For Immediate Release
Chicago, IL – October 3, 2019 – Zacks Equity Research Shares of Alibaba (BABA - Free Report) as the Bull of the Day, Bonanza Creek Energy (BCEI - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Constellation Brands (STZ - Free Report) and Canopy Growth (CGC - Free Report) .
Here is a synopsis of all four stocks:
Bull of the Day:
Buy when there’s blood in the street. That’s a good motto for the long-term investor, and one that’s absolutely terrifying in the short-term. I could spout out another dozen phrases which mean the same thing here, but the message is the same. So when I tell you that my Bull of the Day here is Chinese online giant Alibaba, just hear me out before you grab your torches and pitchforks.
In case you’ve been living under a rock, Alibaba provides online and mobile commerce businesses in the People's Republic of China and internationally. It operates in four segments: Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives and Others. The company operates Taobao Marketplace, a mobile commerce destination; Tmall, a third-party platform; Alibaba Health pharmaceutical e-commerce and consumer healthcare platforms; Alimama, a monetization platform; 1688.com, an online wholesale marketplace; Alibaba.com, an online wholesale marketplace; AliExpress, a retail marketplace; Lazada, an e-commerce platform; and Tmall Global, an import e-commerce platform.
Yes, there is a trade war going on which is sending the world economy careeing towards recession. Alibaba has a tendency to trade as a proxy for Chinese stocks as a whole. When the news surrounding the trade war is negative, Chinese stocks get hammered, and Alibaba sells off. That means there is a ton of risk surrounding this stock. But it also means there is a ton of opportunity.
Alibaba Group Holding Limited Price and Consensus
The stock is currently a Zacks Rank #1 (Strong Buy). That doesn’t mean that a bunch of analysts at Zacks got together and thought it should be bought. It means that analysts across Wall Street have been increasing their earnings estimates for this stock much more than they have been for other stocks. It means the underlying earnings trend is still very strong, despite what’s happening with the trade war and the Chinese stock market. There’s a divergence between the earnings picture and the stock price here. That divergence is where the opportunity lies.
Over the last sixty days, eight analysts across Wall Street have increased their EPS estimates for the current year. Four have done so for next year as well. That bullish sentiment has increased the Zacks Consensus Estimate for the current year from $6.71 to $7.18, while next year’s number has gone up from $8.61 to $8.90. That represents EPS growth of 25.52% for the current year and 23.9% growth for next year. That is also forecast to come on sales growth of 32.09% for the current year and 31.06% for next year. Those are monster numbers regardless of what’s happening with the trade war.
Bear of the Day:
Remember that huge spike in oil prices a couple of weeks ago after the Saudi oil field was attacked? Yes, vaguely I’m sure. The narrative then was that oil would keep on rocketing higher after a ton of supply was taken offline. That narrative proved to be false and oil prices came tumbling back to Earth. After spiking up over $63.25, crude has come down in the low $50s. It’s put pressure on stocks across the energy industry, including today’s Bear of the Day.
Today’s Bear of the Day is Bonanza Creek Energy. Bonanza Creek Energy, Inc., an exploration and production company, focuses on the extraction of onshore oil and related liquids-rich natural gas in the United States. The company's primary oil and liquids-weighted assets are located in the Wattenberg Field in Colorado. As of December 31, 2018, it had proved reserves of 116.8 million barrel of oil equivalent.
Bonanza Creek is currently a Zacks Rank #5 (Strong Sell). The reason for the negative Zacks Rank comes from the recent earnings estimate revisions to the downside. Over the last ninety days, three analysts have cut their estimates for next quarter and next year. The bearish moves have pushed down the Zacks Consensus Estimates for both of these periods. Next quarter’s number has come down from $1.63 to $1.44 while next year’s number has collapsed from $7.45 to $6.34.
Bonanza Creek Energy, Inc. Price and Consensus
That negativity has the stock on the defensive. After trading over $40 in August 2018, the stock has been in a downtrend. Shares hit a 52-week low of $17.79 in June. Since then, a strong rally took shares up over $26 right around the same time oil prices spiked on the Saudi attack. Over the last week and a half, shares have come under serious pressure, selling off under $22. What’s worse for the bulls here is the stock is trading under both its 50 and 200-day moving averages.
Can Constellation Brands (STZ - Free Report) Keep Its Earnings Party Going?
Constellation Brands has been performing far above the public alcoholic beverage market for the past 5-years. This year alone, STZ has demonstrated over 28% share price appreciation, outpacing the already strong alcohol segment, which has returned investors an aggregate 18.6%. We will see if STZ can keep the drive alive in its earnings release expected before market open Thursday, October 3rd.
STZ is typically a big mover on earnings reports with the last 6 quarterly releases having an average price impact of 5.9% (4 up, 2 down). Zacks Consensus Estimates for Q2 consist of an EPS of $2.62 on sales of $2.34 billion. This would represent an 8.7% EPS decline, a 1.7% sales increase and Constellation’s strongest sales since its inception.
STZ rarely misses on EPS estimates but when they do it typically has an adverse effect on the company’s immediate share price.
Constellations is a leading beer, wine, and spirits producer in North America. Its most recognizable products are its Mexican beer collection, which includes Corona, Modelo, and Pacifico. The company’s most identifiable spirits include Svedka and Casa Noble.
Constellation has been focusing on high-end alcohol products that produce higher margins and more substantial growth. The firm sold off more than 30 lower-end wines and spirits for $1.7 billion back in April to concentrate on its premium products.
Constellation Brands is betting on the future of the marijuana business with is substantial investment in Canopy Growth, the largest publicly-traded cannabis company in the world. STZ has invested more than $7 billion into CGC for 38% ownership. This venture diversified the firm’s future bets and positioned them as an early mover in a segment that has prolific expectations.
Constellation has a diverse portfolio of recreational products that will continue to be a party starter and mood lifter as alcohol consumption trends remain on STZ’s side.
Constellation is a consumer staple that will remain robust in times of economic downturns. Alcohol consumption may even increase in periods of economic uncertainty as consumers look for a way to relieve their anxiety.
Alcohol consumption has increased among millennials as more and more of them have kids. Millennials on average consume 29 drinks per month, which is an over 20% increase from 2013, where the figure was around 24 drinks. I expect that this trend will continue as a growing number of millennials feel the stressors of adult reality.
The cannabis industry is only beginning to scratch the surface of its potential. An increasing number of states are legalizing marijuana, with 12 states having already fully legalized the drug. The haze over the US is taking hold, and I expect that it will be federally legalized in the next 5-10 years, if not sooner.
The cannabis market value for 2018 in the US was $11.3 billion and is anticipated to have an impressive CAGR of 14.5%, according to Grand View Research. Constellations ownership of the leading cannabis producer positions it well to take on this enormous US demand.
Constellation Brands is outpacing the rest of the industry with its strategic positioning and operational excellence. This will only continue as management continues to grow this firm out organically and through tactical acquisitions.
Earnings before the bell this Thursday will illustrate whether Constellation can keep the party alive. Estimates are typically conservative and could produce a sizable upside. Look for management’s guidance and sentiment for more clues into STZ outlook. I see this stock as an excellent long term play with its market immune characteristics and cushy 1.5% dividend yield.
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