Stimulus And Consumers, Keys To US/Global Economic Recovery – Part I

At this point in our lives, we are hoping the new COVID-19 vaccines will do their part to help move the world towards more normal consumer and economic activities.  The US Senate recently a new $1.9 Trillion stimulus package that should continue to provide assistance to various levels of consumer, state governments, and corporate enterprises.  The next question in our mind is “what will the recovery look like if/when it happens?”.  We need to look at three critical components of the global economy to help answer this question: Consumer Activity, Debt, and Supply/Demand Functions.

Consumer activity makes up more than 60% of the US GDP.  It also drives money flow as consumers engage in economic activity, create credit for new purchases and help to balance the supply/demand equilibrium functioning properly.  The participation of the consumer within an economy is essential for a healthy growing economy.

WHERE ARE CONSUMERS NOW & WHERE WILL THEY BE IN THE FUTURE?

The US has passed more than $4 Trillion in COVID-19 stimulus over the past 12+ months.  At the same time, global central banks have also engaged in various easy money policies to spark global economic activity.  When we combine the efforts of world governments and central banks, we’ve seen an unprecedented amount of money deployed throughout the globe recently – and that money needs to find its purpose and use in the global economy quickly of the global economy is going to recover enough to spark a new wave of economic growth.

We believe two key components of consumer engagement are at play right now; investing/trading in the US and global markets and Real Estate.  Whereas US consumers have been reducing debt exposure on credit cards and tightening their spending in other ways, trading volumes in the stock market Indexes and ETFs have increased dramatically over the past 12 months.  Additionally, low supply and low interest rates have kept the US housing market active, in addition to the boost in activity from people moving to more rural areas as the work-from-home phenomenon settles into the new normal.

CASE-SHILLER HOME PRICE INDEX

This Case-Shiller 20-City Composite Home Price Index chart, below shows how quickly home prices have rallied over the past 12 months. Just prior to the COVID-19 pandemic, this index was flattening.  Then the moratorium on foreclosures and extended assistance for homeowners pulled many homes back off the market in early 2020.  That reduced supply and prompted a rally in home prices across the US.

The assistance provided to these “at-risk” homeowners accomplished two very important economic benefits.  It eliminated a wave of new foreclosures (albeit possibly temporarily) and it prompted a seller’s market because supply had been constricted.  The result is that many homeowners witnessed a 6% to 10% increase in their home values over the last 12+ months.

DELINQUENCY RATES ON CONSUMER LOANS

Unlike in 2006-2008 when delinquency rates skyrocketed during the housing crisis, throughout the COVID-19 pandemic, delinquency rates collapsed to the lowest levels over the past 25+ years.  Consumers took their extra capital, stimulus checks, and federal assistance and used the past 12+ months to eliminate certain debts.  Even though we are starting to see an uptick in delinquency rates in Q4 2020, these levels would have to climb considerably before we get close to the levels before the COVID-19 pandemic.

This suggests that a broad spectrum of US consumers are in a much better economic position related to revolving debt, or credit card debt, than they were before the COVID-19 pandemic.  If these consumers begin to engage in a new economic recovery by engaging in a healthy credit expansion, we may see a boost to certain sectors of the economy over the next 24 to 36+ months.

REAL PERSONAL CONSUMPTION EXPENDITURES

Unlike many other indicators, Real Personal Consumption has risen past the pre-COVID-19 peak levels.  This suggests that consumers are still spending money on Durable Goods and are continuing to buy essential items to support their lifestyles and families.  Yes, there are a number of people that are unemployed or have transitioned to other types of work, but the stimulus efforts and extended unemployment assistance has translated into real consumer engagement for Durable Goods, as we can see from the chart below.

Remember, Durable Goods are not typically found at Grocery Stores or Walmart.  They are items that have extended life-cycles (greater than three years); such as cars, planes, trains, furniture, appliances, jewelry, and books.  This rise in Durable Goods suggests that a large segment of the US consumer is actively engaged in making bigger-ticket purchases recently – possibly as a result of buying a new home, transitioning away from traditional work environments, and/or repositioning family essentials in preparation for a post COVID-19 world.  This type of economic engagement may continue for many months forward.

CONSUMER PRICE INDEX – ALL URBAN CONSUMERS

The following Consumer Price Index chart shows that general consumer prices briefly dipped when COVID-19 hit in March 2020, but they have since rallied to new highs.  This is partially a result of the rise in home prices and rising commodity prices, which contribute to a rise in price levels for consumers.

All of this data is showing that the US consumer is actually much more economically healthy than consumers were in the midst of the 2007-08 housing crisis. The stimulus efforts and partial economic shutdown did result in a large number of displaced or disadvantaged consumers, but it also shows that many US consumers were able to quickly transition into a different type of economic environment with very little extended economic risks.

The new $1.9 Trillion stimulus package will offer even more assistance to consumers.  This new stimulus will be spent as new COVID-19 vaccines are being rolled out, suggesting the US is quickly moving away from extended risks related to the pandemic.  This means consumers will likely start attempting to go back to normal in certain ways.  Does this mean that the recovery efforts will strengthen the bullish price trend in the future and the US stock markets will continue to rally?

In our effort to better identify opportunities for traders and investors as the post-COVID-19 recovery unfolds, we will continue to identify various market sectors that my research team and I believe have a strong potential for increased bullish price trends.  All of the data we’ve presented so far suggests the US consumer is much healthier than many people consider and that many US consumers are still actively engaged in some type of work/income solution.  The only reason why housing, durable goods, CPI, and other economic indicators continue to rise is because US consumers are actively engaged in buying/consuming bigger, durable goods.  This suggests the new $1.9 Trillion COVID relief effort may begin to push the US economy further into overdrive, and possibly pushing the supply/demand balance even further beyond the equilibrium zone.

Don’t miss the opportunities to profit from the broad market sector rotations we expect this year, which will be an incredible year for traders of my Best Asset Now (BAN) strategy.  You can sign up now for my FREE webinar that teaches you how to find, enter, and profit from only those sectors that have the most strength and momentum. Staying ahead of sector trends is going to be key to success in volatile markets.

For those who believe in the power of trading sectors that show relative strength and momentum but don’t have the time to do the research every day, let my BAN Trader Pro newsletter service do all the work for you with daily market reports, research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my BAN Trader Pro subscribers.

In Part II of this article, we’ll take the data we’ve reviewed already and apply it to current market conditions, trends, and technical setups as we look for new opportunities in consumer-based sectors.  My team and I believe some very big sector trends are going to set up as a result of everything that is converging on the US and global markets.  It’s time to get ready for some big trends.

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Founder & Chief Market Strategist
www.TheTechnicalTraders.com

 

Curaleaf Holdings to Report Relatively Strong Q4 in Terms of Revenue Growth: ROTH

Curaleaf Holdings is expected to post Q4 revenues of $239.5 million leading to EBITDA of $55 million as the market cap/revenue leader in U.S. cannabis industry is coming off a strong third quarter which showed the potential of the consolidated business the Massachusetts-based company has built through licensing wins and aggressive mergers and acquisitions, according to analysts at ROTH Capital Partners.

The leading U.S. provider of consumer products in cannabis will report its financial and operating results for the fourth quarter and fiscal year ended December 31, 2020 after market close on March 9, 2021.

Roth Capital Partners forecasts EPS loss of 2 cents in the fourth quarter, worse compared to a cent loss in the third quarter. For the full-year 2021, Newport Beach, California-based privately held investment banking company forecasts EPS of 14 cents on revenue of $1.25 billion, up 96.8%.

“We believe the results will indicate the direction for the rest of the industry and are expecting a relatively strong quarter in terms of revenue growth, with integration still weighing on profits. Additionally, we are adjusting our estimates to reflect ‘As Reported’ revenue to align our estimates with consensus and company guidance. Maintain Buy,” said Scott Fortune, equity analyst at ROTH Capital Partners.

“We believe 2021 will be the transformational year for CURA with revenue estimates above $1.2 billion and full integration of all its acquisitions provides the true leverage/scale of its footprint. We are expecting a conservative guidance for the 2021 year without factoring in new legalized states or acquisitions being layered on. We believe CURA will continue to lead the industry through its 100+ store footprint and sizable distribution network.”

Curaleaf Holdings Stock Price Forecast

The U.S.-listed Curaleaf Holdings shares, which surged about 90% in 2020 and added another 23% so far this year, closed nearly 2% lower at $14.75 on Friday.

Six analysts who offered stock ratings for Curaleaf Holdings in the last three months forecast the average price in 12 months of $20.34 with a high forecast of $25.41 and a low forecast of $15.76. The average price target represents a 37.90% increase from the last price of $14.75. All of those six analysts rated “Buy”, according to Tipranks.

Curaleaf had its price objective hoisted by Stifel Nicolaus to $32.25 from $23. The firm currently has a buy rating on the stock. Roth Capital lifted their price target to $20 from $14 and gave the stock a buy rating. Craig Hallum began coverage and issued a buy rating and a $19 price target.

Several other analysts have also updated their stock outlook. Needham & Company LLC raised their price target to $18.50 from $14 and gave the stock a buy rating. Canaccord Genuity boosted their price objective to $29.00 and gave the company a buy rating. Cantor Fitzgerald raised their target price to $23.50 from $20 and gave the stock an overweight rating.

“Our $20 price target is derived using a 22x multiple on our 2022 EV/EBITDA estimate of $632.6 billion, discounted back 15%. Our target price deserves a premium to the MSO peers due to its leading national scale. We set valuation using a multiple we thought appropriate for the growth rate while discounting for risks,” ROTH Capital Partners’ Fortune added.

Check out FX Empire’s earnings calendar

Earnings to Watch Next Week: MongoDB, Campbell Soup, JD.com and Oracle in Focus

Earnings Calendar For The Week Of March 8

Monday (March 8)

Ticker Company EPS Forecast
PSON Pearson £32.79
CASY Casey’s General Stores $0.95
YQ M17 Entertainment -$0.06
GOCO Gocompare.Com $0.47
DM Dominion Midstream Partners -$0.06
YALA Yalla $0.12

 

Tuesday (March 9)

IN THE SPOTLIGHT: MONGODB

MongoDB Inc, which provides an open-source database platform for automating, monitoring, and deployment backups, is expected to report a loss of $0.39 per share in the fourth quarter, which represents a year-over-year decline of 56% from -$0.25 per share seen in the same quarter a year ago. However, in the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 30%.

