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For Immediate Release
Chicago, IL – May 16, 2022 – Zacks Equity Research shares Marriott International MAR as the Bull of the Day and Coinbase Global COIN asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Cisco Systems CSCO, Wix.com WIX, and Dell Technologies DELL.
Here is a synopsis of all five stocks:
Bull of the Day:
Marriott International reported impressive Q1 2022 results last week, with earnings and revenues surpassing the Zacks Consensus Estimates.
This is an important company to look at for two big reasons right now...
1) According to research from the World Travel & Tourism Council (WTTC) and Oxford Economics in February, its latest economic modeling projected that U.S. Travel & Tourism could rebound strongly this year, reaching almost $2 trillion in U.S. GDP contribution and exceeding pre-pandemic levels by 6.2%.
Specifically, the report highlighted that U.S. domestic Travel & Tourism spending is forecast to reach more than $1.1 trillion for the year, surpassing pre-pandemic levels by 11.3%. Ironically, this $1.1T number is the value that was lost in 2020.
2) Despite raging inflation ravaging the stock market and threatening recession, this steady earner could be the safe harbor in a storm. Let's look at the fundamentals and make that determination.
Marriott Quarter Discussion
The bottom line outpaced the consensus mark for the seventh straight quarter, while the top line beat the same for the fourth consecutive quarter. Following the results, the company's shares are up 2.9% in the pre-market trading session.
During the quarter, the company witnessed solid demand in the United States, Canada, the Middle East and Africa region. Marriott benefited from robust leisure demand and improvements in business and cross-border travel.
Although the Omicron variant had affected business transient demand in January, demand is stated to have picked up in March. With global trends improving, the company expects the recovery momentum to continue in the upcoming periods as well.
At the end of Q1 2022, Marriott's development pipeline totaled nearly 2,878 hotels, with approximately 489,000 rooms. Nearly 201,400 rooms were under construction.
Impressively, during the quarter the company added 75 new properties (11,799 rooms) to its worldwide lodging portfolio.
Earnings & Revenue Details
In the quarter under review, Marriott's adjusted earnings per share (EPS) were $1.25, surpassing the Zacks Consensus Estimate of 95 cents. In the prior-year quarter, the company had reported adjusted earnings of 10 cents per share
Quarterly revenues of $4,199 million surpassed the consensus mark of $4,172 million. The top line surged 81.3% on a year-over-year basis. During the quarter, revenues from Base management and Franchise fee came in at $213 million and $500 million compared with $106 million and $306 million reported in the prior-year quarter.
RevPAR & Margins
In the quarter under review, RevPAR for worldwide comparable system-wide properties fell 19.4% (in constant dollars) compared with 2019 levels. The downside was primarily driven by a fall in occupancy (13.6% from 2019 levels). However, the average daily rate (ADR) increased 0.8% from 2019 levels.
RevPAR, or revenue per available room, is a performance metric in the hotel industry that is calculated by dividing a hotel's total guestroom revenue by the room count and the number of days in the period being measured.
Comparable system-wide RevPAR in Asia Pacific (excluding China) fell 48.4% (in constant dollars) from 2019 levels. Occupancy and ADR declined 26.1% and 18.6%, respectively, from 2019 levels. Comparable system-wide RevPAR in Greater China fell 41.9% from 2019 levels.
On a constant-dollar basis, international comparable system-wide RevPAR fell 31.7% compared with 2019 levels. Occupancy and ADR declined 19.8% and 2.4%, respectively, from 2019 levels. Comparable system-wide RevPAR in Europe and the Caribbean & Latin America declined 37.9% and 13.5%, respectively, from 2019 levels.
Total expenses during the quarter increased 63.1% year over year to $ 3,641 million, primarily owing to a rise in Reimbursed expenses.
During the first quarter, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to $759 million compared with $296 million reported in the prior-year quarter.
After this strong report card and outlook, analyst consensus numbers climbed on the top and bottom lines with revenues for this year projected to hit nearly $20 billion, representing 43% annual growth. And EPS launched up to $5.90, for an 85% expected advance.
Given these strong numbers and a stock trading at a discount to its fundamental value, I think the case can be made for buying MAR near $160. But let's look at the brewing crisis that has flared up since the optimistic forecasts of a big travel and tourism rebound were made early this year.
Here's what I wrote to my members last week...
