For Immediate Release
Chicago, IL – November 25, 2019 – Zacks Equity Research Zendesk (ZEN - Free Report) as the Bull of the Day, iHeartMedia (IHRT - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Nvidia (NVDA - Free Report) and Microsoft (MSFT - Free Report) .
Here is a synopsis of all four stocks:
Bull of the Day:
Zendesk is hot right now with a rally of more than 20% in the last month and almost 50% returns in the past 52-weeks. The flame that ignited this most recent rally was ZEN’s Q3 earnings, which demonstrated a big top and bottom-line beat. The firm showed investors year-over-year topline growth of 36% and achieved an annual revenue run rate of more than $800 million. The latest earnings further grew analysts’ optimism about ZEN and propelled this stock into a Zack Rank #1 (Strong Buy).
Zendesk is a cloud-based platform that helps businesses improve their customer experience. The company started as a customer support cloud, and now with Zendesk Sunshine, it has become a complete customer relationship management platform (CRM). Zendesk initially catered to growing small-to-mid-sized businesses (SMB) who were just beginning to have significant customer relations issues. Today the company services an increasing number of Fortune 500 enterprises.
The platform provides businesses with omnichannel solutions so that they can meet their customers’ needs in a way that is most convenient to the customer. Zendesk has helped connect nearly 900 million customer queries with a solution in the past year.
In this digital age we the markets have seen a plethora of CRM platforms, so what makes Zendesk worth investing in?
Zendesk focusses on ease of implantation and use, with all the sophisticated software being handled on the backend. You don’t need a professional to help integrate like you would with salesforce.com.
The platform is open and cloud-based, meaning that you can access it wherever and whenever you want. It also is easily integrated into other enterprise software.
Gartner has recognized Zendesk as the Magical Quadrant leader in CRM Customer Service Centers for 3 years running. In a press release regarding this award the firm expressed their thoughts about this award means. “With one of the fastest-growing customer bases of any vendor, Zendesk believes it was recognized for its overall value proposition, ease of set-up, usability, API integration and rapid adoption.”
The companies balance sheet is healthy, with $427 million in cash and positive cash flows from operations that have progressively grown. Zendesk is expected to continue growing its top line by more than 30% for the next couple of years.
14 out of 16 sell-side analysts are calling ZEN a buy right now (no sell ratings), with an average target price that would represent a 20% upside.
Zendesk is still yet to turn a profit, which makes this investment riskier, and with a beta over 1 this stock will not provide you with any market hedge. This being said, I think ZEN has excellent long-term potential and a proven business model that I believe will continue to appreciate its share price.
ZEN is trading 17% below its 52-week high, but with the recent rally and momentum behind these shares, new highs could be reached soon.
Bear of the Day:
iHeartMedia, the #1 audio media company in the US, has emerged from bankruptcy, and its ownership is now available to the public on the NASDAQ exchange, but are they worth buying? Analysts have continued to drop their expectations as this medium progressively loses popularity, and costs grow faster than revenues. IHRT currently sits at a Zacks Rank #5 (Strong Sell).
IHRT closed its first day back on the market at $18 in the beginning of May and has since fallen over 15%. Its most recent earnings illustrating an enormous EPS miss, and a 10% viewership decline from the year prior. I fear that these shares may have a further downside ahead of them.
iHeartMedia filed for chapter 11 bankruptcy on March 14th, 2018, and finally rose from this strenuous restructuring on May 1st of this year. Bond owners and lenders have since taken control of the company from private equity firms Bain Capital Partners and Thomas H. Lee Partners. This transfer of control was headed by Franklin Advisers, leaving both the CEO and CFO in their current positions.
This firm’s downfall into bankruptcy was due to a few key factors. The first being the timing of the leveraged buyout by Bain and Lee, which occurred on the brink of the 2008 credit crisis. This buyout put roughly $20 billion in debt on iHeartMedia’s balance sheet at a time when both advertising revenues were plummeting, and extensive lines of credit were hard to come by.
The second contribution to this media behemoth’s downfall is advertisers’ opportunity cost with more engaging platforms. Advertisers don’t typically see the same return on investment from radio ads compared to say a personalized Google or Facebook ad.
This depreciating return on ads over the airwaves has led to a depreciating willingness to pay by firms. Costs for iHeartMedia have been growing, but unfortunately, revenues haven’t been able to keep up.
The excessive $1.48 billion annual interest expense was hemorrhaging funds from the company, and when $16.4 billion in debt matured, they had no choice but to file for bankruptcy.
iHeart’s reorganization involved a spinoff of its outdoor advertising company, rebranded as Clear Channel Outdoor Holdings. This allows the firm to focus on its higher-margin core radio business.
Can iHeartMedia Come Out of the Ashes?
The company owns 848 live broadcast radio stations, six times its closest competitor. The US radio advertising market is sitting at $15.9 billion, according to PwC, but this figure isn’t expected to see much growth in the coming years. iHeartMedia is going to have to leverage their digital radio streaming platform to capture needed growth moving forward.
iHeartMedia’s digital segment makes up only 7% of the firm’s topline but is responsible for most of its topline growth. The digital radio streaming is expected to grow 23% over the next three years. With increasing expenses at seemingly every corner, this small topline driver may not be enough to keep IHRT afloat.
The main issue with iHeartRadio is that its primary revenue drivers are coming from a declining market. We are living in a digitalized world, and traditional radio is losing viewership. Advertisers’ willingness to pay is progressively declining, with no expectations of growth. iHeart owns most of the US’s radio networks, but in a space with shrinking margins and a falling user base, this is not an easily leverageable offering.