New York City-based company would post year-over-year revenue growth of over 27% to $156.97 million.

MongoDB has established itself as one of the most popular databases to support the development of modern net-new apps. Into CY21, we see the business at a crucial inflection point. First, it is poised to garner the majority of revs from its public cloud business – the segment where market growth and share gains are the strongest. Second, the acceleration in customer adds suggests that its go-to-market model has matured to scale a modern, cloud-first business,” said Sanjit Singh, equity analyst at Morgan Stanley.

“As a result, an equation for durable 30%+ growth emerges (20%+ customer base growth with near 120% net-expansion from the existing base) – a growth story that does not look overly demanding given the strategic nature of this asset.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 9

Ticker Company EPS Forecast
SLA Standard Life Aberdeen PLC £6.04
CMD Cantel Medical Corp $0.51
NAV Navistar International $0.01
DQ Daqo New Energy $1.12
THO Thor Industries $1.57
DKS Dick’s Sporting Goods $2.24
OSH Oak Street Health -$0.23
ABM ABM Industries $0.59
AVAV AeroVironment $0.00
MDB MongoDB Inc -$0.39
HRB H&R Block -$1.19
CLNE Clean Energy Fuels $0.00
ADOOY Adaro Energy ADR $0.05
ITV ITV £5.82

 

Wednesday (March 10)

IN THE SPOTLIGHT: CAMPBELL SOUP

CAMPBELL SOUP: Camden County, New Jersey-based processed food and snack company is expected to report a profit of $0.83 per share in the fiscal second quarter, which represents year-over-year growth of over 15% from $0.72 per share seen in the same quarter a year ago.

In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 9%. One of the world’s top soup makers would post year-over-year revenue growth of over 6% to $2.3 billion.

“High exposure to secularly challenged soup category: Shelf-stable soup (26.5% of sales) faces headwinds given shifts in preferences toward better-for-you and fresh foods, competition from private label, and pricing pressure. Snacking brands are well-positioned, but face competitive pressures: Milano, Goldfish, Farmhouse, and Snyder’s-Lance have strong brand equity but face high competition from PEP and MDLZ,” said Pamela Kaufman, equity analyst at Morgan Stanley.

“Significant organizational changes over last two years refocused the company and show promise: Divesting non-core businesses and new leadership refreshes the company’s strategic plan, allowing the company to focus on its key segments and geographies.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 10

Ticker Company EPS Forecast
VERX Vertex Inc. Cl A $0.07
CPB Campbell Soup $0.83
AMC AMC Entertainment -$3.39
SUMO Sumo -$0.12
CLDR Cloudera Inc. $0.11
FNV Franco Nevada $0.70
VNET 21Vianet $0.05
BAK Braskem $1.05
SMTC Semtech $0.48

 

Thursday (March 11)

IN THE SPOTLIGHT: JD.COM, ORACLE

JD.COM: Chinese e-commerce platform JD.com is expected to report a profit of $0.22 in the fourth quarter, which represents year-over-year growth of over 177% from $0.08 per share seen in the same quarter a year ago.

The leading B2C e-commerce player in China, which accounts for over 20% of China’s total B2C online market and over 50% of the online direct sales market, would post year-over-year revenue growth of about 35% to $33.1 billion.

JD’s recent accelerated moves in Community Group Buying business could leverage its advantages in the e-commerce supply chain. Its fast-growing businesses could bring incremental growth momentum into 2021. Maintain Overweight,” said Eddy Wang, equity analyst at Morgan Stanley.

“We forecast that JD’s total revenue will grow 29% YoY in 4Q20, driven by strong demand for electronics and home appliance consumption during promotion season, as well as sustainable strong demand for online FMCG (i.e., JD’s GMV grew 33% YoY during the Double 11 promotion period). Meanwhile, we expect JD to increase its reinvestment to boost consumption in 4Q20, which could drag on its 4Q margin; as such, we forecast that JD’s 4Q20 non-GAAP net margin will reach 0.97% (vs. 0.5% in 4Q19 and 3.19% in 3Q20).”

ORACLE: Austin, Texas-based computer technology corporation is expected to report a profit of $1.11 in the fiscal third quarter, which represents year-over-year growth of over 14% from $0.97 per share seen in the same quarter a year ago.

In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 5%. One of the largest vendors in the enterprise IT market would post $10.06 billion in sales for the current fiscal quarter, according to Zacks Investment Research. On average, analysts expect that Oracle will report full-year sales of $40.02 billion for the current year, with estimates ranging from $39.44 billion to $40.33 billion.

Oracle’s current low valuation at 13x CY22e EPS reflects its slower growth rate compared to peers. Despite potential opportunities within existing database customers and cloud-based ERP applications, offsets from waning businesses mean 2021 likely lacks the catalysts for the positive inflection in revenue growth investors would need to see to drive multiples higher,” Keith Weiss, equity analyst at Morgan Stanley.

“We see 15% EPS growth in FY21 and 6% in FY22, driven by an aggressive pace of share buybacks. However, cc revenue growth is 2%, in a software sector filled with strong secular growth stories, and just 2% operating income growth points to Oracle potentially reaching peak margins, leaving us Equal-weight at our $67 price target.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 11

Ticker Company EPS Forecast
JD JD.com $0.22
ULTA Ulta Salon Cosmetics Fragrance $2.18
MTN Vail Resorts $2.03
DOCU DocuSign Inc. $0.22
WPP WPP ADR $2.75
ORCL Oracle $1.11
CELH Celsius $0.03

 

Friday (March 12)

Ticker Company EPS Forecast
SHCAY Sharp ADR $0.08
EBR Centrais Eletricas Brasileiras $0.24

 

Costco Wholesale Misses Earnings Estimates; Analysts Cut Target Price

Costco Wholesale Corporation, which operates a chain of membership-only big-box retail stores, reported a lower-than-expected profit in the second quarter, prompting several analysts to lower their one-year price targets.

The leading warehouse club reported net income for the quarter of $951 million, or $2.14 per diluted share, which includes $246 million pretax, or $0.41 per diluted share, in costs incurred primarily from COVID-19 premium wages. That was below the market consensus estimates of $2.45.

COST is positioned to comp the comp in the quarters ahead, and we expect will maintain a significant share. Compares getting challenging, but stronger traffic, re-opening driving fuel & other categories should support robust comps. Renewal returned to all-time high of 91.0% as shoppers are satisfied and loyal. We view curbside pickup pilot as a long-term positive,” said Oliver Chen, equity analyst at Cowen and Company.

Net sales for the quarter increased 14.7%, to $43.89 billion, from $38.26 billion last year. Net sales for the first 24 weeks increased 15.8%, to $86.23 billion, from $74.49 billion last year.

Costco Wholesale shares, which surged over 30% in 2020, traded about 3% lower at $311.08 on Friday.

“Our $332 per share valuation of wide-moat Costco should not change much after it announced second-quarter earnings. Its sales growth outpaced our target (12.9% adjusted comparable expansion across the company versus our 12.0% mark), but we expected cost leverage on the heightened revenue that did not materialize (25 basis points of operating margin degradation, to 3.0%, rather than our forecast for 25 basis points of improvement),” said Zain Akbari, equity analyst at Morningstar.

“As the double-digit sales growth is attributable to the pandemic and the margin shortfall to freight and fuel pressures we see as transitory, we continue to expect mid-single-digit percentage sales growth and 3%-4% operating margins over the next 10 years. We suggest investors await a greater margin of safety, as Costco faces an uncertain normalize action of spending habits once the pandemic ebbs.”

Costco Wholesale Stock Price Forecast

Eighteen analysts who offered stock ratings for Costco Wholesale in the last three months forecast the average price in 12 months of $379.44 with a high forecast of $420.00 and a low forecast of $325.00.

The average price target represents a 21.81% increase from the last price of $311.49. Of those 18 analysts, 12 rated “Buy”, six rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $410 with a high of $520 under a bull scenario and $270 under the worst-case scenario. The firm gave an “Overweight” rating on the apparel retail company’s stock.

“Healthy underlying Q2 results, but tough compares are ahead. SG&A leverage (as COVID costs are lapped) should offset gross margin pressure in F’Q3/Q4. We like COST as a longer-term holding – especially as the multiple has come in – but stock may tread water until visibility on COVID laps improves,” said Simeon Gutman, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. UBS cuts target price to $395 from $415. Oppenheimer cuts target price to $350 from $400. Stifel cuts target price to $370 from $395. BMO cuts target price to $410 from $430. Deutsche bank cuts target price to $344 from $347.

Moreover, Citigroup cuts price target to $360 from $380. Telsey Advisory Group cuts price target to $375 from $430. JP Morgan cuts target price to $369 from $411. D.A. Davidson cuts price target to $325 from $390. Jefferies cuts price target to $405 from $435.

Analyst Comments

COST’s results have consistently been among the best in Retail. Over the past decade, COST has delivered 6% comps and 10% EBIT growth on average. It is rare to find a business with COST’s solid comp/membership growth, while relative e-commerce insulation differentiates its value proposition from other retailers,” Morgan Stanley’s Gutman added.

“We are Overweight even as the stock trades at an elevated valuation given COST’s scarcity value, safety, and scale. In the near-term, we expect incremental sales uplifts from COVID-19 disruption, and earnings power looks stronger despite COVID-19 expenses,” said Morgan Stanley’s Greenberger added.”

Check out FX Empire’s earnings calendar

Gold Price Forecast – A Rare Post Crisis Buying Opportunity

In September 2001, gold spiked to fresh highs after the 911 terrorist attack. Just a few months later, prices dropped back to pre-911 levels. What happened – why did gold drop when the world had changed forever? Good question. It did not make sense then, and the current decline does not make sense either.

Most investors are oblivious to the stellar buying opportunity. Because you are reading this, I am hopeful you are not one of them.

