For Immediate Release
Chicago, IL – May 15, 2020 – Zacks Equity Research highlights Pinterest (PINS - Free Report) as the Bull of the Day and Bank of America (BAC - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) , Royal Caribbean Cruises Ltd (RCL - Free Report) and Carnival Corp. & Plc (CCL - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Pinterest is a Zacks Rank #1 (Strong Buy) that is a popular website seeing a lot of momentum in the current lockdown environment. The platform allows users to discover ideas like daily activities, remodeling the home, hobbies, or even planning weddings and vacations. Stay at home orders have users flocking to the site, which has helped with revenue expectations. The stock has recently pulled back, bringing it to attractive levels for long-term investors.
The COVID Effect
As most of us are still under stay-at home orders, we are going crazy trying to figure out how to pass the time. You can only watch so much TV and too much social media will make you go insane. And eventually, we all will need a break from reading all the excellent content on Zacks.com.
When the quarantine fatigue settles in, we will look elsewhere to make the lockdown experience tolerable. This is where Pinterest comes in. The website is a great place for DIY projects like remodeling a bedroom, creating a garden, or getting ideas for painting your house. Additionally, there are tons of great cooking recipes and other ideas to keep busy.
Recent Earnings Activity
The company guided in early April and reported EPS in early May. After the guide, the stock ripped higher and after the EPS is was sold back down to April lows. This volatility is giving investors headaches so let’s look into the numbers.
The April guide saw revenue for Q1 at $269-272M vs the $259M expected. The also reported global monthly active users a 365-67 million.The guide was well recieved and caused the stock to rally.
In May, EPS came in with a surprise miss to the downside of 25%, the first miss in a year. This took the optimism away from the guide and the stock was sold. However, the revenue came in at $271.9M, so it wasn’t far off form the guide. Investors were just expecting more on that bottom line.
Here is a quote from the CEO on the quarter: “
“We began 2020 on strong footing. The spread of COVID-19 has certainly had an impact on our business and the businesses of our advertisers, but we remain optimistic about the future,” said Todd Morgenfeld, CFO, Pinterest. “While we’ve been adapting to the current environment, we will continue to invest in our strategic priorities of content, ads diversification, use case expansion and shopping. We’re committed to delivering inspiration to our users and measurable results to businesses.”
So, while the ad portion of their business isn’t COVID proof, they are shifting their strategy. One example of this is a recent partnership with Shopify, which will give over one million merchants a quick way to upload catalogs to Pinterest.
The Technical Take
The stock was pummeled in March like everything else, bottoming right at the $10 level. From there, the stock doubled and moved over $20, before the earnings outlook knocked the stock back down.
The move higher almost kissed the 200-day moving average, but the resistance was too much. The stock has now pulled back to the 50-day moving average and looks to be finding support. This is also the halfway back point from the March lows to recent highs. Current levels look technically attractive for a long-term buy. If the stock can break that 200-day moving average, we could see acceleration higher to the 2020 highs above $25.
While there are some short-term effects due to COVID, Pinterest is a website that users are flocking to during the stay-at-home orders. If consumers become accustomed to using the site, the company should benefit long-term. In addition, finding new strategies like the one with Shopify offer exciting opportunity for the company and investors.
Bear of the Day:
Bank of Americais a Zacks Rank #5 (Strong Sell) that is one of the largest and well-known banks in the country. The stock is down 40% from its 2020 highs, but investors shouldn’t think they are getting a bargain.
The financial crisis in 2008 was one of the worst times ever for the financial space. There were a lot of institutions that went belly up and even more that were bailed out. While todays situation isn’t as bad for the financials, there still is a lot of concern surrounding the space.
Stay-At-Home and Technology
Most of us don’t have to go to the bank to do business and that is a plus. However, as more people realize this due to the COVID lockdowns, they are finding other technologies that are making traditional banking go the way of the dodo bird.
