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Elastic, Norwegian Cruise Line, FedEx, Amazon and United Parcel Service highlighted as Zacks Bull and Bear of the Day

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Zacks Equity Research
·14 min read
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For Immediate Release

Chicago, IL – September 14, 2020 – Zacks Equity Research Shares of Elastic N.V. ESTC as the Bull of the Day, Norwegian Cruise Line Holdings Ltd. NCLH asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on FedEx Corporation FDX, Amazon.com, Inc. AMZN and United Parcel Service, Inc. UPS.

Here is a synopsis of all four stocks:

Bull of the Day:

Elastic is a $9 billion provider of a software analytics engine that specializes in big-data search capabilities. For this reason, I call Elastic "the little Google" of big data and I've chosen it for the Bull of the Day because I'm really impressed with the projected 28% revenue growth for this year and next.

Here's the company mission, in their own words...

Search is foundational to a wide variety of experiences - from finding files and documents to investigating downtime to hunting down security threats. Elastic is a search company that applies the ability to instantly find relevant information and actionable insights from any data to a diverse set of applications and use cases.

We're the company behind the Elastic Stack — that's Elasticsearch, Kibana, Beats, and Logstash. From stock quotes to Twitter streams, Apache logs to WordPress blogs, we help people explore and analyze their data differently using the power of search.

Strong Beat-and-Raise Quarter Gets Analysts Moving

Elastic finds itself among a unique group of data "engine" analytics companies like Splunk, Alteryx, Datadog and MongoDB. These big data peers all have different automation specialties and cloud business models -- from SaaS to Platform-aaS and Infrastructure-aaS -- and over 1/3 of Forbes Global 2000 corporations rely on at least two of them.

On August 26, Elastic reported their Q1 results for fiscal year 2021, which began in May. Elastic delivered Q1 adjusted EPS of 6-cents vs. the consensus (18c), for a 133% earnings beat. Q1 revenue of $128.9 million beat the top line consensus of $121M by 6.5%.

While the company still isn't expecting consistent profitability yet, the out look was stronger than expected. Elastic raised its FY21 adj. EPS view to a range of (83c)-(69c) from (98c)-(85c). And management's FY21 revenue view rose to a range of $544-$550 million from $530M-$540M, vs the consensus of $537M.

Analysts were so impressed with the report and outlook that the average price target for ESTC shares rose from $95 to $125.

RBC Capital analyst Matthew Hedberg raised his price target on Elastic to $125 from $111 citing Elastic's strong Q1 results, that exceeded expectations on revenue growth, billings, and margins. He also noted that the company outlook for Q2 looks "beatable." Hedberg also like the fact that Elastic management indicated new customer additions and gross-renewals remain "consistent with past quarters" as the company "powers through" the current environment.

Oppenheimer analyst Ittai Kidron raised the firm's price target on Elastic shares to $125 from $100 and maintained an Outperform rating following the company's "strong" July quarter results. While Kidron is cognizant of potential risks like a longer sales cycle, he is positive on the continued recovery in business activity and strong customer metrics.

Stifel Nicolaus analyst Brad Reback dramatically boosted his price target on Elastic to $125 from $84 after the company "beat across the board" to start FY21. Reback observed that management's fiscal year guidance for about 28% revenue growth appears conservative given management's commentary that business trends are continuing to stabilize. Still, the analyst keeps a Hold rating on the stock as he expects shares to trade in line with peers in coming quarters and believes that ESTC is approaching fair value.

Piper Sandler analyst Rob Owens raised the firm's price target on Elastic to $127 from $94 after seeing the company post "strong results across all metrics" as accelerating digital transformation continues to drive demand for the broader portfolio of solutions addressing critical data and security needs for customers. Owens also believes that Elastic's guidance "continues to contain a degree of conservatism," after the surprising swing to profitability in Q1 following a 60% EPS beat in Q4.

Barclays analyst Raimo Lenschow raised his price target on Elastic to $124 from $120 and maintained an Overweight rating. The analyst noted that another quarter of "superior growth above expectations and conservative guidance should convince investors that Elastic is back on track." Lenschow believes the company should "re-join the valuation levels of other high growth software assets" such as MongoDB.

