For Immediate Release
Chicago, IL – May 24, 2019 – Zacks Equity Research Noodles & Company NDLS as the Bull of the Day, Wells Fargo WFC asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Veeva Systems Inc. VEEV, Workday, Inc. WDAY and Palo Alto Networks, Inc. PANW.
Here is a synopsis of all five stocks:
Bull of the Day:
Noodles & Company went public in June of 2013 and has had a rough ride. The stock is down almost 80% since its, IPO but I believe that this trend is about to reverse. The company is starting to grow momentum with a stronger than expected quarter and management raising its EPS guidance for the year by over 14%. Sell-side analysts took this queue and raised their EPS estimates for both this year and next propelling this stock into a Zacks Rank #1 (Strong Buy).
NDLS is a risky investment, let me add, but with high risk comes high reward. They have a massive amount of debt that they may not be able to sustain going forward unless the firm starts turning a consistent profit. But analysts are optimistic about strong EPS growth with full-year EPS expected to grow 700% this year and 65% in 2020.
Noodles & Co (blue) is trading at 0.75x P/S which is far below the firms high of 3.05x in 2013, it is also trading below its peer group average P/S of 0.81x.
Since its bottom in April, NDLS has grown 33%, the start to what I believe could be a very long and robust rally as this firm expands its store count. Comparable store sales had grown 3% year-over-year, showing a glimpse of sunshine in light of 19 store closures in 2018. Most of those closures came at a time when the building leases were ready to expire. Noodles & Co didn’t close any stores in 2019 and with the recent positive performance, they are planning on opening 4 to 6 new restaurants this year.
Once NDLS starts to show some solid growth in store counts, I believe this firm will see some substantial bottom-line growth that will be relayed to investors.
Menu innovations have driven noodle & Co's recent growth, with a focus on healthy and plant-based diets. The primary consumer in this category is the millennial generation, who have a focus on a healthy living, which includes healthy eating. This is something that Noodles & Co can and has capitalize on.
NDLS has a market cap of $352 million, right on the edge of micro-cap and small-cap. This means this stock is going to see much more volatility than large firms as well as less liquidity. This is a risky investment, but I believe that this stock has hit its bottom and is only moving up from here. This is an opportunity to get into this revitalized firm on the ground floor.
Bear of the Day:
Wells Fargo has been through the wringer over the last 2 and a half years, with their name consistently in news headlines associated with scandals and fraudulent activity. The company has had to pay substantial sums of money in lawsuits and penalties, taking a hit on the firm’s bottom line. The company was engaged in activities ranging from creating false accounts to overcharging small businesses with deceptive tactics and even improperly repossessing service members’ cars.
The Federal Reserve final said enough was enough and restricted Wells Fargo’s growth with an asset cap in February of 2018 “responding to widespread consumer abuses and compliance breakdowns.” The firm is under this restriction “until it sufficiently improves its governance and controls.”
Wells Fargo has had to shut down 100s of branches and cut over 26,000 jobs in the past 2 years. WFC has far underperformed the already underperforming banking industry. As you can see below, WFC has lost 16.6% for investors in the past 52-weeks, below the overall banking industry, which itself is far underperforming the market.
WFC would be down significantly more if it weren’t for the massive stock repurchases they have been executing recently. They bought back $21 billion of their own stock in 2018, more than any of the other big banks. WFC only did this in order to reignite interest and curb some of the impact these scandals had on its stock price. This was a very inefficient use of funds, and I would venture to say this deteriorated shareholder long-term value.
All these scandals, and even the massive amounts of stock repurchases we have seen from WFC are likely caused by managements pay structure. Executives at Wells Fargo are paid primarily in stock compensation, which can cause management to make poor long-term business decisions for short-term stock price gains. This can pay structure can and has created serious systemic issues with WFC.
The Federal Reserve has been very dovish over the past 6 months or so, which is a 180 pivot from their tightening mentality they've had in the recent past, raising rates 8 times in the past 2 years. The Fed is even considering a rate cut in the near future if the economy starts to show signs of weakness. This is bad news for banks like Wells Fargo considering most of their income is derived from interest rate income. When interest rate cuts are expected in the future, the asset capped WFC will be expected to see a diminishing topline.
Wells Fargo is expected to have negative revenue growth for the next two years. Sell-side analysts have lowered EPS estimates, not only in the next two quarters but for 2019 and 2020. The stock is sitting at a Zacks Rank #5 (Strong Sell).
