For Immediate Release
Chicago, IL – February 28, 2020 – Zacks Equity Research Shares of Alarm.com Holdings ALRM as the Bull of the Day, Six Flags Entertainment SIX as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Visa Inc. V, Mastercard Inc. MA and American Express Co. AXP.
Here is a synopsis of all five stocks:
Bull of the Day:
Alarm.com Holdings is a Zacks Rank #1 (Strong Buy) that offers interactive security solutions for both home and business owners. The company offers systems which include images sensors, crash and smash protection, web control, mobile access and video monitoring.
Here is how the company describes itself:
We create innovative technology that deepens the connection between people and the things they care about most – their families, homes and businesses. Millions of people trust Alarm.com every day for better security, intelligent automation and dependable service.
Surprise Beat on Q$ EPS Shows Promise
Alarm’s stock struggled late last year after a disappointing quarter led to a 15% loss in a day. From there, the stock kept falling, bottoming in the low $40s last month.
However, earnings out this week showed that the company was back on track on its historical trend of surprising to the upside on EPS. The company showed a 30% beat on the bottom line, along with a nice top line beat. Alarm also guided higher, stating that FY20 will now come in at $1.48-1.49 v the $1.42 expected.
CEO, Stephen Trubdle had positive comments on the quarter:
"We are pleased to report solid results for the quarter and the year thanks to the performance of our service provider partners and dedication of the Alarm.com team. With our best-in-class platform and strong product pipeline, we are focused on continuing to deliver innovative capabilities for our service provider partners to extend their leadership positions in their markets.”
Analysts Like the Quarter
While estimates have remained at the same levels short-term, they are moving higher for FY2021. Over the last 7 days, we have seen estimates tick from $1.52 to $1.56, or 2.6% higher. While that isn’t as impressive as the beat or guide from the company, analysts are overall positive.
After earnings, Roth Capital reiterated its $51 Price target citing growth re-acceleration. While the firm has supply chain concerns over COVID-19, there are overall positive on SaaS growth and FY20 guidance.
Imperial Capital raised its price target to $59 and reiterated their outperform rating. The firm says was impressed by revenue, EPS, and EBITDA, which all beat their estimates. Moreover, they see recurring revenue growth in Fiscal year 2020.
What’s perhaps most impressive about this company is the consistent beat on earnings over the years. They rarely miss, but of course the magnitude of the beat is important. While the company had setbacks last year, it looks like they are back on track to resume the longer-term trend.
The Technical Take
The stock had been in a downtrend since the spring of last year, moving from its all-time high of $71.50 to the 2019 low of $41.06. With some evidence of a turn around, the big question for bulls is how far can the stock rally before stalling again.
The first important level is the 200-day moving average, which resides just over $48. Since earnings, there has been some nice resistance in that area. In addition, the stock has a 61.8% Fibonacci retracement level that is adding to resistance. If the stock can break higher, we should get some short covering. With 23% of the float short the stock, we could see a fast move to $50 beyond.
If the bulls do return, next resistance level would be the $58.75 area
Alarm.com has the potential to move higher and return to its long-term trend. Investors might be waiting for proof of sustained revenue growth before they go all in. However, once that catalyst is realized, the stock wont waste anytime moving higher. With a high short interest and a low-float, the stock is ripe for a short squeeze. Keep an eye out on that $49-50 level and any more news on supply chains out of Asia as potential risks.
Bear of the Day:
Six Flags Entertainment is a Zacks Rank #5 (Strong Sell) that owns and operates regional parks. The company runs parks comprised of theme, water attractions, concerts, shows, restaurants, game ventures and retail outlets. Six Flags is headquartered in Grand Prairie, Texas and operates 26 parks in the United States and Mexico.
When you see a chart like Six Flags you might think it’s a buying opportunity. The stock has fallen from $59 to $25 in the last six months. This fall of over 50% comes for a variety of reasons, but mainly its been the lack of performance on earnings.
Earnings a Disaster
The company has missed on EPS for three straight quarters. In addition, the misses seem to get worse and worse, with the last quarter coming in at a 100% miss. This poor performance has led the company to cut its dividend yield and on top of that, the CFO announced retirement. Those are typically red flags.
