Nobias 6/18/21 Nobias 6/18/21

Lululemon: After Underperforming Throughout 2021, Is This Growth Stock Ready To Bounce Back?

Lululemon Athletica Inc. (LULU) has been one of the major winners of the COVID-19 pandemic period. Heading into a global pandemic, you might have thought that healthcare plays which were fighting the disease, or a consumer staples pick which sold disinfectants, or simply a tech company with secular growth (which would have been relatively unaffected by the pandemic period) would have been the best investments to make, right? Well, as it turns out, the maker of world famous athletic apparel maker has been a top performer because of the social distancing trend that forced people to stay in their homes and removed the need to wear pants with buttons. In hindsight, this trend seems so obvious right? But, it required second-level thinking to capitalize on the eventual trends in March of 2020.

If investors bought LULU shares towards the trough of the sell-off last March, they’d be sitting on triple digit gains right now. However, now that the world is re-opening and the social trends are changing (people are being forced to dress up as they return to the office and begin to travel again). Therefore, sentiment surrounding LULU stock has changed as well. The S&P 500 is up roughly 11% year-to-date and LULU shares are negative, with a -0.13% performance through June 19th. And, with that relative underperformance in mind, we wanted to take a look at what the analysts that the Nobias algorithm tracks have had to say about the stock lately in an attempt to spot potential value in the market.

Neil Patel, a Nobias 4-star ranked analyst, recently wrote a bullish piece on Lululemon, making a favorable comparison between this athletics name to its rival Nike (NKE).  Patel wrote, “Lululemon athletica reported first-quarter 2021 results Thursday after the market close, crushing Wall Street revenue and earnings expectations. But despite its strong numbers, the stock has significantly lagged its colossal foe in the industry, Nike (NKE), over the past 12 months.”

However, in spite of its underperformance, he listed 3 reasons why he believes that LULU has advantages over its larger peer in the short-term.  First of all, Patel acknowledges the success that LULU has had in the eCommerce space. LULU’s online sales have thrived throughout the pandemic period (many of its retail locations were closed during the last year, so its ability to shift sales into the digital realm resulted in the major growth the company posted in 2020).  Patel said that during its most recent quarter, “Lululemon's direct-to-consumer sales jumped 55% to $545.1 million.”

Nobias Finance ORCL Jun 16th 2021 — Nobias Finance LULU Jun 18th 2021

This means that the company's eCommerce segment represented 44% of its total revenue. This is actually down from the 55% of total revenue that digital sales represented a quarter ago; however, since then we’ve seen more physical locations open, resulting in more in-person transactions. Regardless, coming out of the pandemic Patel notes that Nike’s eCommerce sales recently exceeded 35% of its business.

Why is this important? Well, as Patel said, “as more transactions are done online, Lululemon benefits from higher margins. Overhead expenses (such as rent and payroll) of operating a physical store are avoided, meaning more money flows to Lululemon's bottom line.”  This led directly to his next point: LULU has higher gross margins.

Last quarter, LULU generated gross margins of 57.1% which were well above Nike’s 45.6% gross margin figures.  Patel says that not only does LULU have a superior direct-to-consumer business, but, “Furthermore, Lululemon rarely sells items at marked-down prices, which helps the company's premium brand perception.”  He says that LULU is not forced to rely on other retailers, such as Dick’s Sporting Goods or Footlocker to sell its products (like Nike does), and therefore, LULU is better able to manage its inventory and run a more efficient operation.

Lastly, Patel believes that LULU can scale this efficient operation globally to take advantage of untapped markets.  He says, “Nike is truly a global brand, as a substantial 66% of sales come from outside North America. This is in stark contrast to Lululemon's geographic split. As of Jan. 31, just 14% of the athleisure pioneer's business came from international markets.”  LULU’s international growth came in at 125% last quarter, which, as Patel says, “Far outpacing the gain in North America.”

This trend isn’t expected to end anytime soon, which is one of the aspects of LULU’s business that bullish analysts are hanging their hats on.  Demitri Kalogeropoulos, a Nobias 5-star ranked analyst, also recently published an article on The Motley Fool regarding Lululemon’s growth prospects. He touched upon the strong digital performance just like Patel; however, he also went on to highlight the strong forward looking guidance provided by the company’s management team at the beginning of 2021 and the company’s recent guidance update as well.

Regarding the original 2021 guidance, Kalogeropoulos said, “CEO Calvin McDonald and his team issued a bullish outlook for the quarter in late March, saying that revenue should jump to $1.1 billion compared to $652 million a year earlier.” Kalogeropoulos noted that much of this 69% growth is related to the weakness that LULU experienced during the March quarter a year ago during the worst of the COVID-19 pandemic.  However, he was also quick to note that hitting management’s guidance figure “would still mark impressive growth over the $782 million first-quarter result the company achieved two years ago.”

The poor performance that LULU shares suffered throughout much of the months since providing that original 2021 guidance seemed to imply that the company could not hit management’s lofty growth targets.  Yet, when LULU reported its most recent quarter, not only did the company exceed the market’s Q1 expectations, but management raised its full-year estimates as well.

During Q1, LULU posted $1.23 billion in sales, which was up 88.7% year-over-year (beating the $1.1b in guidance previously given by a wide margin). And, management is now calling for $5.825b-$5.905b in sales for the full year, which is also significantly higher than the prior $5.69b consensus that analysts had on Wall Street).

Coming into the Q1 results, Kalogeropoulos said, “I wouldn't bet against the retailer on this score. Instead, a few factors, like international sales, its seasonal store strategy, or hit new product introductions, might allow Lululemon to beat that aggressive growth outlook.” And, it turns out he was right on the mark with that opinion. So, looking ahead, taking his opinion into consideration seems to be a reasonable conclusion.

Regarding the rest of the year, Kalogeropoulos maintains his bullish outlook, saying, “Sure, the chain would be hurt by an industry slowdown if consumers decide to refocus spending in areas like travel and dining as the U.S. reopens. Yet that's no reason to avoid owning this attractive business today.”

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.

John Ballard, another Nobias 5-star rated analyst, recently posted a Q1 breakdown on The Motley Fool as well, and in his piece, he touched upon another potential growth catalyst for LULU stock: the success that the brand is having with men.  He wrote, “While women's products made up 69% of total revenue in fiscal 2020, management has been investing to expand the men's business as part of its long-term strategy. Men's growth underperformed during the pandemic, but this category is returning strong in 2021.”

Ballard notes that on a two-year compounded basis (taking into consideration both the pandemic period and the more normalized operating environment during 2019) LULU’s men’s sales have grown at a 27% clip, which exceeds the 23% growth rate that the company’s women’s segment has experienced.

As the company attempts to evolve from a more niche, yoga related brand into a more ubiquitous apparel brand, success with a broader array of customers is paramount. And, the strong growth in the men’s category points towards Lululemon’s brand strength increasing over time.  Since the start of June, we’ve seen 18 blue chip analysts (those who’ve received 4 and 5-star ratings by the Nobias algorithm) post bullish commentary on LULU. These 18 “Buy” ratings compare favorably to the 2 “Neutral” ratings and just 1 “Sell” rating that we’ve seen blue chip analyst report over the same period.

In recent months, we’ve seen 4 blue chip analysts update their price targets for LULU shares. The average price target amongst these analysts is $401.50/share. Right now, LULU shares trade for $347.57. According to the 4 and 5-star analysts that we track, this implies that after the stock’s poor year-to-date performance thus far, Lululemon has upside potential of roughly 15.5%.

Disclosure: Nicholas Ward is long NKE. 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 6/16/21 Nobias 6/16/21

Oracle: Q4 Guidance Disappoints The Street, But Analysts Remain Bullish

Oracle (ORCL) reported earnings last week and this big-tech stock’s results inspired a bevy of interesting analyst notes. Prior to the earnings report, Oracle shares had performed quite well throughout 2021. In his pre-earnings roundup article at Nasdaq.com, Nobias 5-star rated analyst, Richard Saintvilus highlighted this performance saying, “Oracle shares have surged 37% over the past six months, more than doubling not only the 16% rise in the S&P 500 index, its performance has vastly outperformed the 14.7% rise in the Technology Select Sector SPDR ETF (XLK).” Saintvilus noted that as Oracle continues its cloud migration, “the database giant must demonstrate its cloud fundamentals can sustain its recent growth rate, especially given the fact that the stock is trading at a premium to its historical valuation.”

Continued growth in the cloud space as Oracle competes with existing leaders Salesforce (CRM) and Workday (WDAY) is the name of the game for Oracle and Saintvilus said, “for the stock to to keep rising, aside a top- and bottom-line beat Tuesday, Oracle guidance for 2021 must suggest it is ready to stake a legitimate claim to the cloud market.”

Unfortunately for Oracle shares, it appears that the stock did not live up to these expectations. ORCL was trading for nearly $83/share coming into its recent fiscal year 2021 fourth quarter report. Today, shares trade for $76.23, which means that they’ve dipped some 8% since posting the results. Bob Ferarri, a Nobias 4-star rated analyst, covered the Q4 report in a recent article, saying that Oracle’s highlights included:

Total quarterly revenues of $11.2 billion, up 8 percent year-over-year.
Cloud services and license support revenues of $7.4 billion, up 8 percent.
Cloud license and on-premise revenues of $2.1 billion, up 9 percent.
GAAP operating income of $4.5 billion and operating margin of 40 percent.
GAAP net income of $4 billion, up 29 percent.
Operating cash flow during the trailing 12 months reflecting a new record of $15.9 billion, up 21 percent.

Ferrari also noted that for the full-year, Oracle generated $40.5 billion in sales, which was up 4.5% on a year-over-year basis and represented a top-line record for the company.

ORCL’s bottom-line results may have been even more impressive for the year, with GAAP earnings-per-share coming in at $4.55 and non-GAAP earnings-per-share coming in at $4.67. These two EPS figures represent 48% and 21% year-over-year growth results, respectively.

So, with such strong growth in mind, why have Oracle shares fallen? In a word, poor guidance.   Wajeeh Khan, a Nobias 4-star rated analyst who writes for invezz.com published a Q4 review last week and highlighted this guidance saying, “For the fiscal first quarter, CEO Safra Catz now forecasts up to 98 cents of adjusted EPS and a 3% to 5% growth in revenue. Analysts, on the other hand, are calling for $1.03 of adjusted per-share earnings on a 3% growth in revenue.”

As Saintvilus said, Oracle’s valuation has recently increased, with shares trading up to the 17x price-to-earnings multiple level, which is well above its 10-year historical average of approximately 14.6x.   With this premium in mind, it appears that the market expected Oracle’s growth to exceed a low single digit rate, which is why Catz’s commentary was so disappointing.   In his piece, Khan mentioned that Oracle “repurchased $20.9 billion worth of stock in fiscal 2021.”

This represents some very generous shareholder returns as the company’s bottom-line expands. However, he also quoted a J.P. Morgan analyst note that was posted after earnings which claimed that investors may not be able to rely on financial engineering to bolster the bottom-line moving forward.

The analyst note read: “A good chunk of the value-rotation uplift has now played out. Our checks do support the potential for Oracle to displace some very large competitor ERP footprints, and the $5 EPS threshold is drawing nearer as a favourable milestone, but with much less dry powder for exercising share buybacks, growing earnings will become a different challenge in the future because it must be driven relatively more by core operations.”

And, J.P. Morgan wasn’t the only major investment firm who had concerns after reading through Oracle’s Q4 report.  Tony Owusu, a Nobias 4-star rated analyst published an article on CNBC.com last week highlighting a slew of other analyst notes which corresponded to Oracle’s quarterly report.  Morgan Stanley maintained Oracle’s rating at even weight, and Owusu noted that “The firm says investors will need to see further evidence of accelerating growth before bidding the stock higher.” He said that Jefferies decided to maintain their “hold” rating on ORCL shares, raising their price target from $75/share to $80/share.

Owusu said that the Jefferies analysts believe that “The results were encouraging, but the investment firm doesn't see the stock being able to sustain its rally on low-single-digit growth.” Owusu highlighted Oppenheimer’s post-earnings report, which maintained the stock at a market-perform level. He explained that the Oppenheimer analysts are concerned about the capital spending that they believe to be required to maintain growth moving forward, quoting the investment firm which said that the shares "have priced in an acceleration of growth, but not necessarily the corresponding investments.”  He said, “Analysts at Piper Sander maintained a neutral rating while raising their price target to $80 from $57.”

Owusu also noted that Citigroup also published an $80 price target on ORCL shares after the Q4 report.  With shares currently hovering in the $76 area, it appears that these major analyst firms don’t see a lot of near-term upside left in the stock. However, Vladimir Dimitrov, a Nobias 5-star rated analyst who publishes work at Seeking Alpha recently wrote an article titled, “Oracle: The Turning Point Of The Business” which offered a much more bullish outlook.

Dimitrov said, “The cloud ERP space is where Oracle's business is exceptionally strong and far ahead of its other competitors, such as Workday (WDAY), SAP (SAP) and Microsoft (MSFT).” And, he continued, “Although the competition in the space has intensified in recent years, the gap between Oracle's Fusion ERP and other competitor offerings has not changed much since 2017.” Dimitrov provided two primary reasons as to why he believes that being a leader in the cloud ERP space creates strong competitive advances for Oracle, which is oftentimes overlooked in the cloud space.  He said, “Firstly, the business is very sticky, with large multinational corporations rarely undergoing the risky process of migrating their ERP systems from one vendor to another.”

Looking at Oracle’s results, Dimitrov explains that Oracle boasts some of the highest EBIT margin in the cloud industry, saying, “Secondly, being an absolute leader in the space, while also combining the ERP service offerings with high quality database and secure cloud infrastructure places Oracle among the leaders in terms of profitability.”

Historically, Oracle has traded with valuation premium that is far below its cloud peers and Dimitrov touches upon this saying, “A common misconception is that since Oracle is not among the leaders in the Infrastructure-as-a-Service (IaaS) space and lags behind the behemoths Amazon Web Services, Google Cloud and Microsoft Azure, then the business model of Oracle is weak.” However, he notes that the company’s high margins allow management to continue to invest in the Oracle Cloud Infrastructure platform to better compete with its peers. Dimitrov wrote, “ High and sustainable profitability on the other hand allows the management to reinvest significant amounts back into the business and not rely on constant M&A deals to inflate its topline.”

With this in mind, it appears that Dimitrov is not as concerned about capex as the Oppenheimer analysts. Dimitrov believes that this investment is necessary and has the potential to bear major fruit for the company, saying, “While certainly the past 10 years have not been spectacular for the sales growth of Oracle, it seems that things are about to change.”

When looking at the reports published by blue chip Nobias analysts (those with 4 and 5-star ratings by our algorithm) it appears that the majority of the opinions are in Dimitrov’s bullish camp. Since Oracle reported earnings on 6/15/2021, we’ve seen 19 published reports. 11 of them included “Buy” ratings. 7 of them included “Neutral” opinions. And just 1 included a “Sell” rating. 8 of these analysts have provided updated price targets. The average price target posted by Nobias blue chip rated analysts for Oracle shares in recent months is $78.50. This implies upside potential of approximately 3% relative to Oracle’s current share price of $76.23.

Disclosure: Nicholas Ward is long AMZN, CRM, GOOGL, and MSFT. 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 6/14/21 Nobias 6/14/21

Okta, Inc: Does It’s Growth Justify Its High Valuation?

Throughout 2020, the “work-from-home” trend was one of the most powerful bullish forces in the market. The COVID-19 pandemic changed life in many ways and outside of the healthcare sector, one of the most stark differences between pre-pandemic life and post pandemic-life is the expectation of remote work. The pandemic accelerated a trend that was already growing due to technological innovation and continued internet penetration. And with many companies suffering to produce growth while much of the economy was shut down, investors piled into the stock of companies who benefited from this accelerated shift. One such company was Okta, Inc (OKTA), which saw its share price from $114/share at the end of 2019 to $254/share at the end of 2020.

However, after this 100%+ performance during 2020, Okta shares have suffered year-to-date, falling more than 10.4% throughout 2021 thus far. The company recently reported its first quarter earnings and while the results beat analyst expectations, we still haven’t seen the stock rally. On the contrary, OKTA shares fell more than 11% after the results. So, with all of that being said, we wanted to take a look at what the blue chip analysts that the Nobias algorithm tracks have had to say about the stock in recent weeks. Can this company get its 2020 mojo back? Or, do analysts believe that the 2021 weakness is set to continue? Let's find out.

Jose Najarro, a Nobias 4-star rated analyst who writes for newsbreak.com recently published an article titled, “3 Cybersecurity Growth Stocks Down Big From Recent Highs” in which he highlighted Okta as a stock that investors should add to their watch list. Najarro provided 3 reasons for a bullish stance on Okta. He began by saying, “On May 3, Okta completed an acquisition of Auth0, a leading identity platform for application teams. The acquisition strengthens and accelerates Okta's growth in the identity market.” He continued, “For Q4 FY 2021, Okta reported 40% y/y growth in revenue, 42% y/y growth in subscription revenue, 26% y/y growth in total costumers, and 33% y/y growth of costumers with Annualized Contract Value greater than $100k.” And he concluded, “Okta has strong fundamentals with positive cash flow from operations and more cash and short-term investments than debt.”

Nobias Finance FDX Jun 11th 2021 — Nobias Finance OKTA Jun 14th 2021

Jason Hawthorne, a Nobias rated 4-star analyst who writes for The Motley Fool, recently published a bullish article where he made the argument that OKTA shares continue to look attractive due to their operations which allow them to benefit from two major secular trends: work-from-home and cyber security.   With regard to the privacy needs of employers when allowing employees to work remotely, Hawthorne said, “There aren't many better industries right now than cybersecurity. It's an estimated $162 billion market slated to grow to over $400 billion by 2028. With the shift to zero trust, Okta's Identity Cloud is perfectly positioned.”