Companies like PayPal are Square are being adapted by younger generations. While banks are still a necessity in the modern economy, we are less reliant then we were even ten years ago. In addition, cryptocurrency is slowly making its mark and becoming a competitor to the way money moves around the world.
Interest Rates and Estimate Revisions.
With interest rates at zero and perhaps one day going negative, banks will find it very hard to make money. This environment isn’t great for lending as their margins become very small. Analysts are cutting estimates for the banks on this notion.
We are seeing earnings estimates being slashed across all-time frames. For the current year, estimates over the last month have fallen 17%, going from $1.77 to $1.48.
Just like in 2008, a big worry about the banks is the type of risk that’s on the balance sheet. The high-risk loan categories in energy, hotel, restaurants and retail are a focus during the pandemic. According to a report by PiperSandler, 23% of Bank of America’s loan exposure involves these “at-risk” industries.
If the lockdowns continue much longer and these businesses can’t open, there will be bankruptcies. Banks like BAC would be on the hook, which would put significant pressure on shares.
While this risk is known and in the share price, we just don’t know how bad it might get. Investors are advised to stay away from BAC and its peers until we have some clarity on the lockdowns and the virus itself.
Norwegian Cruise Lines Down on Q1 Earnings Miss
Norwegian Cruise Line Holdings Ltd.reported first-quarter 2020 results, wherein both earnings and revenues missed the Zacks Consensus Estimate. Moreover, both the top and bottom lines declined sharply year over year owing to the coronavirus-induced shutdowns. Following the earnings release, shares of the company have declined nearly 3% in pre-market trading session.
The company has already withdrawn 2020 guidance on account of the temporary suspension of sailings globally. The company stated the pandemic has impacted its financial position and believes that if suspension is further extended its liquidity and financial position will affected significantly.
Earnings & Revenue Discussion
The company reported adjusted loss per share of 99 cents, wider than the Zacks Consensus Estimate of loss of 52 cents. In the prior-year quarter, the company had reported earnings per share of 83 cents.
Revenues of $1,246.9 million missed the consensus mark of $1,278 million and declined 11.2% year over year. The downside can be attributed to 13.6% decline in passenger ticket revenues and decrease of 5.6% in onboard and other revenues.
Gross yield (total revenues per Capacity Day) rose 1.6% in the quarter on a year-over-year basis due to rise in onboard spending. While net yield decreased 12.6% in the reported quarter on a constant-currency (cc) basis, it declined 12.3% on a reported basis.
Expenses & Operating Results
Total cruise operating expenses increased 20.3% in the quarter under review from the year-ago quarter. The increase can be attributed to costs associated with the suspension of cruise voyages and rise in fuel expenses. Addition of Norwegian Encore and Seven Seas Splendor to the fleet also pushed expenses higher.
Gross cruise costs per capacity day surged 34.5%. Adjusted Net cruise costs (excluding fuel) per Capacity Day increased 26.1% at cc and 25.7% on a reported basis. Fuel price per metric ton (net of hedges) was up 2.4% to $508 in the quarter under review.
Net interest expenses were $614 million in the first quarter, up from $461 million in the year-ago quarter.
Cash and cash equivalents as of Mar 31, 2020, were $1.4 billion, up from $252 million as of Dec 31, 2019. Long-term debt at the end of the first quarter totaled $8.4 billion, higher than $6.1 billion at the end of 2019.
In an effort to raise nearly $2 billion, the company launched a series of capital markets transactions on May 5, 2020. As a result of high demand, oversubscription and the full exercise of options to purchase additional ordinary shares and exchangeable notes, the total amount of gross proceeds rose to roughly $2.4 billion. Following these transactions, the company’s total pro-forma liquidity is approximately $3.7 billion.
Zacks Rank & Stock to Consider
Norwegian Cruise, which shares space with Royal Caribbean Cruises Ltd and Carnival Corp. & Plc, carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Manchester United has an impressive long-term earnings growth rate of 22.8%.
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