T with Nobias technology: Is This AT&T A Buy Down Here at 52-Week Lows?
AT&T (T) has been in the proverbial doghouse for years now. The stock has been a major underperformer, posting -31% gains during the last 5 years, which has drastically underperformed the S&P 500, which is up 103.6% during that same period of time. To understand AT&T’s plight today, you need to be aware of the failed empire building plans that the company began during the last decade under prior management. AT&T shares have struggled, in large part, because of their massive debt load brought on by mergers and acquisitions which did not pan out as the company’s management team hoped. AT&T spent approximately $67 billion of DirecTV assets in 2015. This move was made during the dawn on the digital age in terms of content streaming and the satellite TV market has been shrinking ever since.
AT&T (T) has been in the proverbial doghouse for years now. The stock has been a major underperformer, posting -31% gains during the last 5 years, which has drastically underperformed the S&P 500, which is up 103.6% during that same period of time. To understand AT&T’s plight today, you need to be aware of the failed empire building plans that the company began during the last decade under prior management.
AT&T shares have struggled, in large part, because of their massive debt load brought on by mergers and acquisitions which did not pan out as the company’s management team hoped. AT&T spent approximately $67 billion of DirecTV assets in 2015. This move was made during the dawn on the digital age in terms of content streaming and the satellite TV market has been shrinking ever since.
AT&T attempted to rectify that mistake in 2018, buying Time Warner for approximately $85 billion, attempting to build out its content intellectual property and streaming assets with what was once considered a crown jewel in the market: HBO. However, the telecommunications company has struggled to generate growth with its media assets and in May of 2021, the company announced that it was partaking in a $43 billion merger with Discovery Communications (DISCA) which will result in AT&T’s media assets being spun off into a new company via a Reverse Morris Trust, combined with Discovery’s content and streaming IP, once again, separating the stock’s telecom and media assets.
AT&T with Nobias technology Oct 2021
Management essentially admitted defeat in the media space, saying that they were going to create two pure play companies to better take advantage of trends in the media and telecom spaces. In the press release related to the deal, AT&T made compelling arguments as to why this plan was in its shareholders best interests. The company noted that, “The “pure play” content company will own one of the deepest libraries in the world with nearly 200,000 hours of iconic programming and will bring together over 100 of the most cherished, popular and trusted brands in the world under one global portfolio, including: HBO, Warner Bros., Discovery, DC Comics, CNN, Cartoon Network, HGTV, Food Network, the Turner Networks, TNT, TBS, Eurosport, Magnolia, TLC, Animal Planet, ID and many more.”
In the streaming wars, the size and scale of a given company’s content library is of paramount importance. To achieve positive cash flows in the over-the-top content delivery industry, a company needs to achieve massive global scale. And, by combining so many diverse types of content under one roof, Warner Media and Discovery hope to be able to achieve the demand required to post a profit. The press release read, “The transaction will combine WarnerMedia’s storied content library of popular and valuable IP with Discovery’s global footprint, trove of local-language content and deep regional expertise across more than 200 countries and territories. The new company will be able to invest in more original content for its streaming services, enhance the programming options across its global linear pay TV and broadcast channels, and offer more innovative video experiences and consumer choices.”
This is all well and good; however, AT&T shares are down roughly 17.5% since this merger was announced. Why? Well, in large part, because of the eventual dividend cut that is going to be associated with the deal. You see, throughout AT&T’s long-term underperformance, the stock provided a relatively stable and attractive high yield to income oriented investors. This was the stock’s calling card. Today, AT&T yields 7.75%. However, once the deal goes through in 2022, T investors can expect a much lower payment than the $2.08/share annual dividend that they receive today.
During the merger press release, AT&T highlighted its “Attractive dividend”, saying that it will be “resized to account for the distribution of WarnerMedia to AT&T shareholders.” The company continued, noting, “After close and subject to AT&T Board approval, AT&T expects an annual dividend payout ratio of 40% to 43% on anticipated free cash flow1 of $20 billion plus.”
The term “resized” means slashed. In 2020, AT&T spent roughly $15 billion paying its dividend. Moving forward, the company plans to pay roughly $8b in dividends. Sure, AT&T shareholders will receive shares of the new media company, which they can sell, and use the proceeds to buy more of the telecommunications company to augment their passive income stream; however, there are tax implications here and at this point in time, it’s unknown what share price the new media shares will trade with and whether or not their value will allow income oriented investors (largely retirees) to make up for the massive dividend shortfall created by the deal.
This uncertainty has inspired many income oriented to sell their shares and T continues to languish near 52-week lows. However, even though the sentiment surrounding the stock remains poor, AT&T does appear to be cheap and this may present an interesting opportunity for contrarian investors. Therefore, we wanted to take a look at what some of the credible authors tracked by the Nobias algorithm have had to say about shares recently.
During its most recent earnings report, AT&T beat Wall Street estimates on both the top and bottom lines. The company posted revenues of $44 billion, which were up 7.4% year-over-year and came in $1.27 billion ahead of analyst estimates. The company’s non-GAAP earnings-per-share came in at $0.89, beating analyst estimates by $0.09/share.
Anusuya Lahiri, a Nobias 4-star rated analyst, covered these results in a Benzinga article. She highlighted the company’s operational performance saying, “Communications segment revenue grew 6.1% Y/Y to $28.1 billion due to increases in Mobility and Consumer Wireline more than offsetting a decline in Business Wireline. The operating margin was 26.1%.”
Lahiri continued, “Mobility revenue rose 10.4% Y/Y to $18.9 billion due to higher equipment and service revenues. The operating margin was 31.7%.” She also noted that, “Total net adds were 5.5 million including 1,156,000 postpaid net adds, 789,000 postpaid phone net adds and 174,000 prepaid phone net adds. The postpaid phone churn of 0.69% was the lowest churn ever.”
Moving on to the media side of things, Lahiri wrote, “WarnerMedia revenue increased 30.7% Y/Y to $8.8 billion, reflecting partial pandemic recovery, higher content and other subscription, and advertising revenues. The operating margin was 19.2%.” And with regard to the size/scale of the digital streaming platform, she said, “There were 47.0 million domestic HBO Max and HBO subscribers, up 10.7 million Y/Y. Domestic subscriber ARPU was $11.90.”
Finally, regarding management’s future outlook, Lahiri said: “AT&T raised FY21 revenue growth guidance from 1% earlier to 2%-3%. AT&T's revenue guidance of $175.2 billion-$176.9 billion is above the analyst consensus of $174.4 billion. It expects the Adjusted EPS to grow in the low- to mid-single digits. It raised the global HBO Max year-end forecast to 70 million - 73 million subscribers. This all seems like good news. However, T shares have fallen roughly 4.4% since these results.
Mircea Vasiu, a Nobias 4-star rated analyst, provides some color on the decline in a recent article which is focused largely on the technical trends driving T shares. In the piece, Vasiu provided a chart showing the technical data and said, “Judging by the stock price evolution, the yearly chart shows pressure on massive dynamic support following a series of lower highs. That is a bearish technical analysis development for the AT&T stock price.”
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.
With the benefit of hindsight, it appears that Vasiu was correct. But, what does the broader Nobias credible author community have to say about T shares? For the most part, after the stock’s post-merger announcement sell-off, the community is bullish. Right now, 93% of the credible authors that we track offer “Bullish” sentiment on AT&T shares.
The average price target of the credible analysts that we track for AT&T is currently $33/share. Coincidentally, this level is essentially in-line with where the stock traded prior to the DIscovery merger announcement. In other words, it appears that the credible analysts that we track believe that the stock’s recent sell-off is unjustified. Today, AT&T trades for just $26.77/share. Relative to the $33 average price target that we see, this represents upside potential of approximately 23.3%.
So much of the success of the AT&T/Discovery merger is going to come from how well the new media company performs. At this point, it’s impossible to know how well the combined Warner Media and Discovery assets will stack up against the likes of Netflix (NFLX) and Disney+ (DIS) in the streaming arena. The speculative nature of this spin-off is why AT&T is priced to low. But, for those who’re bullish on the prospects of this media company competing against the entrenched players in the media space, AT&T shares could represent a compelling opportunity in the present.
Disclosure: Of the stocks discussed in this article, Nicholas Ward is long T and DIS. 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.
MU with Nobias technology: Can Long-Term Demand Trends Help Micron Technologies Shares Overcome Short-term Guidance?
The supply chain issues and the semiconductor shortage has been one of the major storylines to come out of the COVID-19 pandemic. Not only have shortages in this industry hurt tech companies, but we’re seeing management teams across all sorts of industries and sectors mention chip shortages as headwinds due to the fact that in the digital age, it’s hard to buy any sort of product that doesn't involve computer chips. However, the supply/demand dynamics that tend to result in higher prices for many types of chips may not be helping Micron Technologies (MU). MU shares have fallen nearly 25% during the last 6 months, in large part due to concerns about softer pricing in the memory chip space. In short, MU’s products have become largely commoditized and it’s unclear if or when cyclical demand is going to turn in Micron’s favor.
The supply chain issues and the semiconductor shortage has been one of the major storylines to come out of the COVID-19 pandemic. Not only have shortages in this industry hurt tech companies, but we’re seeing management teams across all sorts of industries and sectors mention chip shortages as headwinds due to the fact that in the digital age, it’s hard to buy any sort of product that doesn't involve computer chips. However, the supply/demand dynamics that tend to result in higher prices for many types of chips may not be helping Micron Technologies (MU). MU shares have fallen nearly 25% during the last 6 months, in large part due to concerns about softer pricing in the memory chip space. In short, MU’s products have become largely commoditized and it’s unclear if or when cyclical demand is going to turn in Micron’s favor.
Micron recently reported its fiscal 4th quarter earnings (on September 28th) and the results beat analyst expectations on both the top and bottom lines. MU’s revenue came in at $8.27 billion, which was up 36.5% year-over-year and ahead of the Wall Street consensus estimate by $60 million. MU’s non-GAAP earnings-per-share totaled $2.42, coming in ahead of estimates by $0.08/share. At first glance, the results were great. However, shares fell some 5% after the Q4 numbers were published. Why? Because of poor forward looking guidance.
Gerelyn Terzo, a Nobias 5-star rated analyst, recently published an article focused on MU’s Q4 results and which said, “The company’s guidance suggests that the good times, which have lasted for the past year, could be coming to an end for now.” MU management mentioned that it expects to see Q1 revenues come in at $7.65 billion, which is well below the Wall Street consensus of $8.49 billion.
Regarding the missed guidance, Terzo wrote, “Micron’s management team pointed to “supply chain challenges” that its PC customers are currently balancing. Micron’s revenue is diversified beyond just PC demand, but the company is still vulnerable to the ebbs and flows in demand, as its latest outlook has shown.” Terzo also points out that the macro economic environment isn’t being especially kind to high growth tech stocks, writing, “Rising yields are especially threatening to high-growth stocks including technology companies, as it throws a wrench into their future earnings potential based on analyst models.”
With specific regard to MU, Terzo said, “investors are disappointed about the short-term outlook. On the flip side, the company continues to generate billions in free cash flow, and Micron is a dividend-paying stock, which could help to soften the blow for investors.” In short, while the guidance is poor, there are certainly reasons why many investors remain bullish on MU shares. And, although it appears that MU is taking a very conservative route with regard to its sales expectations during the coming 3 months, we’ve seen several analysts who’re highly rated by the Nobias algorithm (4 and 5-star ratings) published bullish reports on MU recently. Therefore, we wanted to take a look at what those authors had to say coming into the Q4 results as investors decide whether or not MU’s most recent dip is one worth buying.
Supply chain constraints across the tech world are making it difficult for analyst firms to accurately predict hardware sales volumes; however, as Harsh Chauhan, a Nobias 5-star rated analyst points out in a recent Motley Fool article, “Memory industry research firm TrendForce estimates that the contract price of server DRAM could increase between 5% and 10% in the third quarter of 2021 due to a favorable demand environment. The PC market is going to be another tailwind for Micron as shipments are expected to increase 14% in 2021, according to IDC, which was originally expecting stronger growth of 18%. But supply constraints have forced IDC to temper its forecast.”
In short, while there is a lack of clarity moving forward, the overall trends still point in a positive direction. Chauhan makes this point by continuing, “strong PC demand is predicted to spill over into 2022 and beyond, with the market expected to record growth through 2025. TrendForce estimates that PC DRAM prices increased 3% to 8% quarter over quarter in the third quarter of 2021. The firm is forecasting a sequential decline in the range of 0% to 5% in the fourth quarter because of high channel inventory at PC original equipment manufacturers (OEMs), which reportedly have sufficient stock of DRAM. But the bigger picture appears bright, and PC DRAM prices could start moving north once the restocking begins.”
Lastly, Chauhan says that “mobile DRAM prices are expected to increase in the mid-single percentages in the final quarter of the year”, noting the tailwind created by the iPhone 13 launch, which should support memory chip prices in the relative near-term.
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.
All in all, Chauhan remains bullish on MU’s prospects. It’s true that memory chips are largely commoditized; however, he expects demand for newer, faster offerings to soar, which should protect MU’s margins. He wrote, “According to third-party estimates, the faster DDR5 memory could account for 10% of the overall DRAM market in 2022 and 43% in 2023. It is worth noting that the price of DDR5 memory is expected to be 30% higher than DDR4, driving the DRAM market's revenue higher in the process.”
Finally, he concludes that new demand from industries outside of the traditional CPU and handheld markets should help to bolster demand trends over the medium to long-term. Chauhan said, “Throw in the increasing memory capacities of 5G smartphones and the growing adoption of DRAM in markets such as automotive (where demand is anticipated to grow at 30% a year for the next three years), and the market Micron operates in is likely to stay healthy.”
The earnings growth potential that comes from these demand tailwinds, combined with MU’s relatively low price-to-earnings multiple (right now, shares are trading for just 7.8x expected fiscal 2022 earnings) creates an interesting opportunity for investors. Chauhan says that when you compare MU’s earnings multiple to the “S&P 500's multiple of nearly 22, the case for buying it becomes stronger.”
Overall, the credible author community that the Nobias algorithm tracks remains quite bullish on MU shares. 92% of Nobias credibly authors offer a “Bullish” outlook on MU shares. And, when looking at the opinions of the blue chip (4 and 5-star rated) Wall Street analysts that we track, we see that the average price target for MU shares is currently $100.00. Today, MU shares trade for 69.65, which means that this average price target points towards upside potential of approximately 43.6%.
Disclosure: Nicholas Ward has no MU 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.
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.
FB with Nobias technology: Facebook: Down Double Digits and Offering 26% Upside Potential
Facebook (FB) is a company surrounded by controversy. Whether you’re a bull or a bear, this is undeniable. Due to the rise of weaponized social media schemes, largely targeting elections in the U.S and abroad, Facebook has been under a lot of regulatory scrutiny by lawmakers (once again, in the U.S. and abroad) for its policies regarding free speech. Politicians on both sides of the political aisle in the U.S. have been outspoken against Facebook’s policies and status as a digital publisher. The company’s digital advertising platform has come under scrutiny because of a lack of transparency. And in recent years, Facebook, alongside other members of the “big-tech” cohort in the U.S. have come under antitrust pressure due to the idea that they’ve become too large and powerful for others to compete with.
Facebook (FB) is a company surrounded by controversy. Whether you’re a bull or a bear, this is undeniable. Due to the rise of weaponized social media schemes, largely targeting elections in the U.S and abroad, Facebook has been under a lot of regulatory scrutiny by lawmakers (once again, in the U.S. and abroad) for its policies regarding free speech. Politicians on both sides of the political aisle in the U.S. have been outspoken against Facebook’s policies and status as a digital publisher. The company’s digital advertising platform has come under scrutiny because of a lack of transparency. And in recent years, Facebook, alongside other members of the “big-tech” cohort in the U.S. have come under antitrust pressure due to the idea that they’ve become too large and powerful for others to compete with.
Most recently, Facebook has faced pushback against a controversial plan to develop an Instagram for kids (remember, the parent company Facebook owns the social media properties, Facebook, Instagram, and Whatsapp, amongst others assets) even though recent reports have arisen which show that internal studies at the company have shown that social media can be harmful to children’s psyche.
Needless to say, it’s not hard to find negative headlines surrounding this brand name; however, throughout all of this noise, the fact remains, Facebook is one of the world’s most profitable companies. It has a balance sheet that just about every member of the S&P 500 is envious of. And, the stock’s underlying fundamentals continue to grow at a rapid pace. So, with that in mind, we wanted to take a look at FB shares, which have pulled back approximately 10.2% during the last month, to see whether or not this is a dip that the community of credible analysts tracked by the Nobias algorithm believes investors should be buying.
Within the big-tech cohort, there has been division recently on privacy practices. Apple (AAPL) is trying to set itself apart from peers by branding itself as a secure and consumer friendly company (with regard to personal data collection on digital device) and recent changes that Apple made to the privacy settings on its iPhones has led to anxiety regarding Facebook’s performance. This has factored into FB’s poor share price performance; however, it appears that the headwinds may not be as dire as some previously feared. Last week Facebook released a blog post which highlighted its Q3 advertising performance. Hassan Maishera, a Nobias 4-star rated analyst, recently covered this news in an article at Yahoo Finance.
Maishera said, “the social media giant admitted that it underreported web conversions on Apple’s iOS by roughly 15% in the third quarter of the year.” Maishera continued, “Graham Mudd, Facebook’s VP of product marketing, stated that they believe that the real world conversions, like sales and app installs, were much higher than what was reported to numerous advertisers.”
Maishera points out that Facebook appears to be aware of the negative consumer sentiment surrounding outsized data collection and is working on ways to enhance digital privacy while still generating strong advertising dollars. Maishera wrote, “These technologies are expected to minimize the amount of personal information Facebook processes while allowing the social media giant to show personalized ads and measure their effectiveness.”