GOLD PRICES AFTER 911: After the initial shock of the attack, gold prices fell back to pre-9/11 levels ($270). That turned out to be one heck of an opportunity. I see the same setup now as gold approaches pre-Covid price levels.

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Think about it: Since Covid began nearly 12-months ago, an astronomical amount of debt has been created. Consider the figures below.

1) In the weeks following the 2020 crisis, the US issued more debt than the previous five recessions combined (1980, 1982, 1990, 2001 & 2008). Let that one sink in for a moment.

2) The Fed under Jay Powell bought more US Treasuries in 6-week’s than it did under Bernake and Yellen combined (a 12-year period). The amount of debt we are talking about is unbelievable, and they are not close to being done.

When you consider the unprecedented stimulus over the last 12-months and what is still to come, I can’t imagine gold will stay near pre-Covid levels for long. Anyone that bought the post-911 dip was delighted with their decision. I believe the same will be true now.

GOLD- Gold prices are back to post-Covid support between $1660 and $1700. The dashed intermediate trendline is currently crossing the $1675 support area. I see massive support in this area, and I believe we are approaching a bottom. However, we can’t rule out a spike lower if interest rates shoot up to 2% over the near-term.

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When prices are dropping like this, it can be scary. It is essential to remain focused on the long-term. I’m confident commodities are beginning a new supercycle, and we will look back at today’s prices as an absolute gift.

Our Gold Cycle Indicator reached a maximum bullish reading of ZERO (0). This happens only once every 2-years or so – supporting our outlook for an important low in gold.

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The best value I see right now is in senior gold companies like NEM, GOLD, KL, BGT, and FNV. I’m getting ready to add long-term positions to the Premium Member’s educational portfolio.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit here.

For a look at all of today’s economic events, check out our economic calendar.

Correction for Nasdaq- More Indices to Follow?

Well, I was right to doubt him. The market didn’t like his change in tone Thursday (Mar. 5).

You see, when bond yields are rising as fast as they have, and Powell is maintaining that Fed policy won’t change while admitting that inflation may ” return temporarily ,” how are investors supposed to react? On the surface, this may not sound like a big deal. But there are six things to consider here:

  1. It’s a significant backtrack from saying that inflation isn’t a concern. By admitting that inflation “could” return temporarily, that’s giving credence to the fact that it’s inevitable.
  2. The Fed can’t expect to let the GDP scorch without hiking rates. If inflation “temporarily returns,” who is to say that rates won’t hike sooner than anyone imagines?
  3. Fool me once, shame on me, fool me twice…you know the rest. If Powell changed his tune now about inflation, what will he do a few weeks or months from now when it really becomes an issue?
  4. Does Jay Powell know what he’s doing, and does he have control of the bond market?
  5. A reopening economy is a blessing and a curse. It’s a blessing for value plays and cyclicals that were crushed during COVID and a curse for high-flying tech names who benefitted from “stay-at-home” and low-interest rates.
  6. The Senate will be debating President Biden’s $1.9 trillion stimulus plan. If this passes, as I assume it will, could it actually be worse for the economy than better? Could markets sell-off rather than surge? Once this passes, inflation is all but a formality.

Look, it’s not the fact that bond yields are rising that are freaking out investors. Bond yields are still at a historically low level, and the Fed Funds Rate remains 0%. But it’s the speed at which they’ve risen that are terrifying people.

According to Bloomberg , the price of gas and food already appear to be getting a head start on inflation. For January, Consumer Price Index data also found that the cost of food eaten at home rose 3.7 percent from a year ago — more than double the 1.4 percent year-over-year increase in all goods included in the CPI.

The month of January. Can you imagine what this was like for February? Can you imagine what it will be like for March?

I’m not trying to sound the alarm- but be very aware. These are just the early warning signs.

So, where do we go from here? Time will tell. While I still do not foresee a crash like we saw last March and feel that the wheels remain in motion for a healthy 2021, that correction that I’ve been calling for has already started for the Nasdaq. Other indices could potentially follow.

Finally.

Corrections are healthy and normal market behavior, and we have been long overdue for one. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017).

Most importantly, this correction could be an excellent buying opportunity.

It can be a very tricky time for investors right now. But never, ever, trade with emotion. Buy low, sell high, and be a little bit contrarian. There could be some more short-term pain, yes. But if you sat out last March when others bought, you are probably very disappointed in yourself. Be careful, but be a little bold right now too.

There’s always a bull market somewhere, and valuations, while still somewhat frothy, are at much more buyable levels now.

My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.

With that said, to sum it up:

There is optimism but signs of concern. A further downturn by the end of the month is very possible, but I don’t think that a decline above ~20%, leading to a bear market, will happen.

Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck.

Nasdaq– From Overbought to Oversold in 3 Weeks?

Figure 1- Nasdaq Composite Index $COMP

The Nasdaq is finally in correction territory! I have been waiting for this. It’s been long overdue and valuations, while still frothy, are much more buyable. While more pain could be on the horizon until we get some clarity on this bond market and inflation, its drop below 13000 is certainly buyable.

The Nasdaq has also given up its gains for 2021, its RSI is nearly oversold at about 35, and we’re almost at a 2-month low.

It can’t hurt to start nibbling now. There could be some more short-term pain, but if you waited for that perfect moment to start buying a year ago when it looked like the world was ending, you wouldn’t have gained as much as you could have.

Plus, it’s safe to say that Cathie Wood, the guru of the ARK ETFs, is the best growth stock picker of our generation. Bloomberg News ’ editor-in-chief emeritus Matthew A. Winkler seems to think so too. Her ETFs, which have continuously outperformed, focus on the most innovative and disruptive tech companies out there. Not to put a lot of stock in one person. But it’s safe to say she knows a thing or two about tech stocks and when to initiate positions- and she did a lot of buying the last few weeks.

I think the key here is to “selectively buy.” I remain bullish on tech, especially for sub-sectors such as cloud computing, e-commerce, and fintech.

I also think it’s an outstanding buying opportunity for big tech companies with proven businesses and solid balance sheets. Take Apple (AAPL), for example. It’s about 30% off its all-time highs. That is what I call discount shopping.

What’s also crazy is the Nasdaq went from overbought 3 weeks ago to nearly oversold this week. The Nasdaq has been trading in a clear RSI-based pattern, and we’re at a very buyable level right now.

I like the levels we’re at, and despite the possibility of more losses in the short-run, it’s a good time to start to BUY. But just be mindful of the RSI, and don’t buy risky assets. Find emerging tech sectors or high-quality companies trading at a discount.

For an ETF that attempts to directly correlate with the performance of the NASDAQ, the Invesco QQQ ETF (QQQ) is a good option.

For more of my thoughts on the market, such as the streaky S&P, inflation, and emerging market opportunities, sign up for my premium analysis today.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

For a look at all of today’s economic events, check out our economic calendar.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

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All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Apparel Retailer Gap Tops Q4 Earnings Estimates; Forecasts Sales Growth in 2021

San Francisco, California-based apparel retailer Gap Inc reported better-than-expected earnings in the fourth quarter and said it expects this year’s sales to reflect mid-to high-teens growth versus last year, sending its shares up over 4% in extended trading on Thursday.

The U.S. specialty apparel retailer said its comparable sales were flat in the quarter, including a 49% increase in online sales and total net sales fell 5% due to store closures and COVID-19 impacts. Store sales declined by 28% in the quarter, with impacts from the pandemic and strategic closures noted above.

Gap reported earnings per share of 28 cents, 9 cents more than Wall Street’s expectations. For the fiscal year 2021, the company expects diluted earnings per share to be in the range of $1.20 to $1.35.

Following this optimism, Gap shares, which surged over 14% in 2020, rose over 4% to $25.42 in after-trading hours on Thursday.

“4Q was mixed – with signs of the company’s Power Plan taking hold in the form of significant occupancy leverage, lower markdowns, and a better trend at the core Gap brand, offset by a moderating trend at Old Navy.  Margin enhancing initiatives are encouraging, but we look for greater clarity around Old Navy, which remains the key profit driver for GPS. Reiterate Hold,” said Janine Stichter, equity analyst at Jefferies.

Gap Stock Price Forecast

Five analysts who offered stock ratings for Gap in the last three months forecast the average price in 12 months of $25.40 with a high forecast of $28.00 and a low forecast of $22.00.

The average price target represents a 0.08% increase from the last price of $25.38. From those five analysts, one rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $29 with a high of $42 under a bull scenario and $14 under the worst-case scenario. The firm gave an “Equal-weight” rating on the apparel retail company’s stock.

“4Q GM expansion & controlled SG&A spend bring the 10% EBIT margin target back into view. But management must deliver sales acceleration for positive EPS revisions, the key unlock to further stock price appreciation given high valuation. Raise price target to $29; stay Equal-weight as we await signs of revenue acceleration,” said Kimberly C Greenberger, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. JP Morgan raised the target price to $32 from $30. RBC upped the price objective to $30 from $28. B Riley increased the stock price forecast to $27 from $22. Jefferies raised the price target to $25 from $24. UBS upped the target price to $25 from $22.

Analyst Comments

GPS is in need of significant transformation. However, we are more positive on the LT forecast given new management’s commitment to fleet and corporate downsizing. The separation work and COVID-19 were the catalysts GPS needed to downsize its business, as reflected by management’s comprehensive plan for the business outlined at its 2020 Investor Day,” said Morgan Stanley’s Greenberger added.

“Our fundamental concerns remain (falling store traffic, eComm disintermediation, declining brand health, apparel price deflation, falling margins), but are exacerbated in the NT due to COVID-19. A portion of GPS‘ portfolio value proposition is less competitive, as Gap brand and BR require significant transformation; ON and Athleta are bright spots.”

Check out FX Empire’s earnings calendar

Kroger Tops Q4 Estimates, But Expects Sales Slowdown as Pandemic-Driven Demand Wanes

Kroger, one of the world’s largest food retailers, reported better-than-expected profit in the fourth quarter but the company flagged that its pandemic-driven sales growth will fade this year.