Hawthorne notes that Okta’s business is essentially divided into two segments.  “First,” he says, “companies are able to authenticate employees, contractors, and partners when they attempt to access the company's internal network in any way. This process is called workforce management.” He continues, saying, “Okta's customers can also layer in its security to provide authentication for their own customers. That's the second application, called customer identity.”

These two markets present a tremendous opportunity for the company. Hawthorne touches upon the total addressable market (TAM) that Okta stands to benefit from as it attempts to grow and take market share, explaining, “Okta's SaaS business model generates most of its revenue through multiyear subscriptions to its cloud-based offerings. Management believes the workforce identity market is roughly $30 billion and the potential of the customer identity is about $25 billion. With less than $800 million in sales in the fiscal year ending Jan. 31, the company has a huge opportunity if it can add customers and deepen the relationship with existing ones. It's knocking the ball out of the park in both areas.”

Hawthorne liked the 44% revenue growth that Okta generated in 2020 and noted that the business continues to attract significant contracts from large customers, saying, “The number of customers with an annual contract value (ACV) greater than $100,000 continued to grow at a rapid clip, while dollar-based net retention remained incredibly high. That net retention number over 100% means that growth from existing customers more than offsets any churn.”   Hawthorne highlighted the success that the company had attracting new customers in Q4 of 2020, saying that “Nearly half of the customers with ACV greater than $100,000 added last quarter were new customers.” He continued, noting that the company’s growth implies that it is taking market share from “legacy vendors such as Oracle (ORCL) and IBM (IBM).”

The potential downside to the stock is its valuation. Hawthorne says that the stock is trading for roughly 35x sales.   He says, “That's about as cheap as it has been since early in the pandemic, but it still isn't actually cheap.”   However, he also notes that “Great businesses are never cheap.” And he concludes, “Ultimately, the valuation will work itself out over time if management keeps executing. So far, every indication is that they will. Thanks to the recent sell-off in tech stocks, this industry leader is finally on sale again. If history is any indication, it might not last long.”

It appears that investors were unsure of what to make of the company’s valuation coming into Q1 earnings. And, as Demitri Kalogeropoulos, a Nobias ranked 5-star analyst who also writes for The Motley Fool said in a recent piece, investors were also concerned about a recent acquisition that the company made as well.   Kalogeropoulos wrote, “In early May, the digital identity management specialist closed its biggest acquisition yet -- the $6.5 billion purchase of Auth0 -- which has the potential to threaten cash returns going forward.” But, he said, those fears were “overblown” and the company’s operations remain quite strong.

During the first quarter, Kalogeropoulos notes that Okta’s “Sales landed at $251 million, which translated to a 37% increase year over year. That boost easily beat the 30% boost analysts were expecting and marked only a modest deceleration from the 43% spike Okta logged through 2020.” Kalogeropoulos mentioned that Okta’s management said that the company continues to land contracts from large enterprise clients, which continues the trend of taking market share from legacy operations that Hawthorne touched upon.   Kalogeropoulos also said that “The company is also finding room to broaden its contracts by upselling into other security services.”

With specific regard to the impact of the Auth0 acquisition on the company’s growth prospects, Kalogeropoulos says that Okta management made it clear that the move will help them to maintain their high level of growth over the medium to long-term.  He wrote, “That purchase should allow the company to grow sales at over 30% annually over the next five years. This year's growth will be between 45% and 47%, management said, compared to their pre-merger outlook calling for 30% gains. That target implies reaching $4 billion in annual sales by fiscal 2026.”

And, Kalogeropoulos was also bullish on the acquisition’s impact on Okta’s bottom-line as well, saying, “Okta is also planning steady improvements in free cash flow with that figure reaching at least 20% of sales five years from now. The company produced a free-cash-flow margin of 13.3% in fiscal 2021 and 6.2% the year prior.” Kalogeropoulos closed his piece with a bullish leaning, highlighting the company’s “solid momentum coming out of the pandemic”; however, he also noted that these shares may not be for everyone, saying, “Yet shareholders should still brace for volatility over the next year or so, thanks to demand swings in the industry and challenges associated with integrating Auth0 into Okta's operation.”

So, with such strong growth prospects in mind, why have Okta shares suffered throughout 2021? Well, Royston Yang, a Nobias 4-star rated analyst recently covered Okta for The Motley Fool in an article titled, “Why Okta Dived 17.5% in May” and said that investors, “May have been spooked by Okta's guidance for the full fiscal year. Three months ago, when the company released its full fiscal 2021 earnings, it had guided for a net loss per share of between $0.49 and $0.44. Okta's latest earnings release has amended this guidance to reflect a loss per share of $1.16 to $1.13, more than double the range it had estimated a while ago.”   What’s more, Yang says, news recently broke that “Okta's CFO Mike Kourey has also announced his resignation, in a move that caught investors by surprise. Brett Tighe, the company's senior vice president of finance and treasury, will stand in as interim CFO while the search for a permanent replacement takes place.”

However, these two pieces of negative news didn’t sway Yang, who remains bullish on shares, concluding his article by saying, “Notwithstanding the above news, Okta remains one of the more promising software-as-a-service stocks. The higher loss can be attributed to growing pains that are a necessary part of expanding its business and its total addressable market. The Auth0 acquisition should be viewed as a short-term pain that will result in long-term gains for investors.”

It’s clear that there is a tug-of-war going on here between the bears who believe that Okta’s valuation is too speculative and the bulls who believe that the company’s strong double digit growth prospects moving forward justify its high price-to-sales ratio. This is normally the case when we’re talking about high flying growth stocks. Yet, when looking at the recent opinions published by 4 and 5-star rated Nobias analysts, we see a clear bullish mean.

Since the beginning of May, there have been 15 opinions published by the blue chip analyst that we track. One of these opinions was “Neutral”. Just 3 came with “Sell” ratings. And, 11 of the notes included bullish opinions.  Within this blue chip group of analysts, we’ve seen 3 recent price target updates. The average of these estimates is $275/share. Okta, Inc currently trades for $227.79, which implies near-term upside potential of nearly 21%.

Disclosure: Nicholas Ward has no positions in any stocks 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 6/11/21 Nobias 6/11/21

FedEx: Is It A Buy After Its Recent Pullback?

It’s been hard to find a break in the strong rally that FedEx (FDX) shares have experienced since the COVID-19 pandemic recovery began, yet after a bit of recent weakness during recent weeks, we see shares trading down roughly 7% off of their 52-week high of $319.90 which was posted in late May.

Nobias 3-star rated analyst, the Trefis Team, touched upon the stock’s dip in a recent article, saying, “The stock price of FedEx has seen a 4.3% drop over the last five trading days. There is no company-specific development that warrants a decline in its stock. That said, FDX stock has seen a large rally, rising 2x over the last one year, significantly outperforming the broader markets with the S&P500 up just 31%”

Looking at recent reports by the top rated analysts that Nobias tracks, we agree with the Trefis Team’s statement regarding “no company-specific development that warrants a decline in its stock.” The only report written by a Nobias blue chip analyst came in mid-May, Nobias 4-star rated analyst, STAT Times, posted an article highlighting FedEx’s involvement in the donation of oxygen tanks to to India’s fight against surging COVID-19 cases.

STAT Times noted that “FedEx is a member of the Global Task Force on Pandemic Response, a public-private partnership organized by the US Chamber of Commerce and supported by the Business Roundtable.” The publication said that on May 16th, FedEx helped to facilitate a delivery of “more than 780 oxygen concentrators, over 1.8 million KN95 masks, and medicines and pharmaceutical supplies” to New Delhi, India.

STAT Times continued, saying, “FedEx is also supporting the transportation of over 25,000 oxygen concentrators and converters through an initiative with the U.S.-India Strategic Partnership Forum and other multinational companies. FedEx will continue to work with customers and non-profit organizations including Direct Relief, to deliver life-saving medical supplies to the vulnerable people and communities in India in the days and weeks ahead.” However, a large-cap company playing a role when it comes to international relief should not signal a bearish shift with regard to the stock. These humanitarian moves by the company aren’t going to negatively impact its upcoming fiscal Q4 results (FedEx is scheduled to report its next earnings results on June 24th) and therefore, the news doesn’t appear to be a rational catalyst for a sell-off in FDX shares.

A recent Nasdaq press release regarding FedEx’s upcoming Q4 report said, “According to Zacks Investment Research, based on 8 analysts' forecasts, the consensus EPS forecast for the quarter is $4.98.” During the same quarter one year ago, FedEx generated $2.51/share in earnings, so the $4.98/share expectation by the Wall Street analysts cited by Zacks Investment Research implies 98.4% year-over-year growth.

This tremendous bottom-line growth leads us to what is probably the most interesting aspect of FedEx’s huge rally over the last year or so. Even after climbing 129.87% during the trailing twelve month, FDX shares have a price-to-earnings multiple that is still in-line with its long-term historical average. From a relative valuation perspective, this implies that FDX is trading within a fair value range.

Over the last 20 years, FedEX’s average blended price-to-earnings ratio is 17.51x. And today, after the stock’s 7% pullback, we see that FDX shares are once again trading in that area, with a blended price-to-earnings ratio of 17.49x.   On a forward looking basis, FDX shares are even cheaper. Right now, the consensus analyst estimate for fiscal 2021’s earnings-per-share growth rate is 89%. However, looking ahead to fiscal 2022, analysts are calling for earnings-per-share of $20.65, which equates to a 15% year-over-year growth rate relative to the current 2021 expectation.

At today’s $296.09 share price, the 2022 consensus estimate points towards a 14.3x forward multiple. This is well below the aforementioned 17.5x long-term average.  Looking at the Nobias 4 and 5-star rated Wall Street analysts that our algorithm tracks, we see 4 different price target updates published since the start of May.   Since the start of May, we see 4 “Buy” opinions, 1 “Neutral” opinion, and zero sell ratings applied to FDX shares by blue chip Nobias analysts.   The average of these 4 price targets is $329.00, which points towards 11.1% upside potential from today’s share price.

Disclosure: Nicholas Ward has no FDX position. 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 6/9/21 Nobias 6/9/21

Is Biogen A Buy After Its 50% Rally On News Of A Controversial Alzheimer's Drug Approval?

The bio-pharma/bio-tech industries just had their best week of the year and the clear catalyst for the positive sentiment surrounding this space was the major news that broke on Monday regarding the FDA’s decision to approve Biogen’s Alzheimer's drug, Aduhelm (aducanumab).

Alzheimer’s has been a very difficult problem for bio-tech to solve. Companies have attempted to do so for decades because of the very large potential market that an approved treatment for the disease would unlock.

As the baby boomer population ages, Alheimers is expected to become a larger and larger problem for the world.   Dr. Patrizia Cavazzoni, Director, FDA Center for Drug Evaluation and Research, recently published a blog post highlighting the FDA’s thought process when it came to Aduhelm and the need to solve the Alzheimer’s problem, saying, “The need for treatments is urgent: right now, more than 6 million Americans are living with Alzheimer’s disease and this number is expected to grow as the population ages. Alzheimer's is the sixth leading cause of death in the United States.”

In a recent report published by Accumen Research and Consulting, the firm wrote, “The global Alzheimer's disease treatment market is expected to grow at a compound annual growth rate of 12.8% between 2020 and 2027.”   Because Alzheimer’s is one of the largest unmet needs by modern medicine, many companies have dedicated resources towards solving the problem. Yet, until Monday, regulators had not approved a drug that was meant to actually slow the progression of the disease. The last Alzheimer’s drug that was approved was in 2003. Yet, all of that changed when Aduhelm was approved on 6/07/2021.

Regarding the FDA’s decision, Cavazzoni wrote, “We ultimately decided to use the Accelerated Approval pathway—a pathway intended to provide earlier access to potentially valuable therapies for patients with serious diseases where there is an unmet need, and where there is an expectation of clinical benefit despite some residual uncertainty regarding that benefit. In determining that the application met the requirements for Accelerated Approval, the Agency concluded that the benefits of Aduhelm for patients with Alzheimer’s disease outweighed the risks of the therapy.”

Prior to the FDA’s decision, J.P. Morgan analyst Cory Kasimov called the upcoming results, “the mother of all binary events.” In his report, he predicted that a favorable outcome of Aduhelm’s trial could send BIIB shares rallying up to $450 and a rejection could result in BIIB crashing down towards $200.   And, it turns out that he was right. On Monday, after the approval of Aduhelm was announced, BIIB shares shot up more than 50% to the $430 area.

Since then, BIIB has cooled off a bit, and currently trades right around $400. However, the fact is, Biogen has experienced a truly breathtaking rally this week and because of this, there has been a lot of commentary amongst the analyst community.  Therefore, we wanted to take a look at what the 4 and 5-star rated Nobias analysts had to say to see whether investors should consider BIIB shares for their portfolios after this unique event.

Keith Speights, a Nobias 5-star rated analyst who writes for The Motley Fool, recently covered the news, saying, “Goldman Sachs projects $12 billion in peak sales of Aduhelm. Other analysts aren't quite as optimistic but are still very bullish. Peak sales estimates typically range between $5 billion and $10 billion.”

Speights goes on to say, “The actual level of sales for Aduhelm depends heavily on physicians' acceptance of the drug.” With this in mind, it’s important to note that while the FDA said that the drug trial results were "highly persuasive" and showed "an acceptable safety profile”, Speights says that the “advisory committee voted against recommending approval of Aducanumab.”

Jonathan Block, a news editor at Seeking Alpha who is rated 3-stars by Nobias recently touched upon the contentious approval of the drug recently as well, publishing a report showing that 3 members of the FDA advisory panel have resigned from their posts in protest of this approval.

The backlash here could end up being more than resignation letters, but an unwillingness to prescribe the drug by physicians due to the lack of evidence that it actually works.  With all of the ongoing risks in mind, Speights said, “My recommendation is to take the same steps you'd take with any stock. Look at its growth prospects and its valuation to determine if it's a smart stock to buy right now.” He continued, saying, “The biotech's market cap now tops $60 billion after shares exploded higher on Monday. That's roughly six times Biogen's expected sales in 2021 that include only a relatively small contribution from Aduhelm.

Factoring in the potential for the Alzheimer's disease drug, though, Biogen's future price-to-sales multiple is significantly lower -- even with the possibility of sustained sales declines for its other products.”   And after acknowledging the commercial uptake risks associated with the controversial drug again, Speights concluded his piece, saying, “My view is that, after all of the anxious waiting, Biogen is once again a good stock to buy.”

Todd Cambell, a 5-star rated Nobias analyst, touched upon the potential commercial success of the drug in his recent Nasdaq.com article, saying, “Biogen announced the drug will cost $56,000 per year.” He also said, “Separately, the company also announced it's collaborating with CVS Health (NYSE: CVS) to make cognitive screenings more readily available in urban markets.” Deals like this with pharmacies could certainly help BIIB to meet the lofty sales projections posted by analysts.

While many investors are enthusiastic about the potential for an Alzheimer treatment it’s important to note that not everyone is jumping for joy about the Aduhelm results.  Cory Renauer, a Nobias 4-star rated analyst who writes for The Motley Fool published an article this week highlighting the news, pointing out some of the ongoing issues with the decision.   He said, “Unfortunately, aducanumab failed to outperform a placebo in one of two identical clinical trials designed to prove its ability to help preserve patients' cognitive ability. Biogen also failed to convince a panel of independent experts that Aduhelm provided a disease-modifying benefit.”

He continued, noting, “However, the FDA granted Aduhelm an accelerated approval based on its ability to improve amyloid protein fragment concentrations. In theory, this approval will be rescinded if Biogen doesn't provide clinical evidence of a cognitive benefit at some point in the future.”   This is a potentially scary thought for investors buying BIIB shares after the Aduhelm rally has occurred. But, Renauer did say, “Don't be surprised if sales of Aduhelm top $10 billion annually long before Biogen provides any further evidence of efficacy.”

Nobias 4-star rated analyst, Shanthi Rexaline, recently published an article in which she highlighted recent Wall Street analyst ratings changes in light of the Aduhelm decision, in which she wrote:

“Morgan Stanley analyst Matthew Harrison maintained an Overweight rating on Biogen shares and increased the price target from $343 to $455.
H.C. Wainwright analyst Andrew Fein maintained a Buy rating and hiked the price target from $305 to $452.
Canaccord Genuity analyst Sumant Kulkarni reiterated a Buy rating and $359 price target.
BofA Securities analyst Geoff Meacham reiterated a Neutral rating and $400 price target.”

This shows that Wall Street is not yet sold on BIIB’s $400+ share prices.

Needless to say, everyone hopes that Aduhelm will succeed because it would mean a triumphant victory by mankind against a debilitating disease that impacts more than 6 million Americans and tens of millions more across the world; yet it will take years, if not decades, to totally confirm the drug’s results.

In the meantime, investors have to weigh the pros and the cons of the positive trial, the sales potential, commercial uptake risks, and ultimately, Aduhelm’s impact on Biogen’s valuation against one another when making decisions.

There are a myriad of variables at play here, yet, when looking at the blue chip Nobias analysts who’ve posted reports since 6/7/2021 (the data of Aduhelm’s approval), even with the controversy swirling around the news, we see a clear bullish lean. There have been 25 reports published with “Buy” ratings attached, two reports with “Neutral” conclusions, and 10 articles with “Sell” ratings.

BIIB shares closed the trading session of Friday with a $396.29 price tag attached to them. Since Monday, Nobias has tracked 6 blue chip caliber Wall Street analysts who’ve updated their price targets for Biogen stock. The average recent price target by the Nobias 4 and 5-star rated analysts is $416.50. This implies a potential upside of approximately 5%.