Adam Levy, a Nobias 4-star rated author also recently published an article highlighting Facebook’s privacy practices, saying that Apple’s decision “Could Accelerate Facebook's Social Commerce”. Levy points out that since Facebook is not having difficulty tracking data between different app developers on Apple devices, the company is likely to focus more and more of its energy on internal projects where it can provide advertisers with the best data.
Levy highlights Facebook Shops as a major winner of Apple’s opt-in decision, saying: “Facebook introduced Shops on Facebook and Instagram in May of last year, building on its success with Instagram Checkout and the development of Facebook Pay. The feature allows businesses to sell directly to Facebook users, using a credit card already on file with the social network. The idea is to reduce friction in moving users from product awareness to purchase by keeping users within the app and making it as simple as possible to check out.” He continues, highlighting massive opportunity that Facebook Shops presents to the company, saying, “If Apple's iOS changes usher in broader adoption of social commerce, it could ultimately benefit Facebook -- not because Shops presents a big new source of revenue, but because the advertising opportunity with Shops is even greater than directing users to third-party apps and websites.”
Levy believes that Amazon’s recent success with its digital advertising platform can be a blueprint for Facebook in this area. He notes that Amazon’s “ad business was on a $30 billion annual run rate in the second quarter, and it grew more than 80% year over year.” Therefore, he says, “If Facebook could come anywhere near emulating that success, it could really move the needle for the company, despite bringing in over $100 billion over the past 12 months.”
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.
Anthony Di Pizio, a Nobias 4-star rated analyst also recently penned a bullish article on Facebook, saying that it is one of 2 companies that he believes investors should “Buy Hand Over Fist If the Market Crashes”. Di Pizio began his piece saying, “Facebook needs little introduction: Nearly half the planet uses its platforms each month. But the company's $1 trillion market valuation highlights just how powerful its business is.” He says that Facebook is the world’s largest social media company; however, that’s not why the company’s long-term future is so exciting.
Di Pizio wrote that Facebook is “now turning its ambitions toward developing a brand new medium it calls the metaverse, a virtual and augmented reality experience that could dwarf everything it has done so far.” At its early stages, the metaverse is an abstract concept. Di Pizio explains how Facebook could benefit from its development, saying, “According to CEO Mark Zuckerberg, the metaverse could become a digital society where humans can do in virtual spaces even more of the activities we do in everyday life. It could even sustain its own economy, and driving that economy could be an enormous opportunity for Facebook.” But, his bullish thesis for Facebook doesn’t just revolve around speculative growth. Actually, Di Pizio points out that Facebook offers an attractive value proposition, especially on a relative basis to its peers. He said, “Facebook is already growing quickly without a metaverse business, and it's a profit-generating machine. The stock trades at a reasonable price-to-earnings ratio of 25.7, while the tech-focused Nasdaq 100 index (of which Facebook is a component) carries a loftier P/E of 36.”
The bullish lean of these recently published articles mirrors the overall opinion of the credible author community tracked by Nobias. Right now, 90% of these credible authors express “Bullish” opinions on Facebook stock. Right now, the average price target amongst the Wall Street analysts that Nobias rates as either 4 or 5 stars is $433.18. Today, Facebook trades for $343.01. This means that the average price target above represents upside potential of approximately 26.3%.
Disclosure: Of the stocks discussed in this article, Nicholas Ward is long AAPL and FB. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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.
TMUS with Nobias technology: Down 15% From Its Highs, Is T-Mobile A Buy?
T-Mobile (TMUS) has been making headlines in the communications space for years, with former charismatic CEO, John Legere branding his company, the “Un-Carrier”, setting his company apart from larger rivals, AT&T (T) and Verizon (VZ), which he called things like “Dumb and Dumber” during confrence calls. Legere was boisterous, but he wasn’t all bark and no bite. For years, TMUS shares produced both top and bottom-line growth that AT&T and Verizon investors were quite envious of. This is what led to TMUS outperforming its peers and making major headway as it attempted to catch up (in terms of the mobile carrier market cap race). AT&T and Verizon used to be called a duopoly in the U.S. mobile space. Well, now it’s clear that this is a three-horse race. Today, AT&T’s market cap is $195.6 billion , Verizon’s is $225.1 billion, and T-Mobile’s is $159.8 billion. TMUS shares have experienced a rare sell-off in recent months and at today’s share price of $126.75 they trade at a 15.6% discount to their current 52-week high of $150.20. With recent weakness in mind, we wanted to take a look at what the credible authors tracked by the Nobias algorithm have had to say about TMUS shares recently to see whether or not this is a dip that investors should consider buying.
T-Mobile (TMUS) has been making headlines in the communications space for years, with former charismatic CEO, John Legere branding his company, the “Un-Carrier”, setting his company apart from larger rivals, AT&T (T) and Verizon (VZ), which he called things like “Dumb and Dumber” during confrence calls. Legere was boisterous, but he wasn’t all bark and no bite. For years, TMUS shares produced both top and bottom-line growth that AT&T and Verizon investors were quite envious of. This is what led to TMUS outperforming its peers and making major headway as it attempted to catch up (in terms of the mobile carrier market cap race). AT&T and Verizon used to be called a duopoly in the U.S. mobile space. Well, now it’s clear that this is a three-horse race. Today, AT&T’s market cap is $195.6 billion , Verizon’s is $225.1 billion, and T-Mobile’s is $159.8 billion. TMUS shares have experienced a rare sell-off in recent months and at today’s share price of $126.75 they trade at a 15.6% discount to their current 52-week high of $150.20. With recent weakness in mind, we wanted to take a look at what the credible authors tracked by the Nobias algorithm have had to say about TMUS shares recently to see whether or not this is a dip that investors should consider buying.
Looking at TMUS’s share price and the newsflow associated with the company, it appears that the stock’s recent weakness stems from a major data breach and apparent fears that the company may lose its consumer-centric image (which has set it apart in branding from its peers, which often have poor consumer satisfaction scores).
Monica Alleven, a Nobias 4-star rated analyst, covered the data break in an article for Fiercewireless last month. She described the breach saying, “T-Mobile revealed in mid-August that more than 50 million people – including current, former, and prospective customers – had some of their personal data stolen. Customers’ first and last names, date of birth, Social Security numbers and driver’s license/ID information were among the items that were stolen.”
In her piece, she noted that T-Mobile’s EVP and CFO Peter Osvaldik highlighted the sentiment damage that the breach caused; however, he went on to say that the company’s operations are getting back to normal. Alleven quoted Osvaldik, who spoke recently about the breach at a Bank of America securities investment conference, saying, “We definitely saw some temporary customer cautiousness as you would expect, both in terms of gross adds as well as churn immediately following that breach. Now that we’re a couple weeks past it, we’ve seen consumers have moved past it and our flows are beginning to normalize.”
Alleven touched upon the fact that TMUS is famous for highlighting all of the consumers that have switched from the two legacy carriers to its network in recent years; however, she says, “In the second quarter, it was AT&T that posted big wireless subscriber gains, with 789,000 postpaid net phone additions compared with T-Mobile’s 627,000.” The data breach has led investors to fear that this trend could take further hold, allowing a name like AT&T to continue to take market share.
With regard to near-term financial impact of the breach, Alleven doesn’t believe it will be significant. She wrote, “From a financial perspective, there could be ramifications in the long term, such as from regulatory investigations. However, costs associated with immediate actions that T-Mobile took, such as experts that it hired and protection offered to consumers, are not expected to have a material impact in either the third quarter or the second-half results.”
Even though the data breach has sparked a lot of negative headlines, it’s still easy to find credible TMUS bulls. Billy Duberstein, a Nobias 4-star rated analyst recently published an article at The Motley Fool where he highlighted TMUS as a top 5G pick. Duberstein said, “Thanks to its 2020 acquisition of Sprint and other smart spectrum investments over the years, "Un-Carrier" T-Mobile has a solid lead in 5G deployment. In fact, seven recent independent third-party reports clarified that T-Mobile has the superior 5G network -- a big contrast from the 4G era, when it was a laggard.”
With regard to Q2, Duberstein said that “Strong net additions, a beat on revenues and profits, and raised guidance for the year were offset by news that Dish Network (NASDAQ:DISH), will move off T-Mobile's wholesale network for AT&T's (NYSE:T).”
Duberstein did say that the Dish Network decision “will put a near-term hole in T-Mobile's financials, to the tune of over $500 million in revenue per year.” “Yet,” he continued, “despite this small setback, CEO Mike Sievert reiterated the company's impressive medium and long-term guidance outlined in its analyst day back in March”.
Furthermore, Duberstein believes that the company an turn this loss into an opportunity saying, “The loss of Dish will also free up capacity on T-Mobile's network, which the company will turn around and aggressively market to its three main growth targets: enterprises, rural areas, and home 5G broadband. Each of those segments represents a tremendous growth opportunity for the company.”
With regard to the rural broadband, Adam Levy, a Nobias 4-star rated analyst, recently penned a piece which focuses on TMUS’s recent partnership with Wal-Mart which should help the company hit its growth targets in that space. Levy said, “T-Mobile's is heavily focused right now in rural markets. It plans to expand its share [sic] ifrom 13% today to 20% by 2025. And now, it has a new partner to help: Walmart (NYSE:WMT). Starting next month, Walmart shoppers will be able to buy a new phone and activate it on T-Mobile's network at 2,300 of its stores. Walmart's rural presence can help get T-Mobile in front of more customers at a point in time where it has a massive advantage in those markets.”
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.
Levy points out that TMUS is already a leader in rural markets saying, “T-Mobile already has a massive lead in 5G coverage in rural markets. It covers 305 million people with its 5G network on the 600 MHz bandwidth. It says that's more than twice the coverage of AT&T and four times that of Verizon.” “But,” he says, “the 600 MHz 5G network doesn't offer the performance promises of 5G, like much faster internet speeds and lower latency.” Therefore, TMUS is investing heavily in the rural space to ensure that it maintains leadership. Levy wrote, “It currently covers 165 million people and expects to cover 200 million Americans by the end of 2021 with what it calls Ultra Capacity 5G and will cover 300 million by 2023. Meanwhile, Verizon's and AT&T's plans call for about 175 million and 150 million people, respectively, covered by mid-band 5G by the end of 2023. The competitors are about two years behind.”
Rural broadband may not be overly exciting to investors; however, Levy says that Jon Freier VP of T-Mobile's Consumer Group, said that this market represents roughly 40% of Americans, or 15 million households holding approximately 140 million people. With that in mind, Levy said that “If T-Mobile grows its share from 13% to 20% of the rural market over the next five years, that's an extra 10 million subscribers, or about 2 million per year. That's pretty substantial, even for a company that's adding around 5 million new customers per year.” This factors into his bullish outlook. As it turns out, Levy isn’t alone in his viewpoint. Actually, that’s a bit of an understatement. Right now, 95% of the credible authors that the Nobias algorithm tracks offer “Bullish” sentiment on TMUS shares.
Right now the average price target for TMUS amongst the credible analysts that we track is $164.67, which represents upside potential of 29.9% relative to today’s share price. In short, it appears that the data breach driven sell-off has created an opportunity here for investors looking to buy TMUS on the dip.
Disclosure: Of the stocks discussed in this article, Nicholas Ward is long T and VZ. 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.
ADBE with Nobias technology: Is Adobe A Buy After Its Post-Third Quarter Earnings Dip?
Adobe reported its third quarter earnings this week. The stock beat analyst estimates on both the top and bottom lines; however, ADBE shares sold off on the results. Adobe shares were down 4.85% this week because of their post-earnings report weakness. Yet, even after this nearly 5% sell-off, ADBE’s year-to-date results are still very attractive, with shares up 24.51% (beating the S&P 500’s 18.7% year-to-date gains). And, with that in mind, we wanted to see what the highly rated analysts that the Nobias algorithm tracks have had to say about the stock to see whether or not this is a dip that long-term investors should consider buying.
Adobe reported its third quarter earnings this week. The stock beat analyst estimates on both the top and bottom lines; however, ADBE shares sold off on the results. Adobe shares were down 4.85% this week because of their post-earnings report weakness. Yet, even after this nearly 5% sell-off, ADBE’s year-to-date results are still very attractive, with shares up 24.51% (beating the S&P 500’s 18.7% year-to-date gains). And, with that in mind, we wanted to see what the highly rated analysts that the Nobias algorithm tracks have had to say about the stock to see whether or not this is a dip that long-term investors should consider buying.
Coming into the quarter, it appears as though ADBE shares were priced to perfection. This shouldn’t come as a surprise to investors because of the amazing operational performance that Adobe has generated in the recent past. Royston Yang, a Nobias 5-star rated analyst, recently published an article at The Motley Fool, which highlighted 3 companies which he believes could help investors “retire a millionaire”.
Yang touched upon the recipe for success as a long-term investor thinking about a comfortable retirement saying, “The key to being successful in this endeavor is to select great companies to own for the long term. As these businesses report higher revenue, profit, and cash flow, their share prices should rise in tandem. Patience and consistent allocation of capital to such winners can slowly but surely help you build up that coveted nest egg.” In his opinion, Adobe meets these qualifications. Yang wrote, “Adobe is thriving in a world where the pandemic has accelerated digital usage. The company's suite of cloud computing services, such as Document Cloud and Creative Cloud, aids business efficiency and has benefited from the stay-at-home trend. Adobe's subscription-based model has served it well over the years, helping the company to more than double its revenue from $5.9 billion to $12.9 billion from 2016 to 2020. Over the same period, net income has more than quadrupled, from $1.2 billion to $5.3 billion.” He continued, saying that the company’s strong growth has not slowed down, despite its tough year-over-year comparisons, this year either.
Yang stated, “This impressive growth has continued unabated this year, as Adobe has reported year-over-year increases of 24.5% and 15.7% in revenue and net income, respectively, for the first half of 2021.” In conclusion, Yang noted big contracts that Adobe has signed with large-cap clients such as Microsoft (MSFT), Nike (NKE), and PayPal (PYPL), which, in his belief, are likely to help the company continue its growth in the cloud space.
Nobias 5-star rated analyst, Richard Saintvilus, posted an article titled, “Adobe (ADBE) Q3 Earnings: What to Expect” on Nasdaq.com prior to the earnings release and also highlighted this priced to perfection notion, saying, “Adobe shares have surged beyond the Street’s 12-month consensus price target. This is even as analysts’ consensus price targets have risen over the past six months.”
With regard to why ADBE shares have been rallying so well in recent months, Saintvilus said, “The company is benefiting from rising profit margins during its transition to a cloud-based subscription services business within both its Digital Media and Digital Experience segments.” He broke down Wall Street’s expectations for the company’s Q3 results saying, “For the quarter that ended August, Wall Street expect the San Jose, Calif,-based company to earn $3.01 per share on revenue of $3.89 billion. This compares to the year-ago quarter when earnings came to $2.57 per share on revenue of $3.23 billion. For the full year, ending October, earnings are expected to rise 21% year over year to $12.24 per share, while full-year revenue of $15.68 billion would climb 21.8% year over year.”
Even though these estimates were calling for 20%+ growth, the company managed to out-do the analyst expectations. Adobe reported sales of $3.94 billion during the quarter, which represented 22% year-over-year growth and came in $40 million above the analyst consensus estimate. Adobe’s non-GAAP earnings-per-share came in at $3.11 during the third quarter, beating the analyst consensus estimate by $0.09/share.
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.
Adobe’s CEO, Shantanu Narayen, began the company’s Q3 earnings report by saying: “Adobe had another outstanding quarter as Creative Cloud, Document Cloud and Experience Cloud continue to transform storytelling, learning and conducting business in a digital-first world. Our talented employees, category-defining innovation and product leadership uniquely position us for continued momentum and success.”
ADBE’s management remained bullish throughout the earnings report and earnings conference call, with the company’s CFO, John Murphy, concluding his piece of the conference call by saying, “Given Adobe's year-to-date performance and our Q4, we are clearly on track to exceed our updated annual targets for fiscal 2021 provided in March. With the massive opportunities across creativity, digital documents, and customer experience management, we continue to invest and drive strong business results.”
As it turns out, Adobe’s management team members aren’t the only ones who’re bullish on ADBE shares. 94% of the credible authors that the Nobias algorithm tracks have a “Bullish” outlook on shares. What’s more, the average analyst price target amongst the credible analysts that the Nobias algorithm tracks is $724.80, which represents upside potential of approximately 26%, relative to ADBE’s current share price of $577.47.
Adobe shares are down roughly 7.5% from their current 52-week high of $673.88. With the collective opinion of the highly credible (4 and 5-star rated) Nobias analysts in mind, it appears that this is a dip that investors should consider buying.
Disclosure: Of the stocks mentioned in this article, Nicholas Ward is long MSFT, NKE, and PYPL. . 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.
CRM with Nobias technology: Salesforce: How Much Upside Is Left After A 25% Year-to-Date Rally?
A number of highly respected Wall Street analysts raised their price targets on CRM shares because of the company’s guidance boost. Right now, the average analyst price target amongst the highly credible analysts that the Nobias algorithm tracks is $304.55. CRM shares closed the week trading at $285.63. This means that the average analyst price target implies upside potential of 6.6%. With this in mind, it makes sense that the majority of the credible authors that the Nobias algorithm tracks are bullish on CRM shares. Right now 81% of the credible authors that we follow express “Bullish” sentiment associated with Salesforce.
The stock market has been on a bump ride during the last couple of weeks, due to bearish pressure being put on the major indexes by threats such as the Evergrande debt concerns coming out of China, the continued spread of the COVID-19 virus across the world, the speculation that the Federal Reserve may begin to make a hawkish turn with regard to monetary policy in the coming quarters, and due to the looming debt ceiling issue that has the potential to be catastrophic for markets if the United States government shuts down and it defaults on its debts. Needless to say, the combination of these concerns is enough to make even the most confident bull begin to experience anxiety. We’ve seen the market experience several negative weeks in a row now, with some of the year’s most volatile trading sessions happening this week alone. However, throughout this trying period of time, there has been a clear winner in the tech space. Salesforce (CRM) shares have risen nearly 13% since September 13th and we wanted to take a look at the shares to see what the highly rated analysts tracked by the Nobias algorithm have had to say about the company’s recent rally.
