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DICK'S Sporting Goods, Nomura Holdings, Apple, Garmin, Google 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 – June 2, 2021 – Zacks Equity Research Shares of DICK'S Sporting Goods, Inc. DKS as the Bull of the Day, Nomura Holdings, Inc. NMR as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Apple Inc. AAPL, Garmin Ltd. GRMN, Alphabet Inc. GOOGL.

Here is a synopsis of all five stocks:

Bull of the Day:

There’s been a lot of focus lately on stocks that stood to benefit from at least part of the pandemic restrictions that we have all lived with in some form for the last 15 months. Companies that have made staying at home - including working predominantly from home - have been the obvious beneficiaries.

Now that vaccinations numbers are rising and many restrictions have been lifted, a great deal of that focus has shifted to “re-opening” stocks – companies that offer the goods and services that are in high demand as millions of people re-discover those activities they’ve been missing.

Dicks Sporting Goods was a great “lockdown” stock, but it’s an even better “re-opening” stock.

The company sells exactly the equipment and apparel that people want to get back out there, exercise, socialize and simply have fun. They also continue to see outsized dividends from their decision to act in a socially responsible way. Long before “ESG” became a common term in the investing world, Dicks decided to make the significant decision to curtail or entirely eliminate the sale of firearms and ammunition.

Dicks had been one of the country’s largest retailers of firearms and analysts and investors rightfully worried about the potential effect of the loss of revenues from hunting enthusiasts.
Those customers tend to be strong advocates of second amendment rights who might see the move to limit the sales of firearms as an intrusion on those rights.

The decision came in February of 2018 and by the end of the year, Dick’s estimated that they had lost approximately $150 million in sales of guns and ammunition.

It turns out those initial investor fears were unwarranted because overall same store sales at Dick’s have actually been increasing significantly.

The hunting and shooting items that Dick’s stopped selling actually turned out to be a fairly low-margin business – and one in which they often went head-to-head with the nation’s largest discount retailer, Walmart.

Dick’s selection of women’s and performance athletic apparel sell in greater dollar volumes and at higher profits than the firearms products they replaced. That’s largely due to an advantage of scale Dick’s enjoys because of its sheer size. They feature popular brands like Nike, Adidas and UnderArmour, but they also have several private-label brands that are available exclusively at Dick’s.

The company has developed a line of women’s apparel and footwear called Calia with celebrity Carrie Underwood and also a brand of high-performance compression athletic garments called Second Skin that take aim at UnderArmour’s most popular items.

It’s a powerful one-two punch. Name-brand items bring customers into the stores, but intense price competition and higher wholesale prices often mean reduced margins on those goods. Offering customers choices of in-house brands gives Dick’s the chance to also sell those customers items with a lower retail price, but at bigger profits.

Those bigger profits are easy to see in a string of impressive quarterly reports. The most recent results highlighted net earnings of $3.79/share – 265% higher than the Zacks Consensus Estimate.

Those results weren’t an aberration, either. They came on the heels of sales and gross margins that increased simultaneously. Management increased revenue guidance for the rest of the year and analysts scrambled to revise their estimates upward. The Zacks Consensus Earnings Estimate for 2021 has risen more than 50% in the last 30 days from $4.96/share all the way to $7.62/share, earning Dicks Sporting Goods a Zacks Rank #1 (Strong Buy).

With that huge, expected increase in earnings, DKS currently trades at a very low 12-month forward P/E Ratio of just 13X.

It’s hard not to like a company that’s looking out for its customers and society at large, helping people live healthier and more fulfilling lives, earns industry-leading profits, trades at a value-stock price and even pays a 1.5% dividend yield.

It’s hard not to like Dicks Sporting Goods.

Bear of the Day:

It’s a great time to be a financial institution. General market conditions are favorable. Transaction volumes are rising, Investment Banking and Trading revenues have been solid. Analysts and investors are snapping up the shares of strong financial institutions and making them the foundation of diversified portfolios during an economic expansion that shows no sign of slowing.

Sometimes it’s easy to see all the members of a given industry or sector as essentially interchangeable. When things are good, the rising tide lifts all boats, or so the thinking goes.

That can be a big mistake however, and today’s Bear of the Day is a good example of a financial stock that’s less attractive than most of its peer group.

Nomura Holdings is the largest securities brokerage and asset management business in Japan. You’ve probably heard the name in the news recently because of the bank’s involvement in the Archegos incident earlier in 2021 in which a previously little-known hedge fund manager suffered somewhere in the area of $20 billion in losses on heavily leveraged positions.

After a series of cascading losses that sent many banks scrambling to cut positions and mitigate losses, Nomura was directly facing losses in the area of $2 billion. That’s a huge number of course, but drawdowns like that aren’t totally unheard of at big banks. Nomura takes in between $13 and $14 billion in annual revenues. The loss hurts, but it’s not the end of the world.

What’s more concerning is how they got into that position in the first place and the effect that the incident could have going forward. Competition for the business of big clients like Bill Hwang of Archegos can be quite stiff. Smaller institutions can sometimes attract that lucrative business by exercising less stringent due diligence and risk control.