Disclosure: Nicholas Ward has no BIIB position. 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 6/7/21 Nobias 6/7/21

Zoom: Beats Expectations During Q1, But Is It Enough To Justify Its Lofty Premium?

There are few companies that benefited more from the stay-at-home economy created by the COVID-19 pandemic than Zoom Video Communications (ZM).   When the world turned upside down, the remote work trend was accelerated in an unforeseen way. Business had been trending in this direction due to technological innovation and continued internet penetration across the world, yet social distancing regulations shoved ZM into the spotlight during the last year and the company has performed wonderfully.

Zoom began trading in April of 2019 at $62/share and today, the stock trades for $342.66/share. ZM shares are up more than 65% during the last year; however, even with these tremendous gains in mind, it’s important to note that ZM shares are down 41.8% from the all-time highs of $588.84 that they posted in October of 2020.

Now that vaccinations are widespread, COVID-19 caseloads are falling, and there is a thought that a semblance of herd immunity and therefore, a return to a sense of normalcy is on the horizon, ZM shares have lost a bit of their luster. Yet, without a doubt, remote work and video conferencing will remain a big part of the future of enterprise moving forward.

It’s clear that investors are weighing the valuation risks (ZM shares are priced with a premium growth multiple) against Zoom’s growth prospects. The stock is a bit of a battle ground right now. And with that in mind, we wanted to take a look at what the analysts that the Nobias algorithm ranks as 4 and 5-stars have been saying about the stock lately.

Throughout 2021, we’ve witnessed a rotation out of the growth oriented names that benefited from the pandemic period to more value oriented stocks that the market appears to believe will be the major beneficiaries of a reflationary trade.

Continued stimulus and easy monetary policy by the Federal Reserve, as well as other central banks from across the globe, combined with the strong economic figures being posted as economies reopen, have created an inflationary threat that has the potential to lead to higher interest rates.

The fear of higher rates has taken the wind out of the sales of the speculative growth stocks and Zoom Video has certainly suffered because of this trend. Yet, as Chris Lange, a Nobias 4-star ranked analyst who writes for 24/7 Wall St. posted in a recent article, Cathie Wood who has become famous for her unique investing philosophies and the success of her Ark Invest ETFs throughout the pandemic, continues to buy shares of Zoom Video.

On May 28th, Lange said, “One of the ARK exchange-traded funds run by ETF star Cathie Wood made a huge purchase on Thursday. Accordingly, this fund bought over 55,000 shares of Zoom Video Communications Inc. (NASDAQ: ZM) shares, as the price of this ETF gained about 1% in Thursday’s session.” He continued saying, “At Thursday’s closing price, this would have valued this purchase at roughly $19.0 million. Even though this is a small fraction of the total holdings, every little bit counts. ARKK is up 85% in the past year.”

ZM bulls were obviously happy to see that Wood is still bullish on this company. And, even after ZM’s 40%+ sell-off, she’s not the only one.  Zoom Video posted first quarter earnings after the market’s closing bell on June 1st and beat consensus Wall Street estimates on both the top and bottom lines.

IAM Neswire, a Nobias 5-star rated analyst, covered ZM’s earning report in a recent article, saying, “After the closing bell on Tuesday, Zoom Video Communications exceeded estimates across the board with its first-quarter results, seeing 50% revenue growth for the full fiscal year as expansion drops compared to a pandemic-shaped year during which the platform reached unprecedented heights. The shares rose 4% in extended trading after initially falling as much as 5% due to signs of a looming slowdown that is bound to arrive with new normalcy.”

IAM News continued, saying, “With better-than-expected first-quarter results Tuesday, Zoom showed a sales growth of 191% as revenue for the quarter which ended on April 30th jumped from $328.2 million a year earlier.”   The analyst noted, “The company's gross margin widened to 73.9% from 69.4% in the previous quarter, primarily thanks to the optimization of public cloud resources.”

IAM News concluded their piece, saying, ‘Even as COVID-19 eases its grip that fueled stratospheric growth of the video platform, people are not getting tired of Zoom despite the so-called ‘Zoom fatigue' phenomenon that threatened its newly found fame. But even after becoming a global name due to a virus that grappled the whole globe, Zoom entered the new fiscal year with a very strong quarter shaped by YoY revenue growth, strong profitability, and impressive cash flow.”

While the growth figures posted by ZM during Q1 were impressive, it is worth noting that the pace of the company’s growth is slowing.   Nick Clarkson, the Web Editor at InvestorPlace who is also a Nobias 5-star rated analyst, recently published a report highlighting ZM’s Q1 results which talked about the company’s growth rate, saying, “This is an impressive rise, but revenue grew 369% in the previous quarter — pointing toward a slowdown in business as the pandemic also fades.”   And yet, even as growth slows, Clarkson points out that ZM’s $1.32 earnings-per-share results “blew past analysts’ estimates for EPS of 99 cents” and moving forward, it appears that the company’s expectations are higher than Wall Street’s as well.

ZM provided Q2 guidance during the quarterly results and Clarkson noted that “the firm [is] expecting revenue between $985 million and $990 million, and EPS between $1.14 and $1.15.” He says, “Meanwhile, Wall Street is looking for revenue of $931.74 million and EPS of 94 cents for the period,” showing that ZM’s estimate is approximately 6% higher than the Street’s consensus.

Clarkson shows that ZM’s bottom-line guidance is higher than Wall Street’s as well, saying, “The company also raised their guidance for FY2022, including an expected revenue range of $3.975 billion to $3.99 billion and EPS between $4.56 and $4.61.” He continued, “That said, analysts are expecting revenue of $3.8 billion and EPS of $3.76 for the year.”

Right now, ZM shares trade with a blended price-to-earnings ratio of 90.6x. ZM shares are trading with a forward price-to-earnings multiple of roughly 74x (relative to the mid-point of the company’s recently provided full-year EPS guidance). This is well above the broad market’s ~21x forward multiple and to maintain this sort of premium valuation, ZM’s management team is going to have to continue to produce strong growth.

ZM’s earnings-per-share rocketed higher by 854% during its fiscal 2021. Right now, the company’s fiscal 2022 guidance calls for roughly 38% bottom-line growth. However, right now, analysts are expecting this growth trend to grind to a halt during fiscal 2023. Today, the consensus estimate on Wall Street for ZM’s 2023 earnings is $4.63/share, which is less than 1% higher than the upper end of the company’s 2022 guidance. If earnings growth flattens, it appears that ZM could have significant downside ahead due to the lofty premium attached to shares.

Yet, as Clarkson pointed out, ZM outperformed analyst estimates during Q1 and it’s certainly possible that this trend continues.  It’s incredibly difficult to predict growth when we’re talking about an innovative name like ZM. This is especially the case coming out of the pandemic environment where no one truly knows what the “new normal” will look like.

The blue chip (4 and 5-star rated) Nobias analysts appear to be torn on the stock as well. Since May 1st, we’ve seen 17 reports published on Zoom Video. 8 of these reports came with “Buy” ratings, 2 came with “Neutral” outlooks, and 7 had “Sell” ratings attached. In other words, the tug-of-war between bulls and bears surrounding this stock remains even, implying a very interesting future ahead for ZM shares.

Disclosure: Nicholas Ward is long shares of ARKK, ARKW, ARKG, ARKF, ARKQ, and ARKX (Cathie Wood’s Ark Invest actively managed ETFs). . 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 6/4/21 Nobias 6/4/21

Costco: Does Double Digit Growth Justify the Company’s Premium Valuation?

There aren’t many companies in the world that generate more consistent profit/profit growth than Costco (COST). Over the past 20 years, this company has generated negative year-over-year earnings-per-share growth just twice (a -4% performance in 2001 and a -14% performance in 2009). While Costco suffered a bit during the dot-com boom/bust at the turn of the millennium and during the Great Recession in 2008-2009, the company’s performance was very strong during the COVID-19 recession in 2020. Shares posted 13% earnings growth during fiscal 2020 and analysts expect to see COST’s bottom-line grow by another 15% during fiscal 2021. And, after another strong earnings report last month and a stellar same-store-sales report for the month of May, COST shares are trading near all-time highs. Costco is up nearly 25% from its March 2021 lows and after such a strong rally, we wanted to take a look at what the Nobas blue chip (4 and 5 star rated) analysts had to say.

On May 13th, Seeking Alpha editor Clark Shultz, a Nobias 4-star rated analyst, published a note which highlighted a pre-earnings upgrade that Christopher Graja, an Argus analyst, provided on COST shares. Argus issued a bullish report prior to COST’s fiscal 2021 Q3 report, raising its full-year 2021 earnings-per-share target from $10.29 to $10.40 and its full-year 2022 earnings-per-share target from $10.80 to $10.90. In the report Graja said, "We believe that Costco's financial strength and ability to deliver exceptional value to consumers are key differentiators for the stock in the current market environment. Our analysis of core operations suggests that execution of the business plan remains excellent with historically strong traffic and membership renewals. If investors are looking for clues to our future ratings or target changes, these two measures of member engagement are likely to be important indicators because they are drivers of earnings growth and earnings stability."

And, it turns out, Graja’s bullish sentiment was well placed. When Costco reported Q3 results on May 27th the company beat analyst estimates on both the top and bottom lines. Costco’s Q3 sales came in at $45.28 billion, up 21.5% year-over-year. The company’s GAAP and non-GAAP earnings-per-share came in at $2.75 and $2.84, respectively. The GAAP EPS figure beat analyst estimates by $0.41/share and the non-GAAP figure was even more impressive, topping expectations by $0.56/share. During Q3, Costco’s same store sales grew by 15.1% year-over-year. And, the company’s eCommerce sales increased by 38.2%.

Nobias Finance BP Jun 2nd 2021 — Nobias Finance COST Jun 4th 2021

Demitri Kalogeropoulos, a Nobias 5-star rated analyst, recently published an article at the Motley Fool, which showcased the company’s strong Q3 results.  Kalogeropoulos began his piece touching upon COST’s 15%+ comparable sales growth figure, saying, “That increase reflected one of the strongest consumer spending environments in years.” However, he believes that the same-store-sales figures only tell a small portion of COST’s growth story and highlighted 3 other metrics that he believes investors should also be focused on.   He liked the company’s membership renewable rate figures, saying, “Nearly everyone who had an invitation to let their membership lapse chose instead to pay up for another year. Costco's subscription renewal rate was 91% this quarter, keeping it at the near-record level that it has been at for over a year.”

There’s a lot of competition in the retail space, especially with regard to eCommerce, but it appears that the vast majority of Costco customers believe that their membership fees are well worth the cost. And, this customer satisfaction falls straight down to Costco’s bottom line.   Kalogeropoulos said, “The strong renewal rate also lifts earnings, with membership income rising to $900 million from $815 million a year ago. That accounts for over half of Costco's operating earnings.”

Another important metric that he tracked during the recent quarter was inflation. Rising inflation has the potential to hurt earnings/cash flows of retailers if they’re not able to pass along those costs to consumers. And, in an ever competitive retail environment, Costco appears to be a winner in this regard.   Even as inflation rises above the company’s prior estimates, Kalogeropoulos said, “Costco is using its clout in the industry to minimize the effect on shoppers through strategies like front-loading orders. Yet prices are still creeping up as costs rise on everything from aluminum to plastic, pulp, freight, and commodities. That inflationary environment favors Costco, given its price leadership status in the industry.”

Kalogeropoulos concluded his piece by putting a spotlight on the company’s consumer traffic trends. While it’s trendy for retailers to focus primarily on eCommerce growth (because that’s what investors like to see), the fact is, Costco continues to offer compelling reasons to drive consumers into its stores.  Kalogeropoulos mentioned that even with online sales growing by more than 38%, consumers “Still flooded Costco's retailing warehouses, with traffic rising by double digits again this quarter. The big boost came from its non-food aisles that tend to carry higher profit margins. The fresh food niche contracted slightly but was still high by historical standards.”

One of Kalogeropoulos’s colleagues at The Motley Fool, Nobias 4-star rated analyst, Eric Volkman, also recently published an article offering a bullish outlook on COST shares.  The article was focused on the Motley Fool analysts top investment ideas during an inflationary environment and Volkman chose Costco saying, “In inflationary times, consumers usually turn to retailers that consistently and reliably offer low prices. That's why my pick would be the stock of a retailer that competes very effectively on that basis and manages to make a healthy profit while doing so: Costco Wholesale.” He continued, highlighting unique competitive advantages, saying, ‘What sets Costco apart from your neighborhood grocery or supermarket chain is that it functions effectively as a giant shopping club. Like any club, membership is required for admission, and the company makes a tidy sum on fees for this.”

Like Kalogeropoulos , Volkman also touched upon the $881 million worth of membership fees that COST generated during Q3. With regard to retail profits and profit margin, Volkman explained that the company’s strong infrastructure is what allows Costco to still make money while offering such good deals.  He mentioned that there are “809 Costco warehouses spread throughout the world (as of the end of April), the vast majority of which (559) are based in the U.S.”

Volkman said that Costco’s “annual free cash flow has ballooned, from $2.8 billion in 2018 to over $6 billion a mere two years later. This is more than enough to fund a dividend that's been raised once annually for years, although the yield is low (0.8%) due to the strong popularity of Costco stock.”   And, he added that this low dividend yield is a bit misleading because of the regular special dividends that the company had paid over the years. Obviously no dividend is ever guaranteed, but he says, “The company also pays one-off special dividends in particularly abundant years. The most recent one was dispensed in December and totaled a hefty $10 per share.” This extra $10 in passive income per share certainly helped to bolster the company’s total returns in 2020.

The most recent report that we saw regarding COST shares came from Shultz at Seeking Alpha again. On June 3rd, he reported that Costco’s comparable same-store sales figures for the month of May rose 22.8% compared to last year.   He said, “Comparable sales in the U.S. were up 21.9% and e-commerce sales increased 12.1%.”

Shultz also noted, “Excluding the impact of gas and F/X, comparable sales were up 14.7% including a 16.7% jump in the U.S.” Overall, this 22.8% result missed consensus analyst expectations of 23.4%. However, this slight miss wasn’t enough to significantly impact shares and the longer-term trajectory remains positive.

While it’s clear that COST is one of the leading growth companies in the retail space, quality is just one portion of an investment thesis. Valuation is the other and this is where investors sometimes become cautious when it comes to COST shares.   Because of its very reliable growth, COST tends to trade at an outsized premium relative to its peers, as well as the broader market.

Today at $387.52/share, COST is trading for more than 37.4x its expected 2021 earnings. Not only is this premium nearly double the forward looking multiple attached to the S&P 500, but it is also well above Costco’s own 10 and 20-year average P/E ratios of 28.75x and 25.4x, respectively.

The company’s growth is likely to continue to grow in the coming years, yet it could take quite some time for the expected high single digit/low double digit growth that the analyst community expects to see from COST to justify today’s share price. However, when looking at the recent reports published by the Nobias 4 and 5-star rated analysts on COST shares, the blue chip analyst community that we track appears to be willing to overlook valuation concerns and instead, focus on COST’s growth and shareholder returns, because of the 14 reports that we’ve seen published since the start of March, only 4 offered “Sell” ratings.

Disclosure: Nicholas Ward has no position in COST. 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 6/2/21 Nobias 6/2/21

British Petroleum: Is There Room To Run After Its 33% Year-To-Date Rally?

In one of the most seismic shifts that we’ve ever seen in the energy sector, large integrated oil and gas names are starting to shift their mindsets and business plans towards a more renewable future. These moves come as more and more countries around the world adopt green energy futures and more and more corporations, in all sectors of the market, put a strict focus on ESG (environmental, social, and governance) policies due to pressure from shareholders. What’s more, ongoing innovation and improvement of technology in the renewables space, making strong profits a realistic outcome. Granted, the transition from fossil fuels as the world’s primary energy source towards a more green energy future isn’t going to happen overnight.

Demand for energy continues to rise across the world coming out of the pandemic and the fact is, there isn’t enough renewable capacity to meet these demands. Yet, higher sales/cash flows coming from crude sales in the present is likely to accelerate the renewable investments that many integrated oil names are making. And, with this trend in mind, we noticed that there was a lot of chatter amongst the blue chip analysts that the Nobias algorithm tracks regarding one “big oil” name in particular as of late, and that is British Petroleum (BP).

Stephen Guilfoyle, a Nobias 3-star ranked analyst, began his recent piece on TheStreet.com, highlighting BP’s leadership position amongst oil names in the recent “green” transition, saying: “As far as "Big Oil" goes, BP plc (BP) , the old British Petroleum, has been well ahead of the others in at least talking up a good game, better than its peers, as far as ‘going green’ is concerned. BP had set goals of being a ‘very different’ company by the year 2030, and exist with a "net zero" carbon footprint by 2050. Sure plenty of corporations are setting such goals, and all of ‘Big Oil’ has started talking that game, but BP has clearly, in my opinion... been out front.”

Offshore Windsource, a Nobias 4-star rated analyst, recently published a report which highlighted the rapid expansion of investment that they’re seeing in the European wind markets. With regard to the broader trend at play here, Offshore Windsource said, “Currently, European supermajors are expected to increase their offshore wind generation capacity from around 400MW in 2020 to 8,200MW by 2030. Although this only accounts for 3% of our expected total installed capacity it should be noted that this figure represents only current equity participation with significant potential for upside given the rapid momentum observed over the past 12 months.”

