Nobias 5/3/21 Nobias 5/3/21

ExxonMobil: Can This Oil Giant Change Market Sentiment With Green Energy Proposals?

In recent years, ExxonMobil (XOM) has been a bit of a battleground stock for investors. For decades, this was a blue chip company known for generating strong total returns and paying out a generous and rising dividend yield. Some still argue that this is a best-in-breed type company; however, the company’s fundamentals would seem to imply otherwise. While it’s true that the energy industry as a whole has been out of favor for much of the last decade, XOM has seen its balances sheet deteriorate with its cash position dwindling, its cash flows trending towards negative growth, and its debt load rising as the company has been forced to do things like raise debt to sustain its high dividend yield.

The trouble that XOM has experienced is due to oil prices falling off of a cliff in 2014/2015. In January of 2014, crude oil was selling for more than $115/barrel. Well, by January of 2015, the price of a barrel of oil had fallen to below $40. There were investors who expected a quick bounce back from these record low prices, but the price of oil stagnated down in the $50-$70 range until early 2020. And then, when the pandemic hit and global commerce and travel slid to a halt, energy demand fell down to unseen levels in the modern era, leading to oil prices down in the $20/barrel range, which is a price point that the industry hadn’t seen in roughly 70 years.

These low prices obviously didn’t bode well for XOM’s operations and this showed up during the company’s fundamental results throughout 2020. What’s more, Exxon has been forced to sell off assets and reduce its capital expenditures on things like exploration, leading analyst to fear that the company was doing long-term damage to its growth prospects. However, as the economy has begun opening up in recent months we’ve seen a renewed uptick in energy demand, causing the price of a barrel of oil to rise back to pre-pandemic levels in the $60 area. That is still well below the $100+ oil prices that we saw roughly 7 years ago; however, the increase has been like a breath of air for energy investors.

XOM recently reported Q1 earnings, in which it beat consensus analyst estimates on both the top and bottom lines. Exxon generated revenues of $59.15 billion, which was $2.16 billion higher than what analysts thought the company would produce, and represented 5.3% year-over-year growth. XOM also posted GAAP and non-GAAP earnings-per-share of $0.64 and $0.65/share respectively. The GAAP figure was $0.07/share ahead of analyst estimates while the non-GAAP figure beat the consensus number coming into the quarter by $0.05/share.

Most importantly, the company generated $9.3 billion in cash from operations, which meant that both capital expenditures made during the quarter, as well as the dividend, were covered by the company’s cash flows. This allowed Exxon to reduce its debt load by approximately $4 billion during the quarter.   Regarding the uptick in cash flows, during Exxon’s first quarter report, CEO, Darren Woods was quoted as saying, “The strong first quarter results reflect the benefits of higher commodity prices and our focus on structural cost reductions, while prioritizing investments in assets with a low cost of supply.”

Overall, XOM was results from its upstream and downstream operations that beat analyst estimates; however, XOM shares still sold off on the news. This appears to be a bit of a classic “buy the rumor, sell the news” situation on Wall Street. Prior to the Q1 results, XOM shares were up roughly 42% of a year-to-date basis. This made the company one of the best performers in the entire market and it appears that investors needed to see even higher growth for the positive momentum to continue.   And, as mentioned before, even though XOM’s cash flows were much higher in Q1 than they have been in the recent past, there is still concern amongst analysts that over the long-term, the secular headwinds that the fossil fuel industry faces will continue to present growth headwinds to an oil giant like XOM.

During recent years, we’ve seen other oil giants, such as British Petroleum (BP) and Royal Dutch Shell (RSD.A) discuss plans to reduce their energy emissions with ambitious carbon reduction goals. ExxonMobil joined this movement recently as well, making big news in the carbon capture space.

XOM’s CEO Woods touched upon this during the Q1 earnings report, saying, “We also made progress on our energy transition strategy by launching our new ExxonMobil Low Carbon Solutions business, which is initially working to develop innovative, large-scale carbon capture and storage (CCS) concepts, including the evaluation and advancement of more than 20 new opportunities, such as a multi-industry hub to reduce emissions from hard-to-decarbonize industries near the Houston Ship Channel. As the global leader in carbon capture, we are seeing growing public and private sector support for CCS as a critical enabling technology to reduce emissions and help meet society's net-zero ambitions.”

Our algorithm found a couple of articles written by 4-star Nobias analysts highlighting Exxon’s attempt to expand its renewable/”green” energy ambitions.   Financial Buzz recently published an article highlighting a deal between ExxonMobil and Global Clean Energy’s biorefinery in Bakersfield, California.   The author said, “Renewable diesel utilized Global Clean Energy’s camelina crop that may significantly reduce life-cycle greenhouse gas.

The president of ExxonMobil Fuels and Lubricants Company, Ian Carr, was quoted as saying, “Our expanded agreement with Global Clean Energy reinforces ExxonMobil’s longstanding efforts to support society’s ambitions for lower-emission fuels. Through our growing relationship, we remain focused on bringing renewable fuels to market that make meaningful contributions to help consumers reduce their emissions.” Financial Buzz said, “Analysis from California Air Resources Board data demonstrates that renewable diesel from no-petroleum feedstocks may provide life-cycle greenhouse gas emission reductions of 40 to 80% compared to petroleum based diesel.”   These alternative fuels appear to be a growing part of Exxon’s plans, moving forward, as we continue to head into a future where there is increasing demand for environmentally friendly fuel sources.

Matthew DiLallo recently published this article on nasdaq.com, diving into the carbon capture plans that Woods discussed above.   DiLallo said, “The $100 billion investment would capture the carbon emissions of refineries and petrochemical plants along the Houston Ship Channel, a key oil industry hub, and permanently store them underground. The initial phase, which Exxon could complete by 2030, would capture 50 million tons of carbon dioxide per year, the company says, roughly the equivalent of removing 11 million cars from the road.”   DiLallo mentioned that in a recent interview with Politico,

Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.

Woods touched upon his belief that “massive project” that Exxon is proposing is “the only realistic way for the U.S. to get anywhere near the kinds of quick, aggressive cuts to the nation's greenhouse gas output" that the Biden administration wants to see occur moving forward.   DiLallo says that carbon capture technology is key to the future of the oil industry, noting that “It could enable the industry to deliver on its ambition of producing net-zero oil, where investments to reduce and capture carbon emissions would completely offset the emissions caused by the production and combustion of a barrel of oil.”

There has been push back amongst environmentalist who believe that energy executive and politicians alike should be focused on other energy sources that are truly emission-free; however, it’s going to take decades to wean the world off of its fossil fuel dependency so there appears to be a large opportunity for companies like Exxon to potentially profit from carbon capture and storage while technology innovation continues to occur that might lead towards more reliable and affordable alternative energy sources.   DiLallo mentions that for the carbon capture system to work for companies, “governments would need to create the right financial incentives to make CCS projects economical, such as a cap-and-trade system or economywide carbon tax.”

Without financial incentives, it’s unlikely for these investments to offer attractive enough profits for large corporations to pursue them. Because of this, there is a lot of uncertainty surrounding Exxon’s large proposal and its long-term clean energy plans.   DiLallo concludes his piece saying, “With the Biden administration currently seeking to set a clean energy standard instead, it's unclear if Exxon's proposed project will become a reality.” Because of this, investors aren’t likely to put a lot of weight on Woods’ grand proposal and therefore, it may be difficult for XOM to overcome the secular headwinds that the fossil fuel industry faces.

Disclosure: Nicholas Ward has no positions in any equity mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.

Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.

Nobias 4/30/21 Nobias 4/30/21

3M Company: Is The Recent Dip A Buying Opportunity?

The 3M Company (MMM) has been on quite a roll as of late.  As 5-star Nobias Analyst, Lee Samaha noted in a recent article, the stock’s price rose more than 10% in the month of March. However, he notes, “There wasn't any major fundamental news in the month, so the stock price rise was likely caused by a change in investor sentiment.”   And yet, this rally presents downside potential because anytime a stock rises on the back of bullish (and potentially greedy sentiment) as opposed to underlying fundamental growth, the risk of a pullback increases (due to the lack of a fundamental floor).   Well, that’s exactly what we saw play out after 3M posted Q1 earnings this week.

When 3M reported its first quarter results, we saw the stock beat analyst estimates on both the top and bottom lines.   MMM’s revenues totaled $8.9 billion during the quarter, which beat analyst estimates by $460 million and represented 9.6% year-over-year growth.   The company’s sales growth was board based across its diverse product offerings. During Q1, 3M’s Safety and Industrial sales grew by 13.1%, its consumer brands posted 9.8% growth, and its healthcare segment posted 6.8% growth.

he company noted that its growth was also strong across all geographic regions, with revenues rising by 18.1% in the Asia Pacific region, by 10.4% in the Europe, Middle East, and Africa region, and by 4.5% in the Americas region.

These higher sales led to positive growth on the bottom-line as well. The company’s earnings-per-share came in at $2.77 on a GAAP and non-GAAP basis, beating GAAP expectations by $0.50/share and non-GAAP expectations by $0.48.share. These two earnings-per-share results represented 23% and 27% growth, respectively, when compared to the company’s GAAP and non-GAAP earnings results from one year ago.

During Q1, the 3M company generated $1.7 billion in operating cash flow and returned $1.1 billion to shareholders ($858 million was paid in dividends and $231 million was dedicated to share buybacks).   Looking at the Q1 report it appears that management was quite bullish. Here’s an excerpt from 3M’s press release regarding earnings: "The first quarter was highlighted by broad-based organic growth, robust cash flow and a double-digit increase in earnings per share," said Mike Roman, 3M chairman and chief executive officer. "Our four industry-leading businesses are delivering strong results, while we accelerate 3M's digital transformation and sustainability efforts with significant new goals to improve air and water quality. While uncertainty related to COVID-19 remains, we will stay focused on driving growth, building on favorable market trends, improving operational performance and delivering for customers and shareholders." However, the market did not agree. 3M shares fell roughly $10/share, from the $202 area to the $192 area, representing a 5% dip, on the heels of the Q1 earnings release.

The 3M company has been struggling to generate sustained growth for several years now. In 2018, the company’s full-year earnings-per-share totaled $9.98. During 2019 and 2020, MMM experienced negative bottom-line growth, due in large part to the U.S./China trade war and then the COVID-19 pandemic. In 2021, analysts expect to see a return to growth; however, even if 3M hits the current consensus growth estimate of 12% this year, its earnings-per-share will only total $9.77, still less than it was just several years ago.   This turnaround process has been long and arduous. And, as Samaha, writes in a different piece than the one linked above, there is still a lot of uncertainty surrounding 3M’s stock.

In a recent article, previewing 3M’s Q1 prospects, Samaha said, “The good news is that the company has plenty of financial firepower to do so and is actively pursuing changes. The bad news: There's little hard evidence that the restructuring is having a significant impact, and the upcoming first-quarter earnings report on April 27 might confuse more than it clarifies.”   Samaha touched upon the company’s recent struggles, saying, “Given weak end-market conditions in recent years, it's understandable if they have performed poorly. However, what isn't forgivable is that the less cyclical segments, namely healthcare and consumer, have disappointed the most.”   However, even with the uncertainty clouding the stock’s growth outlook, Samaha is bullish on the company’s ability to generate strong profits, noting, “The company generates bundles of earnings before interest, depreciation, amortization (EBITDA), and FCF.”

What’s more, Samaha highlights the relatively cheap valuation that 3M trades with, relative to its peers. Just before earnings, 3M shares were trading with a 17.5x price-to-free cash flow multiple. With that in mind, Samaha says, “Its price-to-FCF valuation looks cheap, especially compared to a multi-industry peer like Illinois Tool Works, trading at nearly 28 times its FCF.”   Due to its post-earnnigs dip, MMM is even cheaper now. With these strong cash flows and relatively cheap valuation in mind, Samaha says, “There is a strong case for buying/holding the stock, but management needs to start delivering in 2021, particularly in the healthcare segment.”

However, he noted that if the company doesn’t raise its guidance during the first quarter results, like he expects so many of MMM’s industrial peers to do in light of the recent broad economic resurgence, then shares would likely continue to languish.   Well, during the Q1 report, MMM reiterated previously provided full-year 2021 guidance, calling for earnings-per-share to be in the range of $9.20-$9.70. MMM expects to see full-year sales growth of 5-8% with organic local-currency growth in the 3-6% range.

While sticking with guidance is certainly better than reducing it, it appears that the market was of the same opinion as Samaha, expecting a raise.   3M continues to face pressures related to pollution litigation, which David Trainer, a 5-star Nobias Analyst highlighted in a recent article as having a negative impact on the company’s financial results.   This headwind, combined with the continued uncertainty around the company’s restructuring and ongoing tariff related headwinds associated with certain end markets (especially in the automotive space) are likely to continue to serve as hurdles for the stock to clear in terms of rising sentiment and a potential share price rally.   However, when looking at the blue chip analyst community, the prevailing sentiment surrounding MMM is a positive one, pointing towards apparent upside potential.

There are 20 bullish ratings by 4 and 5-star rated Nobias analysts, compared to just 7 sell ratings.   3M is a dividend aristocrat, having increased its annual dividend for 63 consecutive years now. The company generates reliable sales and earnings, has a strong balance sheet, and a product portfolio that many of its peers are likely envious of. It appears that the high quality analysts we track believe that the company has what it takes to overcome its short-term issues, meaning that this is a dip that long-term investors may want to seriously consider buying.

Disclosure: Nicholas Ward is long MMM.. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 4/28/21 Nobias 4/28/21

United Parcel Service Appears Benefit From Strong Secular Trends

It’s earnings season, which typically means an abnormal amount of volatility in the markets as new results and guidance rolls in. However, thus far during the first quarter reporting, we’ve seen relatively tepid share price movement, especially after strong beats and raises. This seems to imply that strong sales and earnings growth has already been priced into the market. And, this theory makes a lot of sense, being that we’re coming out of the COVID-19 recession and the re-opening of the economy should generate some of the best gross domestic product growth that the United States has seen in a very long time. However, there was one major exception to this trend this week. United Parcel Service (UPS) posted great numbers on Tuesday, which sent the stock soaring more than 11%.

UPS has made a habit of beating Wall Street estimates in recent quarters. After its Q4 results which were posted back in early February, Daniel Foelber, a 4-star Nobias analyst from The Motley Fool, highlighted the results saying, “The earning beat caps off a terrific year for the package delivery stock. Shares of UPS trounced the market last year, producing a 44% total return compared to the market's 17%.”

It’s true that from October of 2020 through April 26th of 2021, EPS shares hovered in a relatively tight range, trading in the $170’s. And this may come as a surprise to many because as Foelber mentioned in his recent article, the company set many records during 2020.   He said, “UPS earned a record-high $84.6 billion in revenue, up 14.2% year over year (YoY). Adjusted operating profit was $8.7 billion, up 7% YoY. Diluted adjusted earnings per share (EPS) finished the year at a record-high $8.23. And the company paid a record-high $3.6 billion in dividends. Its dividend now yields 2.5%.”

Foelber also hypothesized that what was holding back UPS shares moving forward was the unknown associated with whether or not the heavy investments that the company has made in the last few years with regard to expanding its logistics operations and attempting to make them more efficient would pay out.   He said, “UPS's performance, and potentially its stock price, will depend on the effectiveness of last year's spending more so than this year's. UPS paid a hefty price to expand its faster shipping network and beef up its logistics to handle the vaccine rollout. The extent to which it can capitalize on those efforts could ultimately determine its growth over the next few years.” And, arriving at the Q1 results, it appears that the market totally underestimated UPS’s ability to capitalize on those investments and therefore, its overall growth potential in 2021.

The outsized volatility that shares posted after Q1 results this week caught the attention to investors, analysts, and commentators alike. UPS was one of the most publicized stocks this week, with the Nobias algorithm recognizing dozens of reports on the stock. And, with that in mind, we wanted to highlight the opinions provided by the highest quality analysts (only those rated 4 and 5-stars by the Nobias system) for readers who’re wondering what to make of the big move UPS shares.

Nobias Finance PG April 26th 2021 — Nobias Finance UPS April 28th 2021

During the first quarter, UPS posted revenues of $22.91 billion, which beat consensus analyst expectations across Wall Street by $2.17 billion and represented a 27% year-over-year sales increase.   UPS’s Q1 earnings-per-share came in at $2.77 on a non-GAAP basis and $5.47 on a GAAP basis. These two figures beat the consensus Wall Street estimates by $1.05 and $3.79, respectively. This GAAP earnings-per-share result was up 393% year-over-year (and up 141% on an adjusted basis).   The company’s consolidated operating profits totaled $2.8 billion, representing 158% year-over-year growth (and up 164% on an adjusted basis).   During Q1, UPS saw average daily volumes increase by 14.3% year-over-year.

In the United States domestic segment, UPS’s sales increased by 22.3%, led by strength in small and medium businesses. The company’s average price-per-package increased by 10.2%, which led to higher margins for the segment, with operating margin coming in at 9.7% (domestic operating margin was up 10.4% during the quarter on an adjusted basis).  Internationally, UPS’s average daily volume increased by 23.1% with led to revenue growth of 36.2%. The company said that its package volumes increased in all of its operating regions, though the big sales growth was driven primarily by strength in Asia and Europe. UPS’s operating margin came in at 23.6% for the international segment (up 23.7% of an adjusted basis).

