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M.D.C. Holdings, Farfetch Limited and Callaway Golf Company highlighted as Zacks Bull and Bear of the Day

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Zacks Equity Research
·10 min read
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For Immediate Release

Chicago, IL – April 9, 2021 – Zacks Equity Research Shares of M.D.C. Holdings, Inc. MDC as the Bull of the Day, Farfetch Limited FTCH as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Callaway Golf Company ELY.

Here is a synopsis of all three stocks:

Bull of the Day:

M.D.C. Holdings is riding the hot real estate market to soaring earnings in 2021. This Zacks Rank #1 (Strong Buy) is expected to grow earnings another 35% this year.

MDC is one of America's largest home builders. Founded in 1972, it operates under the name Richmond American Homes.

MDC builds across the country including the hot metropolitan areas in Colorado, Nevada, Arizona, Florida, Washington DC, Oregon and, recently, it entered into the red hot Boise, Idaho market.

The company also provides mortgage financing, insurance and title services, through HomeAmerican Mortgage Corporation, American Home Insurance Agency and American Home Title and Escrow Company.

A Red-Hot 2020

Despite the pandemic, which hit in the spring of 2020 and temporarily slowed housing sales, MDC finished the year on a high note.

On Feb 2, it reported its fourth quarter and full year 2020 results and continued to see the strong demand from 2020 continue into 2021.

MDC, and the other home builders, are riding several tailwinds in 2021 including:

1. Record low existing home inventory
2. Low mortgage rates
3. Continued pent-up demand from Millennials now reaching the home buying age
4. A shift from apartment living to single family homes, boosted by the pandemic, where consumers want their own outdoor space

2020 revenues jumped 17% to $3.77 billion from $3.21 billion in 2019.

Unit deliveries rose 17% to 8,158.

Earnings jumped to $5.17 per share as gross margins expanded to 20.8% from 18.8%.

Will 2021 Be a Record Year?

MDC's backlog dollar value as of Dec 31, 2020, soared by 87% to $3.26 billion.

That backlog should lead to higher closings in 2021.

In February, MDC forecast 2021 home deliveries between 10,000 to 11,000, a 3-year high.

The analysts are bullish too.

They've been raising 2021 estimates.

The 2021 Zacks Consensus has jumped to $6.96 from $6.46 in the last 2 months. That's earnings growth of 34.6% over 2020.

Revenue is also expected to be up double digits for the year at $5.2 billion, up 33.4%.

Shares At 5-Year Highs But Still Cheap

The home builder stocks have rallied big on the strong housing demand and low mortgage rates.

MDC shares are up 148% over the last year and continue to hit new 5-year highs in 2021.

But they're still cheap, as that "E" in the P/E has been on the rise.

Shares are trading with a forward P/E of just 8.8.

They also have a PEG ratio of only 0.8.

A PEG under 1.0 usually indicates a company has both growth and value. A powerful combination.

MDC is also shareholder friendly. In Jan 2021, it announced a quarterly dividend that was 21% higher than a year ago.

The dividend is currently yielding 2.3%, one of the highest yields in the home building industry.

In Mar 2021, the company also paid out an 8% special dividend.

It will report first quarter 2021 results on Apr 29.

MDC Holdings joins KB Home as the two Zacks Rank #1 (Strong Buy) home builders. KB Home is also cheap, with a forward P/E of just 9.

For investors looking for a way to play the hot housing market, MDC is one to keep on the short list.

[In full disclosure, the author of this article owns shares of MDC in her personal portfolio.]

Bear of the Day:

Farfetch Limited is in the right area of retail, luxury, as the global economy reopens after COVID. But it's currently a Zacks Rank #5 (Strong Sell) because the 2021 estimates have been revised lower.

Farfetch operates the Farfetch Marketplace in over 190 countries with over 1300 sellers offering over 3500 of the world's top luxury brands.

It offers enterprise solutions to clients in the Luxury New Retail initiative. The Luxury New Retail initiative also encompasses Farfetch Platform Solutions, which services enterprise clients with e-commerce and technology capabilities, and innovations such as Store of the Future, its connected retail solution.

Farfetch’s additional businesses include Browns and Stadium Goods, which offer luxury products to consumers, and New Guards Group, a platform for the development of global fashion brands.

Big Gains in 2020 During the COVID Pandemic

For online marketplaces, 2020 was a year they will not forget.