The firm also noted that BP was a “big winner” in a recent UK seabed leasing auction, where the company, in partnership with German utility EnBW, received “the rights to 3GW of this new capacity”. And, BP isn’t just investing in wind assets. As Guilfoyle notes, the company is also investing heavily in solar as well. He said, “BP announced on Tuesday morning that the firm would pay $220 million to purchase 9 GW (gigawatts) of solar projects in the U.S. from 7X Energy. These assets are not currently producing solar power, but increase BP's total pipeline of renewable energy projects to 23 GW. The firm had set goals of increasing net developed renewable generating capacity to 20 GW by 2025 and to 50 GW by 2030.”

Nobias 5-star rated analyst, Jamie Ashcroft, recently published an article on BP expressing a similar bullish outlook, calling the stock “misunderstood” by investors, and highlighting a recent report by Barclays analysts, which said that the firm believes, “That BP’s switch to low carbon will eventually be rewarded by investors but, in the meantime, they see the price being driven by the underlying hydrocarbons business.”

Ashcroft quoted the Barclay’s report which said, “Our analysis shows the cashflow generation of the business as having the ability to support a 10% cash return to shareholders in the form of dividends and buybacks in a US$60 per barrel environment - the highest in the sector.”   And, sticking to the theme of using hydrocarbon cash flows to invest in a carbon-free future, Ashcroft noted that the analysts said, “The aggregate cashflow of the traditional units is enough to allow bp to ensure competitive cash returns to shareholders, continue to reduce debt, and invest in its low-carbon business.”

In his piece, Guilfoyle also mentioned that Barclays analyst Lydia Rainforth recently named BP the firm’s "top pick" in the European integrated oil and refinery segment.  Guilfoyle quoted Rainforth as saying, "The aggregate cash flow of the traditional units is enough to allow BP to ensure competitive cash returns to shareholders, continue to reduce debt and invest in its low-carbon business." This report made headlines across the financial news industry. Rainforth also recently discussed her firm’s big call on CNBC’s “Worldwide Exchange” where she said, “Ultimately, the switch to low carbon will be rewarded by the shareholders. We’re looking at a stock that has a five per cent dividend yield and can potentially double that through the process of share buybacks as well. So, for us, the reasons for our big call are very clear.” However, as bullish as Barclay’s appears to be on BP, the fact is, the company has had plenty of issues in the recent past.

Alan Oscroft, a Nobias 4-star ranked analyst who publishes his work at the Motley Fool, recently highlighted BP’s 2020 struggles in an article, saying, “Investors once saw BP as a top long-term dividend payer. Through all sorts of crises, the dividend didn’t flinch. But the 2020 oil price crash, after the Covid-19 pandemic shut down so much business, was too much. BP slashed its dividend by 35%.” In his article, Guilfoyle mentioned that BP has begun to return more cash to shareholders, saying, “The firm also committed to returning at least 60% of surplus cash flow (define surplus) to shareholders through share repurchases, using the rest to work on the balance sheet. The firm felt this was necessary as it launched a $500 million repurchase program in order to offset the dilutive impact of the vesting of awards made to employees.”

However, this news was actually upsetting to a lot of income oriented investors because instead of the dividend that they’d become used to receiving over the years, seeing BP buy back shares to essentially cover the cost of management share-based compensation was not viewed as a shareholder friendly move. The fact is, BP’s dividend cut during the COVID-19 recession caused a lot of investors to lose faith in this big integrated name. Traditional oil/gas investors continue to question the company’s stark shift towards a focus on renewables; however, others applaud the company’s forward thinking mindset. However, at this point, the sentiment amongst the blue chip (4 and 5-star rated) analysts that the Nobias algorithm tracks is clear.

Since the beginning of May, we’ve seen 17 reports published by BP by such analysts and 14 of them offer bullish outlooks. These 14 “Buy” ratings were counterweighted by just 3 “Sell” opinions. BP shares are up more than 33.7% year-to-date as oil markets recover. And, the strong bullish lean amongst the Nobias analyst community appears to point towards more upside ahead for this transitioning oil giant.

Disclosure: Nicholas Ward has no position in BP. 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 5/31/21 Nobias 5/31/21

Salesforce: Will its Strong Q1 Change The Negative Sentiment Surrounding Shares?

Salesforce (CRM), one of the premiere growth companies in the technology space in recent years, has struggled throughout 2021 thus far. Prior to its first quarter earnings report last week, shares were up just 2%, underperforming the S&P 500’s year-to-date gains of 12% by a wide margin. This underperformance is relatively rare for CRM shares, whose total returns have more than doubled the S&P 500’s over the last 5 and 10-year periods. However, the company beat Wall Street estimates on both the top and bottom lines during its Q1 report, which sent shares on a 6% rally. And now that the Q1 dust has settled, we wanted to take a look at what the blue chip analysts that the Nobias algorithm tracks have to say about this stock. Were the first quarter results strong enough to change the sentiment surrounding Salesforce? Let’s find out!

Before we get into the analysts’ opinions, we wanted to begin with Salesforce’s Q1 conference call, highlighting some commentary from the company’s senior management.  During Q1 Salesforce produced revenue of $5.96 billion, which was up 23% year-over-year. The company’s operating cash flow came in at $3.23 billion, up 74% year-over-year.

CRM’s CEO, Mark Benioff began the Q1 conference call on a very upbeat nore, saying, “It was just incredible. It was beyond our expectation. It's not just the best first quarter we've ever had. I think it's the best quarter we've ever had.”   Not only was Benioff bullish on the Q1 results, but he noted that his company was guiding for 21% revenue growth in Q2, pointing towards continued momentum in the short-term, and that Salesforce was raising full-year 2022 guidance as well. Now, CRM is calling for $26 billion in revenue next year, which represents 22% year-over-year growth relative to 2021 expectations. What’s more, CRM’s management expects to see operating margins improve by 50 basis points in 2022 as well, pointing towards not only higher sales, but higher profitability as well.

This is good news for investors who’re basing their CRM valuations on the bold statement that Benioff made about long-term growth during the Q4 2020 earnings presentation last year regarding Saleforces’ 5-year growth plan.  During the Q4 presentation, Benioff said, “And as we shared at our Investor Day last year, our long-term revenue target for the fiscal year 2026 is now $50 billion or basically we're going to double the company from where we are right now. That is doubling revenue in five years, and we'll reach that milestone faster than any other enterprise software company. That would make Salesforce the second largest independent software company in the world, amazing.”

Nobias Finance BABA May 28th 2021 — Nobias Finance CRM May 31st 2021

During the Q1 conference call last week, he doubled down on this guidance, saying, “And in a few years, we're going to be doing $50 billion, and by fiscal year 2026. So that is an incredible thing. I mean, we're really seeing some momentum and some cadence that's very powerful for the company.” This guidance calls for sales to compound at a roughly 19% rate from 2021-2026. This sort of growth from a company coming from a company with a $217 billion market cap would be very impressive (and unique). And yet, even with this growth in mind, the question remains, is it already priced into the stock?

Vladimir Dimitrov, a Nobias 4-star rated analyst who writes for Seeking Alpha, has published concerns regarding CRM’s valuation in the past.   In September of 2020, he published this article, in which he said CRM was likely to underperform in the near-term, due to valuation concerns. And, as it turns out, he was spot on. Since September CRM has underperformed the market by a wide margin.   Dimitrov recently published another article on Salesforce, titled, “Salesforce Will Continue To Grow, But Returns Will Most Likely Disappoint”, in which he revisits that prior thesis and updates his outlook now that shares have lagged.

In this piece, Dimitrov says, “Salesforce is an undisputed leader the CRM space and is becoming a dominant player in other adjacencies, such as Digital Commerce, Business Intelligence, and other Platform-as-a-Service areas.” However, he continues to express concerns about the company’s ability to grow in a tighter economic environment, offering specific criticism of the company’s bottom-line performance and growth prospects.   With regard to monetary policy, Dimitrov says, “As extremely loose monetary policy brought yields close to the zero bound, high-growth momentum has become the place to be in the yield-starved world where central banks were always there to put a floor under risky assets and ceilings on credit spreads and volatility. As a result, high-growth momentum stocks significantly outperformed value companies over the past decade.”

It’s clear that Salesforce has benefitted from regular M&A activity and there are questions about whether or not this inorganic growth strategy is reliable in a rising rate environment. In this regard, Dimitrov believes that the company is going to have to show a renewed sense of discipline moving forward, saying, “By focusing on acquiring complementary businesses with very high growth rates, CRM has secured its topline growth for years to come, but there is a catch to this strategy. It also involves paying hefty premiums of these high-growing businesses, and sooner or later, CRM will need to show some impressive profitability numbers in order to justify these deals and its current valuation.”

He shows that while Salesforce continues to dominate market share in the customer relationship management space, the company continues to lag peers such as Adobe, Microsoft, SAP, and Oracle in terms of profitability. A lot of this appears to be driven by the company’s high marketing spend. And while scale is incredibly important, Dimitrov wonders whether or not Salesforce will be able to maintain its leadership without a high marketing spend and ongoing M&A activity, both of which appear to place hurdles between the company and the profits that are required to justify its current premium.

Dimitrov says, “After years of high M&A activity, CRM has by far the largest gap between its achieved profitability and its forward Price-to-Earnings ratio within its peer set.” He continues, “This leaves a serious question for shareholders and namely: can Salesforce become significantly more profitable in the future, without sacrificing growth and market share?”

Overall, Dimitrov maintains his cautious stance. He acknowledges CRM’s strong standing amongst its peers, its operational strength, and its top-line growth prospects; yet, he isn’t sold on the idea that the stock’s share price performance will match its revenue growth moving forward because of valuation concerns.  He concludes his piece saying, “In other words, there is a possibility that CRM could trade around these levels for years, even if it delivers on its ambitious revenue growth targets and in the process achieves best-in-class profitability without diluting shareholders.”

Now, not everyone is quite so cautious. In a recent podcast, Nobias 5-star rated analyst, Brain Withers of The Motley Fool, discussed Saleforce’s recent Slack acquisition, highlighting the attractive growth that Slack is likely to bring to the table for Salesforce.   With regard to Slack’s recent earnings results, Wither’s said, “Earnings was pretty decent, revenue was $903 million for full-year 2020, so they're approaching a $1 billion run rate business, it's up 43%, Q4 was up 38%, so pretty strong. Billings are up 41% showing me that customers are still signing up for Slack even though everybody knows that Salesforce is going to buy them, that isn't slowing growth at all.”

Simply Wall Street, a Nobias 5-star rated analyst recently published an article on Nasdaq.com highlighting CRM’s M&A activity and the impact that it has had on the company’s balance sheet. Their conclusion was bullish as well, saying, “We could understand if investors are concerned about salesforce.com's liabilities, but we can be reassured by the fact it has has net cash of US$9.29b. And it impressed us with free cash flow of US$4.1b, being 711% of its EBIT. So we are not troubled with salesforce.com's debt use”.

And lastly, in response to Salesforce’s Q1 results, we saw that Morgan Stanley analyst, Keith Weiss, upgraded CRM from an equal weight rating to overweight, raising his price target to $270/share (right now, CRM trades for $236.20, meaning that Weiss’s target implies upside potential of 14.3%).

Weiss said that Salesforce was “getting back its mojo” with rising bookings showing increased demand, which is likely to continue due to the strengthening economic outlook coming out of the pandemic.   Like Withers, Weiss also offered positive commentary on the Slack deal, saying that demand trends justify the “strategic rationale” that Salesforce expressed when it spent $27.7 billion to acquire Slack.

In recent months, we’ve tracked 5 opinions published by analysts with 4 and 5-star ratings and overall, the sentiment that the Nobias algorithm tracks remains positive here. 4 out of the 5 opinions offered by blue chip analysts were bullish, which appears to point towards more upside momentum for CRM shares.

Disclosure: Nicholas Ward is long CRM and MSFT. 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 5/28/21 Nobias 5/28/21

Alibaba: What Will It Take To Overcome Regulatory Fears?

Alibaba continues to confound investors. Frankly put, the company’s combination of size, scale, and operational growth are incredibly unique. There are very few companies in the world with market caps as large as BABA’s (currently, the company’s market capitalization if $580 billion) that are also growing at such a strong double digit clip (in recent quarters, BABA has consistently posted strong double digit top and bottom-line growth). And yet, the stock trades with a relatively cheap valuation attached to it (especially relative to the big-tech companies in the U.S. that traditionally trade with premiums well above the market multiple), showing that investors are not willing to dive head first into this high growth technology stock.

Why is that?
Well, Richard Saintvilus, a Nobias 5-star rated analyst, recently published an article in which he touched upon the company’s intriguing valuation, relative to the U.S. big-tech firms, saying, “BABA shares, which have fallen from their peak of $319 per to around $225, continue to trade at a discount to their American FAANG peers. This is even though Alibaba has demonstrated the high-growth, high-profitability characteristics that are consistent with the likes of Amazon (AMZN) and Google (GOOG, GOOGL), which enjoy premium valuations.”

Jonathan Weber, a Nobias rated 5-star analyst who publishes work at Seeking Alpha, recently penned a series of articles on Alibaba, expressing his bullish outlook in one of his articles which Weber titled, “Alibaba: Be Greedy When Others Are Fearful” he said, “Some tech stocks still look quite overvalued, we believe, but that is not true for Alibaba - we see this as a long-term winner that has been punished too much over the last couple of months.”

Regarding valuation, Weber says, “During the first three quarters of the current fiscal year, Alibaba generated operating cash flows of $32 billion, which equates to annualized cash flows of $43 billion. Relative to Alibaba's market capitalization of $630 billion that is a quite large amount that equates to a cash flow yield of 6.8%.” He continued, “Alibaba is thus trading at a cash flow multiple of just 14.7 right now, which seems quite low, considering the market position, growth outlook, and attractive business fundamentals.”

Weber notes that “analysts are currently forecasting that earnings per share will grow by 20% annually for the foreseeable future,” and therefore, he believes that BABA shares deserve a premium valuation.  However, BABA continues to trade near 52-week lows and while the divergence between relative operational performance and valuation metrics here may point towards a buying opportunity, the company continues to face unique risks as well.

Saintvilus discussed the stock’s ~35% sell-off, explaining, “Alibaba’s recent struggles began in late December when the company’s planned $34.4 billion initial public offering of its payments unit Ant Group’s was suspended, seemingly in retaliation after billionaire founder Jack Ma spoke critically about Chinese regulators.”   He did note that this issue was apparently resolved, with the company paying a $2.78 billion fine.

Weber recently touched upon the recent fine BABA paid chinese authorities in his article titled, “Alibaba: Shares Keep Dropping, Keep Buying” saying, “The fine alone isn't a major issue for Alibaba, as this equates to just a couple of weeks' worth of cash flows. Still, it is of course possible that there will be more investigations and more fines in the future, although I don't see this as overly likely.”   But, government regulation remains an ever present threat for this Chinese giant and looking ahead to Q4 earnings, Saintvilus said, “The company on Thursday must give investors a reason to believe the stock is not only worth the near-term risk, but also has significantly more long-term upside than expected.”

Those earnings have since been posted and they were not strong enough to change the bearish sentiment largely surrounding the stock. While the company’s growth continues to be impressive, BABA didn’t quite live up to the market’s expectations.

Alibaba’s shares dipped after the results, trading down to the $210/share area, and Anders Bylund, a Nobias 5-star rated analysts posted an article on The Motley Fool rationalizing the short-team weakness, saying, “Sales jumped 78% higher year over year, landing at $28.6 billion. Earnings increased from $1.30 to $1.58 per diluted American depositary share (ADS). Analysts were expecting earnings of roughly $1.79 per ADS on revenue in the neighborhood of $28.1 billion. In that light, this was a mixed report.”

Bylund continued, saying, “Looking ahead, Alibaba expects full-year sales to rise by approximately 30% in 2022, as measured in local currencies. By comparison, Alibaba's revenue increased by 32% in 2021 when adjusted for currency translation and the $3.6 billion buyout of Chinese supermarket chain Sun Art.” In other words, the company didn’t present a story that pointed towards a re-acceleration of growth in a post-Ant Financial fiasco world, which gets back to Saintvilus’s point: what is the major growth catalyst that will propel shares higher?

The expansion of eCommerce remains one of the world’s strongest secular growth trends and BABA is a clear beneficiary of this trend.   In his article, Saintvilus touched upon this, saying, “What’s more, the surge in online spending trends, including online grocery penetration, remains strong with gross merchandise value in China expected to grow at close to 20% annually through 2025. In the most-recent quarter, not only did the company’s Core commerce sales soar 38%, annual active consumers on China retail marketplaces reached 779 million, up 22 million year over year.”

It’s also worth noting that eCommerce isn’t Alibaba’s only growth engine.   Weber says, “Alibaba's cloud computing revenues have grown by 54% so far this year, and since China's cloud computing market is not yet very developed, the unit has a large growth runway over the coming years. On top of that, the cloud business has been profitable for the first time during the most recent quarter; profit accretion of the unit should thus continue to improve meaningfully going forward.”

And, while the Chinese regulatory environment poses a unique threat to BABA shares, Weber also highlights the benefits of a strong market position in that country, noting, “China's GDP will likely grow by 8% this year, following a year of positive growth in 2020, despite the pandemic. China's GDP growth is, at least in part, driven by growing consumer spending, which naturally benefits Alibaba's core business.”

Alibaba also has investments in a variety of exciting technology start ups and is expanding its presence outside of the Chinese market in an attempt to diversify its revenue stream.   And yet, with all of this being said, the stock continues to trend downward. So, are Nobias blue chip (4 and 5-star rated) analysts bullish or bearish on BABA stock?   Well, since April 1st, we’ve seen 36 bullish opinions posted compared to 3 neutral opinions and 43 bearish opinions.