United Parcel Service’s senior management came out incredibly bullish on the quarterly results. During the earnings report, the company’s CEO, Carol Tome’ was quoted as saying, “I want to thank all UPSers for delivering what matters, including COVID-19 vaccines. During the quarter, we continued to execute our strategy under the better not bigger framework, which enabled us to win the best opportunities in the market and drove record financial results.”

5-star Nobias analyst, Lou Whiteman, of The Motley Fool, was also bullish on the results, concluding the introduction of his recent UPS article by saying, “The company is seeing strong revenue growth across all segments and improving pricing power, leading to the beat.”   To a certain extent, Whiteman noted that these stellar Q1 results were very predictable, because it was obvious that UPS was going to be a major beneficiary of the economic recovery since the pandemic lows.

When COVID-19 first struck during Q1 of 2020, the worldwide economy essentially shut down. And, when commerce stopped, the logistics space suffered. And yet, eCommerce was one of the big winners of the pandemic period, with consumers stuck at home and reluctant to venture out into the public. Shipping players like UPS benefited from eCommerce growth with higher business-to-consumer (B2C) volumes and now that the economy is reopening, its business to business (B2B) volumes have increased nicely as well.

There has been fear amongst investors that logistics players like UPS would not be able to sustain the growth related to the re-opening and/or the change of consumer habits during the pandemic related to eCommerce, and therefore, any near-term growth would appear to be isolated instead of secular.   But, Whiteman is of the belief that UPS’s post-pandemic growth will be long lasting, saying, “With each passing quarter evidence is growing that UPS and its rivals are likely to be able to generate strong margins on the domestic business even after the pandemic recedes, thanks to strong demand, streamlined costs, and better asset utilization. Investors are understandably excited about this business.”

Sean Sechler, a 4-star Nobias analyst who writes for Entrepeneur.com, highlighted similar bullish sentiment in his recent article, saying, “While some investors might think that the uptick in e-commerce shipping was only a short-term boost driven by the pandemic, the truth is that e-commerce volumes have been increasing each year for a while now and that likely won’t be changing anytime soon.”

With this in mind, it appears that the investments that UPS management has made are proving to the well worth the costs. Without them, the company would not be in the situation that it is in today, able to take advantage of rising global shipping demand. In short, the risk incurred was certainly worth the reward and UPS investors are experiencing nice gains become of management’s foresight.

Disclosure: Nicholas Ward has no position in any equity mentioned in this article.. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 4/26/21 Nobias 4/26/21

Proctor and Gamble Just Raised Its Dividend for the 65th Consecutive Year

Procter and Gamble (PG) is one of the more interesting stocks in the consumer packaged goods space right now. It wasn’t all that long ago that this illustrious company was being beaten down by the market, due to its poor performance during 2015 and 2016 when the company posted back-to-back years of negative earnings growth (something that is very rare in the long-term history of this stock). This period sparked a significant restructuring of PG’s operations and brand portfolio, inspired by an ugly proxy fight between Procter’s management and Trian Fund Management, led by Nelson Peltz, a famous activist investor. At the end of the day, all’s well at that ends well in the activist investment world. Eventually Peltz was awarded board seats and the leadership shake up has served as a catalyst for the major turnaround of this mature stock. During its past 2 fiscal years, PG has posted double digit earnings growth. These days, the company’s operational growth puts it near the top of its peer group. However, while sales and earnings continue to grow nicely, the stock has still struggled year-to-date, creating an interesting opportunity for investors.

PG shares are down 3.7% year-to-date, which pales in comparison to the S&P 500’s 11.5% gains.   This underperformance may seem odd to some, due to the fact that PG has posted two quarterly earnings results thus far during 2021, both of which have involved top and bottom-line beats, relative to analyst expectations. However, looking at the company’s valuation, we begin to see why there is a tug-of-war going on right now between the bulls who are focused on the company’s strong growth turnaround and the bears who say that shares are overly expensive.

Today, PG shares are trading with a blended price-to-earnings ratio of 24.2x attached to them. Looking at full-year earnings expectations for the company in fiscal 2021, we see a forward looking price-to-earnings ratio of 23.8x. Both of these figures are well above the stock’s long-term (20-year) average price-to-earnings ratio of 19.9x.

Nobias Finance VZ April 23rd 2021 — Nobias Finance PG April 26th 2021

Touching upon potential overvaluation, 5-star Nobias analyst, The Individual Trader, recently posted an article on Seeking Alpha which explained this valuation scenario. They note that the company’s RSI is in decline after a strong top in the 90 range and said, “Shares actually presented a similar set-up back in 2017 when the share price of P&G continued to rise but momentum was once more faltering. This led to a 20%+ down-move in the share price in the space of four months which in hindsight presented an excellent long-term buying opportunity.”

The Individual Trader combined this technical set-up with some more fundamental analysis as well, saying, “Many investors may be waiting for this potential down-move to happen due to shares being perceived as being overvalued. The forward sales multiple of 4.57 as well as the forward book multiple of 7.11 definitely come in on the high side compared to the sector as well as P&G's historic averages. Nevertheless, P&G cannot be blamed for the market loving this company and we see plenty of evidence of this when we view the profitability metrics. EBIT margin of 24.13% as well as trailing operating cash flow of $19.03 billion are well above average for P&G and explains in part why shares have rallied well over 20% since March of last year.”

Valuation arguments are tricky to make. There are so many metrics in play that parties sitting on both sides of the bear/bull aisles can typically find data to justify their stances. Really, only with the benefit of hindsight, can we truly see the impact of valuation on share price movement. But, in the meantime, this company is doing all that it can to sway investor sentiment towards the bullish end of the spectrum.

During the company’s fiscal third quarter, PG’s net sales increased by 5.2%, totaling $18.1 billion. This $18.1 billion revenue figure beat analyst expectations by $150 million. During the quarter, PG’s organic sales growth came in at 4%.  On the bottom-line, PG produced diluted net earnings per share of $1.26, which represented 13% year-over-year growth relative to reported earnings-per-share and 8% year-over-year growth relative to core earnings-per-share.

Charles Sternberg, a 4-star Nobias analyst who writes for Happi, touched upon PG’s segment results in a recent article. He said that the company’s Beauty segment posted 7% y/y growth, its Grooming segment posted 4% y/y growth, its Healthcare segment posted 3% y/y growth, its Fabric and Homecare segment posted 7% y/y growth, and its Baby, Feminine, and Family Care segment posted -1% y/y growth.

During the fiscal Q3 report, PG’s Chairman, President, and CEO, David Taylor, said: “We delivered another quarter of solid top-line, bottom-line and cash results in what continues to be a challenging operating environment. We remain focused on executing our strategies of superiority, productivity, constructive disruption and improving P&G’s organization and culture. These strategies enabled us to build strong business momentum before the COVID crisis and accelerate our progress during the crisis, and they remain the right strategies to deliver balanced growth and value creation over the long term.”

PG’s operating income came in at approximately $3.8 billion during the quarter, up 10% on a year-over-year basis. This strong bottom-line performance allowed the company to increase its dividend as well.   5-star Nobias analyst, Demitri Kalogeropoulos, recently highlighted PG’s dividend growth outlook in his article, “Two Dividend Giants To Buy Before Their Next Payout Hike”.   In this piece, Kalogeropoulos highlighted PG’s strong sales growth, saying, “Organic sales jumped 8% in P&G's last outing and are expected to rise for the full year following a spike in fiscal 2020.”   He then went on to highlight the company’s bottom-line success, saying, “P&G generated $10 billion of operating cash in the past six months, compared to $8.5 billion a year earlier.”

Kalogeropoulos penned this piece in late March, before the recent dividend announcement. In his article, he said, that the company’s recent success “gives management the flexibility to announce a hike in April that should be at least as big as last year's 6% hike.”

Well, it turns out he was correct.

On April 13th, PG announced that it was increasing its quarterly dividend by 10%, raising the payment from $0.7907/share to $0.8698/share.  This increase extends PG’s annual dividend increase streak to 65 consecutive years.   And, if six and a half decades of annual dividend increases doesn’t impress you, then maybe this statement that the company made during its quarterly report will: “P&G has been paying a dividend for 131 consecutive years since it’s incorporation in 1890.” Regarding this amazing streak, Kalogeropoulos said, “That kind of streak is only possible because of its dominant hold on several consumer staples niches, including paper towels, detergent, and shaving care.”

It’s also worth mentioning that PG’s shareholder return story is not limited to its dividend growth.   During the Q3 report, management said, “P&G expects to pay more than $8 billion in dividends in fiscal 2021. The Company increased its outlook for common stock repurchase from up to $10 billion to approximately $11 billion in fiscal 2021. Combined, P&G now plans to return about $19 billion of cash to shareowners in this fiscal year.”   Capital return plans like this from a well established blue chip name is why PG remains one of the most widely owned stocks by hedge funds on Wall Street and a favorite amongst retail investors as well.   So, while investors wait and see if the company’s share price will rebound throughout the remainder of 2021, they can rest assured that PG management will continue to be quite generous with its cash flows.

Disclosure: Nicholas Ward has no position in any equity mentioned in this article.. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 4/23/21 Nobias 4/23/21

Verizon: A Bull/Bear Tug-Of-War Between Dividends and Debt

Staying true to trend this week, the third company that we’re looking at, Verizon (VZ) is down on a year-to-date basis. This is interesting, because it wasn’t all that long ago that the stocks targeted by the Nobias algorithm for outsized analyst activity were largely the high flying growth stocks with nosebleed valuations. We’ve witnessed a rotation in the market, from growth to value, throughout recent months and it appears that analysts are making that same transition with their coverage. So, with that in mind, let’s take a look at Verizon, a leader in the telecommunications space, largely known for its slow, yet steady growth, and high dividend yield.

VZ shares are down 2.5% year-to-date. Over the trailing 12 months, VZ shares are down 0.5%. During these same two periods of time, the S&P 500 has posted gains of 11.46% and 49.33%, respectively. Without a doubt, VZ has been a laggard. Is this stock a buy after losing so much ground to the major averages over the last year or so? Let’s find out what reputable analysts are saying.

Eric Volkman, a 4-star Nobias analyst who writes for Nasdaq.com recently penned a piece highlighting the company’s first quarter earnings, which were released on Wednesday, April 21, 2021.   Volkman began his piece, highlighting the fact that VZ beat analyst expectations on both the top and bottom lines. He said, “For its first quarter of fiscal 2021, the telecom giant managed to increase its revenue by 4% year over year to $32.9 billion. Generally accepted accounting principles (GAAP) net income also headed north, advancing by 25% to $5.38 billion. On a non-GAAP (adjusted) basis, the bottom line profit was $1.31 per share, up from the year-ago quarter's $1.26.”

Nobias Finance NEE April 20th 2021 — Nobias Finance VZ April 23rd 2021

For the quarter, analysts were expecting $32.47 billion in revenues and adjusted net profits of $1.29/share.   Volkman continued, noting that VZ separates its business into three segments: “consumer, business, and media.” He said, “The largest by far -- consumer -- enjoyed nearly 5% growth to $22.8 billion, which the company said was due largely to new phone activations.” Volkman points out that VZ’s business segment posted relatively flat results for the quarter, with sales up just 1%.

VZ’s media segment posted the best growth during Q1, up 10%. However, as Volkman notes, this is the smallest piece of Verizon’s overall business, accounting for just $1.9 billion of the company’s $32.9 billion sales during the quarter.   Volkman concluded his analysis, highlighting the forward guidance provided by Verizon during the quarter.  He said that Verizon “Believes it will post an adjusted, per-share net profit of $5.00 to $5.15, with service and other revenue growth coming in at 2%. Currently in the midst of rolling out its 5G network, Verizon anticipates its capital spending will total $19.5 billion to $21.5 billion for the year.”

David Van Knapp, another 4-star Nobias analyst who writes for Daily Trade Alert, touched upon these slow growth expectations in an article he recently published, focused around his recent purchase of Verizon shares.  Van Knapp says, “Verizon is a high-yield, slow-growth DG [dividend growth] stock. It increases its dividend at only about 2% per year. Some investors would find that unacceptable, but it’s OK with me for a stock yielding >4%. I wouldn’t accept it for, say, a 1%-yielder.” Van Knapp noted that his fair value estimate for VZ shares is $62, meaning that he believes “Verizon is 7% undervalued right now, meaning that its price is, at worst, a fair deal.”   He noted that this company might not be appealing to many investors because of its relatively slow growth and slow dividend growth; however, he concludes his article saying, “This purchase is an example of opportunistically investing in excellent companies at attractive prices when they are available. As the entire market is widely considered overvalued, it’s great to find a high-quality company available for a fair price.”

Van Knapp’s fair value estimate is essentially in-line with the consensus fair value estimate by analysts tracked by TipRanks, according to a recent article published by Austin Angelo, a 5-star Nobias analyst writing for analystratings.com.   Angelo not only says that the TipRanks consensus is $61.89, but also that J.P. Morgan recently released a note on Verizon, which placed a “buy” rating on the stock with a $64/share fair value estimate.   Being that VZ currently trades for $57.30, it appears that shares have upside potential.   When reading through these bullish analyst reports, it’s clear that investors view VZ as an income oriented stock. Bullish investors clearly focus on the company’s dividend yield and Verizon’s long history of rewarding shareholders with annual dividend growth.

David Trainer, a 5-star Nobias analyst who writes for Forbes.com, recently published an article titled “Verizon’s Cash Flow Increases The Safety Of Its Dividend Yield”.   In his piece, Trainer notes that Verizon “is the featured stock in March’s Safest Dividend Yields Model Portfolio.” Like so many other Verizon bulls, Trainer is willing to take a step back and acknowledge long-term trends when looking at VZ shares, rather than focus too much on the stock’s short-term growth potential.

Both Trainer and Van Knapp discussed the power of compounding when it comes to buying and holding shares of a blue chip dividend growth stock like Verizon.  In his piece, Trainer highlighted the company’s long-term profitability metrics, saying, “Verizon has grown revenue by 4% compounded annually and net operating profit after tax (NOPAT) by 5% compounded annually over the past two decades. Verizon’s NOPAT margin increased from 15% in 2016 to 20% in 2020 while its return on invested capital (ROIC) improved from 6% to 8% over the past decade.”   Because of this reliable bottom-line growth, Verizon has been able to generate reliable dividend growth as well.   Train says, “Verizon has increased its dividend for 14 consecutive years. More recently, the firm increased its dividend payments from $2.29/share in 2016 to $2.49/share in 2020, or 2% compounded annually. The current quarterly dividend, when annualized provides a 4.5% dividend yield.”

Yet, this income oriented focus by management hasn’t come at the cost of capital expenditures (wire-line and wireless networks are very expensive to build and maintain) or making mergers and acquisitions in an attempt to grow sales.   Trainer highlights the fact that VZ’s FCF has outpaced its dividend payments over the long-term, saying, “Since 2015, Verizon’s cumulative FCF easily covers it annual dividend payments even after the $3.4 billion spent to acquire Fleetmatics and Telogis in 2016 as well as the $6.4 billion spent to acquire Yahoo, XO Communications.’ fiber business, and fiber optic network assets from WideOpenWest in 2017. Over the past five years, Verizon generated $63.2 billion (27% of current market cap) in FCF while paying $48.8 billion in dividends.”

The major issue that bears have when it comes to VZ stock isn’t the company’s dividend, its business, or its brand name...but instead, the company’s balance sheet.   Earlier in 2021, Verizon led all bidders at the FCC spectrum auction, spending more than $45 billion. It appears that the company had to make such a large move to maintain its leadership in the wireless space as competitors launch impressive 5G coverage; however, this heavy spending came at a cost.

Verizon recently surpassed its rival, AT&T (T) as the largest non-financial issuer of debt.  During its recent Q1 report, management said, “Verizon's unsecured debt balance increased year over year by $42.9 billion to $147.6 billion in first-quarter 2021, and the company’s net unsecured debt (non-GAAP) increased by $39.7 billion year over year to $137.4 billion.” During the Q1 earnings conference call, Verizon’s CFO, Matthew Ellis, said, “Based on our current cash flow assumptions, we expect our net leverage ratio to be approximately 2.8 times by the end of the year. We will evaluate the level of our cash balance based on the recovery in the economy and developments with the pandemic.”

Although it’s true that Verizon’s cash flows are large, the company’s debt load/net debt ratios are high enough to scare away conservative investors.  This is likely to be the story that surrounds VZ shares for years as management attempts to repair the damage that was done to its balance sheet during the recent FCC auction.

Disclosure: Nicholas Ward is long shares of VZ and T. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 4/20/21 Nobias 4/20/21

NextEra Energy: Does Future Growth Justify Today’s High Valuation Premium?

Although the transition away from fossil fuels and towards a green energy future seems undeniable at this point in time, many of the stocks in the renewable energy space, which had experienced a strong rally throughout much of 2021 thus far, have begun to experience a sell-off in recent weeks.   It’s unclear what caused this sentiment shift. Valuation is likely at play. No equity ever goes up in a straight line, after all. What’s more, the initial exuberance related to the Biden Administration’s major infrastructure spending plans, which involved heavy investments into renewable energy, is beginning to wane.

