S&P 500 Looks Ready To Move Higher As Traders Stay Bullish

Traders Ignore Valuation Concerns And Continue To Buy Stocks

S&P 500 finished the previous week near all-time high levels as traders remained optimistic despite worries about the potential reduction of Fed’s asset purchase program.

The stock market remains driven by available liquidity, as well as FOMO (fear of missing out) and TINA (there is no alternative). Meanwhile, the yield of 10-year Treasuries remains stuck near 1.30% which is bullish for stocks. The U.S. Dollar Index has pulled back from recent highs which is also bullish for the stock market, but it should be noted that fluctuations of the American currency had little impact on U.S. stock market in 2021.

Some analysts speculated that S&P 500 will find itself under pressure after the end of the earnings season as stocks would lack catalysts to move higher. In addition, September has been (on average) the worst month for S&P 500 in the last thirty years. However, the stock market started the month with a test of new highs which indicated that traders remained bullish despite problems like the spread of the Delta variant of coronavirus or the potential reduction of Fed’s asset purchase program.

As is often the case in the stock market, there is no pullback when too many people are waiting for such a pullback. The last chance to “buy stocks at a discount” was in mid-August, and this pullback was quickly bought. The two other pullbacks which happened during this summer were very quickly bought as well. This indicates that there are many traders on sidelines who use any pullback to buy stocks. When many traders want to buy and few traders want to sell, a correction cannot occur.

Obviously, many stocks are generously valued by the market. Tesla is trading at more then 105 forward P/E , and it remains well below yearly highs! Netflix is valued at more than 45 forward P/E after the recent rally.

The risks for high-flying growth stocks have been recently highlighted by Zoom which issued disappointing guidance for the third quarter and lost about 17% of market capitalization in just one trading session. However, even Zoom shares have found some support in recent trading sessions as traders rushed to buy the stock after the major pullback despite the fact that it is valued at more than 60 forward P/E while analyst estimates have started to move lower.

In this liquidity-driven market, the Fed is one of the main players. So far, the Fed was successful in managing market’s expectations. Fed Chair Jerome Powell remained very dovish and calmed markets on rare ocassions of small panic.

Powell has a more challenging task in front of him as the Fed will have to cut its asset purchase program in the upcoming months. Even if the Fed decides that it’s too early to announce tapering at its meeting on September 22, it will still have to reduce support to markets at the beginning of the next year to avoid pushing inflation above reasonable levels.

It should be noted that traders may stay bullish and bet on dovish comments from Powell up until the time he finally says that it is time to reduce the asset purchase program. In this light, the market may experience several months of calm, bullish trading in case the Fed keeps the current support intact at its next meeting.

The current bullish trend is strong, and traders have been “trained” to buy pullbacks. A change of trend demands strong catalysts, and there are no such catalysts at this point. The situation may change in case inflation gets out of control, Fed has to reduce its asset purchase program at a very fast pace while Delta variant forces new lockdowns, but this negative scenario is not the base case for the market right now.

Technical Analysis

sp 500 september 6 2021

Let’s take a look at the weekly chart. S&P 500 is moving higher in a rather tight upside channel, and any attempt to settle below the low end of this channel is quickly bought.

RSI is in the overbought territory and the risks of a pullback are increasing. However, RSI has been in the overbought territory for several weeks and nothing serious happened as pullbacks have been quickly bought.

sp 500 september 6 2021 daily

On the daily chart RSI remains in the moderate territory which is good for the continuation of the current upside trend. Pullbacks are more visible on the daily chart, but it is obvious that they were not big at all as the bullish trend remained strong.

This is the type of the market when being bearish and trying to short tops leads to poor results. At one point, the bears will be right, but they can lose a lot of money trying to find the true top. Put simply, the trend remains bullish until proven otherwise. The Fed may break the trend by reducing support too quickly, but it has been very supportive in previous months and will likely remain very cautious when it finally begins to reduce its asset purchase program.

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

Why Zoom Stock Is Down By 16% Today

Zoom Stock Dives As Q3 Guidance Disappoints

Shares of Zoom found themselves under strong pressure after the company released its second-quarter report.

Zoom reported revenue of $1.02 billion and adjusted earnings of $1.36 per share, beating analyst estimates on both earnings and revenue. While second-quarter results were strong, the company’s guidance was disappointing.

In the third quarter, Zoom expects to report revenue of $1.015 billion – $1.02 billion and adjusted earnings of $1.07 – $1.08 per share.

Zoom explained that it faced headwinds as workers got back to their offices while students moved back to schools. The company also noted that demand from small customers declined, while demand from large firms remained strong.

What’s Next For Zoom Stock?

The company’s third-quarter guidance implies no growth, which is not good for richly-valued stocks like Zoom. Currently, analysts expect that Zoom will report earnings of $4.67 per share in the current year and $4.76 per share in the next year, so the stock is trading at more than 60 forward P/E even after today’s drop.

Such valuation implies fast growth but Zoom is facing headwinds. The company stated that the return to work was its main near-term problem, but the market will also take a look at the possibility of increasing competition from products like Microsoft Teams.

It remains to be seen whether the significant pullback will attract speculative traders as slowing growth is traditionally considered to be a dangerous catalyst for richly-valued stocks like Zoom.

Zoom’s growth story is now under question, and there is potential for additional multiple compression, which will inevitably put pressure on the company’s shares as earnings estimates should not increase in the upcoming weeks.

At the same time, it should be noted that one quarter without growth is not the end of the world for Zoom, and the company may move back to the growth trajectory in 2022.

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

Zoom’s Stock Price Plunges As CFO Discusses Concerns Over Businesses Reopening

Zoom had been one of the best-performing stocks over the past year, thanks to the Coronavirus pandemic forcing people to work from home. However, with businesses and offices now reopening, the company might face growth challenges.

Zoom Could Face Some Challenges

The Chief Financial Officer (CFO) of Zoom Kelly Steckelberg told CNBC’s Squawk Box earlier today that the company could face growth challenges as businesses and offices start to reopen. Zoom’s video interactive software has gained massive over the past 18 months, thanks to the Coronavirus.

The pandemic forced businesses and offices to operate from home, with meetings turning virtual. As a result, corporate entities and freelancers turned to Zoom to carry out their meetings despite the pandemic.

However, with the vaccinated population now increasing and businesses operating again, live events and meetings have started again. This has affected Zoom’s performance, and it could extend for the coming months.

