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Chewy, Cedar Fair, Baidu, Alibaba and Alphabet highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research

For Immediate Release

Chicago, IL – April 6, 2020 – Zacks Equity Research Shares of Chewy Inc. CHWY as the Bull of the Day, Cedar Fair FUN as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Baidu, Inc. BIDU, Alibaba Group Holding Ltd. BABA and Alphabet Inc. GOOGL.

Here is a synopsis of all five stocks:

Bull of the Day:

Chewy Inc.is a Zacks #1 (Strong Buy) that operates as on online retailer, offering a variety of pet products. Chewy sells everything for pets on its Chewy.com website including food, toys, treats, vitamins and supplements.

Recent Buying Interest

The stock has surged after more investors noticed a shift to online pet suppliers. It looks like COVID-19 will force people like myself to buy from Chewy.com instead of their vet or local retailer. For that reason, we saw the CHWY almost double from its recent lows, despite the overall market being down.

Even if the lockdowns don’t last, more consumers will now be aware of Chewy and have accounts opened. This will allow for marketing opportunities in the future that will help retain customers and drive revenue.

Q4 Earnings

Chewy reported earnings late last week, reporting a 12% surprise to the upside. While the bottom-line beat, revenues came in as expected.  The stock traded lower as investors where expecting more. However, there is reason to believe that earnings will improve going forward.

The company guided Q1 higher, expecting revenues to come in at $1.50B-$1.52B vs the $1.45B expected. Net sales were up 7.8% year over year and this is expected to improve based on the stay at home environment. Here are some comments from the CEO Sumit Singh:

 “While 2019 closed on a high note, and 2020 got off to a strong start, the world changed dramatically with the coronavirus outbreak. In times like these, we know how special and comforting the bond is between humans and pets, and we devote ourselves every day to supporting those special relationships. We are here, 24/7, caring for the safety and well-being of our team members and meeting the increased shop-at-home needs of our customers, staying true to our mission of being the most trusted and convenient online destination for pet parents everywhere.” 

Estimates

Chewy has been public for under a year and has only four quarters reported under its belt. Two of those four quarters have been surprises to the downside, which is part of the reason the stock hasn’t been able to get back above its IPO high.

After the recent quarter, we will see estimates start to rise. Already we can see improvement for both the current quarter and year. 

Analysts

The company did not report full year guidance, but analyst have responded positively to the quarter. Raymond James had positive commentary, saying the 35-37% implied revenue growth from the Q1 guide will be driven by increased demand from COVID-19. Additionally, the firm increased revenue estimates for 2020 by 6.6%.

JPMorgan was also out after earnings with a reiteration on their Overweight rating on CHWY. The firm puts a $43 price target on the stock, around 25% higher from current prices.

Pet Market Sales Keep Growing

We are crazy for our pets and sales in the industry have accelerated over the last 10 years. According to Statista, Pet Food is the hottest segment, with almost $37 billion in food sold in 2019. Vet care was the next segment, with over $29 billion in 2019.

Moreover, the pandemic fears have led to a massive increase in pet sales. According to Nielsen, year over year dollar growth for pet food was up 6.4% the first week of March.

Technicals

The stock is significantly above the 50 and 200-day moving averages, which reside around the $29.50 level. The recent push higher to the $40 level has seen some profit taking. However, after the recent move lower after solid EPS, more buyers should show themselves. Look for support around $30-31 and long-term move higher to the $50 area. Strong demand and short covering should be fuel to get prices higher.

Bottom Line

The stay at home orders for many people across the country have pet owners turning online to meet their pet’s needs. Sales and customer acquisitions will break records for both March and April.

After the lockdowns are lifted, pet owners will likely remain Chewy customers. The company will see its recent growth amplified by people’s desire for the convenience they found during the lockdowns.

Bear of the Day:

Cedar Fair is a Zacks Rank #5 (Strong Sell) that owns five amusement parks. Among them are Cedar Point, Knott’s Berry Farm, Dorney Park & Wildwater Kingdom, Vallyefair and Worlds of Fun/Oceans of Fun.

A combination of bad earnings running into a season of lockdowns make a recipe for disaster for this company. While lockdowns might not last throughout the summer, the stigma of social distancing will likely lead to extreme pressure on business operations.

Stock Crashes

There are a handful of stocks that have ugly charts, but FUN is one of the worst. The stock started the year around the $55 level, but took a nose dive after a bad earnings report in February. After bottoming out at $13, we saw a huge bounce to $30, but now the stock under trading at the $16 level. This is a drop off over 70% already on the year.

Q4 Earnings

The issues started before the lockdowns when the company reported it Q4 earnings. The company saw a 56% EPS miss after a large miss on revenues. This was the fourth miss in the last eight quarters, but this one was big. It caused selling in the stock that carried into the COVID dominated month of March.

I wrote the following about Six Flags a few weeks ago and the same issues apply to FUN:

The company says it is facing challenges related to its base business. They are seeing soft organic revenue trends and increasing costs due to minimum and market wages. It seems as if people aren’t going to parks and it becoming more expensive to run them. Two negative catalysts for this business.

This is forcing estimates lower. For the current year, we have seen estimates fall from $3.24 to $1.43 over the last month. This is a fall of 56%, compared to next years drop (when things should improve) of 17%.

COVID-19 and Lockdowns

While things could improve, the COVID lockdowns will seal the fate for FUN if they go on too long. The company has a lot of debt and not much cash on hand. A prolonged lockdown into the busy summer months could really put pressure on the business.