The retailer which operates over 2,500 supermarkets in the U.S. said it earned $0.81 per share in the quarter ended on January 30, 2021, beating Wall Street consensus estimates of $0.69 cents per share.

The company said its total company sales were $30.7 billion in the fourth quarter, compared to $28.9 billion for the same period last year. Excluding fuel and dispositions, sales grew 10.7%.

Kroger Q4 ID sales growth came in >10% y/y, FY’21 guidance was provided, the FY’21 capex range’s midpoint is <10% higher than consensus, and the all-important Investor Day is scheduled for Wed Mar 31 — clearing the investment community’s bar on each front, in our view. Q4 EPS of $0.81 beat our/consensus $0.69, driven by higher gross margin and lower interest expense, and consensus currently sits below FY’21 ID sales growth, operating profit, and EPS ranges,” noted Matt Fishbein, equity analyst at Jefferies.

However, Kroger reported a net attributable loss of $77 million, worse compared to a profit of $327 million seen in the same period a year ago. Kroger forecasts adjusted full-year same-store sales to decline in the range of 3%-5% and earnings per share in the range of $2.75-$2.95.

Kroger shares, which rose over 9% in 2020, traded about 3% higher at $34.11 on Thursday.

Kroger Stock Price Forecast

Eight analysts who offered stock ratings for Kroger in the last three months forecast the average price in 12 months of $32.43 with a high forecast of $39.00 and a low forecast of $28.00.

The average price target represents a -4.48% decrease from the last price of $33.95. From those eight analysts, none rated “Buy”, five rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $28 with a high of $45 under a bull scenario and $15 under the worst-case scenario. The firm gave an “Underweight” rating on the multi-department stores’ stock.

Several other analysts have also updated their stock outlook. BofA Global Research lowered the price objective to $28 from $40. Stephens raised the target price to $35 from $30. Telsey advisory group slashed the price objective to $39 from $43.

Moreover, Kroger had its price objective increased by research analysts at Wells Fargo & Company to $34 from $31. The brokerage presently has an “equal weight” rating on the stock. Zacks Investment Research cut from a “buy” rating to a “hold” rating and set a $34.00 price objective on the stock. Barclays cut from an “equal weight” rating to an “underweight” rating and set a $31.00 price objective on the stock.

Analyst Comments

Kroger (KR) is one of the largest conventional food retailers, with competitive advantages including leading scale, an advanced customer data science platform, and ramping digital capabilities. 2020 was a historically strong year for KR driven by COVID-19 uplifts, but KR’s share gains are already normalizing we anticipate an industry sales slowdown in 2021-2022 that is underappreciated in Street estimates,” said Simeon Gutman, equity analyst at Morgan Stanley.

“Meanwhile we model EBIT margins to return to pre-COVID-19 levels by 2022 as normalizing promotional activity and e-comm pull-forward pressure margins. Longer-term we continue to struggle to model a path to sustainable EBIT growth and margin stabilization,”

Check out FX Empire’s earnings calendar

Snowflake Shares Slump on Wider-Than-Feared Loss

San Mateo, California-based cloud data platform provider Snowflake’s shares slumped about 9% on Wednesday after the company reported a bigger-than-expected loss in the fourth quarter.

The company, which enables customers to consolidate data into a single source to drive business insights reported a loss of $0.70 per share, compared with a $1.67 loss seen in the same period a year ago. But that was worse compared with Wall Street consensus estimates for a loss of 17 cents per share.

Snowflake shares, which fell about 18% since it started trading publicly on 16 Sept 2020, slumped another 8.7% to $247 on Wednesday.

However, revenue for the quarter jumped 117% year-over-year to $190.5 million, beating analysts’ expectations of $178.50 million. The data cloud company said its product revenue for the quarter was $178.3 million, surging 116% y/y.

Snowflake’s revenue guidance for fiscal 2022 was more bearish than we expected. Nonetheless, adjustments we made for the year were countered with a boost from the time value of money, leading to our sustained fair value estimate of $204 per share for no-moat Snowflake,” said Julie Bhusal Sharma, equity analyst at Morningstar.

“With shares down 2% to near $242 after results, Snowflake shares are now within 3-star, fairly-valued territory, which encapsulates a wide range of share prices given our very high uncertainty rating.”

Snowflake Stock Price Forecast

Ten analysts who offered stock ratings for Snowflake in the last three months forecast the average price in 12 months of $313.33 with a high forecast of $350.00 and a low forecast of $270.00.

The average price target represents a 26.84% increase from the last price of $247.03. From those ten analysts, three rated “Buy”, seven rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $270 with a high of $500 under a bull scenario and $100 under the worst-case scenario. The firm gave an “Equal-weight” rating on the data cloud company’s stock.

“The 116% YoY product revenue growth in Q4 well illustrates SNOW’s strong positioning at the confluence of Data and Cloud trends. However, the data points on ramping adoption of Data Cloud may be even more important in establishing clear competitive moats and the longer-term durability of growth,” said Keith Weiss, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. Credit Suisse lowered the target price to $275 from $310. Barclays cut their stock price forecast to $270 from $295. Rosenblatt Securities initiated with a neutral rating and set the target price at $285. Citigroup raised the price objective to $325 from $300. Deutsche Bank lowered the price target to $270 from $335.

Analyst Comments

“By bringing the scalability and elasticity of the public cloud to data management, Snowflake allows customers to more easily and economically derive insight and value from their data. It’s momentum today (124% revenue growth in FY21) highlights the attractive share gain opportunity from legacy on-premise vendors that currently dominate the market, current competitive differentiation from the solutions of the public cloud vendors and the size of its potential market opportunity (broadly estimated at $56 billion as of 2019),” Morgan Stanley’s Weiss added.

“However, currently trading 50x CY22e sales vs. high-growth peers closer to 29x CY22e sales, we see success priced in already, keeping us Equal-weight.”

Check out FX Empire’s earnings calendar

UK Homebuilder Persimmon’s Shares Gain on Strong Guidance; Target Price GBX 3,160

The UK’s second-largest homebuilder Persimmon said its revenue and profit declined in 2020 but forecasts houses deliveries to reach pre-COVID-19 levels by 2022, sending its shares up over 6% on Wednesday.

The company is engaged in house building within the United Kingdom said its average private weekly sales for the first eight weeks were 7% ahead of last year. The company also said it expects 1H21 completion volumes to be in line with 1H19 of 7,584 units, with similar delivery in 2H.

“With much of FY20 results already known, investors will be focused on scope for upgrades and an update on the CEO priorities. We see no update of margins guidance. The new priorities set out by the CEO may be the key to further upgrades – the first two bringing lower costs, and the positioning of growth on the list suggesting greater ambitions: 1) build right first time, 2) customer first, 3) growth, 4) maintaining and growing financial strength, 5)forefront of sustainability,” said Glynis Johnson, equity analyst at Jefferies.

“The group has confirmed it will return 235p this year, albeit the payments are slightly more spread (125p March, 55p Aug, 55p Dec), and reiterated its previous policy: 125pfinal, and interim reflecting excess capital (clarified as levels above £700m cash).”

The FTSE-100-listed Persimmon shares, which rose about 3% in 2020, surged nearly 6% to GBX 2,871 on Wednesday.

Persimmon Stock Price Forecast

Seven analysts who offered stock ratings for Persimmon in the last three months forecast the average price in 12 months of GBX 3,159.86 with a high forecast of GBX 3,349 and a low forecast of GBX 2,950.

The average price target represents a 10.48% increase from the last price of GBX 2,860. From those seven analysts, six rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of GBX 2,950 with a high of GBX 3,900 under a bull scenario and GBX 1,100 under the worst-case scenario. The firm gave an “Equal-weight” rating on the UK’s largest housebuilders’ stock.

“FY20 contained few surprises after its January trading statement, but its 2021 volumes guidance was 2-3% ahead of our and consensus estimates,” said Christopher Fremantle, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. JP Morgan raised the target price to GBX 3,360 from GBX 3,210. Citigroup lowered the price objective to GBX 3,130 from GBX 3,197. Jefferies upped the price target to GBX 3,349 from GBX 3,213.

Moreover, Barclays upgraded to overweight from equal weight and raised the target price to GBX 3,000 from GBX 2,800. Credit Suisse lowered the target price to GBX 3,006 from GBX 3094. Deutsche Bank raised the target price to GBX 3,283 from GBX 3,173.

Analyst Comments

Persimmon has broad UK coverage and low exposure to the south-east and London. This has helped the company in recent years, given a weaker market in this region. Persimmon entered the crisis in good shape, with good cash balances and a smaller land creditor position than peers; it has outperformed peers through a lockdown and is set to deliver a strong performance at 2H,” Morgan Stanley’s Fremantle added.

“At c12x 2021e EPS and 2.6x 2021 TBV (sector: 1.5x), valuation is full, in our view; 2021 is still uncertain and the investment case continues to depend on the extent to which Persimmon can sustain revenues, margins and RoE from already very elevated levels, particularly given risks from Help to Buy phase-out and CEO transfer.”

Upside and Downside Risks

Risks to Upside: We see house price growth heavily correlated with nominal GDP growth, with changes in household leverage and interest rates other key factors. As local currency players, sector share prices have tended to be positively correlated with sterling strength/weakness, and with house price growth 6 months forward – highlighted by Morgan Stanley.

Risks to Downside: See ‘Risks to Upside’. Also Help to Buy removal remains a downside risk to volumes.

Check out FX Empire’s earnings calendar

NIO Shares Slump on Big Q4 Loss, Slowing Sales Due to Global Chip Shortage

Chinese electric vehicle maker NIO’s shares slumped 13% on Tuesday after the company’s loss far surpassed analysts’ expectations for the fourth quarter and warned the global chip shortage would slow the pace of EV deliveries in the first quarter.

The company, which designs, manufactures, and sells smart and connected premium electric vehicles, reported a fourth-quarter net loss of 1.49 billion yuan, way above Wall Street consensus estimates for a loss of 757 million yuan.

NIO’s reported a net loss per share of $1.05 for the fourth quarter, largely missing the market expectations for a loss of $0.16 per share. The firm said its revenue surged over 130% to $6.64 billion from the same period last year but came a little below analyst’s forecasts of $6.71 billion.

