For Immediate Release
Chicago, IL – September 26, 2019 – Zacks Equity Research Columbia Sportswear COLM as the Bull of the Day, GameStop GME asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Micron MU, AMD AMD and Nvidia NVDA.
Here is a synopsis of all five stocks:
Bull of the Day:
Columbia Sportswear’s outlook appears strong heading into the holiday shopping season and its stock price is up big over the past two years. The outdoor apparel firm, which owns multiple brands, is committed to compete and stand out against rivals such as The North Face through new lines and more.
Columbia was founded in the late 1930s and has remained at the forefront of outdoor clothing, apparel, and footwear ever since. Today, the Portland, Oregon-headquarter firm owns four total brands: Mountain Hardwear, Sorel, prAna, and, of course, its namesake brand.
Columbia is the largest brand, accounting for approximately 85% of total sales in the first half of 2019, with sales up 9%. Meanwhile, its boot-heavy Sorel brand saw its first-half revenue soar roughly 30% to make up around 5% of company revenue.
Mountain Hardwear, which is essentially a more expensive Columbia, slipped 3%. Sustainable-focused and yoga-inspired prAna also dipped slightly. Still, both brands remain key in order to compete more broadly in a market that includes Canada Goose, the previously mentioned The North Face, Lululemon and many others. More recently, Columbia rolled out a new footwear line called the SH/FT Collection. This new offering aims to bring “street-ready style and summit level skills” into one footwear collection.
Columbia’s U.S. business, which accounts for around 60% of sales, soared 13% during the first six months of 2019, with the next biggest climb coming from Europe, the Middle East and Africa, up 4%. Like all retailers, COLM has tried to expand its direct-to-consumer business recently. DTC sales are up 9% so far this year, pulling in 44% of revenue. Last year, DTC sales surged 22% to account for 42% of total sales.
The company’s wholesales unit also popped 8% in the first half of 2019. Colombia and its various brands can be found everywhere from Dick’s Sporting Goods and Macy’s to outdoor-specific retailers such as REI and Moosejaw—now owned by Walmart. COLM’s wholesale division also jumped 8% in 2018.
Moving on, we can see that shares of COLM have been a on tear over the last five years, up 162%, against its industry’s 25% climb and the S&P 500’s 50% move. Columbia stock is also up 65% in the last 24 months, compared to the Apparel Market’s 37%. COLM stock has come back to earth in 2019, up 16%, against the S&P’s 17% and its industry’s 13%.
Some investors might also be glad to see that shares of Columbia have slipped nearly 1% in the last three months. The stock closed regular trading Wednesday at $97.31 per share, down roughly 11% from its 52-week highs of $109.74. This could give COLM stock room to run heading into the release of its Q3 financial results in late October and the vital holiday shopping season.
Despite Columbia’s impressive run, its valuation picture hardly appears stretch. COLM is trading at 19.1X forward 12-month Zacks Consensus Earnings Estimates. This roughly matches its industry’s average and comes in well below its own three-year high of 26.8X and 21.1X median during this stretch.
Columbia also pays an annualized dividend of $0.96 per share for a 1.00% yield at the moment. The yield on the 10-year U.S. Treasury currently rests at 1.72%. Meanwhile, the Textile – Apparel market that Columbia is a part of ranks in the top 25% of our 255 Zacks Industries. The company has also returned value to shareholders through stock buybacks.
Q3 Outlook & Beyond
Looking ahead, our Zacks Consensus Estimates call for Columbia’s third-quarter fiscal 2019 revenue to jump 10.8% to reach $881.48 million. This would top last quarter’s 9.3% top-line expansion and Q1 2019’s 7.8% growth. The company’s Q4 revenue is then projected to pop 8.2%, which would come on top of the year-ago period’s 18% sales growth.
COLM’s fiscal 2019 revenue is projected to jump roughly 8.9%, with fiscal 2020 projected to come in 6.3% above our current-year estimate. Both of these would mark the continuation of strong sales growth, after 2018 revenue jumped 13.6%.
At the bottom-end of the income statement, Columbia’s adjusted quarterly earnings are expected to jump 9.2%. Peeking ahead, Q4 earnings are projected to pop 7.7%, with fiscal 2019 expected to surge 18.7%. The company’s 2020 EPS figure is then expected to climb another 9.3%.
The company’s longer-term earnings estimate revision activity has also trended upward, to boost its fiscal 2019 and 2020 consensus estimates by 5% and 3%, respectively, in the last 90 days.
Columbia is currently a Zacks Rank #1 (Strong Buy). The firm is also prepared to expand and drive growth through innovation, which will be much easier considering that the firm has over $500 in cash and short-term investments and zero long-term debt.
Bear of the Day:
GameStop’s downturn has been years in the making as the massive and quickly expanding video game industry trends more heavily toward digital and mobile.
GME & Industry Overview
GameStop was once at the forefront of the retail gaming industry. The Grapevine, Texas-based company still boasts roughly 5,700 stores around the globe and it attracts gamers, who might not want to shop at places like Best Buy. However, the last five years have seen the firm’s sales decline as more people turn to digital downloads and mobile games.
The global gaming market is projected to jump roughly 10% in 2019 to reach $152.1 billion, based on market research firm New Zoo estimates. Yet, smartphone-focused mobile gaming, which is hardly GameStop’s domain, is projected to account for 45% of sales.
The growth of mobile gaming has seen tech giants dive into the space. Apple just officially launched its new $4.99 per month subscription-based gaming service called Apple Arcade. Meanwhile, Google is ready to debut its Stadia cloud gaming offering later this year.
GameStop must capitalize on mobile, subscription, and cloud gaming because its recent moves to cut costs haven’t been enough to inspire confidence. The company said on September 10, when it reported its second-quarter earnings results, that it plans to close between 180 and 200 stores by the end of fiscal 2019. The firm also plans to try to make its stores more attractive to the growing world of e-sports.