Jefferies analyst Brent Thill raised the firm's price target on Elastic to $130 from $110, citing that the company's updated outlook remains conservative even with management calling out the extending sales cycles in the current environment. Thill sees a favorable competitive position against a large TAM (total addressable market) in the tens of billions for Elastic.

Citigroup analyst Tyler Radke raised his price target on Elastic to a Street-high $146 as he observes the company's leading metrics pointing to mid-to-high 40's year-over-year constant currency growth, which is well above the Street's mid-20's estimate. Radke further notes that while guidance and the tone of the earnings call "struck a more conservative tone than we thought necessary," it should continue to provide an "attractive set-up" for quarters to come.

Digging for the New Gold in Big Data

In the last decade, the phrase "big data" entered the business technology lexicon because it described a new type of information available to corporations who were plugged into various sources of streaming data, from the Internet and communication networks to the factory floor and IoT -- especially since storing all these bits and bytes in the cloud was becoming increasingly cost effective.

And what smart enterprises were learning was that "mining and modeling" this data deluge was becoming a competitive advantage to learn about customers, products, supply chains and their next innovation opportunities.

This is why I have been a frequent investor and trader in companies like Splunk and Alteryx because of the powerful data analytics platforms they offer enterprises in just about any industry to find and use their data, and other outside data.

One major insight from Splunk in the past year was something they called "dark data" where over half of the files being deposited on corporate servers every month is hidden in log files and unavailable without the right "mining" tools.

And these data power tools made Splunk and Alteryx the picks and shovels of the new gold rush, as I described in several article and videos like these...

Big Data Gold Rush: Harness Chaos or Be Disrupted

Dark Data: Diving Into the Abyss

Once I realized the power of these analytics engines and platforms, it convinced me to learn more about Elastic and its unique big data search engine. Thus I became a buyer in the $60s last year and continue to buy it now near $100.

Trading only 13X sales in an environment of many software stocks supporting multiples above 25X -- for growth that might be double, but is unsustainable -- Elastic is a very unique provider of big data search capabilities with steady 25%+ growth. I see buying ESTC shares in the $90s as a good long-term opportunity.

Bear of the Day:

Norwegian Cruise Line Holdings is the now $5 billion operator of three brands, including Oceania Cruises and Regent Seven Seas Cruises, and 28 ships. 

The company saw revenues drop 80% this year to $1.3 billion from last year's $6.46B haul, while the bottom line plunged 263% from 2019's $5.09 to ($8.30). 

Cruise lines suffered some of the deepest impacts from the global pandemic, along with other travel and leisure enterprises like hotels, airlines, restaurants and movie theaters.

My colleague Tracey Ryniec wrote about NCLH as the Bear of the Day in early March when those dramatic impacts were first being felt, but shares were still trading above $30. It was the last time they saw that level. Here's what she had to say on March 5...

Norwegian Cruise Line Holdings suddenly finds itself in a crisis not of its own making as the coronavirus fears hit cruise travel. This Zacks Rank #5 (Strong Sell) has fallen over 48% in the last month.

Norwegian is a global cruise company which operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands.

It has a combined fleet of 28 ships with approximately 59,150 berths. It offers itineraries to more than 490 destinations worldwide.

The Company will introduce nine additional ships through 2027.

Coronavirus Hitting Earnings for 2020 and 2021

On Feb 20, Norwegian reported its fourth quarter and full year 2019 results. It should have been about the company taking another victory lap.

It saw record revenue and earnings per share for 2019. It was also the 6th consecutive year it had set those records.

Norwegian was also the first global cruise line to eliminate single use water bottles across its entire fleet.

But the coronavirus hit China, and the rest of Asia, in the first quarter of 2020 and that's all anyone can focus on.

It entered the year with a record booked position and at higher pricing, as the global consumer was feeling good and willing to spend on travel.

As of Feb 20, the current known direct impact to operations from COVID-19 was expected to be about $0.75 per share. That included customer incentive compensation and 40 canceled, modified or redeployed Asia voyages across the company's three brands.

They have redeployed the Norwegian Spirit to the Eastern Mediterranean for summer 2020, with an extremely condensed booking window.

It gave a full year guidance range, excluding both known and unknown impacts from the coronavirus outbreak of $5.40 to $5.60.

