For Immediate Release
Chicago, IL – January 23, 2020 – Zacks Equity Research Shares of GoDaddy (GDDY - Free Report) as the Bull of the Day, GameStop (GME - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Zumiez Inc. (ZUMZ - Free Report) , Signet Jewelers Limited (SIG - Free Report) and lululemon athletica inc. (LULU - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
GoDaddy has been able to sport double-digit topline growth since it went public in 2015 combined with margin expansion. 2019 was no exception to this, but over the last 52-weeks, these share traded effectively sideways. GoDaddy has been actively buying back its own stock on the notion that it is undervalued, and I am inclined to agree. Following robust Q3 earnings, analysts’ drove up EPS estimates and pushed GDDY into a Zacks Rank #1 (Strong Buy).
The world is digitalizing fast, and attaining an online presence is becoming essential for any business, no matter the size. GoDaddy is a one-stop-shop for small businesses’ online needs, helping with everything from setting up an initial website to implementing a dynamic data-driven ecommerce platform.
GoDaddy has dominated the web hosting industry for 20 years and continues to drive growth. The company has accumulated over 19 million customers in more than 50 different markets, with 8.5 million being international.
This company had a change in management after Scott Wagner was forced to step down for health-related reasons late last year. Aman Bhutani took the helm in September, and analysts are optimistic about his leadership ability. Bhutani was previously the President of Brand Expedia Group, who proved himself as a tremendous leader that is able to deliver operational excellence in a complex global business, according to GoDaddy chairman Charles Robel.
Bhutani’s first significant move on the job was to launch bundled deal Website + Marketing, which replaced the previously known as GoCentral and pushed the number of subscribers to north of 1 million. This bundled package gives entrepreneurs the ability to create an attractive website that they can effectively monetize.
The firm just began turning a profit in 2017 and is expected to aggressively expand its net margins as it dives deeper into profitability.
GoDaddy has been driving robust unlevered free-cash-flow (FCF) over the past 8 quarters, with year-over-year growth not falling below 20%. These substantial cash flows combined with the almost a billion in cash give this firm a sizable amount of financial flexibility for investment in its current platform and further acquisitions in this consolidating segment. The continued integration of recent acquisitions like Host Europe Group and Main Street Hub should create progressively stronger synergies.
GoDaddy’s low cost and highly capable platform makes it an easy decision for any starting business, and its international presence still has a lot of room for growth. 8 out of 11 analysts are calling GDDY a buy right now with an average price target representing an over 18% share price appreciation.
This company is reporting Q4 earnings Thursday, February 13th and analysts are estimating an EPS of $0.37 on sales of $2.99 billion, according to Zacks Consensus. This would represent year-over-year growth of 32% and 12%, respectively.
Look for any innovative plans in the earnings call/presentation from CEO Aman Bhutani, who just recently took the helm of GoDaddy. This will be Bhutani’s first full quarter as the head of the company, so his leadership ability will be assessed.
Bear of the Day:
The gaming industry is rapidly evolving, with the next-generation of gaming underlined by mobile devices, and augmented/virtual reality (AR & VR). Local video game shops no longer have the appeal they did as physical video games are no longer a necessity. GameStop and its cohorts are on their way out, and this firm’s stock price reflects this. EPS estimates for GME have been trending down, pushing this stock into a Zacks Rank #5 (Strong Sell).
GameStop was a staple in the gaming community for years, with new video game debuts inciting hordes of dedicated gamers to line up outside, ensuring they secured a copy before it was sold out. The video game market continues to soar, but GameStop has been unable to adapt to the rapidly changing landscape. People no longer have any need to go to the store to buy their games. Everything is now done online through a marketplace portal on your console, PC, or mobile device. GameStop is another brick-and-mortar victim of the retail apocalypse.
GME hit its all-time high at the end of 2007 of $63.30 then took a nosedive during the great recession, which is expected for any consumer-discretionary retailer, but this stock never fully recovered. The shares hit another high of $56.50 at the end of 2013, but have since broken down. Today GME is trading at less than a tenth of its 2013 price.
In the last 52-weeks GME has lost over 70% of its value, and still I see no price at which I would purchase these shares. GameStop debt is in junk bond territory, and I only see this trend continuing as the companies antiquated business model eventual fizzles into bankruptcy.
GME has had an adverse price action from the last 6 quarters due to misses on estimates and soft guidance. GameStop is slipping into quarterly losses. Analysts are anticipating a continued drop in sales and income for the projected years to come. The company has been forced to put on increasingly more debt every quarter in order to maintain its current operations, which is not a sustainable strategy.
The only segment in GameStop’s Q3 report that saw growth was collectibles, which now makes up over 13% of its sales in Q3. The company is slowly turning into an antique shop.
GameStop has closed over 600 stores since the end of 2014 (10% of total store count), and more are closing ever quarter.
