For Immediate Release
Chicago, IL – June 2, 2020 –
Zacks Equity Research Shares of Box ( BOX Quick Quote BOX - Free Report) as the Bull of the Day, Ulta Beauty ( ULTA Quick Quote ULTA - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Merck ( MRK Quick Quote MRK - Free Report) , Gilead ( GILD Quick Quote GILD - Free Report) and Johnson & Johnson ( JNJ Quick Quote JNJ - Free Report) . Here is a synopsis of all five stocks: : Bull of the Day Box is a $3 billion provider of a cloud content management platform. The platform enables internal and external collaboration on content, automation of content-driven business processes, development of custom applications, data protection, security and compliance features.
While BOX was already expected to zoom to profitability this year, the "remote economy" imperative ignited by the COVID-19 pandemic is bringing that future faster.
On May 27, Box reported Q1 FY21 earnings per share of 10 cents, which surpassed the Zacks Consensus Estimate by 100%. The company had recorded a loss of $0.03 per share a year ago.
Total revenues came in at $183.56 million, surpassing the consensus mark by 0.3%. The top line increased 12.6% year over year and was within the guided range of $183-$184 million.
The global shift to work from home due to the coronavirus crisis increased the demand for Box’s online collaboration tools.
Also, strong demand for its add-on products and high volume of large enterprise deals aided revenue growth during the quarter.
Box is currently working on enriching cloud content management and AI platforms. During the quarter, it made some notable partnerships and deeper integrations with leading organizations such as BETC, City of Berkeley FLIR, NASA, National Bank of Canada, Toyota Finance Corporation, and many more.
The company’s rich technology partner ecosystem will continue to be a strong driving force behind growth.
Analysts Raise Price Targets to Mid-$20s
Following these strong results and outlook, Wall Street analysts grew more positive on the future of BOX.
Wells Fargo analyst Philip Winslow raised the firm's price target on Box to $25 from $20 with an Overweight rating on the shares. The analyst notes that Box reported Q1 revenue, margins, EPS, and billings above consensus expectations.
Raymond James analyst Brian Peterson raised their PT to $24 from $18 following the better than expected Q1 print, with positive developments on both growth/cash flow prospects. While it's still early in the new business trajectory in a COVID-19 environment, Peterson says Box could be set up for stronger top-line tailwinds with a clear path for margin expansion.
Craig-Hallum analyst Chad Bennett upgraded Box to Buy from Hold with a price target of $24, up from $18. Bennett remarked that the abrupt shift to remote work allowed BOX to deliver Q1 results ahead of estimates with revenue growing 12.6% year-over-year, versus 12.1% year-over-year last quarter. Q2 guidance was also solid with revenue in-line with Bennett's prior estimate and EPS materially higher. With 95% recurring revenue, upwards of 70% of bookings coming from existing customers, and minimal SMB exposure, the analyst feels Box is well postured for this environment.
Oppenheimer analyst Ittai Kidron raised their PT to $22 from $16, describing "another solid quarter" with revenue, billings, and EPS exceeding consensus reflecting triage spending by U.S. enterprises supporting WFH, rising demand for new products, and solid uptake of Enterprise Suite bundling packages. He expects WFH-related expansion activity to slow down, but sees strategic discussions around workflow automation stepping up strongly positioning the company.
Quarter Financial Highlights
Billings were $128.1 million, up 8% year over year. Deferred revenues were $368.3 million, up 11% from the year-ago quarter.
On a non-GAAP basis, the company recorded operating income of $17.2 million versus operating loss of $3 million a year ago. Operating margin was 9% versus 2% in the year-ago quarter.
Box’s operating expenses (general & administrative, sales & marketing, as well as research & development) of $153.8 million increased 2.8% year over year.
At the end of the quarter, cash and cash equivalents, and accounts receivables balance were $268 million and $99.1 million compared with $195.6 million and $209.4 million, respectively, at fiscal fourth quarter-end.
Net cash provided by operations was $61.9 million and free cash flow was $39.8 million in the fiscal first quarter.
For the second quarter of fiscal 2021, Box expects revenues between $189 million and $190 million. The Zacks Consensus Estimate for the same is pegged at $187.5 million. On a non-GAAP basis, the company projects earnings per share within 12-14 cents. The corresponding Zacks Consensus Estimate is pegged at 8 cents per share. GAAP loss per share is expected within 13-11 cents.
For fiscal 2021, Box’s revenue guidance is expected within $760-$768 million. The Zacks Consensus Estimate for the metric is pegged at $758.36 million. On a non-GAAP basis, it projects earnings per share in the range of 47-52 cents. The consensus mark for the same is pegged at 37 cents per share. GAAP loss per share is expected in the range of 55-50 cents.
Bottom line for BOX: Trading under 4X sales that are growing over 10% and building a rapid rise to profitability, BOX will be a cloud platform provider on the radar of many larger enterprises, both as a vendor and a potential acquisition target. Dips should be bought under a $3 billion market cap.
Bear of the Day: Ulta Beauty is the $13 billion darling of high-end suburban strip malls with cosmetics, bodycare, styling and other salon and spa services unparalleled by any other retailer.
I most recently profiled the earnings decline in ULTA in the quarantine-induced recession battleground on April 22. Here's what I wrote then, as I compared this retailer's fate to that of the e-commerce disrupter Shopify...
