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Sunoco, Lemonade, Tilray, Innovative Industrial Properties and Square highlighted as Zacks Bull and Bear of the Day

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Zacks Equity Research
·12 min read
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For Immediate Release

Chicago, IL – January 18, 2021 – Zacks Equity Research Shares of Sunoco LP SUN as the Bull of the Day, Lemonade, Inc. LMND as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Tilray, Inc. TLRY, Innovative Industrial Properties, Inc. IIPR and Square, Inc. SQ.

Here is a synopsis of all four stocks:

Bull of the Day:

Sunoco is a Zacks Rank #1 (Strong Buy) that distributes motor fuel to roughly 10,000 customers in more than 30 states. These customers include independent dealers, commercial customers, convenience stores and other distributors.

Sunoco buys motor fuel form refiners and then sells it to customers, so the price of that product and the spread they collect is huge for its bottom line.

The plunge in energy prices last year was not good for business. However, the recent rise of commodities prices, including oil and gasoline, have energy companies turning the corner.

About the Company

Sunoco was founded in 2012 and is headquartered in Dallas, TX. The company operates in two segments: Fuel Distribution & Marketing and All Other. The fuel and marketing portion is about 95% of the business, while the other 5% comes from retail stores, foodservice and merchandise.

Sunoco has a market cap of $3 billion and a PE of 8. The stock has Zacks Style Scores of “A” in Momentum, Growth and Value. The value proposition should attract investors, especially with the high yield the company pays out.

Energy Prices and Distributions

Sunoco is a master limited partnership or MLP, which means they distribute available cash to investors. The latest distribution yield for the company was 11%.

Earlier in the year there was concern that Sunoco and many other energy companies wouldn’t be able to pay out the dividends. However, with crude oil back over $50 and gasoline over $1.50, energy is back in favor with investors.

Q3 Earnings and Estimates

In early November, the company reported a 14% surprised EPS beat. Sunoco also beat on revenues and raised both FY20 capex and EBITDA. Total motor fuel gains sold were down year over year, but the market responded positively, lifting the stock from $25 to $29 in the two weeks following EPS.

It was the second straight beat for Sunoco and they will go for three in a row when they officially report Q4 earnings in February.

Analysts are hiking estimates over the last 7 days. For the next quarter, the numbers have gone from $0.66 to $0.81, or 23% higher. Estimates look to be trending higher for 2021, going from $3.67 to $3.78 over the same time frame, a bump of 3%.

Recent Upgrades

The bulls are seeing a lot of price targets being lifted due to the positive outlook in earnings and the change in tone of the energy markets. UBS recently reiterated their Buy rating and hiked their price target from $32 to $35. RBC matched that $35 target and reiterated their Outperform rating.

The Technical Take

From 2016-2020, the stock was stuck at the $30 level as investors seemed content with collecting distributions, but not paying up for them. In March, the stock plummeted under $11/share, but since rallied back to the $30 mark.

The stock is above all moving averages, with the 200-day at $25.50 and the 50-day at $28.50. All time highs for the stock are $59.99 and while investors shouldn’t expect the stock to get that high, they could see some appreciation in the coming months as investors look for value and yield.

 In Summary

The atmosphere in the energy markets is very different than where it was back in April of 2020. The space has been overlooked and investors are just now starting to recognize value in some oil and gas names.

Sunoco offers exposure in the space, with a high distribution yield to pay out while economies open up and pent-up demand floods in.

Bear of the Day:

Lemonade is a Zacks Rank #5 (Strong Sell) that primarily offers homeowners and renters insurance in the U.S. and Europe. The company had its IPO back in July of last year and the stock has since more than tripled from its debut price.

The stock now faces valuation questions and attacks from short sellers on whether the business is worth anything close to its current valuations.

About the Company

Lemonade is headquartered in New York, NY and employs 459 people. The company was founded in 2015 and its insurance products cover stolen or damaged property and personal liability.

LMND is valued at $9 billion and has an off-the-charts valuation. The company holds a Zacks Style Score of “F” in both Growth and Value, but an “A” in Momentum.

Q3 Earnings

The company reported earnings in November, beating by 17%. The quarter was solid, with a revenue beat and a Q4 guide higher. They also raised their FY20 outlook and raised their gross earned premium. Gross profit margin came in at 52% v 21% just a year ago.  

While the quarter was pretty good, the stock's reaction was even more fantastic. Since earnings, the stock had eight straight up weeks, finally marking a high of $188.30 before pulling back below $150. In total since EPS, the stock shot up 200% before a stock offering cooled the momentum.

Offering

Last week the company filed to offer 4.8M shares of stock at $165/share. This is 8% of the firm’s shares outstanding that will be used for general corporate purposes.

The move stopped the momentum and the stock had its first negative week in two months. But it wasn’t just the offering that caused selling, as multiple bears came out in favor of the short side.