In early September, Nobias 5-star rated analyst, Nicholas Rossolillo, published an article titled, “3 Reasons Salesforce.com Stock Is a Buy After Q2 Earnings” highlighting his bullish outlook on CRM shares after the stock’s most recent earnings report. He began by highlighting the company’s record revenues saying, “Salesforce's revenue increased 23% year over year to $6.34 billion -- its first-ever quarter with over $6 billion in sales.”
Rossolillo pointed out that Salesforce’s recent activity in the M&A space is paying off for the company saying that, “Momentum is picking up, primarily because of the recent tie-up with Slack as well as the purchase of IT consulting firm Acumen Solutions, announced late in 2020. Slack and Acumen are expected to contribute $530 million and $200 million in revenue, respectively, during the second half of this year.”
Furthermore, while these sales figures are impressive, he notes that they make up a relatively small portion of CRM’s overall sales pie, which points towards the fact that the company’s existing business continues to generate strong double digit organic growth.
Rossolillo believes that this overall strength is likely to continue saying that, “Even when backing out recent takeovers, Salesforce is still growing at a high teens percentage rate, putting it on track to reach Benioff's [referring to CRM’s CEO Marc Benioff] goal of $50 billion in sales by fiscal year 2026 (which corresponds to calendar year 2025).”
With regard to Slack, Rossolillo said that “Salesforce has wasted no time making Slack the operating system for its Salesforce 360 CRM software suite.” He highlighted management’s bullish outlook for the continue integration of Slack’s technology into Salesforce’s broader suite of products saying, “As Benioff and his team referred to it on the earnings call, Slack -- as well as Zoom Video Communications ( ZM) -- are the new "digital HQ" for many organizations these days.”
Rossolillo concludes his piece saying that CRM is not only succeeding on the top-line, but on the bottom-line as well. He wrote: “Even when factoring in all the costs associated with Salesforce's acquisition-heavy strategy, this is still a highly profitable outfit. It raised its expected operating profit margin for full-year fiscal 2022 to a range of 14% to 15% (from the previous 12% to 13%). Excluding acquisition-related expenses, free cash flow generated through the first half of this year was $3.23 billion, up 75% from the same period last year and good for a free cash flow profit margin of 26%.” And therefore, Rossolillo believes that CRM shares continue to represent a potential “core holding” for investors’ portfolios, saying, “At about 48 times trailing-12-month free cash flow, I say Salesforce stock is still a fantastic buy. This cloud computing leader is growing at a brisk pace, highly profitable, and quickly going from a CRM software niche to the very fabric of operations for thousands of organizations around the globe.”
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.
More recently, CRM shares have rallied higher, due to the September 23rd announcement that Salesforce management made regarding its full-year guidance. Jignesh Mehta, a Nobias 3-star rated news editor at Seeking Alpha, covered CRM’s press release saying, “Salesforce now sees FY22 revenue in the range of $26.25-26.35B from $26.2-26.3B vs. a consensus of $26.28B.” Mehta continued, saying, “For FY23, sees revenue between $31.65-31.80B vs. $31.45B consensus; Guides FY23 GAAP operating margin of approx 3.0% to 3.5%, and non-GAAP operating margin of 20.0%.”
This news sent shares higher to the tune of 7% on Thursday of this week. CRM continued its rally on Friday as well, up another 2.8%, more than making up for the stock’s participation in Monday's big market sell-off, closing the week up 6.72%, well above the S&P 500’s -0.55% weekly performance.
A number of highly respected Wall Street analysts raised their price targets on CRM shares because of the company’s guidance boost. Right now, the average analyst price target amongst the highly credible analysts that the Nobias algorithm tracks is $304.55. CRM shares closed the week trading at $285.63. This means that the average analyst price target implies upside potential of 6.6%. With this in mind, it makes sense that the majority of the credible authors that the Nobias algorithm tracks are bullish on CRM shares. Right now 81% of the credible authors that we follow express “Bullish” sentiment associated with Salesforce.
Since the start of August, there have been 15 analysts that Nobias tracks with 4 and 5-star ratings who’ve updated their price targets on CRM shares. 12 of these reports have been “Bullish”. 3 of the reports were “Neutral”. In short, it’s difficult to find a highly respected CRM bear on Wall Street right now, meaning that many of the individuals that we track share Rossolillo’s positive outlook.
Disclosure: Nicholas Ward is long CRM. 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.
DKNG with Nobias technology: Draftkings shares are down 29%, Will Football Season Push These Shares Higher?
Now that sports betting has been legalized in many states, this industry is viewed as an intriguing area of the larger media/entertainment space with gamblers flocking towards new digital apps. Seeking Alpha news editor , Clark Shultz, a Nobias 3-star rated analyst, highlighted the potential size of the sports gamling market in the U.S. in a recent report. Shultz said, “U.S. sports betting revenue is up 435% year-over-year to $2.12B through July with more states open for land and mobile action, according to the latest update from Eilers & Krejcik Gaming.”
Now that sports betting has been legalized in many states, this industry is viewed as an intriguing area of the larger media/entertainment space with gamblers flocking towards new digital apps. Seeking Alpha news editor , Clark Shultz, a Nobias 3-star rated analyst, highlighted the potential size of the sports gamling market in the U.S. in a recent report. Shultz said, “U.S. sports betting revenue is up 435% year-over-year to $2.12B through July with more states open for land and mobile action, according to the latest update from Eilers & Krejcik Gaming.”
Draftkings (DKNG) is one of the established leaders in the domestic sports gamgling craze and during its recent Q2 earnings report, the company pointed out that it is “live with online sports betting in 12 states that collectively represent 25% of the U.S. population.” The company continued to highlight expansion opportunities, saying, “In 2021, 25 state legislatures have introduced legislation to legalize mobile sports betting, 5 state legislatures have introduced legislation to expand their existing sports wagering frameworks and 2 state legislatures have introduced legislation to legalize sports betting limited to retail locations. In addition, 4 states have introduced iGaming legislation and 3 states have introduced online poker legislation.”
Schultz highlighted the tremendous potential of the domestic addressable market touching upon the data released in the Eilers & Krejcik Gaming report saying, “The firm forecasts U.S. sports betting revenue will increase to $5.8B in 2023 and could reach $19.0B if legalized in all 50 states. The projection for online casino and poker revenue is $3.7B next year and $20.8B if all 50 states move to legalization.”
This week, Draftkings made headlines when rumors of a major acquisition in the sports gaming space arose. On Tuesday, September 21st, CNBC’s David Faber, who is well known for breaking major merger and acquisition stories, potentially most notably, Disney’s recent acquisition of Twenty-First Century Fox’s assets in the media/entertainment space, announced that his sources were telling him that Draftkings “is making a $20 billion offer to acquire U.K. online sports betting company Entain.”
The CNBC report stated, “The offer is largely in DraftKings stock, along with cash, according to the sources.” Furthermore, CNBC reported that “In a filing with the London Stock Exchange, Entain’s board confirmed that it received a proposal from DraftKings, which would include a combination of stock and cash. The filing did not contain any information on the price of the offer.”
This $20 billion rumor comes just months after a failed take-over attempt of Entain by MGM Reports in early 2021. MGM offered approximately $11 billion; however, Entain management said that the bid undervalued the company. It’s unclear as to whether or not Draftkings offer will be high enough; however, Entain shares are up roughly 25% this week in anticipation of a buyout becoming a reality.
There appears to be a rapid race for scale in the gambling space now that it has become legalized throughout the U.S. and the Entain move would give Draftkings a foothold in gambling markets across the Atlantic as well. In a recent article, Nobias 4-star rated analyst, Vandita Jadeja discussed the company’s expansive growth saying, “The company is making well-timed moves to build new offerings and achieve growth. It has successfully partnered with some of the top sports companies to offer a unique experience to the users. DKNG stock is up 22% over the month and is trading close to $60 today.” She continued saying, “The stock recorded an all-time high of $74 and the current dip is a great buying opportunity.”
In the aftermath of the Entain bid, DKNG stock fell precipitously, down roughly 10% this week. Jadeja’s article was published prior to the rumored $20 billion offer; however, her bull thesis was based upon the strong tailwind that football season should provide to DKNG in the coming quarters and that catalyst remains firmly in place. She wrote, “There is nothing as big as football in the USA and I believe the National Football League (NFL) season will give it a strong boost. The company already has more than 1.1 million monthly unique players and it will be able to attract users during the football fiesta. The company stated that it does not expect any slowdown in the coming months which shows that it is ready to make the most of this season.”
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.
Jadeja said that famed growth investor, Cathie Wood of ARK Invest recently bought “$60 million worth of DKNG stock”, which has helped to give the stock momentum. DKNG also carries a high short interest, which currently sits at approximately 9.5%. This implies that the stock could get caught up in one of the “meme” stock rallies that we’ve seen develop throughout the last year or two which have powered other speculatively valued growth names higher.
During its second quarter report, DKNG raised its full-year guidance saying: “DraftKings is raising its fiscal year 2021 revenue guidance from a range of $1.05 billion to $1.15 billion to a range of $1.21 billion to $1.29 billion, which equates to year-over-year growth of 88% to 100% and a 14% increase compared to the midpoint of our previous guidance.” The company continued, noting: “The increase reflects strong performance in the second quarter of 2021 and continued user retention, engagement and acquisition due to the effectiveness of our marketing spend.”
These triple digit growth prospects have certainly caught the eye of Jadeja, who concluded her piece saying, “I am very bullish on DKNG stock and believe it is for the long term. The company has made some strong partnerships in the industry and is one of the top players today. As the lockdown ends and we resume normalcy, the company will gain from the sports season and it will take DKNG stock higher.” And she’s not the only highly rated author that the Nobias algorithm tracks who is bullish on DKNG shares. Right now, the overall bias within the credible author community that Nobias tracks is 85% bullish. The average price target amongst the credible analysts that our algorithm follows is $73.88. This represents upside potential of approximately 40.4%, relative to the stock’s current share price of $52.63.
Disclosure: Nicholas Ward has no position in DKNG. 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.
NVAX with Nobias technology: Can Novavax Become the Third COVID-19 Vaccine Maker to Soar This Year?
The COVID-19 pandemic has proven to be very profitable for the companies who’ve managed to develop, produce, and manufacture effective vaccines. The healthcare sector has experienced a significant sell-off in recent weeks as Congress continues to discuss healthcare regulation which would involve lowering the prices of prescription drugs. However, even after this recent weakness, we see that during the past year, Pfizer (PFE) shares are up 19.2% and Moderna (MRNA), which is essentially a pure play COVID-19 vaccine stock at this point in time, is up 533.45%
The COVID-19 pandemic has proven to be very profitable for the companies who’ve managed to develop, produce, and manufacture effective vaccines. The healthcare sector has experienced a significant sell-off in recent weeks as Congress continues to discuss healthcare regulation which would involve lowering the prices of prescription drugs. However, even after this recent weakness, we see that during the past year, Pfizer (PFE) shares are up 19.2% and Moderna (MRNA), which is essentially a pure play COVID-19 vaccine stock at this point in time, is up 533.45%.
In a recent article, Adria Cimino, a Nobias 5-star rated analyst, noted that, “Early in the coronavirus vaccine race, Novavax (NVAX) seemed to have secured the third spot behind rivals Moderna (MRNA) and Pfizer (PFE).” She said that Novavax was expected to submit an authorization request for its COVID-19 vaccine in early 2021, but the company “fell behind as materials shortages hurt its manufacturing ramp up. Now, the company expects to file for authorization in the fourth quarter.”
This delay has allowed Pfizer and Moderna to capture massive market share and generate billions of dollars via vaccine sales; however, Novavax appears to have a special card up its sleeve with a new combo-COVID-19/Flu vaccine.
In her report, which was published on September 11th, 2021, Cimino wrote, “This week, Novavax said it began a phase 1/2 clinical trial of a combination flu/coronavirus vaccine candidate. The company is testing the potential product in 640 adults ages 50 through 70.” She continued, saying, “The investigational vaccine will be given in two doses, 56 days apart. Researchers will study safety and immune response. Novavax expects to generate results in the first half of next year.”
Cimino highlighted the fact that both Moderna and Pfizer have mentioned plans to work on combination vaccines as well. The prevailing thought is that the consumer would prefer as few needle pokes as possible, likely meaning strong demand for seasonal vaccines like this, should they be approved. Cimino said, “In a Pfizer earnings call back in May, CEO Albert Bourla said the company is looking into opportunities to combine its coronavirus vaccine with other vaccines. But he didn't offer further details.”
Moderna appears to be further along in this process with Cimino noting that in July, MRNA began early phase trials for a Flu vaccine. “Then, just this week, Moderna announced it's working on a single-dose vaccine combining a COVID-19 booster and a flu booster. That program hasn't yet entered clinical trials,” she continued.
So, while PFE and MRNA won the race to COVID-19 vaccine approval, Cimino believes that Novavax is in a good position to win the combo-vaccine race. She said, “In the race to develop a combined vaccine, Novavax is ahead. But it's not only because the company is the first to launch a clinical trial; it's because the two key products that make up this combined vaccine candidate already have been through extensive testing. Novavax's candidate involves a combination of its coronavirus vaccine and flu vaccine candidates.” She points out that in its phase 3 trials which were performed in Mexico, Novavax’s COVID-19 vaccine “showed efficacy of more than 90% against mild, moderate, and severe disease” and “it "demonstrated" 100% efficacy against moderate and severe disease.”
With regard to NVAX’s Flu vaccine, Cimino wrote, “NanoFlu -- the flu candidate -- met all primary endpoints in a phase 3 clinical trial in the spring of 2020. This means it produced an immune response that wasn't inferior to an already approved flu vaccine. It also beat secondary goals by producing higher immune responses to various flu strains than the approved vaccine. Novavax tested the candidate in adults ages 65 and older.”
Cimino highlights guidance from PFE and MNRA showing that those two companies expect to generate sales of $33 billion and $20 billion, respectively, from COVID-19 vaccines in 2021. It’s unclear as to whether or not this disease will require long-term booster shots, but if it does, that represents a very large opportunity for bio-pharma companies.
Cimino remains bullish on NVAX shares because of the potential of a COVID-19/Flu combo, saying, “This year, Novavax hasn't kept up with either of the big vaccine makers. But Novavax may have a second chance to stand out and lead the way in the long term. This potential product -- the combined vaccine -- could be a game changer.” And, she isn’t the only Nobias 5-star rated analyst who has recently published a bullish report on NVAX shares.
Taylor Carmichael, another 5-star rated author, recently helped to publish a NVAX report at The Motley Fool, which highlighted this company as one of “3 COVID Stocks That Might Double Soon”. Highlighting NVAX’s potential upside, he wrote, “Right now, Moderna enjoys a $169 billion market cap, and BioNTech sports a $79 billion valuation. Meanwhile, Novavax is positively cheap with its $17 billion market cap.”
Carmichael continued saying, “The difference, of course, is that the mRNA biotechs have both of their COVID-19 vaccines on the market now, while Novavax is still waiting for its first Emergency Use Authorization. But when the government agencies start allowing Novavax to distribute its COVID-19 vaccine, the stock will really start to soar.”
Carmichael believes that strong demand for COVID-19 vaccines will persist for the foreseeable future because, “The majority of the world's population still has not been vaccinated.” He says that NVAX will help to meet this unmet medical need, saying, “Novavax will have 2 billion doses of vaccine ready to distribute in 2022. And the biotech has multiple agreements for supplying locations around the world: 100 million doses for the U.S., 150 million doses for Japan, 200 million doses for Europe, and over 1 billion doses for the developing world.”
Mrinalika Roy, a Nobias 4-star rated analyst, co-published a piece on Yahoo Finance recently, which focused on NVAX’s vaccine production capabilities moving forward. She wrote, “Novavax, speaking at a Morgan Stanley healthcare conference, reiterated that it would have about 100 million doses per month by the end of the third quarter this year, and would increase it to 150 million doses in the fourth quarter.”
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.
Carmichael points out that the U.S. government recently paid $1.3 billion for 100 million doses of the company’s experimental vaccine. He thinks that similar deals between the governments of Japan and those in Europe “will likely pay a higher dollar amount” and therefore, “It's entirely possible that Novavax's revenue next year will be higher than its market cap today.”
Carmichael highlighted the combo-COVID-19/Flu trial that NVAX recently began in Australia, pointing towards the same upside potential that Cimino based her bullish thesis on. And ultimately, he ended his piece with a bullish conclusion stating, “I'm expecting Novavax shares to spike higher as its vaccine starts receiving authorization around the world in the fourth quarter. Novavax's vaccine candidate will be popular both as a booster shot and as an initial vaccine for the majority of the world who are unvaccinated.”
Overall, the credible analyst community that the Nobias algorithm tracks agrees with this bullish outlook. Right now, 75% of the credible authors that we follow have expressed “Bullish” opinions on NVAX shares. The average price target amongst the credible Wall Street analysts that our algorithm tracks is currently $345.50. Today, NVAX trades for $257.3, meaning that the average price target amongst the highly rated analysts that we track represents upside potential of approximately 45%.
Disclosure: Nicholas Ward is long PFE. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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.
AI with Nobias technology: Does C3.ai Inc trade with an especially high valuation?
Artificial Intelligence has been a secular growth theme of the digital age and upcoming 4th industrial revolution for years now. We’re still in the early innings of proliferation of A.I. technologies and investors are looking for a way into the ground floor before A.I. empowered companies really start to take off. The excitement surrounding the long-term secular growth potential of A.I. technology played a major role in the share price rally that C3.ai, Inc. (AI) experienced in the immediate aftermath of its initial public offering in December of 2020.