As I noted in the SHOP story, Wedbush analysts pointed out a reason for caution on that stock: "There is also the factor that Shopify's merchants largely represent consumer discretionary spend on items from categories like fashion, cosmetics, health and beauty."
But SHOP's gain in that department may be ULTA's pain as the $68 billion e-commerce disruptor begins to eat some of the brick-n-mortar's lunch money which is expected to total $7 billion on the top line this year, representing a 5.44% decline.
Of course, it's the downward earnings estimate revisions that have made ULTA a Zacks #5 Rank this month.
In the past 60 days, the current fiscal year 2021 (ends in January) saw consensus EPS projections drop a whopping 31.6% from $13.09 to $8.95, representing a 25% annual decline. Next year only dropped half as much from $14.34 to $12.05.
(end of April excerpt on ULTA)
Since then, topline growth projections have slipped further to $6.5 billion for a negative 12% advance. And full year EPS has fallen another 16.4% to $7.48, representing negative growth of -37%.
And last week, ULTA reported their Q1 earnings and posted dismal results as both top and bottom lines deteriorated year over year and fell massively short of the Zacks Consensus Estimate.
Ulta Beauty posted an adjusted loss of $1.12 per share against earnings of $3.08 reported in the year-ago period. The Zacks Consensus Estimate for earnings stood at 44 cents.
The quarter started on a solid note with higher comparable store sales (comps), market share gains and growth in the Ultamate Rewards loyalty program until mid-March. However, the coronavirus outbreak and its rising spread considerably harmed operations.
In fact, Ulta Beauty operated as a digital-only business for most parts of the quarter. Though the company saw a higher-than-expected jump in e-commerce sales, it could not compensate for the losses from store closures.
As I explained in a video back in April, the stock market appears to be led by a handful of stocks making up the strength of the new "remote economy"...
Recession Discounted, or FAAMNG Holding Up the Market?
I could have included SHOP in the FAAMNG group -- Facebook, Apple, Amazon, Microsoft, Netflix and Alphabet -- that's holding up the market. Though it's not in the same class as those behemoths with giant revenues and cash flows, it will emerge from this crisis even stronger as the go-to etailing platform for many small companies and distributors.
And both SHOP and ULTA will tell us a lot overall, through their growth challenges, about this crisis and the road ahead.
On the Wednesday evening I released that video, I saw that Cramer profiled Victoria's Secret as a microcosm of the terminal pain for shopping malls. Here were his key points...
“It’s not just the department store that’s dying. It’s the whole mall."
“We knew we didn’t need the department stores, but now the pandemic’s making us realize that maybe we may not need anything in the mall at all.”
“Only two kinds of retailers are working here: the ones that have enormous scale and sell essentials or the ones with fabulous digital businesses.”
ULTA may be one mall story that is most likely to adapt and come out stronger than others. And trading at only 1.6 times sales, it remains an incredible bargain vs SHOP at over 30X.
There will be a time soon to pick up shares of ULTA again soon under $200. The Zacks Rank will let you know.
Additional content: Merck ( MRK Quick Quote MRK - Free Report) Shares Look Ripe for a Buy
The US is in chaos with civil uprisings across the country, while the world is suffering through an unprecedented pandemic. With the equity markets stretched to the brim, it is getting difficult to justify many stock purchases. Yet, there are still a few diamonds in the rough, and I am not talking about the overly exposed industries like cruises or airlines, but something that is on the front lines of fighting this unprecedented health crisis.
Joining the Race to Cure the Pandemic?
Merck is a pharmaceutical powerhouse that has been under-appreciated amid this health crisis. Its initial lack of efforts toward COVID kept big pharma investors at bay, but since it announced it would be joining the race for the vaccine/treatment, MRK has been gaining some robust upward momentum. These shares are up over 5% in the past 5 days.
Merck announced the last week of May that it was working towards two separate 2 vaccine efforts and 1 antiviral treatment. This pharmaceutical leader will leverage its positioning with its recently acquired Themis and partnership with International Aids Vaccine Initiative (IAVI) and Ridgeback Bio.
Gilead, Johnson & Johnson and others are all in the fight against this virus. Each of them racing to get their vaccines and treatments to the public first.
Merck has a successful track record in vaccines, and its Themis acquisition further expands its expertise in this arena. Analysts are estimating the vaccine could boost Merck’s topline by anywhere between $2 to $5 billion, an approximately $1-2 share price impact.
Even Without a Vaccine Merck Is A Buy
Aside from its vaccine efforts, the company’s broader operations have stayed buoyant amid this pandemic. The business is currently not experiencing any production or supply issues, and demand remains strong.
Merck is best known for its immunotherapy cancer treatments, Keytruda, which has extended and saved the lives of countless cancer patients. This segment drives more than 1/4th of the company’s revenue, and the firm has 15 new Keytruda treatments in the pipeline for a cornucopia of different cancers. The antibody focused therapy that Keytruda utilizes gives Merck some knowledge that could help them expedite their COVID vaccine development.
Outside of Keytruda, Merck has a broad portfolio of essential drugs, vaccines, and animal health products that have consistently driven growth for the company. Merck is the leader in immunotherapy, which is revolutionizing the ability to fight the second leading cause of death in the world. MRK has a bright future, and I wouldn’t miss this buying opportunity.
MRK is down over 11% for the year, and I see this as an excellent opportunity to get into this multinational pharmaceutical giant at a discount. Merck’s healthy long-term outlook and cushy 3.1% dividend make this investment quite attractive at its current price level.
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