In recent weeks, it has become clear that compromise is necessary with Republicans, who appear to be much less interested in a “Green New Deal” type of package, for such a large stimulus deal to pass.   Furthermore, Republicans appear to be wary of the overall price tag associated with the proposed infrastructure deal, meaning that any deal that makes it through Congress will likely involve much less stimulus and spending than was originally proposed.

What’s interesting is that while trillions of stimulus spending will obviously be bullish for renewable focused names and utility stocks, the green energy movement benefits from secular tailwinds and therefore, even if the stimulus bill never makes it through the halls of Congress and onto Biden’s desk in the Oval Office to sign, it’s very likely that the positive growth trajectory over the long-term in the renewable space remains intact.   And with this in mind, we wanted to highlight the recent share price movement of one of the market leaders in renewable energy production, NextEra Energy (NEE), which has been involved in the recent sell-off.

NEE shares are down roughly 3.5% during the past week, pushing their year-to-date returns down to just 1.4%.   The S&P 500 is up roughly 11.5% year-to-date thus far, meaning that NEE shares have massively underperformed the broader index.   This relative underperformance has led a handful of analysts coming out with bullish opinions in recent weeks.

Right now, when looking at the 4 and 5-star analyst that the Nobias algorithm tracks, we see 6 opinions leaning bullish with just 1 analyst trending bearish with their outlook.   With that in mind, it appears that NEE may be an attractive option for investors looking to increase their exposure to renewables. Rekha Khandelwal, a 5-star analyst who writes for The Motley Fool certainly thinks so.   She recently penned an article titled, “Is NextEra Energy Stock A Buy?” which offered a strong bullish outlook on the stock.  She began her piece by stating that “NextEra Energy has delivered an impressive performance over the years. Its adjusted earnings per share (EPS) grew by 10.5% last year.” This double digit bottom-line growth is rare to find in the utility space, which is generally known for slow and steady revenues and earnings growth.  What’s more, Khandelwal notes that NEE’s future growth prospects remain attractive, saying, “The utility expects adjusted EPS to range from $2.40 to $2.54 for 2021, which, at its midpoint, is nearly 7% higher than 2020. Moreover, it expects from 6% to 8% growth in adjusted EPS over the next two years.”

Daniel Foelber, a 4-star analyst who also writes for The Motley Fool, recently wrote an article highlighting his bull case for NextEra, in which he touched upon the company’s operations and stellar past performance.   He noted that NEE is best known for its Florida Light and Power Company holdings.

Foelber said, “NextEra's core business is Florida Power & Light (FPL), which is the largest utility in Florida. FPL generates the vast majority of its power from fossil fuels, although it has added renewable capacity, too. FPL's claim to fame is its steady profits and low rates for customers. In a win-win for both NextEra and its customers, FPL's residential customers pay 30% less than the national average.” He continues, mentioning that “NextEra has been using FPL's extra cash and debt to fund its renewable arm, NextEra Energy Resources (NEER).”

Looking at NextEra’s investor relations website, we see that NextEra Energy Resources is “the world's largest generator of renewable energy from the wind and sun and a world leader in battery storage. Through its subsidiaries, NextEra Energy generates clean, emissions-free electricity from seven commercial nuclear power units in Florida, New Hampshire and Wisconsin.”

This combination of reliable earnings from the traditional (and very efficient) utility in Florida and the growth potential of renewables has allowed NEE to post performance well above its peer average over the long-term.

Foelber notes that “Between 2005 and 2020, NextEra grew its adjusted earnings per share (EPS) and dividends per share at compound annual growth rates of 8.7% and 9.6%, respectively.” And circling back to Khandelwal’s piece, we see that the company continues to invest heavily into future growth projects, which create continued strong growth potential moving forward.   She said, “NextEra spent $14 billion on capital projects in 2020. The company expects to spend around $44 billion on capital projects through 2025, including nearly $4 billion on wind and solar assets.”

Foelber mentioned the company’s growth plans as well, saying, “To put into perspective the sheer scale of this endeavor, consider that NEER had a renewable capacity of roughly 22 gigawatts (GW) at the end of 2019. After adding 5.8 GW of renewable capacity in 2020, NEER plans on adding an additional 23 GW to 30 GW of capacity by 2024, bringing its total renewable capacity to between 50 GW and 60 GW. Most of NEER's existing and planned renewable capacity is wind energy.”

However, there is downside to all of this growth: valuation.   Generally speaking, investors are willing to pay higher premiums for stock with reliable growth prospects. However, high premiums do tend to increase risk and lower future return prospects and at a certain point, the valuation gaps between competitors can become so large that the best-in-breed pick in a given sector/industry no longer looks attractive, on a relative basis.   For many, this has been the case with NEE in recent years.

Khandelwal notes, “With a forward price-to-earnings ratio of 29, NextEra Energy looks pricey compared to its top utility peers, which are all trading at forward P/E ratios of around 18.” Not only does this price-to-earnings ratio make NEE look expensive relative to its peers, but this ~29x multiple is always well above the company’s own long-term historical averages.   NEE’s 5 and 10-year average blended price-to-earnings ratios are 23.5x and 19.8x, respectively.   As you can see, there is a clear premium being placed on shares in the present day. However, Khandelwal justifies this, using forward growth, saying, “if we consider NextEra Energy's expected earnings growth, its valuation looks much better. NextEra's forward price-earnings-to-growth or PEG ratio is 0.4 compared to Southern Company's (SO) ratio of 1.4.”

Frankly put, only time will tell if NEE’s growth prospects come to fruition and eventually justify today’s premium. All equities are risk assets and their prices are generally based upon expectations of future cash flows. Investors betting on NEE at roughly 30x earnings are potentially putting outsized risk onto the table.   Yet, Khandelwal appears to be comfortable with the risk/reward proposition that NEE shares offer today, saying, “Simply put, a company growing at a higher rate should trade at a higher P/E than another one that is growing at a lower rate, all other things being equal. Generally, a ratio below one indicates that a stock isn't overpriced, based on its expected growth.” And, she concluded her piece with clearly bullish commentary, saying, “NextEra Energy's steady operations combined with its huge renewables portfolio makes it an attractive buy. Its growth plans and outlook inspire confidence in its ability to continue generating peer-leading dividend growth. The stock's recent pullback offers an entry point to build your position for the long term in this top utility.”

Nobias 4/17/21 Nobias 4/17/21

Will Alibaba Continue to Rally Now That its Anti-Trust Investigation is Over?

Alibaba (BABA) stock is one of the most intriguing tickers in the entire stock market. In the growth space, this is probably the ultimate battleground stock.   Bulls will tell you that the company is growing like a weed (which it is; during BABA’s last quarter, its revenue grew by 37% year-over-year and its adjusted EBITDA posted 22% growth). BABA is the eCommerce leader (amongst other things; like its American counterpart, Amazon (AMZN), BABA’s business has expanded away from its eCommerce base into other things like cloud computing, digital payments, logistics, and digital marketing) is Asia, which has a population that can support this immense growth over the long-haul. Unlike Amazon, Alibaba is an asset-light business, which is even more appealing to growth investors who focus primarily on software-as-a-service (SaaS). Alibaba doesn’t own merchandise or warehouses; instead, the company focuses on software solutions that connect buyers and sellers and help goods be delivered in an expedient manner.

The company has exceeded in growing its regional, and even global influence, and therefore, has minted itself one of the premiere technology companies on planet Earth.  However, bears will say that none of this growth matters, because frankly, it cannot be trusted. Chinese companies have a long history of shady accounting practices, which have scared off many western investors. What’s more, the threat of regulation from the Chinese Communist Party is a constant threat to growth.

4-star Nobias analyst, Jeremy Bowman of The Motley Fool, recently touched upon his saying, Chinese stocks tend to trade at a discount to their American peers due in part to investor cautiousness about the influence of the Chinese Communist Party.”   However, he did go on to note that “the effect of China's anti-monopoly law in this instance isn't much different from that of similar laws in the U.S. and Europe,” pointing towards a potential overreaction.

Lastly, geopolitical disputes between the U.S. and China have recently created another potential headwind for BABA shares: delisting from U.S. stock exchanges. At this point, it’s speculative as to whether or not this threat will come to fruition and if so, which companies would be removed; however, the risk remains a dark shadow above the head of a stock like Alibaba, scaring conservative investors away.   But, not all conservative investors. Arguably the king of all conservative, value investors, Charlie Munger, probably best known as Warren Buffett’s right hand man at Berkshire Hathaway, recently initiated a large BABA stake in the Daily Journal’s portfolio, which Munger manages. Alibaba is now the Daily Journal’s third largest holding and this purchase has certainly made waves throughout the value investing community in recent weeks.

Over the last 6 months, BABA shares are down 22.33%. However, during this period, the company’s growth has remained strong. The combination of rising bottom-line results and a falling shares price has resulted in a low price-to-earnings ratio, especially on a forward looking basis.   Right now, BABA shares trade for approximately 21.5x their current forward looking consensus estimate for earnings-per-share, which sits at $11.05. This price-to-earnings multiple in the low 20’s means that BABA shares are much cheaper than the popular eCommerce plays. For instance, Amazon shares trade with a forward P/E ratio of 71.1x.

The uncertainty surrounding BABA shares has created an attractive opportunity in the eyes of many investors. We recently tracked reports regarding BABA shares amongst the 4 and 5 star analysts that Nobias follows and saw an average price target of $321.57 (this average was derived from 7 reports posted since the start of 2021).   Today, Alibaba shares trade for $238.69, which implies near-term upside of nearly 35%, relative to the 4 and 5 star consensus target.

And, in recent days, the bullish sentiment surrounding BABA has been rising due to what appears to be the conclusion of the anti-monopoly investigation by Chinese regulators that was plaguing the stock.   Chinese investigators were looking into Alibaba’s practices of not allowing merchants to sell on other platforms. This investigation came on the heels of the 2020 bombshell news regarding Chinese regulators disallowing the Ant Financial spin-off, which resulted in Alibaba’s famed CEO, Jack Ma, to go into hiding.

The onslaught of regulatory pressure on BABA has been immense; however, when news broke that Alibaba was fined $2.8 billion by the regulators, many viewed this fine as a slap on the wrist. 5-star Nobias analyst, Joe Tenebruso, put this fine into perspective recently, saying, “The penalty payment equates to 4% of Alibaba Group's domestic revenue in 2019. Chinese law allows for a maximum penalty of 10% of revenue. Moreover, there were no requirements for divestitures or major structural changes to Alibaba's business.” While discussing the Alibaba fine in his recent article, Bowman said: “While investors have been fearful of the regulatory grip of the Chinese government, the fine is also notably less than the penalties that Facebook and Alphabet have paid. In 2019, Facebook was fined $5 billion by the Federal Trade Commission over violating consumers' privacy rights, and the stock barely flinched. Alphabet's Google, meanwhile, was forced to pay $9.7 billion in three antitrust cases in the EU.” Bowman continued, noting BABA’s apparent contrition, highlighting a statement that the company offered regarding the fine in which it said, "We are committed to ensuring an operating environment for our merchants and partners that is more open, more equitable, more efficient and more inclusive in sharing the fruits of growth."

As Margaret Moran, a 4-star Nobias analyst who writes for GuruFocus said in her recent article, “Investors cheered the news on Monday, bidding the stock up more than 9% to around $244.01 throughout the day's trading as many were no longer deterred by the uncertainty of pending regulatory concerns.” Moran quoted Alibaba’s Chief Executive, Daniel Zhang, who in response to the regulators’ decision said, “We will incur additional cost. We don't view this as a one-off cost. We view this as a necessary investment to enable our merchants to have a better operation on our platform."

These “additional costs” have caused analysts to lower their near-term outlooks for BABA’s bottom-line growth. However, right now the consensus estimate for this year’s earnings-per-share growth remains in the double digits, showing that the regulatory decision is not thought to be crippling, by any means.   Moran also noted that Alibaba’s Executive Vice Chairman, Joe Tsai, summed up investor sentiment, saying, "We are pleased that we are able to put this matter behind us." Moran offered a bullish conclusion to her piece, saying, “All things considered – clearing the regulatory hurdle, investing in merchant services, the strength of the company's network effect and the recovery of the Chinese economy, among other factors – Alibaba could be set for a strong run in 2021.”

To conclude his recent Alibaba piece, Tenebruso quoted J.P. Morgan analyst, Alex Yao, who is in agreement with Moran’s sentiment.   Yao recently reiterated his overweight stance on BABA shares, noting a $320 price target, which represents roughly or roughly 33% upside, saying, "The event will serve as a closure of investors' concern on Alibaba's core commerce regulatory risks.”

This appears to be the overarching sentiment when it comes to Alibaba shares. The combination of high growth, attractive value, and a reduced regulatory burden, points towards a bullish future. Yet, the threat of heavy handed regulation here remains a threat and only time will tell if this Chinese equity will be able to overcome investor fears related to government oversight over the long-term.

Disclosure: Nicholas Ward is long AMZN but has no position in BABA. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 4/14/21 Nobias 4/14/21

J.P. Morgan: Can This Big-Bank Maintain Best-in-Breed Status?

J.P. Morgan (JPM) announced its first quarter earnings this week, starting off 2021 with a bang, beating analyst estimates on both the top and bottom lines.   JPM’s Q1 revenue came in at $32.3 billion, representing 14.3% year-over-year growth.

During the quarter, the company saw net interest income fall $1.6 billion due to lower rates, but its non-interest revenues rose by $5.7 billion, representing 39% growth.  The company’s GAAP earnings-per-share came in at $4.50, beating analyst estimates by $1.38/share.   The firm saw its book value per share and its tangible book value per share rise to $82.31 and $66.56, representing 8% and 10% year-over-year growth, respectively. The company returned $7.1 billion to shareholders during Q1; $2.8 billion of which came in the form of a shareholder dividend and $4.3 billion came in the form of net share repurchases.

All of these results looked solid. And in a recent article, 5-star Nobias analyst, Richard Saintvilus, touched upon JPM’s best-in-breed nature, saying, “Without question, JPMorgan has established a well-deserved reputation as being the best-executing bank not only among its peer group, but as one of the best-run banks in the world.” And, with this in mind, he believes that the bank's strong performance shouldn’t come as a surprise to investors.   Saintvilus notes that due to “ongoing investments in areas like technology and marketing” shares of J.P. Morgan has outperformed many of their peers, both over the short-term and over the long-term as well.

Screen Shot 2021-04-24 at 12.07.32 AM.png

Looking at the Financial Sector SPDR ETF (XLF) we see that over the last year, the financials have posted 66.4% gains. Over the last 6 months, financials have risen by 41.6%. And, year-to-date, the financial sector is up 20.08%.   Over these same 1-year, 6-month, and year-to-date periods, JPM shares are up 75.5%, 51%, and 20.64%, respectively.   Looking ahead, it appears that this strong performance may not be over with. The ongoing stimulus being provided by the U.S. government and the Federal Reserve points towards a strong economic environment that bodes well for the big banks.   Saintvilus touched upon this in his recent piece, saying, “Aside from progress on the vaccine front, the reopening of the U.S. economy is bullish for lending. What’s more, the median GDP growth forecast for second quarter is 9.3%, compared to 5.8% rise in the first quarter.”

Without a doubt, JPM is an economically sensitive stock. To come, this represents upside, especially as cyclical are rallying. To others, it represents outsized risk, due to the downside potential of a financial name during a potential recession. However, such strong gross domestic product growth should allay such fears.
The strong GDP forecast that Saintvilus highlights above has provided solace to investors looking to increase their exposure to cyclical assets like the fiancnials, which is why JPM shares (and the financial sector at large) have experienced such a strong rally throughout 2021 thus far.   What’s more, while the Federal Reserve continues to sing its dovish tune, there is a rising chorus of analysts who believe that ongoing stimulus and the strong economic recovery are going to result in rising interest rates.

The Fed has remained staunch in its stance regarding no rate increases through 2023; however, even the whiff of normalization when it comes to interest rates gets bank investors excited because of the prospects for higher net interest margin to bolster the bottom-lines of these financial institutions.

But, rising rates aren’t the only thing that could lead to bottom-line growth for J.P. Morgan.   In a recent article, 4-star Nobias analyst, Bram Berkowitz, who writes for The Motley Fool, highlighted several interesting hires that J.P. Morgan made in its venture capital banking group.

It appears that JPM management is taken steps to reduce its cyclical exposure, hoping to take the lessons learned from the COVID-19 pandemic period and enhance aspects of its business model that do not rely so heavily on the health of the broader economy.   Berkowitz said, “While banks make new announcements all the time about launching different business lines and hiring new bankers, this recent announcement by JPMorgan is a bigger deal in my opinion because tech banking is such a great business and also such a niche business. This is also a unit that JPMorgan investors should pay attention to, because the bigger and more material to earnings it gets, the better it could be for the bank.” Berkowitz notes that venture capital lending “can also be very risky as start-ups have a high failure rate. However, if done correctly, tech banking can be tremendously profitable.”