“NIO concluded a transformational 2020 with a new quarterly delivery record of 17,353 vehicles in the fourth quarter of 2020. The strong momentum has continued in 2021 as we achieved a historic monthly delivery of 7,225 vehicles in January and a resilient delivery of 5,578 vehicles in February, representing strong 352% and 689% year-over-year growth, respectively,” said William Bin Li, founder, chairman and chief executive officer of NIO.

“Supported by competitive product offerings, outstanding services and innovative business models, we have won increasing recognition from our users and expect to deliver 20,000 to 20,500 vehicles in the first quarter of 2021.”

However, that is slower than the 42% increase the Chinese electric vehicle maker reported between the third and the fourth quarter.

Following this, the U.S.-listed NIO shares, which surged over 1,100% in 2020, slumped 13% to $43.29 on Tuesday. However, it gained 1.6% to $43.98 in extended trading.

“We cut our DCF-based TP to USD91 from USD100 after factoring in our new earnings forecasts while our WACC assumption is unchanged. We reiterate our Buy rating on NIO as we see its technology as ahead of peers with strong sales volume growth ahead. The recent share-price retreat serves as a good entry point, in our view. Key downside risks: lower-than-expected sales volume and margin,” said Daiwa’s Kelvin Lau.

“Our 2021-2023E earnings are more conservative than the street likely as we are more cautious on its EBIT margin outlook. However, we are likely more positive on NIO’s long-run outlook.”

NIO Stock Price Forecast

Ten analysts who offered stock ratings for NIO in the last three months forecast the average price in 12 months of $68.26 with a high forecast of $80.30 and a low forecast of $54.00.

The average price target represents a 57.68% increase from the last price of $43.29. From those ten analysts, seven rated “Buy”, three rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $60 with a high of $122 under a bull scenario and $42 under the worst-case scenario. The firm gave an “Overweight” rating on the Chinese electric vehicle makers’ stock.

Several other analysts have also updated their stock outlook. JPMorgan lowered their target price to $70 from $75. Jefferies set a hold rating and a $60 target price for the company. Nomura set a buy rating and $80.30 target price for the company.

Moreover, Nomura set a buy rating and $80.30 target price for the company. Bank of America boosted their price objective to $70 from $59 and gave the stock a buy rating.

Analyst Comments

“Solid 1Q volume guidance suggests the good trajectory of sales recovery post CNY, corroborating superior market recognition of NIO’s models and brand. The strong balance sheet can finance more aggressive channel expansion and technology investment. Tight component supply will likely cap 2Q sales upside,” said Tim Hsiao, equity analyst at Morgan Stanley.

“We expect higher long-term growth visibility from the software development BaaS initiative. Tesla’s success in China has also attracted fund flows for EV makers, which we think bodes well for NIO’s long-term R&D investment capability and growth potential. Proven scale benefits with continuous gross margin improvement.”

Upside and Downside Risks

Risks to Upside: 1) Progress in planned A-share listing. 2) Stronger-than-expected sales volume. 3) Better-than-expected improvements in operating efficiency- highlighted by Morgan Stanley.

Risks to Downside: 1) Weaker-than-expected sales volume. 2) Lack of signs of efficiency improvement. 3) Lower-than-expected NOP option take rate.

Check out FX Empire’s earnings calendar

AutoZone Tops Q2 Earnings Estimates; Stock Has Over 15% Upside Potential

Memphis, Tennessee-based auto parts retailer AutoZone reported better-than-expected earnings in the second quarter, largely driven by government stimulus and recovery in consumer demand from the COVID-19 pandemic slump, sending its shares up over 1% on Tuesday.

The United States’ leading retailer and a leading distributor of automotive replacement parts and accessories reported quarterly adjusted earnings of $14.93​​ per share for the quarter ended in February, beating Wall Street consensus estimates of $13.07 per share.

The auto parts retailer’s revenue surged more than 15% to $2.91 billion from a year ago​, higher than the market expectations of $2.76 billion.

Following this upbeat result, AutoZone shares rose 1.35% to $1185.17 on Tuesday.

AutoZone’ (AZO) comps were 15.2%, significantly better than consensus of 8.2% and our upwardly revised estimate of 10%. This was better than both O’Reilly’s and Advance Auto Part’s most recent quarterly comps of 11.2% and 4.7%. This makes sense as AZO’s quarter ended in mid-February, and thus included what we think was a very strong month of January for the industry as a whole,” noted Michael Baker, senior research analyst at D.A. Davidson.

“The others had quarter ends at the end of December and will thus see this benefit next quarter. Nonetheless, AZO’s beat should be viewed positively relative to estimates, and we maintain our BUY rating.”

AutoZone Stock Price Forecast

Seven analysts who offered stock ratings for AutoZone in the last three months forecast the average price in 12 months of $1,370.00 with a high forecast of $1,565.00 and a low forecast of $1,206.00.

The average price target represents a 16.10% increase from the last price of $1,180.06. From those seven analysts, six rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $1,505 with a high of $1,980 under a bull scenario and $1,000 under the worst-case scenario. The firm gave an “Overweight” rating on the leading auto parts retailer’s stock.

“Top- and bottom-line growth is still near record highs but decelerating (as expected). Strong FQ2 results in absolute terms but enough to pick at (weak GM) to leave the sector’s debate unresolved. We like AutoZone (AZO) as an inexpensive LT compounder but the stock could remain stuck in neutral in the NT,” said Simeon Gutman, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. Jefferies raised the target price to $1,455 from $1,325. Credit Suisse upped the target price to $1,437 from $1300. RBC increased the price objective to $1269 from $1190.

Moreover, Goldman Sachs lowered the target price to $1206 from $1265. Stephens cut the target price to $1,350 from $1,420. D.A. Davidson slashed the target price to $1,355 from $1,400.

Analyst Comments

AutoZone (AZO) is our top pick in DIY Auto. We see it as a high-quality retailer with the ability to compound earnings/FCF growth over time. While not immune to a tougher macro backdrop (fewer miles driven), we believe AZO is best positioned through any recession given its leading exposure to the more defensive DIY segment (80% of sales),” Morgan Stanley’s Gutman added.

“In addition, its DIFM growth was accelerating pre-COVID and we think it can gain more share in that segment going forward. In our view, ongoing share gains coupled with solid expense management should allow AZO to overcome headwinds from less driving in the near- to medium-term.”

Upside and Downside Risks

Risks to Upside: Longer than expected industry shift towards DIY; share gains in both DIY and DIFM segments. A shift to DIY insulates gross margin headwinds. Tapering of investments/higher expense growth- highlighted by Morgan Stanley.

Risks to Downside: Less than expected share gain amid a recession. Greater than expected margin pressure due to rising expenses and ongoing investments. Increasing e-commerce penetration in the DIY market.

Check out FX Empire’s earnings calendar

Gold Continues Declines on Bond Yield Jitters

Not good. Gold bulls can be truly upset. The yellow metal continued its bearish trend last week. As the chart below shows, the price of gold has declined from $1,807 on Monday (Feb. 22) to $1,743 on Friday (Feb. 26).

What happened? Well, last week was full of positive economic news. In particular, personal income surged by 10 percent in January, compared to only 0.6-percent rise in the previous month. Meanwhile, consumer spending increased 2.4 percent, following a 0.4-percent decline in December. This means that, on an absolute basis, personal consumption expenditures have almost returned to the pre- pandemic level, as the chart below shows.

Additionally, durable goods orders jumped by 3.4 percent in January versus a 1.2-percent increase one month earlier. Moreover, initial jobless claims declined from 841,000 to 730,000 in the week ending February 20, as the chart below shows. It means that the economic situation is improving, partially thanks to the December fiscal stimulus.

And, on Saturday (Feb. 27), the House of Representatives passed Biden’s $1.9 trillion stimulus package. Although the bill has yet to be approved by the Senate, the move by the House brings us one step closer to its implementation. Although the additional fiscal stimulus may overheat the economy and turn out to be positive for gold prices in the long-term, the strengthened prospects of higher government expenditures can revive the optimism in the financial markets, negatively affecting the safe-haven assets such as gold .

Finally, on Saturday, the FDA authorized Johnson & Johnson’s vaccine against COVID-19. This decision expands the availability of vaccines, which brings us closer to the end of the epidemic in the U.S. and offers hope for a faster economic recovery. The new vaccine is highly effective (it provides 85-percent protection against severe COVID-19 28 days after vaccination) and most importantly, requires only one dose, which facilitates efficient distribution. So, the approval of another vaccine is rather bad news for gold and could add to the metal’s problems in the near future.

However, the most important development from the last week was the jump in the bond yields . As the chart below shows, after a short stabilization in the first half of the week, the yields on the 10-year Treasuries indexed by inflation rose from -0.79 to -0.60 percent on Thursday (Feb. 25). This surge in the real interest rates is negative for the price of gold.

Implications for Gold

What does this all mean for the price of gold? Well, the increase in the bond yields is clearly bad for the yellow metal. Although they have partially risen to strengthened inflation expectations, the real interest rates have also soared. It means that investors expect wider fiscal deficits and expanding vaccination to accelerate inflation only partially, but in a large part, it will speed up real economic growth. This is a huge problem for gold, as real interest rates are a key driver of gold prices.

An additional issue is that the expectations of higher economic growth and inflation create accompanying expectations for the Fed to tighten its monetary policy and hike the federal funds rate , which exerts downward pressure on gold prices.

This is what we were afraid of at the beginning of the year. We noted that the real interest rates were so low that the next move could be up. Importantly, there is further room for upward trajectory, as the real interest rates are still importantly below the pre-pandemic level.

However, we wouldn’t bet on the return to the levels seen last year. After all, interest rates didn’t return to the pre-crisis level after the Great Recession , so it’s unlikely that they will do it now. Additionally, investors should remember that the U.S. government is now so heavily indebted that if Treasury yields continue to increase, the Fed would have to intervene. A failure to do so would mean that the interest expenses would grow too much, creating serious problems for the Treasury. So, the current bearish trend in gold may not last forever – although it may still take some time.

