For Immediate Release
Chicago, IL – March 30, 2020 – Zacks Equity Research highlights eBay (EBAY - Free Report) as the Bull of the Day and Cinemark Holdings (CNK - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Teladoc Health, Inc. (TDOC - Free Report) , UnitedHealth Group Inc. (UNH - Free Report) and Humana Inc. (HUM - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Founded in 1995 – just as most people were experiencing the World Wide Web for the very first time – eBay's platform is one of a handful of technological innovations that has truly changed the very nature of commerce in the US and all over the world.
After tripling on its first day trading as a public company in 1998, eBay was once of the most popular and visible high-flyers of the dot.com boom – and the dot.com bust. Thanks to a fundamentally sound business idea and huge customer traffic, eBay survived the bursting of the tech bubble that took out thousands of would be e-commerce competitors.
While eBay was once primarily a marketplace for individuals to exchange personally owned goods in an auction format – the collectible plush toys, “Beanie Babies” were the most traded product traded on eBay by a wide margin in the early days – the company innovated constantly, attracting businesses to the platform and adding payment processor PayPal in 2002 to facilitate transactions.
Fast forward to 2020 and eBay has become so ubiquitous in the e-commerce world that it’s often overlooked as an investment, even though millions of people and businesses still use the platform every day to trade goods. In fact, paying a dividend yield in excess of 2% annually and trading at a 12-month forward P/E ratio less than 10X, this one-time high-multiple tech darling is now a legitimate value opportunity.
Forward multiples and dividend yields are a tricky subject these days as a result of the effects of Covid-19. Most stocks have dropped at least 20% and many are down 40% or more from recent highs, making yields and earnings-based valuations look attractive. In many cases however, both future earnings and companies’ continued ability to pay dividends are significantly in doubt.
In short, the appearance that a company pays an attractive dividend or is trading at a value price may be ephemeral as the economic damage from an extended slowdown/shutdown of most parts of the economy becomes clearer. Recent equity market volatility makes it clear that investors are wrestling with the difficult issue of exactly what companies in various industries will be worth in what’s becoming the “new normal” of a population that’s largely confined to their homes for an indeterminate amount of time.
One thing is fairly certain. As more than 1/3 of Americans and entire countries around the world - including the UK, Spain, Italy and India - are living with government mandates to stay home except for essential business like getting food and medicine, people are shopping online in record numbers.
In a world in which opportunities for traditional retail shopping are largely unavailable and many items are in short supply because of supply chain disruptions and hoarding, the eBay platform is an especially important piece of the economic puzzle as a relatively low-friction way for people to agree on prices and exchange the products they want and need.
Even prior to the widespread outbreak of Covid-19 in the US, earnings estimates for eBay in 2020 were on the rise, with 11 upward revisions in the past 60 days taking the Zacks Consensus Estimate from $2.88/share to $3.07/share and earning eBay a Zacks Rank #1 (Strong Buy).
Many businesses have been forced to adapt to the current circumstances and even other notable e-commerce businesses like Amazon are dealing with challenges, especially in the physical handling and shipping of products.
Because their platform facilitates transactions between third parties who arrange for making the exchange of physical goods themselves, the impact on daily business operations is minimal. It’s likely that the impact of quarantines on eBay’s results could even be positive due to increased traffic.
A recent selloff of basically all stocks has taken the price of eBay shares more than 10% below recent highs, despite the unique and resilient nature of their business.
Investors who want to remain invested in quality companies but who are concerned about how the effects of Covid-19 and the resulting shutdown of business activity would be wise to consider a company that’s likely to be unaffected by the tougher issues that face so many others.
Bear of the Day:
Virtually all US businesses are feeling the negative economic effects from the outbreak of Covid-19. Many are operating in sub-optimal conditions with most employees performing their essential job functions from home. In most cases, that’s a less than optimal set of circumstances for operations, but at least they’re staying in business.
Some retail and customer oriented businesses are adapting by offering a reduced set of services like curbside pickup of items ordered online and restaurant meals served in to-go packaging. Just like having all employees working from home, it’s far from ideal, but still keeps at least some employees working, turns over inventory and generates some cash flow – all of which may prove essential to the eventual survival of those businesses.