During the COVID-19 recession, when traditional lending dried up, venture capital investing remained very strong. Due to the continued disruption and secular growth prospects of the technology sector overall, demand for funds in the tech space is expected to remain high moving forward, throughout a wide variety of potential economic environments. This is what makes the venture capital investments by JPM so appealing to investors. But, the bullish nature of venture capital investing doesn’t stop there. Because of the risky nature of venture capital lending, banks who provide credit are oftentimes able to receive incentives, outside of the interest rate attached to their loans, such as warrants that provide shares in the event of an initial public offering. Berkowitz says, “For instance, it recently came to light that Silicon Valley Bank, which agreed to bank the cryptocurrency exchange Coinbase in 2014, has an outstanding warrant in Coinbase's upcoming IPO. The warrant gives the bank the ability to buy more than 400,000 shares of Class B common stock at just over $1 per share, making that warrant worth as much as potentially $152 million.”

Lastly, Berkowitz highlights the potential for increased IPO underwriting opportunities, as well as numerous situations where relationships with successful tech-founders can lead to cross selling of other products, such as “jumbo mortgages” or “wealth management products”, all of which have the potential to incrementally grow the bank’s top and bottom-lines moving forward. In conclusion, he says, “Given the fact that JPMorgan excels in nearly all aspects of banking, I have no doubt it can build up its tech division to be a strong performer as well.”

Disclosure: Nicholas Ward has no positions in any company listed in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 4/10/21 Nobias 4/10/21

Micron: Analysts Believe That This Volatile Stock is Heading Higher

Since the start of 2021, we’ve seen 18 top-rated analysts provide price targets for MU shares. The average price target presented by these 4 and 5-star Nobias analysts is $117.22. Today, MU shares trade for $95.30, which means that the mean Wall Street target calls for 23% upside from here.

In early 2021, we saw frantic buying in the technology sector, especially amongst very speculative, high growth potential names, with little to no earnings power to speak of.   These types of investments can be exciting; however, when investors are placing bets based upon double digit price-to-sales multiples, a lot has to go right over the long-term for such stocks to make sense, fundamentally.

That trade, which appears to have been largely fueled by retail investors attempting to “yolo” (you only live once) into get-rich-quick schemes has died off a bit over recent months however, and now, the market’s sentiment seems to be more positive towards stocks with strong cash flows and attractive earnings.

And, with that in mind, we’ve seen a strong uptick in articles and analyst opinions offered on a relatively cheap semiconductor stock which just posted strong earnings and appears to have a very attractive growth runway ahead of it.   We’re talking about Micron (MU).

Since the start of 2021, we’ve seen 18 top-rated analysts provide price targets for MU shares. The average price target presented by these 4 and 5-star Nobias analysts is $117.22. Today, MU shares trade for $95.30, which means that the mean Wall Street target calls for 23% upside from here.

Granted, a 23% gain isn’t going to allow most investors to go buy a yacht and retire to tropical waters somewhere; however, when compared to the high single digit average that the broad market has produced over the very long-term, this 20%+ upside potential begins to look quite attractive. If an investor is able to compound his or her wealth at a 23% clip, they will double their wealth every 3.1 years or so. With this in mind, those who’re truly interested in an early retirement may want to take a look at MU shares.

Micron is certainly not a stock for the faint of heart. The stock is highly cyclical and its recent bottom-line results clearly show this. Over the last 10 years, MU’s annual earnings per share growth rate has come in at -91%, -712%, 121%, 1404%, -16%, -98%, 8167%, 141%, -47%, and -55%, respectively.   Those are obviously some very volatile swings. They’re caused by common commodity cycles in the semi-conductor space.

Nicholas Rossolillo, a 5-star Nobias analyst who writes for The Motley Fool, recently wrote a piece highlighting past cycles in the semi-space and touching upon the global shortage of chips that we’re seeing play out right now.  Regarding MU’s earnings volatility, he said, “Years of booming sales and high prices can be followed by lean periods when demand falls.”

Rossolillo continues, saying, “These cycles are normal for manufacturing, but the downturn was exacerbated by the U.S.-China trade war. Global supply chains had to be rerouted to account for tariffs and embargoes on sales to certain companies. Then COVID-19 struck, temporarily shuttering chip foundries. And chip companies' customers (like automakers, for example) slowed their purchasing of new hardware and worked down existing inventory during 2020 to manage their cash flow.”

Rossolillo says that in recent years, MU has “done a lot of work to tighten up operations and get more efficient, and it's paid off.” He mentions that the company was able to stay profitable during the last cyclical downturn, “granted, just barely.”   But, he has high hopes for the short-term, saying that “shares look like a reasonable deal at 25 times trailing 12-month adjusted earnings per share. Bear in mind this current upcycle will eventually moderate and give way to another downcycle, but for now that's not on the horizon. I remain a buyer of Micron right now.”

Harsh Chauhan, a 5-star Nobias analyst who writes also writes for The Motley Fool recently published an article which agrees with Rossolillo’s outlook, noting that pricing trends in the DRAM and NAND markets, both of which Micron operates in, are attractive in the near-term.   Chauhan says, “The spot price of dynamic random access memory (DRAM) has shot up close to 60% since the beginning of 2021, hitting the highest levels seen since March 2019. A huge increase in demand from PCs (personal computers), data center servers, smartphones, and an uptick in automobile production has led to tight supply conditions in the memory market, sending prices higher.”

He notes that Trendforce expects to see DRAM prices rise 13-18%, sequentially during Q2, which is well above the 3-8% price increase that we just witnessed during Q1.   Chuahan notes that “A similar trend is anticipated in the NAND flash market as well. UBS recently pointed out that the contract price of NAND memory could increase 5% quarter on quarter in the second quarter of 2021, a big improvement over the initial estimate of a 7% decline. The price growth is expected to gather more pace the following period with a sequential increase of 10%, followed by a 2% increase in the final months of the year.”

Regarding those short-term tailwinds, when looking ahead at consensus estimates, it appears that upwards momentum is going to continue, with analysts calling for 93% earnings-per-share growth this year, 88% in 2022, and 10% in 2023.

This earnings growth is why Billy Duberstein, another 5-star Nobias analyst who writes for The Motley Fool, recently said, “Instead of trying to ride short-term momentum, investors are likely much better off investing in strong companies with excellent long-term growth prospects and reasonable prices.”   He went on to say that Micron is an attractive company to buy as we move into April, highlighting the company’s recent earnings report, in which “Revenue grew 30% year over year as DRAM pricing rebounded, and adjusted (non-GAAP) earnings per share of $1.13 beat analyst expectations.”

He’s bullish on MU’s short-term prospects, noting that the company provided “Guidance of $1.62 next quarter, or 43% sequential growth, showed continued strength as Micron enters a major DRAM upcycle.”   Duberstein says, “what has analysts really excited is that Micron isn't significantly ramping up capital expenditures, even with a current shortage.”

MU has been known to become overzealous with its supply, ultimately resulting in cyclical downturns as boom/bust cycles occur in the semiconductor space. However, even during today’s bottleneck in the chip space, MU appears to be showing discipline on the supply side.

The increased global demand for semiconductors likely isn’t going to wane anytime soon, and therefore, it’s likely that this commodity cycle is longer lasting than prior events.  And, with this in mind, Duberstein concludes, that even after the stock’s nice rally in recent months (MU shares are up 26.76% year-to-date) the company “only trades at 8 times the prior cycle's peak earnings of $11.51 in 2018. If this current upcycle is bigger and better, Micron's stock may just be getting started.”   The obvious risk here is that once the cycle ends and Micron’s bottom-line growth stops, it is likely to experience significant negative volatility.

Commodity cycles are largely based on macro economic trends and therefore, they’re very difficult, if not impossible, to accurately predict.   For instance, prior to the U.S/China trade war and/or the COVID-19 pandemic, very few analysts or investors could have known how quickly demand trends would change.   And, very few (if any) analysts or investors are going to be able to predict the next black swan event that disrupts demand throughout the global supply chain, resulting in yet another commodity cycle coming to an end.

With this in mind, MU is likely a stock that is only going to appeal to investors with strong intestinal fortitude or traders who’re looking to be nimble and play short-term demand trends (which are much easier to predict than long-term cycles).   But, as the Wall Street analysts mentioned above, as well as the 5-star contributors cited in this piece note, the short-term sentiment surrounding MU shares is decidedly positive and momentum appears to be headed towards more upside...for those who dare to ride it.

Disclosure: Nicholas Ward has no position in any company mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 4/8/21 Nobias 4/8/21

Walgreens: Up 37% Year-To-Date, Does Walgreens Boots Alliance Still Have Room To Run?

Walgreens Boots Alliance (WBA) has quietly been one of the most exciting stocks in the entire market during 2021 thus far.   The company, which according to 5-star Nobias analyst, Richard Saintvilus’ most recent article on the stock, operates “more than 9,000 retail locations across America, Puerto Rico and the U.S. Virgin Islands, Walgreens has played an important role in the country’s Covid vaccination efforts, supporting vaccinations across 43 states and jurisdictions as part of the Federal Retail Pharmacy Program.”

The drug store industry isn’t known to be a high growth space; however, WBA shares are up 39.4% year-to-date.  One might think that after such a strong run, there wouldn’t be a lot of upside left in the stock. However, Saintvilus says differently, noting “Even with the recent 50% rise, Walgreens stock has only reached its pre-pandemic levels which suggests the share price might be 30% to 40% undervalued. So investors who are looking for a sustained recovery candidate in the next 12 to 18 months, which also pays a strong dividend yield of 4.5%, can do well owning Walgreens.” (We should note that WBA shares have continued their rally since Saintvilus’s piece and now they only yield 3.4%).

And, he’s not the only 5-star Nobias analyst who remains bullish on shares.  Sean Williams, a well respected writer for The Motley Fool, recently wrote article titled “The Best 3 Dow Stocks to Buy for the Second Quarter (and Beyond)”, in which he called Walgreens Boots Alliance (WBA) “one of the best Dow stocks investors can buy right now.” He noted that the stock was at a 52-week high. In the stock market, we all know to buy low and sell high. However, in WBA’s case, Williams thinks this stock is a buy, 52-week high or not, because it’s headed much higher.

He noted that generally speaking, “healthcare stocks aren't adversely impacted by recessions.”
However, during the COVID-19 recession, that wasn’t the case.  Usually, he writes, “we don't get to choose when we get sick or what ailment(s) we develop. Therefore, drug and device demand remain steady, even during recessions.” But, that wasn’t the case during 2020 because of the healthcare scare which resulted in lower traffic in WBA drugstores and and health clinics.

WBA has struggled in recent quarters. However, during Q2, trends seemed to turn around.  Amit Singh, a 5-star Nobias analyst, recently published a Q2 update for WBA on Nasdaq.com, where he highlighted the company’s surprisingly upbeat results.   Singh says, “Walgreens’ 2Q adjusted earnings of $1.40 per share declined 7.5% year-over-year but topped the Street’s estimates of $1.11 per share. On a constant currency basis, adjusted EPS declined 8.2% due to lower operating income amid the COVID-19 pandemic.”

However, he notes that these earnings figures beat analyst estimates, the company posted positive results on the top-line (with $32.8 billion in sales which represented 4.6% growth), and most importantly, WBA management provided raised profit guidance for 2021.

Singh says, “As for fiscal 2021, the company raised its adjusted profit growth guidance to the mid to high-single-digit range in constant currency terms. It had previously projected adjusted profits to increase by a low-single-digit range.” WBA stock popped roughly 3.5% on these results; however, in Singh’s piece, he noted that not everyone was impressed.

He noted that “Raymond James analyst John Ransom maintained a Hold rating on the stock. In a note to investors, the analyst said that the 2Q results were “better than feared, but raised outlook doesn't paint overly optimistic F2H.” According to Singh, “The average analyst price target of $50.09 implies downside potential of about 8.8% to current levels.”

Yet, getting back to Willams’ piece, we see a much more bullish outlook, as he expresses belief that after a year of avoiding the doctor, consumers will flock to places like Walgreens to get back on top of their non-COVID-19 healthcare concerns.   Williams highlighted the recent uptick in MyWalgreens memberships, which have increased by “more than 40% since Dec. 31, 2020, to 56 million.”

This plays into WBA’s new digital strategy, focused on customer loyalty and big data. Williams highlighted the fact that “during the fiscal second quarter (ended Feb. 28), Walgreens Boots Alliance saw digitally initiated retail sales rise 78%.”   He also said that the company is “on track to reduce its annual operating expenses by over $2 billion by 2022.”

The combination of reduced costs and reaccelerating demand should result in strong top and bottom-line growth for the company during 2021.   Right now, the analyst consensus earnings-per-share growth rate for WBA in 8%.  And, as Williams concludes, “Despite its recent run-up, shares of Walgreens can be scooped up by opportunistic investors for a shade over 10 times forward earnings per share.”

Keith Speights, a 5-star Nobias analyst who focuses on the healthcare sector, recently published an article titled, “Why Investors Really Liked Walgreens Boots Alliance’s Q2 Update” which highlighted the growth in WBA’s international segment as the primary catalyst for the positive Q2 sales results.

He said that the company’s U.S. segment only produced 0.4% sales growth during the second quarter, as “Walgreens' store optimization programs weighed on growth.”

However, Speights notes that “Walgreens' international segment sales jumped 32.6% year over year to $5.4 billion. This growth stemmed entirely from the company's new joint venture in Germany. Without this joint venture, international sales would have fallen 9.9% on a constant-currency basis due primarily to the negative impact of COVID-19.”

He also touched upon the company’s dividend, saying, “Overall, Walgreens' Q2 update appears to be reassuring for shareholders who love the company's dividend. With its prospects looking brighter and a big influx of cash on the way, Walgreens seems to be in good shape to keep its track record of 45 years of consecutive dividend increases going.”

The income oriented aspect of WBA makes it an even more interesting investment opportunity. Williams already noted that this is an intriguing value play and now with Saintvilus and Speights highlighting a well-above average dividend yield (the S&P 500 currently yields just 1.36% and the U.S. 10-year treasury note yields 1.653%) there’s no wonder that shares of this company are up nearly 40% year-to-date.

Walgreens is not considered to be a growth company and still faces eCommerce threats from the likes of Amazon.com (AMZN), which is attempting to take market share with its digital pharmacy segment, but then again, investors thinking about WBA with a low double digit multiple and a 3.4% dividend yield likely aren’t looking for speculative, growth investments.

The blue chip nature of this dividend aristocrat is likely going to be enough for them and with 13 buy ratings against just 1 sell rating amongst the 4 and 5 star analysts that Nobias tracks, it appears that the analyst community remains bullish as well.

Disclosure: Nicholas Ward has a long position in Amazon (AMZN). Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 4/6/21 Nobias 4/6/21

Pfizer: Can Pfizer Maintain its 2021 COVID-19 Growth Prospects Over The Long-Term?

Pfizer is one of the most interesting bio-pharma names in the market right now because of the success that it has had with its COVID-19 vaccine.  The Pfizer(PFE)/BioNTech (BNTX) vaccine has proven to be highly effective against the COVID-19 virus. Orders from across the world continue to come in for doses. Because of this, the company stands to benefit, financially, in a major way in the short-term.  However, the question remains, should investors buy shares of PFE because of the vaccine hype or will this turn out to be a one-time event that does not result in long-lasting cash flows?

In a recently published article, 5-star Nobias analyst, Keith Speights, who writes for The Motley Fool, highlighted the short-term windfall that Pfizer is expected to receive from its COVID-19 program.   He says, “In February, Pfizer estimated that the vaccine would generate sales of around $15 billion this year based on supply deals in place at that time.” Speights continued, saying, “However, since then the two companies have received additional orders for BNT162b2 -- 100 million more doses for the U.S. and 200 million additional doses for the European Union. These deals should boost BNT162b2 sales above $20 billion in 2021.”

This is obviously great news for the company. Investors love seeing top-line growth and it appears as if PFE’s COVID-19 vaccine has a lot of potential to inspire just that in 2021. But, the problem with obvious information, is that it is likely already baked into the company’s share price.

Right now, the consensus analyst estimate for PFE’s earnings-per-share growth in 2021 is 45%, in large part due to the short-term boost provided by widespread vaccination.  But, as of right now, at least, the consensus analyst opinion for PFE’s 2022 earnings-per-share growth rate is -8%, meaning that the Wall Street community doesn’t believe that PFE can maintain its growth rate.

What investors who’re thinking about buying PFE shares today need to ask themselves is whether or not they expect to see long-term sales coming from the COVID-19 segment?  Speights commented on this, saying, “No one knows for sure just how much of that enormous revenue these companies will make in 2021 will be recurring. In theory, COVID-19 vaccines could provide protection against infection for years. In that case, sales of vaccines would plunge in 2022.” “On the other hand,” he continued, “let's assume that booster doses are needed every six months or so. That scenario would mean that Pfizer, Moderna, and the other companies could count on significant revenue every year.

If you watch the evening news, you’re probably well aware that COVID-19 case counts are rising in many areas within the United States and even more so in foreign countries that have only vaccinated a very low percentage of their population.  This has caused fear to rise regarding the potential spread of mutated strands of COVID that are more contagious, deadly, and even resistant to the current vaccines available to the public.

Nobias Finance PFE April 7th 2021 — Nobias Finance PFE April 6th 2021

The rise of COVID-19 variants has given credence to the idea that we’ll need to receive booster shots and/or regular vaccines, similar to flu shots, moving forward for the foreseeable future.  It’s still unclear whether or not this will be the case. We’ve recently seen good news regarding the levels of antibodies in the blood 6 months after the vaccination date; however, we’re going to need more long lasting, or even permanent, results before herd immunity becomes a reality.

