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JPMorgan, Playa Hotels & Resorts, SolarEdge, Canadian Solar and Clearway Energy highlighted as Zacks Bull and Bear of the Day

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Zacks Equity Research
·12 min read
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For Immediate Release

Chicago, IL – December 30, 2020 – Zacks Equity Research Shares of JPMorgan Chase & Co. JPM as the Bull of the Day, Playa Hotels & Resorts N.V. PLYA as the Bear of the Day. In addition, Zacks Equity Research provides analysis on SolarEdge Technologies, Inc. SEDG, Canadian Solar Inc. CSIQ and Clearway Energy, Inc. CWEN.

Here is a synopsis of all five stocks:

Bull of the Day:

JPMorgan Chase is expected to keep its crown as one of the leading US banks when it comes out of the pandemic in 2021. It is back to being a Zacks Rank #1 (Strong Buy) as analysts continue to raise their earnings estimates for next year.

JPMorgan Chase is a global financial services firm with assets of $3.2 trillion. It operates in investment banking, financial services for small businesses and consumers, commercial banking, financial transaction processing and asset management.

A Big Beat in the Third Quarter

On Oct 13, JPMorgan reported its third quarter results and blew by the Zacks Consensus Estimate by 24.3%. It reported earnings of $2.92 versus the Zacks Consensus of $2.35.

The company saw revenue of $29.9 billion, which was flat year over year.

The quarter was led by the Corporate & Investment Banking segment as Markets revenue was up 30% and Global IB fees up 9%.

Consumers continued to save money, with Consumer & Community Banking seeing a 28% increase in deposits.

Asset & Wealth Management saw record revenue and net income with strong net inflows into long-term products.

Credit card spending was still lower for the quarter than a year ago, although in the month of September, credit and debit spending finally showed positive year over year growth for the first time since the pandemic started.

JPMorgan maintained its credit reserves at $34 billion.

It also has access to liquidity sources up to $1.3 trillion.

Analysts Bullish on Q4 and 2021

JPMorgan is scheduled to report its fourth quarter results shortly, on Jan 15, 2021.

It is among the Dow components that leads off earnings season every quarter.

The analysts are getting bullish heading into the report.

Over the last month analysts have raised their 2020 full year estimates as well as their Q4 estimates.

The 2020 Zacks Consensus Estimate has jumped to $7.57 from $7.45 during the last 30 days as 4 estimates have been revised higher, and none were cut.

That's still an earnings decline of 29.4% from 2019 as JPMorgan made $10.72 last year before the coronavirus hit.

But analysts are getting bullish about 2021 as well.

1 analyst raised their estimate for 2021 in just the last week which pushed the Zacks Consensus up to $9.24.

That's earnings growth of 22.1% compared to 2020.

It's also bullish that the analysts are raising estimates just ahead of the next earnings report.

Analysts are usually conservative and most stay on the sidelines just ahead of the earnings report unless they are very confident that things are better-than-expected.

Shares Up Big in the Last 3 Months

The banks were hit hard in the March 2020 coronavirus sell-off, for justifiable reasons.

But since the announcement in early November of the Pfizer vaccine, the banks have rallied, including JPMorgan.

Shares have jumped 30% in the last 3 months.

However, they are still down 10.3% year-to-date.

JPMorgan now has a forward P/E of 16.5, which is a little pricey on a historic basis for the company. However, if those earnings turn out to be better-than-expected in 2021, then the shares are attractively valued.

The company is still paying its dividend, with a yield of 2.9%.

JPMorgan is the only large US bank to be a Zacks Rank #1 (Strong Buy).

Bear of the Day:

Playa Hotel & Resorts is in the hardest hit industry during the pandemic: hospitality. This Zacks Rank #5 (Strong Sell) is hoping for brighter days in 2021 as the coronavirus vaccine rolls out globally.  

Playa operates 21 all-inclusive hotels in Mexico, Jamaica and the Dominican Republic with 8,172 rooms. It partners with popular brands such as Hilton, Hyatt, Dreams, Panama Jack, Jewels, Capri and Sanctuary Cap Cana.

In the third quarter of 2020, Hyatt was the largest brand by room percentage at 39%. Hilton at 22%, Dreams at 17%, Panama Jack at 9%, Jewels at 5% and Capri and Sanctuary Cap Cana at 4% each.

A Miss in the Third Quarter

On Nov 4, Playa reported its third quarter results and missed on the Zacks Consensus by $0.06. Earnings were a loss of $0.57 versus the consensus of a loss of $0.51.

The net loss was $78.6 million compared to a net loss of $30.5 million in 2019.

In the quarter, for open resorts, occupancy was 21.5%. It ranged across the company's various regions.

At open resorts, occupancy was 27.5% in the Yucatan properties, 21.4% in the Pacific coast, 13.2% in the Dominican Republic and 16.6% in Jamaica.

As of Nov 1, 2020, 18 out of its 21 resorts had reopened and it expected a full reopening of all of its properties by the end of 2020.

The company believed in November that Mexico would see the best demand as it had kept consistent travel policies throughout the pandemic and the airlines have been adding more flights and capacity there.

Cash and Cash Burn Rate

As of Sep 30, 2020 the company had $195.5 million in cash and cash equivalents, excluding $27.6 million of restricted cash.