(end of Tracey Ryniec report from March 5)

As you can see, Norwegian management was trying to be optimistic on February 20 about the full-year outlook with that EPS guidance, but they really had no idea what was coming.

By early March, analysts were trying to see the horizon better and they lowered the 2020 Zacks Consensus to $4.16, from $5.57 just 30 days prior.

By early April, those profit projections had plummeted into negative territory and they just kept falling ahead of the company's Q1 report in mid-May.

After those results and outlook, including a 90% EPS miss of (99) cents vs the consensus of (52) cents, full-year estimates stabilized at ($6.83).

But the June quarter (reported August 6) brought more visibility about the pandemic impacts past and future, and though the EPS miss this time was only 27% -- ($2.78) vs. ($2.19) -- the 2020 earnings consensus plunged further to its current ($8.30).

A positive revenue surprise did lift the stock from under $13 up to $18 last month, but until the EPS estimates stop going down and start heading back up, it's not a good time to take these shares for a cruise. 

The Zacks Rank will let you know, just as it did in March.

Additional content:

Should You Buy Soaring FedEx (FDX) Before Earnings?

FedEx shares have skyrocketed 135% in the last six months and 65% since it topped Q4 FY20 estimates on June 30, which blows away UPS and Amazon. Investors have jumped on FDX stock as the shipping giant showcases that its push into e-commerce is paying off.

Shipping Shift?

FedEx stock had been tumbling over the last several years, as its longer-term earnings outlook fell. FDX then surprised some on Wall Street when it essentially cut ties with Amazon in August 2019. FDX likely didn’t want to be in business with a company that has its own shipping and logistics aspirations. And FedEx executives pointed out that Amazon represented only a small proportion of revenue.

Instead, FedEx plans to attract Amazon’s direct rivals. This includes companies that have gone all-in on e-commerce. The company is also improving its FedEx Express hub automation and modernizing its Express air fleet.

The long-term plan is to attract more e-commerce and business-to-consumer clients, while remaining a business-to-business heavy operation. FDX aims to better compete against its core competitors United Parcel Service, DHL, the US Postal Service, and Amazon. And it’s worth noting that the broader e-commerce market has miles of runway left, as it accounted for only 16% of total U.S. retail revenue in the second quarter despite perfect conditions to outperform.

Looking Ahead…

FedEx crushed our bottom line estimate last quarter by 80%, as the coronavirus boosted its business to consumer units. This helped offset some of the economic setbacks that hampered its higher-margin Express air-shipment unit that focuses on B2B, which Wall Street clearly thinks will bounce back as the economy returns to something closer to normal.

Investors are also pleased that FedEx is rolling out extra fees during the high-traffic holiday season to offset costs and manage volume. Looking ahead, our Zacks estimates call for FedEx’s Q1 sales to pop 2.4% to reach $17.46 billion, with its adjusted earnings expected to slip 17% to $2.54 a share.

Both of these estimates mark big improvements from last quarter. On top of that, its FY21 sales are projected to climb 2.8% to help lift its bottom line by 11%, with stronger growth expected in FY22.

Bottom Line

FedEx is currently a Zacks #3 (Hold) that’s seen its consensus earnings outlook improve recently. FDX also sports “B” grades for Value, Growth, and Momentum in our Style Scores system. Plus FDX’s 1.13% dividend yield tops the 10-year U.S. treasury and it is part of a highly ranked Zacks industry.

The nearby chart also shows that despite FDX’s strong run over the last six months, it rests 13% off its early 2018 highs. The stock touched a new 52-week record on Friday, even as the tech selloff continued through early afternoon trading, which means Wall Street might be expecting big things from its Q1 FY21 financial results that are due out on Tuesday, September 15.

Longer-term investors might want to consider buying FedEx stock. But it is likely best to wait and see how its guidance comes in, and it could face a near-term pullback on post-earnings profit-taking.    

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
United Parcel Service, Inc. (UPS) : Free Stock Analysis Report
 
FedEx Corporation (FDX) : Free Stock Analysis Report
 
Norwegian Cruise Line Holdings Ltd. (NCLH) : Free Stock Analysis Report
 
Elastic N.V. (ESTC) : Free Stock Analysis Report
 
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