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.

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

* * * * *

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

 

Zoom Could Offer Deep Dip Buying Opportunity

Zoom Video Communications Inc. (ZM) fell to a four-month low at the start of Monday’s U.S. session, continuing a painful slide that’s relinquished more than 35% of the stock’s value since October’s all-time high at 589. The transition out of COVID beneficiaries and into recovery plays accounts for part of the downside but that hasn’t stopped Peloton Interactive Inc. (PTON) and other pandemic winners from posting another round of all-time highs.

Zoom Long-Term Growth

The future still look bright for Zoom, with Bill Gates predicting that half of all business travel will disappear in coming years, in favor of the virtual meeting space. He also expects 30% of American employees to work from home on a near-permanent basis, supporting long-term growth for Zoom’s rapidly growing suite of products. Given the mix of catalysts in play, it looks like over-valuation and overbought readings are responsible for most of the downside.

The company is aggressively pursuing new revenue streams to diversify its primary business model, with recent reports it was exploring entry into e-mail and calendar services. It’s also just expanded into Singapore, opening a new research and development center. However, reports on both activities have triggered sell-the-news reactions, reflecting growing nervousness by shareholders worried the uptrend has come to an end.

Wall Street and Technical Outlook

Wall Street has grown increasingly cautious about Zoom’s long-term outlook, dropping to a ‘Moderate Buy’ rating based upon 11 ‘Buy’ and 12 ‘Hold’ recommendations. One analyst now recommends that shareholders close positions and move to the sidelines. Price targets currently range from a low of $340 to a Street-high $600 while the stock is trading just $20 above the low target. This humble placement raises odds the two-month correction has entered its final phase.

The decline is nearing the 200-day moving average for the first time since a February breakout. In addition, that level has narrowly aligned with the bottom of Sept. 1’s unfilled gap between 326 and 440, setting up a high odds reversal zone that could end the correction. Accumulation readings have remained rock-solid throughout the selloff, providing the ample supply of committed buyers needed for a high percentage bounce into the 450 to 500 zone.

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.

Zoom Earnings Beat Wall Street Estimates But Shares Dip 5% After Hours on Disappointing Margins

Zoom, a cloud video communications provider, reported better-than-expected earnings in the third quarter of the fiscal year 2021 with a revenue surge of over 365% and forecasts total revenue between $2.575-$2.580 billion in the full fiscal year.

But shares traded down 5% in the aftermarket, partially on gross margins that were light of consensus and down sequentially, driven by the high volume of free users and higher public cloud usage. Zoom’ shares closed 1.43% higher at $478.36 on Monday; the stock is up over 600% so far this year.

The company said its revenue climbed 367% to $777.2 million in the third quarter ended October 31, beating the Wall Street consensus estimate of around $694 million. Adjusted earnings came in at 99 cents per share, also beating market expectations of 76 cents per share.

Zoom forecasts revenue between $806-$811 million in the fourth quarter, above estimates of $730.1 million and non-GAAP income from operations between $243.0 million and $248.0 million. Non-GAAP diluted EPS is expected to be between $0.77 and $0.79 with nearly 306 million non-GAAP weighted average shares outstanding.

“Zoom (ZM) reported a record F3Q21, but shares traded down 5% AMC on light gross margins (partly the result of more free users). We would be buyers on a sustained pullback, as the quarter was beyond impressive, with ZM scoring a 420 on a “Rule of 40” basis,” said Rishi N. Jaluria, Senior Research Analyst at D.A. Davidson & Company.

“In our view, the key debate is about the sustainability of ZM’s growth post-pandemic and we take the view that ZM will be increasingly necessary to enable a hybrid remote work strategy and that many of the changes in work brought on by the pandemic are irreversible in nature. We maintain our BUY rating and $600 price target on Zoom Video Communications,” N. Jaluria added.

Zoom Stock Price Forecast

Twenty equity analysts forecast the average price in 12 months at $486.33 with a high forecast of $611.00 and a low forecast of $315.00. The average price target represents a 1.67% increase from the last price of $478.36. From those 20 analysts, ten rated “Buy”, nine rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $380 with a high of $530 under a bull-case scenario and $250 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the video communications provider’s stock.

“We are rolling forward our price target a year as the year comes to a close. As a result, our price target increases to $380 from $350, which represents 29x EV/FY23e Revenue or 28x EV/discounted FY32e FCF. We believe that while COVID-19 keeps video conferencing as a critical piece of employee connectivity, valuation is likely to remain closer to our bull case,” said Meta Marshall, equity analyst at Morgan Stanley.