The CFO said, “What we’re seeing… is headwinds in our mass markets, so these are individual consumers and small businesses. And, as you say, they are now moving around the world. People are taking vacations again, they’re going to happy hours in person.”

With the fast rate businesses and offices are reopening, the CFO added that their guidance for the rest of the year is not so positive, and this will reflect in the stock’s performance. In its latest guidance, Zoom expects massive growth from its direct and channel businesses. However, it expects a decrease in its online businesses due to the challenges facing smaller customers and consumers.

Zoom’s stock price is down by 15% so far today, becoming one of the biggest losers in the market. ZM is trading at $292 per share at the time of this report.

ZM stock chart. Source: FXEMPIRE

Zoom Delivers Excellent Q2 Earnings

The CFO’s comments come 24 hours after the company delivered an excellent second-quarter earnings result. In the second half of 2021, Zoom’s earnings per share were $1.36, surpassing the analysts’ estimate of $1.16. The revenue of $1.02 billion also surpassed the $991.0 million as expected by analysts.

The revenue increase was 54% year-over-year for the second quarter. However, Zoom’s growth had reduced during the previous quarter. The first quarter of the year saw Zoom record a 191% growth rate, but it expects it to be 31% in the current quarter.

Marketmind: Who’s Rocking The Boat Now?

But China is rocking the boat.

Its non-manufacturing PMI fell to a contractionary 47.5 in August (53.3 in July) and the composite PMI recorded its first sub-50 reading since February 2020.

The impact of new rules restricting under-18s from playing video games for more than three hours a week is also weighing — Shenzen-listed tech shares are down more than 2%.

And a Reuters report of a regulatory probe into the property investments of Ping An Insurance sent its shares 7% lower at one point.

Still, world shares scaled new record highs, while Wall Street futures are almost half a percent higher. The main focus in Europe is the euro zone “flash” inflation data following Germany’s 3.4% reading on Monday. Economists polled by Reuters predict 2.7% — that would be the highest reading since 2012.

Bond markets however, shrugged off Germany’s outsized reading and are likely to keep their eyes firmly trained on the Fed and Friday’s August U.S. jobs data.

On the corporate front, dealmaking never really took a break over the summer but expect the pace to pick up in coming weeks.

Today’s big news is the $4.7 billion purchase by tech investor Prosus of Indian payments platform BillDesk. And the familiar laments about supply chain disruptions continue – business supplies distributor Bunzl is the latest.

Finally, watch travel stocks after EU removed the United States and five other countries from its safe travel list. The United States, on its part, has issued a “do not travel” advisory for several European nations.

Developments that should provide more direction to markets on Tuesday:

– Japan’s industrial output shrank in July.

– Germany’s centre-left SPD cement hold on first place ahead of Sept 26 elections.

– Zoom Q2 revenues rose 54% to $1.02 billion, beating forecasts of $991 million; BlackRock AUM at record $9.49 trillion in Q2 vs $7.32 trillion a year earlier

– Chinese Evergrande New Energy Vehicle shares down after big H1 loss.

-Chile central bank meeting

-Chicago PMI due out

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

(Reporting by Sujata Rao; editing by Dhara Ranasinghe)

 

Zoom Shares Slump Over 12% as Revenue Outlook Disappoints

Zoom shares slumped more than 12% in an extended trading hour on Monday after the San Jose, California-based communications technology company warned that video conferencing demand is easing faster than anticipated following a pandemic-driven boom in 2020.

The company, which provides video telephony and online chat services through a cloud-based peer-to-peer software platform, forecasts fiscal third-quarter 2022 total revenue in the range of $1.015 billion and $1.020 billion and non-GAAP diluted EPS is expected to be between $1.07 and $1.08.

This increase is only modest compared with the multifold growth Zoom experienced last year during the COVID-19 crisis.

For the full fiscal year 2022, the company forecasts total revenue in the range of $4.005 billion and $4.015 billion and on-GAAP diluted EPS is expected to be between $4.75 and $4.79.

Following this, Zoom shares plunged over 12% to $305.05 in extended trading hours on Monday, hitting the lowest since May 20. The stock fell about 10% so far this year.

However, the company reported better-than-expected earnings and revenue in the second quarter.

Analyst Comments

Zoom (ZM) beat FQ2 Street expectations by 3% in FQ2, a disappointment relative to investor expectations for a ~5% beat as SMB churn picked up. While a pickup in churn provides headwinds in NT, still believe with ent business growing 2x SMB, that ZM has an ability to outperform growth expectations over NTM,” noted Meta Marshall, equity analyst at Morgan Stanley.

Zoom has established its position as the leader in video conferencing, now a growth market. The company has a meaningful competitive moat built on more than just architecture. Position within customers makes an attractive opportunity to expand into the broader UC market. Early wins are encouraging. Expanding platform with pending FIVN acquisition. Manageable churn post-COVID as a move to hybrid work setups.”

Zoom Stock Price Forecast

Twenty-one analysts who offered stock ratings for Zoom Video Communications in the last three months forecast the average price in 12 months of $424.25 with a high forecast of $495.00 and a low forecast of $345.00.

The average price target represents a 22.09% change from the last price of $347.50. From those 21 analysts, 11 rated “Buy”, 10 rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $360 with a high of $480 under a bull scenario and $240 under the worst-case scenario. The firm gave an “Equal-weight” rating on the communications software company’s stock.

Several other analysts have also updated their stock outlook. BTIG slashed the stock price forecast to $460 from $495. Piper Sandler cut the target price to $369 from $464. JPMorgan lowered the target price to $385 from $456.

“We remain impressed by management’s ability to overdeliver in terms of both growth and margins. Given strong results, we are raising our estimates slightly, driving our fair value estimate to $252 per share from $245 but we still view shares as overvalued,” noted Dan Romanoff, Equity Analyst at Morningstar.

Check out FX Empire’s earnings calendar

Zoom Dead Money So Far in 2021

Zoom Video Communications Inc. (ZM) reports fiscal Q1 2022 earnings after Monday’s closing bell, with analysts looking for a profit of $1.16 per-share on $990.2 million in revenue. If met, earnings-per-share (EPS) will mark a 26% profit increase compared to the same quarter last year. The virtual meeting provider has beaten estimates every quarter since coming public in April 2019, posting a 191.4% year-over-year revenue increase in the quarter ending May 31st.