The fact that Nomura found themselves with that much exposure to a trader who was leveraged 5-8X at multiple institutions suggests that the bank may have been lenient in order to collect Hwang’s lucrative fee income. An independent review of Nomura’s risk management practices is ongoing, but regardless of the results, it’s almost certain that they will be living in an environment of lower risk appetite for the foreseeable future.

That’s a vicious circle for banks – they stretch their risk-tolerance to collect additional revenue, but if the additional risk results in trading losses, they are forced to tighten up risk controls and lose out on potential future revenues.

Nomura’s share price fell precipitously after the Archegos blowout, so it could be argued that the current price already reflects the reduced earnings estimates that earns the bank a Zacks Rank # 5 (Strong Sell).

There may be another shoe to drop, however. Nomura has a very reasonable price to tangible book ratio and pays a healthy dividend. Those two factors have prevented the share price damage from being much worse. The dividend is far from certain, however. Currently yielding almost 6% annually at the recent share price, the markets seem to be pricing in a real chance of a dividend cut.

Higher yields are great when you receive them, but apparent rates that are more than double the peer group can be an indication that investors are expecting the company to pay a lower amount.

If there were to be an official announcement about a dividend cut from Nomura, it’s easy to see the shares taking another leg lower.

Additional content:

Apple (AAPL) Leads Growing Smartwatch Space

Apple’s endeavors to solidify its footprint in the smartwatch space have been gaining traction in the last couple of years, thanks to the integration of health features in its Apple Watch.

The solid adoption of Apple Watch Series 6, which features a blood oxygen sensor with additional healthcare and fitness features like Cycle Tracking, the Noise app and Activity Trends, has helped the iPhone maker strengthen its presence in the smartwatch market.

In the first quarter of 2021, this Zacks Rank #2 (Buy) company witnessed 50% year-over-year growth in the demand for new Series 6 models, increasing market share of smartwatch shipment to 33.5% while overall market shipments grew 35% year over year, according to a Counterpoint Research report. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Moreover, the availability of Fitness+ subscription services built for Apple Watch and the Health Records feature within the Health app for users in the United Kingdom and Canada have been key growth drivers in boosting the adoption of Apple’s Watch.

Smartwatch Growth Potential Aplenty

Increasing health awareness among consumers is a key factor driving growth in the smartwatch space.

Moreover, Internet of things (IoT) driven smart watches is a highly preferred choice of smart watches. Smart watches connected to the Internet offer a wide range of features such as time, health monitoring and fitness tracking, receives calls and messages, entertainment, cardless payments, and connectivity to other IoT devices to improve the quality of the user's life.

The global smart watch market is expected to grow from $49.74 billion in 2020 to $59.02 billion in 2021 at a compound annual growth rate (CAGR) of 18.7%, per Research and Markets report. The market is expected to reach $99.84 billion in 2025 at a CAGR of 14%.

Promising growth prospects have increased competition for Apple in the smartwatch segment from the likes of GarminAlphabet’s Google, Samsung Electronics and Huawei Technologies besides other players in the extended wearables market like Xiaomi, among others.

Google’s Increasing Buyouts Create Potent Threat

Alphabet remains well-poised to rapidly penetrate the booming smartwatch space on the heels of concerted efforts by its division Google. The growing momentum of its Wear OS remains a tailwind. Additionally, the seamless synchronization of Wear OS with Google Fit and other health apps is a positive.

Recently, Google announced teaming up with Samsung on a joint software platform for smartwatches and other wearables in a move ramping up competition with market leader Apple.  Samsung will use Google's Wear OS for its upcoming Galaxy smartwatches instead of its own Tizen platform.

Markedly, in the first quarter 2021, Samsung's smartwatch shipments grew 27% year over year and captured a market share of 8% driven by increased demand for its Galaxy Watch 3 and Galaxy Watch Active series.

Additionally, the company’s acquisition strategy to expand its footprint in the underlined market remains a major positive. The acquisition of Fossil’s smartwatch technology is noteworthy.

Moreover, Google completed the acquisition of the wearable fitness company Fitbit, which is termed as a remarkable buyout in the fitness tracking space. Fitbit’s market share of smartwatch shipment was  8% in the first quarter of 2021.

The latest smartwatch called Sense, which is equipped with stress management and other attractive features, remains noteworthy. Additionally, the revamped versions of its Versa, namely Fitbit Versa 3 and Fitbit Inspire 2 are gaining strong momentum.

Garmin’s Strengthening Portfolio to Pose Challenge

Garmin has been focusing on expanding its smartwatch portfolio. The company recently unveiled Descent Mk2S, a regular wear smartwatch with numerous underwater diving features.

In addition to the latest Descent Mk2S, this Zacks Rank #3 (Hold) company has introduced the EnduroTM ultraperformance GPS watch with extended battery life to help athletes train well and monitor their performance.

Expansion of its well-known Approach series of GPS golf products — the Approach S42 smartwatch, the Approach S12 watch and the Approach G12 GPS rangefinder — has been another positive for the company.

Moreover, it has announced the introduction of Venu 2 and Venu 2S GPS smartwatches to take care of the wellbeing of customers.

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