Along these lines, Speights said, “Probably by the fourth quarter we'll at least have a pretty good sense of whether or not annual booster doses will be needed. That's when participants in the late-stage studies conducted by Pfizer/BioNTech and Moderna will have been fully vaccinated for at least one year.” But, for the time being, he said “Probably the best guess for right now is to go with Moderna CEO Stephane Bancel's prediction that COVID-19 will be like the seasonal flu. If he's right, annual vaccinations will be needed.”

While the long-term future of the COVID-19 vaccines sales outlook remains uncertain, bullish investors continue to hang onto good news regarding efficacy.  Brian Orelli, of The Motley Fool, recently discussed the recently published “real world” study performed by Isreali Ministry of Health, in a podcast with fellow analyst, Speights.

Regarding the study, Orelli said, “But they found that the vaccine effectiveness was at least 97% at preventing symptomatic disease, severe and critical disease, and death. Unvaccinated people were 44 times more likely to develop symptomatic COVID-19, and 29 times more likely to die from COVID-19. Perhaps most interestingly, the vaccine effectiveness was 94% against asymptomatic infections.” And, the good news continues to roll in for the Pfizer vaccine. In a separate report, Orelli highlighted the results from the company’s recent vaccine study involving adolescents, noting the 100% efficacy result.   And, not only was the drug perfect when it came to stopping disease, it appears to be more impactful, from an immune response/protection perspective, in younger patients.

Orelli noted that “Antibody levels created by the vaccine in adolescents were around 75% higher than the antibody levels seen in participants ages 16 to 25 who were in earlier clinical trials.”   Granted, this result came from a small sample size.  Orellia points out, “While impressive, and better than the roughly 95% efficacy that the vaccine produced in adults, the 100% efficacy is based on just 18 COVID-19 cases in the placebo group vs. 0 in the vaccine group. If the study had enrolled more kids or gone on longer, there might have been a case in the group of patients who received the vaccine, ruining BNT162b2's perfect efficacy.”

Orelli concludes his piece, highlighting Pfizer’s plans for trials in even younger populations. The company had divided children up into three age-related categories: 5-11 years old, 2-5 years old, and 6 months to 2 years.  He says that the goal here is to get children vaccinated throughout the summer, before the upcoming school year, but he cautions, “The clinical trial in younger children will take longer than the study in adolescents because the companies have to figure out the optimal dose for younger children, who are much smaller than adults.”   Yet, the fact remains, Pfizer’s drug appears to be highly effective in younger patients as well, which bodes well for the continued widespread use of its product over the longer-term.

In a third recent article, titled “3 Great Robinhood Stocks To Buy With Your $1400 Stimulus Check” , Speights touched upon his bullish PFE outlook yet again.  He acknowledged that PFE has been a bit of a “dud” in recent years, underperforming the S&P 500.

However, the stock’s undervaluation, combined with the fact that PFE recently spun off much of its legacy drug portfolio via Viatris (VTRS), which should boost its growth prospects moving forward, and the COVID-19 sales/earnings tailwind, leads him to believe that this stock represents an attractive value for investors.

He said, “Pfizer's shares trade at less than 11 times expected earnings. The company also offers a juicy dividend that currently yields close to 4.4%. If you're looking for a combination of growth, value, and income, Pfizer appears to be a great stock to scoop up right now.”

Disclosure: Nicholas Ward has a long position in Pfizer and Viatris. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 4/3/21 Nobias 4/3/21

Nio: Is It Time To Buy The Dip With Shares Down 40% From Recent Highs?

During 2020, NIO shares rose by roughly 1000%. That rally continued into 2021, with shares hitting an all-time high of $66.99 in early February. However, since then, shares have dipped, due primarily to fears surrounding rising interest rates and the negative impact that this has had on many stocks which trade with lofty and speculative valuations.

Today, NIO trades for $39.66, representing a 40.8% sell-off. And, Lango believes that investors who missed the first rally should strongly consider buying NIO into this weakness. He notes that the interest rate fears surrounding growth stocks like NIO are “overblown”.

The rise of electric vehicles (EV’s) has been a popular trend for growth investors to hop onto over the last several years. This is a very immature market and whether you’re a bull or a bear on the stocks trading in the space, it’s clear that the world is moving away from the traditional internal combustion engine vehicles and into a more renewable future with EV’s and hydrogen powered crafts serving as the main source of transportation. This represents a huge societal shift. And, with that in mind, there is no wonder why investors are excited. There is huge market share at stake. However, the fact of the matter is, EV technology, and potentially more importantly, the infrastructure which would allow the industry to become more widespread, is not yet at the point where the majority of consumers feel comfortable switching from ICE vehicles to electric ones. Yet, that isn’t stopping investors from speculating on the companies that may end up being the winners of the EV revolution and the Chinese company Nio (NIO) certainly appears to be a contender on a global scale.

Luke Lango, a 5-star Nobias analyst who writes for Investor Place has a bullish opinion on NIO shares and recently wrote an article which highlights the stock’s recent double digit pullback as a “golden” buying opportunity.  He notes that after first recommending the stock, NIO went on a 45x rally over a 12-month period. Lango says, “stocks don’t go up in straight lines” and after its big rally, Nio “was due for a breather.”

During 2020, NIO shares rose by roughly 1000%. That rally continued into 2021, with shares hitting an all-time high of $66.99 in early February. However, since then, shares have dipped, due primarily to fears surrounding rising interest rates and the negative impact that this has had on many stocks which trade with lofty and speculative valuations.

Today, NIO trades for $39.66, representing a 40.8% sell-off. And, Lango believes that investors who missed the first rally should strongly consider buying NIO into this weakness.   He notes that the interest rate fears surrounding growth stocks like NIO are “overblown”.

Lango says, “The 10-Year Treasury yield has, over the past five decades, closely tracked the 3-Month Treasury yield (a proxy for inflation, which the Fed controls with its target interest rate) plus real GDP growth.”   He goes on to note that the Federal Reserve as recently said, several times, that it has no plans to increase interest rates for roughly 3 years.   And, with that in mind, Lango says, “Let’s do the math: 0% 3-Month yield + 2% normalized real GDP growth = 2% 10-Year Treasury yield.”   Today, the U.S. 10-year bond yields 1.727%. To Lango, this implies that the trend of rising rates is nearing its end (in the short-term, at least) and therefore, he says, “Yields will calm down. And soon. Once they do, growth stocks — like NIO — will kick back into gear.”

Lango also believes that the company is fundamentally attractive.  He says, “NIO is China’s most dominant premium EV maker, with unrivaled technology and brand equity. On that basis alone, NIO has tremendous long-term revenue and earnings growth potential, since China is the world’s largest auto market and the government there is aggressively supporting EV adoption.”

What’s more, not only is the Chinese market the world’s largest for EVs, but it appears as though the Chinese government has a keen interest in Nio succeeding in helping the country make the ICE to EV transition.   Robert Larkin recently published an article on InvestorPlace which highlighted financial aid that the company received from the Chinese government, saying, “NIO stock has received support to keep it competitive in the EV space from a number of programs undertaken by China’s bureaucrats. A 2020 government bailout gave Nio some 7 billion yuan ($1 billion) as the company’s coffers ran low on cash. Other programs, including EV purchase rebates and tax exemptions, have stoked domestic sales.”

In a separate article, Lango touched upon this nationalistic idea as well, saying, “And now, NIO’s biggest competitor — Tesla (TSLA) — is coming under fire in China. As a result, many analysts think that Tesla will have a tough time gaining distribution and selling cars in China. Of course, that’s good news for NIO, since it means that most of the premium EV demand in China will funnel to NIO, not Tesla.”

Regarding the company’s future earnings potential, in the original article linked above, Lango says, “My modeling suggests that NIO is on track to do about $6 in earnings per share by 2030. Based on a 25X forward earnings multiple and a 10% annual discount rate, that implies a 2021 price target for NIO stock of nearly $70.”

Ultimately, Lango says investors need not “overthink” this one. He believes it’s clear that EVs are going to experience massive growth. This is especially the case in the Chinese market, where Nio is the established leader. He expects Nio to sell “millions upon millions of EVs over the next several years” and therefore, things like short-term interest rate fears should not scare bullish investors away from the stock.

Rohail Saleem, another 5-star Nobias analyst who writes for wccftech, recently published an article highlighting Nio’s impressive fourth quarter growth. In the quarter which ended on December 31st, 2020, Nio $1.02b in revenue. He notes that this is the first time in the company’s history that its quarterly revenues surpassed the $1b threshold. That $1.02b Q4 revenue figure represents 130% year-over-year growth. He also said that for the full-year, Nio generated $2.32b in sales.

As far as production goes, Saleem says, “Readers should note that NIO delivered 7,225 EVs in January 2021. As far as February numbers are concerned, the company cumulatively delivered 5,578 EVs, including 1,327 ES8s, 2,216 ES6s, and 2,035 EC6s.” He also notes that Nio ‘is ramping up the capacity of its existing plant – built in collaboration with JAC – to 300K units by the end of 2021.”

Increased capacity should help the company continue to grow its top-line, which is yet another potential bullish catalyst for this company.    These are very impressive sales figures, but as Aneta Larkins, a 5-star analyst who writes for Fintech Zoom, notes, the company is not yet profitable.

In her recent article, she said, “NIO isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn’t make profits, we’d generally expect to see good revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.”

She did note that the company’s triple digit growth is “head and shoulders above most loss-making companies” and therefore, the investment could be an attractive one. Yet, she says “we will like NIO better if we see some big insider buys” and this appears to be the buy-in signal that she’s looking for.

Tom Taulli, a 5-star Nobias analyst who also writes for Investor Place also recently highlighted potential concern for investors, noting that the 7,200 production figure in January fell below the 7,400 figure needed for the company to hit its Q1 growth targets.   He says, “One reason for this could be the Lunar New Year holiday, in which a large part of the China essentially shuts down. But there may be another factor at work: the global shortage of semiconductors.”

No one knows how long the chip bottleneck will last, but Taulli says, “But there are indications it could last throughout the year. And since Nio relies on third-party manufacturing, this could put the company at more risk.” Taulli does highlight the company’s increased cash position. It appears that Nio management took advantage of their recent high share prices and raised capital, with the cash on its balance sheet expanding from $3.3b to $6.5b, on a sequential basis, during Q4.

However, as great of a move that this may have been by management, he concludes his piece, saying, “in terms of NIO stock, I actually still think there should be caution. Even with the drop-off, the valuation is far from cheap. Consider that Nio stock is trading at roughly 20 times revenues. This is steep for a capital-intensive company.”

Equities prices are based upon the expectations for future cash flows that a given company can generate and anytime we’re talking about hyper growth companies like Nio, the debate is going to swirl around how long (if ever) the future growth potential of a company will justify the current share price.

Frankly, no one knows. Yet, as you see above, there have been compelling arguments made on either side of the bull/bear aisle be 5-star rated analysts in recent weeks and with that in mind, we couldn’t be surprised to see the stock remain highly volatile.

Nio doesn’t appear to be a holding for investors with a weak stomach; however, with high risk comes potentially high reward, as made clear by the 1000%+ rally that we saw NIO shares experience prior to its recent dip.

Disclosure: Nicholas Ward has no positions in any company listed in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 4/1/21 Nobias 4/1/21

GameStop: The Bull/Bear Debate Continues With Underlying Fundamentals At Odds With Growth Expectations

During January, a massive short-squeeze rally occurred, pushing GME shares up to their 52-week highs of $483/share. This was such an awe-inspiring move because for the vast majority of the two years prior to the late 2020 rally, GME shares traded in the single-digits.

Since making their nearly $500/share highs, GME shares tumbled, falling all the way back down to the $40 area in late February. But, during March, shares rallied again rising back up to the $265 area, before falling to the $190 threshold where they trade today.

Speaking of this volatility, in a recent article, Matthew Fox of Business Insider highlighted the fact that “Over the past 50-days, the daily average percentage move in shares of GameStop stands at 21%, compared to just 3.6% for bitcoin.”

The trading action that we’ve witnessed throughout 2020 when it comes to Gamestock (GME) shares has been truly fantastic. On a historical scale, the violent swings that GME has experienced, combined with the massive trading volumes associated with the stock, make the recent GME trade a historically significant moment. In future years, professors will be discussing the action that we’re seeing right now in behavioral finance 101 courses across the world. And, with that in mind, it should come as no surprise that GME continues to be one of the most discussed stocks in the entire stock market amongst analysts, journalists, and bloggers alike.

During January, a massive short-squeeze rally occurred, pushing GME shares up to their 52-week highs of $483/share. This was such an awe-inspiring move because for the vast majority of the two years prior to the late 2020 rally, GME shares traded in the single-digits.

Since making their nearly $500/share highs, GME shares tumbled, falling all the way back down to the $40 area in late February. But, during March, shares rallied again rising back up to the $265 area, before falling to the $190 threshold where they trade today.

Speaking of this volatility, in a recent article, Matthew Fox of Business Insider highlighted the fact that “Over the past 50-days, the daily average percentage move in shares of GameStop stands at 21%, compared to just 3.6% for bitcoin.”   All of the attention of what was largely a left-for-dead name in the retail space has allowed Gamestop to revamp its management team.

Travis Hoium, of the Motley Fool, recently highlighted the company’s newest hires, Elliott Wilke, who will serve as Chief Growth Officer, Andrea Wolfe, who will serve as Vice President of Brand Development, and Tom Petersen, who will serve as Vice President of Merchandising.

Hoium says that Wilke’s background comes from Amazon (AMZN) where he “worked in Amazon Fresh, Prime Pantry, and Worldwide Private Brands.” He notes that Wolfe and Peterson “come from Chewy, where they held VP of Marketing and VP of Merchandising titles.”   Hoium is bullish on the hires, but cautions investors to be patient, because major transitions in the retail sector do not happen overnight.   Yet, he says, “But there is progress, with e-commerce sales up 309% during the nine-week holiday period ended Jan. 2, 2021.”

Regarding the recent holiday quarter, Syndee Gatewood, a 5-star Nobias rated analyst who writes for Gurufocus recently broke down GME’s Q4 earnings.   She noted that the company posted earnings-per-share of $1.34 and sales of $2.12 billion. Both figures missed analyst estimates, but she noted that during the quarter, GME’s same-store sales posted 6.5% growth.

It appears as though all of the headlines associated with the volatility that this stock has experienced has driven consumers to its stores/website, because the Q4 numbers were much stronger than the full-year numbers.

Nobias Finance Visa March 30th 2021 — Nobias Finance GameStop April 1st 2021

For the full year, GME generated $5.09 billion in revenue, but posted a loss of $2.14/share.   This negative earnings-per-share figure is what causes traditional value investors to question the validity and rational nature of the stock’s recent rally.   However, the GME bulls don’t appear to be concerned with the recent past, but instead, the company’s potential moving forward.

Gatewood put a spotlight on the company’s recent eCommerce growth, saying, “GameStop also reported strong e-commerce sales, which jumped 175% during the quarter and accounted for more than a third of its revenue. For the full year, online sales grew 191%.”   She also said that GME’s management recently mentioned that “the company is off to a strong start to 2021 since comparable store sales increased 23% in February as a result of strong hardware sales worldwide.”

The bull/bear tug-of-war going on with GME shares doesn’t appear to be ending anytime soon.  There are staunch opinions, on both sides of the aisle here, between value investors and the wallstreetbets traders (famous for the Reddit movement which originally inspired the rally in GME shares).

Richard Saintvilus, of Nasdaq.com, recently touched upon the division between these two investor bases, saying, “GameStop has delivered declining revenue over the last four years, while posting losses for the past two years, which has surpassed $1.2 billion. Losses are expected for the next several years. But some investors are excited about what can potentially become a strong fundamental story.”   He continues, “There is also enthusiasm over the arrival of Ryan Cohen, Chewy (CHWY) founder, who is charged with turning GameStop into an e-commerce powerhouse.”

Sarah Smith, of Investorplace, covered Cohen’s involvement in a recent article, highlighting his ascension from activist investor to board member, with GME’s board of directors creating a Strategic Planning and Capital Allocation Committee, of which Cohen is at the helm.   Smith notes, “Investors should also note that Cohen is joined on the committee by Alan Attal and Kurt Wolf. Attal previously served as the chief financial officer at Chewy.”

It’s not yet clear exactly what Cohen plans to do to re-vitalize this company’s negative growth, but Smith says that “Moving forward, it sounds like this new committee will put into action the bold plan from Cohen to see GameStop rival Amazon (AMZN). The company press release talks of making GameStop a tech company, and of helping create value for stockholders. As Scott Deveau wrote for Bloomberg, Cohen is essentially leading a massive e-commerce shift.”

Cohen’s success at Chewy gives him a lot of credibility; however, as Saintvilus notes, a turnaround story here won’t be a walk in the park. Regarding the digital transformation that bullish investors expect to see, Saintvilus says, “That’s easier said than done, given that the brick-and-mortar retailer has yet to show financial success in the digital realm.”

Sean Williams, of The Motley Fool, recently published an article titled, “When Will AMC Entertainment and Gamestop be Profitable”, which made it clear that GME has a long and potentially rocky road ahead.   Williams says, “According to Wall Street's consensus estimates from FactSet, it'll be three more years before GameStop is back in the profit column. If there is a positive here, it's that earnings before interest, taxes, depreciation, and amortization (EBITDA) is expected to be positive this year, but EBITDA isn't the same as profitability.”