Growing Competition in a Post-Pandemic World

The company continues to diversify its product catalog after 2020’s historic uptrend, driven by pandemic lockdowns around the world. Meanwhile, multiple competitors are offering alternatives to the Zoom platform at the same time that lockdowns have drawn huge political opposition, despite the rise of the Delta variant. It’s been a race against time for Zoom, seeking to replace lost income to maintain its rich valuation and high stock price.

Morgan Stanley analyst Meta Marshall upgraded Zoom to ‘Overweight’ last week, noting “we think that enterprise momentum, combined with margin headwinds dissipating, creates a positive setup into FQ2. While revenue expectations are not low, we believe they are doable, which combined with upcoming Zoomtopia and FY23 guidance in a couple of quarters, leaves us more optimistic on the stock at current valuation”.

Wall Street and Technical Outlook

Wall Street consensus has improved in the last three months, now standing at an ‘Overweight’ rating based upon 14 ‘Buy’, 1 ‘Overweight’, 11 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $242 to a Street-high $525 while the stock ended Friday’s session more than $75 below the median $416 target. This low placement highlights investor apathy toward pandemic beneficiaries, most recently illustrated by Peloton Interactive Inc.’s (PTON) steep post-earnings slide.

Zoom broke out above the 2009 high at 107.34 in February 2020, entering an historic uptrend that hit an all-time high at 588.84 in October, just weeks before Pfizer Inc. (PFE) and BioNTech SE (BNTX) announced the success of their vaccine. The stock has posted a long series of lower highs and lower lows since that time, crisscrossing the 200-day moving average and 50% rally retracement repeatedly since March.  Accumulation fell to an 8-month low last week, highlighting slow-motion profit-taking that could easily stretch into the fourth quarter.

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

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Earnings Week Ahead: Zoom, Nordson, Five Below and MongoDB in Focus

Earnings Calendar For The Week Of August 30

Monday (August 30)

IN THE SPOTLIGHT: ZOOM, NORDSON

ZOOM: The San Jose, California-based communications technology company is expected to report its second-quarter earnings of $1.16 per share, which represents year-over-year growth of over 26% from $0.92 per share seen in the same period a year ago.

The company, which provides video telephony and online chat services through a cloud-based peer-to-peer software platform, would post revenue growth of about 50% to $990.2 million. Zoom will report 2Q FY22 earnings after market close on Monday, August 30th.

Zoom expects to report revenue of $985 million to $990 million and adjusted earnings of $1.14 to $1.15 per share in the second quarter. In its full-year guidance, the company now expects revenue of $3.98 billion – $3.99 billion, and adjusted earnings of $4.56 – $4.61 per share.

“Continuation of WFH and structural increase in usage of video, progress in Phone, and pending FIVN acq supports Zoom Video Communications’ (ZM) longer-term platform opportunities. With Delta variant likely slowing NT churn, FQ2 expectations skew high. Remain EW but positively inclined w/ next legs of growth coming into view,” noted Meta A Marshall, 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 are encouraging. Expanding platform with pending FIVN acquisition. Environment post-COVID and large-scale WFH, and timing to reach, less certain.”

NORDSON: The Westlake, Ohio-based medical device manufacturer is expected to report its fiscal third-quarter earnings of $2.07 per share, which represents year-over-year growth of over 45% from $1.42 per share seen in the same period a year ago.

The maker of adhesives and industrial coatings would post revenue growth of about 12% to $600 million. Nordson will report 3Q FY21 earnings on Monday, August 30th. It is important to note that the company beat consensus expectations for EPS four times in a row. Monday’s better-than-expected results could help the stock hit new all-time highs.

“We are tactically constructive into Nordson’s (NDSN) 3Q21 earnings release next week, as we see the likelihood for a 3Q21 beat and full-year guidance raise. Additionally, we think NDSN’s favourable exposure to electronic components shortages (more an upside opportunity than downside risk) is differentiated,” noted Connor Lynagh, equity analyst at Morgan Stanley.

“We are making moderate revisions to our prior estimates, largely reflecting our incrementally positive outlook on NDSN’s end-markets. The impact on our long-term estimates is limited, with FY21 EBITDA only ~3% higher. Near-term, we have raised our 3Q consolidated revenue growth by ~400bps, with ATS ~700bps higher. Consequently, 3Q revenue is ~3% above prior, with EBITDA ~5% higher as well.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE AUGUST 30

Ticker Company EPS Forecast
LI Li Auto $0.00
CTLT Catalent $1.10
ZM Zoom Video Communications $1.16
NDSN Nordson $2.07
BACHY Bank China ADR $0.84
CEA China Eastern Airlines -$1.34
ADOOY Adaro Energy ADR $0.12

Tuesday (August 31)

Ticker Company EPS Forecast
NTES NetEase $6.16
ALXN Alexion Pharmaceuticals $3.43
IMAB I Mab -$1.24
EGFEY Eurobank Ergasias S.A. ADR $0.01
CRWD CrowdStrike Holdings Inc. Cl A $0.09
PVH PVH $1.20
AMBA Ambarella $0.25

Wednesday (September 1)

IN THE SPOTLIGHT: FIVE BELOW

The Philadelphia, Pennsylvania-based discount retailer Five Below is expected to report its second-quarter earnings of $1.11 per share, which represents year-over-year growth of over 45% from $0.50 per share seen in the same period a year ago.

The popular discount store retailer that sells products that cost up to $5 would post revenue growth of more than 50% to $656 million. Five Below will report 2Q FY21 earnings after market close on Wednesday, Sept 1. It is important to note that the company beat consensus expectations for EPS four times in a row.

Five Below’s (FIVE) profile among pure B&M retailers is nearly unmatched (20% top/bottom-line growth, no debt). It’s driven by a differentiated, defensible model focused on extreme value merchandise across diverse categories. FIVE is exiting the COVID-19 pandemic as a fundamentally stronger and more relevant business, with best-in-class growth characteristics, various company-specific initiatives in place, and solid liquidity,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“However, valuation is near peak the stock seems fairly valued, in our view, with a balanced risk/reward skew. White space store growth (>50% unit runway remaining) and multi-year track record of ~20% square footage growth with >90% productivity.”

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

Ticker Company EPS Forecast
CPB Campbell Soup $0.47
GEF Greif $1.54
VEEV Veeva Systems $0.87
SMTC Semtech $0.62
FIVE Five Below $1.11

Thursday (September 2)

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 second quarter, worse than -$0.22 per share seen in the same quarter a year ago.