Tonight we'll look at the market's greatest fear: a stagflationary shock where credit contracts sharply and recession becomes a self-fulfilling prophecy.
As I discussed on April 27, Tech Stocks Are Acting Like a Recession Has Started.
Wednesday, Jeffrey Rosenberg of BlackRock published a lengthy research note titled "A Stagflationary Shock" which depicts an even grimmer picture that prompts me to raise my recession probability to 35%.
This view is simply based on the self-fulfilling dynamic of contractions. Fear begets fear, which lead to contractions in investment and spending, and we're seeing it flare up in credit spreads and Bitcoin too.
This becomes one of the worst environments for stocks as they are sold wholesale to get capital out of the way -- even if the recession probability never rises above 40%.
Here were Rosenberg's Key Points...
1. A stagflationary shock
The Russian invasion of Ukraine may spell higher prices and lower growth for the global economy—increasing downside risks to markets and heightening central bank policy uncertainty.
2. The vaccination for inflation?
Central banks have prescribed a regiment of rate increases and the end of QE to stop the spread of inflation, but the dosage may not be adequate to protect against its many variants.
3. Expanding return sources
Rising political tensions make the Fed's fight with inflation even more tenuous. New sources of diversification and return may be needed as inflation undermines the traditional diversifying properties of bonds.
And he further opined on the impact of the Russian invasion of Ukraine...
"The economic and financial impact of the Russian invasion of Ukraine represents a stagflationary shock for the global economy. The prices of commodities, including fuel, food and metals are all surging. Stagflation, an economic environment of stagnant growth and rising inflation, was once a long-tail risk, but now appears to be a real possibility."
If you like macro, the full piece on Advisor Perspectives is worth your time, with many charts of commodity prices, global bond rates, inflation rates, consumer finances, and a comparative study of "company pricing power and cost of workers."
Bottom line on Marriott: Consumers are itching to catch a flight to just about anywhere and, while the current downdraft in stock market wealth may trim some appetites, the forecast for a surge in travel & tourism that exceeds 2019 is probably well intact. MAR is a good way to play it from these levels.
Bear of the Day:
Coinbase Global, the $15 billion cryptocurrency exchange that lost over two-thirds of its value in the last month, delivered a crushing reversal of fortunes last week in its Q1 report on Tuesday evening May 10.
Lower crypto prices and volatility in the quarter that ended in March, led to lower trading volumes and resulted in a drop in net revenue of 27% year-over-year to $1.2 billion.
Meanwhile, net income plummeted from $771 million to a loss of $430 million. Primarily, a doubling of operating expenses during the quarter created the whopping loss.
But the stock drop of over 40% in the two days following that report was also fueled by speculation about the company warning that "in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings, and such customers could be treated as our general unsecured creditors."
This sent further panic through a crypto market already reeling with the crash of Bitcoin to $30,000 -- and subsequently to $25,000 -- and the concurrent collapse of a "stablecoin" called Luna.
Coinbase Global reported a Q1 loss of $1.98 per share in contrast to the year-ago earnings of $3.05 per share.
In the quarter, Coinbase witnessed lower trading volumes in both retail and institutional as the trend of both lower crypto asset prices and volatility that began in late 2021 continued into the first quarter of 2022. Active monthly users declined 19% from the fourth quarter.
In the days since the company report, the Zacks Consensus EPS estimate for this year has been slashed from a profit of 51-cents to a loss of $7.47, representing an annual decline of over 150%. A few weeks ago, the full-year projection had been for a profit of $3.07.
And next year's profit consensus has also been shredded from $5.70 to a loss of 93-cents in the last few weeks.
Total Q1 revenues came in at $1.2 billion, which missed the Zacks Consensus Estimate of $1.4 billion. The top line drop reflected decreases in transaction revenues, subscription and services revenues as well as other revenues.
Monthly Transacting Users (MTUs) grew to 9.2 million, up 50.8% year over year, driven by higher retail and institutional volume.
The trading volume of $309 billion declined 7.8% year over year, attributable to lower trading volume in both Retail and Institutional. Total trading volume continued to diversify beyond Bitcoin into Ethereum and other crypto assets.
Total operating expenses more than doubled year over year to $1.7 billion, attributable to an increase in transaction expense, technology and development, sales and marketing and general and administrative and other operating expense.
Adjusted EBITDA was $20 million in the reported quarter, a drop from $1.2 billion reported in the year-ago quarter.