Meanwhile, investors have pushed GME to shake things up. This includes a push to change the board. With that said, the company will likely have to wow Wall Street soon after it eliminated its dividend in June.
Outlook & Earnings Trends
Looking ahead, our current Zacks Consensus Estimates call for GameStop’s third-quarter fiscal 2019 revenue to tumble 22.6% to $1.61 billion. Last quarter, the company’s sales fell 14.3%, with comps down 11.6%. The firm’s vital Q4 holiday-season sales are expected to sink 8.6%, with full-year fiscal 2019 revenues projected to fall 17%.
At the bottom end of the income statement, the video game seller’s adjusted quarterly earnings are projected to plummet 88%. Peeking ahead, fourth-quarter earnings are expected to slip 3.5% to help 2019’s EPS figure fall over 48%. GameStop’s 2020 outlook doesn’t look better, with earnings projected to sink another 19%, on 2.8% lower sales.
On top of that, the company’s earnings estimate revision activity has trended heavily in the wrong direction, especially for Q3, as well as fiscal 2019 and 2020. Overall, GameStop’s earnings revisions have moved almost completely in the wrong direction over the last five years.
Is Micron (MU) Headed for a Post-Earnings Selloff?
Micron is set to release its fourth quarter fiscal 2019 earnings results after the closing bell on Thursday, September 26. The semiconductor firm is one of the largest makers of DRAM and NAND memory chips and Micron stock has skyrocketed 48% in the last three months to destroy its industry’s 11% average climb.
Despite the positivity, which includes a larger 2019 climb, Micron’s actual quarterly results tumbled the last two periods. And Micron’s Q4 estimates don’t show signs of a return to growth.
What’s the Story?
Micron faces ebbs and flows that are relatively inherent to the semiconductor industry. The chip market is a cyclical business because it is reliant on broader business and investment cycles. More specifically, NAND and DRAM pricing has hurt the Boise, Idaho-headquartered firm. Micron’s own outsized success and growth over the last several years—which saw it soar from roughly $11 a share in January 2016 to $58 in May 2018—has also put the firm in a difficult spot.
Along with the tough comparison periods, the specter of the ongoing U.S.-China trade war sparked industry-wide fears. Nonetheless, spending from PC and smartphone makers to cloud computing firms and everyone in between, is undoubtedly set to return.
Micron executives last quarter pointed to some signs of improvement. Yet their overall tone remained cautious. “While we are seeing early signs of demand improvement, we plan to reduce our capital expenditures in fiscal 2020 to help improve industry supply-demand balance,” CEO Sanjay Mehrotra said in prepared remarks last quarter.
In spite of all the broader semiconductor industry worries, along with issues that directly impact Micron, MU stock has surged roughly 52% in 2019. This climb easily tops it’s industry’s 23% average and the S&P 500’s 18%. In fact, Micron’s post-Q3 strength has helped it inch toward current industry standout AMD and blow away Nvidia’s 29% climb.
The last two years, however, have been volatile as we can see in the chart. Investors will also notice that Micron over the last decade has crushed the semiconductor market, while also having experienced far more turbulence.
Outlook & Historical Comparisons
Moving on, Micron’s Q4 sales are projected to tumble 46.4% from $8.44 billion in Q4 2018 to touch $4.52 billion, based on our current Zacks Consensus Estimates. Investors should note that this would represent a larger drop than Q3’s roughly 39% downturn and the second quarter’s 20.6% decline.
Overall, Micron’s fiscal 2019 revenue is projected to fall around 24% from $30.39 billion last year to $23.08 billion. Meanwhile, Micron’s first quarter 2020 sales are projected to fall 40.5%, with full-year fiscal 2020 revenue expected to sink 15% below our current-year projection to reach $19.60 billion.
Clearly, Wall Street and investors won’t love to see these projections, but there are reasons that Micron stock has surged this year despite the company’s downturn: one of which is that they have seen this before. Micron’s revenue fell 1% in 2015 and 23.4% in 2016. To be exact, Micron’s quarterly revenue fell on a year-over-year basis for six straight periods from Q3 2015 through the fourth quarter of fiscal 2016.
Micron’s adjusted Q4 earnings are then projected to fall 86.4% to $0.48 per share, with fiscal 2019 projected to sink 48% to $6.24. Peeking further ahead, MU’s first quarter EPS figure is expected to tumble 82.5%. The company’s fiscal 2020 earnings are then projected to decline an additional 57% to $2.68.
Micron stock closed regular trading Tuesday down 2.20% to $48.51 per share, just a few dollars off its 52-week highs of $51.39. All eyes will be on MU Thursday afternoon, as we are still a few weeks away from the unofficial start of the September-quarter earnings season (also read: The Q3 2019 Earnings Season Gets Underway).
As always, it is unclear how Wall Street will react to the report. And investors need to pay close attention to guidance. With that said, MU stock has historically traded somewhat heavily around earnings. This means a post-earnings selloff could possibly be in the cards as Micron’s valuation is extremely bloated at the moment.
MU stock is trading at its highest forward sales multiple in a decade and its forward 12-month P/E has shot up to 19.6X. This comes in well above its industry’s 14.8X, which it has traded at a discount against over the last three years, as well as its own three-year median of 6.0X.
Micron does, however, sport a Zacks Rank #2 (Buy) right now, based mostly on its recent run of positive earnings estimate revisions. Plus, MU stock is part of our Semiconductor Memory industry that is currently ranked No. 2 out of our 255 Zacks Industries. Therefore, investors should likely try to wait to make any Micron moves until after MU reports and we see how the market reacts.
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