“Our bull case moves to $530 from $500 and represents 31x EV/FY23e Rev or 29x EV/discounted FY32e FCF. Our bear case also increases to $250 from $210, which represents 19x EV/FY23e Revenue or 27x EV/discounted FY32e FCF. Risks to valuation remain macro headwinds, competitive efforts, COVID-19 vaccine causes a return to work/school.”

Several other analysts have also upgraded their stock outlook. Citigroup raised their stock price forecast to $467 from $377; RBC lowered the price target to $550 from $600; Credit Suisse upped their target price to $340 from $315; JP Morgan raised the target price to $450 from $425; Bernstein increased their target price to $611 from $228 and D.A. Davidson increased their target price to $600 from $460.

Analyst Comments

“Zoom eliminates barriers to video conferencing growth. Company has meaningful competitive moat built on more than just architecture. Leveraging position with customers to be center of UC platform. WFH has permanence but diminishes post-COVID-19. Valuation credits significant expansion opportunities in broader unified communications landscape, supported by initial Phone execution,” Morgan Stanley’s Marshall added.

Upside and Downside Risks

Risks to Upside: 1) Zoom Phone adopted faster than expected. 2) Sales efficiency matches previous levels. 3) International business shows continued leverage. 4) Topline beats to flow to bottom line WFH permanence. 5) K-12 Market – highlighted by Morgan Stanley.

Risks to Downside: 1) Macro conditions suffer. 2) Large competitor refreshes portfolio and gets aggressive on the price. 3) WFH wanes post COVID-19. 4) China / K-12 opportunity not monetizable.

Check out FX Empire’s earnings calendar

Earnings to Watch Next Week: Zoom, Salesforce.com and Splunk in Focus

Following is a list of company earnings scheduled for release November 30-December 4, along with earnings previews for select companies.

Earnings Calendar For The Week Of November 30

Monday (November 30)

IN THE SPOTLIGHT: ZOOM VIDEO COMMUNICATIONS

Zoom, a cloud video communications provider, is expected to report a profit of $0.57 in the third quarter lower than Q2’s $0.92 as the company is nearing the end of their growth cycle. Zoom’s shares closed 6.28% higher at $471.28 on Friday; the stock is up over 600% so far this year.

“Recent selloff makes some rebound on print more likely as current conditions have not changed. While a vaccine does change the outlook for how many employees will be working from home by the end of 2021, it doesn’t change the fact that in 2020, most employees remain at home (at least for a good portion of the week). While we are cautious on the achievability of long-term growth assumptions built into Zoom’s valuation, we are cognizant that the recent move discounts Zoom’s ability to post a meaningful beat in FQ3,” said Meta Marshall, equity analyst at Morgan Stanley.

“Our expectations for FQ3 and FY21 non-GAAP revenue / EPS are $688.1 million / $0.75 and $2.4 billion / $2.44, respectively. Our revenue forecasts imply 313% Y/Y growth in FQ3 (4% sequentially) and 283% growth for FY21, with quarterly, adds slowing meaningfully in our assumptions from the 102% Q/Q increase in FQ2. In general, we would view our estimates as conservative given churn rates should still be low and ability to sign new customers or expand deployments should be high. We believe a 9% beat is reasonable, at ~$750 million revenue (up 350% Y/Y) and implying 2 million net adds. Given last quarter’s Y/Y growth of 355%, we would note that continued acceleration is possible, which would cause a bigger correction in the name. With the 20% selloff since the peak, we continue to think there could be a correction this print,” Morgan Stanley’s Marshall added.

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

Ticker Company EPS Forecast
NJR New Jersey Resources $0.57
ADNT Adient PLC $0.68
MNTA Momenta Pharmaceuticals -$0.46
ATHM Autohome $6.40
WB Weibo $0.60
BMA Banco Macro $1.30
IMMU Immunomedics -$0.29
EC Ecopetrol $0.15
VIST Vista Oil Gas -$0.19
GPFOY Financiero Inbursa ADR $0.09
MSNFY Minera Frisco ADR $0.05
GCTAY Siemens Gamesa ADR $0.01
AEG Aegon $0.27
TLK Telekomunikasi Indns Tbk Prshn Pp Pt $0.40
WF Woori Bank $1.57

 

Tuesday (December 1)

IN THE SPOTLIGHT: SALESFORCE.COM

Salesforce.com, an American cloud-based software company headquartered in San Francisco, is expected to report a $0.75 profit in the third quarter with more than 16% growth in revenue to over $5 billion. Salesforce.com’s shares closed 0.32% higher at $247.63 on Friday; the stock is up over 50% so far this year.

