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Square, Bed Bath & Beyond, Continental Resources, Magnolia Oil & Gas and Whiting Petroleum highlighted as Zacks Bull and Bear of the Day

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·12 min read
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For Immediate Release

Chicago, IL – October 6, 2021 – Zacks Equity Research Shares of Square, Inc. SQ as the Bull of the Day, Bed Bath & Beyond Inc. BBBY as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Continental Resources, Inc. CLR, Magnolia Oil & Gas Corporation MGY and Whiting Petroleum Corporation WLL.

Here is a synopsis of all five stocks:

Bull of the Day:

Square started over a decade ago by selling technology to help tiny businesses process credit card transactions from their smart devices. Today the company is at the forefront of the ever-growing financial tech or fintech industry and its sights are set on becoming an all-encompassing app and ecosystem for sellers and consumers.

SQ shares soared for roughly 12 months straight off the coronavirus lows and its recent underperformance presents a relatively enticing buying opportunity, especially with a big acquisition set to close in early 2022.

Growing Fintech Portfolio

Square is light-years beyond the firm that mostly sold small smartphone and tablet-connected credit card readers geared toward small businesses and the self-employed. Its expanding portfolio includes a range of point-of-sale offerings, broader payment software and infrastructure, business loans, peer-to-peer payments, bitcoin transactions, and beyond.  

SQ aims to be a comprehensive financial services firm for both sellers and consumers. This includes its relatively new Square Banking offerings for U.S. sellers that includes savings and checking accounts, loans, and more. The company also offers a variety of POS systems for in-store transactions and various back-end and online payment technology.

Square’s business-focused fintech is catching on with larger sellers amid the continued e-commerce revolution as businesses, entrepreneurs, artists, and everyone in between turn to SQ and the likes of Shopify and Etsy to succeed.

Last quarter, SQ processed $43 billion in gross payment volume, up 88% from the year-ago period, with 65% coming from larger sellers (over $125K in annualized GPV). These bigger sellers accounted for 57% of GPV in Q2 FY20.

Wall Street also loves its ability to attract more consumers to its P2P platform, the Cash App, as it competes against PayPal and JPMorgan Chase. The app reached 40 million monthly transacting active customers in June and millions of customers are now directly depositing checks to digitally pay friends and family and do much more.

Plus, the Cash App allows users to buy and sell bitcoin, as well as stocks and ETFs. Square’s ability to attract a younger generation of investors and compete against the likes of Robinhood offers huge upside potential. The firm said roughly 4.5 million customers held a stock or ETF in Q2, up more than “3x from a year ago.”

Square is clearly well on its way to becoming a holistic financial services firm where both consumers and businesses keep, spend, and invest their money. The company in early August announced its entry into the fast-growing “buy now, pay later” area of digital commerce with its planned acquisition of Afterpay. The all-stock deal valued at $29 billion is expected to close in the first quarter of calendar year 2022,

Afterpay is one of the leaders in short installment payment options for e-commerce shoppers and the purchase is part of a broader plan to integrate Square’s seller business and its Cash App. Afterpay boasts around 16 million consumers and nearly 100,000 merchants globally. The BNPL space is booming and various fintech firms offer buyers the ability to make smaller payments everywhere from Nike to Home Depot.

Square hopes its integration will help “even the smallest of merchants to offer BNPL at checkout, give Afterpay consumers the ability to manage their installment payments directly in Cash App, and give Cash App customers the ability to discover merchants and BNPL offers directly within the app.”

SQ then at the end of September announced a partnership with social media standout and Instagram (FB) competitor TikTok that “enables sellers to send fans directly from TikTok videos, ads, and shopping tabs on their profiles to products available in their existing Square Online store.”

Recent Growth and Outlook

Square steadily expanded its revenue since its late 2015 IPO and 2020, driven by the nearly overnight need for digital payments and e-commerce, was its best showing as sales skyrocketed 102% to $9.50 billion.

More recently, its Q2 revenue soared 143%, and 87% excluding bitcoin revenue. Its transaction-based revenue climbed 80% and subscription and services sales came in 98% higher. And its adjusted earnings surged from $0.18 to $0.66 a share to blow away our Zacks estimate

SQ’s adjusted Q3 EPS are projected to climb 15% on 51% higher revenue, based on Zacks consensus estimates. Peeking further ahead, the company’s FY21 sales are set to soar another 99% to reach a whopping $18.89 billion—up from $4.7 billion in FY19. Meanwhile, its adjusted earnings are projected to climb nearly 120% to $1.84 a share.

The company is then set to follow up back-to-back years of 100% growth with another 12% higher revenue in FY22, pulling in $2.3 billion more, or what amounts to its total FY17 revenue. And its adjusted 2022 earnings are projected to climb another 23% higher.

Square’s positive earnings revisions help it land a Zacks Rank #1 (Strong Buy) right now, alongside its “A” grade for Momentum in our Style Scores system. The fintech firm has also crushed our bottom-line estimates by an average of 111% in the trailing four periods.

Bottom Line

SQ shares are up 1,900% in the past five years and 275% in the last two years to outpace its industry’s 70% average. Luckily, it’s cooled off in 2021, up around 8% to lag its industry and the S&P 500. At roughly $235 a share, Square trades around 18% below its records, which could be a nice entry point.

