For Immediate Release
Chicago, IL – December 4, 2019 – Zacks Equity Research as Nike (NKE - Free Report) the Bull of the Day, Alcoa Corporation (AA - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Amazon (AMZN - Free Report) , Target (TGT - Free Report) and Best Buy (BBY - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Nike stock has outpaced its broader industry in 2019 and it looks poised to continue to expand around the globe and in North America even as it faces more formidable challenges.
Nike is the world’s largest sportswear retailer and it is likely to remain at the top of the heap for a variety of reasons. The first, and most important, is that Nike has remained at the forefront of the biggest sports on the planet, from the NFL in the U.S. to international soccer and the Olympics. For as much as this might not seem to matter, why would people be willing to pay $150 or more for running shoes if they aren’t trusted by the world’s top athletes?
On top of that, Nike has become more entrenched as a cultural and fashion icon than ever before. Nike has helped create and tapped into the mainstream adoption of the larger streetwear and athleisure movement.
Nike also hasn’t forsaken brick and mortar. Instead, NKE has remodeled and modernized stores and remains committed to a major, cutting edge presence in global hubs from New York to Tokyo. And like everyone else in retail, NKE has spent the last several years bolstering its digital and direct-to-consumer push.
The Beaverton, Oregon-headquartered company has rolled out multiple apps geared toward hardcore sneaker lovers and more causal Nike shoppers. NKE has also expanded its presence across social media, where people now shop directly from platforms such as Instagram—(Nike 96.2 million followers on Instagram vs. Adidas 25 million & Lululemon at just 3 million).
Nike has also improved its supply chain to focus on digital and analytics, which includes the introduction of RFID tags into products. Nike also purchased Celect, which is billed as a “retail predictive analytics and demand sensing” firm, in August as part of its larger Consumer Direct Offense strategy.
Investors will see that Nike stock has outpaced Adidas over the last two years, up 54% against 48%. This, however, is not the case during the past five years, with ADDYY up a whopping 315% vs. NKE’s 86%. The stock price growth disparity between Adidas and Nike remains in 2019—they are now closer to neck and neck for the decade, with Nike up 20% higher.
Nonetheless, Nike shares have jumped 25% this year, compared to the Apparel Market’s 19% average climb and the S&P 500’s 23%. NKE stock closed regular trading Tuesday at roughly $92.50 per share, just a few dollars off its 52-week highs.
Meanwhile, NKE is trading at 28.9X forward 12-month Zacks earnings estimates. This comes in above its three-year median of 26.2X but below its 32.4X high during this stretch. To help offset some of the valuation concerns, Nike executives did announce in mid-November that they raised the firm’s quarterly cash dividend by 11%.
The firm currently pays a yield of 1.05%, which top’s Adidas’ 0.88%. The company is also in the midst of a four-year $15 billion share repurchase program that was announced in 2018.
Q2 Outlook & Beyond
Nike’s second-quarter fiscal 2020 revenue is projected to jump 7.5% from the year-ago period to $10.08 billion. This would top last quarter’s 7% expansion.
Peeking further down the road, the firm’s full-year revenues are projected to jump 8% and 8.6%, respectively in fiscal 2020 and 2021. This would top 2019’s 7% expansion and 2018’s 6% growth.
At the bottom end of the income statement, Nike’s adjusted Q2 earnings are expected to climb 9.6% to reach $0.57 per share. Then Nike’s full-year fiscal 2020 earnings are projected to surge 19.3%, with 2021 projected to come in 17.7% higher.
Nike CEO Mark Parker projects that his firm’s digital division will make up 30% of Nike’s total business by 2023, compared to roughly 15% now. This helps demonstrate how effectively Nike has adapted to the Amazon age.
In fact, Nike recently decided to effectively cut ties with the e-commerce giant as it focuses almost entirely on its own higher-margin direct-to-consumer business—aside from key partnerships with other sneaker-heavy retailers.
Nike is currently a Zacks Rank #1 (Strong Buy) that rests in the top 28% of our more than 250 Zacks industries. And the sportswear powerhouse is projected to report its second-quarter fiscal 2020 financial results on December 19, based on our earnings calendar—Nike posted its Q2 FY19 earnings on Dec. 20.
Bear of the Day:
Alcoa Corporation stock has fallen over 25% in 2019 as the broader global economic slowdown hampers demand for aluminum and drags prices down. The company’s near-term outlook appears rough and the recent U.S.-China trade war setback hardly helps Alcoa’s situation.
What’s Going On?
Alcoa’s story is not that hard to understand. The global aluminum powerhouse has suffered from the broader global economic slowdown in 2019. The Pittsburgh-based manufacturer posted worse-than-expected quarterly earnings results in mid-October. AA posted an adjusted Q3 loss of -$0.44 per share, down from +$0.82 in the year-ago period and far below Q2’s loss of -$0.01 per share.
Meanwhile, revenue fell from $3.39 billion to $2.56 billion. More illuminating of the current and future conditions, Alcoa’s management said it may close facilities over the next several years and plans to sell up to $1 billion in assets.
Last quarter, Alcoa forecasted that global aluminum demand won’t come in above 0.4% in 2019, and could fall by as much as 0.6%. This came in far worse than its previous aluminum growth outlook for between 1.3% and 2.3%. “The change is driven by weakening macroeconomic conditions, trade tensions between the U.S. and China, and contracting manufacturing activity, especially in the global automotive sector,” the firm said in a statement.