“Salesforce is benefiting from a robust demand environment as customers are undergoing a major digital transformation. The rapid adoption of its cloud-based solutions is driving demand for its products. Salesforce’s sustained focus on introducing more aligned products as per customer needs is driving it stop-line. Continued deal wins in the international market is another growth driver,” equity analysts at Zacks Research noted.

“Furthermore, the recent acquisition of Tableau positions the company to be a leader in business analytics for actionable results in everything from operations to HR. The stock has outperformed the industry in the past year. However, stiff competition from Oracle and Microsoft is a concern. Besides, unfavourable currency fluctuations along with increasing investments in international expansions and data centers are an overhang on near-term profitability.”

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

Ticker Company EPS Forecast
JKS JinkoSolar Holding Co. Ltd. ADR $0.85
BMO Bank Of Montreal USA $1.46
BNS Scotiabank $0.93
NTAP NetApp $0.73
TCOM Trip.com Group Ltd $1.02
VEEV Veeva Systems $0.68
HPE Hewlett Packard $0.34
BOX BOX $0.14
JRONY Jeronimo Martins $0.45
HOCPY Hoya Corp $0.74
AVAV AeroVironment $0.30

 

Wednesday (December 2)

IN THE SPOTLIGHT: SPLUNK

Splunk, the market leader in analyzing machine data, is expected to report a $0.09 profit in Q3 for the first time in the last three quarters with cloud revenue growth of over 85%. Splunk’s shares closed 2.6% higher at $204.03 on Friday; the stock is up over 35% so far this year.

“Our partner checks show weaker performance vs. last quarter & our gov’t checks also imply weaker growth on tough comps. Combined w/ some GTM changes under new sales leadership & pivot towards Observability & we see a lot of moving parts. We do see the upside to margins & 4Q pipelines sound good, but we feel top-line bookings could be more volatile Q-to-Q. Maintain Market Perform,” said J. Derrick Wood, equity analyst at Cowen and Company.

“For 3Q, we model -27% license growth, cloud growth at 87%, total revenue growth at -1% and ARR growth at 48%. We estimate normalized product bookings growth (ex-perpetual) in the high-teens for 3Q. For 4Q, we model -29% license growth, cloud growth of 86%, total revenue growth of -6% (Street -2%) and ARR growth of 45%,” Derrick Wood added.

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

Ticker Company EPS Forecast
RY Royal Bank Of Canada $1.55
PDCO Patterson Companies $0.38
SNOW Intrawest Resorts -$0.38
CRWD CrowdStrike Holdings Inc. Cl A -$0.15
FIVE Five Below $0.20
SNPS Synopsys $1.56
SMTC Semtech $0.46
PVH PVH $0.18
RH Restoration Hardware $5.31
VRNT Verint Systems $0.60

 

Thursday (December 3)

IN THE SPOTLIGHT: DOLLAR GENERAL, KROGER AND ULTA BEAUTY

Ticker Company EPS Forecast
DG Dollar General $1.98
CM Canadian Imperial Bank Of Commerce USA $1.92
TD Toronto-Dominion Bank $0.97
KR Kroger $0.66
DCI Donaldson $0.45
ULTA Ulta Salon Cosmetics Fragrance $1.44
SAIC Science Applications International $1.53
COO Cooper Companies $3.09
MRVL Marvell Technology $0.25
OLLI Ollies Bargain Outlet Holdings Inc $0.58
CLDR Cloudera Inc. -$0.04
DOCU DocuSign Inc. -$0.23
YEXT Yext Inc. -$0.22
MDLA Medallia, Inc. -$0.18
PD PagerDuty Inc. -$0.20
FIZZ National Beverage $0.93

 

Friday (December 4)

No major earnings scheduled for release.

Zoom Heads Lower After Moderna News

Zoom Video Communications Inc. (ZM) resumed an aggressive decline in Monday’s U.S. session, dropping more than 25 points to 377, after Moderna Inc. (MRNA) reported 94% efficacy in its vaccine candidate. The stock bounced about 11 points below that price level last week after selling off more than 200 points and 37% in just 17 trading days. Overbought technical readings triggered the first part of the furious downdraft while Pfizer Inc.’s (PFE) blockbuster vaccine news prompted the second.

