For Immediate Release
Chicago, IL – February 18, 2020 –
Zacks Equity Research Shares of Microsoft ( MSFT Quick Quote MSFT - Free Report) as the Bull of the Day, Tailored Brands TLRD asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Everi Holdings Inc. EVRI, MGM Resorts International MGM and Churchill Downs CHDN . Here is a synopsis of all five stocks: : Bull of the Day
Microsoft has become the largest publicly traded company in the US because of its best-in-class management team that has been able to stay ahead of the competitive curve for decades. Microsoft was the largest company by market cap at the turn of the millennium, and 20 years later, this enterprise has taken the helm once again.
This software giant has been a role model for tech start-ups around the world. Microsoft has controlled the computer OS market for decades and is now taking control of the cloud computing market. The effective transition from on-premise software to cloud-based systems has brought this legacy firm back to its place at the top.
Microsoft’s new subscription-based revenue drivers, whether it’s Microsoft Office or one of its many cloud services its offer, has allowed this enterprise to grow out its sales by reliable double-digit percentages YoY. Microsoft offers customers Infrastructure-as-a-Service (IaaS) through its platform, Azure, competing in this very lucrative but quickly saturating business with tech giants like Amazon and Google.
The $50 billion IaaS industry is proliferating, and more businesses see the benefit of outsourcing their tech infrastructure. Amazon’s AWS has controlled the space as an early mover on cloud computing, but Azure is slowly but surely taking market share. Azure is in an early stage of development compared to AWS, but it is being offered at a fraction of the price, growing at double the rate, and analysts are calling it best-in-class.
MSFT has a lot of momentum behind it right now, with over 70% price appreciation over the past 52-weeks and has had 10 consecutive quarterly reports that resulted in an upward price movement. Microsoft’s cloud investment is finally paying off, and investors have been pricing its long-term potential into the stock. They will continue to do so as this company proves its ability to maintain current growth levels.
Microsoft has $134 billion in cash on hand combined with massive growing free-cash-flows, which gives the company an enormous amount of financial flexibility for organic growth and acquisitions.
Microsoft illustrates the perfect model of how a firm executes profitable growth. The company is mature enough to drive strong shareholder returns through substantial stock buybacks and a sustainable 1.1% dividend that is estimated to grow 10% annually. Microsoft is innovative enough to continue expanding its topline by robust double-digit percentages and rapidly expand margins. This enterprise demonstrates all the best features of both a value and growth stock allowing investors to benefit from both aspects.
Some investors are worried that MSFT’s valuations multiples have driven up too high, with its forward P/E trading at its highest level in almost 2 decades, but I can’t entirely agree. Microsoft’s new growth drivers, combined with the current easy money policies that the Federal Reserve has implemented, I am confident that MSFT’s current P/E valuation is warranted and may have more room to run.
Microsoft may sound like an obvious investment choice, being the largest US company, but sometimes the most straightforward option is the right one. Microsoft is driving over 5% of the S&P 500 and will progressively drive more as it continues to outperform the broader market. Analysts are again raising EPS estimates on this tech powerhouse, propelling this stock into a Zacks Rank #1 (Strong Buy).
Bear of the Day:
Tailored Brands looks to be sewing itself right into Chapter 11 bankruptcy. This suit corporation has been seeing a declining topline the past 4 years and is now beginning to toe the line of profitability. Analysts are progressively pessimistic about TLRD and have been dropping their EPS estimates and pushing this stock into a Zacks Rank #5.
Tailored Brands include Men’s Wearhouse, Jos. A. Bank, K&G, and Moores. These stores can be found across the US & Canada at over 1,400 locations. Unfortunately, store count has been declining fast, with total store count falling almost 20% since the end of 2014. Consumers just aren’t buying the suits and tuxedos that they used to.
Since 2016 Tailored Brands has been experiencing a declining topline since 2016, represented by brand below. Sell-side analysts are estimating that TLRD will experience its most significant annual sales decline since the company’s inception in 2019. This decline is expected to continue into the foreseeable future. TLRD’s sales decline, coupled with margin cuts, is having a devastating impact on the firm’s bottom line.