The global economic picture hasn’t gotten better since Alcoa provided its rough guidance. In fact, the Institute for Supply Management’s manufacturing index decreased to 48.1 in November.
This came in below economists’ expectations and marked the fourth straight contraction-level reading of below 50. And President Trump on Tuesday seemed to reverse course on the recent U.S.-China war progress that pushed stocks to new highs in November.
Q4 Outlook & Beyond
Alcoa’s fourth quarter sales are projected to fall 25% from the prior-year quarter to $2.51 billion, based on our current Zacks Consensus Estimates. This would roughly match Q3’s decline.
Overall, the firm’s full-year fiscal 2019 revenue is projected to fall nearly 22% against 2018. On the positive side, AA’s first quarter fiscal 2020 sales are only expected to slip 5.7% and fiscal 2020 sales are expected to come in roughly flat compared to our current-year estimate.
At the bottom end of the income statement, Alcoa’s adjusted Q4 earnings are projected to tumble from +$0.66 a share to -$0.22. The aluminum manufacturer’s fiscal 2019 EPS figure is projected to fall from +$3.58 to -$0.83.
Peeking ahead, the company’s adjusted full-year fiscal 2020 earnings are then expected to move heavily in the right direction and come in at +$0.67 per share.
The chart above helps investors see just how much worse Alcoa’s earnings outlook has turned since it reported its Q3 results. This helps the firm hold a Zacks Rank #5 (Strong Sell) at the moment. The company also sports a “C” grade for Value in our Styles scores system.
Some investors may try to scoop up beaten-down AA stock, but it could still have far more room to fall given the current conditions. Plus, Alcoa’s Metal Products – Distribution industry currently sits in the bottom 7% of our more than 250 Zacks industries.
Can Retailers Rein in Amazon (AMZN - Free Report) This Holiday Season?
Competition between major retailers and e-commerce companies is heating up as they elbow for position during Cyber Monday and beyond. Amazon has long posed a serious threat to conventional brick and mortar retailers like Target as more consumers moved their shopping online.
In response to the change in consumer behavior, retailers have launched their own digital marketplaces to better compete in the modern online era. Some retailers have seen their efforts succeed.
Target reported a 31% increase in digital sales last quarter and Walmart saw its digital sales rise 41%. The success of these two retailers has put them in a position to compete on the digital front against Amazon, which has long dominated the lucrative space.
Are Retailers Closing in on Amazon?
The holiday shopping season started with a bang, according to data collected by Adobe, Online shoppers spent $7.4 billion on Black Friday 2019, a new record for online Black Friday sales.
On top of that, Adobe reported today that online sales on Cyber Monday surged 19.7% Y/Y to a record $9.4 billion. The record setting sales has retailers pushing harder to cash in on the growing e-commerce space.
Target and Walmart have both seen success in their digital initiatives and have even outpaced Amazon recently. According to Edison Trends, Walmart and Target saw larger Y/Y increases in online consumer spending during the first two weeks of November. Walmart gained 51%, while Target followed closely behind with a 47% jump and Amazon came in at 32%.
Amazon boasts a vast logistics network that can provide speedy next-day delivery. Meanwhile, Target and Walmart have found ways to incorporate their physical store presence, with their digital marketplaces. The retailers offer services like in-store pick up for items purchased online and Target offers Drive Up, which allows consumers to drive into the store lot and have their items brought out to their car.
While same-day fulfillment services have proven successful, groceries are where the two retailers have been able to separate themselves from Amazon. Walmart customers can do their grocery shopping online, and Walmart offers unlimited delivery for $98 a year or $12.95 a month.
Walmart’s 41% digital sales expansion in the third quarter was led by growth in online grocery shopping. Groceries is an area that Amazon has tried to establish itself in, but hasn’t found much success yet.
Considering the success that Target and Walmart have seen in groceries, it might be an area that retailers can enjoy a healthy lead over the e-commerce giant.
Best Buy has also made its own improvements to its digital presence which has yielded some positive results. The electronics retailer is offering next-day delivery for select items which should help it better compete this holiday season. The company also uses its store locations as distribution centers which brings down the costs for deliveries and also makes the next-day delivery time possible.
Amazon has long held the e-commerce throne and threatened the livelihood of retailers who undermined the threat that the company posed. The digital commerce titan offers consumers the convenience of getting all of their holiday shopping done online, which will still likely draw a large portion of consumers to its site this holiday season.
However, Target and Walmart have both seen substantial growth in digital sales as the retailers use their physical presence to offer convenient same-day fulfillment services. These services paired with the strength they have in the grocery space puts the retailers in a good position to cash in on the holiday season.
According to Statista, e-commerce is anticipated to grow to a $740.4 billion market in 2023, which represents a 26.02% increase from this year’s projected $547.7 billion. Target shares have outpaced Amazon, Walmart, and Best Buy YTD.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers “Most Likely for Early Price Pops.”
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.6% per year. So be sure to give these hand-picked 7 your immediate attention.
See 7 handpicked stocks now >>
Zacks Investment Research
800-767-3771 ext. 9339
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.