However, the New York City-based company would post year-over-year revenue growth of over 30% to $182.4 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,” noted Sanjit Singh, equity analyst at Morgan Stanley.

“Second, the acceleration in customer adds suggests that its go-to-market model has matured to scale a modern, cloud-first business.  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 SEPTEMBER 2

Ticker Company EPS Forecast
BDEV Barratt Developments £32.00
CIEN Ciena $0.80
SIG Signet Jewelers $1.62
AEO American Eagle Outfitters $0.54
TTC Toro $0.77
HRL Hormel Foods $0.40
SAIC Science Applications International $1.47
GWRE Guidewire Software $0.24
AVGO Avago Technologies $6.88
COO Cooper Companies $3.29
PDCO Patterson Companies $0.37
MDB MongoDB Inc -$0.39
SMAR Smartsheet Inc. -$0.13
CLDR Cloudera Inc. $0.10
PD PagerDuty Inc. -$0.15
GMS GMS Inc. $1.26
DCI Donaldson $0.66
HPE Hewlett Packard $0.42
BRC Brady $0.71

Friday (September 3)

No major earnings are scheduled for release.

Zoom Q2 Earnings to Rise Over 26%, Revenue to Jump Nearly 50%

The San Jose, California-based communications technology company Zoom is expected to report its second-quarter earnings of $1.16 per share, which represents year-over-year growth of over 26% from $0.92 per share seen in the same period a year ago.

The company, which provides video telephony and online chat services through a cloud-based peer-to-peer software platform, would post revenue growth of about 50% to $990.2 million. Zoom will report 2Q FY22 earnings after market close on Monday, August 30th.

Zoom expects to report revenue of $985 million to $990 million and adjusted earnings of $1.14 to $1.15 per share in the second quarter. In its full-year guidance, the company now expects revenue of $3.98 billion – $3.99 billion, and adjusted earnings of $4.56 – $4.61 per share.

Zoom shares have been range-bound so far this year. The stock ended 0.74% lower at $337.74 on Wednesday.

Analyst Comments

“Continuation of WFH and structural increase in usage of video, progress in Phone, and pending FIVN acq supports Zoom Video Communications’ (ZM) longer-term platform opportunities. With Delta variant likely slowing NT churn, FQ2 expectations skew high. Remain EW but positively inclined w/ next legs of growth coming into view,” noted Meta A Marshall, 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 are encouraging. Expanding platform with pending FIVN acquisition. Environment post-COVID and large-scale WFH, and timing to reach, less certain.”

Zoom Stock Price Forecast

Twenty-one analysts who offered stock ratings for Zoom Video Communications in the last three months forecast the average price in 12 months of $421.75 with a high forecast of $495.00 and a low forecast of $345.00.

The average price target represents a 24.87% change from the last price of $337.74. From those 21 analysts, 10 rated “Buy”, 11 rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $360 with a high of $480 under a bull scenario and $240 under the worst-case scenario. The firm gave an “Equal-weight” rating on the communications software company’s stock.

Several other analysts have also updated their stock outlook. BTIG slashed the stock price forecast to $495 from $550. Deutsche Bank raised the target price to $375 from $360. JPMorgan lowered the target price to $385 from $456.

Check out FX Empire’s earnings calendar

How Options Are Fueling The Markets

First, let’s look at the covid crisis and how it played a role. As a result of the shutdowns, the FED took a really aggressive stance with its quantitative easing measures.  Lots of money printing to pay for massive stimulus payouts.  The worse news we hear historically is that the markets will react sharply to the downside.

In this market, they did the opposite because many in the market viewed the bad news as a sign the FED will keep its foot on the gas with their aggressive quantitative easing.  The markets love this as they see it as huge economic growth with less risk, even when things were shut down.  Many people were at home and had nothing to do but spend their stimulus money.  The markets loved this.  That is why we saw massive growth in AMZN, FB, GOOGL, and MSFT.  Other stocks favored from staying at home were ZM, NFLX, and TTD.

Now how do options fuel the markets?  Well, when an underlying stock has options there is a secondary derivative market that has its own supply and demand outside of the stock.  This can cause market makers to balance those demands.  How do they do this?

They do this by taking the difference of the total contracts bought and sold and adjust accordingly.  So for example let’s look at SPX.  In the below picture you can see Put volume is roughly half the call volume.  In this case, the market maker would engage in an activity called delta hedging where they would buy shares of stock to offset the difference between the Put and Call contract volume.  Since the market maker is only interested in the arbitrage between the bid and ask of these contracts, they want to stay delta neutral or, in other words, not be affected by stock price movement.

When they buy to offset, this can drive the price of an underlying stock up.  This is one reason why so many traders watch unusual options activity.

Every day on  Options Trading Signals we do defined risk trades that protect us from black swan events 24/7.  Many may think that is what stop losses are for.  Well, remember the markets are only open about 1/3 of the hours in a day.  Therefore, a stop loss only protects you for 1/3 of each day.  Stocks can gap up or down.  With options, you are always protected because we do defined risk in a spread.  We cover with multiple legs which are always on once you own.

Enjoy your day!

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

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

 

Zoom to Buy Cloud-Based Call Center Operator Five9 in $15 Billion Deal

Zoom has become a household name and investor favorite in the year since the coronavirus pandemic, as businesses and schools adopted its services to hold virtual classes, office meets and socialize.

But with rapid vaccination and life creeping back to normality, analysts and investors are looking to see how Zoom will sustain its hot streak of growth, especially with rivals Microsoft Corp, Cisco Systems Inc and Alphabet Inc’s Google snapping at its heels.

Five9, whose call center software is used by more than 2,000 clients across the globe to interact with their clients, counts firms such as Under Armour, Lululemon Athletica Inc and Olympus Corp as customers.

The deal makes strategic sense, as it helps accelerate Zoom’s product roadmap outside of its core offering, Barclays analyst Raimo Lenschow wrote in a note.

The San Jose, California-based company is now shifting focus to its two-year-old cloud-calling product Zoom Phone and conference-hosting product Zoom Rooms as bigger players amp up their video products.

“The acquisition is expected to help enhance Zoom’s presence with enterprise customers and allow it to accelerate its long-term growth opportunity by adding the $24-billion contact center market,” Zoom said in a statement on Sunday.

Under the terms of the deal, approved by the boards of both companies, Five9 stockholders will receive 0.5533 shares of Zoom stock for each share of Five9.

Based on Zoom’s Friday close, this represents a price of $200.28 for each share of Five9 common stock, or nearly a 13% premium.