Throughout the GME rally, it has been the famed wallstreetbets retail investors who’ve driven much of the bullish sentiment. However, last week, we saw Jefferies analyst, Stephanie Wissink, up her price target on GME shares from $15 to $175. Will Daniel, of Business Insider, covered her note in this piece.

Even though GME shares just missed their consensus earnings estimates, Daniel highlighted Wissink’s bullish outlook on the company, which is derived from its potential in the eCommerce space.   Daniel says, “In Wissink's upside scenario, GameStop would be able to shift its "sales mix towards collectibles, accessories, and digital" while leveraging "the popularity of E-Sports to drive customers into locations."’ He notes that Wissink says, "With e-com at 30% of sales and already a $1.5B business, growing triple digits, we see a reasonable basis for $3B+ in annual sales in a 2-3 year timeframe.”

Wissink arrived at her price target by switching her evaluation from a more traditional profit based, EBIDTA multiple to a more speculative, growth oriented price-to-sales multiple.  Daniel said, “Based on 3.4x sales, a 20% discount to peers, according to Wissink, GameStop could be worth $175 a share.”

Yet, not all analysts are nearly as bullish.   We recently saw 5-star Nobias analyst, Marty Shtrubel of Nasdaq.com, write an article highlighting a recent price target raise from Wedbush analyst, Michael Pachter.   It’s true that Pachter upgraded his price target...but he went from $19 to $29, which is roughly 85% below the stock’s current share price.

So, while Pachter upgraded his price target because of a bullish outlook on the recent management changes that GME has made, he downgraded his buy/sell/hold rating from Neutral (hold) to Underperofrm (sell), heading in the opposite direction of Kissink.

Pachter concluded his analysis saying, “Our downgrade is not a reflection of our opinion of company management, which remains very high. Rather, it appears that the ‘real’ value of GameStop shares (the price willing buyers are prepared to pay in the open market) vastly exceeds the ‘fundamental’ value we believe investors expecting a financial return can reasonably expect.”

Needless to say, the debate here between those who put weight into fundamental analysis and those who’re willing to speculate on future growth is likely to rage for weeks, months, and potentially years to come.   It will be interesting to see who is ultimately right in the end. But, whether or not you’re someone who has invested in GME shares, you can sit back, grab a bucket of popcorn, and enjoy the show, knowing that you’re watching a historic showdown play out in the stock market.

Disclosure: Nicholas Ward has a long position in Amazon (AMZN) but no position in Gamestop (GME). Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 3/30/21 Nobias 3/30/21

Visa: Growth Trumps Fear Across the Analyst Community

Since its initial public offering in 2008, Visa (V) has been one of the best performing growth stocks in both the financial sector and the broader market, at large.  On a split-adjusted basis, Visa’s share price has increased from $11/share at its March 2008 IPO to $216.86/share today.   This means that over the 13 years or so that the company’s stock has been publicly traded, its shares have generated a capital gains CAGR of nearly 26%.

What’s more, this doesn’t even factor in the company’s regularly growing dividends. When dividend re-investment is factored into the equation over time, a long-term Visa shareholder is looking at a ~13 year total return CAGR in the 30% area. In other words, investors who were fortunate enough to buy Visa shares back in 2008 have seen their money double every 2.5 years or so since.

But, you didn’t have to be a lucky IPO investor to benefit from Visa’s growth. Since its IPO in 2008, the company has produced double digit earnings-per-share growth in all but 2 of its annual reports (2016 and 2020 were the two down years).

Dave Kovaleski, of The Motley Fool, recently highlighted Visa’s tremendous growth, saying, “It has been an earnings machine, as earnings per share have increased nearly 20% per year over the last 10 years. Investors have seen the stock price increase 28% per year on an annualized basis over the past decade through 2020.”

However, more importantly than that, he continues, “If you've missed out on Visa's fantastic run over the past 10 years, don't dwell on it -- there are a few good reasons why Visa will probably generate double-digit returns over the next decade, too.”

Kovaleski notes that Visa is part of a “virtual duopoly in the credit processing space”, alongside its peer MasterCard. And, he expects for the digital payment processing industry to continue to grow due to its connection with eCommernce.

Regarding eCommerce, Kovaleski says, “In 2023, about 22% of global purchases will be made online, according to projections, and by 2040 that's expected to spike to about 95%.”  He concludes that “As the world gradually moves away from cash, Visa stands to benefit as much as any company.” What’s more, his bullish argument isn’t just about sales growth, but more importantly, Visa’s high margins.

Kovaleski highlights Visa’s operating margin, which is roughly 65%, is much higher than its major peers across the payments processing space.  He says, “Its main competitor, Mastercard, has a margin of 53% -- which is great but obviously a step below. Discover Financial Services and American Express have operating margins of 26% and 14%, respectively (although they offer other services that cost more to operate), while payment provider PayPal is at 16%.

As exciting as Visa’s strong market position is, the fact is, 2020 was the first year in Visa’s history that the company did not produce annual earnings growth.  However, analysts are extremely bullish on the stock’s forward looking prospects as the broader economy recovers coming out of the COVID-19 pandemic. Right now, the consensus analyst estimate for Visa’s 2021 EPS growth rate is 9%. The consensus estimate accelerates to 26% in fiscal 2022 and holds that strong double digit rate in fiscal 2023 as well, where the analyst community is calling for EPS growth of 19%.

Generally speaking, during recessions it’s the economically sensitive financial sector that suffers the most.  In a recent article, Sean Williams of The Motley Fool touched upon this, but also noted that Visa is a top pick of his, regardless of the macro economic circumstances. He says, “While it's not uncommon for financial stocks to take it on the chin when market crashes rear their head, payment processor, Visa is one of the best companies investors can buy during any weakness.”

This strong forward growth is why Visa shares have held up fairly well throughout the pandemic period, even though the company experienced a rare growth hiccup.  But, short-term growth results aside, Williams notes that Visa controls “53% of all credit card network purchase volume in the U.S. in 2018, which means it's the unquestioned payment processor of choice in the largest economy in the world, by gross domestic product.”   This provides investors with a wide and defensible moat.

Williams also demonstrates why Visa is different from so many of its peers in the financial space, highlighting the fact that this company is not in the credit business, but instead, focuses on payment processing.  He says, “By avoiding lending, Visa ensures that it's not hit with rising credit and loan delinquencies during inevitable periods of recession. Not having to set aside cash for credit losses is one of the big reasons Visa's profit margin is regularly above 50%.”

A simple way to view Visa’s business model is as an economic toll-booth of sorts. Visa collects a tiny fee every time a transaction is processed within its broad network, allowing the company to generate reliable and high margin sales.

Now, as Anusuya Lahiri of Benzinga points out, there is some potential downside here.  In her recent article, she highlights the Department of Justice’s recent anti-trust probe into the business practices of both Visa and MasterCard (MA), noting, “The DOJ’s antitrust division probed into Visa’s possible role in restricting merchants’ ability to route debit-card transactions over cheaper card networks. The probe also inquired into in-store issues.”   She says that the “investigation focused on Visa’s possible market domination via unlawful activities.” At this point, there has been no published conclusion to the investigation.

Eric Volkman, of The Motley Fool, published an article on NASDAQ.com a couple of weeks ago, highlighting management’s response to the allegations.   Volkman notes that in the company’s press release related to the probe news, Visa says that while it is cooperating with the investigators, it believes that its practices has been above board, saying, "We believe Visa's U.S. debit practices are in compliance with applicable laws." This will likely result in a corporate legal battle for months, if not years. However, the fact of the matter is, DOJ probes present a risk that investors need to factor into the due diligence when attempting to estimate future growth prospects.

Visa shares fell roughly 5% when news of the DOJ probe broke; however, since then, V shares have began to cover, in large part, it appears, due to exciting news surrounding cryptocurrency.   Volkman published another piece this week highlighting Visa’s acceptance of cryptocurrency as payments on its network.  He says, “Visa's move feeds into its "network of networks" strategy, its ambition to accept a wide variety of monetary sources -- digital included -- for payments within its ecosystem.”

Volkman says that Visa is allowing payments of USD Coin, via the Ethereum blockchain. USD Coin is no Bitcoin, in terms of popularity, but the move by the company provides renewed optimism for growth in the digital payments space, as Volkman points out, “Visa said that it will leverage the USD Coin arrangement to eventually support central bank digital currencies. As the name implies, these are cryptocurrencies developed and distributed by national central banks.”

Daniel Abel, of Altcoin Buzz, recently published an article highlighting Visa’s move into the crypto space as well, quoting Visa’s head of crypto, Cuy Sheffield as saying, “We see increasing demand from consumers across the world to be able to access, hold and use digital currencies and we’re seeing demand from our clients to be able to build products that provide that access for consumers.”

There isn't a single company in the market that doesn’t face risks. This is why equities are considered to be risky assets. However, across the 4 and 5-star analysts that Nobias tracks, the overwhelming consensus related to Visa is a positive one.  Our algorithms tracked 24 bullish articles/notes published in recent weeks, compared to just 9 bearish opinions.

In Visa’s case, it appears that the company’s illustrious history and double digit growth prospects continue to drive the bullish thesis. Shares are up 4.27% during the last week alone, pointing towards another potential run at an all-time high for V shares.

Disclosure: Nicholas Ward has a long position in Visa (V) and Master Card (MA). Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 3/27/21 Nobias 3/27/21

AstraZeneca: Should Investors Focus on Vaccine Concerns or Longer-Term Growth Prospects?

While AZN’s results still lag behind MRNA’s and PFE’s effectiveness, these new AZN results appeared to point towards a fourth COVID-19 vaccine potentially being approved in the United States. However, the next days, news broke that these results were comprised of interim data, causing investors and analysts alike to question the likelihood of the company’s vaccine approval.

Brain Orelli, a 5-star rated Nobias analyst who writes for The Motley Fool summed these struggles succinctly in a recent article titled, AstraZeneca's Vaccine Data May Not Be as Good as It First Appeared, saying, “The drama surrounding AstraZeneca's (AZN) coronavirus vaccine seems to be never-ending.” He noted that there have been dosing issues throughout the trial period, confusing reports of data from multiple clinical trials, and now, there appears to be concerns that the company released interim data from a trial that has yet to be completed.

In recent weeks, AstraZeneca (AZN) has been in the news because of the continued struggles that the COVID-19 Vaccine that the company developed alongside Scientists for Oxford University has faced.   When the Moderna (MRNA) and Pfizer (PFE) vaccine data was first published, the companies were boasting efficacy in the mid-90’s.   And, as a March 29th report filed by the U.S. Center for Disease Control and Prevention (CDC) noted, in “real-world conditions” the authorized mRNA vaccines (both Pfizer’s and Moderna’s fall under this category) offer 90% protection from COVID-19, after 14 days of the second vaccine shot, regardless of symptom status. The CDC note says that the mRNA vaccines provide 80% protection 14 days after the first dose.

Johnson and Johnson’s (JNJ) COVID-19 vaccine has also received emergency use authorization in the U.S., Europe, and for international purposes by the World Health Organization.  JNJ’s phase 3 study “demonstrated the vaccine was 85 percent effective in preventing severe disease across all regions studied.”   JNJ’s data also highlighted the fact that there was not a single hospitalization or death amongst those in the vaccine arm of the trial.

So, while JNJ’s numbers may not be quite as impressive as PFE’s or MRNA’s, healthcare officials still deem the single-shot vaccine (which is also much easier to store and transport due to higher temperature requirements) to be safe and effect, especially when it comes to fighting severe COVID-19 infections.

AstraZeneca, on the other hand, has yet to receive emergency use authorization in the U.S. and the company’s vaccine has seen ongoing issues in the areas of the world where it is being put to use.   On March 22, AZN posted results of a recent U.S. trial.   Rebecca Urena of Financial Buzz broke down the results in a recent article, highlighting results which showed that the drug was 79% effective in preventing the COVID-19 virus and 100% effective at combating severe COVID-19 infections.

Nobias Finance Intel March 25th 2021 — Nobias Finance AstraZeneca March 27th 2021

In her article, Urena reported that Ruud Dobber, executive vice president of AstraZeneca’s biopharmaceuticals business unit, said, ““We are thrilled by the results we have disclosed this morning.”   Urena’s piece also notes that the company said that an independent committee “found no increased risk of thrombosis or events characterized by thrombosis among the 21,583 participants receiving at least one dose of the vaccine.”

While AZN’s results still lag behind MRNA’s and PFE’s effectiveness, these new AZN results appeared to point towards a fourth COVID-19 vaccine potentially being approved in the United States.   However, the next days, news broke that these results were comprised of interim data, causing investors and analysts alike to question the likelihood of the company’s vaccine approval.

Brain Orelli, a 5-star rated Nobias analyst who writes for The Motley Fool summed these struggles succinctly in a recent article titled, AstraZeneca's Vaccine Data May Not Be as Good as It First Appeared, saying, “The drama surrounding AstraZeneca's (AZN) coronavirus vaccine seems to be never-ending.”   He noted that there have been dosing issues throughout the trial period, confusing reports of data from multiple clinical trials, and now, there appears to be concerns that the company released interim data from a trial that has yet to be completed.

Orelli said, “The National Institutes of Health's National Institute of Allergy and Infectious Diseases (NIAID) reported on Tuesday that it had been told by the Data and Safety Monitoring Board (DSMB) for AstraZeneca's U.S. clinical trial that the board "expressed concern that AstraZeneca may have included outdated information from that trial, which may have provided an incomplete view of the efficacy data." He added, “Following NIAID's announcement, AstraZeneca noted that the results disclosed on Monday were from a pre-specified interim analysis of data that was cut off as of Feb. 17. The data showed the vaccine had 79% efficacy at preventing symptomatic COVID-19 and 100% efficacy at preventing severe disease and hospitalization.”

AZN says that the data from the full data set associated with its study is “consistent with the interim analysis"; however, the company’s vaccine has yet to receive emergency authorization in the United States.   Sarah Smith, another 5-star Nobias analyst from Investor Place recently wrote a piece which highlighted other concerns from AZN’s vaccine, saying, “Over the last several days, reports of blood clots is AstraZeneca vaccine recipients have raised concerns.”

Smith highlighted the fact that a the top healthcare agency in Europe continues to see limited (and acceptable) risk, with the European Medicines Agency publishing a March 18th report titled, “COVID-19 Vaccine AstraZeneca: benefits still outweigh the risks despite possible link to rare blood clots with low blood platelets”.   She also notes that “European lawmakers have embarked on a public relations campaign to boost the image of AstraZeneca and highlight political leaders who have received the shot.”

At this point in time, it’s unclear as to whether or not the AZN vaccine, which has garnered most of the stock’s recent headlines, will receive approval. However, it’s important to remember that this company has a $131 billion market cap and generated more than $26.6 billion in sales during 2020, meaning that the vaccine has a relatively small impact on the stock’s growth prospects and valuation moving forward.

With this in mind, even though the recent analysis/publications that Nobias tracks from 4 and 5 star analyst have trended bearish (during the month of March we’ve seen 45 bearish reports, 1 neutral report, and 20 bullish reports) the company’s growth prospects still look attractive.

Although AZN went through a growth slump throughout the prior decade (posting a -6.32% earnings-per-share growth CAGR from 2010-2019), in 2020, the company’s bottom-line saw a nice boost.   In 2020, AZN’s EPS grew by 15%. Right now, the consensus analyst estimate for earnings-per-share in 2021 and 2022 is 28% and in 2023, that double digit growth trajectory is expected to stay in place, with a consensus EPS growth estimate of 17%.

Today, AstraZeneca trades with a blended price-to-earnings ratio of 23.8x, which means that shares are more expensive than many of the company’s big-pharma peers’. However, if analysts are correct and the company posts strong double digit earnings over the medium-term, AZN’s forward multiple becomes much more attractive.  At $50.81/share, AZN is trading for 19.7x the current 2021 EPS $2.57. Shares are trading for just 15.4x 2022 estimates and 13.3x 2023 consensus estimates.

Obviously no one can know whether or not the company will meet the market’s expectations; however, if it does, then today’s valuation could present an attractive investment opportunity, despite the recent vaccine concerns.

Disclosure: Nicholas Ward has a long position in JNJ and PFE. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 3/25/21 Nobias 3/25/21

Intel: Analysts Are Divided After The Company's Big Year-to-Date Rally and the New CEO’s Growth Plans

Intel’s low growth prospects, due to increased competition, have held the stock’s valuation down at levels much lower than its peers. The tug-of-war here, between bulls and bears attempting to prioritize growth and value is a very interesting story. Right now, amongst the 4 and 5-star analysts that Nobias tracks, we see 8 “buy” ratings on the stock as well as 8 “sell” ratings. The commentary here is divided equally, with compelling analysis being made by individuals situated on either side of the bull/bear aisle. The risk/reward situation with Intel is delicate because so much of the competition it faces.