Some recent selling pushed it below its 50-day and 200-day moving averages. This is a place it’s rarely stayed for too long. SQ popped during regular hours Tuesday after it came close to falling below oversold RSI levels (30 or under), with it now at 38.

The recent downturn has improved its valuation picture, with it trading near its year-long lows at 5.0X forward 12-month sales. It’s worth pointing out that it still trades at sky-high forward earnings multiples. But investors have been willing to pay up for the futuristic financial services firm.  

Wall Street remains largely high on Square, with 16 of the 29 brokerage recommendations Zacks has at “Strong Buys,” three “Buys,” and only one below a “Hold.” Therefore, investors with longer-term horizons might want to consider buying Square even if the market experiences more selling pressure and volatility in the fourth quarter.

SQ is set to release its Q3 financial results in early November.

Bear of the Day:

Bed Bath & Beyond posted rough second quarter results on September 30 and issued lower-than-projected guidance in the face of supply chain worries and more.

The Basics

Bed Bath & Beyond is a larger retailer that competes in the home-based spending space. Despite solid overall conditions, BBBY’s sales have slipped in the last few years and its recently-reported Q2 revenue tumbled 26%.

Bed Bath & Beyond’s adjusted earnings dropped from $0.50 a share in the year-ago quarter to $0.04, which also missed our Zacks estimate by 92%. The company cited supply chain setbacks, rising costs, the delta variant, marketing missteps, and more as reasons for the disappointing quarter. And the situation doesn’t appear to be getting better in the near-term.

Zacks estimates call for BBBY’s third quarter sales to fall 24% and Q4 to come in 12% lower. Its overall fiscal 2021 revenue is projected to fall by nearly 11% and FY22 is only expected to come in marginally (0.25%) above its current tough year.

Bottom Line

BBBY shares tumbled following its second quarter results and disappointing guidance, with it now down around 45% in the past month alone. The nearby chart shows the stock is in the midst of a much longer underperformance, having fallen 67% in the last five years.

Bed Bath & Beyond’s FY21 and FY22 consensus earnings estimates have plummeted by 31% and 25%, respectively since its report. These downward EPS revisions help it land a Zacks Rank #5 (Strong Sell) at the moment. Therefore, it might be best to stay away from BBBY stock for now.

Additional content:

Oil Prices Hit 7-Year Highs: Bet on 3 Upstream Firms

The price of crude has reached a level never seen in seven years. This is highlighting a substantial improvement from the negative territory hit last April when the coronavirus pandemic was wreaking havoc on energy businesses. The massive crude price recovery thus brightened the outlook for oil exploration and production business.  

Spike in Crude Price

Per the Organization of the Petroleum Exporting Countries (OPEC) and a Russia-led group of oil producers, jointly called OPEC+, collective production will be expanded by 400,000 barrels a day each month. Thus, the group decided to stick to its previously agreed plan of gradually returning production to pre-pandemic levels.

With oil price’s continued climb, most analysts expected more production increase from OPEC+. Instead, the group’s decision to continue to lift production in measured steps has primarily led WTI crude to trade at more than $78 a barrel for the first time since 2014.

Oil Explorers & Producers in the Spotlight

The oil pricing scenario will continue to be favorable for oil explorers and producers since fuel demand will consistently rise as the coronavirus vaccines are being rolled out on a massive scale. Many analysts believe that the steep escalation in the commodity’s price is because of buoyant demand when inventories of crude in the United States are low.

3 Stocks to Buy

It is clear that inclusion of stocks of oil explorers and producers to one’s portfolio is highly advisable for investors. Since selecting the right companies with promising upstream operations from the stock universe is not an easy task, we are employing our proprietary Stock Screener to zero in on the three prospective names.

Two stocks carry a Zacks Rank #2 (Buy) while one company sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Being a leading oil producer in the prolific Bakken play of North Dakota and Montana, Continental Resources is well placed to capitalize on the crude price rally. The upstream firm is deepening focus on reducing well costs to aid its bottom line. The company is now on track to lower its well costs in Bakken by more than 7% year over year in 2021.

As compared to 2018, this #1 Ranked company is planning to lower its drilling and completion costs per lateral foot in Bakken by more than 30% within the ongoing year. With the cost decline, the company is improving its capital efficiency.

Magnolia Oil & Gas Corp. has a strong footprint in the core of the low-risk and prolific Eagle Ford Shale and Austin Chalk formations. The company set a 2021 production guidance, suggesting growth of 6-9% from the year-ago reported figure.

Thus, rising production amid a favorable oil price scenario will drive the bottom line of the upstream player. Owing to these positives, this Zacks #2 Ranked company has gained 171.7% so far this year and is likely to increase further.

Whiting Petroleum Corp., with its footprint in prolific Bakken/Three Forks resource play in the Williston Basin, is among the largest upstream energy companies in the United States. The company has revised its oil production guidance upward for 2021.

Thus, increasing production amid rising oil prices will be aiding its bottom line. The leading exploration and production company with a Zacks Rank of 2 has already gained 148.4% so far this year and is likely to surge further.

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Bed Bath & Beyond Inc. (BBBY) : Free Stock Analysis Report
 
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Magnolia Oil & Gas Corp (MGY) : Free Stock Analysis Report
 
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