Zoom shares, which have surged more than 450% since going public in 2019, were down 1.5% on Monday. Five9 shares were up 6% at $188.5.

Five9 will become an operating unit of Zoom and its chief executive, Rowan Trollope, will become a president of the company, staying on as chief of the unit after the deal, which is expected to close in the first half of 2022, it said.

Global spending on cloud-based conferencing is forecast to reach $5.41 billion this year, up from $5.02 billion in 2020, according to tech consultancy Gartner. It does not track market share, but analysts cite Zoom and Cisco as the leaders.

Goldman Sachs advised Zoom and Qatalyst Partners advised Five9.

(Reporting by Kanishka Singh, Subrat Patnaik and Tiyashi Datta in Bengaluru; Editing by Miyoung Kim, Clarence Fernandez, Gerry Doyle and Anil D’Silva)

Best Growth Stocks August 2021

For years, growth stocks have been beneficiaries of outsized gains compared to the averages. The main criteria we look for when betting on upside in a stock is improving fundamentals, great entry points (technicals), and a history of bullish trading activity in the shares. The hallmark way we go about finding the best stocks…the outliers, is by looking for quiet Big Money trading activity.

Oftentimes, that can be institutional activity. We’ll go over what that looks like in a bit. But, the 5 stocks we see as long-term candidates are FTNT, AMZN, PAYC, TTD, & ZM.

For MAPsignals, we believe the true tell on the near-term trajectory of the stock lies in the trading activity of the stock. The bottom line here is that oftentimes the manner in which a stock trades can oftentimes alert you to the forward fundamental picture more so than by simply looking at a company’s financials alone. We want the odds on our side when looking for the highest quality stocks.

Up first is Fortinet, Inc. (FTNT), which is a leading cyber security firm. They have been cruising higher for years.

When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success with a few for FTNT being:

  • 1-year performance (+95.86%)
  • YTD outperformance vs. NASDAQ ETF (+57.56% vs. QQQ)
  • Historical big money signals

Just to show you what our Big Money signal looks like, have a look at all of the top buy signals FTNT has made the past few years. That’s one strong uptrend. Blue bars are showing that Fortinet was likely being bought by a Big Money player according to MAPsignals.

It’s clear there’s a lot of blue historically with this stock. That’s exactly what you want to see when looking for a great growth name. This is what I call the stairway to heaven:

Chart, histogram Description automatically generated

Source: MAPsignals, End of day data sourced from Tiingo.com

On top of technicals, you need to look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Fortinet’s revenue numbers have been strong:

  • 3-year sales growth rate (+20.17%)
  • 3-year earnings growth rate (+347.93%)

Next up is Amazon, Inc. (AMZN), which offers a leading online marketplace. They are also dominant in cloud computing via AWS.

When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success with a few for AMZN being:

  • 1-year performance (+19.82%)
  • YTD vs. Staples ETF (+.2% vs. XLP)
  • Historical big money signals

While the stock has outperformed recently, look at the long-term picture. These are the top buy signals Amazon has made since 2015. Clearly the Big Money has been consistent for years:

Chart, histogram Description automatically generated

Source: MAPsignals, End of day data sourced from Tiingo.com

On top of a great long-term technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Amazon has grown revenues massively:

  • 3-year sales growth rate = +29.67%
  • 3-year earnings growth rate = +107.5%

Another growth name to consider is Paycom Software, Inc. (PAYC), which offers HR and payroll solutions to small businesses.

When we decide on the strongest candidate for long-term growth, we want to see a history of big money buying the shares. Paycom has that. Also, recent underperformance can be attractive:

  • 1-year performance (+32.16%)
  • YTD underperformance vs. technology ETF (-32% vs. XLK)

Below are the big money signals Paycom has made since 2015. This stock has been a magnet for Big Money:

Chart, histogram Description automatically generated

Source: MAPsignals, End of day data sourced from Tiingo.com

On top of a strong technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. Paycom’s growth rate is impressive. I expect more growth in the coming years:

  • 3-year sales growth rate = +25.03%
  • 3-year earnings growth rate = +39.28%

Number 4 on the list is Trade Desk, Inc. (TTD), which is the leader in digital advertising. The shares have been in bull-mode the past couple of years.

When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success with a few for Trade Desk being:

  • 1-year performance (+81.03%)
  • YTD outperformance vs. discretionary ETF (-16.53% vs. XLY)
  • Historical big money signals

Below are the big money signals that TTD has made since 2017:

Chart, histogram Description automatically generated

Source: MAPsignals, End of day data sourced from Tiingo.com

On top of the technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Trade Desk has been growing nicely:

  • 3-year sales growth rate = +39.94%
  • 3-year earnings growth rate = +65.73%

Our last growth candidate is Zoom Video Communications, Inc. (ZM), which is a video communications company.

When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success with a few for Zoom Video being:

  • 1-year performance (+47.94%)
  • YTD underperformance vs. technology sector (-2.66% vs. XLK)
  • Historical big money signals

Below are the big money signals Zoom Video has made since 2019. You can see how powerful the performance has been since the pandemic hit in March 2020:

Chart, histogram Description automatically generated

Source: MAPsignals, End of day data sourced from Tiingo.com

On top of the technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Zoom Video has grown revenues massively over the past few years:

  • 3-year sales growth rate = +177.46%
  • 3-year earnings growth rate = +2441.03%

The Bottom Line

FTNT, AMZN, PAYC, TTD, & ZM represent top growth stocks for August 2021. Given the strong historical revenue & earnings growth, and multiple big money buy signals, these stocks could be worth extra attention.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds long positions in ZM in managed accounts. He holds no positions in FTNT, AMZN, PAYC & TTD at the time of publication.

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

Investment Research Disclaimer

https://mapsignals.com/contact/

 

 

Zoom Buyer’s Strike Continues Despite Strong Outlook

Zoom Communications Inc. (ZM) traded lower on Wednesday despite beating Q1 2022 estimates and lifting full year guidance. The remote meeting software provider posted a profit of $1.32-per-share, $0.34 better than expectations, while revenue rose an impressive 191.4% year-over-year to $956.24 million, nearly $40 million higher than consensus. The company now expects FY2022 earnings-per-share (EPS) between $4.56 and $4.61 on $3.97 to $3.99 billion in revenue.

