For Immediate Release
Chicago, IL – July 16, 2020 – Zacks Equity Research Shares of Lithia Motors, Inc. LAD as the Bull of the Day, PVH Corp. PVH asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Netflix, Inc. NFLX, The Walt Disney Company DIS and Comcast Corporation CMCSA.
Here is a synopsis of all five stocks:
Bull of the Day:
Lithia Motors, Inc. is expecting to be the beneficiary of strong auto sales during the coronavirus pandemic. This Zacks Rank #1 (Strong Buy) is still paying its dividend when others have been suspending it.
Lithia Motors is one of the largest auto retailers in the United States. It sells new and used autos from both domestic and international auto manufacturers. Lithia also offers service and parts.
A First Quarter Beat
On Apr 22, Lithia reported its first quarter results and beat the Zacks Consensus by $0.03. Earnings were $2.01 versus the Zacks Consensus of $1.98.
The first quarter was only impacted by COVID-19 for the month of March. In January and February, sales were positive for same store new, used, F&I and service, body and part sales.
But for the full quarter, same store new vehicle sales fell 10.6%, while used vehicle still rose 2.7%.
Earnings Estimates on the Rise
Even though the company hasn't issued a business update, 2 estimates were raised for 2020 and 2021 in the last week as auto sales remain hot.
The 2020 Zacks Consensus Estimate has jumped to $9.34 from $8.47 in the last week. This is still a 20.6% earnings decline compared to 2019 when the company made $11.76 but it's moving in the right way, which is up.
The upside revisions indicate that the analysts had been too pessimistic for the second quarter.
2021 is also looking up, with the Zacks Consensus rising to $12.42, which is earnings growth of 33% over 2020.
Balance Sheet at the End of Q1
Lithia finished the first quarter with over $550 million in cash and availability on its revolving lines of credit.
It's $2.8 billion syndicated credit facility was renewed in December for five years with a maturity date of 2025. It has no significant debt maturities until that time.
Still Paying the Dividend
In April, Lithia announced it was suspending its share repurchase program.
But it kept its dividend which is yielding 0.75%.
Many companies also suspended their dividend so it's a sign of strength that they are still paying it.
Shares Soar as Auto Sales Surge
JPMorgan Chase offered data in its second quarter earnings presentation which showed a record number of car loans in the second quarter as consumers rush to buy autos so they can avoid public transportation.
Lithia shares have been hot for the last 3 months, with the shares gaining 98% during that time.
Yet, they're not that expensive, with a forward P/E of just 18.1.
For investors looking for rising earnings estimates, Lithia Motors is one to keep on the short list.
Bear of the Day:
PVH Corp. continues to struggle as apparel retail gets hit hard by the coronavirus pandemic. This Zacks Rank #5 (Strong Sell) just announced it was shutting North American stores.
PVH owns several iconic fashion brands including Calvin Klein, Tommy Hilfiger, Van Heusen, IZOD, Arrow, Warner's, Olga and Geoffrey Beene. It has over 40,000 associates in 40 countries.
Closing North American Stores and Layoffs
On July 14, PVH announced it was closing its 162 outlet stores in its Heritage Brands Retail business. Van Heusen, alone, has 160 outlet stores.
The stores will continue to operate through mid-2021. The Heritage Brands Retail business is the company's oldest retail business but it was no longer meeting appropriate return metrics.
It's also reducing its corporate office workforce by about 450 positions, or 12%.
The North American streamlining moves are expected to save $80 million.
Full Year Estimates Were Slashed
Earnings estimates continue to get cut with one analyst even cutting in the last week.
The fiscal 2020 Zacks Consensus Estimate has fallen to a loss of $3.01 from $3.46 just 60 days ago.
That's an earnings decline of 131.5% as the company made $9.54 last year.
On June 11, the company reported its fiscal Q1 results and said that by mid-June, 85% of its global stores were expected to be re-opened.
But sales were down 25% year-over-year at that point in the second quarter.
This was before some states started reversing their openings.
Shares Remain Depressed This Year
Although they're off their March coronavirus sell-off lows, shares of PVH are still down 51.7% year-to-date.
They've only gained 5.8% in the last 3 months.
But is all the negative news finally priced in?
Shares were up on the news that it was shutting its Heritage Brands retail stores.
Uncertainty is high in this area of retail. Investors may want to keep a watch list for buying opportunities as things shake out.
Is Netfix's Reign as Streaming King About to End?
Netflix's extraordinary Pandemic-driven rally and reign as the streaming king are going to be put to the test when the company reports its Q2 earnings tomorrow (July 16th) after the bell. This is quite possibly the most important earnings report in the enterprise's history as a public company.
Analysts are estimating that NFLX will report its strongest quarter to date. According to Zacks Consensus estimates, the enterprise is expected to report an EPS of $1.84 on sales of $6.08 billion. This would represent year-over-year growth of 207% and 24%, respectively.
The COVID Effect & Saturating Space
The global pandemic catalyzed what seems like 5 years of digitalization in 5 months, with video streaming platforms being principal beneficiaries. The word has been consuming streaming content like gravy on Thanksgiving amid this unprecedented health crisis, burning through one platform, and moving on to the next.
Consumers' streaming options have proliferated over the past year. Disney+ accumulated over 50 million subscribers in the first 5 months of its release, surpassing even the most optimistic of expectations, and its global presence is just heating up. I see Disney+ and its deep library of recognizable content as the biggest threat to Netflix's international growth, which is now its primary topline driver.
Other media conglomerates are entering this quickly saturating space like Comcast's NBCUniversal powered Peacock, which was released to Xfinity users in April and the broader market today (July 15th). HBO's latest offering includes all WarnerMedia's long history of content, with its new platform HBO Max, which was released at the end of May.
These streaming services have been provided with a rare and unexpected tailwind by the global stay-at-home initiative. I expect this tailwind to continue through the end of the year as pandemic fears persist. This past quarter's results will give us a glimpse into who the COVID winners and losers are (on a relative basis).
My Netflix Concerns
As more and more media giants enter the space, the more content will be pulled from Netflix's thinning library. Netflix's savvy management has been hedging against this unfortunate development, spending billions on original content for almost a decade, but this may not be enough. Netflix knew they had to catch up to its impending competitors' deep content libraries, and they will continue to rely on original productions to maintain subscribers.
The global pandemic was both a blessing and a curse for Netflix. The enterprise was forced to shut down all production in North America until it is deemed safe to launch again (very uncertain timeline). Netflix's pipeline of new content is drying up, and many subscribers have watched everything (worth watching) on the platform.
Disney, NBCUniversal, and WarnerMedia have decades of original video content at their disposal and do not need to rely on new productions nearly as much as Netflix. These three media giants could sit on their enormous libraries for years and still keep viewers entertained. This is a concerning thought for someone holding NFLX at 70 times forward earnings.
There has been an enormous amount of growth priced into NFLX, and I wouldn't be surprised if investors begin pulling profits off this COVID winner following its earnings tomorrow night, regardless of the results.
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