Artificial Intelligence has been a secular growth theme of the digital age and upcoming 4th industrial revolution for years now. We’re still in the early innings of proliferation of A.I. technologies and investors are looking for a way into the ground floor before A.I. empowered companies really start to take off. The excitement surrounding the long-term secular growth potential of A.I. technology played a major role in the share price rally that C3.ai, Inc. (AI) experienced in the immediate aftermath of its initial public offering in December of 2020.
AI shares priced at $42/share and soared some 140% on their first day of trading. C3.ai shares hit highs of $183.90 in late December; however, they’ve been on a downslope ever since. Today, C3.ai trades for just $50.12. They’re languished in the $50 area for months now.
Chris Lau, a Nobias 4-star rated analyst, published an article highlighting C3.ai’s recent share price performance on July 26th. AI closed the trading session on that day at $51.50. Not much has changed during the last couple on months; therefore, his analysis remains useful.
Lau wrote, “Since its all-star performance after its initial public offering, C3.ai (NYSE:AI) has trouble holding the $50 level. The short interest of 8.6% on AI stock is not very bearish. And the valuations, such as its price-sales ratio of almost 30x, is not out of the ordinary.”
Lau noted that the persistent weakness was interesting because the company hadn’t seen any major headlines in weeks. His thought was that investors are waiting around for a clear indication of improving sales/profits to help to justify the stock’s speculative valuation.
C3.ai posted its fiscal Q4 results on July 2, 2021 and Lau highlighted the results saying, “In the fourth quarter, revenue grew by a modest 26% Y/Y to $52.3 million. Non-GAAP gross margin rose only slightly to 81% for the fiscal year 2021, up from 77% in FY 2020. The bad news is that costs still exceed revenue: non-GAAP operating income was negative $15.4 million.”
This top-line growth was disappointing to Lau. He wrote, “C3.ai is priced for hyper-growth but revenue growth of 26% is not impressive.” He continued, highlighting the company’s forward looking guidance provided during its Q4 presentation. Lau wrote, “C3.ai forecasted another non-GAAP loss from operations for the first quarter of 2022 and the 2022 fiscal year. It will lose between $28 million and $35 million in Q1 and up to a $119 million loss for the full year.”
With projected losses mounting up, it’s paramount that the stock partners with large corporate firms on big sales/subscription services to quickly turn its growth potential into a more lucrative business. Lau believes this is what it’s going to take to break out of the stock’s current slump saying, “Sooner or later, customers like Bank of America (NYSE:BAC), Standard Chartered Bank or Kosh will want to get more out of the AI product line.”
With regard to big business, Lau notes that competition from big-tech is a major threat for this smaller software firm. He wrote, “Microsoft (NASDAQ:MSFT) has a solid track record of growing software subscriptions. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has a near-monopoly in the search engine and online advertising market. Both companies post consistently strong revenue and profits.” And therefore, he concluded his piece with a rather bearish warning, saying, “In times of uncertainty, AI shares are not suitable for speculators. Buy and hold investors who thought that AI would trade at $100 or more should rethink that assumption. The company will not post a profit this year and will test the most patient shareholder.”
Stavros Georgiadis, another Nobias rated 4-star analyst, wrote an article on AI more recently (September 10, 2021) and arrived at a very similar conclusion to Lau’s. Georgiadis highlighted many of the same fundamental trends, noting that “FOMO trading” was the cause of C3.ai’s initial rally (FOMO stands for the “fear of missing out”, ironically relating to greed inspiring investors to buy something amidst a strong rally before it trades higher) and echoed Lau’s remarks regarding the Q4 fundamentals not staking up to the stock’s high valuation.
Georgiadis wrote, “A 72% selloff off its highs is a reminder that IPOs are too risky for most investors.” However, he coupled that statement with some reassurance saying, “That being said, investors who bought it during the IPO procedure still have a decent gain of about 21% right now.”
Like so many others, Georgiadis is bullish on the future prospects of artificial intelligence overall. He wrote, “Through 2025, the global AI market is expected to grow by $76 billion dollars at a compound annual growth rate (CAGR) of almost 21%. Another report pegs the CAGR at 40% from 2021 to 2028, and adds that “the continuous research and innovation directed by the tech giants are driving the adoption of advanced technologies in industry verticals, such as automotive, healthcare, retail, finance, and manufacturing.”
With specific regard to C3.ai, he said: “C3.ai says it can offer AI software solutions and applications for a plethora of industries ranging from utilities to healthcare to retail and just about everything in between. Furthermore, the company claims that it can deploy its tools in three to six months, as opposed to years.
In theory, this sounds like great business efficiency. In practice, I would argue that it is a severely flawed business model. The company has delivered solid revenue growth, but at the same time is burning cash and losing money. That’s not an ideal business model.” Georgiadis touched upon AI’s lack of an ability to produce profits, saying, “C3.ai’s fiscal year ends on April 30, and from fiscal years 2019 to 2021 it has reported losses of $33 million, $69 million and $56 million. Free cash flow for 2020 and 2021 are both negative.”
C3.ai’s management continues to highlight its operational success. Georgiadis quoted a recent press release from the company which read, “operating at massive scale, as of July 31, 2021, the C3 AI Suite and Applications were integrated with 849 unique enterprise and extraprise data sources, process 1.7 billion predictions per day, manage 24.4 trillion data elements, and evaluate 33.8 billion machine learning features daily.”
However, he says, “Despite those numbers, though, it seems the company still can’t make a profit.” And therefore, like Lau, Georgiadis ended his report on a bearish note, concluding, “AI stock is expensive, and the company has a lot of potential, but it’s losing money, and has a troubled business model that does not deliver results. Avoid it for now.”
Anthony Di Pizio, a Nobias 4-star rated author, offers a different (bullish) perspective in his August 19th C3.ai report titled, “Why C3.ai Is a Buy Ahead of Earnings”. He wrote, “Artificial intelligence was once science fiction, but it's now very real. Except today, its applications are more business-focused as opposed to personal robots, like in the movies.”
Di Pizio continued, saying, “Large technology companies might have the resources to build these big, complex AI applications themselves, but for others, it's a total pipe dream from both the cost and knowledge perspectives. That's where C3.ai shines, by offering thousands of pre-built applications that can cut out 99% of the software programming otherwise required.” He says that C3.ai is the “bridge between artificial intelligence and the companies that need it” and offered a real-world example of the type of work that AI does saying: “Take the oil industry, for example. In an unlikely collaboration, C3.ai has developed a comprehensive partnership with energy giant Baker Hughes, and the pair now have their own line of applications marketed to other oil companies. Dubbed BHC3.ai, it's used to analyze swathes of data from oil projects to predict potential equipment failures, drive efficiency, and reduce carbon emissions.”
Like others, he notes that the stock trades with an especially high valuation. Di Pizio wrote, “The company projects it will generate $245 million in full-year revenue for 2021, so with a market capitalization of $5.1 billion, the stock trades at over 20 times sales. In other words, it's still quite expensive, especially since it's unprofitable.” But, he continues, “With a compound annual growth rate of 25%, the price-to-sales multiple will shrink materially over the next couple of years (assuming the share price remains the same).”
Di Pizio concluded his piece saying that those who buy shares after the stock’s 70%+ dip could be rewarded over the long-term saying, “C3.ai has over 4.8 million machine-learning models helping to make 1.5 billion predictions per day across all the industries in which its customers operate. With up to 28% revenue growth estimated for the upcoming quarter, grabbing some stock at these prices could look like a deal over the long term.”
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.
During C3.ai’s more recent quarter (reported on September 1st, 2021) the company did exceed Di Pizio’s revenue growth target. However, this wasn’t enough to move the share price higher because of poor guidance. The company produced year-over-year sales growth of 30% year-over-year to $52.41 million.
The company’s subscription revenue increased 29% to $46.1 million. C3.ai offered forward looking Q2 and full-year 2022 guidance. Management called for sales of $56-58 million during the upcoming quarter and net losses of $30-37 million. For the full-year, C3.ai is estimating sales of $243 - $247 million and operating losses of $107-$119 million.
With all of this in mind, the credible authors that the Nobias algorithm tracks offer a “Neutral” stance on the stock moving forward. Just 49% of credible authors are bullish on shares. However, the average price target amongst the credible analysts that Nobias tracks for AI shares is currently $85.25. This implies upside potential of approximately 70% from the stock’s current price of $50.12.
It is worth noting that the range of price targets provided by blue chip analysts (those who receive a 4 and 5-star rating by the Nobias algorithm) is quite wide. Right now, we see price target estimates that range from $45/share to $122/share.
Once again, this implies that the professionals on Wall Street are split on this stock as well. The upside potential is certainly, but it seems that without a clear catalyst, shares may languish here, down 70% from their 52-week highs, even longer.
Disclosure: Nicholas Ward has no AI position but is long MSFT 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.
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.
PFE with Nobias technology: Can COVID-19 Sales Continue to Push Pfizer Higher?
Pfizer (PFE) is one of the most iconic big-pharma stocks. This is a behemoth of a company, with a market cap of $255.6 billion. And, Pfizer shares have experienced a significant rally throughout 2021, up 21.46% on a year-to-date basis, meaning that PFE has beaten the broader markets by a meaningful margin. However, prior to this year, PFE shares were well known for chronic underperformance.
From 2015-2020, PFE shares were relatively flat (during this same period of time, the S&P 500 posted gains north of 80%). This relatively poor share price performance was justified by flat bottom-line growth. In 2010, Pfizer produced earnings-per-share of $2.23. In 2020, the company’s earnings-per-share totaled $2.22.
Pfizer (PFE) is one of the most iconic big-pharma stocks. This is a behemoth of a company, with a market cap of $255.6 billion. And, Pfizer shares have experienced a significant rally throughout 2021, up 21.46% on a year-to-date basis, meaning that PFE has beaten the broader markets by a meaningful margin. However, prior to this year, PFE shares were well known for chronic underperformance.
From 2015-2020, PFE shares were relatively flat (during this same period of time, the S&P 500 posted gains north of 80%). This relatively poor share price performance was justified by flat bottom-line growth. In 2010, Pfizer produced earnings-per-share of $2.23. In 2020, the company’s earnings-per-share totaled $2.22.
Obviously this isn’t the type of growth that investors were looking for during one of the longest secular bull markets in history. However, PFE’s growth has perked up nicely, driven largely by its COVID-19 vaccine success, and with that in mind, we wanted to take a look at the company to see what the blue chip (4 and 5-star rated) analysts that the Nobias algorithm checks have to say about the company and whether or not 2021’s rally is sustainable or will prove to be an aberration.
One of the most bullish reports that we came across related to Pfizer was recently published by Nobias 5-star rated analyst, Alex Carchidi, at The Motley Fool. In his article, Carchidi posed the question, “At Less Than $50, Could Pfizer Reach $100 Before 2025?” When attempting to arrive at a $100 price target, Carchidi took a close look at Pfizer’s fundamentals to see whether or not 100+% gains from today’s share price of $44.71 are possible. He highlighted the company’s bottom-line performance over the last year saying, “The company's trailing diluted earnings per share (EPS) expanded by 50.32% in the last 12 months, and it would be very surprising for a business the size of Pfizer to be able to sustain such rapid growth. But, with sales of its coronavirus vaccine estimated to bring in approximately $33.5 billion in new revenue during 2021 -- compared with $41.9 billion in total revenue in 2020 -- we aren't in normal times.”
Carchidi notes that vaccine related demand will likely remain high in the coming years as more and more individuals become vaccinated and likely require booster shots. He also touched upon the company’s pipeline assets saying, “In the second quarter of 2021 alone, Pfizer chalked up three new approvals, and it currently has seven programs in registration, awaiting the final regulatory approval before launch.”
Carchidi also highlighted his belief that margin improvement will bolster earnings growth over time, saying, “Furthermore, since Pfizer spun off its underperforming generic drug-manufacturing subsidiary, Upjohn, in late November 2020 (joining it with Mylan to form a new country called Viatris), it won't be facing as much pressure on its margins. So, I'll be assuming that the company's EPS will continue to grow at 25% year over year -- still quite quick, despite being much slower than its recent pace.” He went on to highlight PFE’s strong balance sheet and financial position, noting that shareholder dilution via equity sales is unlikely in the near-term because of the company’s “$21.7 billion in liquid funds”.
Carchidi doesn’t believe that PFE will use buybacks to decrease its float, largely because of its high dividend payout ratio which puts significant constraints on management’s ability to use cash flows for much else than R&D and dividend payments.
So, with a relatively flat outstanding share count in mind, Carchidi surmises that PFE would need to earn roughly $4.57/share by 2024 to generate a $100 share price (assuming that the stock’s trailing ~22x price-to-earnings multiple remains in place over the next 4 years or so). For this to happen, PFE will need to generate a 15.53% earnings-per-share CAGR from 2020-2024. Being that the current Wall Street consensus estimate for 2021’s EPS is $4.01, Carchidi’s 2024 target seems possible. However, it’s important to note that right now, analysts are calling for -10% bottom-line growth in 2022 and another -6% growth rate in 2023, as the massive vaccination demand from 2020/2021 wanes.
Ultimately, with this in mind, Carchidi arrived at the conclusion that a triple digit share price being attached to PFE shares in the near-term is an unlikely outcome. However, he did say, “So, while it's possible for Pfizer's stock to reach near $100, it probably won't happen anytime soon if it keeps paying a dividend. Nonetheless, the future amount of incoming revenue means that there are probably still large shareholder returns ahead. In other words, Pfizer could still be a highly lucrative stock to own, even if its chances of reaching triple-digit prices are largely theoretical for the time being.”
One of the major growth catalysts that the credible authors that we follow who have recently covered Pfizer continue to harp on in the COVID-19 booster approval. In a recently published article, Dan Weil, a Nobias 4-star rated author, highlighted a continued push by Pfizer’s rival Moderna, who is also famous for quickly arriving at an effective mRNA COVID-19 vaccine, for the FDA to approve booster shots. He wrote, “Cambridge-Mass.-based Moderna said it “has initiated its submission to the U.S. Food and Drug Administration for the evaluation of a booster dose of the Moderna COVID-19 vaccine (mRNA-1273) at the 50 µg dose level.”’
Pfizer has been ahead of the game when it comes to FDA approval, relative to Moderna, throughout the COVID-19 vaccine race and with that trend in mind, it stands to reason that any booster approvals would be granted to PFE first. However, Weil pointed towards a recently published study which showed that Moderna’s booster was much more effective than Pfizer’s.
Weil wrote, “Moderna showed that Moderna’s produced more than twice the antibodies of Pfizer/BioNTech’s.” He continued, saying, “‘Higher antibody titers were observed in participants vaccinated with 2 doses of mRNA-1273 [the Moderna vaccine] compared with those vaccinated with BNT162b2 [the Pfizer/BioNTech] vaccine,” the JAMA article read.” Furthermore, he notes that the report concluded, “Across all age categories, previously uninfected participants vaccinated with mRNA-1273 had higher antibody titers compared with those vaccinated with BNT162b2.”
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.
In short, while Pfizer won the FDA approval race for the initial vaccine, there is a chance that Moderna’s higher efficacy allows it to take the lead in terms of its booster shot. Another issue with boosters is that regulators and vaccination advocates across the world continue to highlight the need for a higher percentage of the global population to be granted access to their initial COVID-19 vaccines before individuals in weather countries receive booster shots. This debate is likely to rage between policy makers for the foreseeable future.
This means more uncertainty for PFE investors who’re looking for a clear growth catalyst into 2022 and beyond. However, even with this in mind, when looking at the credible analysts that we track with the Nobias algorithm, the vast majority of reports posted include bullish opinions.
Right now, the bias of the credible author community is 86% bullish. However, what’s odd about this is that the average price target of the credible analysts that we track for PFE is $42.67 right now. That’s actually 4.5% below the current share price of $44.71. This implies that the blue chip (4 and 5-star) Wall Street analysts that we track are leaning bearish on PFE shares. This toss-up shouldn’t be surprising, with all of the uncertainty surrounding shares. PFE’s COVID-19 sales have really bolstered its fundamentals over the last 12 months; however, the stock appears to be trading on forward looking earnings estimates, which point towards negative growth. So much depends on things like booster shots to continue to propel PFE’s COVID-19 segment results and until we get clarity from regulators on that front, these shares remain speculative.
Disclosure: Nicholas Ward is long PFE. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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.
SQ with Nobias technology: Square Shares Are Up 2,100% Over The Last 5 years. Is it still a buy?
Throughout 2021, the fin-tech space has largely struggled (the Global X FinTech Thematic ETF (FINX) is only up 9.18% on a year-to-date basis, underperforming the broader markets by a significant margin). However, many investors continue to believe that the leading fin-tech names are going to become the most influential financial institutions in the future as we continue to move further and further into the digital age. One such name that is frequently talked about as a major disruptor and potential financial powerhouse is Square (SQ).
Throughout 2021, the fin-tech space has largely struggled (the Global X FinTech Thematic ETF (FINX) is only up 9.18% on a year-to-date basis, underperforming the broader markets by a significant margin). However, many investors continue to believe that the leading fin-tech names are going to become the most influential financial institutions in the future as we continue to move further and further into the digital age. One such name that is frequently talked about as a major disruptor and potential financial powerhouse is Square (SQ).
Square shares have risen by nearly 2100% during the past 5 years; however, they’re slumping a bit during 2021, with nearly 14% year-to-date performance (trailing the S&P 500’s 19.1% year-to-date gains). Square’s market cap has risen to an impressive $115.6 billion; yet, the stock still has a long way to go to catch up with leading big banks, such as J.P. Morgan (JPM), with a current market cap north of $475 billion. But, Square continues to innovate, leading many to believe that there is a lot of upside momentum left in the tank.
The company continues to aggressively invest in itself and this has allowed management to generate very strong bottom-line growth. Since becoming public in late 2016, Square has generated annual earnings-per-share growth of 17% in 2015, -31% in 2016, 154% in 2017, 74% in 2018, 70% in 2019, 5% in 2020...and right now, the consensus analyst estimate for 2021’s bottom-line growth sits at 124%.
