Spotify and Herbalife have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – March 28, 2024 – Zacks Equity Research shares Spotify SPOT as the Bull of the Day and Herbalife HLF as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Century Communities, Inc. CCS, Dream Finders Homes, Inc. DFH and KB Home KBH.
Here is a synopsis of all five stocks:
Bull of the Day:
Zacks Rank #1 (Strong Buy) stock Spotify is a digital music streaming service that provides users with access to millions of songs, podcasts, and other audio content. Users can listen to music for free with advertisements or subscribe to premium plans for an ad-free experience and additional features like offline listening and higher audio quality. Spotify utilizes algorithms to personalize recommendations based on user preferences, creating curated playlists and suggesting new music.
Capitalizing on the Migration from "Old Media" to "New Media"
The cable TV market is speaking, and investors should listen. Last year, the prominent cable news networks saw year-over-year viewership declines except for MSNBC (which squeaked out a 2% increase). Fox News, which has dominated the rankings for eight years running, saw prime-time viewership plummet 20% after the departure of Tucker Carlson, its controversial but wildly popular prime-time host.
Analyze the trajectory of cable news numbers over the past few years, and you will find that more and more news watchers (especially) in the younger generation prefer independent media. Independent media allows a host to have more free will and free speech, be less beholden to advertisers, and consume media on-demand.
"Joe Rogan Experience" Helps Deliver Record Numbers
Years ago, Spotify made a bold bet by signing popular podcast Joe Rogan to a contract worth upwards of $100 million (SPOT just resigned Rogan but the exact number is unclear). While it's been widely known that Joe Rogan has the most popular podcast worldwide, the scope was not understood until recently. "The Joe Rogan Experience" is nearly three times bigger than the most popular podcast, reaches over 14.5 million listeners, and has 10 million more followers than any other podcast.
In the fourth quarter, Rogan and other popular podcasts on the platform helped to deliver record numbers. Premium subscribers grew 15% year-over-year to 236 million, 1 million above guidance. Meanwhile, monthly active users (MAUs) grew 23% year-over-year to 602 million, 1 million above guidance. The charts in each segment provided in the Spotify investor relations section show strong and steady growth across a multi-year period.
Robust Forward Estimates
Spotify has lost money every year as a public company. However, in 2024, analysts expect the company to turn the profit spigot on. For the full-year 2024, Zacks Consensus Estimates suggest that earnings will grow at a healthy 219.66%.
Forward estimates are a powerful tool at investors' disposal. Institutional investors are the professionals who manage the trillions of dollars invested in mutual funds, pension funds, investment banks, etc. Most institutional investors attended prestigious business schools where they were taught a number of classical financial models, many of which were designed to calculate the fair value of a company and of its shares.
Almost without exception, these valuation models focus on earnings and earnings estimates. In other words, raising the earnings estimates used in the model will create a higher fair value for the company and its stock price. Remember, institutional investors are the primary driver of winning stocks.
Strength Begets Strength
Relative strength is one of the simplest but most effective indicators on Wall Street. Over the past year, SPOT's technical picture has begun to mirror its fundamental picture. SPOT shares have gained a juicy 105%, while the S&P 500 lags behind at 33.4%.
Bottom Line
Spotify's embrace of new media has propelled it to the forefront of the digital audio landscape, revolutionizing how we consume content. By leveraging technology to offer personalized experiences and tapping into the growing demand for streaming services, Spotify has cemented its position as a leading player in the industry.
Bear of the Day:
Zacks Rank #5 (Strong Sell) stock Herbalife is a global multi-level marketing (MLM) company that primarily sells nutritional supplements, weight management, sports nutrition, and personal care products. Founded in 1980 by Mark Hughes, Herbalife operates in over 90 countries through a network of independent distributors who sell its products directly to consumers.
The core products of Herbalife include protein shakes, dietary supplements, vitamins, energy drinks, protein bars, and personal care products such as skincare and hair items. These products are often marketed to promote weight loss, improve overall health, and enhance athletic performance.
Pyramid Scheme Accusations Have Weighed on Stock
Billionaire investors Carl Icahn and Bill Ackman famously squared off on live television about their differing HLF positions. Though Icahn ended up winning the dispute by orchestrating a classic short squeeze (netting him billions of dollars), the more time that has passed, the more Ackman's pyramid scheme short thesis has tarnished HLF shares.
