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Apple, Tattooed Chef, on G-III Apparel Group, Funko, and AZZ highlighted as Zacks Bull and Bear of the Day

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·13 min read
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For Immediate Release

Chicago, IL – May 6, 2021 – Zacks Equity Research Shares of Apple Inc. AAPL as the Bull of the Day, Tattooed Chef, Inc. TTCF as the Bear of the Day. In addition, Zacks Equity Research provides analysis on G-III Apparel Group, Ltd. GIII, Funko, Inc. FNKO and AZZ Inc. AZZ.

Here is a synopsis of all five stocks:

Bull of the Day:

Apple doesn’t need much introduction. The company’s products are ubiquitous – in fact, there’s a reasonable chance you’re reading this on an Apple product right now. One of the keys to Apple's success is the “stickiness” of their product and services ecosystem.

When a consumer buys an Apple product, it’s rarely a one-time purchase. Instead, they tend  to want another device, or a wearable accessory like earphones or a watch. They also buy high-margin services. Audio and video content, third-party apps and possibly even a paid subscription to the Apple+ streaming services all keep the customer dollars flowing Apple’s way.

Elegant design tricks means that each new hardware addition works seamlessly with the products a customer already owns. It’s easier to buy another Apple product (than an equivalent from a competitor) because you know all you have to do is open the box and turn it on.

That solid business plan - along with innovative supply-chain and logistics operations – took Apple all the way to a market capitalization well over $2 trillion dollars. As the share price climbed, investors wisely became concerned about valuation issues. A small and fast-growing company can trade at a high earnings multiple on the expectations that someday, when it gets to the point that spending slows as revenues continue to increase, it will “grow into” the (formerly) high P/E Ratio.

In the case of Apple, the forward 12 month P/E Ratio at the beginning of 2021 was above 30X. That was 20-25% higher than the average of the S&P 500 - of which Apple is the largest member by weight, comprising nearly 6% of the index.

Over the past 90 days, the share price of Apple has lost more than 5% even as the S&P has gained almost 8%. That’s not totally unreasonable given the valuation concerns.

It’s also an opportunity. Just last week, Apple turned in quarterly results that should have put to rest fears about earnings keeping pace with the rise in share price. Overall revenues were up 54%. iPhone revenues - which generally make up about half of total revenues, depending on the quarter – were up 66%. Mac revenues were up 70% and iPad sales were up 78%.

Net earnings of $1.40/share blew away the Zacks Consensus Earnings Estimate of $1.00/share.  The beautiful part is that even with sales up so sharply, so were gross margins. It wasn’t as though Apple was blowing out tired, old merchandise at discount prices, increasing gross sales at the expense of profits or future sales. They were selling the latest, in-demand devices and getting full retail.

Apple also raised the quarterly dividend and announced a fresh $90 billion share repurchase program. That’s right, $90 billion. That’s more than the entire market cap of General Motors.

You’re probably thinking. “Sure, it was a great quarter, but can performance like that really continue?”

That’s the even more beautiful part. Though Apple hasn’t provided revenue or earnings guidance since before the start of the Covid-19 pandemic, analyst expectations have been rising significantly, with a full year 2021 estimate rising 58 cents – or 11% - over the past week.

Simple math will tell you that as estimates rise and the share price declines, you’ll see an improvement in the forward P/E Ratio. That is exactly what has played out in Apple over the last week. From those lofty highs above 30X, the 12-month forward P/E Ratio is now just 25X. That’s just a bit higher than the S&P as a whole – and an arguably well-deserved premium given Apple’s formidable history of beating the estimates.

Those upward revisions earn Apple a Zacks Rank #1 (Strong Buy).

There are a lot of external factors that seem to be keeping the Apple buyers on the sidelines – chip shortages, corporate tax changes, interest rate fears, etc – but those same issues are facing pretty much every other company, too.

Now, you get a chance to own Apple at a significantly lower earnings multiple than just a short time ago. Even at $2.2 trillion, it’s a legitimate bargain.

Bear of the Day:

Today’s Bear of the Day happens to be a current favorite of the Reddit/Meme stock crowd, so by the time you’re done reading this, several of those traders will have already fired off their emails to me, telling me that I’m an idiot – a fact which will soon be proven to the world when the stock “goes to the moon!”

The rest of you, please stay with me…

On paper, Tattooed Chef is a great story, helping explain its popularity with younger investors. The company offers plant-based meals and snacks that come neatly packaged and requiring minimal preparation. Plant-based diets are popular both for their health benefits and for their reduced impact on the environment when compared to large-scale animal meat production facilities.

Though the Tattooed Chef lineup does include a cauliflower-based burger, most of their products aren’t plants made to look and taste like meat - like Beyond Meat (BYND) products - they’re innovative combinations of fruits and vegetables presented in an easy-to-eat format. They’re delicious, too. There are Tattooed Chef Acai Bowls in my freezer right now. I bought them at a big box retailer and they make a fast, healthy breakfast or snack.

Unfortunately, a great product doesn’t always translate to a great company, and that’s the case with the Tattooed Chef.

Formed as the result of a successful SPAC merger in October of 2020, TTCF shares initially soared, hitting a high over $28/share in January 2021, but have been sliding since then and now trade below $18/share. A disappointing first quarter as a public company weighed on the shares and estimates for future profitability have been slipping as well, earning Tattooed Chef a Zacks Rank #5 (Strong Sell.)

We’re heading into another earnings report and expectations are for a net profit of $0.02/share on revenues of $46 million.