Speaking of consensus EPS estimates, the Wall Street community expects to see Square generate earnings-per-share growth of 22% in 2022 and 38% in 2023, pointing towards a bright future ahead. One of the growth catalysts for Square comes in the form of its recent acquisition: Square’s $29 billion all-stock deal for Afterpay (a buy now, pay later leader) which broadens the fin-tech’s exposure into yet another area of digital finance.
In a recent Motley Fool podcast, Nobias 4-star rated analyst, Matt Frankel, discussed the Afterpay deal, explaining why he is bullish on the move. Highlighting Afterpay’s business model, Frankel explained that the company “Offers installment financing for purchases, no credit checks, no interest. Really a more appealing solution than traditional credit cards to a lot of buyers.” He continued, saying, “Afterpay has about $700 million in trailing 12-month revenue. They have 98,000 merchant clients, which skews toward enterprise clients [indistinguishable] like larger businesses, which Square desperately wants to bring into its ecosystem. They break out the percentage of revenue that comes from enterprise clients or larger businesses as part of their seller ecosystem volume. They're going to integrate this with the seller side of the business and the Cash App, making it easy for all of Square and millions of merchants to offer buy now, pay later services to their customers.”. With this in mind, the 4-star analyst called the move a “Pretty impressive acquisition” and said, “I love this just as a strategic move.”
In a separate article, you can see more of the podcast transcript, where Frankel touched upon why he sees the buy now, pay later movement as one with strong long-term potential. He said, “The no credit checks really is appealing as opposed, people always ask the question, why wouldn't I just use a traditional credit card? Because then you have to go through a credit check in the process like that. With buy now, pay later, you just click the button and it's set up and done.”
And apparently consumers agree. Frankel noted that Afterpay has “Ninety eight thousand active merchant accounts, little over 16 million active customers. They're growing fast, those numbers are up 78% and 63% year-over-year.” Now, Square has access to this fast growing market. The move did dilute SQ’s shareholders. The all-stock nature of the deal will add a significant number of shares to Square’s outstanding share count. However, in the short-term, it appears that the market believed the risk is worth the reward.
In the immediate aftermath of the news, SQ shares were up 11%. However, in the weeks since the Afterpay deal was announced SQ has given up those gains. A lot of this is due to SQ stock’s speculatively high valuation.
Square currently trades for 131x 2021 earnings-per-share estimates. This is an extremely lofty premium (even for a name in the fin-tech space). For comparison’s sake, Square’s major rival, PayPal (PYPL) trades for 60.5x 2021 earnings estimates.
Both companies have premiums placed upon them that dwarf the ~21x forward multiple currently applied to the S&P 500; however, SQ’s valuation is more than twice as high as Paypal’s on a forward 2021 price-to-earnings basis. With this in mind, it appears that the market is pricing a lot of Square’s future growth into the current share price. This is an issue that Nobias 5-star rated analyst, Nicholas Rossolillo, covered in his recent article titled, “Is It Too Late to Buy Square Stock?”
Rossolillo highlighted SQ’s 2000%+ total returns over the last 5 years and noted the recent pop that shares got after the Afterpay deal. However, after posing the rhetorical question, is it too late to buy SQ shares, he answered, “Hardly.”
Rossolillo was bullish on the Afterpay deal, but also noted that SQ’s recent quarterly results were solid (although they were largely overshadowed by the big M&A announcement). He wrote, “Gross profit (which largely excludes effects from Bitcoin since Square generates little in the way of profit from the cryptocurrency) was up 91% year over year to over $1.14 billion.”
Rossolillo notes that Square's business is currently divided into two segments: the seller ecosystem and consumer-facing Cash App. During Q2, he said, “For the seller ecosystem that operates under the Square name and includes digital payments and banking services for merchants, gross profit grew 85% year over year to $585 million.” He continued, saying, “Then there's Cash App, which grew by a triple-digit percentage pace last year due to consumers being cooped up at home and turning to digital tools to get their money management needs taken care of. But Cash App is continuing its epic advance even as effects of the pandemic ease. Gross profit for the segment was up 94% year over year to $546 million.”
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.
Rossolillo said that he expects SQ’s year-over-year growth to slow as the poor quarters which were negatively impacted by the COVID-19 recession last year are removed from the direct comparisons; however, over the long-term, he remains bullish on SQ’s upside potential. He lists a handful of companies with much larger enterprise values than Square, showing that there is plenty of market share for the company to attempt to take. Then, he highlighted SQ’s $124 billion enterprise value, saying, “An enterprise value of $124 billion sounds like a big number, but it's still a pretty small business in a global financial services industry worth trillions of dollars every year.”
Rossolillo concludes, “Square is aiming to stitch together elements from multiple legacy peers, combining digital payments with banking, investment, and financial management software. It's still growing at a rapid pace and not letting its foot off the gas, and it has massive potential ahead of it in the next decade as younger generations look for a one-stop-shop in a mobile-friendly format. It's far from too late to buy Square if you plan to stick with this fintech stock for the long haul.” This bullish outlook mirror’s the average sentiment amongst the credible analyst community that the Nobias algorithm tracks.
Right now, 87% of the credible authors that we follow express a “Bullish” outlook on SQ shares. The average price target amongst the authors deemed credible by the Nobias algorithm is $319.83 (all of these price targets have been updated since the start of August). Relative to SQ’s current share price of $255.79, this represents upside potential of approximately 29%.
Square shares have experienced a bit of weakness in recent weeks and now trade down nearly 14.3% from their 52-week high of $289.23. Looking at the data from the credible analysts that we track, this dip appears to be a buying opportunity.
Disclosure: Of the stocks mentioned in this article, Nicholas Ward is long PYPL. 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.
MSFT with Nobias technology: Is Microsoft A Buy After Its 35% Year-To-Date Rally?
Microsoft (MSFT) has become the posterboy for the perfect “old tech” to growth tech transformation under its current CEO, Satya Nadella. Prior to Nadella taking over the reins in 2014, Microsoft was largely thought of as a slow growth behemoth which had been left behind in the digital age. From 2012-2016, the company’s annual bottom-line growth results were relatively poor, coming in at 3%, -7%, 2%, 0%, and 6%, meaning that over this 5-year period, MSFT’s annual earnings-per-share was completely stagnant. However, since 2016, Nadella’s cloud-centric restructuring has allowed MSFT to produce strong double digit growth every single year and Microsoft’s share price (and valuation) have benefitted immensely. When Nadella took over, MSFT was trading for approximately 16x earnings. Today, the market has applied a 37x premium on shares, representing a massive sentiment shift. And recently, MSFT hit new all-time highs because of news surrounding the pricing of its Office software suite. With this in mind, we wanted to take a look at what the credible authors that the Nobias algorithm tracks have had to say about the company, to see whether or not this is a stock investors should consider adding here after its 35% year-to-date rally.
Microsoft (MSFT) has become the posterboy for the perfect “old tech” to growth tech transformation under its current CEO, Satya Nadella. Prior to Nadella taking over the reins in 2014, Microsoft was largely thought of as a slow growth behemoth which had been left behind in the digital age. From 2012-2016, the company’s annual bottom-line growth results were relatively poor, coming in at 3%, -7%, 2%, 0%, and 6%, meaning that over this 5-year period, MSFT’s annual earnings-per-share was completely stagnant. However, since 2016, Nadella’s cloud-centric restructuring has allowed MSFT to produce strong double digit growth every single year and Microsoft’s share price (and valuation) have benefitted immensely. When Nadella took over, MSFT was trading for approximately 16x earnings. Today, the market has applied a 37x premium on shares, representing a massive sentiment shift. And recently, MSFT hit new all-time highs because of news surrounding the pricing of its Office software suite. With this in mind, we wanted to take a look at what the credible authors that the Nobias algorithm tracks have had to say about the company, to see whether or not this is a stock investors should consider adding here after its 35% year-to-date rally.
Adam Levy, a Nobias 4-star rated analyst, recently published a report at The Motley Fool which highlighted Microsoft’s Office move. He said, “Microsoft announced the first price increase for its Microsoft 365 and Office 365 subscriptions since the subscription offering was first introduced more than a decade ago. In its announcement, Microsoft pointed out all the additional value it's added to the software suite over the last 10 years, justifying its price increase.”
Levy notes that MSFT is not increasing prices for the consumer version of its software suite, but instead, the products offered to its commercial clients. He believes that this move will result in top and bottom-line growth for the company; however, he says, investors will have to be patient, because while the move will result in higher pricing for the 300 million commercial clients that Microsoft currently services, “they won't all see the price increase at once. Microsoft locks in long-term contracts with businesses, so the full impact probably won't show up until well into fiscal 2023.” But, the potential positive impacts here should be worth the wait.
Levy says, “When the price increase is fully rolled out, the 300 million existing subscribers will be paying at least $1 more per month, but $2 or $3 in most cases. Also consider that the price increases for the lower tiers of service are more substantial (on a percentage basis) than the higher tiers. That could push more businesses to opt for higher-tier services, producing further revenue growth.” He continues, writing, “An average increase of $2 per user would translate into $7.2 billion in additional revenue. That's on top of any organic subscriber growth the company can produce. For reference, Office 365 Commercial's revenue increased 25% year over year in the fourth quarter. And during the company's fourth quarter earnings call, CEO Satya Nadella said it's seeing double-digit year-over-year seat growth across every segment.”
Levy highlights the opinion of famous technology analyst, Daniel Ives of Wedbush Securities, who recently said that he believes the move could add $5 billion in additional revenue in Microsoft’s fiscal 2022. With that in mind, Levy concludes, “Microsoft produced an operating income of nearly $70 billion in fiscal 2021. Adding $4 billion or $5 billion in additional operating income with just a price increase is a 6% or 7% increase in operating income. And don't forget the service is continuing to grow subscriptions. As such, the price increase should compound earnings growth for the tech stock for years to come.”
Positive compounding being produced by Microsoft’s office suite is great, but what has really driven MSFT’s share price over the last 5 years or so has been its cloud expansion. In a recent article at investors.com, Patrick Seitz, a Nobias 4-star rated analyst, highlighted the company’s strong cloud position saying, “Amazon.com's (AMZN) Amazon Web Services is the world's largest provider of cloud infrastructure services. In the second quarter, AWS had 31% market share, according to research firm Canalys. Microsoft was in second place with 22% market share.”
Being that the overall cloud market continues to expand at a rapid pace, Microsoft’s second place position is enviable. And, in recent quarters, MSFT’s cloud growth rate has exceeded Amazon’s, pointing towards the notion that MSFT is picking up market share. Cloud strength has not only increased Microsoft’s fundamental growth outlook, but also its valuation premium.
Seitz highlighted MSFT’s Q2 results, noting that on July 27th, the company beat analyst expectations on both the top and bottom lines. He wrote, “Microsoft earned $2.17 a share on sales of $46.2 billion in the June quarter. Analysts had predicted Microsoft earnings of $1.92 a share on sales of $44.2 billion. On a year-over-year basis, Microsoft earnings rose 49% while sales increased 21%.” And looking forward, he says, “For the September quarter, Microsoft expects to generate sales of $43.75 billion, up 18% from the same period last year. That's based on the midpoint of its guidance. Wall Street had predicted $42.5 billion in sales for Microsoft's fiscal first quarter.”
This forward looking growth has helped MSFT to maintain its positive momentum, even after posting market beating returns throughout 2021. Seitz highlights the company’s technical momentum metrics, saying, “Microsoft stock has a good IBD Relative Strength Rating of 86 out of 99. The best growth stocks typically have RS Ratings of at least 80. The Relative Strength rating shows how a stock's price performance stacks up against all other stocks over the last 52 weeks.”
But, even with all of MSFT’s bullish growth tailwinds in place, Seitz says that this positive momentum has pushed MSFT shares up above a zone where he feels comfortable buying, concluding his piece by saying, “Microsoft stock is not a buy right now. It is trading above the 5% buy zone of its breakout, which extends to 276.45, based on IBD trading guidelines. MSFT stock ended the regular session Aug. 20 at 304.36.”
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.
From a fundamental perspective, it appears that MSFT’s valuation is high as well. Microsoft currently trades for 34.3x its forward looking fiscal 2022 consensus earnings-per-share expectations of $8.75. This multiple is well above MSFT’s trailing 3, 5, and 10 year average price-to-earnings multiples of 29.6x, 24.8x, and 18.7x, respectively. As you can see, as time has moved on, MSFT’s digital transformation has led to a higher and higher average premium. This is due to the company’s relative strength (MSFT remains one of just 2 companies in the entire world to have a AAA-rated balance sheet; Johnson and Johnson (JNJ) is the other) and its strong double digit growth.
But, looking ahead, analysts are calling for its bottom-line growth to slow to 10% in 2022 and 15% in 2023; both figures below the 23.4% 5-year average growth rate, which implies that the current growth premium may be too high. There is little doubt that this is a blue chip company from a quality standpoint, but MSFT’s high share price has caused certain investors to place a pause on recent buying (Seitz points out that the stock has a below average grade when it comes to institutional buying over the past 13 weeks).
However, when looking at the Nobias analyst community, it appears that the valuation concerns have not changed the overall bullish sentiment surrounding this stock. 95% of the credible author community that we track have a “Bullish” rating on MSFT shares. And, the average price target for MSFT amongst the credible authors that we track is $331.60, which relative to MSFT’s current share price of $295.71, represents upside potential of approximately 11%.
Disclosure: Nicholas Ward is long AMZN, JNJ, 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.
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.
UPST with Nobias technology: Has Upstart Holding’s Valuation Grown Too Lofty?
There are few stories in the market thus far during 2021 which trump the joyous spotlight being shed on Upstart Holdings (UPST) since its IPO in mid-December of last year. The company’s share price has soared since becoming publicly traded and the upward momentum has surged as of late, due to a strong second quarter earnings report and several major analyst upgrades since. The stock’s strong uptrend caught the eye of our algorithm. We recently came across an article titled “Upstart Has Gained 1,100% Since the IPO -- Here's Why It Could Do It Again”written by Nobias 4-star rated analyst, Matthew Frankel. That title succinctly sums up the bullish sentiment surrounding this stock.
There are few stories in the market thus far during 2021 which trump the joyous spotlight being shed on Upstart Holdings (UPST) since its IPO in mid-December of last year. The company’s share price has soared since becoming publicly traded and the upward momentum has surged as of late, due to a strong second quarter earnings report and several major analyst upgrades since. The stock’s strong uptrend caught the eye of our algorithm. We recently came across an article titled “Upstart Has Gained 1,100% Since the IPO -- Here's Why It Could Do It Again”written by Nobias 4-star rated analyst, Matthew Frankel. That title succinctly sums up the bullish sentiment surrounding this stock.
Frankel highlighted UPST’s bull thesis saying, “Upstart Holdings (NASDAQ: UPST), the fintech company that operates an artificial intelligence-powered lending platform, has already produced ten-bagger returns (and then some) in just nine months as a publicly traded company.” He continued, saying, “Right now, up until this point, Upstart's business has mostly been in the personal lending space. You can see right in front of you that that is an $84 billion market in terms of U.S. origination volume.”
However, Frankel notes, this is a very crowded market, and goes on to provide a litany of competitors with strong brand names (all of whom have been around the financial scene much longer than the new kid on the block: Upstart. But, he points out, “No one has figured out how to tackle the auto loan space from the sub-prime alternative credit angle. Upstart has, they've got this giant AI machine learning platform that has over a million people's loan data to work from. Now, they're starting to apply it to this $635 billion auto loan space.”
“This is still a work in progress, but a giant market opportunity. This is really why everyone is so excited about Upstart.", Frankel says that there simply isn’t a good way to underwrite borrowers in the subprime auto space. He notes that these loans are generally secured by the value of the car and borrowers are often charged interest rates as high as 20%. In short, this is an area of the market that was ripe for disruption and Upstart is going so with its A.I. powered lending.
Frankel says that while Upstart’s loans are “not cheap” in this space, they do allow consumers to save a lot of money. Instead of charging ~20% interest, Frankel says that Upstart is able to charge half that much. And the model is proving successful, with the company picking up massive scale in recent months in terms of the dealerships and banks that it partners with.
Regarding its subprime auto lending segment, Frankel said, “This is still a work in progress, but a giant market opportunity. This is really why everyone is so excited about Upstart.” In a separate article, Frankel highlighted the 25% rally that UPST shares experienced after reporting their Q2 results on August 10th. Regarding the rally, Frankel wrote, “To put it mildly, Upstart shattered the market's expectations. The company posted revenue of $194 million for the quarter, more than 10 times what it produced in the pandemic-stricken second quarter of 2020 and well ahead of the $158 million analysts had been looking for. And unlike many fintechs, Upstart is quite profitable. For the quarter, Upstart earned $0.62 per share, more than doubling the $0.25 expected by analysts.”
Frankel goes on to highlight forward guidance as well, saying, “For the full year, Upstart now expects about $750 million in revenue, a significant bump from the previous guidance of $600 million. Plus, Upstart's adjusted EBITDA margin is now forecast to be about 17% as opposed to the 10% the company had previously been guiding for.”
Anthony Di Pizio, another Nobias 4-star rated analyst, also covered UPST’s second quarter results in a recent article. Like Frankel, he was bullish on the results, highlighting the “3 Ways Upstart Just Crushed Earnings”. Di Pizio began by saying that Upstart posted sales growth of 1000%. However, even more impressive than this, he highlighted the fact that “Over 97% of the company's revenue is fee-based; it gets paid when its platform is used to originate a loan for a bank.” In other words, he continued, “It means Upstart has no exposure to credit risk, because it's not lending the money itself; therefore it's an attractive way to play an increasing consumer appetite for finance.”
Next, Di Pizio mentioned the record loan originations that Upstart generated during Q2. Like Frankel, he highlighted the growth opportunity in the auto lending space saying, “The company's growth trajectory appears to have accelerated this year following its pivot into auto lending. Its car refinancing platform is now accessible by over 95% of the U.S. population, with five new bank partners signing on to lend using Upstart's technology.” He also noted that the company is working on a vertically integrated sales model in the auto space via its Prodigy platform.