If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care

Zoom Shares Surge Over 10% On Solid Q4 Earnings, Upbeat Guidance

San Jose, California-based communications technology company Zoom’s shares rose over 10% in extended trading on Monday after the video conferencing platform provider reported better-than-expected earnings in the fourth quarter and issued a solid outlook for the first quarter.

The company, which provides videotelephony and online chat services through a cloud-based peer-to-peer software platform, reported quarterly revenue of $882.5 million, beating the market expectations of $811.8 million.

On an adjusted basis, Zoom’s earnings per share rose to $1.22 per share, which represents year-over-year growth of over 710% from $0.15 per share seen in the same quarter a year ago. That also beat Wall Street’s estimates of 79 cents per share.

Zoom Video Communications forecast first-quarter revenue in the range of $900 million-$905 million, better than analysts’ expectations of $829.2 million. For the adjusted earnings, Zoom expected to be between $0.95 and $0.97 with approximately 307 million non-GAAP weighted average shares outstanding.

Following this optimism, Zoom shares, which surged over 395% in 2020 and added another 21% so far this year, rose about 10% to $444 in extended trading on Monday.

“I said in our preview to customers that if they can maintain the 2-year revenue growth rate of the last 2 quarters of 451% growth then I care less what their guide is. Well, they did. But add to that they actually gave a strong guide. But I still think there’s a big upside to their guide. The company beat on gross margins too but gave a weak gross margin guide because they are giving away to schools for free during the pandemic,” noted Chaim Siegel, equity analyst at Elazar Advisors.

“I think they are conservative on gross margins too. As a bonus, they have on their website to end free education subscriptions July 31st. If so margins will jump and worst case the hit is short term. The company said apps is their largest opportunity and that’s not even in our model. Wow! For expenses, their opex growth has been running about 35% of revenue growth. So running that through also I get the big upside. Our bull case is 65x 2021 $10.63 = $692 target. That’s on 2021 numbers. In April we start using 2022 numbers. Yikes.”

Zoom Stock Price Forecast

Eleven analysts who offered stock ratings for Zoom in the last three months forecast the average price in 12 months of $488.64 with a high forecast of $610.00 and a low forecast of $375.00.

The average price target represents a 19.28% increase from the last price of $409.66. From those 11 analysts, six rated “Buy”, five rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $420 with a high of $490 under a bull scenario and $270 under the worst-case scenario. The firm gave an “Equal-weight” rating on the communications software company’s stock.

“Uncertainty in what real room looks like, but FY22 virtual backdrop looks beautiful for now. Zoom remains in a leadership position within the large UC opportunity, a dynamic we believed was being lost ahead of the quarter but seems more fully realized post-run up into quarter and after hours. We were encouraged in FQ4 by strong traction with upmarket and positive proof points with Phone, which should help Zoom trade above our base case for now, but questions of churn in 2H keep us more reserved,” said Meta Marshall, equity analyst at Morgan Stanley.

“As previewed, negative investor concerns around heightened SMB customer churn were largely dismissed as churn came in below expectations and the company posted a meaningful beat in the quarter, growing 369% Y/Y. We are encouraged by a strong setup into FY22, a reason we were tactically positive into the print. We could become more positive longer-term were channel commentary around Zoom Phone to improve.”

Several other analysts have also updated their stock outlook. JP Morgan raised the target price to $456 from $450. Credit Suisse upped the stock price forecast to $375 from $340. Rosenblatt Securities lowered their target price to $350 from $435.

Analyst Comments

Zoom has established its position as the newly emerged leader in video conferencing, now a growth market, largely credible to the company itself given an introduction of a solution that employees actually use. Company has meaningful competitive moat built on more than just architecture, but a rapid uptick in video usage has attracted significant investment efforts from competitors,” Morgan Stanley’s Marshall added.

“Position within customers makes an attractive opportunity to expand into broader UC market. Early wins encouraging. Environment post-COVID-19 and large-scale WFH, and timing to reach, less certain.”

Check out FX Empire’s earnings calendar

Gold Forecast – Expecting a Bottom in Gold this Week

Gold is below the November low, and our Gold Cycle Indicator reached its maximum bullish reading of ZERO (0). The conditions are ripe for a bottom, in our opinion.

The uptrends in silver and platinum remain strong, and prices continue to lead gold. I see the potential for a breakout and sharp advance over the coming weeks in both these metals.

Several gold miners are back to pre-Covid price levels. I view this as an excellent long-term opportunity and believe we will look back at today’s prices as a gift.

The Gold Cycle Indicator finished the week at ZERO (0), our maximum bullish reading.

 

GOLD MONTHLY: Gold is within striking distance of the 20-Month moving average ($1697) after confirming a Bull Market Breakout in 2019. When gold is in a bull market, buying a tag of the 20-month MA is usually a good long-term opportunity. I believe this time is no different.

Chart, histogram Description automatically generated

GOLD DAILY: This week I’ll be on the lookout for signs of a bottom in gold if/when prices reach the lower intermediate trend channel (currently crossing $1685) or near the post-Covid congestion boundary encompassing $1675. Essentially, I’m looking for a bottom this week between $1665 and $1685. A temporary spike below support remains possible.

 

SILVER FORECAST: After lagging gold for years, silver is finally leading prices higher. I’ve been expecting this, and it is a very bullish sign, in my opinion.

Near-Term Outlook – Silver is consolidating in what I believe is a rounded continuation pattern. Prices could dip down towards $24.00 to maintain pattern symmetry. Ultimately, I expect a breakout above $30.00. It would take a sustained breakdown below $22.00 (the rounded bottom low) to invalidate the pattern and promote a more extended consolidation period.

GDX BREAKOUT BACKTEST: Gold miners broke out from a 7-year base in 2020. Prices are backtesting that breakout area now, and I believe we could be approaching a critical low.

Note- If I’m correct and precious metals have started a new multi-year bull market, then this might be the last time we see GDX near $30.00 for a very long time.

 

The time to be greedy is when others are fearful; I think we are almost there in gold.

I’ll be looking for leading price action from silver and platinum to signal a bottom and the next rally.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For regular updates, please visit here.

For a look at all of today’s economic events, check out our economic calendar.

Target Has Strong Upside Potential; Likely to Log Over 50% Jump in Q4 Profit

Target, one of the largest North American retailers offering customers both everyday essentials and fashionables, is expected to report a profit of $2.55 per share in the fourth quarter, which represents year-over-year growth of over 50% from $1.69 per share seen in the same quarter a year ago.

“We maintain our 4Q20 EPS estimate of $2.55 on comps +17.2%, in line with holiday sales, but could see upside on stimulus benefit in Jan. We model FY21 EPS of $8.96, +2% above Street. Target’s (TGT) ability to comp the comp will be the headline topic at its Investor Day, and management could conservatively guide FY21 comps and EPS to -LSD to -MSD,” said Oliver Chen, equity analyst at Cowen and Company.

“Fundamentally, we do believe TGT’s momentum is well-positioned to continue as consumers invest in home, appreciate TGT’s private brands, and take advantage of a myriad of convenient and innovative shopping modalities including Drive-Up; furthermore, the backdrop of stimulus payments and a high savings rate are strong positives.”

In the last four consecutive quarters, on average, the company has delivered an earnings surprise of 60%. The Minneapolis, Minnesota-based company would post year-over-year revenue growth of over 17% to $27.419 billion.

Target shares, which surged over 37% in 2020 and added another 6% so far this year, traded about 2% higher at $186.51 on Monday.

Target Stock Price Forecast

Twelve analysts who offered stock ratings for Target in the last three months forecast the average price in 12 months of $216.33 with a high forecast of $235.00 and a low forecast of $195.00.

The average price target represents a 16.35% increase from the last price of $185.93. From those 12 analysts, 10 rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $195 with a high of $250 under a bull scenario and $135 under the worst-case scenario. The firm gave an “Equal-weight” rating on the mass-market retail company’s stock.

“We like Target (TGT) and believe its positioning post-COVID-19 is among the best across Retail. We are equal weight rated as valuation seems fair against Street estimates that also seem reasonable. As highlighted in our 2021 Outlook, we could be more constructive on TGT if we could more comfortably get to an $11 2022 EPS scenario. We think bullish ’21 EPS estimates are in the $10-$10.50 range followed by something similar and/or modest growth in ’22. Getting to $11 by ’22 is not unrealistic as it would take 3%-4% comps in each of the next two years,” said Simeon Gutman, equity analyst at Morgan Stanley.

“This top-line growth seems a bit optimistic though and assumes TGT retains nearly 100% of its 2020 market share gains. As we look for ways to get more constructive, we thought valuing Shipt offers an interesting angle with “hidden” asset value. As discussed below, we think Shipt could be worth ~$7b and have reflected this in our updated bull case. Our TGT bull/bear case spread now tilts positively and as we learn more about this asset, we will consider incorporating it into our base case.”

Several other analysts have also updated their stock outlook. BofA Global Research raised the price objective to $260 from $225. Stifel upgraded to buy from hold and upped the target price to $225 from $200. Target had its price objective boosted by Telsey Advisory Group to $225 from $190. The brokerage currently has an outperform rating on the retailer’s stock.

Moreover, Raymond James upped their price objective to $200 from $180 and gave the stock a strong-buy rating. Argus upgraded Target from a hold rating to a buy rating and set a $205 price target on the stock.

Analyst Comments

TGT comped +17.2% in November and December and we believe trends accelerated in January driven by the stimulus. Hence, we expect TGT to print a high teens comp in Q4 with EPS in the $2.50-$3 range, vs consensus at +16% comps and $2.54 in EPS. Similar to other COVID environment beneficiaries, a Q4 beat is unlikely to change the debate as investors are focused on ’21 guidance,” Morgan Stanley’s Gutman added.

“We expect TGT to guide to slightly negative to flat comps for ’21 and EPS between $9 and $10 (vs. the Street at -3.5% comps and EPS of $8.78), including gross margin expansion as mix normalizes and modest SG&A deleverage on lower sales growth. Bulls are likely looking for a flat to LSD comp guide and ’21 EPS in the $10 – $10.50 range, which would require SG&A leverage in addition to gross margin expansion.”