Herbalife's business model relies heavily on its network of distributors, who purchase products from the company at wholesale prices and then sell them to consumers for a profit. Distributors can also earn commissions by recruiting new distributors and building a downline organization.
Critics of Herbalife's business model (like Ackman) argue that it resembles a pyramid scheme, emphasizing recruiting new distributors rather than selling products. As a result, Herbalife has faced legal challenges and regulatory scrutiny regarding its business practices. This has included accusations of deceptive marketing, false income claims, and concerns about the sustainability of its MLM structure.
Debt is Mounting While EPS is Slowing
Whether or not HLF meets the criteria for a true pyramid scheme, the legal battles caused by the accusations are costing the company. HLF's long-term debt has been trending higher for over a decade – the opposite of what investors want to see.
Meanwhile, EPS is moving in the wrong direction also, as HLF is working on its third-straight year of decelerating growth.
Chart Is Deteriorating
Savvy investors understand that weakness tends to beget weakness on Wall Street. HLF is exhibiting worrisome relative weakness. HLF is down a painful 39% over the past three months, underperforming the S&P 500 Index's 9% gain over the same period.
Finally, HLF shares are carving out a classic bear flag pattern. Notice the long-term downtrend, culminating in a countertrend rally into resistance (the 10-week MA in this case).
Bottom Line
Herbalife's struggles with legal battles, mounting debt, and slowing earnings per share casts a shadow over its future prospects. The company's controversial business model and poor performance suggest ongoing challenges ahead.
Additional content:
3 Top Housing Stocks Worth a Buy Ahead of Q2
Homebuilders indubitably have been bearing supply-side bottlenecks including the dearth of skilled labor, and are grappling with an increase in prices of lumber. However, strong buyer demand boosted homebuilder sentiment in March. Builders are now more optimistic about their business condition than they have been since last summer.
The National Association of Home Builders reported that its homebuilder sentiment index increased 3 points to 51 in March, the highest level since July 2023. The monthly confidence index was at 44 a year ago. It's also more than analysts' expectation of 48. Most importantly, the homebuilder sentiment moved into the positive territory since it broke above the point of 50.
Homebuilder sentiment improved primarily due to lower mortgage rates. The Federal Reserve's aggressive tightening policies drove the 30-year mortgage rate to a two-decade high of almost 8% in October. But the Fed's current dovish stance helped the 30-year mortgage rate to drop, averaging 6.74% for the week ending Mar 14, per Freddie Mac. The 30-year mortgage rate may have increased slightly last week, but it continues to hover around the 7% mark.
Homebuilders, meanwhile, expect the 30-year mortgage rate to fall this year as the Fed is likely to announce three interest rate cuts in the second half of 2024. The Fed has approached the end of its tightening cycle, which bodes well for the housing market. Interest rate cuts will certainly make it easier to acquire physical properties, which won't be pricey.
Nonetheless, among strong demand fewer homebuilders are trimming home prices to lift sales. In reality, builders are confident about their present sales conditions. The index that measures current sales increased by 4 points to 56, while the expectations index for sales over the next six-month period rose 2 points to 62. Additionally, the buyer traffic index advanced 2 points to 34. Sentiments among homebuilders mostly improved in the West and Midwest regions.
Thus, banking on bullish homebuilder sentiment, housing stocks such as Century Communities, Inc., Dream Finders Homes, Inc. and KB Home are well-positioned to gain in the near term. Moreover, the construction of new homes has already rebounded in February, a blessing in disguise for these housing stocks.
These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today's Zacks #1 Rank stocks here.
Century Communities is a home building and construction company. CCS, presently, has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 17.3% over the past 60 days. CCS' expected earnings growth rate for the current year is 24.4%.
Dream Finders Homes is a homebuilding company. DFH currently has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has moved up 11.7% over the past 60 days. DFH's expected earnings growth rate for the current year is 12.5%.
KB Home is a well-known homebuilder in the United States. KBH, presently, has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has moved up 2.6% over the past 60 days. KBH's expected earnings growth rate for the current year is 10.8%.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
https://www.zacks.com
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
KB Home (KBH) : Free Stock Analysis Report
Century Communities, Inc. (CCS) : Free Stock Analysis Report
Herbalife Ltd (HLF) : Free Stock Analysis Report
Spotify Technology (SPOT) : Free Stock Analysis Report
Dream Finders Homes, Inc. (DFH) : Free Stock Analysis Report