In Summary

You can’t buy this stock until we know when the economy will open back up. Until we get some clarity on the virus and the timeframe of when we can get back to business, stocks like FUN must be avoided.

Additional content:

3 Stocks Striving to Fight Coronavirus Using Power of A.I.

Nearly four months have passed since the coronavirus outbreak was reported in Wuhan. Pharmaceutical companies and researchers have been constantly looking for a cure in the form of drugs and vaccines but that could take 12 to 18 months or even more. Now, researchers are taking help of Artificial Intelligence (AI) to develop an exit strategy from this global lockdown.

In fact, as the death toll keeps climbing, doctors are hunting for treatments that will not only lessen the impact of the virus but also reduce its severity and in that way savelives. Artificial intelligence can help in two major ways, surveillance and AI-based antidote search.

Globally, AI giants along with pharmaceutical companies are using their fastest supercomputers to crunch huge quantities of data to identify candidates that might work. In March, the IBM Summit, famed as one of the world’s fastest supercomputers, had identified 77 compounds as potential candidates. As these AI companies keep making progress in fighting COVID-19, their stock are sure to trend northward.

AI Tools to Predict Patients' Hospitalization Requirement

Leading healthcare AI, Jvion helps in predicting which patients diagnosed with coronavirus require hospitalization. This not only reduces pressure on hospitals during the pandemic but also helps critical care patients get utmost attention. Jvion basically uses machine-learning algorithms to identify risk factors that make coronavirus patients prone to complications, and help doctors to identify patients requiring assistance on an urgent basis.

Further, AI also helps in enhancing surveillance, monitoring and detection capabilities. As lockdowns have been imposed in restricting the spread of the virus, AI plays a critical role in preserving public safety and social order. For instance, in China, authorities relied on facial recognition cameras to track a man who had traveled to an affected area and local police instantly instructed him to self-quarantine.

In parts of Europe, especially Spain, police is using technology to enforce quarantine. Drones are being used to patrol and broadcast audio messages to the public and encourage them to stay at home.  At the same time, a surveillance company in the United States announced the development of an AI-based thermal camera that can detect fevers.

Along with that, AI is also helping government track movement of large groups, and individuals who traveled abroad to determine the risk factor that a person has to contract and spread the virus.

AI to Help Medical Researchers in Drug Discovery

So far, WHO has identified four most viable therapies that help coronavirus patients recover. However, results differ from one patient to another. The bucket includes an HIV combination treatment, an anti-malarial and a drug developed for Ebola but never used.

Here AI plays a crucial role as immense computing power is being used to aid scientists. Open sharing of data allows scientists to map the genome of the SARS-CoV-2 virus. The data pool includes potential candidate treatments of pharmaceutical companies from across the globe. Artificial intelligence helps in screening at an unprecedented speed and global engagement of institutional, commercial and international organizations will help in running multiple trials at a time.

In fact, in the last week of March, an AI platform run by Gero identified six drugs that could help combat the novel coronavirus. These drugs are already approved for use in other indications. Progress is being made rapidly in this field with technology giants like Microsoft teaming up with C3.ai and Princeton, Carnegie Mellon University, MIT, the Universities of California, Illinois and Chicago. Scientist will be given funding to access most advanced supercomputers to search for solutions.

However, pharmaceutical companies need to give access to their chemical libraries so that candidates can be identified and put to trials as soon as possible. Private companies like Iktos that uses AI for novel drug design and SRI International have entered into a collaboration agreement designed to accelerate discovery and development of antiviral therapies. Iktos will be using SRI’s SynFini, a fully automated end-to-end synthetic chemistry system to design novel, optimized compounds and accelerate the identification of drug candidates to treat several viruses causing a range of diseases from influenza to COVID-19.

3 Stocks to Watch

Artificial intelligence has immense potential and many companies still believe that their supercomputers are not being used to their fullest capacity. In fact, it is said that in future, AI could use social media data to predict potential outbreaks. Given such developments and the help AI is providing amid the coronavirus pandemic, it is prudent to keep a close watch on these three AI-focused stocks.

Since the outbreak of coronavirus, Baidu, Inc. has offered its Linearfold algorithm to scientific and medical teams. The Linearfold algorithm is significantly faster at predicting a virus’ secondary RNA structure than traditional RNA folding algorithms. Scientists at Baidu are using this algorithm to predict the secondary structure of Covid-19 RNA sequence. The process is reducing overall analysis time from 55 minutes to 27 seconds, making analysis 120 times faster.

The company’s expected earnings growth rate for the current quarter is 80.5% compared with the Zacks Internet - Services industry’s projected earnings growth of 28.7%. Baidu carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Alibaba Group Holding Ltd. has also made subsequent progress in the field of AI. The company’s Alibaba Cloud, DAMO Academy, and DingTalk together have launched a series of AI technologies and cloud-based solutions. The technology helps to analyze CT images within 20 seconds, diagnosing suspected novel coronavirus cases with an accuracy rate of 96%. Alibaba is sharing its AI-powered novel coronavirus disease diagnostic technology for free use by hospitals across the globe.

The company’s expected earnings growth rate for the current year is 31.3% against the Zacks Internet - Commerce industry’s projected earnings decline of 1.7%. Alibaba carries a Zacks Rank #2.

Alphabet Inc.’s subsidiary DeepMind AI is helping scientists understand the peculiar features of COVID-19. In January, DeepMind introduced AlphaFold that predicts the 3D structure of a protein-based on its genetic sequence and last month the system was put to test on the novel coronavirus.

The company’s expected earnings growth rate for the next year is 24.8%. Alphabet carries a Zacks Rank #3 (Hold).

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