Di Pizio said, “In the second quarter, it sold $1 billion worth of vehicles through Prodigy, a sales software technology specifically designed for dealerships that Upstart acquired to assist with its transition into car lending.” He believes that Upstart is aiming to produce an “all-in-one sales and financing solution for car dealers.” Lastly, he focused on the company’s profits. Di Pizio said, “Many young tech companies make losses for years while they grow their businesses, but investors are witnessing Upstart's potential scale as it delivers on the bottom line, and not just the top.”
Di Pizio published his earnings round up on August 14th and concluded the article by saying, “At Friday's close, Upstart had a market capitalization of $15.8 billion, meaning it trades at 21 times 2021 forecasted revenue -- that's not cheap, and it's reasonable to question the company's valuation. However, as sales and profitability continue to surge, today's prices could turn out to be surprisingly reasonable for long-term investors with at least a five-year time horizon.”
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.
Since August 14th, UPST’s share price has continued to rally, rising from approximately $204/share to today’s share price of $270.46. This means that the valuation being applied to Upstart’s current $21.33 billion market cap is even more speculative than Di Pizio noted that it was a month ago. Why has the stock rallied even further?
Frankel covered UPST’s most recent pop in an article written on August 18th titled, “Here's Why Upstart Stock Soared to a New All-Time High on Wednesday” where he wrote: “There are a couple of likely reasons we're seeing Upstart's stock move higher yet again, but one in particular stands out. In addition to continued optimism among analysts, market commentators, and other industry professionals, Upstart just announced that it was raising $575 million in fresh capital through a convertible bond offering.
In a nutshell, the company is issuing these bonds and paying a minuscule 0.25% interest rate on the debt, a tremendously advantageous cost of capital. The bonds will mature in 2026 and will be convertible to stock at a price of $285.26 per share.” Although the majority of the post-earnings reports published that blue chip analysts (4 and 5-star rated) that our algorithm tracked were bullish, the most recent leg up in UPST’s rally has pushed its share price up above the average price target amongst the credible authors that we follow and therefore, the aggregate outlook is neutral. 52% of the credible authors that we track are “Bullish” of shares, pointing towards a slight bullish lean. However, the current average price target amongst the Nobias credible author community is $245.00, which implies that Upstart shares are approximately 10% overvalued.
Disclosure: Nicholas Ward has no UPST 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.
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.
AAPL with Nobias technology: Apple: How Much Upside Is Left For This $2.5 Trillion Company?
Apple is the world’s largest company in terms of market cap. However, its shares have underperformed the broader market’s performance thus far throughout 2021. The company recently reported its second quarter earnings which beat analyst estimates. However, ongoing headlines related to antitrust hearings (primarily focused on Apple’s App Store policies/practices) appear to be holding the stock back. Due to Apple’s enormous size, this company is frequently reported on by analysts. And therefore, we wanted to take a look at what the top-rated Nobias rated analysts have recently had to say about the stock.
Apple is the world’s largest company in terms of market cap. However, its shares have underperformed the broader market’s performance thus far throughout 2021. The company recently reported its second quarter earnings which beat analyst estimates. However, ongoing headlines related to antitrust hearings (primarily focused on Apple’s App Store policies/practices) appear to be holding the stock back. Due to Apple’s enormous size, this company is frequently reported on by analysts. And therefore, we wanted to take a look at what the top-rated Nobias rated analysts have recently had to say about the stock.
Surprisingly, when looking at the reports collected by our algorithm written by 4 and 5-star rated analysts, their focus was not on the antitrust headlines, but instead, the strong growth being generated by the company. John Ballard, a Nobias 5-star rated analyst, appears to be willing to ignore some of the regulatory/legal headwinds that AAPL stock faces at the moment and instead, focus on the company’s fundamentals. In an article titled, “2 Tech Stocks to Buy After Blowout Earnings Results” he talked about Apple as a top buy.
Ballard wrote, “Apple reported a record for the quarter ended in June of $81 billion in revenue, up 36% year over year. Earnings per share came in at $1.30, beating the consensus analyst estimate by 30%.” Furthermore, Ballard said, “While the chip shortage is expected to dampen near-term sales growth, management said during the recent earnings call that revenue should be up by double-digit rates again in the quarter containing September, although it will be lower than fiscal Q3.”
Finally, Ballard touched upon the expected strength of the company’s flagstar product, the iPhone, as a reason to be bullish. He wrote, “Most importantly, another strong iPhone launch would be huge for Apple's growing services business. Apple now has 700 million paid subscriptions on its platform -- nearly four times the level it had in 2017. For the nine-month period ending in June, Apple finished with $50 billion in services revenue, up 28% year over year.”
For years, critics of Apple have proposed the thesis that the global handset market is dying (or at least, it’s not growing) and therefore, Apple needs to innovate and move past the iPhone to justify its incredible market cap. Bearish analysts have been saying this for years, yet the fact is, Apple’s iPhone segment continues to boom. In a recent article, Harsh Chauhan, a Nobias 5-star rated analyst, actually highlighted Apple’s iPhone performance as “The Biggest Reason To Buy Apple Stock Right Now”.
Chauhan noted that “The smartphone titan reported $39.6 billion in iPhone revenue last quarter, a 50% increase over the year-ago period. This eclipsed the company's overall top-line growth of 36%.” He continued, saying, “It is also worth noting that the iPhone produced 48.5% of Apple's total revenue last quarter, up from 44.2% in the year-ago period.” Chauhan says that while Apple no longer specifically breaks out its iPhone sales figures in its earnings reports, the “IDC estimates that the company shipped 44.2 million units during the quarter.” Assuming this estimate is correct, it would represent 17.4% y/y volume growth. But, this figure is well below the iPhone unit’s revenue growth, implying strong margin expansion.
Chauhan highlights the higher phone prices that the IDC estimates point to as one of the more bullish reasons to buy shares. He said, “Dividing Apple's total iPhone revenue by IDC's estimated iPhone shipments during the quarter, the company's average selling price (ASP) comes out to a whopping $895. Apple had shipped 37.6 million iPhones in the prior-year period, according to IDC, which translates into an ASP of $702. So, if we assume IDC's estimates are correct, Apple's iPhone ASP jumped an impressive 27.5% year over year.” He touches upon the fact that in the prior year’s quarter, Apple did not have a 5G offering, which implies that the higher ASP’s are driven by 5G demand. The company’s expected ASP jumped on a sequential basis (relative to Q1) as well, which also fits well into the thesis that consumers are willing to pay more for Apple 5G devices as 5G penetration increases.
This is a “big deal” for Apple, says Chauhan. He wrote, “The 5G smartphone market is still in its early phases of growth. IDC estimates that 5G smartphones could account for 40% of global smartphone shipments this year and 69% in 2025. The overall smartphone market is expected to grow from an estimated 1.35 billion units this year to 1.53 billion units in 2025. So, annual 5G smartphone shipments could exceed 1 billion units by 2025 as compared to an estimated 540 million units this year.”
Apple is well situated to benefit from this increasing demand. Chauhan concludes his bullish piece saying, “All of this indicates that Apple is sitting on a terrific opportunity to increase both revenue and margins thanks to a combination of improved iPhone pricing and higher 5G smartphone shipments. What's more, the stock is trading at just 28 times trailing earnings right now, which is cheaper than last year's multiple of over 40. As such, investors looking to add a 5G stock to their portfolios right now should be taking a closer look at Apple.”
Dan Burrows, another Nobias 5-star rated analyst recently published a report which highlighted the upcoming iPhone 13 launch as a bullish catalyst for Apple shares. Burrows notes that “Shares in Apple were up 13.9% for the year-to-date through Aug. 16, lagging the Nasdaq (14.8%), Dow Jones Industrial Average (16.4%) and S&P 500 (19.3%) over that span.” However, Burrows highlights recent commentary provided by famous Apple analyst, Daniel Ives who continues to believe that Apple is a top-pick in the tech space, especially due to the ongoing 5G cycle which Chauhan based his bull thesis on above.
Burrows quoted Ives, who said, "Our favorite large-cap tech name to play the 5G transformational cycle is Apple, with the one-two punch of its massive services business and iPhone product cycle translating into a $3 trillion market cap for Cupertino in the next six to 12 months." And Ives isn’t the only big-name analyst who is bullish on Apple. Burrows points out that Warren Buffett, who is arguably the world’s most famous investor, is also extremely bullish on the company’s prospects.
Burrows says, “AAPL stock is nothing if not a long-term holding.” He continues, saying, “Just ask Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B), and arguably the greatest long-term investor of all time. AAPL is by far Buffett's favorite stock, accounting for a whopping 41.5% of Berkshire Hathaway's total portfolio value as of June 30.”
Jason Fieber, a Nobias 5-star rated analyst, agrees with this sentiment, having recently published a bullish article on Apple titled “Top 3 Dividend Growth Stocks To Buy And Hold Forever”. Fieber wrote, “What can be said about Apple that hasn’t already been said? It’s beyond legendary at this point. It’s the largest company in the world by market cap. And rightfully so, in my opinion.”
In Fieber’s opinion, the iPhone isn’t the only reason to own Apple shares. He says, “Be it an iPhone, an iPad, or a Mac, you’d be hard-pressed to find people in your life that don’t use something made by Apple. Not only that, this has become an “everything” company. It’s not just electronics. Apple is in communication, entertainment, payments, health, gaming, shopping, etc. There are even rumors it’s moving into mobility with its own car. It’s way beyond a tech company now.”
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.
Furthermore, Fieber likes Apple as a dividend play. He highlighted Buffett’s large position and then said, “Buffett loves growing dividends, just like I do. Speaking of which, Apple has increased its dividend for nine consecutive years. But don’t let that short track record fool you. They’re just getting started with it. I have zero doubt that this will be a Dividend Aristocrat one day.” He does point out that Apple’s current dividend yield is low, at just 0.57%. However, Fieber says this shouldn’t dissuade long-term investors from buying shares.
He concludes his piece saying, “The stock is up more than 450% over the last five years. Investors who get stuck on the 0.6% starting yield are missing the forest for the trees. It’s the growth in the dividends and the growth in the stock that you have to consider while you zoom out and look at things from a wide angle. This is the kind of stock that you can put away in a drawer for a generation and let it create magic for you.” It appears that the credible analyst community that is tracked by the Nobias algorithm agrees with this bullish sentiment.
Right now, 89% of credible authors that we track maintain a “Bullish” opinion on AAPL shares. The current average price target for AAPL from the credible author community that we track is $166.11. Today, Apple trades for $154.30, meaning that the credible author average price target implies upside potential of 7.65%.
Disclosure: Nicholas Ward is long AAPL. 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.
CRWD with Nobias technology: Crowdstrike: Can the Company’s Growth Prospects Justify Its Speculative Valuation Premium?
As the world continues to move forward into the digital age, cyber security is becoming more and more important to nearly every aspect of our daily lives. The COVID-19 pandemic accelerated growth across the digital economy, especially with regard to the recent work-from-home trend, which has demanded that individuals and businesses alike retool their digital security practices. Such strong demand for cyber security tools has led to strong growth (and share price performance across this industry).
As the world continues to move forward into the digital age, cyber security is becoming more and more important to nearly every aspect of our daily lives. The COVID-19 pandemic accelerated growth across the digital economy, especially with regard to the recent work-from-home trend, which has demanded that individuals and businesses alike retool their digital security practices. Such strong demand for cyber security tools has led to strong growth (and share price performance across this industry).
Crowdstrike (CRWD) has been one of the biggest beneficiaries of this trend, rising quickly from its 2019 IPO to the most valuable name in the cyber security space with a market cap of $62.2 billion. The company’s fundamental growth story has been quite strong during the last two years and since CRWD reported Q2 earnings this week, we wanted to take a look at the company’s results to see whether or not the growth trend remained in place.
Nicholas Rossolillo, a Nobias 5-star rated analyst, published a piece back in July which highlighted Crowdstrike’s first-half strength. He noted that the cyber security firm has benefited from the accelerating digital workplace created by the pandemic saying, “Endpoint security, which protects devices connected to the internet or an organization's private network, was a high-growth segment of the cybersecurity space before the pandemic, but COVID-19 turned endpoint software into a staple.”
Rossolillo continues, saying that even in a post-pandemic world, “Things like remote work and cloud computing are here to stay, and CrowdStrike's high-growth story remains intact as a result.” Billy Duberstein, a Nobias 4-star rated analyst, also posted a report on CRWD back in July, highlighting the recent trend of cyber attacks and the long-term growth runway that Crowdstrike has in front of it. He wrote, “From last year's Sunburst attack, to the more recent Colonial Pipeline hack, to this past weekend's ransomware attack on IT management software firm Kaseya, concerns over cybersecurity aren't going away anytime soon. In fact, they're on the rise. In that light, best-in-class cybersecurtity companies should have a long runway for growth. With its novel artificial-intelligence and cloud-based architecture, CrowdStrike looks to be one of those winners.”
Crowdstrike has the largest market cap of the pureplay cyber security names, which is interesting because its present fundamentals trail rival Palo Alto Networks (PANW) by a fairly wide margin. During Q2, CRWD generated sales of $337.7 million. PANW’s sales totaled $1.22 billion. However, as Rossolillo points out, this isn’t necessarily a story about the present. CRWD investors base their bullish opinions on the company’s relatively stronger growth prospects.
Rossolillo wrote, “CrowdStrike's security software suite checks off all the right boxes. It's a cloud-based service, so it's easy to deploy across devices even if a workforce is remote. It's a subscription service, so it doesn't require massive up-front investment to purchase. And new CrowdStrike modules are constantly being developed, scaling the security platform's capabilities to the needs of large and complex organizations.”
Being perfectly situated to benefit from current digital trends is what enabled CRWD to post 69.7% revenue growth during Q2. This came after 70.1% sales growth during Q1. During its Q2 conference call this week, Crowdstrike’s CEO,George Kurtz highlighted his company’s recent success saying, “Our continued strong performance was driven by the groundswell of customers turning to CrowdStrike as their trusted security platform of record. We saw strong demand across the market which for us spans large enterprise, mid-market and SMB customers. Our success in gaining share in each of these market segments is reflected in our net new customer growth rate which on an organic basis accelerated in the quarter. In total, 1,660 net new customers chose CrowdStrike as their security partner, bringing our customer count to 13,080. The CrowdStrike brand is viewed as the gold standard in security.”
During the conference call, CRWD’s CFO, Burt Podbere touched upon the stock’s annual recurring revenue (subscription sales) growth saying, “We once again ended the quarter with a record pipeline which we believe indicates a strong foundation for future growth. In the quarter, we delivered 70% ARR growth year-over-year to exceed $1.34 billion. Rapid new customer acquisition as well as expansion business within existing customers drove substantial growth in the second quarter, once again resulting in very strong net new ARR which came in at an all-time high of $150.6 million. Our dollar-based net retention rate was once again above our benchmark.” In short, the company continues to beat even its own growth expectations.
This ~70% growth rate dwarf’s the ~20% sales growth that PANW has been generating in recent quarters (PANW’s year-over-year sales growth during the last 8 quarters has been 22.44%, 17.67%, 14.83%, 19.65%, 17.94%, 22.55%, 24.51%, and 23.52%). Obviously there is nothing wrong with such reliable double digit growth. PANW trades with a high valuation premium because of its growth history and prospects. Right now, PANW’s blended price-to-earnings ratio is approximately 75x. However, the market has been willing to place a premium on CRWD shares which is roughly 10x higher because of its relatively brighter outlook.
Right now, CRWD’s blended price-to-earnings ratio is 728.5x. However, due to the stock’s strong future growth prospects, CRWD is much cheaper using forward looking metrics. Using fiscal 2023 analyst consensus earnings estimates, CRWD’s current P/E ratio is 347.5x. Looking out to the consensus estimate for fiscal 2024, CRWD is trading with a 206x forward multiple.
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.
Obviously these figures represent a highly speculative growth premium, but the analyst community currently expects to see Crowdstrike maintain its ~70% growth on both the top and bottom lines for the foreseeable future and therefore, investors have been willing to place risky bets on shares.
Rossolillo agrees with this bullish sentiment. He concluded his recent piece saying, “With data security demand only rising and poised to continue for as long as the digital world keeps expanding, CrowdStrike remains a top stock in the cybersecurity industry.”
Duberstein concluded his piece which an even more bullish statement: “It appears the only things that could derail CrowdStrike's run would be an external economic shock or rising interest rates. But after surging earlier this year, the 10-year Treasury yield has declined significantly from its late March highs, signaling that the bond market isn't overly worried about runaway inflation that could harm high-multiple stocks like CrowdStrike. So barring an unexpected rise in long-term interest rates, investors shouldn't be afraid to stick with this Motley Fool favorite.”
Right now, the community of credible authors that the Nobias algorithm tracks agree with this bullish outlook. According to our algorithm, 78% of credible analysts have a “Bullish” opinion on CRWD shares. The average price target amongst credible analysts is $314.33. Today, CRWD trades for $278.23. This price target implies upside potential of approximately 13%.
Disclosure: Nicholas Ward has no position in any company mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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.
LYFT with Nobias technology: Can Lyft Stock Overcome Rising Workforce Related Costs?
