For Immediate Release
Chicago, IL – November 5, 2019 – Zacks Equity Research Shares of Boot Barn Holdings (BOOT - Free Report) as the Bull of the Day, AO Smith (AOS - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Uber (UBER - Free Report) and Shake Shack (SHAK - Free Report) .
Here is a synopsis of all four stocks:
Bull of the Day:
It’s exciting for investors to find a company that’s engaged in what might be an overlooked – or even boring – industry, that’s simply doing a better job than their competitors and eating everyone else’s lunch.
Boot Barn Holdings is just such a company.
High tech stocks, financials, energy companies and other high-flyers tend to get the lion’s share of attention in the financial press, leaving less exciting stories like a successful apparel company to the truly dedicated investors who look for the most important factors, like profits.
Country music and the western lifestyle are among the fastest growing categories in retail. It might seem like a specialized category, but annual revenues of almost a billion dollars would suggest that’s it’s a much bigger business than you might otherwise guess.
Though the name “Boot Barn” might suggest product offerings that are limited to western footwear, the company sells a wide range of apparel items including boots, but also jeans, hats, belts, work clothing and everything else to outfit real cowboys and cowgirls - as well as their urban counterparts who are more likely to wear Boot Barn apparel and accessories to go see their favorite band than to work on the ranch.
Founded in 1978, Boot barn has grown from a single, family run storefront location to a chain of 248 well-stocked retail outlets in 33 states, as well as three internet businesses – bootbarn.com, sheplers.com and countryoutfitters.com. The online presence is especially valuable to customers in more rural areas of the US who might otherwise have to travel many miles to a brick and mortar location.
Headquartered in Irvine, CA, Boot Barn offers customers trusted brands like Wrangler, Justin and Carhartt and fills online orders out of a 120,000 foot warehouse that allows them to offer a huge selection and modern, efficient shipping and return services.
In the most recent quarter, Boot Barn reported an 11.3 increase in net sales, 8% growth in same store retail sales and 7% growth in online sales. Net income of $0.26/share was 62% higher than the year ago period.
The company also increased full-year guidance for the fiscal period ending at the end of March, 2020. They expect to add 25 new retail locations, and increased their estimates for same store sales, net income and income from operations while simultaneously reducing their estimate for net interest paid.
They also raised guidance for full-year earnings from a range of $1.67 – 1.75/share from the previous estimate of $1.57 – 1.65/share.
Four upward revisions in the past 30 days have the Zacks Consensus Earnings Estimate at $1.72 and also own Boot Barn a Zacks Rank #1 (Strong Buy).
Boot barn shares have appreciated more than 300% in the past two years, but thanks to strong earnings performance, they are currently priced at just a 22X P/E ratio. That’s a bit higher than the S&P 500 – which has been averaging closer to 18X – but a significant discount to the Apparel and Shoe industry average of 33.7X.
There are certainly more recognizable names in the footwear and apparel business, but with revenues consistently growing at 11%/year and earnings growth near 20%, few are as consistent and profitable as Boot Barn.
Bear of the Day:
Today’s Bull of the Day is a company that’s doing a great job in the relatively boring apparel and footwear industry. Manufacturing water heating equipment could well be the same sort of story. It’s not exciting by any means, but virtually every business and residence across the country has some sort of hot water heater. Because of the destructive nature of water on mechanical equipment, they need to be repaired or replaced on a regular basis.
Unfortunately, Milwaukee-based AO Smith hasn’t been able to capitalize lately on their position as the largest manufacturer in the industry and their exposure to Asian markets and manufacturing makes them vulnerable to trade-related issues.
Founded in 1874 and originally a manufacturer of bicycle parts, AO Smith made a series of strategic acquisitions between the 1940’s and 2010 and ended up one of the world’s largest producers of gas, propane, electric, tankless and solar hot water heaters.
A diverse geographic presence can have a diversifying effect on business, but it also comes with a host of unique risks involving currency, interest rates, shipping and materials costs that don’t affect purely domestic companies. The recent strength of the US Dollar has been particularly damaging to sales in Asia.
Slowing global sales and rising materials costs helps contribute to a negative earnings picture for AO Smith. Tariffs on Aluminum and Steel have further hurt results.
In a competitive industry, AO Smith doesn’t have the pricing power to pass along tariff and trade related shipping costs along to customers, resulting in lowered revenues and guidance. AO Smith shares currently trade more than 25% off of 2018 highs.
Reporting net earnings of $0.53/share in the most recent quarter – a slight miss of the Zacks consensus Estimate of $0.54/share – CEO Kevin Wheeler described the Chinese market as “challenging” and noted that sales and earnings declines in the region more than offset gains in the North American market.
Net earnings were 13% lower than the year-ago period.
Eight analyst downward revisions in the past 7 days earn AO Smith a Zacks Rank #5 (Strong Sell). Full year 2019 and 2020 earnings estimates have been reduced approximately 4% each over that period.
Low interest rates, a healthy housing market and a stable of globally recognized products seem like they ought to add up to improved performance at AO Smith, but headwinds in international trade and finance are holding the company back.
It’s not a story of poor management or decisions, but unfortunately, AO Smith is simply on the wrong end of global trends that may not be worked out anytime soon.
Uber outperformed Q3 expectations on both top and bottom lines after Monday's market close, posting a loss of 68 cents per share (the Zacks consensus was for -83 cents) on revenues of $3.8 billion, above the $3.75 billion analysts were looking for. Ride-sharing was up in the quarter, as its Uber Eats group numbers softened and missed estimates. Shares were trading down 6% in the after-hours market on the news.
Some quarterly figures beneath the headline were slightly under what was anticipated, including Monthly Active Platform Users coming in at 103 million, below the 104 million expected. Gross bookings did rise 29% year over year to $16.5 billion, though analysts were looking for $16.7 million. CEO Dara Khoswroshahi predicted Uber to post EBITDA profitability by 2021. Ride shares were up in the quarter, with North America continuing to perform best.
Shake Shackalso surpassed estimates in its Q3 report released this afternoon, with earnings of 26 cents per share on $157.8 million comparing favorably to 20 cents per share expected on $156.8 million in revenues, respectively. But "Same Shack Sales" disappointed, up 2% and not the 2.5% analysts were expecting, and a flat outlook for 2020 growth have sent traders selling off shares in the late market, down 12% on the earnings release.
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