As of Mar 31, 2022, cash and cash equivalents were $6.1 billion, down 14.4% from the figure at 2021 end. Total assets were $20.9 billion, down 1.8% from the level at 2021 end.
At the end of the first quarter of 2022, the long-term debt of the company was $3.4 billion, up 0.1% from 2021 end.
Total shareholders' equity was $6.5 billion at the end of the reported quarter, up 1.8% from the value on Dec 31, 2020.
Cash used in operations was $830.1 million versus cash from operations of $3.4 million in the year-ago quarter.
Coinbase estimates retail MTU and total Trading volume to be lower in second-quarter 2022 compared with first-quarter 2022.
Transaction expenses are expected to be in the lower twenties as a percent of net revenues.
Operating expenses will be between $1.1 and $1.3 billion. Sales and marketing expenses are expected to be in the mid-to-high teens of as a percentage of net revenues.
The annual average retail MTU is expected to be between 5 and 15 million.
While subscription and services revenues are expected to strongly grow over 2021, transaction expenses, as a percentage of revenues, are expected to be in the low 20%. Sales and marketing expenses, as a percentage of revenues, are expected to be about 12-15%. Technology & development and general & administrative expenses are projected to be between $4.25 and $5.25 billion.
Adjusted EBITDA losses are expected to be about $500 million.
Bottom line on COIN: While Cathie Wood's ARK Invest Innovation ETF continues to back COIN and bought 860,000 more shares last week, other interested investors may benefit and keep their risk low by letting the dust settle here as the shares should see continued volatility. Best to wait until the earnings outlook stabilizes and stops heading down. The Zacks Rank will let you know.
What Factors to Note When Cisco Reports Earnings This Week
Cisco Systems is set to release third-quarter fiscal 2022 results on May 18.
The company anticipates third-quarter fiscal 2022 revenues to improve in the range of 3-5% on a year-over-year basis. Non-GAAP earnings are anticipated to be between 85 and 87 cents per share.
The Zacks Consensus Estimate for revenues is pegged at $13.33 billion, indicating an increase of 4.10% over the year-ago quarter's reported figure.
The consensus mark for earnings has been stable in the past 30 days at 86 cents per share. The figure suggests growth of 3.61% from the prior-year quarter's levels.
Let's see how things have shaped up for Cisco prior to this announcement.
Factors Likely to Have Influenced Q3 Results
Cisco's extensive product portfolio and varied end-user base are expected to have positively contributed to the fiscal third-quarter top-line growth.
Accelerated digital transformation taking place globally, and the need to build a safe hybrid-work environment are driving demand for Cisco's solutions. Robust adoption of the company's software and subscription-based offerings is likely to have acted as a tailwind.
Cisco's revenues are likely to have benefited from momentum in web security, identity and access, as well as in advanced threat and unified threat management security solutions, owing to higher cybersecurity spending on the back of continued remote/hybrid work set up globally.
Increasing adoption of the SecureX offering is likely to have contributed to the to-be-reported quarter's performance.
Higher bandwidth requirements by customers are expected to have driven demand for Acacia's optical solutions.
Momentum in Cisco's video-conferencing application — Webex platform — induced by the coronavirus-induced remote-work setup and accelerated implementation of flexible work model is expected to have supported fiscal second-quarter performance.
However, higher component costs are expected to have hurt gross margin in the to-be-reported quarter.
Increasing investments in portfolio expansion, product enhancements and acquisitions amid stiff competition in the networking infrastructure market are expected to have dragged down margin expansion in the fiscal third quarter.
What Our Model Says
Per the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.
Cisco has an Earnings ESP of 0.84% and carries a Zacks Rank #2 currently. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
Other Stocks to Consider
Here are a couple other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat in their upcoming releases:
Wix.com has an Earnings ESP of +15.09% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.
WIX is scheduled to release first-quarter 2022 results on May 16.
Dell Technologie shares an Earnings ESP of +0.72% and a Zacks Rank #3.
DELL is scheduled to release first-quarter fiscal 2023 results on May 26.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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Marriott International, Inc. (MAR) : Free Stock Analysis Report
Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report
Dell Technologies Inc. (DELL) : Free Stock Analysis Report
Wix.com Ltd. (WIX) : Free Stock Analysis Report
Coinbase Global, Inc. (COIN) : Free Stock Analysis Report
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