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Spotify, Apogee Enterprises, Costco, Tesla and Microsoft highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research

For Immediate Release

Chicago, IL – December 30, 2019 – Zacks Equity Research Shares of Spotify SPOT as the Bull of the Day, Apogee Enterprises APOG asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Costco COST, Tesla TSLA and Microsoft MSFT.

Here is a synopsis of all five stocks:

Bull of the Day:

Shares of Spotify have surged 35% in the last three months and it crushed Q3 Wall Street estimates, posting surprise positive earnings. Spotify has also continued to expand its paid subscriber base in a crowded streaming music market and focused on new ways to grow.

Spotify’s Playlist

Spotify helped jump start the paid streaming music space back in 2008 that has helped reinvigorate a music industry that long feared illegal downloads would take over. In fact, streaming represents roughly 80% of recorded music sales, according to industry reports, and Spotify is the world’s largest streaming music company.

Spotify beat Q3 2019 top and bottom line estimates at the end of October and reported adjusted earnings of +$0.41 per share, which destroyed our Zacks estimate that called for a loss of -$0.40 per share.

The streaming music powerhouse also posted its 8th consecutive quarter of positive free cash flow. And SPOT saw its total monthly active users jump 30% to 248 million, which outpaced the high end of its own guidance.

More importantly, the company’s vital Premium Subscribers—who pay monthly fees for ad-free music—surged 31% to 113 million. The growth was driven by the continued success of its $14.99 a month Family Plan and the $4.99/month Student Plans. This user expansion has helped curb some of Wall Street’s worries that Spotify’s much larger tech titan peers would make things far harder on the much smaller firm.

Tech Giant Competition

Apple Music has grown in popularity, but luckily for Spotify the iPhone giant hasn’t tired to undercut its pricing models with both their individual premium plans coming in at $9.99 per month. Meanwhile, Amazon’s premium streaming music service hasn’t gained as much steam as Jeff Bezos might have hoped.

Overall, Spotify has been able to grow in the crowded and lucrative streaming music space compared to its rivals. Last quarter, Spotify said, “relative to Apple, the publicly available data shows that we are adding roughly twice as many subscribers per month as they are. Additionally, we believe that our monthly engagement is roughly 2x as high and our churn is at half the rate.” Spotify boasted similar claims about its superiority to Amazon.

Investors should also note that Spotify has invested heavily in its podcast business over the last year and it is now the second-largest player in the growing market behind only Apple. SPOT plans to increase its podcast unit to help bring in more advertising dollars as the division only accounts for 10% of its ad revenue. It is worth noting that 90% of the company’s total revenue currently comes from its non-ad supported Premium business.

But the Stockholm-headquartered firm’s paid-users still hear ads through podcasts that have ads as part of their own separate business model. “We continue to see exponential growth in podcast hours streamed (up approximately 39% Q/Q) and early indications that podcast engagement is driving a virtuous cycle of increased overall engagement and significantly increased conversion of free to paid users,” Spotify wrote in prepared Q3 remarks.

Other Fundamentals

Spotify went public in April of 2018 and found early success. Then SPOT stock fell from August 2018 until near the end of the year. Shares of SPOT are now up 34% in 2019, 35% in the last 12 weeks, and 6% in the past month, all of which outpace the S&P 500’s average climbs.

Clearly, Spotify is still a growth stock, with its valuation still pretty out of whack as it spends to expand. But Wall Street seems okay with its focus on expansion in a crowded and growing space. Meanwhile, SPOT holds a “B” grade for Growth in our Style Scores system and it is part of an industry that rests in the top 30% of our more than 250 Zacks industries.

Outlook & Earnings Trends

Spotify’s Q4 fiscal 2019 revenue is projected to jump 22.6% to $2.09 billion, based on our current Zacks estimates (Spotify reports its sales in euros). Looking further ahead, SPOT’s full-year fiscal 2019 revenue is projected to surge roughly 28% to reach $7.56 billion, with 2020 projected to come in nearly 25% higher at $9.43 billion.

For reference, Spotify’s full-year fiscal 2018 revenue climbed 28.5%, which shows that the firm’s top-line growth is expected to churn along at a solid pace.

At the bottom end of the income statement, the firm’s adjusted quarterly earnings are projected to tumble from +$0.41 per share to -$0.48. Plus, Spotify’s full-year earnings are expected to sink from -$0.60 to -$0.90 a share as it spends on expansion. Then, peeking ahead, SPOT’s fiscal 2020 adjusted EPS figure is projected to improve significantly to a -$0.50 loss.

We can also see just how much more positive Spotify’s adjusted earnings outlook appears. The firm’s full-year fiscal 2019 estimate is up 50% in the last 60 days and 73% over this same stretch for 2020.

Bottom Line

Spotify’s strong upward earnings revision trends help the firm earn a Zacks Rank #1 (Strong Buy) at the moment. SPOT does face tough competition, but growth-focused tech investors might want to take a bite out of Spotify because of its ability to thrive in an industry that looks poised to expand for years to come.

Bear of the Day:

Apogee Enterprisesis a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day today.  Let's take a look at why this stock has fallen to the lowest Zacks Rank and became the Bear.

Description

Apogee Enterprises is a leader in technologies for the design and development of value-added glass products, services, and systems. The company operates under four segments, with three of the segments serving the commercial construction market:

The Architectural Glass segment (25% of total revenues in fiscal 2019) fabricates glass used in customized window and wall systems forming the outside skin of commercial and institutional buildings. The segment consists of Viracon, a fabricator of coated, high-performance architectural glass for global markets. Its markets include the U.S. government, offices, education, health care and hotels.