Check out FX Empire’s earnings calendar

DraftKings Shares Soar as Q4 Earnings, 2021 Guidance Top Estimates

The U.S.-focused gambling operator DraftKings’ shares jumped over 6% on Friday after it reported better-than-expected earnings in the fourth quarter and raised 2021 revenue guidance well ahead of analysts’ expectations.

Boston-based sports betting platform said its revenue increase of 146% to $322 million in the quarter ended December 31, 2020, up from $131 million during the same period a year ago. That was above Wall Street’s consensus estimates of $232.6 million.

DraftKings raised their forecasts for 2021 revenue in the range of $900 million to $1 billion from the previous target of $750 million-$850 million. That was also above the market expectations of $872.15 million for the year.

Following this optimism, DraftKings shares, which surged over 335% in 2020 and added another 32% so far this year, closed 6.43% higher at $61.53 on Friday.

“Following DraftKings‘ reported Q4:20 results, we are raising our FY21 revenue estimates reflecting upwardly revised management guidance. Our price target goes from $55 to $60 based on higher out-year estimates, driving an upward revision to our DCF. We remain Market Perform given tough 2H:21 compares including a moderating shelter-at-home tailwind and a cautious stance on the upcoming Investor Day,” said Stephen Glagola, equity analyst at Cowen and Company.

Executive Comments

“With a favorable fourth quarter sports calendar and strong marketing execution, DraftKings was able to generate tremendous customer acquisition and engagement that propelled us to $322 million in fourth-quarter revenue, a 98% year over year increase,” said Jason Robins, DraftKings’ co-founder, CEO and Chairman of the Board.

“In the fourth quarter of 2020, we saw MUPs increase 44% to 1.5 million and ARPMUP increase 55% to $65. We are raising our revenue outlook for 2021 due to our expectation for continued growth, the outperformance of our core business, and newly launched states that were not included in our previous guidance.”

DraftKings Stock Price Forecast

Fifteen analysts who offered stock ratings for DraftKings in the last three months forecast the average price in 12 months of $66.07 with a high forecast of $100.00 and a low forecast of $41.00.

The average price target represents a 7.38% increase from the last price of $61.53. From those 15 analysts, 10 rated “Buy”, four rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $66 with a high of $188 under a bull scenario and $13 under the worst-case scenario. The firm gave an “Overweight” rating on the gambling operator’s stock.

“4Q results and 2021 guidance were better than expected. We expect iGaming share to be higher than we previously forecasted. As a result, our ’25e EBITDA rises to $1.1 billion, and our price target goes to $66 accordingly. Reiterate Overweight,” said Thomas Allen, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. Truist Securities raised the price target to $65 from $60. Evercore ISI upped the stock price forecast to $75 from $70. JP Morgan increased the price target to $58 from $48. BofA Global Research raised the price objective to $65 from $60. Bernstein started covering with an outperform rating and set the price target at $71.

Analyst Comments

“We forecast legal US sports betting & iGaming to increase from <$1.5 billion in 2019 to $15 billion in 2025, with COVID-19 increasing the market opportunity as states look for new sources of tax revenue. Forecast DraftKings to maintain top 2 shares, 25% in sports betting and 18% in iGaming in 2025,” Morgan Stanley’s Allen added.

“CAC advantage through its legacy Daily Fantasy Sports (DFS) database and improving marketing efficiency drives 30%/34% 2025/2028 EBITDA margins.”

Check out FX Empire’s earnings calendar

Earnings to Watch Next Week: Zoom, Target, Dollar Tree and Costco in Focus

Earnings Calendar For The Week Of March 1

Monday (March 1)

IN THE SPOTLIGHT: ZOOM

Zoom Video Communications Inc is expected to report a profit of $0.79 per share in the fourth quarter, which represents year-over-year growth of over 425% from $0.15 per share seen in the same quarter a year ago.

The company, which provides videotelephony and online chat services through a cloud-based peer-to-peer software platform, would post year-over-year revenue growth of over 330% to $811.77 million.

“As work-from-home (WFH) persists and Zoom (ZM) Phone gains traction, ZM appears to set up for a strong FQ4 print. More than FQ4/FQ1 report/guide, investor focus/reaction likely based on whether co guides full FY22. Would view the full-year guide as a pos NT catalyst given cautious investor sentiment, however, remain Equal-weight given 2H comps,” noted Meta A Marshall, an equity analyst at Morgan Stanley.

Zoom has established its position as the newly emerged leader in video conferencing, now a growth market, largely credible to the company itself given an introduction of a solution that employees actually use. The company has a meaningful competitive moat built on more than just architecture, but a rapid uptick in video usage has attracted significant investment efforts from competitors. Position within customers makes an attractive opportunity to expand into the broader UC market. Early wins encouraging. Environment post-COVID-19 and large-scale WFH, and timing to reach, less certain.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 1

Ticker Company EPS Forecast
BNZL Bunzl £71.65
FMX Fomento Economico Mexicano Sab $14.49
XRAY Dentsply International $0.64
PRGO Perrigo $1.01
TGNA Tegna $1.13
AXSM Axsome Therapeutics Inc -$0.75
EVTC Evertec $0.55
THRM Gentherm $0.65
BZLFY Bunzl plc $0.13
NRG NRG Energy $0.45
MIDD Middleby $1.40
AY Atlantica Yield $0.23
ZM Zoom Video Communications $0.79
NVAX Novavax -$1.78
TTEC TeleTech $0.71
AMRC Ameresco $0.29
IPAR Inter Parfums $0.30
NSTG NanoString Technologies -$0.50
AI Arlington Asset Investment -$0.19
CCXI ChemoCentryx -$0.33
CYRX Cryoport Inc -$0.05
SGMS Scientific Games -$0.44
DDD 3D Systems $0.09
SRPT Sarepta Therapeutics -$1.80
NGHC National General $0.73
SRNE Sorrento Therape -$0.23
JD JD.com $0.22
AIV Apartment $0.01
PKX Posco $1.52
BKRKY Bank Rakyat $0.13
OSH Oak Street Health -$0.25
YALA Yalla $0.12
KHOLY Koc Holdings AS $0.55
DM Dominion Midstream Partners -$0.06
CXO Concho Resources $1.18
MNTA Momenta Pharmaceuticals -$0.50
PE Parsley Energy $0.25
BEAT BioTelemetry $0.48

 

Tuesday (March 2)

IN THE SPOTLIGHT: TARGET

The eighth-largest retailer in the United States is expected to report a profit of $2.55 per share in the fourth quarter, which represents year-over-year growth of over 50% from $1.69 per share seen in the same quarter a year ago. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of 60%.

The Minneapolis, Minnesota-based company would post year-over-year revenue growth of over 17% to $27.419 billion.

“We maintain our 4Q20 EPS estimate of $2.55 on comps +17.2%, in line with holiday sales, but could see upside on stimulus benefit in Jan. We model FY21 EPS of $8.96, +2% above Street. TGT’s ability to comp the comp will be the headline topic at its Investor Day, and management could conservatively guide FY21 comps and EPS to -LSD to -MSD,” said Oliver Chen, equity analyst at Cowen and Company.

“Fundamentally, we do believe TGT’s momentum is well-positioned to continue as consumers invest in home, appreciate TGT’s private brands, and take advantage of a myriad of convenient and innovative shopping modalities including Drive-Up; furthermore, the backdrop of stimulus payments and a high savings rate are strong positives.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 2

Ticker Company EPS Forecast
SYDB Sydbank A/S kr3.14
CRDA Croda International £84.78
TW Taylor Wimpey £17.00
WEIR Weir Group £43.79
TPK Travis Perkins £43.60
ROR Rotork £6.25
TGT Target $2.55
AZO AutoZone $12.80
KSS Kohl’s $0.99
AER AerCap $0.94
AMRS Amyris -$0.12
SE Spectra Energy -$0.55
DAR Darling Ingredients $0.38
QTRX Quanterix -$0.33
VEEV Veeva Systems $0.68
ROST Ross Stores $1.00
HPE Hewlett Packard $0.41
JWN Nordstrom $0.13
AMBA Ambarella $0.08
GO Grocery Outlet Holding Corp $0.23
URBN Urban Outfitters $0.28
BOX BOX $0.17
ALLK Allakos -$0.85
AHT Ashtead Group £0.29
EDEN Edenred €0.65
ITRK Intertek Group £83.44
IGT International Game Technology $0.04
EMG Man Group £0.07
MSNFY Minera Frisco ADR $0.03
AVAV AeroVironment $0.01
TGTX TG Therapeutics -$0.57

 

Wednesday (March 3)

IN THE SPOTLIGHT: DOLLAR TREE

Chesapeake, Virginia-based discount variety stores that sells items for $1 or less is expected to report a profit of $2.12 per share in the fiscal fourth quarter, which represents year-over-year growth of over 18% from $1.79 per share seen in the same quarter a year ago.

In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 14%.

The Fortune 500 company, which operates 15,115 stores throughout the 48 contiguous U.S. states and Canada, would post year-over-year revenue growth of over 7% to $6,774 million.

Dollar Tree’s namesake banner has a long history of strong performance, enabled by its differentiated value proposition, but its Family Dollar unit has struggled to generate top-line and margin growth since it was acquired in 2015. We suspect the Dollar Tree banner is better-positioned long-term, but do not believe the aggregated firm benefits from a durable competitive edge, as competitive pressure in a fast-changing retail environment amid minimal switching costs limits results. We expect the COVID-19 pandemic’s effects to be confined to the near term, leaving the long-term competitive dynamic intact,” said Zain Akbari, equity analyst at Morningstar.

