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Mattel, Alarm.com, Google, Microsoft and Starbucks highlighted as Zacks Bull and Bear of the Day

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·11 min read
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For Immediate Release

Chicago, IL – April 28, 2021 – Zacks Equity Research Shares of Mattel, Inc. MAT as the Bull of the Day, Alarm.com Holdings, Inc. ALRM as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Alphabet Inc. GOOGL, Microsoft Corporation MSFT and Starbucks Corporation SBUX.

Here is a synopsis of all five stocks:

Bull of the Day:

Mattel is a Zacks #1 (Strong Buy) that is the world’s largest manufacturer of toys.  The company operates through the North America, International and American Girl segments. Some popular toy brands include Barbie, Polly Pocket, Hot Wheels, Match Box, Power Wheels, and Fischer-Price.

The stock has been stuck under the $20 level for over four years. After a nice stretch of earnings beats and one of the best quarters in years, investors are looking for the stock to breakout.

More About the Company

Mattel was founded in 1945, is headquartered in El Segundo, CA and has over 32,000 full-time employeesThe company sells its products through its catalog, website and retailers.  

In addition to the brands listed above, Mattel’s partner brands include Disney, WWE Wrestling, Nickelodeon, Warner Bros. Consumer Products, NBC Universal and Mojang.

The company has a market cap of $7.5 Billion and has Zacks Style Scores of “A” in Momentum and “A” in Growth. The stock pays no dividend and has a Forward PE of 24.

Recent Earnings and Guidance

Back in February the company had an investor day shortly after it posted a 66% earnings beat. The CEO laid out the narrative that the company was experiencing a positive shift in momentum with brands that are seeing a turnaround. More specifically, Fischer-Price, Thomas & Friends, American Girl and MEGA were brands that were resonating with consumers at levels not seen in years.

Because of this, Mattel believed that they were well positioned to accelerate top-line growth, market share and profitability improvement.  

The company reiterated its FY21 guidance at the time, but when they reported last week, the outlook got even better.

Mattel reported a 71% beat on EPS and as revenues came in at $874.2M v the $686M expected. Worldwide gross billings were up +45% y/y, while billing for action figures, building sets, games and other were up 66% y/y. These numbers forced the company to revise FY21 revenue guidance 6-8% higher.

Estimates and Analyst

Over the last 7 days, estimates have jumped higher. For the current year, we have seen estimates raised by 13%, from $0.79 to $0.89. For next year, we have seen a 12% move higher in that same time frame.

Analysts liked the quarter and the recent momentum. Stifel commented that all product categories, brands and geographies performed ahead of their model. Truist commented that “this is one of the strongest prints that MAT has put up in recent memory.”

The theme is a turnaround story with the brands revitalized during COVID. Investors have noticed and the stock is on the verge of a technical breakout.

Technicals

Looking at the chart over the last year, you might think investors have gotten ahead of themselves. Since the March lows, the stock has rallied from $6.53 to over $21.

However, going back over the last decade you can see that in 2013 this was a $48 stock. Some brands just fell out of trend and the company added a lot of debt, which caused investors to flee.

With the stock over $20, it breaks levels not seen since 2017. The $25 level is 61.8% Fib retracement drawn from the 2016 highs to recent lows. If the bulls can show momentum over that level, this breakout could accelerate.

For those looking for pullbacks, the 50-day moving average is $20.38. This level has been support for almost a year and could be a great place to start a position for the long-term.

Bottom Line

Toys do not typically excite investors, but when the numbers show a turnaround story, money can flow fast into a stock. Mattel likely doesn’t put up the same kind of growth over the next year. However, the company is finding ways to add to revenue, like launching two Barbie specials on Netflix.

Investors need to recognize that as these brands continue to come back, so will the stock.

Bear of the Day:

Alarm.com is a Zacks Rank #5 (Strong Sell) that offers interactive security solutions for both home and business owners. The company offers systems which include images sensors, crash and smash protection, web control, mobile access and video monitoring. 

Here is how the company describes itself:

We create innovative technology that deepens the connection between people and the things they care about most – their families, homes and businesses. Millions of people trust Alarm.com every day for better security, intelligent automation and dependable service.

The stock has posted big returns over the last six months, moving almost 100% from the October lows. Investors now need to decide if there is momentum yet to come, or if it's time to ring the register.