Intel (INTC) has been a battleground stock for investors for several years now. The company operates in an incredibly competitive industry where fierce disruption is happening on a constant basis. Intel, which was once considered the world’s gold standard in the semiconductor space, now has to fight for market share with large competitors in all of its revenue segments. And frankly, in recent years, this competition hasn’t been going well for Intel, which was seen losing market share to competitors like Advanced Micro Devices (AMD) and NVIDIA (NVDA) in the most attractive end markets. However, Intel recently hired a new CEO, Pat Gelsinger, who recently laid out his vision for the company’s future which really grabbed investor’s attention. Gelsinger’s presentation alongside the stock’s recent rally has pushed Intel up towards the top of the most talked about stocks that we track with our equity algorithm.

During his presentation, Gelsinger proclaimed, “Intel is back. The old Intel is now the new Intel.” While the idea of “old” being good in the market is a fairly novel one (in the technology sector, most of the time, investors are looking for companies to push the envelope, adept, and evolve into new, competitive beasts over time), in Intel’s case, investors would love to see the company regain its former dominance.

The biggest part of INTC’s announcement was that it plans on investing approximately $20 billion in two new foundry plants in Arizona, boosting the company’s production abilities.  Prior to the announcement, analysts wondered whether or not Intel was going to give up on its foundry assets, due to the fact that it has fallen so far behind its peers when it comes to its manufacturing capabilities.

However, with rising supply shortage concerns in the semiconductor space, as well as national security issues being brought up in Washington regarding the United State’s lack of foundry assets and its reliance on Asian semiconductor manufacturing, Intel’s big investment appears to solve several major concerns for the company and the global market place at once.   Gelsinger made it clear in his presentation that not only will Intel be focused on manufacturing its own chips, but the company’s new facilities will give it the capability to license its current intellectual property and serve as a foundry for other chip companies as well.

An interesting theme that we’ve seen develop in the technology sector throughout 2021 is a rotation from the more speculatively valued, high growth stocks back into the more defensive, “old tech” companies noted for their strong balance sheets and cash flow generation.  It appears that Intel’s messaging, about returning to the “old Intel” plays right into this trend.   This defensive move by the market has benefitted Intel greatly, whose shares are now up 30.21% year-to-date, marking one of the best starts to a year that the company has seen in its long history.

Yet, even after this big move, which as Richard Saintvilus, a 5-star Nobias analyst points out, has coincided with the company replacing former CEO, Bob Swan with Gelsinger, who was the previous CEO at VMWare, the company appears to offer intriguing value.   In Saintvilus’s March 25th article, he said, “fundamentally, Intel offers tons of value, trading a forward P/E of just 13, compared to a 19 P/E for the S&P 500 index.” Saintvilus’s piece highlighted Intel’s recent full-year earnings-per-share guidance, which calls for the company to produce $4.55 on the bottom-line during 2021.

At the company’s current share price of $64.87, this represents a 14.25x forward multiple.  This 14.25x multiple is well above Intel’s 10-year average price-to-earnings premium, which currently sits at 11.98x.  However, it’s important to note that INTC’s earnings-per-share are expected to fall roughly 14% in 2021 because of increased capital expenditures. On a trailing basis, Intel shares are trading in-line with their long-term average.

Without a doubt, Intel’s future plans are ambitious.  As Saintvilus points out, while the new CEO has been the “key catalyst” to the company’s recent share price rally, ultimately, it will be “his ability to execute, including reaching/beating these growth targets, will be ultimately how he’s judged.”

It’s rare to find blue chips like Intel trading at discounted valuations in today’s market. The S&P 500 continues to trade at a steep premium relative to its historical average, and with the broad markets trading near all-time highs, value investors are finding attractive opportunities to put cash to work few and far between.

However, in an efficient market, stocks are generally cheap for a reason. And, as previously noted, Intel’s low growth prospects, due to increased competition, have held the stock’s valuation down at levels much lower than its peers. The tug-of-war here, between bulls and bears attempting to prioritize growth and value is a very interesting story.

Right now, amongst the 4 and 5-star analysts that Nobias tracks, we see 8 “buy” ratings on the stock as well as 8 “sell” ratings.  The commentary here is divided equally, with compelling analysis being made by individuals situated on either side of the bull/bear aisle.  The risk/reward situation with Intel is delicate because so much of the competition it faces.

As a recent Judie Simms article on Fintech Zoom mentioned, according to Jefferies analyst, Mark Lipacis, “Intel is at least 2.5 years behind its Taiwan-based rival [Lipacis is talking about Taiwan Semiconductors (TSM)] and will have difficulty closing the gap.”   Simms also says that Bank of America security analyst Vivek Arya posted a recent note to clients in which he said that Gelsinger “offered no evidence that Intel can match or exceed Taiwan Semi’s manufacturing capabilities for most advanced chips.”

Arya mentioned that TSM has plans to build out manufacturing capabilities in the U.S. as well, further complicating Intel’s catch up plans.  Yet, Saintvilus believes that the company’s recent announcement about 7nm chips becoming available in Q2, as well as its new partnership with International Business Machines (IBM), “put the company back on a path to regain a leadership position in process technology.”

Disclosure: Nicholas Ward has a long position in Intel (INTC) and Nvidia (NVDA). Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 3/23/21 Nobias 3/23/21

Twitter: High Valuation and Regulatory Threats Lead To A Volatile Outlook From Analysts

The repeal of section 230 presents a great deal of uncertainty to the social media industry. It could totally upend the business models that the social media names have found success with in the past. And, while others argue that increased regulation on the space will actually be good for the current market leaders because it will lead to less competition from upstarts (due to the large capital requirements of meeting regulatory standards), uncertainty is never a good thing for share prices, which is why we’ve seen increased activity when it comes to the coverage of Twitter in recent weeks.

All in all, when tracking the analysts, journalists, and bloggers who’re given 4 and 5-star ratings with the Nobias algorithm, we see that there is a bearish lean within the recent commentary. During the last month, we’ve seen 16 bullish reports published, 4 neutral reports published, and 27 bearish reports published. These “sell” ratings appear to be due to the ongoing uncertainty regarding regulation and the speculation that it causes and not the company’s growth prospects.

The social media space continues to be a volatile place for investors to consider awhile now. During the last several years, we’ve seen anti-trust and regulatory fears surrounding the industry. During the last two Presidential election seasons, social media companies have been in the cross hairs of the traditional media, as well as the legislators on Capitol Hill, due to beliefs that they’re unfairly censoring free speech, while at the same time, not censoring extremism and disinformation well enough. What’s more, internet regulation, as a whole, has been brought into the spotlight, due to the fact that there hasn’t been major internet reform legislation passed in decades and many lawmakers fear that the big-tech companies have garnered too much power. All in all, companies like Twitter (TWTR), have been plastered all over the financial news headlines recently, with the majority of the headlines being negative.

Just last week, Twitter CEO, Jack Dorsey, was involved in a 6-hour virtual meeting with the House Committee of Energy and Commerce, alongside the CEOs of Alphabet (GOOGL) and Facebook (FB), as lawmakers discussed internet reform and social media regulation.

The meeting was a fiery one, with committee chairman, Frank Pallone Jr., a Democrat from New Jersey, making very disparaging comments in his open remarks.   Pallone said, “It is now painfully clear that neither the market nor public pressure will force these social-media companies to take the aggressive action they need to take to eliminate disinformation and extremism from their platforms. And, therefore, it is time for Congress and this Committee to legislate and realign these companies’ incentives to effectively deal with disinformation and extremism.”

Lawmakers, industry leaders, and spokesmen from various special interest groups made comments during the meeting, which shined light on various perils of the current social media landscape.   Legislators blamed the social media CEOs for the part their platforms played in the violence that we saw in Washington D.C. on January 6th during the insurrection at the Capitol Building.

Healthcare groups touched upon the fact that social media platforms are allowing unfounded anti-vaccination rhetoric to flourish, which is putting major hurdles in the path towards ending the COVID-19 pandemic.

Other racist and violent acts were attributed to the social media platforms and there were numerous calls to repeal Section 230, which is the legislation that grants social media companies protection from the content that their users generate.

The repeal of section 230 presents a great deal of uncertainty to the social media industry. It could totally upend the business models that the social media names have found success with in the past.  And, while others argue that increased regulation on the space will actually be good for the current market leaders because it will lead to less competition from upstarts (due to the large capital requirements of meeting regulatory standards), uncertainty is never a good thing for share prices, which is why we’ve seen increased activity when it comes to the coverage of Twitter in recent weeks.

What’s more, these pressures aren’t just happening in U.S. markets. Last week, Twitter was criticized by Russian officials for its non-removal of banned content. Anusuya Lahiri, staff writer at Benzinga, reported that while Twitter believes that such bans would negatively impact free speech, officials in Moscow are threatening to ban the service within its borders and have already slowed the website’s speed down, as an act of retaliation.

All in all, when tracking the analysts, journalists, and bloggers who’re given 4 and 5-star ratings with the Nobias algorithm, we see that there is a bearish lean within the recent commentary.   During the last month, we’ve seen 16 bullish reports published, 4 neutral reports published, and 27 bearish reports published.  These “sell” ratings appear to be due to the ongoing uncertainty regarding regulation and the speculation that it causes and not the company’s growth prospects.

Calum Muirhead, a Nobias 5-star analyst who writes for Proactive Investors, recently published an article highlighting an SEC filing which presents Twitter’s future growth plans.  In his piece, Muirhead notes that Twitter shares moved higher after the company announced a three-pronged plan when it came to growth oriented goals.

Muirhead said Twitter’s goals include, “doubling its development velocity by the end of 2023, meaning it will double the number of features shipped per employee that directly drive either its monetizable daily active users (mDAU) or revenue.” He said that the company hopes to “reach at least 315mln mDAU by the fourth quarter of 2023, representing a compound annual growth rate of around 20% from the base of 152mln mDAU reported in the final quarter of 2019.”

From a fundamental standpoint, Muirhead says that Twitter hopes to increase its revenues “to US$7.5bn for 2023 from US$3.7bn in 2020.”   He continued, saying “Twitter also reiterated its long-term margin target of mid-teens GAAP operating margin, or 40-45% adjusted earnings (EBITDA) margin.”

These increased revenues and steady margins should allow the company to grow its bottom-line as well. Right now, the consensus analyst estimates for Twitter’s earnings-per-share growth in 2021, 2022, and 2023 come in at 205%, 29%, and 38%, respectively.

Now, even with these strong growth prospects in mind, Twitter’s valuation still presents a headwind to many investors. At the stock’s current share price of $61.26, shares are trading with a forward price-to-earnings multiple of 67.3x when compared to the consensus 2021 estimate of $0.91/share on the bottom-line.

This is a lofty premium, even for a company expecting to produce a 26.5% CAGR on the top-line. With that being said, with these valuation concerns in mind, it appears that Twitter’s general outlook will remain negative until investors find clarity from a regulatory standpoint.

Disclosure: Nicholas Ward has a long position in Alphabet (GOOGL) and Facebook (FB). Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 3/20/21 Nobias 3/20/21

Nike: Bullish Investors Overlook Supply Chain Bottlenecks and Focus on Digital Growth

Of the 5-star journalists/bloggers who have published opinions during recent weeks, we’ve tallied 22 buy ratings as opposed to just 12 sell ratings. The stock also appears to be popular amongst the retail investor crowd, with Will Ebiefung of The Motley Fool recently noting that “Penn National Gaming (PENN) and Nike (NKE) are two companies that rank among the top 100 most widely-held stocks among users of the platform.”
And, it’s not just the retail traders who’re looking to buy shares. The average price target amongst the 4 and 5-star professional analysts that Nobias tracks is currently $169.10, which points towards near-term upside potential approximately 22.5%.

In recent weeks, we’ve started to see a common theme here, when it comes to the most talked about stocks by the analysts, journalists, and bloggers that we track.  So much of the chatter appears to surround highly valued blue chip stocks that have experienced a bit of a pullback during recent weeks. This doesn’t come as a surprise. We know there have been investors sitting on the sidelines with money to invest, watching best-in-class growth plays rise for several years now. It has been very difficult for value oriented investors who find themselves in this position to put their capital to work, because of premium multiples in the marketplace. And, any sense of a dip is going to be enough to really grab their attention.

From a broad market perspective, we’ve discussed overvalued recently. The S&P 500’s (SPY) forward price-to-earnings ratio is approximately 21.7x right now. This represents a 21.9% premium when compared to the 17.8x 5-year average forward price-to-earnings that is attached to the SPY. What’s more, it represents an even steeper, 36.5% premium when compared to the S&P 500’s 10-year average multiple of 15.9x.

And, when looking at the charts, it’s clear that fundamental growth was not the major catalyst for the market’s strong rally in recent years, but instead, it was due to rising bullish sentiment and the multiple expansion that it inspired.

The leaders of the recent rally, especially, have seen their share prices benefit from multiple expansion and today’s topic, Nike (NKE), is no different.  Nike shares are no strangers to elevated premiums. During the last 5 years, NKE’s average blended price-to-earnings ratio has been 28.7x. The company’s 10-year average blended price-to-earnings ratio is 25.1x. Both of these figures are far above the broad market averages.

And recently, Nike shares have risen to the highest valuation that they’ve seen in decades, trading for 56.7x earnings at their recent 52-week highs.  Yet, this multiple comes during a time when Nike has struggled to generate bottom-line growth. The COVID-19 pandemic caused Nike’s earnings to fall -36% during its fiscal 2020. And, while it appears that the company has bounced back strongly, with analyst consensus estimates for the company’s fiscal 2021 EPS growth rate coming in at 95%, the stock is still trading for more than 44.3x the estimated 2021 earnings figure.

Nobias Finance Netflix March 18th 2021 — Nobias Finance Nike March 20th 2021

However, in recent weeks, Nike’s strength has waned. So, what changed?  Nike reported earnings on March 18th, missed expectations on both the top and bottom lines, and simply put, when a stock is priced to perfection and doesn’t post pristine numbers, shares are bound to fall.

Richard Saintvilus recently highlighted Nike’s pre-earnings momentum in an article on NASDAQ.com, noting that shares had risen roughly 120% during the year prior to the Q3 results, and roughly 7% during the week running up into the quarterly print.

Saintvilus said, “Nike is benefiting from the fact that consumers across the globe have developed an increased focus on health and wellness, sparked by the pandemic. What’s more, concerns about weak consumer spending and a delayed COVID relief package has been removed with the recent $1.9 trillion stimulus. As such, Wall Street sees Nike strongly positioned to capitalize on increased demand for its products like shoes and apparel.” However, as the quarterly results showed, the company’s growth is immune to macro headwinds, which caused the company to falter during the recent reporting season.

Jon Quest, a 5-star analyst who writes for The Motley Fool, highlighted the company’s disappointing top-line results, saying, “For the third quarter, Nike reported revenue of $10.4 billion, which was technically up 3% year over year. But there are a few meaningful clarifications to make. First, adjusting for currency fluctuations, the company's revenue was down 1%.”

Quest also highlighted a quote from Nike’s CFO Matthew Friend from the third quarter conference call, where he mentioned the company’s woes, saying, "In Q3, disruption in the global supply chain due to container shortages, transportation delays, and port congestion has interrupted the flow of inventory supply."

The company’s share price recently fell 4.9% after reporting its fiscal third quarter earnings results. And, shares have not recovered since, hovering in the high $130 range, which is down roughly 6.5% from the company’s 52-week high of $147.65 that it set back in January.  However, as more and more analysts have parsed through the results, we’re seeing a bullish lean re-appear.

Of the 5-star journalists/bloggers who have published opinions during recent weeks, we’ve tallied 22 buy ratings as opposed to just 12 sell ratings.  The stock also appears to be popular amongst the retail investor crowd, with Will Ebiefung of The Motley Fool recently noting that “Penn National Gaming (PENN) and Nike (NKE) are two companies that rank among the top 100 most widely-held stocks among users of the platform.”

And, it’s not just the retail traders who’re looking to buy shares. The average price target amongst the 4 and 5-star professional analysts that Nobias tracks is currently $169.10, which points towards near-term upside potential approximately 22.5%.

While it’s true that the company’s valuation is high and its earnings growth slowed to an unexpected halt during the most recent quarter, the overarching theme that encompasses bullish commentary regarding Nike’s stock revolves around its direct-to-consumer business and the high margins that such sales generate.

Lucas Manfredi, of Fox Business, recently touched upon Nike’s DTC success, saying, “Nike Direct -- which operates both digital outlets and a network of company-owned stores -- registered a 20% increase in sales pulling in $4 billion. Its digital operations alone saw revenue soar 59%.”

Saintvilus touched upon Nike’s DTC segment as well, saying, “The DTC business, which accounts for 32% of revenue, not only allows Nike to control the consumer shopping experience, it also generates higher profit margins for the company. “   And after noting the company’s top-line struggles, Quest changed tunes, noting that even though Nike missed analyst estimates on the bottom-line during Q3, the company’s cash flows continue to grow steadily.   He said, “The company reported net income of $1.4 billion, which was up a whopping 71% from last year. Furthermore, the company now has cash, cash equivalents, and short-term investments of over $12.5 billion.”

Because of this bottom-line success and the growing size of Nike’s cash hoard, Quest believes that the company will re-start the buybacks that it paused during 2020 because of COVID, which has the potential to lift the company’s earnings-per-share figure even higher moving forward. And, the buyback isn’t the only reason to own this stock.

SGB Media also published a note recently which highlighted Nike’s shareholder returns, saying, “Nike continues a strong track record of investing to fuel growth and consistently increasing returns to shareholders, including 19 consecutive years of increasing dividend payouts. The company paid dividends of $434 million to shareholders in the third quarter, up 14 percent from the prior year.”