Let’s start with that revenue number. Sales have been increasing quickly. As a percentage change from when TTCF was a private company, they represent a huge increase. Total revenues in 2021 are forecast to be up 462%.

Take a look at the earnings forecasts next. Two cents this quarter, two cents next quarter and seven cents/share in all of 2021. Kudos to the relatively new company for being profitable on a net basis, but it’s hard to get excited about that sort of earnings trajectory.

A look ahead to 2022 shows the revenue growth flattening off. Tattooed Chef has been very successful at getting their products onto the shelves at Costco, Walmart and Sam’s Club and Target. Selling at those stores is a great way to ramp up total sales quickly, but it’s also a difficult environment in which to grow margins.

Many companies describe getting into the big box stores as a “deal with the devil.” They pick up a massive amount of merchandise orders, far more than they could possibly find on their own. But they also find their once-innovative products turned into commodity items, making sourcing and manufacturing decisions much more important for profitability than the creativity that got them there in the first place.

I’d like to see Tattooed Chef succeed, and I’d never even consider selling the stock short. Ask the hedge funds that lost billions in January on Gamestop short positions how fun it is to be on the wrong side of a meme-stock rally.

As an investment based on fundamentals however, there are a lot better value propositions than $18 shares of Tattooed Chef at a forward P/E ratio of 250X.

Additional content:

Value Stocks to Make the Most of the "Great Reopening"

Value stocks were mostly unloved last year since they are dependent on the proper functioning of the economy and the COVID-19 pandemic had put a brake on activities. Instead, investors favored high-flying technology growth stocks that were making the most of the pandemic-induced stay-at-home orders. Nonetheless, the situation is changing and value stocks are winning back favor, thanks to the gradual reopening of the U.S. economy.

One of the main driving forces behind the economic reopening is surely the rapid progress in vaccination across the country. Toward that end, on May 4, President Joe Biden announced a goal to vaccinate 70% of the U.S. adult population by Jul 4 with at least one dose and to fully vaccinate 160 million Americans.

Adding to that, COVID-19 restrictions are being slowly lifted across the country. Notably, New York governor Andrew Cuomo said on May 3 that most COVID-related restrictions on businesses will be lifted from May 19, in New York and the neighboring states of New Jersey and Connecticut, as mentioned in a Financial Times article.

Meanwhile, the federal government has remained proactive in lending its support to the people and toward that end, it recently sent out an additional $1,400 stimulus check to American households. Reflective of this additional income, consumer spending witnessed an uptick in March. Notably, the Commerce Department reported that consumer spending rose 4.2% in March compared to a fall of 1% in February, as quoted in a Reuters article.

Moreover, manufacturing activity in the United States has been expanding at a steady pace as it rose for the eleventh consecutive month in April, albeit at a slower pace. Per the latest report by the Institute for Supply Management, the manufacturing purchasing managers’ index for April was reported at 60.7% compared to 64.7% in March.

Reflective of these positive developments, the U.S. economy continued on its expansion path in the first quarter of 2021. Notably, per the “advance” estimate released by the Bureau of Economic Analysis, GDP expanded at an annual rate of 6.4% in the first quarter of 2021 compared to an increase of 4.3% in the fourth quarter of 2020.

Another Financial Times article cited that this was the quickest pace of first-quarter growth since 1984. In fact, the fast pace of growth is expected to continue in the second quarter as well. Per the latest GDPNow model estimate released on May 4 by the Federal Reserve Bank of Atlanta, the second-quarter GDP is expected to increase 13.6%. Such positive indicators will surely fuel economic recovery and in turn allow value stocks to gain ground.

Meanwhile, the Conference Board also stated that consumer confidence in the United States rose to more than a one-year high in April, as quoted in a Wall Street Journal article. The article stated that the consumer confidence index was reported at 121.7 in April compared to a revised 109 in March.

3 Top Value Picks

The U.S. economy is gradually reopening, thanks to the ramp-up in vaccination along with other factors like continued expansion in manufacturing and rebounding consumer spending. This, in turn, should bode well for the economically-sensitive value stocks, making it a good time to invest in them.

Our research shows that stocks with a Value Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best investing opportunities in the value space. Notably, we have handpicked three such stocks. You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel Group designs, sources and markets women's and men's apparel in the United States and internationally. The company currently has a Zacks Rank #1 and Value Score of A. The Zacks Consensus Estimate for its current-year earnings increased 4.5% over the past 60 days. The company’s expected earnings growth rate for the current year is more than 100%.

Funko, a pop culture consumer products company, designs, sources and distributes licensed pop culture products. The company currently has a Zacks Rank #2 and Value Score of B. The Zacks Consensus Estimate for its current-year earnings increased 60.3% over the past 60 days. The company’s expected earnings growth rate for the current year is more than 100%.

AZZ Inc. provides galvanizing and metal coating solutions, welding solutions, specialty electrical equipment, and engineered services to the power generation, transmission, distribution, refining, and industrial markets. The company currently has a Zacks Rank #2 and Value Score of A. The Zacks Consensus Estimate for its current-year earnings increased 1.5% over the past 60 days. The company’s expected earnings growth rate for the current year is 27.5%.

Infrastructure Stock Boom to Sweep America

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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Apple Inc. (AAPL) : Free Stock Analysis Report
 
AZZ Inc. (AZZ) : Free Stock Analysis Report
 
GIII Apparel Group, LTD. (GIII) : Free Stock Analysis Report
 
Funko, Inc. (FNKO) : Free Stock Analysis Report
 
Tattooed Chef, Inc. (TTCF) : Free Stock Analysis Report
 
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