For Immediate Release
Chicago, IL – September 18, 2019 – Zacks Equity Research Shares of Crocs CROX as the Bull of the Day, Tailored Brands TLRD asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Microsoft MSFT and The Walt Disney Company DIS.
Here is a synopsis of all four stocks:
Bull of the Day:
Crocs are back. As much as everyone loves and hates the trend, it can’t be stopped. CROX is up over 200% in the last 2 years as investors flock back into this former dud. This shoe is back on the feet of teenage pool zealots, driving the company’s topline to the all-time highs that analysts are estimating for 2019.
CROX has beaten both top and bottom-line estimates for the past 10 consecutive quarters. Analysts continue to be impressed and have guided their estimates up, pushing this stock into a Zacks Rank #1 (Strong Buy).
Crocs began in 2002 with its iconic clog design, a style that has been branded into the childhood memories of every millennial. The early 2000s fad drove this stock to its peak of $74.75 on Halloween day, 2007. Today CROX sits at less than half of that, trading at $28.80 a share.
The firms seemed to be making an effective pivot in the e-commerce driven ‘retail apocalypse’. Crocs has been strategically closing down its brick-and-mortar location to focus on its low overhead, high growth e-com business. In 2018 online sales made up roughly 17% of total sales (e-com sales up over 20% from the prior year) and is expected to continue to grow as a primary revenue driver.
Valuation and Price
CROX forward P/S has been trending up over the last 2 years because of the growth that is being priced back into the stock. Over the same time frame, the stock’s PEG has dropped a substantial amount as the company gets deeper into profitability. Valuations are in line with the industry average.
CROX has been quite volatile this year, from its high of $31.88 in January the stock fell 45% to its low of $17.53 in June. Today the stock is up 64% from its low, trading close to its 52-week high at around $29.00.
This stock has driven up almost 30% since the beginning of September. A rally that quickly is likely going to be followed by a slight pullback. I would wait for a marginal retracement back to its 200-day and 50-day moving average of $24-$26 to get into this. There appears to be a level around the $24-$25 price point that CROX shares keep bouncing off.
The Croc is cool again, propelling a Gen Z fashion statement into a fashionable trend. The brand is etching its name into the childhood memories of another generation.
Crocs has crawled its way out of the pond and back into growth. With 100s of products to choose from, this brand now caters to all consumers. Crocs low cost, comfort, and simplistic style have driven this shoe back into the teen trend spotlight.
The fact that Crocs are still relevant today proves that it is more than a fad, and I expect that we will be seeing much more these affordable and comfortable shoes around town.
Bear of the Day:
Tailored Brands has had a rocky last few years with its shareholders being devastated by the retail apocalypse. TLRD has lost over 88% of its value in the last 5 years, and 2019 alone wiped out 63% of the shares worth. Analysts continue to be pessimistic about this stock dropping their estimates and sinking TLRD into a Zacks Rank #5 (Strong Sell).
Tailored Brands include Men’s Wearhouse, Jos. A. Bank, K&G, and Moores. These stores can be found across the US & Canada at over 1,400 locations. Unfortunately, store count has been declining fast, with total stores falling 17% in the end of 2014. Consumers just aren’t buying the suits and tuxedos that they used to.
Since 2016 Tailored Brands has been experiencing a declining topline since 2016, represented by brand below. Sell-side analysts are estimating that TLRD will experience its largest annual sales decline since the company’s inception in 2019. This decline is expected to continue into the foreseeable future.
I am concerned about the liquidity of Tailored Brands with its cash on hand covering not even 10% of its current debt. Free-cash-flows just barely staying above water, it wouldn’t take much for this company to default especially when their credit rating is already considered speculative grade.
I predict a dividend cut in the near future as cash-flows remain an issue. This adds additional downside potential for TLRD.
In today’s corporate world, execs are wearing fewer suits and leaning towards more progressive clothing as they adapt to the progressiveness of the up and coming generations. You are seeing a decline in suits and an increase in athleisure attire in the office, a trend that would have Don Draper fuming.
The inclination toward casual work attire combined with Tailored Brands inability to adapt to the evolving consumer has sent this company to the brink of bankruptcy. This stock has been toxic for some time now, and unless significant systemic changes are made its toxicity will continue. Stay away from shares of TLRD.
Microsoft, Disney Partner to Boost SLAB Initiatives
Microsoft recently announced a five-year partnership with The Walt Disney Company in an effort to create new ways for “production” and “postproduction” workflows via Microsoft Azure cloud platform. The tech giant will support Walt Disney as an Innovation Partner to bolster StudioLAB (SLAB) initiative. However, the financial terms of the deal have been kept under wraps.
SLAB aims to build upon advanced technology by improve prototypes and designs to enhance video production. SLAB campus, which is likely to span across an area of 3,500 square feet, has been proposed to be built on the famous Disney studio space in Burbank.
Microsoft’s Azure offerings will improve the SLAB project by providing advanced collaboration, storage and network facilities. The collaboration is also aimed at delivering effective ways to shift production assets and data from the studio set to the cloud.
Azure creates a high-speed, low-latency, private link between customer’s on-premises infrastructure facility and Azure cloud regions.
According to Kate Johnson, president of Microsoft US, “The combination of Azure's hyperscale capacity, global distribution, and industry-leading storage and networking capabilities with Disney's strong history of industry leadership unlocks new opportunity in the media and entertainment space and will power new ways to drive content and creativity at scale.”
This will deal will significantly benefit Microsoft and provide it an edge in media and entertainment industry.
Innovative Initiatives Fuel Optimism
The latest deal win is instilling confidence in the stock. Microsoft remains well poised to capitalize on this opportunity by developing technology to enhance entertainment. Notably, the stock has returned 20.4% in the past year, outperforming the industry’s growth of 14.2%.
Integration of Microsoft’s Azure cloud platform with Walt Disney's SLAB is anticipated to bolster customer base of both the companies. We believe that the transformed IT environment, increasing spending on cloud based applications and growing clout of digital transformation will favor the partnership.
This apart, Microsoft is focusing on up scaling the utilization of AI, IoT, and blockchain capabilities, to aid enterprises in streamlining the otherwise complex processes. In this direction, the company is rolling out innovative products, including Azure Kinect DK and HoloLens 2, which hold promise.
Markedly, the tech giant acquired Express Logic in April, this year, to improve competence in edge and IoT market. Notably, IoT sensors play a crucial role in maintaining connectivity in this era of smart devices.
Notably, IDC expects worldwide IoT spending to hit $1 trillion in 2022 from projected $745 billion estimated in 2019.
We believe Microsoft’s IoT initiatives aimed at providing robust tools and platform to developers, and strengthening partner base will aid it in improving overall performance.
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Crocs, Inc. (CROX) : Free Stock Analysis Report
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