The company says it is facing challenges related to its base business. They are seeing soft organic revenue trends and increasing costs due to minimum and market wages. It seems as if people aren’t going to parks and it becoming more expensive to run them. Two negative catalysts for this business.
Estimates are plunging, because of the recent quarter. While this has been reflected in the stock, there might be a much bigger mess as we head into summer.
Most experts think the Coronavirus will subside come summer. However, even if it does, a stigma about going to public places might remain. Meaning if the general public starts to fear going out, it might take some time before they start talking the family to theme parks.
This could put some serious strain on the business. If the virus maintains into the spring, investors will likely sell first and ask questions later.
Six Flags is a fun place to go and has been for years. However, there is a lot of evidence that the business will continue to struggle going into the end of the year. Even with the stock price falling 50%, that dividend cut will keep investors away. Toss in the Corona risk, this is one to avoid.
Is Coronavirus a Short-Lived Slump for Payment Stocks?
In the grip of coronavirus fears, the stock markets have so far been spiraling down, Also, there are growing concerns that the outbreak could further disrupt global economic growth.
As the disease started spreading rampantly in February causing worldwide cancellation in travels, the payment stocks came under pressure.
Payment companies, such as Visa Inc. and Mastercard Inc. with solid international presence and a vast payment network already felt the heat. Both players derive nearly one-third of their revenues from cross-border transactions that took a massive hit after people increasingly suspended their travel plans to stay safe from the COVID 19.
Consequently, stocks of payment entities, namely Visa, Mastercard, American Express Co., all have fallen 6%, 5.7% and 8.8% in the month so far while the Zacks Financial Transcation Services has slipped 4.1%.
Near-Term Guidance Cut
In fact, Mastercard, one of the leading players in the payment markets estimated revenue growth for the first quarter of 2020 to be 9-10% year over year on constant currency basis (200-300 basis points lower than the previous projection of year-over-year growth in low-double digits. If the impact is limited to the first quarter, management believes that net revenue year-over-year growth for the current year will be at the lower end of the view in low-teens at cc).
Management at Visa on its first-quarter fiscal 2020 earnings call stated that cross-border volumes in the last two weeks of January were negatively impacted by the shift in the Chinese New Year with potentially some initial effects of the coronavirus outbreak. International transaction revenues make up nearly 34% of Visa’s net revenues.
Nevertheless, the drag from the coronavirus appears to be a temporary crash. The favorable economic indicators in the United States point to strong consumer spending, which in turn, should support transaction processing growth.
Economic Indicators Support Spending
The Conference Board Consumer Confidence Index, which measures consumer’s attitude to current and short-term economic conditions (in next six months), rallied in February, following a rise in January. The Index now stands at 130.7, up from 130.4 in January.
The surge in the index shows that growth trend witnessed recently will continue. This should lead to higher consumer spending, which is surely a welcome sign for payment and network, which are the end-beneficiaries of the rising consumer spending as well as confidence.
Also, retail sales in the United States inched up 0.3% sequentially in January, slightly higher than a downwardly revised 0.2% uptick in December. Meanwhile, the same was in line with market expectations. Sales rose 4.4% year over year in the month.
An increase in sales and a bullish consumer sentiment bode well for the aforementioned payment stocks as now consumers prefer alternative new-age modes of payment given their ease, efficient, flexibility, etc. compared with the cash-payment methods. This broad-based shift to noncash payments presents a solid growth opportunity for all payment companies.
As technology evolves from wired to wireless solutions, driven by technology developments like the expansion of mobile technology and the emergence of 5G networks, there surfaces a significant scope for frequency in digital payment. These companies thus are poised for growth in the long haul.
Thus, we see that the economic downturn induced by the pandemic should be viewed as a temporary glitch and there is enough power in these stocks to bounce back once the situation resumes normalcy.
In fact, the recent decline in the stock prices of these companies should be considered a buying opportunity for investors.
American Express, Mastercard and Visa carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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