Global bottlenecks in the supply chain continue to be a short-term issue that Nike is going to have to overcome, but the continued growth of Nike’s digital sales point towards a bright future for the company as it navigates a changing retail landscape.

Nike’s digital sales have grown by 79%, 83%, 80%, and 59% during the last 4 quarters alone. John Ballard, of The Motley Fool, sums up the digital/DTC oriented bullish sentiment which still surrounds this stock in his recent article by saying, “It's difficult to predict where the stock goes in the short term, but Nike remains one of the best consumer discretionary stocks to buy. It's ahead of the game in e-commerce, which positions the company well to deliver market-beating gains for investors.”

Disclosure: Nicholas Ward has a long position in Nike. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 3/18/21 Nobias 3/18/21

Netflix: Are Rising Rates Enough To Take The Wind Out Of its Upward Momentum?

NFLX shares are down 5.28% year-to-date. Barani Krishnan, a 5-star Nobias analyst who writes for Fintech Zoom, recently published a piece which spoke about the divergence between the major market indexes and high flying growth stocks, such as Netflix, says: “Yields spiked after an unexpected slump in U.S. jobless claims to November lows triggered fears of faster inflation, spooking investors into reining in bullish bets on stocks. Nasdaq was the favorite target of sellers as it had run way ahead of the Dow and , which looked more valuable compared to the grossly-inflated price-earnings ratios of stocks on the tech index, which included the likes of Facebook (FB) , Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Google (GOOGL).”

The biggest financial news story of 2021 continues to be the rising interest rates attached to U.S. treasury notes. We’ve been in a bull market, in the bond space, for roughly 40 years now. In recent decades, we’ve seen periods of time when interest rates rose temporarily, but in general, the trend since the early 1980’s, the trend is decidedly lower. What this means is that very few investors have any experience picking stocks and managing portfolios during a sustained bear market in the bond space. This lack of experience leads to uncertainty, uncertainty leads to fear, and in the stock market, fear is the catalyst which moves share prices lower.

Throughout 2021, we’ve seen the board market indexes move higher, in spite of the perceived headwind that rising rates represents. At 32,627, the Dow Jones Industrial average is sitting just off of its all-time high of 32,858. At 3,913, the S&P 500 is just off of its all-time high of 3,930 as well. The S&P 500 is the well diversified average that many investors use to benchmark their portfolios against and this index is up 4.17% year-to-date. On an annualized basis, this points towards double digit total returns, which would represent an above average year for the broad market. With this being said, it’s clear that the uncertainty created by rising rates has not yet permeated the entire market; however, it has crept into the calculus of investors in the high growth space.

The NASDAQ 100 index is down 0.19%, year-to-date, meaning that it has underperformed the S&P 500 by roughly 440 bps.   And, some of the popular big-tech names from within the NASDAQ index are down much lower.  Netflix (NFLX), which was the top performing large-cap stock in the entire market during the prior decade, producing total returns of greater than 4,000% during the 2010’s, is one of the recent underperformers.

NFLX shares are down 5.28% year-to-date.  Barani Krishnan, a 5-star Nobias analyst who writes for Fintech Zoom, recently published a piece which spoke about the divergence between the major market indexes and high flying growth stocks, such as Netflix, says: “Yields spiked after an unexpected slump in U.S. jobless claims to November lows triggered fears of faster inflation, spooking investors into reining in bullish bets on stocks. Nasdaq was the favorite target of sellers as it had run way ahead of the Dow and , which looked more valuable compared to the grossly-inflated price-earnings ratios of stocks on the tech index, which included the likes of Facebook (FB) , Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Google (GOOGL).”

In a rising rate environment, it makes sense for investors to reevaluate equities, on a risk-adjusted basis, due to the more stable and reliable returns that fixed income investors generate.  Netflix appears to be a prime candidate for a re-rating, due to its very high, 74.4x blended price-to-earnings ratio (for comparison’s sake, the S&P 500’s forward price-to-earnings ratio is roughly 22x at the present time).

However, what bond holdings can not offer is growth when it comes to the underlying fundamentals that a company creates, which is why investors are often drawn to the higher risk/reward scenario attached to risk assets like equities.   And, when it comes to growth, there are few large cap names that do it better than Netflix, which produced earnings-per-share growth of 47% in 2020. Right now, the consensus analyst estimate for NFLX’s 2021 earnings growth rate is even higher, at 62%.

As Kristnan points out, we’ve witnessed a stark re-adjustment with regard to the premiums placed on big-tech stocks. However, with specific regard to Netflix, we have noticed that professional analysts are still attracted to the company’s growth story and have, for the most part, continued to raise their price targets throughout 2021.

Aneta Larkins, another 5-star Nobias analyst writing for Fintech Zoom, recently highlighted a slew of analyst updates pertaining to NFLX shares.   In her piece, she noted one downgrade, coming from analyst firm, Benchmark, which recently lowered its price target on NFLX shares from $485 to $472. The firm issued a sell rating to its clients, due to the fact that at $512, NFLX’s share price is roughly 7.7% higher today than its new price target.

However, Benchmark’s negative outlook is fairly unique, with other major analyst/analyst firms coming out with bullish ratings and rising price targets.   Larkins reports that Morgan Stanley “upped their price objective on Netflix from $650.00 to $700.00 and gave the stock an “overweight” rating in a report on Wednesday, January 20th.”

She also notes that Barclays came in with an “overweight” rating of NFLX shares, with a $650 price target, UBS Group moved NFLX from “neutral” to “buy” with a $650 price target, and Piper Sandler increased its price target from $643 to $652.   Overall, Larkin says, “Four analysts have rated the stock with a sell rating, eight have issued a hold rating and twenty-five have given a buy rating to the company’s stock. She continues, saying, “Netflix currently has a consensus rating of “Buy” and a consensus price target of $580.62.”

Danny Vena, of The Motley Fool, shares this consensus bullish outlook, recently highlighting three reasons to buy NFLX shares.   In Vena’s article, he highlights the company’s recently announced decision to crack down on password sharing as a major catalyst for revenue growth. NFLX has recently began testing measures which ensure that users are not sharing subscription passwords without close family members or those who live outside of their household.

Vena notes that “data suggests that as many as 33% of users share their Netflix password.”   He continues, saying, “With 204 million subscribers, that could amount to at least 67 million unpaid viewers. Given the $14 monthly charge for Netflix's most popular tier, the company is potentially forgoing more than $11 billion in revenue each year.”

Vena also believes that Netflix could take a page out of the legacy media playbook and license select content to peers as a way to increase high margin cash flows.   He said, “Netflix is considering licensing some of its older movies and television shows, and has had discussions with Comcast's (CMCSA) Peacock and ViacomCBS (VIAC), among others.” In his view, this lack of exclusivity could actually result in higher demand for its subscription service as a wider audience gets a taste of its original content and realizes what they’re missing out on.

And finally, Vena highlights NFLX’s potential to launch lower priced subscriptions, which could also drive incremental revenue for the company, especially in emerging markets, where the company’s current subscription cost can be prohibitive.

Anusuya Lahiri, a 5-star analyst who writes for Bezinga, also recently touched upon Netflix’s mobile only plans which it promotes throughout Southeast Asia, which come in at only $5/user as opposed to the $14/user subscription cost that is attached to the standard service.  She notes that NFLX has only 25 million paid subscribers in the Asia-Pacific region, meaning that further penetration into these densely populated markets could represent a major growth story for the company in the near-term.  Lahiri highlights recent plans that Netflix announced regarding capital spending on content meant specifically for these markets.

Lahiri notes that Netflix has spent $400 million on the Indian market already and she touches upon the company’s plans to spend $500 million on film and series production for South Korean markets. This comes on the heels of $700 million worth of prior investments into the South Korean entertainment industry.

However, all of this capex could prove to be well worth the risk due to the overall population, internet penetration, and disposable income growth that is expected to occur in this region of the world. Lahiri says, “Southeast Asia’s internet economy can be worth $300 billion by 2025 from the growing popularity of video streaming and music subscription services.”

With regard to content related capex, Luke Lango, another 5-star Nobias analyst who writes for Investor Place, recently penned a piece which highlights the “virtuous growth cycle that will keep firing on all cylinders for the foreseeable future.”   To summarize Lango, Netflix invests heavily on content, which leads to high quality and intriguing content that catches the public’s eye.

Then, due to the high quality nature and general popularity of this content, NFLX originals tend to win “a bunch of awards” which creates buzz on in the news and on social media.   This buzz leads to new subs, which fall in love with the content as well. This demand leads to pricing power, allowing the company to increase its subscription price “without much churn.”

Lango continues, saying that “more subs plus higher prices equals bigger revenues, bigger margins, and bigger profits.”   “It also equals more data,” he adds.   These bigger profits allow the company to invest into and create even more high quality content, which refreshes the cycle all over again.

Lango is an admitted bull, and his argument ignores rising competition in the streaming space. This “virtuous cycle” was able to exist in a vacuum for several years due to Netflix’s first mover advantage in the digital streaming space. However, over the last year, we’ve seen a handful of high powered competitors launch streaming services, such as the aforementioned Peacock and ViacCBS services, as well as Disney’s (DIS) Disney+ service, which has stormed onto the scene with 95 million subscribers is roughly a year’s time.

It’s unclear as to whether or not Netflix will enjoy the pricing power that makes this cycle work into the future now that there are cheaper priced services (Disney+, for instance, only costs $6.99/month, approximately half of Netflix’s standard price).  However, Lango cites Netflix’s recent performance at the Golden Globes as reason to believe that the company is still the top dog in the media space. Netflix had the most nominations (42) and the most winners (10) of any media/entertainment company.

Lango believes that content is king in the media space and concludes, “as goes Netflix’s content, so goes NFLX stock.”   If Lango is right, with the Golden Globe trophies in hand, it appears that NFLX shares are bound to break out of its recent slump and head higher, towards that analyst consensus price target of $580/share.

Disclosure: Nicholas Ward has no position in Netflix. He is long DIS and CMCSA. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

Nobias 3/16/21 Nobias 3/16/21

Nvidia: Can Growth Outweigh Valuation Concerns?

Of the 4 and 5-star rated analysts that Nobias tracks, 6 have updated their outlooks for NVDA since the stock’s recent sell-off began. The average price target of these 6 individuals is $690. Harsh Kumar of Piper Sandler has the lowest updated target, at $625/share. Rajvindra Gill, of Needham, is the most bullish of the analysts who’ve published reports since 2/25/2021, with an $800 price target. Of the 4 and 5-star rated journalists and bloggers who’ve published recent articles on NVDA, the Nobias algorithm is seeing a more balanced outlook, with 16 bearish opinions, 3 neutral opinions, and 23 bullish opinions.

During the last decade, there are few stocks that have performed better than NVIDIA (NVDA). During the last decade, NVDA shares have produced total returns north of 2,788%. During the last 5 years, NVDA shares have risen more than 1,405%. During the last year alone, NVDA shares are up 150.9%. However, year-to-date, NVDA shares have struggled, falling 2.55% (which trails the S&P 500’s 4.7% gains by a wide margin).

What’s more, at today’s $513/share price, NVIDIA has fallen approximately 16.5% from the 52-week high of $614.69 that it set in mid-February. This relative weakness has inspired a lot of chatter amongst analysts, journalists, and investors alike. Frankly put, opportunities to buy NVDA shares into weakness has been rare over the years. And, with the aforementioned total return results in mind, we’re not surprised to see NVDA’s recent sell-off creating a lot of buzz.

Of the 4 and 5-star rated analysts that Nobias tracks, 6 have updated their outlooks for NVDA since the stock’s recent sell-off began. The average price target of these 6 individuals is $690. Harsh Kumar of Piper Sandler has the lowest updated target, at $625/share. Rajvindra Gill, of Needham, is the most bullish of the analysts who’ve published reports since 2/25/2021, with an $800 price target.

Of the 4 and 5-star rated journalists and bloggers who’ve published recent articles on NVDA, the Nobias algorithm is seeing a more balanced outlook, with 16 bearish opinions, 3 neutral opinions, and 23 bullish opinions.

NVDA has been such a popular ticker in recent years because its products and services offer investors exposure to a handful of the most exciting growth markets in the digital era: artificial intelligence, automation, cryptocurrency, data center, gaming (digital entertainment).

Nobias Finance Ford March 16th 2021 — Nobias Finance Nvidia March 16th 2021

The biggest argument negative that we see being made by NVDA bears revolves around the company’s high valuation.   The Motley Fool author, Nicholas Rossolillo noted NVDA’s valuation in a recent article, saying “Let's get the argument against NVIDIA addressed right out the gate. Even after falling more than 20% from all-time highs, this is a pricey stock at over 14 times expected 2021 sales and 66 times trailing-12-month free cash flow.”

He goes on to highlight the cyclicality of the semi-conductor industry and the intense competition that NVIDIA faces, threats related to cryptocurrency mining that NVDA uniquely faced (if governments around the world decide to regulate crypto, then NVDA could see a huge demand headwind in the GPU space since its chips are favorites amongst bitcoin miners).

However, even with these headwinds in place, Rossolillo remains bullish on NVDA’s growth prospects, saying, “NVIDIA is powering autonomous vehicle and robotics development for many auto manufacturers and industrial companies. Before too long, those segments will start to produce.” He also highlights NVDA’s ARM Holdings acquisition, which in his view, “could launch NVIDIA from niche chip designer to a complete ecosystem on par with the breadth of Intel's (INTC) offerings.”

In conclusion, after proposing the question, “is NVIDIA a safe stock?” Rossolillo answers, “If volatility equals risk for you, then no, this isn't a safe stock. But if you're looking for a surefire innovator that's gobbling up market share and growing at a rapid pace, this is a fantastically safe stock to own for the 2020s.”

Recently, the biggest tug-of-war, from an operational standpoint, has been between gaming demand and the crypto markets.  In short, NVIDIA’s GPUs are great for high level gaming, but also for mining crypto currency.   Anders Bylund recently published a piece of NASDAQ.com, touching upon the crypto demand, saying, “Specifically, NVIDIA's graphics processors are very efficient at mining Ethereum (CRYPTO: ETH) tokens and the smart-contract cryptocurrency has seen prices skyrocket 568% over the last year. If Ethereum miners are buying tons of NVIDIA's graphics cards, that leaves fewer units on store shelves for actual gamers.”   One would assume that heightened demand created by multiple buyers would be a good thing, but in the past, the volatility created by crypto has been troubling for investors.

With regard to gaming, 5-star analyst Harsh Chauhan of The Motley Fool recently said that NVIDIA “dominates the discrete graphics cards market.”   There are investors who believe that NVDA’s rival in the graphics processing unit space, AMD (AMD) is making up ground on NVDA, which is widely believed to be the market leader; however, Chauhan says otherwise, noting that recently, AMD “has fallen further behind in the battle for GPU supremacy, and NVIDIA could heap more pain on its rival.”

Across the semiconductor space, there is a supply shortage right now that is expected to hurt sales of all of the major companies operating in this segment.  However, Chauhan’s piece highlights NVIDIA’s strategy to adapt by “ramping up the production of older-generation graphics cards to address the end-market demand.”   He says, “The accessible pricing of these cards and their inability to mine cryptocurrencies could help NVIDIA dish out more chips for gaming enthusiasts.”

Growth in the gaming space is secular and therefore, this move should help NVDA to maintain its sales growth throughout a difficult time for its peers. It demonstrates the company’s dedication towards the gaming space, which has the potential to generate goodwill amongst the gaming community, which is very passionate about its GPUs. Also, the move helps to protect NVDA from the volatility often associated with crypto mining.

In a March 4th article, John Ballard, a tech analyst for The Motley Fool, points out that in 2018, when the bitcoin bubble burst, “NVIDIA's gaming segment suffered an oversupply of chips, causing sales of graphics cards, and the chip maker's stock price, to fall sharply.”

Uncertainty is something that Wall Street absolutely hates. This focus on gaming, as opposed to the more speculative crypto mining scene, is something that institutional investors (who tend to drive trading volumes and share price direction in the short-term).   Looking at NVIDIA’s most recent quarter, Ballard highlights the company gaming segment, which “posted a record $2.4 billion in revenue in the fiscal fourth quarter, growing 67% year over year.”

If this level of growth is sustained, in any way, shape, or form, then it becomes much easier for investors to rationalize the premium multiple being placed on NVDA shares.   And, it appears this is likely, in the short-term, at least.   In another recent article, in which he calls NVDA the “hottest growth stock to buy right now” Chauhan highlights recently provided guidance by the company which “calls for 72% revenue growth over the prior-year period to $5.3 billion, crushing Wall Street's estimate of just $4.51 billion.”

In that same article, Chauhan also noted that during the most recent quarter, NVDA’s data center segment, which was recently a cause for concern for investors, due to rising competition, poised revenue that “nearly doubled year over year to $1.9 billion, producing 38% of its total revenue.”   If the company is able to produce this level of growth while actively taking steps to reduce demand from crypto miners, it will be an impressive feat that reduces anxiety around cyclicality due to the secular growth tailwinds that the gaming and data center markets possess.

Disclosure: Nicholas Ward has a long position in Niudia. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

hello@nobias.com • Miami, FL 33131