Zoom Enters Steep Correction

The COVID-19 beneficiary posted a 2020 return in excess of 850% into the Oct. 19 all-time high at 588, underpinned by its wildly popular Zoom virtual meeting software. However, market players are now turning their attention to a post-pandemic world that permits more human interaction, both in the work place and between family and friends. And, despite more than 200 points of downside, the stock’s price-to earnings ratio (P/E) still stands at an astronomical 482.

Zoom just took a big step in alleviating a series of security and privacy concerns that arose in the first quarter when the software first gained popularity, settling a Federal Trade Commission (FTC) complaint that requires the company to “implement a robust information security program to settle allegations that the video conferencing provider engaged in a series of deceptive and unfair practices that undermined the security of its users”.

Wall Street And Technical Outlook

Wall Street has been quiet as a church mouse since the selloff began in October, issuing no tier one upgrades or downgrades. Consensus now stands at a cautious ‘Moderate Buy’ rating, based upon 12 ‘Buy’, 12 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets finally match reality after the downdraft, with a low of $315 and a Street-high $611, while the stock is now trading about $90 below the median $478 target.

The stock pulled back to the 50-day moving average in early November and broke down last week, dropping to a 2-month low. Meanwhile, the Sept. 1 gap between 326 and 410 remains partially unfilled, with the bottom of the big hole marking a magnetic target and potential buying opportunity. The narrowly-aligned .786 Fibonacci rally retracement level and 200-day moving average near 310 could offer even lower risk entry for conservative market players.

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

Pfizer Vaccine Breakthrough Boosts Markets

Pfizer And BioNTech Report Great Results From Their Large-Scale Study Of COVID-19 Vaccine

S&P 500 futures have recently received a major boost after Pfizer and BioNTech COVID-19 vaccine was found to be more than 90% effective in the first analysis of the large study.

Vaccine news provided significant support to stocks, and S&P 500 futures are gaining more than 4% in premarket trading. Not surprisingly, shares of vaccine developers are gaining a lot of ground ahead of the market open – Pfizer shares are up by 12% while BioNTech stock is up by more than 23%.

Meanwhile, WTI oil managed to return back above the $40 level as vaccine news increased hopes for a successful rebound of oil demand. At the same time, precious metals like gold and silver are under pressure as traders dump safe haven assets amid optimism about the vaccine.

Stay-At-Home Stocks Suffer On Vaccine News

While the vaccine news are positive for most stocks, shares of some companies are under major pressure in premarket trading.

Zoom and Peloton, which were one of the major winners during the pandemic, are down by almost 13%, and even Amazon is under pressure in premarket trading. As a result of the pressure on stay-at-home stocks, the tech-heavy Nasdaq is set to open higher by a modest 0.5%.

It remains to be seen whether vaccine news will trigger a real rotation from tech stocks into more cyclical stocks, but stay-at-home stocks will certainly have a very challenging trading session today.

Airline And Cruise Line Stocks Jump In Premarket Trading

Today, investors look ready to bet on beaten stocks like airlines and cruise lines. For example, American Airlines Group is up by 25% while Delta Air Lines  is gaining 18% in premarket trading.

Investors are even more optimistic about cruise lines like Carnival Corp. or Norwegian Cruise Line Holdings as an effective vaccine against COVID-19 may make the difference between bankruptcy and profitable business for these companies.

Traders should expect plenty of volatility in these stocks in the upcoming trading sessions as the market will try to find new price levels which take vaccine news into account.

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

Zoom Video Communications Probing New High

Virtual meeting software provider Zoom Video Communications Inc. (ZM) exploded to the upside on the first trading day of September in reaction to a blowout Q2 2020 report, beating top and bottom line estimates by wide margins while raising Q3 guidance. The initial momentum wave stalled immediately near 480 but the stock withstood a week of aggressive profit-taking and has now mounted that level and traded above 500.

Zoom Rapid Growth

Zoom took off for the stars after millions around the world were told to stay at home in the first quarter to slow the spread of the COVID-19 pandemic. Their software has surged in usage since that time, becoming the most popular meeting application for businesses, social groups, and television hosts. Security issues undermined sentiment during the rally’s first wave but the Silicon Valley upstart has now cleaned out bugs and added protective layers to rebuild confidence.

Upgrades from BTIG Research and Goldman Sachs right after earnings intensified the upside but the failure of the SP-500 committee to add Zoom to the index a few days later added to aggressive selling pressure that stretched more than 130-points in a week. Most coverage has been neutral to bearish since that time, exposing the stock to profit-taking and short-term price action in the broad category of ‘COVID-19 beneficiary’.