The results point towards this continuing to be a battle ground stock.  Only time will tell whether or not BABA’s growth potential eventually overwhelms the bears or if investors continue to invest capital in growth names that operate in more favorable regulatory environments.   Weber says, “Alibaba isn't risk-free, but the current valuation more than accounts for potential risks, I believe.”

However, Bylund offers a more cautious conclusion to his piece, saying, “It may make sense to pick up a few Alibaba shares at these low prices, given the company's impressive revenue growth. Just be sure that you can stomach the risk of the pending regulatory reviews leading to potentially painful concessions.”

Disclosure: Nicholas Ward is long JAMZN and GOOGL. 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 5/26/21 Nobias 5/26/21

Cigna: Can Digital Healthcare Propel Cigna’s Stock Price Higher?

Throughout 2021, we’ve witnessed a fairly strong rally throughout the broad markets. However, there are certain sectors/industries that have been left behind. And, generally speaking, the healthcare segment is one of them.

The Healthcare Sector Select SPDR (XLV) is up 8.96% on a year-to-date basis, and 21.44% during the trailing 12 months, which means that it is underperforming the SPDR S&P 500 Trust ETF (SPY) by a significant margin. The SPY is up 12.35% year-to-date and 38.64% during the trailing 12 months, which implies that on a relative basis, it has outperformed the XLV by 37.8% thus far during 2021 and by approximately 80% during the past year.

There are a myriad of reasons for this underperformance; however, fear surrounding healthcare reform, such as government oversight of prescription drug pricing, appears to be the biggest headwind that investors thinking about healthcare face. And yet, while there are constant headwinds abound, there are still very high quality companies that are generating strong profit growth and who benefit from secular growth tailwinds in the sector. In other words, fear has resulted in babies being thrown out with the bath water in this space and one such stock which the blue chip analysts who the Nobias algorithm tracks really like at the moment is Cigna (CI).

Throughout 2021, we’ve witnessed a fairly strong rally throughout the broad markets. However, there are certain sectors/industries that have been left behind. And, generally speaking, the healthcare segment is one of them.

The Healthcare Sector Select SPDR (XLV) is up 8.96% on a year-to-date basis, and 21.44% during the trailing 12 months, which means that it is underperforming the SPDR S&P 500 Trust ETF (SPY) by a significant margin.   The SPY is up 12.35% year-to-date and 38.64% during the trailing 12 months, which implies that on a relative basis, it has outperformed the XLV by 37.8% thus far during 2021 and by approximately 80% during the past year.

There are a myriad of reasons for this underperformance; however, fear surrounding healthcare reform, such as government oversight of prescription drug pricing, appears to be the biggest headwind that investors thinking about healthcare face.   And yet, while there are constant headwinds abound, there are still very high quality companies that are generating strong profit growth and who benefit from secular growth tailwinds in the sector. In other words, fear has resulted in babies being thrown out with the bath water in this space and one such stock which the blue chip analysts who the Nobias algorithm tracks really like at the moment is Cigna (CI).

One such secular trend that we’ve seen accelerated by the COVID-19 pandemic is the digitization of healthcare. Increased internet penetration, cloud computing, and the ongoing 5G revolution has already revolutionized the healthcare industry and we’re still in the early innings of this transition.

Nobias Finance SPCE May 26th 2021 — Nobias Finance CI May 28th 2021

Nobias 5-star rated analyst, David Jagielski recently wrote a Motley Fool article titled “2 Bargain Stocks You Can Buy Right Now” which highlighted his bullish opinion of Cigna, which was largely centered around this company’s investments into digital healthcare assets.  Jagielski said, “Health insurance company Cigna may not be your typical growth stock. While its business is safe and diversified with sales in 30 countries serving 185 million customers, what makes it an appealing investment right now is the potential that it gained from the acquisition of telehealth company MDLive.”

With regard to this telehealth service, Jagielski highlighted the expected growth of the industry at large, saying, “Telehealth is the sector to be in; analysts from Research and Markets project that the industry will be worth nearly $192 billion in 2025 -- up from $38.7 billion last year.”

There are concerns amongst investors that in a post-pandemic world, the telehealth demand may fall as consumers return to their normal ways of life, which includes in-person doctor visits. Also, we’ve seen enormous competition in the telehealth industry, causing former market darlings, like Teledoc Health (TDOC), which has lost roughly half of its market capitalization in recent months, falling from nearly $300/share in mid-February to just $150/share today, to experience significant weakness.

However, Jagielski addressed these concerns, expressing his opinion that the quick adoption of telehealth services that we’ve seen throughout the pandemic will prove to be much more than fleeting, saying, “While the pandemic made telehealth visits popular, investors shouldn't expect them to end, as patients have gotten used to the convenience of not having to make in-person trips to the doctor's office.” And, with this in mind, he believes that the relationships that Cigna can cultivate with consumers via the MDLive service has the potential to begin “paving the way for significant long-term growth.”

It’s important to note that unlike some of the more speculative investments in the healthcare space centered around the adoption of telehealth, Cigna is a highly profitable company that trades with a relatively cheap valuation.   During 2020, Cigna generated total revenues of $160.4 billion and adjusted income from operations of $6.8 billion.

The company raised its 2021 full-year guidance during its recent first quarter report. CI management is now calling for $166 billion in revenues this year, with adjusted income from operations coming in at approximately $7 billion.   At $258/share, CI is trading for just 13.5x blended earnings and due to consensus earnings estimates that point towards 11% growth on the bottom-line in 2021, Cigna’s forward price-to-earnings ratio is just 12.65x.

Cigna’s current multiple is essentially in-line with the stock’s long-term average; however, the addition of the digital growth prospects into a bull thesis here leads some to believe that shares should be trading with a premium valuation attached.  Jagielski appears to think so, saying that the company’s valuation is “cheap given that industry giants Johnson & Johnson and UnitedHealth Group trade at 17 and 21 times their future earnings, respectively.”

One potential downside that investors need to consider when it comes to CI shares is the company’s debt. Continued growth in the digital space is likely going to require further investment into digital assets and therefore, balance sheet strength is paramount in the healthcare industry.

Nobias 5-star rated analyst, Simply Wall Street, recently published an article on Nasdaq.com, highlighting CI’s balance sheet and noting a cautious outlook looking forward.  Simply Wall Street says that at the end of 2020, CI carried total debt of $32.9 billion and net debt of $21.4 billion (after factoring in the company’s $11.5 billion cash position).   The analyst continued saying, “We can see from the most recent balance sheet that Cigna had liabilities of US$36.0b falling due within a year, and liabilities of US$69.0b due beyond that. Offsetting these obligations, it had cash of US$11.5b as well as receivables valued at US$12.2b due within 12 months. So it has liabilities totalling US$81.4b more than its cash and near-term receivables, combined.”

Simply Wall Street is concerned about the company’s balance sheet because of the size of the liabilities relative to the company’s market cap, which currently sits at $89 billion.  What’s more, the analyst wrote, “Cigna's net debt is sitting at a very reasonable 2.0 times its EBITDA, while its EBIT covered its interest expense just 6.4 times last year. While that doesn't worry us too much, it does suggest the interest payments are somewhat of a burden.”

Concluding their piece, Simple Wall Street said, “When it comes to the balance sheet, the standout positive for Cigna was the fact that it seems able to convert EBIT to free cash flow confidently. But the other factors we noted above weren't so encouraging. For example, its level of total liabilities makes us a little nervous about its debt.” The analyst noted that “Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution.”

This is a risk that bullish investors here need to consider; however, when looking at analysts deemed credible by the Nobias algorithm, the sentiment surrounding CI stock remains positive, with 3 recent published opinions leaning bullish compared to just 1 recent bearish opinion.

Disclosure: Nicholas Ward is long Johnson and Johnson. 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 5/24/21 Nobias 5/24/21

Virgin Galactic: Is it a Buy After Its Successful Space Flight Test?

Virgin Galactic (SPCE) shares have been all over the news this weekend due to their successful test flight on Saturday. The company’s shares are up nearly 75% since March 13th. Without a doubt, this has been a wonderful rally for bulls; however, it’s important to note that even after rising from $15.50 to the stock’s current price of $26.89, SPCE share are still down more than 57% from the highs that the company posted earlier in the year.

Virgin Galactic is an interesting company, probably known best for its billionaire founder, Sir Richard Branson. The Virgin brand gives the name a lot of brand recognition; however, the fact is, this is a pre-revenue company operating in an unproven, speculative industry, which has led to the enormous volatility that shares have experienced in recent years.

And yet, the successful test flight of the VSS Unity has put a very positive light on shares. Even before this weekend’s flight, we saw SPCE experience a strong rally, simply because of the news that it planned on testing its technology again.

Lou Whiteman, a Nobias rated 5-star analyst who writes for The Motley Fool recently published a piece, highlighting Virgin’s 20% pop last Thursday on the announcement that the company would once again begin test flights.   Whiteman said, “Given that Virgin Galactic generated no revenue in the first quarter, the company's ability to advance through its testing program and reach the point where it is able to start flying paying customers is essential to it turning into the growth stock that investors hope it will become.”

Bullish investors were obviously excited to see the company return to the skies. However, even after the stock’s big pop last Thursday, shares were still down roughly 50% from its February highs. Whiteman said, “Virgin Galactic's potential is exciting, but the technical hurdles it must overcome are immense, and competition is coming.” The delays that the company faced in 2020 appear to have allowed competition to catch up. Most notably, in the form of Jeff Bezo’s private company, Blue Origin, which is also pursuing space tourism.

Robert Larkin, a Nobias 4-star rated analyst, touched upon the rivalry between billionaires Branson and Bezos in a recent Investor Place article, saying, “Branson’s long-held dream of creating a space tourism company has competition from fellow billionaire Jeff Bezos’s Blue Origin, which last month announced it would soon begin to sell tickets for rides on its own rocket called New Shepard.” Larkin showed the similarities of the two companies, saying, “Virgin Galactic ships fit six people. Same with Blue Origin ships. And Virgin only has two ships today, while Blue Origin has one.”   Right now, Blue Origin is auctioning off one of the six seats of its New Shepard’s inaugural flight. The auction lasts until June 10th and right now, the highest bid is $2.8 million. The flight is currently scheduled to launch on July 20th and if you’re interested in placing a higher bid to win that seat you can do so on the company’s website.

Nobias Finance TGT May 21st 2021 — Nobias Finance SPCE May 24th 2021

This auction has garnered a lot of attention, due to the unique nature of the price and the extraordinarily high price tag. As Larkin puts it, “To be sure, suborbital space tourism will be very expensive. But for those who can afford it, the rocket rides offer a chance to do something only a handful of people have ever done before in the history of humankind.” It’s unclear as to who will win supremacy in the space tourism race. However, the rising price tag associated with the blue origin flight has bolstered share prices of numerous space related stocks, Virgin Galactic included.

But, this pre-revenue company still has a lot to prove, as highlighted by Whiteman, who wrote, “But make no mistake about it: Virgin Galactic still has a lot to prove this year. The stock has lost about half of its value from its late February highs, and the only way it can start heading back toward those levels is if these tests go well.”

Well, after Saturday’s good news and the continued rally that shares have experienced, growth investors are watching SPCE shares closely, to see if they can regain the positive momentum that they had earlier in the year. Seeking Alpha highlighted the company’s press release on Saturday, stating, “VSS Unity achieved a speed of Mach 3 after being released from the mothership, VMS Eve, and reached space, at an altitude of 55.45 miles before gliding smoothly to a runway landing at Spaceport America.”

In the release, Michael Colglazier, Chief Executive Officer of Virgin Galactic, was quoted saying, “Today’s flight showcased the inherent elegance and safety of our spaceflight system, while marking a major step forward for both Virgin Galactic and human spaceflight in New Mexico. Space travel is a bold and adventurous endeavor, and I am incredibly proud of our talented team for making the dream of private space travel a reality. We will immediately begin processing the data gained from this successful test flight, and we look forward to sharing news on our next planned milestone.”

The company continued, saying, “Following the flight, and in line with normal procedures, Virgin Galactic will conduct a review of all test data gathered and thoroughly inspect the spaceship and mothership. Once the team confirms the results, the Company plans to proceed to the next flight test milestone.”   Up to this point, analysts aren’t reporting negative news. This appears to bode well for future flights, which clear the path for the company to begin planning commercial flights. And, as another Seeking Alpha report shows, this is putting pressure on the short sellers who’ve bet against SPCE shares.   The article states that, “Virgin Galactic is the seventh largest short in the Aerospace & Defense Sector.”

Considering Virgin’s relatively small, $5.07 billion market cap, this is saying a lot (many of the company’s peers in the defense space are large cap companies).  Right now, 21.7% of Virgin Galactic’s shares are sold short. This has the potential to create a short squeeze and more upside momentum if the company can continue to create positive sentiment around its stock.  But, even with that potential, SPCE shares aren’t for the faint of heart. Investors betting for or against this company are likely going to be on a wild ride. And, as for whether or not Virgin will go “to the moon” as speculative investors like to say these days, or crash and burn, the Nobias 4 and 5-star rated analyst community remains divided.

Our algorithm tracked recent articles posted on the stock and we see 4 “Buy” opinions posted by blue chip analysts compared to 3 “Sell” opinions.   In short, Virgin Galactic remains a battleground stock and this isn’t likely to change until the company (and the broader space tourism industry) matures.

Disclosure: Nicholas Ward is long SPCE. 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 5/21/21 Nobias 5/21/21

Target: Can Continued Growth Outweigh Valuation Concerns?

The stock market can be a very fickle place.  This is due, primarily, to the fact that human sentiment (which is often irrational) tends to drive share price movement in the short-term. Only after longer periods of time, do the underlying fundamentals of companies begin to shine through and dictate value.

The short sightedness with which the market operates can lead to tremendous opportunities for investors who are willing to go against the grain and play the contrarian role. Turnaround stories have the potential to create some of the best returns in the entire market. Buying out of favor companies and patiently waiting for mean reversion to occur is how value investors make a living. And, one of the best examples of such a trade that we’ve seen in recent years is the decline and ensuing bounce back that has occurred with Target (TGT) shares during the past several years.

In June of 2017, Target shares were trading for just 10.5x earnings and had a dividend yield in the 4% area. TGT shares were unloved by the market because of a belief that the rise of eCommerce would make traditional big-box stores obsolete. The company was being priced as if they were going to produce zero growth over the long-term. Well, those 2017 projections couldn’t have been farther from the truth.

While it’s true that Target produced negative 6% earnings-per-share growth in 2018 as management invested heavily in new store formats, logistical infrastructure, and omni-channel related technology, since then, we’ve seen the company generate reliable top and bottom-line growth.

In 2017, Target generated $70.27 billion in revenue. In fiscal 2021 (which ended In January for Target), the company’s annual sales had grown to $93.56 billion. In short, the company’s investments have paid off handsomely.

Jeremy Bowman, a Nobias 4-star rated analyst who writes for The Motley Fool, highlighted the productivity of Target’s recent investments in a recent article, saying, “Though Target may be best known for its brick-and-mortar stores, the company has invested billions in its e-commerce infrastructure to move closer to a hybrid, omnichannel model.”

He continued, saying, “Stores fulfill nearly all of Target's sales, including those that take place online. In the first quarter, stores fulfilled 96.3% of the company's sales, even though only 81.7% of its sales originated in its stores. That strategy of using its stores to fulfill online orders has made Target much more profitable than its closest peers, including Walmart, Costco, and Amazon's e-commerce division.”

During its last fiscal year, Target’s profit focused business model generated 47% earnings-per-share growth. And, with profits booming, the market has taken notice.   The company which was once trading in the bargain bin with a near-single digit price-to-earnings ratio now trades for 21.99x blended earnings.   This multiple is well above TGT’s historical 17.6x long-term (20-year) average. It’s also well above the company’s 5 and 10-year average P/E multiples of 14.99x and 15.05x, respectively.

Year-to-date, TGT shares have risen by 27.5%, beating the broader market by a wide margin. Over the past year, TGT shares are up 89.66%, showing a strong bounce off of the COVID-19 lows.  So, while it’s obvious that Target has been on a roll, investors who’re thinking about buying shares today have to contend with what appears to be an abnormally high valuation. And, with that in mind, we wanted to check in with the analysts who’re 4 and 5-stars by the Nobias algorithm to see what they’ve had to say in the wake of Target’s recent first quarter earnings report.

Jennifer Saibil, a Nobias 4-star rated analyst who writes for The Motley Fool, recently published an article where she wrote, “To fortify your holdings, you should consider diversifying your portfolio by adding stocks that can perform well in any type of market. If I had to choose one unstoppable stock that has the potential to do well even during a market crash, I would buy shares of Target.”   Saibil noted that during 2020, Target outperformed other popular large cap retail investments, such as Wal-Mart (WMT) and Costco (COST), saying, “Fiscal 2020 comps generated 19% growth year over year, driven in part by a ramp-up of same-day services, which saw a 235% increase in use.” While she admits that it’s going to be difficult for Target to post those types of growth figures year in and year out, Saibil is bullish on Target, especially relative to its retail peers, because of two primary reasons.  She says, “The first of these differences, or competitive advantages, is Target's well-rounded business model, which comprises Super-sized stores, small-format stores, and omnichannel options.”

Most people probably think of Target through a big-box retail lens, imaging the 100,000 square foot stores that retail became famous for prior to the rise of eCommerce. Target has plenty of these still in operation; however, Saibil likes the company’s new smaller footprint stores that the company has been building in recent years. She says that the company has built 140 of these smaller footprint stores, which can be as little as 12,000 square feet.   She says, “Each store offers a tailored product line that fits the needs of its community, such as its 30 small-format stores near college campuses that offer a selection of products geared toward college students. These stores also serve as shipping hubs for the surrounding region and make delivery cheaper and faster.”