The media behemoth has finally risen out of the ashes of chapter 11 bankruptcy, but the question is whether they have eliminated the systemic issues that led them there. They are keeping both the current CEO and CFO in place, which causes me some concern over a potential lack of constructive changes.
CEO Bob Pittman is quoted after the bell this morning saying, “We’ve had a very good operating business but our capital structure was not in good shape.” This is not the full story considering the shrinking margins that iHeart has been experiencing was one of the bankruptcy catalysts.
iHeartMedia is the leader of a dying media channel, and I fear that without a substantial strategy pivot, the company may be headed right back into bankruptcy.
3 Tech Stocks for Growth Investors to Buy Now
All three major U.S. indexes climbed in morning trading Friday on the back of some U.S.-China trade war positivity. This came after Chinese President Xi Jinping reportedly called for Beijing and Washington to improve communication, as the two sides try to reach a so-called phase one trade deal.
The S&P 500, Dow, and the Nasdaq all rest within 1% of their record highs that they reached earlier in the week. Despite the trade uncertainty, which has been the story for a long time, Wall Street has clearly been pleased enough with better-than-feared quarterly earnings results, solid U.S. jobs and consumer data, and a third Fed interest rate cut.
With this in mind, investors should take the time to look for a few growth-focused stocks. Now let’s dive into three tech stocks that we found with our Zacks Stock Screener that growth investors might want to consider buying right now as the stock market remains near its new highs…
Nvidia posted its fourth straight quarter of declining sales and earnings on November 14. The GPU powerhouse fell victim to the cyclical nature of the semiconductor industry and its own outsized success. Yet, NVDA shares are up 30% in the last three months and 60% in 2019—to outpace Micron and Intel—as investors see the comeback on the horizon. Despite the climb, Nvidia stock still rests roughly 25% below its October 2018 highs, which could give the stock plenty of room to run.
NVDA’s fourth quarter fiscal 2020 revenue is projected to surge 34% to help lift adjusted earnings by 107%, based on our Zacks estimates. Meanwhile, the firm’s adjusted full-year fiscal 2021 earnings are projected to jump 30% on the back of over 19% higher sales that would see it reach $12.86 billion.
Nvidia has seen its longer-term earnings revision picture trend heavily upward to help it earn a Zacks Rank #2 (Buy) at the moment. Nvidia also sports a “B” grade for Growth in our Style Scores system and its Semiconductor – General industry rests in the top 19% of our more than 250 Zacks industries. And the Santa Clara, California-headquarter firm is set to benefit from the long-term expansion of high-end gaming, as well as data centers, cloud computing, 5G, and artificial intelligence.
Zendesk is a software-as-a-service firm focused on customer service and engagement, offering an array of products and services. The company, which boasts roughly 150,000 paid customer accounts, posted stronger-than-projected top and bottom line results in late October. ZEN’s Q3 fiscal 2019 revenue surged 36%, while adjusted earnings jumped from $0.05 in the year-ago period to $0.12 per share—which crushed our estimate by 100%.
Zendesk has a $8.8 billion market cap, an average volume of over 2 million, a “B” grade for Growth, and is part of our Internet – Software industry that is currently in the top 35% of our 254 Zacks industries. Zendesk shares have surged 18% since the firm reported its results on October 29. The stock is now up 48% in the past 12 months and 250% in the last three years, which blows away its industry’s 47% climb. In spite of the climb, ZEN still rests roughly 15% off its 52-week highs.
The San Francisco-based firm’s adjusted Q4 earnings are projected to pop 10% on the back of 32.3% higher sales. The company’s full-year fiscal 2019 EPS figure is expected to soar 41% to $0.31 per share, with sales expected to pop 36% to reach $813.2 million. Peeking further ahead, ZEN’s fiscal 2020 sales are projected to climb another 30.5% to reach $1.06 billion, with earnings expected to skyrocket over 90% higher to $0.59 per share. ZEN’s strong earnings revisions help it hold a Zack Rank #1 (Strong Buy) and it looks poised to climb as part of the continued digital transformation of businesses around the globe.
The last stock on the list today is by far the most well-known, which might make some investors think its growth days are over. But Microsoft, under CEO Satya Nadella, who took over in February 2014, has seen its stock soar 213% in the past five years, after it moved mostly sideways for the better part of 15 years. MSFT stock has also climbed nearly 50% in 2019 to take its place in the $1 trillion market cap club alongside only Apple.
Microsoft’s resurgence rests largely on its cloud computing expansion that now sees it compete directly against industry leader Amazon. For example, Microsoft’s Q1 fiscal 2020 sales jumped 14% on the back of 27% expansion in its Intelligent Cloud unit. The Redmond, Washington-headquartered firm has also continued to innovate within Office, Windows, and devices, as it continues to make key acquisitions such as LinkedIn and GitHub.
Looking ahead, Microsoft’s sales are projected to pop 11% in both fiscal 2020 and 2021. Meanwhile, MSFT’s adjusted full-year EPS figures are expected to surge 12.3% in each of the next two years. MSFT, which consistently tops quarterly estimates, is a Zacks Rank #2 (Buy). The company is also part of an industry that rests in the top 17% right now. And Microsoft executives announced in September that the firm raised its quarterly dividend by 11% and approved a new share repurchase program.
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