Wall Street And Technical Outlook

Wall Street consensus has deteriorated since August, dropping to a ‘Moderate Buy’ rating based upon 10 ‘Buy’, 13 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $255 to a street-high $525 while the stock opened Tuesday’s U.S. session less than $50 below the high target. This placement, when taken together with lower ratings, could impede upside progress until the company’s next release in December.

Zoom held high above breakout support in early September and mounted the post-release high on Sept. 22, topping out at 529.74 one session later. The stock has been grinding sideways in a narrow consolidation pattern since that time, awaiting a catalyst that ends the stand-off. Selling pressure has increased in the last two weeks but oversold technical readings offer a slight edge to bulls, who could lift the stock toward 600 before a larger-scale correction kicks into gear.

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

Zoom Video Shares Stream Higher After Knockout Earnings

Zoom Video Communications, Inc. (ZM) added 22.74% in after-hours trade Monday after the video conferencing company reported blowout quarterly results as people and businesses rushed to the platform to stay connected while staying closer to home during the pandemic.

The firm posted adjusted earnings of 92 cents per share on revenues of $663.52 million. Analysts had expected a profit of 45 cents a share and sales of $500.5 million. Moreover, top- and bottom-line growth increased by 355% and 1050%, respectively, from the year-ago period.

Management cited an accelerated shift to remote working, distance learning, and socializing for the better-than-expected quarter. “Organizations are shifting from addressing their immediate business continuity needs to supporting a future of working anywhere, learning anywhere, and connecting anywhere on Zoom’s video-first platform,” CEO Eric Yuan said in a statement cited by Barron’s.

As of Sept. 1, 2020, Zoom stock has a market capitalization of $91.71 billion and trades a whopping 378% higher on the year. In the past three months alone, the shares are up 80%. However, the stock comes with a lofty valuation, trading at over 200 times projected earnings.

Looking Ahead

The company substantially hiked its guidance for the current quarter, now expecting earnings per share (EPS) of 73- to 74 cents and revenues of $2.37 million to $2.39 million. It had previously forecast EPS of 35 cents on sales of $493 million.

Wall Street Outlook

Analysts remain bullish on Zoom Video stock on the back of more users signing up for paid plans after trialing a free account earlier in the pandemic. Research firms are also impressed with the company’s ability to grow its market share. “Zoom has captured the biggest portion of market share, increasing from 34% of total MAU’s back in March, to over 48% as of July 24th,” JP Morgan analysts wrote in a recent note to clients. The stock currently receives 11 ‘Buy’ ratings, 3 ‘Overweight’ ratings, 13 ‘Hold’ ratings, and 5 ‘Sell’ ratings.

Wall Street Outlook and Trading Tactics

While most stocks plunged to multiyear lows during the coronavirus sell-off, Zoom Video shares flipped previous resistance into support at the $105 level. Since then, the price has continued to trend sharply higher, with only minor pullbacks to the 50-day simple moving average (SMA). Given that the relative strength index (RSI) indicates short-term overbought conditions, traders should look to buy pullbacks to major support areas, namely at $280 and $175, rather than chasing recent gains.

Five Post-Covid Trends and Gold

The disruptions caused by the pandemic of Covid-19 forced people, companies, governments, and organizations to challenge their basis assumptions about their ways of life and conduct. Some of them might be trivial such as more frequent and thorough hand-washing, but others are much more important, amongst them putting more emphasis on health that came suddenly under threat and social relationships that were so missing during the quarantine. So, the key question is when the epidemic is fully contained, what will be the “new normal” – and how it will affect the gold market?

The first characteristic feature of the post-pandemic world will be more people working and getting things done from home. The digital transformation has already started before the coronavirus jumped on human beings, but the Covid-19 epidemic has accelerated its pace, with further expansion in videoconferencing, online teaching, e-commerce, telemedicine, and fintech. After all these long years, it turned out that all these boring meetings really could have been e-mails or chats via Zoom, Skype or Teams.

What does it mean for the economy and society? Well, working from home implies more flexibility and less commuting for the employees. So, they can work from any location and spend more time with their families. Improved work-life balance translates into happier workers, which can make them more productive. And the most important thing: people can work in sweatpants or pyjamas all day, hurray!