Saibil also believes that Target’s store brands differentiate it from its peers, saying, “The other competitive advantage is Target's owned brands. Target owns 48 exclusive brands, 10 of which generated at least $1 billion in 2020 sales, and four of which generated at least $2 billion. Altogether, they represent a third of total sales, which is significant.”

Gabriela Barkho, another Nobias 4-star rated analyst who writes for Modern Retail, also highlighted Target’s private label brand success in a recent article, saying that during Q1, “The company added that private label lines were also a major driver of sales, reaching a record 36% in sales growth.” In Barkho’s piece, she highlighted a quote by Target’s Chief Growth Officer, Christina Hennington, who highlighted the success of the store owned brands, saying, “These brands aren’t something that our guests pick up while they’re at Target, they’re a big reason why they shop at Target, which is why we continue to invest in them.”

Barkho noted that Target’s store-owned brands don’t just reside in the apparel segment either.   She said, “Expanding its private label assortment in grocery has been a big focus for Target. In April, it introduced a new line called Favorite Day, which features 700 products across snacks and frozen desserts. Target is also expanding its Good & Gather line, a grocery private label line introduced in 2019, by adding more plant-based products to it.”

Barkho also mentioned the recent success of the company’s Mondo Llama brand, which management launched to capitalize on the increased interest in crafting, as well as the company’s Opalhouse brand, which focuses on home decor, which have both been bit hits during the stay-at-home trend seen throughout the COVID-19 pandemic.   So, even after all of the success that TGT shares have had recently, we see that blue chip Nobias analysts remain largely bullish on the company.

Of the reports posted by 4 and 5-star analysts since the company’s first quarter earnings last week, we see 6 “Buy” ratings and just 1 “Sell” rating.  With that in mind, it’s clear that the analyst community believes that the company’s growth prospects outweigh the stock’s valuation concerns and expect to see more blue skies ahead for this big box retailer.

Disclosure: Nicholas Ward is long 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 5/19/21 Nobias 5/19/21

Home Depot: Can Home Depot Continue Its Double Digit Growth into 2021?

Home Depot has been on a tear as of late, due to the strength of the housing market, the stay-at-home economy, and what some believe to the secular trends forming in terms of younger generations embracing the “do-it-yourself” mindset.   2020 was a banner year for the company, with full-year sales rising 19.9%, diluted earnings-per-share increasing by 16.5%, and same-store sales metrics showing comparable sales figures up 20.6%.

Demitri Kalogeropoulos touched upon HD’s tremendous 2020 in a recent article, where he highlighted an interesting quote from HD’s CEO, Craig Meaner during the company’s Q4 earnings conference call, "It took us 19 years as a company to achieve the first $20 billion in total sales, and we outgrew that in this year alone.”

However, now investors must ask themselves, will this success continue into the future?   Looking forward to 2021, Richard Saintvilus, a Nobias ranked 5-star analyst, recently summed up the stock’s situation headed into earning first quarter quite well, saying, “Home Depot stock responded favorably, soaring 22% year to date, more than doubling the 9% rise in the S&P 500 index. Its shares have enjoyed a strong run over the past six months, rising more than 17% compared to the 14% rise in the S&P 500 index. But can the housing market Home Depot has benefited from, which has also sent the real estate sector to its fastest price growth in more than a decade, remain resilient?”

He went on to say that the market was expecting to see the retail giant post revenues of $34.61 billion and earnings-per-share of $3.03, which implies strong growth, on a year-over-year basis, compared to the $27.54 billion and the $2.08/share earnings figure that Home Depot posted during the first quarter one year ago.

It’s clear that HD shares have been riding a multi-faceted wave, created by the combination of the work-from-home trend created by the COVID-19 pandemic and low interest rates resulting in a very strong housing market as renters who were previously forced to live in expensive urban areas now begin to think about home ownership outside of the city limits.

Coming into Q1, there was little doubt that the confluence of bullish trends in the housing market would result in strong growth for Home Depot’s fundamentals. However, as Saintvilus said, “The concern is whether all that growth has been pulled forward, meaning the pandemic-driven revenue has already been spent?”

Well, as it turns out, the company didn’t lose its luster during Q1.   Martin Baccardax, a Nobias 4-star analyst posted an article breaking down the results in the Toronto Star last week, saying, “Home Depot (HD) posted stronger-than-expected first quarter earnings Tuesday amid what the world’s biggest home retailer called “unprecedented” demand for domestic projects.”

Baccardax continued saying, “Home Depot said earnings for the three months ending on May 2, the company’s fiscal first quarter, were pegged at $3.86 per share, up 85.6 per cent from the same period last year and well ahead of the Street consensus forecast of $3.06 per share.”

With regard to sales, Baccardax said, “Group revenues, Home Depot said, rose 32.9 per cent to $37.5 billion, again topping analysts’ estimates of a $34.61 (U.S.) billion tally.”   And, in terms of the comparable sales metric, the company beat expectations as well.

Baccardax said, “Same store sales were up 31.1 per cent from last year, Home Depot said, firmly ahead of the Refinitiv forecast of 19.9 per cent, while comparable sales in the U.S. were up 29.9 per cent, with both figures coming in well ahead of Street forecasts.”

Brian Withers, another 5-star ranked analyst by the Nobias algorithm recently had bullish things to say about HD after this expectation shattering report.   Withers broke down his bull thesis into 3 primary segments.  First of all, he mentioned that the company has paid a reliably increasing dividend and the HD is currently on an 11-year annual dividend increase streak.   Over the years, Home Depot has been very generous to its shareholders when it comes to both its dividend and buyback.

The company’s 5 and 10-year dividend growth rates come in at 20.5% and 20%, respectively. In other words, this company’s historical dividend growth has meant that long-term investors have doubled their passive income every 3.5 years or so.   What’s more, the company is equally, if not more generous when it comes to return cash to shareholders via share repurchases. During the last 5 years alone, HD management has used share buybacks to reduce the company’s outstanding share count by more than 14%. And, on May 20th, the company announced that its board of directors had approved a $20 billion buyback authorization, which represents roughly 5.9% of the company’s current $339.6 billion market cap.

Withers isn’t the only analyst who’s bullish on Home Depot’s dividend. Taking a step further back, Leo Nelissen, a Nobias rated 4-star analyst who publishes work on Seeking Alpha, recently penned a piece in which he called Home Depot “one of his favorite dividend growth stocks” and said, “Between the year ending January 30, 2005, and January 31, 2021, the company has raised dividends from $0.36 to $6.15. This implies a CAGR of 18.2%. The good news is that the average growth rate of the past 5 years is ABOVE that number, which implies that growth hasn't been fading as most companies report a significant slowdown in dividend growth over the past few years.”

He went on to say, “In the most recent fiscal year (2020), the company hiked dividends by 10%. Going forward, I expect the average to remain in the 10-12% area.” And, regarding buybacks, Nelissen wrote, “Using the same time period (2005-2021), the company has reduced shares outstanding from 2.2 billion to 1.1 billion. This translates to a CAGR of -4.15%.”

Second, Withers says that while this may look like a rather boring, traditional, big box retailer, “But behind the scenes, it is investing in tech like crazy. We talked a little bit about the omni-channel -- that's complex from a tech perspective, especially with legacy infrastructure that was built in the late '80s, early '90s.” And lastly, he also mentions the stay/work-from home trend and the wide-scale desire amongst consumers to get the most out of their living spaces, which continues to point towards renovation projects.

Wither’s comments were made during a podcast with his fellow analyst, Jason Hall.   In response to Wither’s points, Hall responded saying that he believes it’s worth mentioning that “[The] average existing home in the U.S. is 37 years old. That's old, right? That means a lot of them were also built in the late '70s and early '80s when homebuilders were building really crappy homes. Home Depot also has great relationships with local contractors. I think a lot of people sleep on that. I think it's a huge source of potential growth because of those things Brian was talking about.” Jason Hall is a Nobias 3-star analyst, though he too is bullish on HD shares.   And, these two gentlemen aren’t the only two analysts bullish on the company.

Chris Katje, a Nobias 4-star analyst who writes for Bezinga, penned a post-earnings article where he highlighted the Wall Street response related to Home Depot’s results.   Katje said, “Raymond James analyst Bobby Griffin reiterated an Outperform rating and a price target of $350. RBC analyst Scot Ciccarelli reiterated an Outperform rating and raised the price target from $377 to $386. Morgan Stanley analyst Simeon Guitman reiterated an Overweight rating and raised the price target from $340 to $345. Telsey Advisory Group analyst Joseph Feldman reiterated an Outperform rating and a price target of $370.”   Katje noted a key takeaway from HD’s report was that “Thirteen of Home Depot’s of 14 product categories posted gains of 20% year-over-year or more.”

Katje highlighted the risk moving ahead, saying, “Gutman says the second quarter could be a key to watch for Home Depot with tough comparable sales. The analyst sees comps coming flat in the second quarter or up in the lower single-digit range.”   However, he also mentioned that Joseph Feldman’s recent note said, “Home Depot commented that in the first two weeks of May the two-year stacked comp was running over 30%, implying a comp up at least MSD vs. 24.6% in May last year,” which points towards continued growth into the second quarter.

Although HD’s performance in the past has been wonderful, it’s important to remember that share price performance moving forward is based upon the company’s ability to generate cash strong flows in the months/years ahead.

At this point, it’s unclear as to whether or not the company will be able to continue its double digit growth momentum throughout the entirety of 2021 or not; however, the analyst consensus earnings estimate for earnings-per-share during the full-year in 2021 is currently $14.00, which would represent 17% year-over-year growth if management is able to meet expectations.

This 17% growth estimate, on top of 2020’s 16% growth is the reason why so many analysts remain bullish on HD shares. Right now, when looking at the recent opinions expressed by 4 and 5-star rated Nobias analysts, we see that there are 32 “Buy” opinions, 1 “Neutral” opinion, and 28 “Sell” opinions.

So, all in all, the analyst community appears to be torn on whether or not the trends that Home Depot has benefitted from during the last year or so will prove to be isolated or more secular.  However, in terms of the professional Wall Street analysts that Nobias tracks, the average price target provided for HD shares is $329.60, and given the HD’s current share price is $315.77, this implies that the company may have more upside momentum left in the tank.

Disclosure: Nicholas Ward is long HD. 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 5/17/21 Nobias 5/17/21

Cisco: Can Cisco Begin To Generate The Growth It Needs To Push Its Share Price Higher?

For decades, Cisco (CSCO) has been a leader in the digital communications space via its expertise and strong market position in the switches and routers categories, which essentially means the hardware associated with communication in a digital network.

However, as time has moved on and the word has forged further and further into the digital age, the hardware components of network infrastructure have ceded their leadership as a growth industry to more software oriented solutions. The hardware components that Cisco is known for are being commoditized. And, this has forced the company to evolve, adopting digital security and other software-as-a-service (SaaS) solutions as a means for growth in today’s digital world.

And yet, the company continues to struggle to generate sustained growth like some of its other “old-tech” peers (such as Apple, Microsoft, and Oracle; the other Silicon Valley darlings from the dot-com boom/bust cycle that we saw roughly 30 years ago). And, with this in mind, we’ve seen an ongoing tug-of-war going on between more value oriented investors who see Cisco’s strong cash flows, balance sheet, and dividend yield versus more growth oriented investors, who want to see the company begin to expand its top-line like so many of its other peers in the technology sector.

This leads us to today’s article, which is focused on the bull/bear argument surrounding Cisco shares. The company continues to come up as a frequently discussed stock amongst the 4 and 5-star analyst community which we track with the Nobias algorithm. Today, we’ll look to see if there is a consensus, one way or the other, amongst these individuals as to whether or not Cisco is a buy, sell, or hold in today’s market.

Regarding Cisco’s pandemic performance, Richard Saintvilus, a Nobias 5-star rated analyst writing for Nasdaq.com, recently posted a piece previewing the company’s upcoming earnings report, saying, “Unlike smaller competitors such as Zoom Video (ZM) and Zscaler (ZS), which have surged amid the massive shift towards work-from-home, Cisco stock, which has fallen 1% over the past year, has been largely ignored. Are the shares undervalued or merely misunderstood?”

He continues, touching upon the company’s recent growth struggles, saying, “To be sure, the routing and switching businesses, which consists of sales of devices that are the backbone of the internet, still deliver strong cash flow for the company, despite the meager growth numbers. This business segment still accounts for some 75% of Cisco’s product revenue in the last fiscal year, while accounting for 55% of total revenue. That said, investors -- for that matter the overall market -- have been frustrated by the fact that Cisco’s quarterly revenue has fallen for four straight quarters.” But, he says “there is optimism” for the future, with investors focused on “the growth in Internet traffic.”

Saintvilus says, “Across many industries the market has witnessed increased spending on cybersecurity as employees work remotely amid social distancing norms. These trends have increased demands not only better network security, but also stronger web security as well as advanced threat solutions.”   He believes that the market will be focused on growth prospects in the security space and this is where the company must deliver to maintain the upward trajectory that it has been on throughout 2021 (after struggling throughout much of 2020, CSCO shares are up 18.3% on a year-to-date basis).

Knikki Louise, a Nobias 4-star rated analyst, recently published an article on Tech Start Ups, highlighting the company’s strong performance in recent months, as well as its continued focus on digital security.   She touted CSCO’s 15% performance during the month of March, saying that management’s continued aggressive M&A strategy was bullish for shareholders. Specifically, she cited the company’s recent investment in A.I. start up, Securiti, attempting to continue to grow its digital security footprint. Louise said, “The amount of data continues to grow, giving rise to both new opportunities and obligations for companies. Under broader data, there is ‘sensitive data’ that hackers usually go after, which can be misused. The emergence of multi-cloud and edge computing created a new opportunity for businesses to adopt a new architecture that could help them establish a distributed safety perimeter around multi-cloud data.”

She also highlighted a recent deal that Cisco struck with Japan’s NEC corporation, saying, “Cisco and NEC said they will work together to create new business opportunities for 5G and companies under the NEC group will collaborate with the U.S. tech conglomerate to add optimized IP metro/access transport and edge cloud computing products to the NEC’s ecosystem.”

Regarding this deal, Louise quoted Cisco’s Senior Vice President and General Manager of Cisco’s Mass-Scale Infrastructure Group, Jonathan Davidson, who said, ““We believe 5G is fueling the internet for the future and accelerating our customers’ digital transformations. Together with NEC, we are creating a powerful force to drive the critical changes needed in networking infrastructure to carry the internet into the next decade.”

Chris Neiger, a Nobias 4-star rated analyst, recently highlighted a bullish upgrade by financial firm J.P. Morgan on Cisco is his recent article titled, “Why Cisco’s Stock Popped Today”. He says, “The upgrade is based on a few things that are working in Cisco's favor, including increased IT spending in the sector, Cisco's transition to subscription revenue, and the company's "inexpensive valuation."’

Neiger also said that the J.P. Morgan analyst, Samik Chatterjee, believes that, “While Cisco's industry has had to manage a semiconductor shortage right now, as a result of higher demand for chips during the coronavirus pandemic, Chatterjee believes Cisco will be able to manage the shortage better than its peers.”

Neiger mentions that Cisco “wasn't invited to the party” with regard to the tech rally during the COVID-19 pandemic; however, he appears to be bullish on the future, saying, “Cisco is still transitioning away from its previous focus on hardware sales to more long-tail revenue from subscription services. And today's optimistic investor note from Chatterjee is definitely welcome news for investors hoping that the tech stalwart can continue its transformation.”

While CSCO’s growth has languished a bit in recent years, investors have been able to focus on the company’s low valuation (CSCO trades for just 16.5x blended earnings, which is well below the market’s multiple) and the stock’s high dividend yield (CSCO currently yields 2.8%, which is more than twice as high as the S&P 500’s current 1.34% yield). Not only is Cisco known as a reliable dividend stock, but the company has been quite generous to shareholders with its buyback program as well. Over the past 5 years, Cisco’s management team has used share buybacks to reduce its outstanding share count by roughly 16%. However, to some, even Cisco’s shareholder returns have been controversial.

For instance, Dan Weiskopf recently published a piece on Fintech Zoo which highlighted CSCO’s ongoing adoption of blockchain technology and proposed an interesting idea: why not, instead of focus on building cash on the balance sheet and returning it to shareholders, begin to build a position in bitcoin?

The idea of corporations adopting bitcoin as a balance sheet asset has been an ongoing discussion in board rooms across the world since Tesla recently made headlines, buying into the cryptocurrency in a major way (however, recent tweets by Tesla's CEO, Elon Musk, have led to speculation that the company may have recently exited its bitcoin position due to environmental/sustainability concerns).

Weiskopf says, “The future of Blockchain is about innovation, and will lead to massive industry disruption. Cisco agrees that the Blockchain is at the core of what they do and could benefit from a network effect. How business data is assimilated and processed, and even how people and clients communicate, is at the core of Cisco, yet embracing Crypto appears to be a challenge. Institutional adoption of Crypto, as measured by the price of Bitcoin and news flow, provides a single metric as evidence that momentum of the benefits of the blockchain are building. Sadly, many companies will remain solely focused on a past way of doing business and fail to innovate for their shareholders. Cisco should not be one of those.”

In his piece, Weiskopf makes the argument that as CSCO’s free cash flow multiple has risen in recent years, the company should have focused its cash flows elsewhere, as opposed to buying back shares. He says, “Obviously, hindsight is 20/20, and in 2012 buying low would have made the most sense. Over these past 3 years, Cisco has bought about $40 billion of stock back in the 11-14x multiple free cash flow basis, but demonstrated little progress in taking steps forward toward creating enterprise value like Zoom Video Communications (ZM).” He also doesn’t completely demonize buybacks as a means of capital allocation.