Recent Earnings

The most recent quarter was a big miss of the Zacks Consensus Estimate.  The company reported $0.57 in EPS when the estimate was calling for $0.76.  That 19 cent difference translates to a negative earnings surprise of 25%.

The company also lowered guidance when they reported and that is the reason that estimates took a tumble.

Estimates Fall

When earnings estimates fall, the Zacks Rank tends to fall as well.  The movement in earnings estimates is the single biggest factor that influences the Rank, so when a company lowers guidance you can rest assured that the Rnak will slide.

APOG saw estimates for the current quarter slide from 98 cents to 84 cents.  The full year 2019 number fell from $3.04 to $2.84.  

The Zacks Consensus Estimate for 2020 slid from $3.57 to $3.35 as well.

Valuation

At 11x forward estimates the stock looks pretty attractive after taking a steep drop.  This stock has been a good one for a long time, so this reduction in guidance is something that needs to be explored in a deeper fashion.  Sure the estimates fell and that pushed the Rank down, but there could be a bigger problem or it could be a buying opportunity.  I am going to keep this stock on my radar screen and see how next quarter comes in.

Additional content:

3 Large-Cap Stocks to Improve Your Portfolio in 2020

The stock market continued its historic run Thursday as the NASDAQ Composite reached 9,000 for the first time. The S&P 500 also rose over 0.5% to a new all-time high, while the DJIA grew over 100 points. Consumer spending continued to anchor the economy as MasterCard (MA) reported a strong holiday season that was propelled by the digital marketplace.

As the consumer continues to display good overall health, some stocks look poised to reap the benefits in 2020. Let’s take a look at a few large cap stocks that will carry positive momentum into the new year.

Costcois a company with a business model that can weather most twist and turns. The retailer has steadily maintained customer renewal rates around 90%, which is a testament to the continued success the firm has seen with its valued memberships. The treasure hunt nature of its giant warehouses keeps shoppers coming back to its stores to find the latest deals on almost any item imaginable.

Costco is coming off a first quarter where it saw its average transaction ticket rise 1.4% and its e-commerce sales jump over 5%. In addition to the recent success, Costco also pays out a dividend with a yield of 0.88%. The firm has also steadily raised its dividend for the better part of the past decade and has even paid out a special dividend recently.

Costco paid out a dividend of $7 per share in 2017, $5 per share in 2015, and $5 per share in 2012. Some investors believe that this special dividend may be paid out soon, which might make this an opportune time to pick up shares of the warehouse giant.

Our fiscal 2020 estimates call for a top-line increase of 6.5% to $162.7 billion and a bottom-line rally of 4.7% to $8.58 per share. Costco has seen its earnings revised higher, helping the stock earn a Zacks Rank #2 (Buy).

Teslais a stock that has put together a strong rally recently that can propel it into the new year. TSLA shares have risen over 62% since the company reported its third quarter results, where it reported $143 million in net income. The surprisingly profitable quarter for the company was followed by an announcement that stated it was on track to deliver at least 360,000 vehicles during 2019.

The electric vehicle manufacturer has also stoked investor optimism with its Gigafactory in China. Tesla is already making 1,000 Model 3s a week, according to a report from The Driven, which would put in on track to produce the 3,000 a week that Elon Musk expects once the factory is fully operational.

The company’s Gigafactory in China will be a key catalyst for years to come as Tesla attempts to expand its innovative products into the international market. In addition to its international endeavors, vehicle deliveries have soared, with trailing-12-month vehicle deliveries up an impressive 88%. Our 2020 consensus estimates call for earnings to soar over 1,200% to $5.73 per share and for net revenue to grow over 23% to $29.9 billion. Tesla has seen its earnings estimates revised higher giving the stock a Zacks Rank #2 (Buy).

Microsoftis a blue-chip stock that has put together a spectacular year with its shares up over 56%. The tech juggernaut is coming off a quarter where it saw its bottom-line improve 21% and its top-line gain 14%. MSFT has made its cloud operations a focal point as the public cloud service market is projected to grow at an annual growth rate of 12.6% to $331.2B in 2022.

Microsoft saw its intelligent cloud segment grow over 26% in Q1 to $10.8 billion and also secured a $10 billion cloud contract from the Pentagon in late October. The company had to beat out rival cloud services firm Amazon to earn the lucrative government contract. As the cloud computing market continues to mature, Microsoft will likely see substantial growth in its cloud computing business.

In addition to Microsoft’s cloud operations, it pays out a dividend with a yield of 1.3%. The company has lifted its dividend payouts for the better part of the last 10 years and will likely continue this trend going forward, given its healthy balance sheet.

Our fiscal 2019 estimates project a bottom-line hike of 12.6% to $5.35 per share and for its top-line to climb over 11% to $140.1 billion. The firm’s cloud segment is forecasted to rise over 20% to $47 billion. MSFT looks poised to cash in on the secular shift towards the cloud and currently sports a Zacks Rank #2 (Buy).

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Click to get this free report Tesla, Inc. (TSLA) : Free Stock Analysis Report Microsoft Corporation (MSFT) : Free Stock Analysis Report Apogee Enterprises, Inc. (APOG) : Free Stock Analysis Report Costco Wholesale Corporation (COST) : Free Stock Analysis Report Spotify Technology SA (SPOT) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research