Total interest-bearing debt was $1.267 billion, comprised of a Senior Secured Term Loan due 2024, a property loan agreement due 2025 and the outstanding balance on the Revolving Credit Facility.

The Revolving Credit Facility was $84.7 million as of Sep 30, 2020, due 2022.

The cash burn rate for the third quarter was the following:

July: $18 million
August: $15.4 million
September: $16.2 million

Selling Dreams Puerto Aventuras

On Nov 4, Playa announced it would sell the Dreams Puerto Aventuras property in Mexico for $34.5 million.

The deal would enhance the company's cash position and allow them to focus on their core assets which includes the Hilton and Hyatt properties.

The deal is expected to close in the first quarter 2021 but the company warned that any deal was not guaranteed to close.

What Vaccine? 2020 and 2021 Estimates Cut

Analysts lowered 2020 and 2021 estimates after the third quarter earnings report.

3 estimates were lowered over the past 2 months to a loss of $1.47 from a loss of $1.36. That's an earnings decline of 2,200% as the company made $0.07 in 2019.

Analysts are bearish on next year as well. 3 estimates were also lowered during this time for 2021.

The 2021 Zacks Consensus fell to a loss of $1.03 from a loss of $0.80.

While that's earnings growth of 29% from 2020, it's still a significant earnings loss.

Shares Rally on the Vaccine Recovery Hope

The travel stocks have seen a big rally since Pfizer announced the results of its vaccine trial in early November 2020.

Playa is up 56.4% in the last 6 months, including 28.3% over the last 90 days.

It's still down 34.6% year-to-date, however.

Winter is peak season for the Caribbean and Mexico.

Will Playa reduce its cash burn rate further in the fourth quarter?

There are a lot of unknowns for the hotel businesses right now.

The industry ranks in the bottom 4% of all Zacks industries.

Additional content:

Will These 3 Clean Energy Majors Lose Steam in 2020?

Unlike the majority of the industries that suffered significantly due to the coronavirus crisis, the clean energy industry has shown noticeable growth in 2020. Impressively, the S&P Global Clean Energy Index has surged a solid 135.4% year to date.

Factors like rapidly plummeting costs of solar panels and wind turbines, technological innovations making clean energy products like modules and turbines even more energy efficient, increased corporate investments in renewable as well as rapid transition of the Utility sector toward a zero-carbon environment have contributed to the growth of the industry.

Will the Momentum Continue?

While the clean energy industry seemed to be quite resilient to the COVID-19 crisis, some policy related uncertainties in the near future might threaten this industry’s growth trajectory in 2021. For instance, in China, onshore wind and solar PV subsidies expire this year, while offshore wind support ends in 2021. This might lead to reduced capacity additions in 2021. Afterall the nation plays a major part in the clean energy industry, especially the solar market.

Nevertheless, president-elect Joe Biden’s ambitious investment target of $2 trillion in clean energy infrastructure over the next four years brightens the overall near-term outlook for the clean energy industry.

Moreover, as stated in a Forbes report in June, Goldman Sachs announced its expectation that spending for renewable power projects will become the largest area of energy spending in 2021, surpassing upstream oil and gas for the first time in history.

Such optimism must have served the basis for the U.S. Energy Information Administration to project that the U.S. electric power sector will add 9.5 gigawatts (GW) of new capacity in 2021, while utility-scale solar capacity will rise by 14.0 GW in 2021.

Proceed with Caution

The aforementioned discussion must have been an encouraging one for clean energy investors keen to expand their portfolio. However, before you race to buy some top-performing stocks from this industry, we should warn that not all clean energy stocks are worthy of investment.

Here we discuss three such stocks. Though these have a market capitalization of $1 billion or more and have managed to register a solid share price hike of more than 50% so far this year, they are unlikely to retain the momentum in 2021. The fact that these stocks are Sell-rated (Zacks Rank #4 or 5) dampens their appeal. These are:

SolarEdge Technologies: This $16.60 billion worth company has gained 234.8% year to date. The Zacks Consensus Estimate for 2021 earnings has moved down 13.5% to $4.56 in the past 60 days. This Zacks Rank #4 (Sell) stock reached its 52-week high of $335.80 on Dec 22. So, an upside in the near term seems unlikely.

The pandemic and the associated travel restrictions impacted the company’s certification and production target dates. This has delayed the release of its residential battery by several months.

Canadian Solar: This $3.13 billion worth company has gained 131.9% year to date. The Zacks Consensus Estimate for 2021 earnings has moved down 41.9% to $2.25 in the past 60 days. This Zacks Rank #5 (Strong Sell) stock reached its 52-week high of $56.42 on Dec 23 and therefore chances of an upside any time soon are slim.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company has been facing increased price of raw materials lately, which is likely to continue at least in the first few months of 2021. This in turn can keep its margins and bottom line under pressure.

Clearway Energy: This $6.59 billion worth company has gained 62.4% year to date. The Zacks Consensus Estimate for 2021 earnings has moved down 1.1% to 93 cents in the past 30 days and implies year-over-year decline of 15.5%. This stock carries a Zacks Rank #4.

The company expects to witness an impact of approximately $5 million in 2021 due to COVID-19 related matters. This includes lower volumes at the Thermal segment and the impact from California State taxes resulting from Assembly Bill 85 that was enacted at the end of June. It suspended the company's ability to utilize state net operating losses for the next three years.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>

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