Weiskopf mentioned success that other cash cow technology names have had with share repurchases, saying, “To be fair, Apple (AAPL) and Microsoft ((MSFT)) have implemented similarly aggressive buyback programs and delivered exponentially better results for their treasury, but all this points out the fact that buybacks require correctly implementing innovation strategies to deliver growth.” And, as shown above, unlike Apple and Microsoft, which are currently expected to grow their earnings-per-share by 58% and 35%, respectively, during the current fiscal year, Cisco’s expected earnings growth trajectory is flat.

Weiskopf highlights the fact that Cisco spends roughly $6 billion per year on R&D; however, this apparently isn’t generating enough return on investment, in terms of growth prospects. To combat the company’s sluggish growth, Weiskopf suggests that the company get more creative with its cash flows. He projects that Cisco will generate $43-$46 billion of free cash flow during the next 3 years and believes that the company should, literally, put its money where its mouth is when it comes to blockchain adoption in the form of crypto.

Whether or not Cisco invests it bitcoin, continues its focus on the blockchain, or digital security, or artificial intelligence, or the cloud, etc, etc, etc; it’s clear that management needs to continue to expand its footprint in the SaaS market. If Cisco is able to do that and begin to generate reliable growth again, its current valuation will likely prove to be appealing to investors.   And, right now, looking at the 4 and 5-star analysts designated by the Nobias algorithm, it appears that the belief if management will be able to achieve its digital transformation, with 15 “Buy” opinions posted during the last several months as opposed to just 6 “Sell” rated opinions.

Disclosure: Nicholas Ward is long AAPL, CSCO, and MSFT. . 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 5/14/21 Nobias 5/14/21

Domino Pizza: Will Robotic Delivery Help Overcome “Pizza Fatigue” and Continue Along its Long-Term Growth Trajectory?

Domino’s Pizza (DPZ) has been on an interesting ride throughout the COVID-19 pandemic. The stock was one of the major beneficiaries of the stay-at-home economy due to the strength of its delivery business. During 2020, Domino’s saw its earnings-per-share rise by 29%, making it one of the best performing stocks in the quick service restaurant (otherwise known as QSR) segment. And yet, after this strong growth, shares of DPZ sold off in early 2021 because of investors’ fear that the reopening of the broader economy would mean that take-out/delivery demand would tail off, with consumers flocking back towards traditional dine-in restaurants.

Parkev Tatevosian, a Nobias 4-star analyst who writes for The Motley Fool recently touched upon the idea of “pizza fatigue” in a recent article, saying, “People cooped up in their homes for the better part of a year now have ordered a lot of pizza in that time. As more options on dining out are becoming available, some folks may seek alternatives to ordering pizza for a while. Admittedly, for now, this is an issue in the U.S, but if the vaccine rollout gains steam internationally, it will be an issue overseas as well.” However, when looking ahead to DPZ’s recent Q1 results, Tatevosian noted the company’s strong historical growth, which led his to his overall bullish conclusion that he summed up by saying, “If you zoom out and look at Domino's over the last decade, it has compounded revenue at an annual rate of 10% and EPS at a rate of 24%. Its business model works. People like pizza. If you buy and hold Domino's stock for the long run, it's very likely to add to your overall wealth.”

Well, as it turns out, Tatevosian was right. The fear that plagued DPZ shares prior to earnings was short lived. The pizza fatigue thesis died down as it became clear that the pandemic wasn’t going to disappear over right. DPZ shares have rallied roughly 30% since their early March lows in the $330 area. And today, with shares trading at $427.29, that begs the question, is Domino’s Pizza still a good buy?

To answer that question, we have to look at the company's fundamentals. Thankfully, Dan Weil, a Nobias 5-star analyst, recently covered DPZ’s Q1 earnings report for theStreet.com.   He said, “Revenue registered $983.7 million in the quarter, up from $873.1 million a year earlier. The FactSet analyst consensus called for $985 million in the latest quarter.” Weil continued, noting that “Domino’s posted profit of $117.8 million, or $3 a share, down from $121.6 million, or $3.07, in the year-earlier quarter. Analysts expected earnings per share of $2.94 in the latest quarter.”

Nobias Finance MRNA May 12th 2021 — Nobias Finance DPZ May 14th 2021

In other words, the results were mixed. DPZ beat expectations on the bottom-line, yet they were down year-over-year. However, the company missed revenue expectations, which caused the stock to sell-off a bit in response to the news. But, this weakness didn’t last long. Domino’s shares are up more than 4% since their Q1 report before the market opened on April 29th.

The bullish sentiment surrounding the stock appears to be due to same-store sales growth and management’s continued plans for significant international expansion. Weil highlighted DPZ’s sales comparisons, saying, “U.S. same-store sales gained 13.4%, beating analysts’ estimate of 9.7%. And international same-store sales climbed 11.8%, besting predictions of 6%.”

During Q1, Domino’s added 36 net locations in the United States and 139 net stores internationally.  This pace of growth is slower than previously projected. Prior to the pandemic, Domino’s management laid out a plan to expand its global footprint to 25,000 locations by 2025. This goal coincided with a target annual revenue figure of $25 billion - which would essentially double the company’s 2017 annual revenue of $12.25 billion. However, it appears that COVID-19 has put up hurdles in these growth efforts. At this point its unclear as to whether or not the company will be able to hit its initial 2025 growth targets, but either way, investors appear to like the company’s plans to take significant QSR share in nearly 100 countries and this excited investors.

In an article from early April, Nikolaos Sismanis, a Nobias 5-star analyst writing at Seeking Alpha wrote about DPZ’s portfolio, saying that not only was Domino’s growing its store count, but, “What's amazing is that 98% of these locations are franchised, which means that the company enjoys a steady stream of royalties that grows over time without Domino's having to finance these locations itself and undertake the operational risks attached.”

Sismanis highlights the relatively asset light nature of Domino's franchise driven model, which passes along risks to the franchisees while the cooperation collects royalty fees on revenues.  Yet, he says, it’s not as if the company is sitting back on its haunches, lazily collecting royalties. Sismanis notes that the company continues to push the envelope as far as operational and supply chain effectiveness goes, which has led to industry leading same-store sales growth.   He says, “In its U.S. stores, same-store sales have grown for 39 consecutive quarters, while its international forefront, the same figure has grown for 108 consecutive quarters. This is utterly amazing considering how big Domino's brand has gotten over the years, yet with no signs of slowing down.”

As the company’s physical footprint expands, Sismanis expects for the company’s profit margin to expand as well.   Regarding margins, he said, “Domino's royalties essentially enjoy net margins of 100%. The margin-compressor part of its business model is its supply chain. Supply chain revenues are set to grow automatically as locations, and same-store sales continue to expand. Hence, they grew by 15.4% YoY. Through economies of scale, the supply chain segment should also see its margins expand over time amid enhanced efficiencies.”

Sismanis concludes his article saying, “Mr. Market clearly misprices Domino's, especially when we consider the rest of the company's qualities such as its strong brand, recession-proof, hustle-free cash flows, and predictable growth.” He places a $450 price target on shares, saying, “If we plug in a share price of $450 in our calculations as the value of the stock today, investors appear to still be seeing borderline double-digit results in the medium term if the stock retains a reasonable P/E of 30. Combined with our DCF result, we believe that shares are worth at least $450 today.”

An interesting headline that several of our 4 and 5-star analysts highlighted recently surrounded news that Domino’s has recently begun testing out autonomous delivery robots in Houston, Texas, to help it keep up with growing delivery demand while keeping costs down (robots work for free, as opposed to delivery drivers).   Rhian Hunt, a Nobias 5-star analyst recently covered this news for The Motley Fool, saying that “The robots used are R2 autonomous delivery vehicles, produced by privately held California-based Nuro.”   Hunt highlighted DPZ’s pandemic success, stating that “Domino's, like several other restaurant chains easily capable of switching to a delivery model, made significant gains during 2020's COVID-19 lockdowns, with its market share climbing to 37% compared to 29% five years ago.”

It’s clear that other leading QSR firms are looking for ways to control expenses in the delivery space, as well. Hunt touched upon the fact that Domino’s isn’t alone in its partnership with Nuro, writing, “Another restaurant chain that strengthened its position during the pandemic, Chipotle Mexican Grill, also recently expressed interest in Nuro's R2. The Mexican-style fast-casual restaurant invested directly in Nuro several weeks ago as part of its effort to provide cutting-edge digitally powered service.”

Domino’s willingness to invest in its own delivery service appears to have recently caught the eye of famed activist investor, Bill Ackman, who recently acquired a 6% stake in DPZ via his investing firm, Pershing Square. News of Ackman’s stake caused DPZ shares to pop another 3%.

Jamie Wilde, of The Morning Brew, recently quoted Ackman, discussing his bullish outlook for DPZ’s delivery investments, saying, “That is an important competitive advantage in a world where you want to deliver pizza for $7.99. It’s hard to do that with a delivery service taking a massive cut of the proceeds.”

Regarding Ackman’s interest, Wilde said, “Pershing is known for its investments in profitable food chains, including Restaurant Brands International (the owner of Burger King), McDonald’s, Chipotle, and Starbucks—where Ackman made a venti-sized 73% return in just 19 months.”

Obviously the past cannot predict the future, but Ackman’s investment appears to bode well for Domino’s recent rally continuing.   4 and 5-star Nobias analysts agree, with 8 recent “Buy” ratings being published on the stock compared to just 3 “Sell” ratings.

Disclosure: Nicholas Ward is long DPZ. 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 5/12/21 Nobias 5/12/21

Moderna: Can It Sustain Its Incredible 2021 Growth Into The Future?

Moderna (MRNA) shares have been some of the most puzzling for investors to figure out throughout 2021. They’ve been incredibly volatile. Actually, that’s an understatement.   As Kieth Speights, a Nobias 5-star analyst said in a recent article published by The Motley Fool last week, “Volatile doesn't begin to describe how Moderna's (NASDAQ:MRNA) shares have been in 2021. The stock has experienced six swings of 25% or more so far this year.”

And yet, even with all of these ups and downs, MRNA shares are up more than 46% year-to-date. Moderna’s shares have risen nearly 145% over the last year, meaning that longer-term investors who’ve been able to stomach the volatility have been rewarded for their patience. And yet, even after such a huge rally, MRNA shares are trading with a valuation that makes this one of the very cheapest stocks in the market, on a forward price-to-earnings and especially on a forward price-to-earnings growth basis.

Right now, Wall Street expects Moderna to post earnings-per-share of $27.20 during 2021. At today’s $152.68 share price, Moderna is trading with a forward price-to-earnings ratio of just 5.6x. This low figure implies expectations of a negative bottom-line growth rate moving forward.  Consensus estimates for MRNA’s earnings-per-share growth during 2022 and 2023 sit at -39% and -61%, respectively.

In other words, the multi-billion question surrounding this stock right now (Moderna’s current market capitalization is $61.3 billion) is whether or not that company can sustain COVID-19 vaccine sales over the longer-term, and more importantly, can its mRNA vaccine platform be used against other illnesses.  Adria Cimino, another Nobias 5-star analyst who writes for The Motley Fool, is bullish on the company, in large part due to her belief that the company can sustain its sales figures beyond 2021.

Cimino recently published an article, highlighting this bullish outlook, in which she notes, “Moderna's transformation from a clinical-stage biotech company to a commercial-stage one has been rapid -- and impressive. Only a year ago, Moderna didn't even have products on the market. And now, in its first full quarter of sales, the company's coronavirus vaccine generated $1.7 billion. And resulted in profitability -- $1.2 billion to be exact.” She touches upon the fact that this $1b+ profit figure has allowed the company to invest heavily in research and development. Moderna recently posted Q1 earnings and Cimino says that the company’s data shows that it spent roughly 4x more money on R&D during the first 3 months of 2021 than it did during the same period of time in 2020. And, MRNA management isn’t just making traditional investments related to healthcare, but instead, they’re investing heavily into “digital and artificial intelligence.”   She notes that “CEO Stephane Bancel says the goal is to make AI "part of our DNA." In other words, the company hopes to stay ahead of its competition by leaping into the digital age with the aid of A.I., which has the potential to - very quickly - result in a wide defensive moat around this company.

Nobias Finance ATVI May 10th 2021 — Nobias Finance MRNA May 12th 2021

Cimino also says that the company is investing heavily in its manufacturing capabilities. She says, “The company now is making investments to increase its capacity to 3 billion doses in 2022. This year, Moderna hopes to produce as many as 1 billion doses. And Moderna already increased the low end of its 2021 production forecast earlier this year. This progressive increase in capacity is positive. If Moderna hopes to continue winning big contracts -- such as this year's 300 million dose order from the U.S. -- it must have the capacity to handle those orders.” Finally, she concludes that it’s likely that COVID-19 vaccine demand will remain high for the foreseeable future, due to continued mutations and the likelihood that the world will require regular COVID-19 boosters, similarly to annual flu shots.

Cimino wrote, “The need for annual vaccination, the need for a booster, and the new age groups to vaccinate should prompt countries to order vaccine doses for 2022 -- and beyond. In fact, Bancel even said in the earnings call that he expects need next year to surpass that of this year.”

Speights has also published several reports highlighting Moderna’s potential bright future. In a recently article he published at The Motley Fool, titled “Why Moderna Could Triple Its COVID Vaccine Sales Next Year”, Speights said, “One key step toward achieving this goal is the expansion of the Moderna Technology Center (MTC) in Norwood, Massachusetts. Moderna plans to increase the production and lab space at the MTC from around 300,000 square feet to close to 650,000 square feet. This expansion will enable the company to increase production of its COVID-19 vaccine by 50% at the site.” He mentioned that the company has arrived at agreements with key suppliers to increase the production of COVID-19 vaccine materials, saying, “Lonza's facility in Switzerland will double its drug substance production for Moderna's vaccine. Rovi's facility in Spain will more than double its capacity related to the COVID-19 vaccine.”

Speights also notes that moving forward, Moderna will be able to increase production because it’s likely that booster shots, as well as vaccines for pediatric patients, will be “lower-dose” vaccines.   Lastly, he arrived at the subject of mutations, variants, and the potential need for boosters, saying that the company has already done work on concerning COVID-19 variants popping up around the globe.   He wrote, “Moderna CEO Stephane Bancel stated in the company's press release announcing its capacity expansion, "We are hearing from governments that there is no technology that provides the high efficacy of mRNA vaccines and the speed necessary to adapt to variants, while allowing reliable scalability of manufacturing.”’

This is a point that Guilia Bottaro, a Nobias 5-star analyst who writes for Proactive Investors, also made in her recent bullish article on MRNA.   She said, “Moderna said that its tweaked jab was successful in neutralising the South African and Brazilian variants of the virus in laboratory trials. It means that boosters against the mutations could be effective in curbing the virus, with potential to be rolled out this year. The biotech said feedback from governments looking for jabs has been “overwhelming” and it has increased supply forecast to 800mln-1bn doses.”

But, it’s not just the COVID-19 success that has analysts excited about MRNA shares.

In his article, Speights said, “Moderna expects to advance its cytomegalovirus (CMV) vaccine candidate mRNA-1647 into a pivotal late-stage study this year. It also plans to begin phase 1 studies for several candidates, including experimental flu vaccines, Epstein-Barr virus vaccine mRNA-1189, and HIV vaccines mRNA-1644 and mRNA-1574.” Speights suggests that because of the COVID-19 vaccine success which has resulted in rapid growth for Moderna (Speights said that the company’s Q1 revenue figure of $1.9 billion towered above the $8 million revenue figure that MRNA posted during the first quarter a year ago) combined with the potential to revolutionize other disease vaccinations with its mRNA technology, one would have thought the company’s shares would have soared after the impressive Q1 results.

However, they did quite the opposite.

MRNA fell roughly 10% after its recent quarterly report. And this leads us into the bearish argument surrounding Moderna right now: intellectual property rights. Speights says that the company’s post-earnings sell-off wasn’t because of operational results, but instead, because “Investors are worried about the potential impact if governments waive intellectual property protections for COVID-19 vaccines. The Biden administration is in favor of this move, which could cause sales to be lower for Moderna and other vaccine makers.”

Frankly, this is difficult territory for investors to tread. The protection of intellectual property rights is what has allowed capitalism in the United States to flourish throughout its history. However, in the midst of a global pandemic, with supply shortages popping up (especially in poorer countries) there is a growing chorus for governments to revoke those rights to ensure that the world’s population is offered protection from this disease.

Leaders from various countries have come out for and against such an action.

For example, a recent Bloomberg article quoted, German Chancellor, Angela Merkel, who, in response to the recent IP protection news, came out against the Biden administration’s proposal, saying, “The limiting factor for the production of vaccines are manufacturing capacities and high quality standards, not the patents. The protection of intellectual property is a source of innovation and this has to remain so in the future.”

At this point, it’s unclear whether or not politicians will be willing to open up what will likely turn into a much larger IP protection can of worms by setting a precedent with the COVID-19 vaccines. However, the fact remains, this represents a dark cloud above the heads of the companies who are making billions in profits off of vaccines/treatments right now and on Wall Street, uncertainty typically results in lower valuation premiums and therefore, share prices.

Right now, the majority of 4 and 5-star rated individuals that the Nobias algorithm tracks appear willing to overlook this potential headwind and remain bullish on MRNA shares. Today, there are 28 “Buy” ratings on the stock, compared to just 2 “Neutral” ratings and 11 “Sell” ratings.

Disclosure: Nicholas Ward has no positions in any stock 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 5/10/21 Nobias 5/10/21

Activision Blizzard: Beats Earnings and Raises Guidance, Is The Stock A Buy?