There are also benefits for the companies – just think about all the cost savings from less space needed and less business travels! Hence, although working from home has also some negatives (possible miscommunication, loneliness, and difficulties with unplugging after work, decreased knowledge flows and managerial oversight), it should increase productivity in the long-run, especially if not overdone. Improved productivity thanks to telework is positive for the corporate margins and equities, but it is bad news for the gold prices.

Second important trend is deglobalization. The pandemic showed that just-in-time supply chains relying on foreign suppliers are not resilient in times of global crises and border closures. So, many Western companies will re-shore some of their production, or reallocate it closer to their major markets in ways that favor national and regional supply chains. The growth of nationalism will counteract the first change and hamper the productivity growth, which is positive for the yellow metal. However, making the supply chains and manufacturing more resilient diminishes the long run threats to the economies and the risk of economic collapse, which could reduce the safe-haven demand for gold.

Third, the pandemic will affect the geopolitics. For example, it can aggravate the fragile trade relations between China and the United States. Moreover, the epidemic and the following economic crisis make more and more people question the liberal internationalism and America’s leadership role. On the contrary, China’s geopolitical role could increase in the aftermath of the pandemic. The rising geopolitical tensions and protectionism, as well as diminished confidence in the U.S. global leadership and the greenback could increase the appeal of gold.

Fourth, could be a shift toward lower population density and less crowded places. It may lead to a complete rethinking or redesigning of living in big cities – or a move from metropolises to smaller cities, towns or even to the villages. After all, when people need only Wi-Fi to work or educate, they don’t have to live in big cities anymore.

The consequences are not clear, but it’s possible that the real estate prices in the biggest cities could correct somewhat, as people and companies could cut costs and move away from high-priced, centrally located areas (however, there might be higher demand for larger houses with offices for telework). If we really see such a correction, the repercussions may be significant, also for the gold market, as the burst of the 2000s’ housing bubble demonstrated. As the chart below shows, the S&P/Case-Shiller U.S. National Home Price Index is now much higher than in 2007, before the global financial crisis started.

Last but not least, the role of governments will increase in the post-pandemic world after generously supporting companies and households during the crisis. Compared to the Great Recession, when both the Fed and the Treasury acted more gradually and with some fear of public anger, their recent actions were unprecedentedly swift and aggressive. Hence, the public debt will balloon all around the world, creating significant challenges, increasing the risk of sovereign-debt crisis and putting more downward pressure on the central banks to maintain the dovish monetary policy with ultra-low interest rates. This important macroeconomic trend should be positive for gold.

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

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

 

Zoom Video Lifts To All-Time High Despite Mixed Commentary

Zoom Video Communications went ballistic in February when the pandemic triggered huge interest in their video conferencing software.  The easy-to-use interface fit perfectly with the need to conduct business and connect with family and friends during a tough period. In turn, this generated major Wall Street attention, triggering a flood of upgrades. A sense of normalcy returned in the second quarter but that didn’t stop the stock from breaking out after blowing away first quarter estimates on June 2.

Zoom Security Issues

Still, Zoom security holes have been well-documented, forcing many American and European businesses to switch to competitive offerings. The company has pledged to fix these flaws and recently opened discussions with Google to use their cybersecurity service. Public and government sales are also increasing, underpinned by Zoom for Government, which received Federal clearance in April 2109.

Analysts Divided On Prospects

Analyst rating consensus has grown more divided in the second quarter. This isn’t surprising, given the end of shutdowns in most parts of the world. The consensus currently features 11 ‘Buy’ recommendations and 10 ‘Hold” recommendations.  No analyst recommends selling the stock at this time.  Price targets range from $105.00 to $261.00, with a median $214 target. The stock is now trading less than 25 points under the high estimate, raising odds for downgrades.

Needham’s Richard Valera raised their target from $230 to $240 earlier this month, stating Zoom has “smashed its Q1 2021 print and guide – a performance unlike we’ve seen in 20+ years of tech coverage”. He tempered his enthusiasm, agreeing the company faces roadblocks that include “sharply increased churn relative to historic levels”. However, he expects headwinds to ease in 2022 and beyond, allowing a re-acceleration of net paid user growth.

Zoom Technical Outlook

The stock topped out just above 100 in June 2019 and sold off into the lower 60s in October. It resumed its uptrend in February 200, reaching the prior high a few weeks later. The subsequent breakout has added near 140 points in less than 4 months, highlighting intense momentum buying interest. Accumulation readings match bullish price action, making it easy for Zoom to gain additional points into the third quarter.