 with its net income exceeding $1 billion. This year its bottom-line could be less than half of that figure as demand slows substantially. Gross and net margins have been falling quickly as the firm’s economies of scale start to reverse with decreasing volume. The company is expected to continue to decelerate. This year is expected to see a double-digit EPS decline along with a roughly 7% drop in sales.
Harleys and bulkier motorcycles have entered the declining phase in their products long cycle. There is not a lot that Harley can do short of completely revamping its image, which would take a significant amount of capital. An economic downturn would further deteriorate this consumer-discretionary company’s financials. Harley is highly leveraged, which adds volatility to this already declining security.
At best, Harley will be forced to discount its vehicles to drive more demand. In the long run, I see this stock falling further as its products decline deepens.
Should You Buy Uber (UBER - Free Report) Going into Q2 Earnings?
Shares of Uber have fallen over 9% since reports came out on July 29 that it would cut hundreds of marketing jobs. The ride-hailing firm also saw its stock price sink over 3% Friday as the broader market fell following President Trump’s new Chinese tariffs announcement.
Now the question is should investors consider buying Uber stock before it reports its second-quarter financial results even though the technology firm has struggled as a public firm after its insane pre-IPO hype?
News broke earlier this week that Uber cut roughly 400 jobs from its marketing department. The firm eliminated around a third of its marketing unit, as it deals with increased competition and price wars. “Put simply, we need to get our edge back. Being fast wins,” Uber CEO Dara Khosrowshahi wrote in an email to employees. “Many of our teams are too big, which creates overlapping work.”
What Investors Need to Know
Uber is clearly trying to do all it can to show Wall Street and investors that it is committed to cost-cutting measures as it fights off rival Lyft and others. Many voiced their concern after Uber posted a $1.03 billion loss from operations in its first quarter as a public company. This figure came in far worse than the year-ago period’s $478 million loss, as it spent more heavily on everything from advertising to headcount.
Overall Q1 revenue did climb 20% from $2.58 billion to $3.09 billion. However, many growth-minded investors likely anticipated faster expansion. Plus, Uber’s adjusted (minus some payments to drivers and other costs) core platform revenue, which comes from ride-hailing and delivery, popped only 10% to $2.62 billion. In the prior-year period, this key metric soared roughly 80%.
Meanwhile, Uber’s core platform contribution margin fell from +17.9% in Q1 2018 to -4.5%. Investors need to pay close attention to this decline as it could signal that Uber will continue to lose more money as it pulls in more revenue, since the figure basically describes Uber’s profit margins from every ride-hailing trip or Uber Eats delivery.
Uber reports its business in two key segments: Core Platforms and Other Bets, which includes freight and more. In the long-run, the ride-hailing firm hopes it can become the Uber of everything and has compared itself to giants like Amazon. But as well-funded startups push into markets around the world, Uber could face a much harder time than many might have assumed a few years ago. This has, as we mentioned, ratcheted up the price wars, which has made profits more elusive.
Luckily, Uber’s Monthly Active Platform Consumers jumped 33% to 93 million, with trips up 36%. The company also currently operates in 63 countries and 700+ cities and boasts that its 3.9 million drivers, who are independent contractors, complete 14 million trips every day.
Q2 Outlook & Beyond
Our current Zacks Consensus Estimates call for Uber to post second-quarter revenue of $3.41 billion. This would come in 10.3% higher than Q1 2019’s $3.09 billion, which marked 20% year-over-year expansion. Meanwhile, the company’s full-year fiscal 2019 revenue is projected to climb 27.5% to reach $14.36 billion. Peeking further ahead, Uber’s top line is expected to reach $19.26 billion in fiscal 2020, which would mark 34% expansion from our 2019 estimate.
At the bottom end of the income statement, Uber is projected to report an adjusted quarterly loss of -$3.33 per share. Last quarter, Uber posted a loss of $2.26 a share, which came in slightly better than our estimate that called for -$2.32. For the full year, Uber is expected to post a loss of -$6.07 per share, with a loss of -$3.00 a share predicated in 2020.
Uber stock opened its first official day of trading on May 10 at $42.00 a share. Shares of the ride-hailing giant have climbed as high as $47.08 since then, but hovered down 3.01% through late afternoon trading Friday at $40.07 a share. Uber’s underwhelming performance, might help it more easily impress investors when it reports its Q2 results after the market closes on Thursday, August 8.
With this in mind, investors who can handle some risk might consider making a small bet that Uber can show some signs of strength that could help its stock pop. Others should wait to see how Wall Street reacts and then jump on some shares if it provides stronger-than-projected guidance, or other more promising metrics.
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