2021 Rotation Out of COVID Plays

The apathetic reaction highlights technical and macro headwinds that will be hard to overcome. On the technical side, the stock posted a phenomenal 495% return in 2020, setting off extremely overbought readings that predict a long-term correction. Meanwhile, the introduction of vaccines in the fourth quarter triggered a major rotation out of COVID beneficiaries and into recovery plays. That impulse has continued unabated through the second quarter of 2021.

CEO Kelly Steckelberg outlined the bull case following the release, insisting that Zoom is “evolving into a platform company that will help everything workers do every day”. She also predicts that corporations won’t return to full physical form in coming years, instead choosing “hybrid or flexible work models” that include remote options. U.S. white collar workers are now supporting that thesis, scooping up homes far away from busy city centers.

Wall Street and Technical Outlook

Wall Street consensus is mixed after last year’s outsized gains, yielding an ‘Overweight’ rating based upon 11 ‘Buy’, 1 ‘Overweight’, 11 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $250 to a Street-high $540 while the stock will open Thursday’s session nearly $80 below the median $400 target. This low placement exposes a major conflict with Main Street investors, who firmly believe that Zoom is over-valued.

Zoom mounted 2019 resistance at 107.34 in February 2020 and took off in an historic uptrend that posted an all-time high at 588.84 in October. The stock has carved four lower lows since that time, relinquishing more than 53% of its value into May’s 8-month low. More importantly, price action broke support at the 200-day moving average in March while five attempts to remount this barrier have failed, indicating the downtrend remains fully intact.

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

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Why Zoom Stock Is Under Pressure Today

Zoom Video 02.06.21.

Zoom Stock Falls After Q1 2021 Report

Shares of Zoom Video Communications found themselves under pressure after the company released its report for the first fiscal quarter of 2021.

Zoom reported revenue of $956.2 million, which was up 191% year-over-year. The company also reported GAAP earnings of $0.74 per share, while adjusted earnings totaled $1.32 per share.

Zoom’s revenue and earnings easily beat analyst estimates but it looks that the market wanted more, as the stock gained downside momentum and is currently trying to settle below the 50 EMA at $324.85.

In the second quarter, Zoom expects to report revenue of $985 million – $990 million and adjusted earnings of $1.14 – $1.15 per share. Full-year guidance was adjusted to the upside, and the company now expects to report revenue of $3.98 billion – $3.99 billion and adjusted earnings of $4.56 – $4.61 per share.

What’s Next For Zoom Stock?

Zoom managed to beat analyst estimates on both earnings and revenue and provided better guidance for the full year 2021. Typically, this combination is sufficient enough to provide upside momentum to a stock.

However, the situation is more complicated in Zoom’s case as the company is richly valued. Assuming that Zoom will meet its earnings target of $4.56 – $4.61 per share, the stock is trading at about 71 P/E for this fiscal year. Such valuation levels demand strong growth, but it remains to be seen whether Zoom’s growth will continue to impress as the world gets back to normal work.

While some flexibility in the working schedule is projected to stay, it is already clear that the world would not switch to a full “work-from-home” model. The key question for investors right now is whether Zoom has enough room to grow in this environment.

In this light, it’s not surprising to see that the market is a bit nervous despite the strong report. Zoom stock has already lost plenty of ground since October 2020 when it reached a high at $588.84, but the company will likely have to show stronger growth to attract more speculative traders who would be willing to bet on the stock after the major correction.

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

Earnings to Watch Next Week: Zoom, Advance Auto Parts, Lululemon and Cooper Companies in Focus

Earnings Calendar For The Week Of May 31

Monday (May 31)

There are no major earnings scheduled

Tuesday (June 1)

IN THE SPOTLIGHT: ZOOM

The San Jose, California-based communications technology company Zoom is expected to report its first-quarter earnings of $0.99 per share, which represents year-over-year growth of about 395% from $0.20 per share seen in the same period a year ago.

The company, which provides videotelephony and online chat services through a cloud-based peer-to-peer software platform, would post revenue growth of 175.8% to $905.24 million.

For first-quarter fiscal 2022, Zoom forecasts revenues in the range of $900 million and $905 million. Non-GAAP income from operations is expected in the range of $295 million and $300 million. Moreover, non-GAAP earnings are expected in the 95-97 cents-per-share range.

The cloud video communications provider forecasts revenues in the range of $3.760 billion and $3.780 billion for the full fiscal year.

“Sentiment improving, but still leans negative heading into FQ1. Commentary around 2H churn / Phone still likely more incremental to move vs. 1Q print / 2Q guide. Profitability potential meaningful LT, but balanced in NT by churn concerns, keeping us EW into print,” 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 and large-scale WFH, and timing to reach, less certain.”

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

Ticker Company EPS Forecast
BNS Scotiabank $1.45
HPE Hewlett Packard $0.42
AMBA Ambarella $0.17
MDLA Medallia, Inc. -$0.07
ZM Zoom Video Communications $0.99

Wednesday (June 2)

IN THE SPOTLIGHT: ADVANCE AUTO PARTS

The leading automotive aftermarket parts retailer is expected to report its first-quarter earnings of $3.05 per share, which represents year-over-year growth of over 235% from $0.91 per share seen in the same period a year ago. The company would post revenues of $3.31 billion.

AAP operates in a defensive (recession-resistant) category and has one of the largest long-term EBIT margin expansion opportunities in our coverage (we estimate 300-400 bps over time). COVID-19 slowed parts of AAP’s transformation but gross and EBIT margin upside from internal initiatives is still expected beginning in 2021,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“Significant and improving FCF generation plus share repurchases likely to enhance EPS growth. We think the combination of a defensive category, AAP’s progress generating stable top-line growth, and significant margin upside all make for a positive risk/reward skew.”

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

Ticker Company EPS Forecast
DCI Donaldson $0.58
AAP Advance Auto Parts $3.05
NTAP NetApp $1.12
PVH PVH $0.83
CLDR Cloudera Inc. $0.08
SPLK Splunk -$0.70
GWRE Guidewire Software -$0.24
AI Arlington Asset Investment -$0.25
SMAR Smartsheet Inc. -$0.14
SMTC Semtech $0.52
OMVJF OMV $0.97

Thursday (June 3)

IN THE SPOTLIGHT: LULULEMON ATHLETICA, COOPER COMPANIES

LULULEMON ATHLETICA: The Vancouver-based retailer healthy lifestyle-inspired athletic retailer is expected to report its fiscal first-quarter earnings of $0.90 per share, which represents year-over-year growth of over 309% from $0.22 per share seen in the same period a year ago.