I am concerned about the liquidity of Tailored Brands, with its cash on hand covering only 3% of the company’s current liabilities. Debt has progressively risen to unsustainable levels, as TLRD requires more capital to maintain its current operations. Debt is easy to come by in this economic environment, but once the credit markets dry up Tailored brand will be in trouble.
Free-cash-flows are just barely staying above water. It wouldn’t take much for this company to default, especially when their credit rating is already considered speculative grade. I predict a dividend cut in the near future as cash-flows remain an issue. This adds additional downside potential for TLRD.
In today’s corporate world, execs are wearing fewer suits and leaning towards more progressive clothing as they adapt to the liberalism of the up and coming generations. You are seeing a decline in suits and an increase in athleisure attire in the office, a trend that would have Don Draper fuming.
The inclination toward casual work attire combined with Tailored Brands inability to adapt to the evolving consumer has sent this company to the brink of bankruptcy. This stock has been toxic for some time now, and unless significant systemic changes are made, its toxicity will continue. Stay away from shares of TLRD.
Additional content: Why This Cheap Gaming Stock Is a Strong Buy Right Now
Everi Holdings Inc. provides technology for the casino industry, from gaming machines to fintech. EVRI shares have soared 80% in the last year but they are still cheap. Plus, Everi’s outlook appears strong heading into its fourth quarter 2019 earnings release and beyond.
The Everi Basics
Everi is a Las Vegas-based casino tech firm that offers a variety of gaming machines, services, and more. The company also sells financial services-focused products, player loyalty offerings, as well as intelligence and regulatory compliance solutions.
EVRI topped our Q3 earnings and revenue estimates back in November, with its Games and FinTech units helping drive its 12% top-line growth. Meanwhile, its quarterly earnings jumped from $0.03 in the year-ago period to $0.12 a share. And last quarter marked Everi’s 13
th consecutive quarter of year-over-year revenue and Adjusted EBITDA expansion.
Investors should also note that the firm announced in mid-January that it extended its relationship with the New York Lottery for 10 more years. EVRI’s central system currently monitors and administers more than 17,000 Video Lottery Terminals across nine facilities in the state.
Last quarter, Everi generated free cash flow of $11 million to push its total up to $39.3 million on the year. This strong cash generation has helped the company reduce its debt load.
The nearby chart, meanwhile, shows us just how impressive of a run EVRI stock has been on since the summer of 2016. EVRI stock was trading at roughly $1 per share in June 2016 and it currently hovers at around $13.60 per share.
Despite this run, Everi holds an “A” grade for Value in our Style Scores system, alongside an “A” for Growth. We can also see that its longer-term earnings revisions have trended heavily upward, especially for fiscal 2020 and 2021.
Looking ahead, our current Zacks estimates call for Everi’s fourth quarter revenue to jump 11.6% to $133.3 million that would see it roughly match Q3’s growth. Meanwhile, its fiscal 2019 revenue is projected to pop over 11% to $521.4 million. The company’s 2020 sales are then expected to climb another 9.2% higher to $569.1 million.
At the bottom end of the income statement, Everi’s adjusted Q4 earnings are expected to skyrocket from a loss of -$0.04 per share in the year-ago period to +$0.08.
Overall, its fiscal 2019 EPS figure is projected to soar 250% from $0.10 to $0.35 a share. And in a sign of continued expansion, EVRI’s 2020 earnings are expected to reach $0.58, which would mark another 65% climb.
Everi’s solid earnings estimate revisions activity helps it earn a Zacks Rank #1 (Strong Buy) at the moment. The stock also rocks an overall “A” VGM grade, with it set to report its Q4 results on March 2. And some investors might be attracted to its “cheap” price of well under $20 a share.
In the end, Everi appears to be a stock worth considering given its growth outlook, within a gaming-focused space that includes other highly-ranked stocks such as MGM Resorts International and Churchill Downs. And let’s not forget that U.S. unemployment remains low and indexes rest right near their new highs despite coronavirus fears.
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