More About ALRM

Alarm.com was founded in 2000, is headquartered in Tysons, Virginia and employs over 1,400.  The company is valued just under $5 billion and has a PE of 57. ALRM has Zacks Style Scores of “B” in both Momentum and Growth, but an “F” in value. Clearly with that high PE, valuation levels are elevated.

Earnings History

There was a good reason for the stock to run higher. The company hasn’t missed on earnings expectations since becoming public. That is fairly impressive and only recently have investors started to jump on board this momentum.

The last two quarters saw earnings beats of over 50% the expected number. These were the biggest surprises since 2017, which is a big part of the reason the stock doubled over this time.

However, the big question is if this can continue going forward and can the upcoming earnings justify this valuation.

Q4 Earnings and Estimates

The company reported earnings back in February seeing a 67% beat on the bottom line. Revenue came in above expectations and FY21 guidance was raised to $1.61-1.72 v the $1.60. SaaS revenues came in $105.5M v the $90.1M y/y and adjusted EBITDA came in at $32.4M v the $30.0M a year ago.

You would think estimates would be headed higher on these numbers, but they really haven’t budged much. Over the last 90 days, the current quarter has been flat. For the current year, estimates have gone up from $1.60 to $1.66 over that same time frame. You would expect more than 3% uptick from a company with such a high valuation and increase in its stock price.

A Valuation Issue

No doubt the earnings numbers are impressive, but the stock had little reaction as investors are worried about that valuation. Going forward, earnings numbers must keep exceeding expectations or the stock could see a serious correction.

The Technicals

The stock has recovered back above the 50-day that was broken since EPS. This is a positive sign, but could be attributed to overall market strength. If the stock were to fall back above that 50-day, which is currently at $90, the previous lows could come quick. This would likely force a test of the 200-day MA at $77.

In Summary

Late last year, I wrote a Bull of the Day on this stock and we have doubled since. The business is fine, but the valuation is one that investors should take pause at. The stock is 13% off its recent highs, but we could see some more downside in the near future.

Additional content:

Google Blows Away Q1 Estimates; Plus MSFT & SBUX

The big beats in calendar Q1 earnings season continued after the closing bell Tuesday, on a flat regular trading session on both the Dow and S&P 500. The Nasdaq dipped 0.34% off its record highs set Monday. Case-Shiller Home Prices for February this morning posted their biggest gains in five years, up 12%, with 19 of the 20 cities surveyed having grown year over year. Otherwise, it’s all about earnings, which continue in the after-market:

Google parent Alphabet blew the doors off expectations in its Q1 report, posting an eye-popping $26.29 per share in earnings, which trounced the $15.46 Zacks consensus and topped year-ago earnings by more than 2.5x. Revenues of $55.31 billion similarly left expectations of $42.34 billion in the dust. This is the fourth-straight earnings beat for the company, but the biggest earnings beat — 58.8% — in more than a year.

Ad revenue came in at $44.7 billion in the quarter, including $6 billion from YouTube alone — better than expected. Q1 Cloud numbers, however, were a tad shy of the $4.07 billion expected. Alphabet has also allotted an additional $50 billion in stock repurchases, helping boost the stock 4% in late trading. GOOGL shares have already gained 33% year to date, making it the best performer of FAANG stocks in 2021 thus far. These results don’t look to tarnish this one bit.

Microsoft also topped expectations after the close, with fiscal Q3 earnings of $1.95 per share beating the Zacks consensus by 19 cents. Sales of $41.71 billion improved from the $40.94 billion estimate, up 18% year over year. Productivity Business Processes earned $13.6 billion in the quarter. Intelligent cloud was up 23%, with Azure growing a solid 50% year over year. Xbox grew 34%, while LinkedIn gained 25%. Yet Microsoft shares declined 3% in late trading; clearly this strong quarter wasn’t impressive enough.

Starbucks posted mixed results for its fiscal Q3 report, beating on earnings by a dime to 62 cents per share on $6.67 billion in revenues, which was lower than the expected $6.80 billion, +11% year over year. Global comps were +15% overall, slightly lower than estimates, with an impressive +91% in China bolstering the more lackluster U.S. comps. Next quarter guidance was upped slightly, but shares are down 2% in the after-market on the news.

Questions or comments about this article and/or its author? Click here>>

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Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
Mattel, Inc. (MAT) : Free Stock Analysis Report
 
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