The apparel retailer would post year-over-year revenue growth of over 70% to $1.12 billion.

“Revenue & GM upside could yield a 16c 1Q21 EPS beat vs. the Street. While 1Q21 beats & raises haven’t been enough to send most Softline retailers’ shares higher, LULU may be an exception as investors move up the quality curve. Trim PT to $377 on an updated WACC; raise 1Q21 EPS on better sales,” noted Kimberly Greenberger, equity analyst at Morgan Stanley.

COOPER COMPANIES: The global medical device company is expected to report its fiscal first-quarter earnings of $3.09 per share, which represents year-over-year growth of over 104% from $1.51 per share seen in the same period a year ago.

The San Ramon, California-based company would post revenue growth of 31% to $690.73 million.

“Shares of Cooper Companies outperformed the industry in the past six months. The company exited the fiscal first quarter on a strong note, wherein both earnings and revenues beat their respective consensus mark,” noted analysts at ZACKS Research.

“The company witnessed solid performance across its core CVI and CSI units during the quarter under review. Expansion in both gross and operating margins is a positive. Management at Cooper Companies remains optimistic about the Clarity, MyDay and Biofinity suite of products and the portfolio of daily silicone hydrogel lenses, which makes it one of the leaders in the soft contact lens market.”

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

Ticker Company EPS Forecast
SJM J.M. Smucker $1.66
CIEN Ciena $0.48
TTC Toro $1.18
LULU Lululemon Athletica $0.90
WORK Slack Technologies -$0.01
MDB MongoDB Inc -$0.35
SAIC Science Applications International $1.53
DOCU DocuSign Inc. $0.28
AVGO Avago Technologies $6.43
FIVE Five Below $0.65
PD PagerDuty Inc. -$0.09
COO Cooper Companies $3.09
CRWD CrowdStrike Holdings Inc. Cl A $0.06
PLUG Plug Power -$0.08
JOBS 51job $0.43
TOELY Tokyo Electron Ltd PK $1.25
ASEKY Aisin Seiki Co $0.88
AUOTY AU Optronics $0.45

Friday (June 4)

There are no major earnings scheduled

Zoom Q1 Earnings to Climb Nearly Fourfold; Target Price $415

The San Jose, California-based communications technology company Zoom is expected to report its first-quarter earnings of $0.99 per share, which represents year-over-year growth of about 395% from $0.20 per share seen in the same period a year ago.

The company, which provides videotelephony and online chat services through a cloud-based peer-to-peer software platform, would post revenue growth of 175.8% to $905.24 million.

The earnings report is expected to be released on June 1, 2021. For first-quarter fiscal 2022, Zoom forecasts revenues in the range of $900 million and $905 million. Non-GAAP income from operations is expected in the range of $295 million and $300 million. Moreover, non-GAAP earnings are expected in the 95-97 cents-per-share range.

The cloud video communications provider forecasts revenues in the range of $3.760 billion and $3.780 billion for the full fiscal year. Zoom stock fell about 4% so far this year.

Zoom Video is benefiting coronavirus-induced remote working trend. Its efforts to eradicate security and privacy flaws are expected to aid it to expand its user base,” noted analysts at ZACKS Research.

Analyst Comments

“Sentiment improving, but still leans negative heading into FQ1. Commentary around 2H churn / Phone still likely more incremental to move vs. 1Q print / 2Q guide. Profitability potential meaningful LT, but balanced in NT by churn concerns, keeping us EW into print,” 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 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 and large-scale WFH, and timing to reach, less certain.”

Zoom Stock Price Forecast

Nineteen analysts who offered stock ratings for Zoom Video Communications in the last three months forecast the average price in 12 months of $415.06 with a high forecast of $550.00 and a low forecast of $250.00.

The average price target represents a 27.33% increase from the last price of $325.97. Of those 19 analysts, six rated “Buy”, 11 rated “Hold” while two rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $360 with a high of $480 under a bull scenario and $240 under the worst-case scenario. The firm gave an “Equal-weight” rating on the communications software company’s stock.

Several other analysts have also updated their stock outlook. UBS initiated with neutral rating; price target $325. Citigroup lowered the target price to $362 from $501. Baird slashed the target price to $400 from $550. Mizuho cut the target price to $400 from $550.

Check out FX Empire’s earnings calendar

Zoom Trading Sharply Higher After Blowout Quarter

Zoom Video Communications Inc. (ZM) is trading higher by more than 8% in Tuesday’s pre-market after reporting blowout Q4 2021 top and bottom line results. The company posted a profit of $1.22 per-share in the quarter ending on Jan. 31, much better than $0.79 estimates, while revenue surged 368.8% year-over-year to $882.49 million, beating $810.97 million expectations.  Gross margin rose to 69.7% from 66.7% as a result of a seasonal decline in audio usage.

Managing Post-COVID Growth

The video conference software provider sharply raised Q1 and FY2022 EPS and revenue guidance but still expects high churn rates through the year, with many customers getting vaccinated and leaving their homes, returning a sense of normalcy. Zoom had 467,100 customers with more than 10 employees at the end of the fourth quarter, up 470% on an annualized basis, and heads into the new reporting year with $4.24 billion in cash and equivalents.

Zoom Phone could replace lost meeting income in coming quarters. As Stifel analyst Tom Roderick notes: “While the market for IP-based PBX equipment is a competitive one, Zoom has made remarkable strides in short order with Zoom Phone. Looking ahead, we expect Zoom to focus on expanding its relationship with current video customers gained from the pandemic and driving up-sell opportunities through the company’s growing product suite. After experiencing unprecedented customer growth last quarter of 485% among customers with 10+ employees, we are reminded of the powerful addressable opportunity in the enterprise for Zoom.”

Wall Street and Technical Outlook

Wall Street consensus had grown more cautious on the company’s long-term outlook prior to the earnings release, with an ‘Overweight’ rating based upon 13 ‘Buy’, 2 ‘Overweight’, 15 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $340 to a Street-high $610 while the stock is set to open Tuesday’s session about $5 below the median $450 target. This mid-range placement could support a rapid advance toward the $500 level.

Zoom broke out above the 2019 high at 107.34 in February 2020 and entered a powerful trend advance that posted an all-time high at 588.84 in October, A pullback accelerated in November after positive vaccine news triggered a rotation out of COVID-19 beneficiaries. The decline reversed at the 200-day EMA in January, yielding a bounce, followed by a successful support test last week. This bullish price action completes a double bottom that should signal the end of the five-month correction.