GameStop is a quintessential retail apocalypse business. The company has been unable to adapt to the digitalizing economic landscape. I see these shares as toxic and would stay away.
3 Retailers that Made the Most Out of 2019 Holiday Season
The holiday season turned out to be a blissful one as consumers continued to fill their shopping carts. Even six fewer days between Thanksgiving and Christmas compared with last year could not take away the sheen of the season. A buoyant stock market, sturdy labor market, rising income and improving consumer confidence worked in favor of retailers.
Notably, retailers stay on their toes during the holiday season, the busiest part of the year, flooding the market with offers and promotions. They sweep buyers off their feet with early-hour store openings, huge discounts, promotional strategies, and free shipping on online purchases. Since the season accounts for a sizeable chunk of yearly revenues, retailers grab every opportunity to drive footfall. Not to mention, these come at the cost of margins.
Holiday season and retail are synonymous, and this festive period Americans were in the mood to spend. A report from National Retail Federation (NRF) indicates that holiday retail sales, excluding automobile dealers, gasoline stations and restaurants, increased 4.1% year over year to $730.2 billion during 2019. Meanwhile, the retail trade association also highlighted that online and other non-store sales rose 14.6% to $167.8 billion during the festive season.
3 Retailers Who Raised a Toast
Zumiez Registers Strong Holiday Sales Growth
The season turned out to be a jolly good one for Zumiez Inc.. The impressive performance prompted management to lift sales and earnings view for fourth-quarter fiscal 2019. The company reported 6.8% comparable sales growth for the nine-week period (ended Jan 4, 2020) compared with 4% growth witnessed in the nine-week period (ended Jan 5, 2019).
The company now expects comparable sales for the final quarter to increase around 6% compared with prior view of 2-4% growth. Adjusted earnings per share for the fourth quarter are anticipated to be $1.34-$1.38, up from previous estimate of $1.26-$1.32.
This Zacks Rank #1 (Strong Buy) company has been gaining from providing differentiated assortments. The company has considerably improved customers’ experience by integrating its physical and digital networks. This allows customers to access inventories through all channels, alongside availing facilities like buy online, pick up in store, and reserve online and pay in store. You can see the complete list of today’s Zacks #1 Rank stocks here.
Signet’s Numbers Raise Investors’ Fervor
Signet Jewelers Limitedreported better-than-anticipated holiday sales numbers. The impressive performance also prompted management to lift fourth quarter and fiscal 2020 view. Total same store sales for the nine-week period ended Jan 4, 2020, inched up 1.6%. E-commerce sales increased 13.5% year over year to $252.3 million.
For fiscal 2020, the company expects 0.1% year-over-year rise in same-store sales now, which was earlier projected to decline 1-1.7%. The company now expects adjusted earnings in the range of $3.61-$3.69 per share, up from $3.11-$3.29 mentioned earlier. For the fourth quarter, the company now projects same-store sales to rise 1.1% year over year compared with its prior guided range of 2-4% decline. Further, it anticipates adjusted earnings per share in the range of $3.44-$3.52. Management had earlier anticipated the metric between $3.01 and $3.16.
Management highlighted that the company’s significant investments to augment digital sales, and strength in merchandising and marketing strategies aided e-commerce as well as brick and mortar sales growth in North America. In fact, this Zacks Rank #1 company is also benefitting from its ‘Signet Path to Brilliance’ plan.
lululemon Holiday Sales Report Excites
lululemon athletica inc.witnessed continued momentum during the holiday season in 2019, driven by favorable customer response for its innovative merchandise. This persuaded management to raise fourth-quarter fiscal 2019 view.
lululemon now envisions fourth-quarter revenues between $1.370 billion and $1.380 billion compared with $1.315-$1.330 billion mentioned earlier. The guidance is based on constant-dollar comparable store sales (comps) growth of mid-to-high teens compared with comps growth of low-double digits stated earlier. Further, this Zacks Rank #2 (Buy) company raised earnings per share forecast by nearly 12 cents. It now projects earnings per share of $2.22-$2.25, up from $2.10-$2.13 per share mentioned previously.
Retailers have significantly invested in the expansion of omni-channel offerings in recent years. Same-day delivery, lockers for picking up goods at stores, improved online sites and checkouts, remained prominent this shopping season. Smartphones were the most preferred way to make online purchases this holiday season, accounting for nearly 84% of the holiday season’s e-commerce growth, per MasterCard SpendingPulse. Amazon, in a release, informed that the festive season was a record breaking one with a number of items delivered through Prime free one-day and Prime free same-day delivery nearly quadrupling.
Clearly, the retail industry ended 2019 on a strong footing. Increasing consumer confidence will surely continue to be one of the prominent driving factors in 2020. NRF president and CEO Matthew Shay opined that the holiday sales number instills optimism about higher investment and rising prospects in the industry.
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