In 2020, Farfetch saw revenue jump 64% year-over-year to $1.7 billion.

Gross Merchandise Value ("GMV"), a key metric for marketplace businesses, rose 49% year-over-year to $3 billion.

In 2020, Farfetch signed a new seller, Russian luxury group Bosco di Ciliegi, which owns over 40+ mono-brand and four department stores, including historic department store Gum.

Watches and Jewelry were hot categories, growing nearly 3 times as fast as the Farfetch Marketplace.

2021 Includes a Push Into China

In February 2021, Farfetch did a soft launch on China's Tmall Luxury Pavilion storefront.

It rolled out the full launch on Mar 1.

Over 90% of the 3500+ brands had not previously been available on Tmall. It's a big opportunity for those sellers to access the Chinese luxury consumer simply by being integrated on Farfetch.

Luxury retail is a nearly $400 billion business.

2021 revenue is expected to jump another 36.7% to $2.2 billion with another 28.5% growth in 2022 to $2.85 billion.

Why Is Farfetch a Zacks Rank #5 (Strong Sell)?

If business is so strong, why is Farfetch a Zacks Strong Sell?

Earnings are expected to soar by 83% in 2021 to a loss of $1.66 from a loss of $9.75 in 2020.

However, it's a Zacks Rank #5 (Strong Sell) because 5 estimates have been lowered for the year in the last 60 days.

Analysts had expected a loss of $1.40 just 2 months ago. But now, they're looking for a loss of $1.66.

That agreement among the analysts, and with all of them cutting, was enough to drop the Rank.

But, remember, the Zacks Rank is a short-term recommendation of just 1 to 3 months.

It can change daily, depending on changes to the analyst earnings revisions.

Shares Off Their Highs

Farfetch was considered to be one of the pandemic "winners" and shares soared over 600%.

But in recent months, traders have grown skeptical about the continued growth of the online marketplace companies and the shares have weakened.

Farfetch is down 18.9% year-to-date.

Is this a buying opportunity for long-term investors?

Additional content:

One Golf Stock as the Masters Golf Tournament Kicks Off

The iconic Masters golf tournament is kicking off and has me thinking about golf stocks, with only two actual pure-play golf equities trading on US exchanges. My eye is on Callaway Golf Company, a business that has seen flatlined sales growth over the past few years but is poised to explode with its recently completed merger with Topgolf.

Golf has been seen by analysts as a mature to declining industry for years as Boomers fall off golf companies' income statements, and Millennials/Gen Zs haven't been replacing them at the same pace.

The pandemic has changed that with golf being one of the few social outdoor activities where you could maintain the 6 feet of social distance while still socializing. This sport's increased interest can be seen on Callaway's income statement, with Q3 and Q4 illustrating year-over-year sales gains of 15.8% and 14.2%, respectively.

Topgolf Changing the Game

The CEO of Callaway, Chip Brewer, said in an interview last year following its announced merger with Topgolf that "Topgolf is the best thing that happened to golf since Tiger Woods. It's transforming the game. And it's going to be the biggest source of growth for our industry."

I couldn't agree with Chip more. Getting Millennials and Gen Zs into golf is crucial for its survival, and Topgolf is the perfect conduit for onboarding this new cohort of players. Golf is a very frustrating sport to start because no one is good. It takes a lot of time, patients, and money to get even decent at the sport, but Topgolf is making it fun to learn with games that give beginners a chance against even veteran players.

Callaway is expected to see over 75% topline growth this year, followed by over 20% in 2022, as the Topgolf synergies begin to be realized. The business will see a negative bottom-line in 2021, with the merger being the increased cost catalyst, but analysts are estimating profitability from 2022 forward.

ELY is trading around $27 a share, and I am looking at price targets ranging from mid $30s to as high as $50 in bull cases. 6 out 8 analysts are calling this stock a buy today with no sell rating from sell-side analysts. Zacks recently downgraded ELY to a sell, but only because of the merger costs that will weigh on short-term earnings (nothing to be concerned about). ELY is the golf stock to buy if you are interested in being a part of this space.

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M.D.C. Holdings, Inc. (MDC) : Free Stock Analysis Report
 
Callaway Golf Company (ELY) : Free Stock Analysis Report
 
Farfetch Limited (FTCH) : Free Stock Analysis Report
 
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