Lyft reported earnings in early August, beating analyst estimates on both the top and bottom lines. Jessica Bursztynsky, a Nobias 4-star rated analyst, covered the company’s second quarter report recently for CNBC. In her article, Bursztynsky highlighted Lyft’s fundamental results, saying:
“Here are the key numbers:
Loss per share: 5 cents vs 24 cents per share expected in a Refinitiv survey of analysts
Revenue: $765 million vs $696.9 million expected by Refinitiv
Active riders: 17.14 million vs 15.45 million expected, per StreetAccount
Revenue per active rider: $44.63 vs $45.36 expected, per StreetAccount”
Lyft reported earnings in early August, beating analyst estimates on both the top and bottom lines. Jessica Bursztynsky, a Nobias 4-star rated analyst, covered the company’s second quarter report recently for CNBC. In her article, Bursztynsky highlighted Lyft’s fundamental results, saying:
“Here are the key numbers:
Loss per share: 5 cents vs 24 cents per share expected in a Refinitiv survey of analysts
Revenue: $765 million vs $696.9 million expected by Refinitiv
Active riders: 17.14 million vs 15.45 million expected, per StreetAccount
Revenue per active rider: $44.63 vs $45.36 expected, per StreetAccount”
Bursztynsky also highlighted the company’s strong balance sheet, saying, “The company reported $2.2 billion in unrestricted cash, cash equivalents and short-term investments, flat from the prior quarter.” Most importantly, Bursztynsky notes that Lyft posted positive results in the bottom-line, in terms of EBITDA profits, saying, “The company reported its first quarterly adjusted EBITDA profit, posting $23.8 million. That’s a quarter earlier than the company had targeted.” However, even with this surprise profit in mind, Lyft shares fell after the results were posted and this negative momentum has remained in place.
Prior to their Q2 report, Lyft shares were trading for approximately $55/share. Today, LYFT trades for $48.21. A lot of this comes down to the fierce competition that Lyft has against its larger rival, Uber. In her article Bursztynsky points out one issue that the ride sharing companies have is maintaining enough drivers to meet consumer demand. She wrote, “The company has struggled with driver supply and demand imbalances, leading to surge pricing and increased wait times. That, in turn, leads to unhappy customers who could seek out ride services somewhere else.
Green [Lyft’s CEO Logan Green] said the number of drivers increased in the second quarter at a faster pace than in the first quarter. He added the company will continue to invest in driver incentives in the coming quarter.”
Nobias 4-star rated analyst, IAM News, recently highlighted the capital expenditures related to driver acquisition in an article which mentioned that Lyft is ahead of rival Uber in terms of profitability, because of the large investments that Uber has had to make in its workforce. IAM News shed light on Uber’s accelerating Q2 losses (which came in at -$509 million during Q2) saying, “Heavy spending to bring drivers back to the road is to blame for this larger-than-expected loss despite more than doubled revenue as demand is rebounding. “ IAM News noted that Uber increased its driver count by roughly 30% in the U.S. from June to July. Lyft too, is seeing its driver count increase in a major way.
During the company’s Q2 conference call, Green said, “Given strengthening demand, we made significant investments in driver supply throughout the quarter. The number of drivers increased in Q2 at a faster rate than in Q1 and ended the quarter up more than 60% year-over-year. While elevated demand drove higher prices, across the U.S., drivers earned more than ever before. Drivers' average hourly earnings reached an all-time high in Q2.” Green also said, “In the second quarter, we significantly increased our investments in incentives and sign-on bonuses to help us attract, retain and grow hours from drivers to meet strengthening demand.” In short, it’s great that Lyft is able to attract the workers required to keep consumers happy with its service; but it comes with a cost. And, in recent days, we’ve seen more worker related headlines pop up, with Proposition 22 was deemed unconstitutional - this news caused shares of both Lyft and Uber to fall.
Here’s a link to the Reuters report, highlighting this legal decision. Bursztynsky covered the Prop-22 news at CNBC as well. She explained, “California voters approved Proposition 22 by a majority vote in November. The ballot measure effectively exempted several gig economy companies from the state’s recently enacted law, Assembly Bill 5, which had aimed to make their workers into full-time employees.” She wrote that in his ruling, Alameda County Superior Court Judge Frank Roesch, said that Prop-22 “limits the power of a future Legislature to define app-based drivers as workers subject to workers’ compensation law.”
Bursztynsky mentioned that gig-economy companies, including Lyft, spent a combined $200 million promoting the ballot measure. Why was is passing so important to them? Well, as Bursztynsky says, “Classifying drivers as contractors allows the companies to avoid the costly benefits associated with employment, such as unemployment insurance.” Now, with their exemption off of the table, it appears that companies like Lyft could see driver related expenses rise even higher.
Bursztynsky notes that a coalition of gig-economy companies plans to appeal the Judge’s decision; however, until there is clarity of that front, the repeal of Prop-22 represents yet another headwind in terms of profitably operating these business models.
Neil Patel, a Nobias 5-star rated analyst, brings up what may be an even more important headwind to profitability for Lyft in a recent article: the company’s lack of a competitive moat. Patel notes that both Lyft and Uber “went public in the spring of 2019 to a great deal of hype. Their stock price performances, however, haven't delivered for investors. Uber is up a measly 3%, while Lyft is actually down 31%, significantly lagging the broader S&P 500's return during that time.”
And yet, even with this relative weakness in mind, Patel says that he is not interested in buying shares of either company because he doesn’t believe in their business models. Patel wrote, “The ride-sharing industry is a commodity-type business. This simply means that as a customer, I only care for the service that will take me where I want to go the fastest and the cheapest. In other words, I have minimal brand loyalty.” He continues, saying, “The same thing can be said for the drivers. You've probably noticed that many of them work for both Uber and Lyft, and they switch to whichever platform gives them the highest-earning potential at any particular time.
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.
Uber and Lyft must deal with a neverending battle to satisfy their drivers' well-being, something that comes with tremendous costs.” Looking at Lyft specifically, Patel noted that the company’s big driver push during Q2, while necessary, isn’t likely to lead to near-term profits. He said, “For Lyft, money spent on incentives grew an eye-popping 92% quarter over quarter, while revenue rose just 26%. An incredible $375 million was used to attract drivers, which is quite substantial given sales were only $765 million.”
Patel concludes his piece with a strong bearish statement: “Uber and Lyft are no longer private start-ups; catering to public market investors is a different game. They want profits and cash flow, something that still eludes these ride-sharing enterprises. And the way things are going, I don't think anyone knows with certainty when, or if, they'll generate those highly anticipated bottom-line figures.
Think long and hard before buying shares. This is a ride you don't want to take. Overall, most of the credible authors that Nobias tracks disagree with Patel. 92% of the credible authors followed by our algorithm offer a “Bullish” outlook. The average price target for LYFT amongst the Nobias rated credible authors is $75.00/share. Relative to Lyft’s current share price of $48.39, this represents upside potential of approximately 55%.
Disclosure: Nicholas Ward has no position in any company mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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.
SAVA with Nobias technology: Will Cassava’s Protein-Oriented Approach to Alzheimer’s Solve This Unmet Need?
During the last year or so, you’d be hard pressed to find a stock more volatile than Cassava Sciences (SAVA). A year ago, this was a small-cap bio-tech stock trading in the $3 area. What caused the amazing rally? Cassava is developing a drug to treat Alzheimers, called Simufilam. Being that Alzheimer’s is widely considered to be the “holy grail” of sorts when it comes to untreated diseases in the world today, any potential good news here gets investors excited. Worldwide, there are tens of millions of people suffering from the disease, representing a large market of patients with unmet pharmaceutical needs.
During the last year or so, you’d be hard pressed to find a stock more volatile than Cassava Sciences (SAVA). A year ago, this was a small-cap bio-tech stock trading in the $3 area. What caused the amazing rally? Cassava is developing a drug to treat Alzheimers, called Simufilam. Being that Alzheimer’s is widely considered to be the “holy grail” of sorts when it comes to untreated diseases in the world today, any potential good news here gets investors excited. Worldwide, there are tens of millions of people suffering from the disease, representing a large market of patients with unmet pharmaceutical needs.
Cassava has had positive breakthroughs in recent Simufilam trials, providing bio-tech investors with a lot of hope for a successful treatment. But, Alheimers has proven to be a tough nut to crack for scientists for decades and while there has been positive developments in the Alzheimer's space lately, there is no clear winner in this race. Could Cassava overtake Biogen (who saw a controversial Alzheimer’s drug approved by regulators earlier in the year)? Potentially. And that potential alone has caused investors to flock into SAVA shares. Unfortunately for bulls, the volatility that SAVA has experienced in recent months has not all been on an upward trajectory. In late July, SAVA shares fell from $135 to the $69 area. Then, throughout the current month, we saw SAVA shares mount a rebound, rising from their recent lows in the $69.50 range to roughly $122.50 in by mid-August. However, in recent days, we’ve seen the stock take a major step in the wrong direction (if you’re a bull, that is), falling to recent lows of approximately $58/share.
This most recent dip was the result of SAVA’s phase 2 trials for simufilam being called into question, with regard to quality concerns over the studies the company performed. SAVA’s management team has already rebuked these claims, yet legal pushback against the results remains in place (for now). In the market, such volatility can present unique opportunities for trades. And, the recent weakness could also represent an attractive buying opportunity for a long-term investor who missed the stock’s recent rallies. So, with that in mind, we wanted to take a look at what the blue chip analysts that the Nobias algorithm tracks have had to say about Cassava Sciences recently. In this article, we’ll be looking at recent reports by 4 and 5-star rated analysts as well as the aggregate opinions presented by the credible authors that our system accumulates over time.
Jim Halley, a Nobias 5-star rated analyst, recently published an article titled, “Why Shares of Cassava Sciences Fell 18.6% in July” which highlighted the first major dip that the stock took. And, surprisingly enough, he began his piece by saying, “The interesting thing is the results that sparked that precipitous drop were positive.” Halley continued, noting “The preliminary results from the company's phase 2 trials, presented during the Alzheimer's Association International Conference, showed the drug led to an improvement in cognition for Alzheimer's patients with no adverse side effects. After nine months, 66% of the 50 patients in the trial saw an average improvement of 3 points on the Alzheimer's Disease Assessment Scale-Cognitive Subscale (ADAS-Cog).”
When speculating as to why the stock sold off in response to what appeared to be positive results, Halley said that the “sell the news” trend is probably at play here, being that SAVA shares were up more than 3300% during the prior year (essentially, expectations will always be greater than reality in situation where such a strong rally has occurred). He also said, “It's also likely that some investors were underwhelmed by Simufilam's trials, as a 3-point difference on the ADAS-Cog may not be considered by some to be statistically significant.”
Halley highlighted how important Simufilam is for SAVA saying, “A lot is riding for Cassava on whether or not Simufilam is approved. The company has $278.3 million in cash but no revenue, and it lost $5.1 million in the second quarter.” However, he noted massive upside, considering that “simufilam appears to have fewer side effects than Biogen's recently approved Alzheimer's therapy, Aduhelm, may be enough to get the drug approved for Alzheimer's treatment.”
Aduhelm comes with a high price tag of $56,000/share. The prevailing thought is that Simufilam, which is a twice daily oral tablet, will be much cheaper than Aduhelm, which is administered via intravenous injection, and therefore, an approval here could allow SAVA to capture massive market share.
Stavros Georgiadis, a Nobias 4-star rated analyst, recently published another bearish article, highlighting his skepticism with regard to SAVA’s massive share price rally. He began by saying, “Obviously, I want this company to succeed; I witnessed a family friend’s battle with Alzheimer’s disease, and I would love for Cassava to succeed in their battle against it. But a closer analysis of its fundamentals leaves me questioning SAVA stock’s surge of over 1,600% so far this year, much less its 3,600% gain in the last year.”
Like Halley, Georgiadis touched upon SAVA’s poor fundamentals from a sales/cash flow that SAVA presents investors with at the moment. Regarding SAVA’s recent earnings, Georgiadis said, “The only positive news is that the company has no debt, and it has plenty of cash: $278.3 million, to be specific, up from $93.5 million at the end of 2020.” However, he noted this cash influx was brought on by equity sales. Granted, when a stock is up more than 3000%, it’s probably a prudent idea for management to take advantage of the exuberance surrounding its stock and to raise cash, even if it dilutes investors. But, needless to say, paying such a high multiple for a company with quarterly losses is a risky bet.
Georgiadis’s main point was that final approval of Simufilam, should the company continue to pass drug trial tests, is likely far into the future. He said, “The company also recently announced phase-3 trials for simufilan for the second half of 2021. Phase-3 is an important step in the process of having a treatment approved by the Food and Drug Administration, but it’s not a short process. It could last years. That’s a challenge for a company like Cassava Sciences, which has no revenue so far.”
However, not everyone is a skeptic here. Taylor Carmichael, a Nobias 5-star rated analyst, recently published a report at The Motley Fool, highlighting his bullish stance on the company. Carmichaels said, “What makes Cassava really interesting is that it's zigging where Big Pharma is zagging regarding Alzheimer's research. This field has a huge market opportunity, maybe worth $100 billion or more for a working drug.”
Carmichaels points out that “Alzheimer's research has been a graveyard for Big Pharma for decades. By one count, there have been 130 failed drug development attempts since 1998. Almost all of this research has been based on a shaky premise -- that amyloid plaques are the cause of Alzheimer's. And treatments developed on the basis of a weak theory are unlikely to succeed.”
While acknowledging that he is not a scientist, Carmichael continues, noting that he does not believe that companies focused on amyloid plaques as the cause and/or solution to Alheimzers are focused on the right area. As an equity analyst, he says, “My investment thesis is that biotech companies that have abandoned the amyloid plaque theory have a much better chance of success.”
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.
Carmichaels highlights Cassava’s different approach saying, “Cassava researchers noticed that Alzheimer's patients have a mutated protein called filamin A. So they designed a drug that fixes this mutation, and restores its proper form and function.” He notes that SAVA is one of two companies working on the protein theory - Annovis Bio (ANVS) is the other. However, he notes that ANVS only has $49 million on its books, which in his view, is not enough cash to fund a proper phase 3 drug trial. Therefore, he mentioned that his family has invested in SAVA shares recently, because of the fact that its nearly $300 million in cash has the potential to push Simufilam past the finish line.
Noting the speculative nature of SAVA shares, Carmichael concludes his piece saying, “But the way investors avoid too much pain is by making a small investment. If the pivotal trial later this year is successful, the upside is huge. And if the drug disappoints, your downside is limited.” Overall, looking at the analyst community that the Nobias algorithm tracks, the vast majority of authors are bullish on SAVA shares after its recent pullback.
Right now, 88% of credible authors are bullish on SAVA shares. Right now, the average price target for SAVA amongst the group of authors that Nobias tracks is $117.50. Compared to SAVA’s current share price of $58.34, this represents upside potential of 101%. Obviously, when it comes to investing in early trial bio-techs, there is enormous risk involved. But, it appears that the analysts that Nobias tracks believe the risk/reward outlook here is attractive.
Disclosure: Nicholas Ward has no position in any company mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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.
NVDA with Nobias technology: Can Nvidia Continue On Its Recent Bullish Tear?
Harsh Chauhan, a Nobias 5-star rated analyst recently published an article which began with the sentence, “If you had $10,000 to invest at the beginning of 2016 and bought shares of Nvidia (NVDA) using that money, your initial investment would be worth just about $250,000 right now.” Chauhan highlighted Nvidia’s nearly 2,400% total returns since 2016, then boldly states, that be believes the company has the potential to “repeat -- or improve upon -- its terrific stock market performance once again in the coming years.”
Harsh Chauhan, a Nobias 5-star rated analyst recently published an article which began with the sentence, “If you had $10,000 to invest at the beginning of 2016 and bought shares of Nvidia (NVDA) using that money, your initial investment would be worth just about $250,000 right now.” Chauhan highlighted Nvidia’s nearly 2,400% total returns since 2016, then boldly states, that be believes the company has the potential to “repeat -- or improve upon -- its terrific stock market performance once again in the coming years.”
Regarding Nvidia’s past, Chauhan said, “Nvidia's dominance of the GPU (graphics processing unit) market has accelerated its revenue and earnings growth over the years. In fiscal 2016, the company had reported just $5 billion in annual revenue and $929 million in adjusted net income. In fiscal 2021, which ended in January this year, Nvidia's annual revenue had ballooned to $16.7 billion and adjusted net income had jumped to $6.2 billion.”
Regarding the company’s future potential, he continued saying, “First, Nvidia controls 80% of the discrete GPU market, according to Jon Peddie Research. The discrete GPU market is expected to generate $54 billion in annual revenue by 2025 as compared to $23.6 billion last year.”
Chauhan notes that he does not believe that Nvidia will cede much in the way of market share to its smaller rival, Advanced Micro Devices (AMD), which plays a major role in his expectations for continued outperformance. He states, “According to a survey by game distribution service Steam, Nvidia's flagship RTX 3090 card is outselling AMD's latest RX 6000 series cards by a ratio of 11:1.” And, this is despite the fact that NVDA’s product is much more expensive than AMD’s, pointing towards the market’s withheld belief that not only is NVDA’s product of superior quality, but also, an appealing value.
Chauhan mentions that the gaming segment makes up roughly 50% of NVDA’s sales. He points out that the data center and automotive segments are quite large now as well, and these are areas of the semiconductor industry have bright growth prospects as well. Chauhan notes, “The data center segment, for instance, generated just $339 million in revenue in fiscal 2016. The segment's fiscal 2021 revenue jumped to $6.7 billion and accounted for 40% of the total revenue.” He says that the company is focusing its efforts on the “data center accelerator space”, which is expected to grow from $4.2 billion in 2020 to $53 billion in 2025. Assuming NVDA can capture a significant portion of this market like it has in the gaming space, this has the potential to be another strong revenue driver for the company.
Lastly, Chauhan highlights the company automotive segment, which is rather small at the moment, generating just $536 million in sales during its most recent fiscal year. However, he notes, the company “says that it has built an automotive design win pipeline worth over $8 billion through fiscal 2027” and therefore, he believes that this can be yet another business than can propel NVDA shares higher over the medium-to-long term.
Harsh Chauhan isn’t the only 5-star rated analyst that we track who has recently published a bullish report on NVDA shares. Nicholas Rossolillo, another Nobias 5-star rated analyst, recently wrote an article explaining why he continues to be very bullish on the company’s prospects. Rossolillo’s thesis revolves around the idea that not only is Nvidia a leading producer of semiconductor hardware, but that the company continues to dedicate great resources into becoming a software powerhouse, vertically integrating its business which allows it to better compete against other well known big-tech players who’re pursuing the same strategy.