Some unlucky industries don’t have any practical way to offer their goods and/or services at all during the lockdown. Businesses that depend on having groups of people congregate in public places – not in a way that’s tangential to their business, but as the essence of the business itself – now find themselves with no business at all.
Movie theater operators are one such industry. There is simply no practical way for them to offer any sort of safe experience to moviegoers, so they are completely shut down and will remain that way for the foreseeable future.
With more than 4,500 screens in 38 states as well as operations in Mexico and Central America, Cinemark Holdings figures to be among the hardest hit by social distancing and state and local “shelter-at-home” mandates.
Movie theater chains have been fighting off the challenge from other formats – most notably home streaming – for many years, but this shutdown might well be the deathblow. While many producers, directors and movie buffs consider the big screen the ultimate canvas on which to express the cinematic art form, the majority of viewers would prefer to have content available in streaming form so that they can watch where and when they choose.
Formerly, the studios gave theaters an exclusive period of 90 days before releasing first run movies in other formats, a move that was reinforced by the rules of the Motion Picture Association of America which requires theatrical release for consideration for Academy Awards.
In response to the virus-related shutdown, NBC Universal made several highly anticipated new releases available in an online pay-per-view format and other studios are expected to experiment with their own alternative release formats.
Cinemark Group had been foundering lately with stagnant revenues, earnings and share price over the past several years. Over the past month, those shares have been in freefall, hitting an all-time closing low of $6.58/share on March 18th - down nearly 85% from the 52-week high of $43.51/share.
As the details emerged about the $2 trillion relief package making its way through Congress, CNK shares bounced in the hopes that government assistance would help keep movie chains afloat - closing at $12.30/share on Friday.
Unfortunately, any bailout funds are likely to be a proverbial drop in a bucket for the company which has seen the Zacks Consensus Earnings Estimate fall from $0.42/share to just $0.04/share for the current quarter and from $0.80/share to a loss of ($0.04)/share in Q2.
The recent rally because of bailout optimism looks to be a good chance to exit long positions in an industry for which the viral pandemic is merely the latest in a long line of adverse trends.
Teledoc (TDOC - Free Report) Up 90% -- Will the Rally Continue?
While most of the sectors, economies and companies are suffering due to the coronavirus pandemic, telehealth service provider Teladoc Health, Inc. continues to witness growth.
In the recent years, its telehealth services have been witnessing increase in demand, due to cost effectiveness, flexibility and consultation provided.
However, the COVID-19 pandemic has caused a spurt in the demand for its telehealth services as patients chose to stay away from any kind of physical contact to prevent the spread of the disease.
Year to date, the stock has gained a solid 90.5% against its industry 's decline of 19.3%.
Despite the U.S. government’s measures to make telemedicine mainstream for the past few years, primarily to minimize healthcare cost and increase access of care, the sector is yet to receive mass acceptance.
Nevertheless, post the COVID-19 outbreak, the situation has drastically changed. A TIME report states, “If extreme measures like mass quarantines come to pass, telehealth could finally have its bittersweet moment in the spotlight, potentially generating momentum that proponents hope will continue once life returns to normal.”
Earlier in the month, the company announced that it experienced unprecedented daily visit volume in the United States amid the coronavirus crisis. In the second week of March, patient visit volume spiked 50% over the prior week (served 100,000 virtual medical visits) and continued to rise.
Teladoc is the only listed company in the United States providing health and medical consultation services via telephone and video calls. It clearly enjoys the first mover advantage in the telehealth industry. Its scale and size is unmatchable compared with other players in the industry. The company has done a commendable job of complementing its organic growth with inorganic measures through a number of acquisitions in the past three to four years.
Recently, Teladoc took its business to international locations. This will further provide it with benefits of geographical diversification. Its offices in 11 other countries and telehealth service delivery to patients in more than 175 countries give it an enormous international market opportunity.
The company’s wide telehealth network and increasing number of clients further poise it for long-term growth. Its customers include 40% of the Fortune 500 and many of smaller organizations. More than 50 major U.S. health plans use Teladoc's telehealth offerings. At least 70 international insurance and financial services firms avail its services.
Further, the recent inclusion of telehealth services by the CMS for medicare reimbursement opens a new chapter for the company.
Teladoc carries a Zacks Rank #3 (Hold). Some companies providing telehealth services during the coronavirus pandemic are UnitedHealth Group Inc. and Humana Inc. among others. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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