“We expect comparable sales gains in the mid-single digits for the Dollar Tree banner and high-single-digits for Family Dollar in the fourth quarter, as rising infection rates led customers to stock up with a focus on essentials and value. Cost leverage should drive the quarter’s operating margin higher by nearly 100 basis points (to 10%) versus the same period in fiscal 2019. We expect sales to normalize in 2021as vaccines gradually contain the pandemic.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 3

Ticker Company EPS Forecast
DLTR Dollar Tree $2.12
WEN Wendy’s $0.18
TAC TransAlta USA -$0.07
PDCO Patterson Companies $0.51
DY Dycom Industries $0.04
MRVL Marvell Technology $0.29
SNOW Intrawest Resorts -$0.17
SPLK Splunk $0.03
AEO American Eagle Outfitters $0.36
SQM Sociedad Quimica Y Minera De Chile $0.22
TCOM Trip.com Group Ltd $0.28
YEXT Yext Inc. -$0.08
MTLS Materialise $0.01
CPB Campbell Soup $0.83
NAV Navistar International -$0.02
VNET 21Vianet $0.05
ABM ABM Industries $0.58

 

Thursday (March 4)

IN THE SPOTLIGHT: COSTCO WHOLESALE

The largest wholesale club operator in the U.S. is expected to report a profit of $2.44 in the fiscal second quarter, which represents year-over-year growth of over 16% from $2.10 per share seen in the same quarter a year ago.

In the last four consecutive quarters, on average, the company has delivered an earnings surprise of 8.8%.

COST’s results have consistently been among the best in Retail. Over the past decade, COST has delivered 6% comps and 10% EBIT growth on average. It is rare to find a business with COST’s solid comp/membership growth, while relative e-commerce insulation differentiates its value proposition from other retailers,” said Simeon Gutman, equity analyst at Morgan Stanley.

“We are Overweight even as the stock trades at an elevated valuation given COST’s scarcity value, safety, and scale. In the near-term, we expect incremental sales uplifts from COVID-19 disruption, and earnings power looks stronger despite COVID-19 expenses.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 4

Ticker Company EPS Forecast
KR Kroger $0.69
TTC Toro $0.74
BJ BJs Wholesale Club Holdings Inc $0.67
BZUN Buzzi Unicem RSP $3.55
BURL Burlington Stores $2.11
CIEN Ciena $0.45
MIK Michaels Companies $1.41
JAMF Jamf $0.01
AVGO Avago Technologies $6.56
MDLA Medallia, Inc. -$0.01
GWRE Guidewire Software -$0.01
COO Cooper Companies $2.77
GPS Gap $0.19
COST Costco Wholesale $2.44
GOL Gol Linhas Aereas Inteligentes -$0.41
ALXO Alx Oncology Holdings Inc. -$0.36
AUOTY AU Optronics $0.31
TOELY Tokyo Electron Ltd PK $0.80
FIZZ National Beverage $0.33
CMD Cantel Medical Corp $0.49
PHI Philippine Long Distance Telephone $0.63
MBT Mobile TeleSystems OJSC $17.30
CNQ Canadian Natural Resource USA $0.10

 

Friday (March 5)

Ticker Company EPS Forecast
BIG Big Lots $2.50

 

Carvana Shares Soar After Analysts Upgrade Stock Forecasts

Tempe, Arizona-based Carvana’s shares jumped on Friday after several equity analysts upgraded their stock forecasts on the leading used-car retailer.

Morgan Stanley upgraded their base target price of $420 from $225 with a high of $800 under the bull-case scenario and $130 under the worst-case scenario. The investment firm also gave an “Overweight” rating for Carvana‘s stock.

“We believe Carvana is uniquely positioned to serve an automotive and transportation TAM that goes far beyond the used car market, driving potentially far higher growth that is not reflected in today’s share price. Upgrade to Overweight,” said Adam Jonas, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. Carvana had its target price increased by stock analysts at JMP Securities to $290 from $250. The brokerage presently has an “outperform” rating on the stock. D.A. Davidson raised the price objective to $275.

“The data in CVNA’s press release and shareholder letter was mixed as we detailed in our flash note. Unit and revenue growth were in line to better, but GPU wasn’t as strong, leading to only in line gross margins and lower EBITDA than consensus. Share data and other metrics around sourcing were better and guidance was about in line,” said Michael Baker, senior research analyst at D.A. Davidson.

“But we think the takes from the call as well as our call back paint a better picture with CVNA’s biggest issues coming from too much demand outstripping their ability to process their purchased vehicles. The good news is eventually that high-class problem will be worked through.”

A few more also upgraded their outlook. Stephens upped the stock price forecast to $250 from $225. JP Morgan increased the target price to $300 from $280. Piper Sandler raised the price objective to $302 from $260. Jefferies gave the target price of $350 with a buy rating.

CVNA announced plans to double reconditioning capacity to 1.25M units in 2022 by adding another 10 IRCs, meaning at a minimum capacity entering 2023 will be twice consensus estimates. Every long-term data point provided supports there being upside to forward consensus and confirms our view that CVNA will continue benefiting from a secular shift to e-commerce in the used car space,” said John Colantuoni, equity analyst at Jefferies.

“In terms of estimates, we are leaving 2021/22 retail units roughly unchanged, raising our whole units to account for elevated consumer purchases, and lowering our retail GPU to account for transitory headwinds in Q1. Our $350 price target remains unchanged, which represents 5x ’22 EV/Sales and is justified on a growth adjusted basis.”

Following this, Carvana shares, which soared over 160% in 2020, traded over 10% higher at $290 on Friday.

According to Tipranks, fifteen analysts who offered stock ratings for Carvana in the last three months forecast the average price in 12 months of $314.71 with a high forecast of $420.00 and a low forecast of $250.00.

The average price target represents a 7.81% increase from the last price of $291.93. From those 15 analysts, 13 rated “Buy”, two rated “Hold” and none rated “Sell”,

“We are bullish on Carvana’s growth trajectory in the used market and see scope for expansion into new retail sales, P&S and mega-fleet management service revenue. Carvana’s fully digital experience with full vertical integration (both software and physical IRC/logistics) offers a superior consumer experience that can scale profitably,” Morgan Stanley’s Jonas added.

“We believe the current share price at 1.0x EV/Sales (MS 2030 sales discounted back to 2021) is too cheap relative to our projected 35% top-line CAGR through 2025. CVNA is our top-ranked auto retailer stock.”

Will There Be Roaring Twenties for Gold?

The United States is strongly polarized, with blue versus red, liberals versus conservatives, and so on. People are divided along many lines, but the biggest division line is between those who count decades from 0 to 9 and those who count them from 1 to 10. It is intuitive for many people to adopt the first method, especially that we think of decades as ‘the 20s’, ‘the 30s’, and so on. However, the catch is that there was no Year Zero, so the first decade of the common era was years 1 to 10. Following this logic, the current decade started on January 1, 2021, not January 1, 2020.

So, I feel fully entitled to investigate how gold will behave in the new decade. The issue is especially interesting as some analysts claim that we are entering the Roaring Twenties 2.0. Are they correct?

On the surface, there are some similarities. The 1920s were a decade that followed the nightmare of World War I and the Spanish Flu pandemic . It was a time of quick economic growth (the U.S. GDP grew more than 40 percent in that period) and rapid technological innovation fueled predominantly by the rising access to electricity and big improvements in transportation (automobiles and planes).

Fast forward one century and we land in the 2020s, which is a decade following the nightmare of the coronavirus pandemic . There are hopes for an acceleration in technological progress driven mainly by the rising scope of remote work, digital solutions, cloud computing, artificial intelligence, Internet of Things, 5G networks, robotization, super-batteries, electric vehicles, and so on. And given the pent-up demand and months spent in lockdowns, consumers are ready to congregate and spend!

However, there are good reasons to be skeptical about the narrative of the Roaring Twenties 2.0 . The era of post-war prosperity was fueled by the return to the normalcy in the sphere of economic policy. I refer here to the fact that after WWI, there was a successful transition from a wartime economy to a peacetime economy. In contrast, in the aftermath of the Great Recession , there is a gradual transition from the peacetime economy to a wartime economy, that was only accelerated during the epidemic and the Great Lockdown .

In particular, both the government spending and the fiscal deficits were sharply reduced in the post-war era. In consequence, the U.S. public debt declined, especially in real terms. Similarly, the Fed reversed its monetary policy and allowed for monetary contraction (and quick recession) in 1919-20 to reverse wartime inflation .

In other words, the tighter monetary and fiscal policies led to an environment of economic prosperity. Also helpful for the U.S. were developments such as trustbusting and an economic recovery in Germany after its hyperinflation – all developments that will not replay in the 2020s.

In contrast, neither the fiscal policy nor the monetary policy are going to normalize anytime soon , even if the COVID-19 pandemic is brought under control. The national debt has risen by almost $7.8 trillion under Trump’s presidency – a level that rivals Italy’s. The debt-to-GDP ratio has soared, as the chart below shows. And Joe Biden doesn’t worry about deficits – instead, with his plan of $1.9 trillion economic stimulus, he is going to balloon the public debt even further by increasing government spending.

But maybe we shouldn’t worry about the debt? After all, after WW2, the public debt was even higher, but the economy didn’t collapse – actually, it grew so rapidly that the debt-to-GDP ratio diminished significantly. Yup, that’s correct, but after the pandemic, the economy will not recover as quickly as in the aftermath of WW2. Oh, and by the way, the economy grew its way out of debt only thanks to several years of high inflation .

Therefore, the current complacency and naïve belief in low- interest rates and debt-driven economic recovery makes the scenario of the Roaring Twenties 2.0 not very likely, despite all the fantastic technological progress we are observing. So, instead of acceleration, we could rather observe an economic slowdown due to the poor economic policy that hampers the expansion of the private sector. Indeed, the recent report by the World Bank warns about the lost decade: “If history is any guide, unless there are substantial and effective reforms, the global economy is heading for a decade of disappointing growth outcomes.” This is good news for the gold market.

But even if the Roaring Twenties 2.0 do happen, it wouldn’t have to be very bad for the yellow metal. It’s true that the 1920s was a period of wealth, prosperity, and decadence in which people didn’t think about preserving capital and investing in safe-haven assets such as gold . In contrast, there was a lot of risk-taking fueling the boom in the stock market. However, the Roaring Twenties were an inflationary period of debt-driven growth that ended in the systemic economic crisis called the Great Depression – and gold can shine in such an macroeconomic environment .

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care.