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

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

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

US Stock Market Daily Recap: Worst for Stocks Over?

The way that bond yields have popped has weighed heavily on growth stocks. Outside of seeing a minor comeback on Friday (Feb. 26), the Nasdaq dropped almost 7% between February 12 and Friday’s (Feb. 26) close.

Other indices didn’t fare much better either.

The spike bond yields, however, in my view, are nothing more than a catalyst for stocks to cool off and an indicator of some medium to long-term concerns. But calling them a structural threat is a bit of an overstatement.

Rising bond yields are a blessing and a curse. On the one hand, bond investors see the economy reopening and heating up. On the other hand, with the Fed expected to let the GDP heat up without hiking rates, inflation may return.

I don’t care what Chairman Powell says about inflation targets this and that. He can’t expect to keep rates this low, buy bonds, permit money to be printed without a care, and have the economy not overheat.

He may not have a choice but to hike rates sooner than expected. If not this year, then in 2022. I no longer buy all that talk about keeping rates at 0% through 2023. It just can’t happen if bond yields keep popping like this.

So was the second half of February the start of the correction that I’ve been calling for? Or is this “downturn” already over?

Time will tell. While I still do not foresee a crash like we saw last March and feel that the wheels are in motion for a healthy 2021, I still maintain that some correction before the end of this month could happen.

Corrections are also healthy and normal market behavior, and we are long overdue for one. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017), and we haven’t seen one in almost a year.

A correction could also be an excellent buying opportunity for what could be a great second half of the year.

Pay attention to several things this week. The PMI composite, jobs data, and consumer credit levels will be announced this week.

We have more earnings on tap this week too. Monday (March 1), we have Nio (NIO) and Zoom (ZM), Tuesday (March 2) we have Target (TGT) and Sea Limited (SE), Wednesday (March 3), we have Okta (OKTA) and Snowflake (SNOW), and Thursday (March 3) we have Broadcom (AVGO).

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:

The downturn we experienced to close out February could be the start of a short-term correction- or it may be a brief slowdown. 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- a Buyable Slowdown?

Figure 1- Nasdaq Composite Index $COMP

The Nasdaq’s downturn was so overdue. Even though more pain could be on the horizon, I like the Nasdaq at this level for some buying opportunities.

If more losses come and the tech-heavy index dips below support at 13000, then it could be an even better buying opportunity. It can’t hurt to start nibbling now, though. 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, if Cathie Wood, the guru of the ARK ETFs that have continuously outperformed, did a lot of buying the last two weeks, it’s safe to say she knows a thing or two about tech stocks and when to initiate positions. Bloomberg News ’ editor-in-chief emeritus Matthew A. Winkler wouldn’t have just named anyone the best stock picker of 2020.

Before February 12, I would always discuss the Nasdaq’s RSI and recommend watching out if it exceeds 70.

Now? As tracked by the Invesco QQQ ETF , the Nasdaq has plummeted almost 7% since February 12 and is closer to oversold than overbought. !

While rising bond yields are concerning for high-flying tech stocks, I, along with much of the investing world, was somewhat comforted by Chairman Powell’s testimony last week (even if I don’t totally buy into it). Inflation and rate hikes are definitely a long-term concern, but for now, if their inflation target isn’t met, who’s to fight the Fed?

Outside of the Russell 2000, the Nasdaq has been consistently the most overheated index. But after its recent slowdown, I feel more confident in the Nasdaq as a SHORT-TERM BUY.

The RSI is king for the Nasdaq . Its RSI is now around 40.

I follow the RSI for the Nasdaq religiously because the index is merely trading in a precise pattern.

In the past few months, when the Nasdaq has exceeded an overbought 70 RSI, it has consistently sold off.

  • December 9- exceeded an RSI of 70 and briefly pulled back.
  • January 4- exceeded a 70 RSI just before the new year and declined 1.47%.
  • January 11- declined by 1.45% after exceeding a 70 RSI.
  • Week of January 25- exceeded an RSI of over 73 before the week and declined 4.13% for the week.

I like that the Nasdaq is almost at its support level of 13000, and especially that it’s below its 50-day moving average now.

I also remain bullish on tech, especially for sub-sectors such as cloud computing, e-commerce, and fintech.

Because of the Nasdaq’s precise trading pattern and its recent decline, I am making this a SHORT-TERM BUY. But follow the RSI literally.

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.

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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.

 

Three Top Earnings Plays This Week

Major benchmarks sold off last week in reaction to wild action in the normally sedate bond market. Bonds recovered a good portion of weekly losses on Friday but broad volatility took its toll, dropping the SP-500 and Nasdaq-100 to weekly lows. Many popular names entered corrections during the rout, predicting weakness well into the second quarter. Expect the new week to start with bears pressing their bets and attempting to push prices to even lower levels.

Zoom Video Communication Inc. (ZM) steps to the earnings plate on Monday, with the stock struggling after shareholders picked up stakes and moved on to COVID recovery plays. Big box retailers highlight the week’s other big releases, led by Target Inc. (TGT) on Tuesday and Costco Wholesale Corp. (COST) on Thursday. COST has entered a correction after posting strong 2020 returns while TGT is caught in a trading range near January’s all-time high.

Target

Wall Street expects Target to post a profit of $2.54 per-share on $27.4 billion in revenue. If met, earnings-per-share (EPS) will mark an impressive 50% profit increase compared to the same quarter last year. The company consistently beat estimates in 2020, forcing analysts to raise price targets several times. The stock has now pulled back to support at the 50-day moving average and is perfectly positioned for a multiday bounce in reaction to another strong quarter.

Costco

Costco consensus predicts earnings of $2.31 per-share on $42.7 billion in revenue. If met, EPS will mark a 10% profit increase compared to the same quarter last year. A strong uptrend stalled above 380 in October, yielding two slightly higher highs, followed by a head and shoulders breakdown in January. The stock is now trading below the 200-day moving average for the first time since April 2020 and is rapidly approaching the H&S measured move target near 320.

Zoom Video Communications

Zoom will beat earnings posted in the same quarter last year but it won’t mean much because the period doesn’t include the pandemic. The stock has lost its luster since Pfizer Inc. (PFE) vaccine results triggered a massive rotation out of COVID beneficiaries and into recovery plays. The company has released new products to an attempt to diversify its revenue stream but is still working off massively overbought technical readings in reaction to its historic rally.

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

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

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