The video game industry has been one of, if not the most exciting part of the media/entertainment market for a while now. This genre produces consumers an unparalleled immersive storytelling experience. And the continued rise of technology in this space has enabled games to connect players around the world, creating scale, networking effects, and satisfying experiences that other areas of the entertainment industry cannot match. And, as augmented and virtual reality capabilities increase, the growth of this industry should only continue to accelerate.

Regarding this macro trend, John Ballard, a Nobias 5-star analyst who writes for The Motley Fool recently said, “Top video game stocks have outperformed the broader market for decades, and the ongoing advancements in gaming technology will only continue to push the industry forward. It's estimated that as many as 3 billion people worldwide will be playing games in some form by 2023, keeping the video game industry on pace to grow around 10% per year.”

What’s more, Various growth and adoption trends across the gaming space were accelerated during the pandemic due to the stay-at-home policies put in place regarding social distancing. And now, coming off of such a strong year, we’re seeing the gaming companies begin to post earnings which include forward guidance looking past the pandemic period. These stocks were obvious winners during the trailing twelve months, but what does the near-term future hold? Let’s take a look at what analysts have to say about one of the leaders in the market, Activision Blizzard (ATVI), which just posted its first quarter earnings report.

When thinking about Activision’s near-term success, the question that Demitri Kalogeropoulos, a Nobias 5-star analyst who writes for The Motley Fool, asked himself was whether or not the company can continue to performing in a changing macro environment.   In a recent article, he said, “A lot has changed since Activision issued its first 2021 outlook in early February. COVID-19 vaccines are increasingly available and many economies are reopening around the world, potentially pressuring demand for at-home entertainment. Netflix (NFLX) described that exact phenomenon when it recently reported surprisingly weak subscriber growth in its latest quarter and forecast weak subscriber growth for next quarter as well.”

In his pre-earnings ATVI breakdown, Kalogeropoulos highlighted a variety of potential headwinds that the company faces, including declining user engagement as the world re-opens and consumers are allowed out of their homes more freely. However, all potential near-term risks in mind, he concluded, “But Activision is entering this period with some serious competitive advantages, including its biggest engaged gamer audience ever. That's why it would be a mistake to bet against the leading video game developer in 2021.”

And, it appears that he was correct.

Nobias Finance GM May 5th 2021 — Nobias Finance ATVI May 10th 2021

On the heels of Activision’s recent earnings report, Joe Tenebruso, a Nobias 5-star analyst, published an article on The Motley Fool, titled, “Why Activision Stock Popped Today”. He noted that shares of ATVI rallied nearly 7% after their Q1 report, which included a revenue figure that “surged 27% year over year to $2.28 billion.”   Tenebruso highlighted Activision’s CEO, Bobby Kotick’s remarks following the quarter, in which he said, "Demand for our content has never been stronger.”

But, this wasn’t just a revenue growth story.   Tenebruso continued, saying, “Better still, Activision Blizzard's profitability and cash generation both improved significantly. Its adjusted earnings per share (EPS) jumped 29% to $0.98, while its operating cash flow leapt 470% to $844 million.”

During the quarter, ATVI’s business appeared to be firing on all cylinders.  Booking rose 36% to $2.07 billion. The company’s in-game net bookings jumped 39.6%, from $0.96 billion a year ago to $1.34 billion during Q1. Activision segment revenue increased by 72%, driven by the success of Call of Duty: Black Ops Cold War and the ongoing success of in-game purchases related to the company’s Warzone game. The Blizzard segment saw 7% growth as World of Warcraft continues to do well. And potentially most importantly to investors, the company’s King franchise, which is Activision’s primary mobile gaming brand, rose 22%, setting an all-time record. King boasted 258 million average daily users during the quarter, showing the global strength of mobile gaming.

The strong Q1 results that ATVI posted allowed its management team to confidently raise its full-year 2021 guidance. The company now says that it expects to produce earnings-per-share of $3.42/share, up from its previous guidance of $3.34. ATVI also raised top-line guidance, now calling for full-year revenues of $8.37 billion, up from its previous guidance of $8.23 billion.

In short, this was a classic beat and raise quarter, which is exactly what investors want to see.

Oliver Smith, a Nobias 5-star analyst who writes for Fintech Zoom, recently published an article highlighting his bullish outlook on the largest gaming pure-play stocks. In his piece, he said, “All three companies [referring to Activision-Blizzard, Electronic Arts (EA), and Take-Two Interactive (TTWO)] are profitable, positive in cash flow, have a strong balance sheet, and operate in a growing market of mobile gaming and in-game transactions.”

Regarding ATVI specifically, Smith said, “Activision has been very aggressive at expanding its mobile gaming exposure. As of April 1, it had numerous games on the top charts.”

ATVI shares currently trade in the $93 range. Over the last week, we’ve seen ATVI shares rise roughly 1%; however, they’re still down from their 52-week highs of $104.03 made back in mid-February before the bottom fell out of the tech-sector trade. So, while the company’s results during Q1 were largely bullish and management remains confident that its growth trajectory remains in place, pointing towards high quality marks for the company, the next question that investors must ask themselves is whether or not shares are fairly valued in the present.

Simply Wall Street, a Nobias 5-star analyst recently published an article on Nasdaq.com discussing the stock’s valuation, titled, “Is Activision Blizzard, Inc Worth $97.30 Based On Its Intrinsic Value?” In this article, the author said, “Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the expected future cash flows and discounting them to their present value.” While noting that the DFC valuation method is not without flaws (because there is no sure-fire way to evaluate a company in the market due to the copious amount of variables at play), Simply Wall Street says, “We generally believe that a company's value is the present value of all of the cash it will generate in the future.” Using a 10-year free cash flow forecast, Simply Wall Street arrived at a “present value of 10-year cash flow” otherwise referred to as PVCF, of $24 billion. Then, the author calculated the stock’s terminal value using the Gordon Growth Formula, arriving at a $75 billion figure. Next, Simply Wall Street calculated the present value of the stock’s terminal value, arriving at $37 billion. And finally, using these figures, the author formulated ATVI’s total equity value at $61 billion. After dividing the total equity value by the number of outstanding shares, Simply Wall Street’s formula concluded that ATVI’s fair value is $79.06, which is roughly 15% below today’s share price.

The debate between growth and value has been raging in the markets for as long as stocks have been traded and this likely isn’t going to stop anytime soon. However, in his recent bullish article, John Ballard concluded that even though ATVI is “not cheap” on a price-to-free cash flow basis, “I would still favor Activision because it operates some of the most popular gaming franchises in the market and has a massive player network of 397 million monthly active users. The company has a multi-year record of delivering outstanding operating results and paying annual dividends. For these reasons, I believe Activision Blizzard is the better investment if you're looking for a relatively safe video game stock.”

Nobias 5/7/21 Nobias 5/7/21

PayPal: Do 20%+ Growth Prospects Justify A Sky High Valuation?

After such a powerful rally, a common question that investors are asking themselves is, “Is it too late to invest in PYPL shares?”   John Ballard, a Nobias 5-star analyst, who covers technology for The Motley Fool, recently covered this question himself, penning an article titled “Is It Too Late To Get In On This Millionaire-Maker Stock?”, ultimately coming to the conclusion that “It's not too late to put this growth stock in your nest egg.”   Ballard notes that while PayPal is up more than 550% during the past 5 years, pushing its market cap up above the $300 billion threshold, the company continues to post strong growth. During its most recent quarter, he says that PayPals “revenue and adjusted earnings per share up 21% and 31%, respectively.”   He noted that, “The company likely crossed $1 trillion in trailing 12-month payment volume in the first quarter, and it's still growing around 20% annually.”

Ballard says, “The company introduced several new features last year to increase user engagement with the PayPal and Venmo apps, including buy now, pay later, check cashing, cryptocurrency trading, and QR codes for contactless checkout in-store.”   He says that PayPal is succeeding in addressing needs for both individual customers and business clients, highlighting impressive network statistics, saying, “PayPal is a trusted platform for businesses with a merchant network 29 million strong, and Venmo is already a widely used P2P app that processed $47 billion in payments last year for an increase of 60%. If a wave of small business owners start opening accounts on Venmo to accept payments, that could stoke the fire of an already explosive growth vehicle for the company.”

Ballard notes that the company is trading with a very high valuation premium; however, he believes that the company’s growth prospects will more than make up for the valuation risks over the long-term, saying, “It's uncertain where the stock will go in the near term as it trades at a high valuation of 59 times forward earnings guidance, but I wouldn't quibble too much over the high price tag. PayPal is pursuing a multi-trillion dollar addressable market.”

One of the most exciting growth drivers for PayPal is the cryptocurrency space. The company has taken steps to allow crypto purchases within its suite of apps and on May 4th, Eric Volkman, a Nobias 5-star analyst writing for The Motley Fool published an article highlighting recent rumors that the company was considering entering into the crypto market in a much bigger way, with plans for a company specific stable coin.

Volkman wrote, “On Monday, cryptocurrency news site The Block reported, citing "four sources with knowledge of the situation," that PayPal has held discussions with numerous stablecoin developers; one specifically mentioned was blockchain specialist Ava Labs.”   He explained, “Unlike a traditional cryptocurrency like Bitcoin, which essentially exists as a stand-alone instrument, a stablecoin is pegged to a "real world" asset such as the U.S. dollar. This theoretically makes it a more stable investment, although in practice there is no such thing as a "stable" financial product -- even the hardest of hard currencies or bluest of blue chip stocks experience volatility at least once in a while.”

At this point, these reports are just rumors; however, Volkman notes that an unnamed PayPal spokesman said, "As a global company working with regulators and industry partners throughout the world to shape the next generation of financial systems, the company is in frequent conversation about technologies that enable these goals." But, if you don’t believe in the crypto market (at this point, even though the price of these digital assets are roaring higher, the prices are largely based on speculation and there are many critics who say that the use case for the digital assets is lacking), there are more traditional financial metrics that bode well for PayPal’s growth as well.

Divya Premkumar, a Nobias 5-star analyst who writes for InvestorPlace, recently published an article, highlighting several short-term and long-term bullish tailwinds at the back of this fintech name.  First of all, she notes that stimulus checks and the stay at home economy created by the COVID-19 pandemic are bullish for PYPL, saying, “With global saving rates topping $5.4 trillion, we are likely to see an increase in consumer spending as we approach the new normal. With the digital payments expected to be the norm in the future, all arrows point towards greater upside in the coming months.” Sticking with the pandemic theme, she says, “Secondly, the coronavirus pandemic has ushered in a touch-less society leading many people to use digital payment apps for their purchases. For many fintech companies, what started out as offering a more efficient way to pay for things has now transformed into a traditional financial services stack.”

Premkumar says that PayPal added 73 million user accounts during the pandemic and “Looking ahead, the company’s pandemic tailwinds are here to stay. PayPal expects to add 50 million new accounts in 2021 and increase its total user base to 750 million by 2025.” All of this user growth is resulting in strong transaction growth which has quickly bolstered PayPal’s bottom-line. She notes that the company is looking to generate more than $40 billion in free cash flow during the next 5 years.

Like Ballard, Premkumar touches upon PayPal’s high valuation; however, its the company’s growth that shines brightest to her as she concludes her PayPal analysis saying, “PYPL stock isn’t exactly cheap, trading at 59 times forward earnings but with numerous opportunities for growth, it’s definitely worth adding to your portfolio.”

Jennifer Saibil, another Nobias 5-star analyst writing for The Motley Fool, also recently highlighted the impressive size and scale of PayPal’s business, saying, “PayPal ended 2020 with 377 million active accounts (that's more than the U.S. population) and 29 million merchant accounts. Total payment volume (TPV) was $936 billion, as compared with competitor Square's $112 billion.” Saibil believes that PayPal is one of the very best ways to play the digital transformation of commerce moving forward. She noted that “McKinsey research found that customers have been increasingly moving toward digital payments, with the biggest growth in people using more than one digital payment type.” And, with this in mind, she concludes that “Between these tailwinds and PayPal's position as the dominant player in the industry, there's a lot to expect from PayPal in the coming years.”

When looking at the bull/bear reports recently published by 4 and 5-star rated analysts tracked by the Nobias algorithm, there’s a clear bullish sentiment surrounding this stock. We see that there have been 26 “Buy” opinions published by blue chip analysts since the start of April, compared to just 8 “Sell” ratings. Those who’re bearish on the stock harp upon the company’s high valuation. It’s true that PayPal is currently trading with a price-to-earnings ratio that is well above its long-term historical average (PYPL is currently trading with a blended P/E multiple of 60.7x whereas its average multiple since being spun out of Ebay in 2015 is just 34x). Yet, it appears that the vast majority of analysts that we track believe that the growth that PayPal exhibits (PayPal has posted 25%+ earnings-per-share growth during each of the last 4 years and analysts expect to see 20%+ growth continue for the foreseeable future) is more than enough to justify the current share price.

Disclosure: Nicholas Ward has no position in PYPL, but may initiate exposure within the next 72 hours. 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 5/5/21 Nobias 5/5/21

General Motors: Is GM Still A Buy After Rallying 41% Year-to-Date?

In recent years, Tesla (TSLA) has dominated its automotive peers, with regard to total returns. During the trailing twelve months, TSLA shares are up nearly 394%. During this same period of time, shares of more traditional automakers have struggled to keep up. During the past year, Toyota (TM) shares are up only 25.81%. Volkswagen AG (VLKAG) shares are up 118.40%. Ford (F) shares are up 141.07%. Shares of Daimler Autogroup (DDAIF) are up 162.21. And, General Motors (GM) shares are up 168.25%.

As you can see, all of these companies are up well off of their COVID-19 recession lows; however, as great as the 12-month performance has been for these automakers, none of their results can stack up to the nearly 400% returns produced by Tesla. However, during 2021, the tides have largely turned. Year-to-date, Tesla shares are down 5.97%. However, during this same period of time, shares of General Motors are up 41.02%. The S&P 500 is only up 12% year-to-date and GM’s strong outperformance has made this stock one of the most followed stocks in the market, as tracked by the Nobias algorithm.

Graham Griffin, a 4-star Nobias analyst who writes for Gurufocus, recently highlighted GM’s strong rally, pointing out that the stock fell to lows of $16.80 back in March of 2020 during the worst of the COVID-19 sell-off; however, by October, he says, “Share prices were approaching pre-pandemic levels and the announcement for GM's new Hummer EV supertruck thrust the company back into the spotlight.”   He notes that, “The Hummer models are set to lead GM's $27 billion shift to electric vehicles heading toward 2025.”

Chris Katj, a 4-star Nobias analyst who writes for Benzinga, recently published an article that further touching upon General Motor’s EV push, saying that the company has plans to produce 30 electric vehicles by 2025 and noting that shares recently rose on news that the company was launching its Ultimum Charge 360 platform.   Katj said, “The new platform will integrate charging networks, on-vehicle mobile apps and other products.”   As a part of that $27 billion EV plan, Katj says that “The company’s goal is to have electric vehicles at all price points for work, adventure, performance and family use.” To power these vehicles, GM is partnering with seven different charging focused companies with a goal of constructing over 60,000 charging stations for its customers.   Katj says, “”General Motors has committed over $27 billion to electric vehicle and autonomous vehicle efforts through 2025. The company’s goal is to have electric vehicles at all price points for work, adventure, performance and family use.”

This EV push by GM has helped to change the sentiment surrounding the stock in the minds of analysts and investors alike. And, due to the much lower valuation attached to GM shares, this traditional auto company has been thrust into the bullish spotlight.   Even after its recent sell-off, Tesla shares are trading with a blended price-to-earnings ratio of 222x. Granted, TSLA is expected to grow its EPS at a 101% clip in 2021, meaning that the company’s forward price-to-earnings is lower, at 149x. However, this triple digit P/E ratio is still significantly higher than the 11.7x blended price-to-earnings multiple and the 11.1x forward price-to-earnings multiple attached to GM shares right now.

GM is the clear winner, in terms of a value proposition here, which is the direction that the market has headed in 2021, with speculatively valued, high growth names selling off as traders pile into more conservatively valued names.

General Motors posted its first quarter earnings on May 5th and beat analyst estimates on the bottom-line, posting non-GAAP earnings-per-share of $2.25, which was $1.20 ahead of analyst estimates. However, even with this big bottom-line beat, the company missed expectations on the top-line, posting $32.47 billion in revenue, which was down 0.7% on a year-over-year basis.

GM’s management remained confident, with CEO Mary Barra beginning the Q1 conference call saying, “Our start to this year was very strong with a record Q1 performance that was driven largely by robust product demand in the US, as well as an outstanding quarter for GM Financial. We remain confident that we will achieve our full year guidance. We are on a path to transform our company on the timeline we have shared with you and we are demonstrating our ability to accelerate our plan.”

During the Q1 report, GM updated full-year guidance, calling for 2021 EPS to come in somewhere within the $4.50-$5.25 range. This figure was slightly below analyst estimates for the year. At the $4.88 midpoint, the company’s full-year earnings-per-share growth would be essentially flat. However, the real growth for GM appears to be in 2022 (where analysts are calling for 20%+ EPS growth right now) and beyond, when the EV investments begin to pay off.

Right now, the 4 and 5-star analysts that Nobias tracks are divided on GM’s share price outlook. 6 of the blue chip analysts have recently offered bullish opinions whereas 5 have offered bearish.   In short, it appears that after its big rally thus far throughout 2021, GM has become a bit of a battleground stock. Management will have to execute on its EV plans for this rally to continue. This is a fierce competition and only time will tell if the company is able to carve out significant EV market share relative to its peers.

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.

hello@nobias.com • Miami, FL 33131