Earnings Preview: Veeva (VEEV), Palo Alto Networks (PANW) and Workday (WDAY)
The first quarter of 2019 has seen overall S&P 500 earnings and revenue expansion come in below recent periods. With that said, total technology industry earnings are down 7.7% from the year-ago period thus far. This is much worse than total S&P earnings for the roughly 94% of the index’s membership that have already reported.
So, let’s look at what investors should expect from some of the more notable tech companies still left to report: Veeva Systems Inc., Workday, Inc. and Palo Alto Networks, Inc.
Quick Quarterly Overview
As we touched on already, total earnings for the 468 S&P 500 members, or 93.6% of the index’s total membership, that had reported their results through Wednesday, May 22, were up +0.1%. On top of that, revenues were up 4.8%, with 76.7% beating EPS estimates and 59.6% beating revenue estimates. Looking ahead, total Q1 earnings for the S&P 500 are projected to be down -0.2% on 5% higher revenues. Investors will notice this would be far below recent periods.
Total earnings for the tech sector, with 85.1% of Tech companies in the S&P 500 reported, are down -7.7% on 3.1% higher revenues. Furthermore, 82.5% have topped EPS estimates and 71.9% beat revenue estimates, which is a weaker showing than in recent periods. Apple and semiconductor industry giants like Intel, Advanced Micro Devices and Micron, were a huge drag on the sector (also read: Retail Sector Fails to Impress).
Workday offers an array of enterprise-level cloud applications for finance and human resources. Shares of WDAY have climbed 57% over the last year to crush its industry’s 4% average climb. More recently, Workday stock is up nearly 30% in 2019 and sits just a few dollars per share below its 52-week high at around $205.50 per share.
Moving on, the company’s first-quarter revenue is projected to climb 31.7% to reach $814.68 million, based on our current Zacks Consensus Estimate. Last quarter, the company’s revenue jumped by 35.4%. At the bottom end of the income statement, WDAY’s adjusted quarterly earnings are expected to climb 24.4% to hit $0.41 per share. Furthermore, Workday has destroyed our earnings estimates by an average of 45% over the last four quarters.
WDAY is a Zacks Rank #3 (Hold) at the moment that rocks an “A” grade for Growth in our Style Scores system. The Pleasanton, California-based company is scheduled to release its fiscal 2020 first quarter financial results after the market closes on Tuesday, May 28.
Veeva Systems Inc.
Shares of VEEV have soared roughly 57% in 2019, to help extend its impressive three-year run that has seen its stock price skyrocket 375%. Veeva offers cloud-based solutions for the pharmaceutical and life sciences industries and boasts more than 700 customers, which include pharmaceutical giants and biotech firms such as Eli Lilly and Biogen. The firm’s main offerings are presented in a software-as-a-service model and deliver industry-specific tools for CRM, content management, and many other enterprise applications.
The company is coming off a fourth quarter of its fiscal 2019 that saw its revenue jump 25%. With this in mind, our current Zacks Consensus Estimate calls for Veeva’s adjusted Q1 earnings to climb 36.4% to reach $0.45 per share. Meanwhile, the firm’s first-quarter revenue is projected to jump 22.1% to hit $238.68 million. Veeva has topped our quarterly earnings estimates by an average of 13.9% in the trailing four periods. The firm has also seen its earnings estimate revision picture turn more positive recently to help VEEV earn a Zacks Rank #2 (Buy).
Veeva is scheduled to release its first-quarter fiscal 2020 financial results after the market closes on Wednesday, May 29. VEEV stock rested at around $140 per share through mid-afternoon trading Thursday, down not too far off its 52-week intraday high $145.70.
Palo Alto Networks
Pale Alto Networks is a cybersecurity firm that boasts over 60,000 customers around the world and has worked with 85 Fortune 100 firms. More specifically, Palo Alto Networks has partnered with Amazon, Google and Microsoft to help secure their massive public clouds. Shares of the Santa Clara, California-based company have popped roughly 15% this year, which falls below its industry’s 20% average climb. PANW stock is up around 4% over the last 12 months and hovered at around $216 per share through mid-afternoon trading Thursday. This marked an approximately 17% downturn from its 52-week highs.
Looking ahead, PANW’s adjusted Q3 fiscal 2019 earnings are projected to jump 26.3% to touch $1.25 per share. Meanwhile, the company’s revenue is expected to climb over 24% to reach $703.44 million. PANW has topped our quarterly earnings estimate by an average of nearly 12% over the trailing four quarters.
Palo Alto Networks is currently a Zacks Rank #3 (Hold) and is set to report its Q3 FY2019 earnings metrics after the market closes on Wednesday, May 29.
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