Rossolillo writes, “Nvidia is pouring vast resources into research and development, and coming up with an expanding suite of cloud-based software as a result. The rulebook is changing for semiconductor industry success, and Nvidia's combo of tech hardware licensing and software makes it the best bet for the 2020s.” He continued, saying, “The company has been planting all sorts of seed for its future cloud software and service library. It has its own video game streaming platform GeForce Now, Nvidia DRIVE has partnered with dozens of automakers and start-ups to advance autonomous vehicle software and system technology, and the creative collaboration tool Omniverse, which builds on Nvidia's digital communications capabilities, is in beta testing.”
Rossolillo concludes, “Between its top-notch tech hardware licensing business and newfound software prowess, it's clear Nvidia is no normal semiconductor company.” He wrote, “While public cloud computing firms like Amazon, Microsoft (MSFT) and Google get all the attention, don't ignore Nvidia. It's going after the massive and still fast-expanding software world as secular trends like the cloud and AI are forcing the transformation of the tech world.” And, while noting that the company’s current valuation is lofty, given enough time (patience) and discipline (to hold through potential near-term volatility), he believes NVDA is going to be a winner saying, “However, if you're looking for a top semiconductor investment for the next decade, look no further than Nvidia, as it's poised to rival the scale of the biggest of the tech giants.”
Stavros Georgiadis, a Nobias 4-star rated analyst, recently published a report on NVDA at InvestorPlace, highlighting many of the same growth prospects as Chauhan and Rossolillo; however, unlike those two, he expressed a bearish opinion on shares, due to the company’s high valuation. After touching upon NVDA’s strong growth prospects, Georgiadis wrote, “But there is one problem that is too important to ignore — the lofty valuation.” He continued, “Nvidia trades at over 24x expected 2021 revenue and according to Zacks, it has a forward P/E ratio of 50.3 and a PEG ratio of 2.92.”
On a trailing basis, the company appears to be even more expensive. Georgiadis explained, “The PE Ratio (Q1 TTM) for NVDA is 132.75, while for the industry and sector those numbers are 36.54 and 40.67 respectively. The Price to Sales (Q1 TTM) ratio for Nvidia is 37.33 and for the industry and the sector is 7.3 and 7.4 respectively. Finally, the Price to Book (Q1 MRQ) ratio for Nvidia is 26.84 and for its industry and sector is 7.3 and 10.2 respectively.”
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.
These figures are simply too much for the company to overcome, coming from his conservative, value oriented perspective. Georgiadis concludes his piece saying: “Overall, Nvidia has many high qualitative features related to its financial performance. Morningstar mentions a three-year average growth for revenue, net income, and EPS of 19.74%, 12.44%, and 12.7% respectively. Impressive numbers. The one thing that I do not like about NVDA stock is unfortunately what matters most, its valuation, which is too high. A very crucial factor that summarizes my financial analysis on Nvidia. Yes, growth seems positive enough, but the price is just too high for right now.”
Overall, the majority of the credible authors that we track with the Nobias algorithm reside on the bullish side of the fence when it comes to NVDA shares. Right now, 67% of such authors offer “Bullish” opinions on shares. The average analyst price target for NVDA amongst such authors is currently $226.27, which implies no upside potential relative to today’s share price of $222.05.
In short, while the majority of the analysts that have written recent reports on the stock note that the stock’s growth trajectory remains intact, after its strong performance in recent years, there are heightened concerns surrounding the stock’s valuation premium and the headwinds that this presents to the company’s share price.
It will take time for Nvidia’s double digit growth to justify its current price-to-earnings multiple, but given enough patience, it appears that an investment in NVDA has the potential to pay off in a big way.
Disclosure: Of the stocks mentioned in this article, Nicholas Ward is long NVDA 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.
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.
AMZN with Nobias technology: Will This Year-to-Date Laggard Start Playing Catch Up?
When it comes to American technology stocks, Amazon (AMZN) is often the posterboy of success. The company comes with a fantastic story of a small start-up evolving from its humble roots selling books out of a garage to becoming the world’s preeminent digital retailer, a leader in the cloud computing space, and a fast growing powerhouse in the digital advertising space.
Amazon’s success over the years has turned its founder, Jeff Bezos, into the world’s richest man. The stock has minted many millionaires, due to the tremendous total returns that its stock has generated over the last several decades.
When it comes to American technology stocks, Amazon (AMZN) is often the posterboy of success. The company comes with a fantastic story of a small start-up evolving from its humble roots selling books out of a garage to becoming the world’s preeminent digital retailer, a leader in the cloud computing space, and a fast growing powerhouse in the digital advertising space.
Amazon’s success over the years has turned its founder, Jeff Bezos, into the world’s richest man. The stock has minted many millionaires, due to the tremendous total returns that its stock has generated over the last several decades.
Amazon’s $1.6 trillion market cap makes it the world’s 4th largest company (behind Apple (AAPL), Microsoft (MSFT), and Saudi Aramco). And, even though the company is quite large, AMZN is still a very fast grower, having posted 82% y/y earnings-per-share growth in 2020. Yet, even with all of this success in mind, AMZN shares have been a notable laggard over the last year. During the trailing twelve months, Amazon shares are down 2.95%. Year-to-date, AMZN is down 1.75%. This relatively flat performance comes during a period of time where the S&P 500 has posted roughly 17.5% gains. With this relative underperformance in mind, we wanted to take a look at Amazon shares to see what the credible analysts that the Nobias algorithm tracks have had to say recently about this beleaguered blue chip.
Today, AMZN shares trade for $3,199.95; however, it wasn’t long ago that the stock was trading above $3,700. So, what happened? Well, the company’s Q2 earnings report disappointed investors, leading to a nearly 15% sell-off.
Jill Goldsmith, a Nobias 4-star rated analyst, recently covered AMZN’s Q2 report and the ensuing sell-off in an article on Yahoo Finance. She highlighted the company’s top-line results saying, “Amazon saw second-quarter net sales of $113 billion, up 27% but below expectations, dinging the shares, which fell more than 7% in late trading.” Goldsmith moved to the bottom-line results saying, “Net profit came in at a strong $7.8 billion, or $15.12 a share — up from $5.2 billion or $10.30.”
Goldsmith noted that Amazon’s subscription services (which help to bolster its valuation premium due to the predictable and high margin nature of these recurring sales) continued to grow nicely. She wrote, “Subscriptions services, which includes annual and monthly fees associated with Amazon Prime memberships, as well as digital video, audiobook, digital music, e-book, and other non-AWS subscription services, grew revenue by 32% to $7.9 billion”
During Q2, Amazon’s Amazon Web Services (AWS) cloud segment posted 37% revenue growth, with sales rising from $10.8 billion a year ago to $14.8 billion last quarter. And, as Goldsmith points out, “The company’s “other” segment, which primarily includes sales of advertising services, surged 83%, in line with strong digital advertising trends seen in this earnings round at Snap, Twitter, Google and others.”
In short, the company’s 27% sales growth and 50% net profit growth was fantastic - any company, regardless of market cap, would love to see these types of results. But, AMZN may be a victim of its own success because the market had even higher expectations for AMZN, leading to a sell-off.
Part of the stock’s weakness could have been due to the Q3 guidance that AMZN provided during the Q2 report:
“Net sales are expected to be between $106.0 billion and $112.0 billion, or to grow between 10% and 16% compared with third quarter 2020. This guidance anticipates a favorable impact of approximately 70 basis points from foreign exchange rates.
Operating income is expected to be between $2.5 billion and $6.0 billion, compared with $6.2 billion in third quarter 2020. This guidance assumes approximately $1.0 billion of costs related to COVID-19.”
This points towards a slowdown in growth due to the fact that the coming quarters are up against very strong comparisons due to the operational success that AMZN had during the COVID-19 pandemic. Billy Duberstein, a Nobias 4-star rated analyst, recently wrote an article where he touched upon the slowing eCommerce growth, but maintained a very bullish outlook on the stock saying, “while e-commerce is decelerating, Amazon's smaller but higher-profit segments are booming: Amazon Web Services (AWS) and digital advertising. In fact, if you strip out just those two segments, you could make a case that they are worth as much as Amazon's entire market cap right now; so even though e-commerce is slowing in the near-term, investors may be getting it pretty much for free.”
Regarding the more attractive margins coming from the AWS and advertising segments, he said, “In the second quarter, AWS accelerated 37% to $14.8 billion, up from 32% growth in the first quarter and the highest growth rate since before the pandemic. AWS is Amazon's highest-margin segment -- at least the highest that it discloses, with operating margins coming in at 29.4% over the past 12 months.”
Duberstein continued, “Meanwhile, Amazon's "other" category, which consists mostly of digital advertising, surged a whopping 83% to over $7.9 billion. Amazon doesn't disclose the profit margin it makes on advertising; however, large-scale rivals Alphabet and Facebook (FB) garnered ad services margins of 39.1% and 43% last quarter, respectively. Given how close Amazon's ads are to making a purchase on its platform, It wouldn't be unreasonable to assume Amazon's digital ads business is just as profitable as these other platforms.”
Duberstein compares the cash flow multiples that the market has placed on other cloud/advertising leaders to Amazon’s operations and arrives at the conclusion that, “If one applies these valuation multiples to AWS and advertising, it adds up to anywhere between $1.2 trillion and $1.6 trillion.”
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.
In short, the upper end of this valuation covers the company’s entire market cap at this point in time, implying that investors buying shares today are receiving the company’s entire eCommerce business “for free.” With this in mind, even though AMZN’s share price is quite high and the company’s valuation multiples are well above the market’s average, it appears that Amazon could very well be a value stock.
In a recent article titled “Warren Buffett Invests In These 3 Tech Stocks”, Jamal Carnette, CFA, a Nobias 4-star rated analyst, spoke about how Mr. Buffett, who is widely considered to be one of the world’s all-time best value investors, has recently begun to build a sizable position in AMZN shares.
Carnette wrote, “Although Amazon has been one of the best performing mega-cap stocks over the last decade, it took a little while for Berkshire to see the light. In response, Buffett displayed his famous self-deprecating wit when he called himself an "idiot" for not buying Amazon earlier while making it clear he did not direct the buy. Berkshire came around quickly and now owns a $1.8 billion stake in the e-commerce giant.” And, the Oracle of Omaha isn’t the only noteworthy investor/analyst that we track who is bullish on AMZN shares.
Right now, looking at the credible analysts that our algorithm tracks, 83% of individuals maintain a “Bullish” opinion on Amazon. The average analyst price target amongst the credible author community that we follow for AMZN is currently $4,191.11. Compared to AMZN’s share price at the close of the market on Friday, this represents upside potential of approximately 31.1%.
Disclosure: Of the companies mentioned in this article, Nicholas Ward is long AMZN, AAPL, MSFT, GOOGL, and FB. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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.
TGT with Nobias technology: Target Shares Are Down 8% Since Their Recent Earnings Report. Is This A Buying Opportunity?
In late May, after Target (TGT) reported its first quarter earnings, we published an article on the stock, highlighting the strong bullish sentiment surrounding the company coming from the credible author community tracked by the Nobias algorithm. The analyst opinions at the time highlighted the company’s strong operational results, especially with regard to its growing eCommerce segment and the company’s overall success as an omnichannel retailer. Analysts were bullish on the company’s diversified approach to physical retail, its success in the branded goods space, and the overall wide moat that the company has built over the years, relative to its competitors in the big-box retail segment. Analysts highlighted Target’s relatively high valuation (compared to historical averages), but noted that the company’s digital sales growth, defensive cash flows, and strong balance sheet justified the premium being placed on shares.
In late May, after Target (TGT) reported its first quarter earnings, we published an article on the stock, highlighting the strong bullish sentiment surrounding the company coming from the credible author community tracked by the Nobias algorithm. The analyst opinions at the time highlighted the company’s strong operational results, especially with regard to its growing eCommerce segment and the company’s overall success as an omnichannel retailer.
Analysts were bullish on the company’s diversified approach to physical retail, its success in the branded goods space, and the overall wide moat that the company has built over the years, relative to its competitors in the big-box retail segment. Analysts highlighted Target’s relatively high valuation (compared to historical averages), but noted that the company’s digital sales growth, defensive cash flows, and strong balance sheet justified the premium being placed on shares.
Overall, the vast majority of blue chip analysts (which maintain 4 and 5-star ratings by the Nobias algorithm) were “Bullish” on shares and now that Target has recently reported another quarter’s worth of data, we wanted to check back in to see how well the stock (and the sentiment surrounding it) were performing.
In late May, Target shares were trading in the $225 area. Today, the company’s share price is $245.41. That represents a gain of approximately 9%. However, in recent weeks, we’ve seen TGT shares experience a bit of a dip, trading down some 8.1% from the $267.06 52-week highs that the company hit in mid-August, just prior to its second quarter earnings report.
Even with the recent sell-off in mind, the company’s recent performance compares favorably to the roughly 5% gains that the S&P 500 has posted during the period of time since our last article. With this in mind, it appears that the bullish sentiment expressed by Nobias blue chip rated analysts was justified. But, what’s in the past is in the past. In the stock market, estimations of future cash flows determine share price and therefore, we wanted to take a look at the recent Q2 results and hte analyst commentary attached to them to see whether or not the company’s outlook remains bright in spite of the rising share price (and valuation), or if the negative momentum that has arose since the second quarter results were published potentially points towards a deeper discount being applied to shares.
Target beat Wall Street’s expectations on both the top and bottom lines, during its Q2 report. Mark Reilly, Managing Editor, Minneapolis / St. Paul Business Journal and a Nobias ranked 4-star analyst, recently published an article which highlighted TGT’s quarterly numbers. Regarding the company’s bottom-line, he said, “For the quarter ended July 31, the Minneapolis-based company said it earned $1.8 billion, or $3.65 per share, up from from $1.7 billion, or $3.35 per share, in the same period a year ago. Excluding one-time impacts, the retailer earned $3.64 per share. That's higher than the $3.49 per share expected by analysts surveyed by Refinitiv as reported on CNBC.
When it came to Target’s sales figures, Reilly continued, “Sales rose 9.5% to $25.2 billion from just under $23 billion in the year-ago period, also beating analysts' estimates of $25.08 billion. Comparable sales rose 8.9%, slightly above estimates.” Reilly noted that the back-to-school shopping season helped to bolster Target’s results. He highlighted the fact that apparel was a strong segment for the company, posting double digit growth during the quarter. He also said that foot traffic was up in the physical locations by 12.7%, which was impressive, especially compared to the digital sales, which were only up 10%.
Niloofer Shaikh, a news editor at Seeking Alpha, as well as a Nobias 4-star rated analyst, recently posted a piece highlighting Target’s Q2 results as well. Shaikh notes that Target’s Comparable sales came in at +8.9% versus consensus of 8.18%. Shaikh continued, noting that in the eCommerce realm, “Digital comparable sales grew 10%, following growth of 195% last year.” Shaikh highlighted a new shareholder return initiative by TGT, stating, “The board of directors has approved a new $15B share repurchase program.”
During Target’s Q2 conference call, the company’s CFO, Michael Fiddelke, touched upon Target’s shareholder return programs, saying, “Beyond our capital investments, we paid dividends of $336 million in the second quarter, and we returned another $1.5 billion through share repurchases at an average price of just over $230. And as we announced today, our board has approved a new $15 billion share repurchase authorization, which will allow us to continue buying back shares once the current $5 billion programs are completed.”
Fiddelke also highlighted the company’s focus on the dividend. Regarding the company’s capital deployment, he said, “First, we invest fully in our business and projects that meet our strategic and financial criteria. Then we look to support the dividends and build on our record of annual dividend increases, which we've maintained every year since 1971.”
Finally, Shaikh put a spotlight on the company’s forward looking guidance, saying, “For FY2021, the company expects high single digit growth in comparable sales, near the high end of the previous guidance range of positive single-digit comparable sales growth and expects operating income margin rate of 8% or higher.”
While Target’s safe and reliable dividend appears to provide peace of mind to investors, it looks like the company's growth outlook - even though it was near the top-line of prior guidance - is the catalyst behind the stock’s recent negative momentum.
Target’s continued same-store sales growth and strong market share gains in important areas such as the beauty and the electronic (both of which were highlighted by management during the Q2 conference call) point towards continued operational success.
However, lower margins (TGT’s gross margins came in at 30.4% during Q2, down roughly 50 basis points from last year’s 30.9% figure) highlight the potential for supply chain constraints, waning demand, and/or rising labor costs and capital expenditures to result in slowing earnings-per-share growth.
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.
Due to Target’s premium valuation - right now, shares are trading with a forward price-to-earnings ratio of 19x - any potential profit related uncertainty is likely to result in selling pressure. To put the company’s current valuation into perspective, Target’s 5 and 10-year average price-to-earnings ratio are roughly 15x. During the last 3 years, Target’s average P/E ratio is 15.6x. Without a doubt, the current forward looking valuation is above historical norms.
Analysts expect Target to generate 37% earnings-per-share growth in fiscal 2021, which is well above historical averages. However, right now, the analyst consensus estimate for fiscal 2022 EPS growth is 0%. Target generated EPS growth of 14% in fiscal 2018, 19% in fiscal 2019, and 47% in fiscal 2020. Assuming that the 37% estimates in 2021 come to fruition, this will represent a deceleration in growth. The 0% expectation in fiscal 2022 implies that much of the future growth has been pulled forward, due to changes in consumer spending habits during the pandemic.
These flat future growth estimates, relative to the current premium, appear to be inspiring fear in the market. Yet, this fear hasn’t permeated into the Nobias credible analyst community. Right now, 92% of the credible analysts that we track have a “Bullish” outlook on TGt shares. The average analyst price target on Target shares, amongst the credible authors that we track with the Nobias algorithm, currently lies at $257.17. Compared to TGT’s current share price of $245.41, this implies upside potential of approximately 4.8%.
Disclosure: Nicholas Ward has no position in TGT. 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.