Citron and Others Attack

Friendly Bear came out Dec 31 against the stock saying the following:

"Lemonade is an egregious stock promotion disguised as a social impact company – the company is making a complete farce of the ESG investment movement. Today’s press release establishes that growth is falling off a cliff – based on the ~1MM active customer disclosure, the company had one of its weakest net add quarters since inception." 

Notorious short seller Citron had even more impact on the stock as they called for the stock to go “right back to $100”. Citron also said “The FTC and SEC should look into Lemonade.”

Estimates

Perhaps more concerning than the short calls are the lack of rising estimates for such growth and momentum that is in the stock. Over the last 30 days, numbers have stagnated over all time frames. So despite the FY20 raise, analysts don’t seem to be excited, despite investors appetite.

Technical Take

The stock has gone parabolic so investors need to be careful. There is a high probability that we see a test of the 21-day MA at $133, If that breaks look for the 50-day at $98. The 61.8% Fibonacci retracement level is $100 and would be a spot to look for buyers.

In Summary

A parabolic stock, and offering and short sellers will create a lot of volatility for Lemonade going forward. Investors should be cautious and stay away if they can’t stomach the big moves. For those interested in buying the stock if the shorts prediction comes true, look to the moving averages for support.

Additional content:

3 Marijuana Stocks to Play the Green Rush in 2021

Marijuana stocks had quietly gained traction in the middle of the pandemic-marred 2020. In the New Year in fact, things are looking brighter with marijuana stocks scaling northward. Encouraging news coming from Mexico was a boon. After all, Mexican President along with the country’s Health Ministry signed new regulations that allow pharmaceutical companies to research medical marijuana.

Thus, Mexico can now manufacture marijuana for medical usage. This is no doubt a blessing in disguise for marijuana companies, especially in the United States and Canada, which have been seeking growth opportunities in Mexico. But it’s just not medical marijuana; Mexico’s government has shown keen interest in legalizing marijuana for recreational usage as well. If recreational marijuana is passed by the Mexican government, the country will have one of the largest legal marijuana markets in the world.

By the way, marijuana stocks have been moving north after Democrats took control of the Senate, paving way for friendlier marijuana laws at the federal level. Biden’s presidential election win last year has already raised hopes of fewer restrictions on marijuana.

Lately, the Democrat-led House passed the Marijuana Opportunity Reinvestment and Expungement Act (MORE Act) and the Medical Marijuana Act. The House already designed legislation that will help banks and other financial institutions provide services to marijuana companies in legalized states without penalty.

Not only the push for marijuana banking reforms bodes well for the overall cannabis industry but expectations are also growing about marijuana decriminalization, at least at the federal level. Lest we forget, voters in New Jersey, Montana, South Dakota and Arizona legalized recreational marijuana last year, while quite a few states have legalized the medical usage of the same.

In fact, market pundits now expect the marijuana industry to experience a domino effect. The newly-legalized states will now build pressure on neighbouring states to legalize marijuana in order to curb the flight of tax revenues. And with more states legalizing marijuana, the government will soon feel the pressure to decriminalize pot at the national level.

Let us also admit that marijuana this year will be more accessible to customers, thanks to improvement in COVID-induced expansion in delivery systems and introduction of curbside pickups, which are no doubt here to stay. This in turn should boost sales and revenues.

Furthermore, in order to stay in the competition, the cannabis industry is at present focusing more on product innovation, something that should work in favor of marijuana companies in 2021. Lastly, Cannabidiol (CBD), which was much in demand in 2019, became oversaturated last year. On the contrary, such oversaturation means that the industry will consolidate, which is another promising sign for the broader marijuana industry.

3 Marijuana Stocks to Watch Closely This Year

Marijuana stocks are set to be the rage on Wall Street in hopes of legalization in and around the United States. This calls for keeping an eye on some of the companies dealing in it. Lest we forget, legal cannabis sales, especially in the United States, are estimated at a whopping $172 billion between 2020 and 2025, per New Frontier Data.

Tilray is a pharmaceutical company. It develops cannabis-based medicines, drugs, drops and oil products. The company currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings has risen3.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 79.6%.

Innovative Industrial Properties is a real estate investment trust. It focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for medical-use cannabis facilities. In this process, Innovative Industrial Properties is reaping rental income. The company currently has a Zacks Rank #3. The Zacks Consensus Estimate for its current-year earnings has climbed9.6% over the past 90 days. The company’s expected earnings growth rate for the current year is 58.7%.

Square provides payment and point-of-sale solutions in the United States and internationally. But the company introduced CBD early-access program that permits business houses in the United States to sell CBD products. The company currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has moved up4.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 40.3%.You can see the complete list of today’s Zacks #1 Rank stocks here.

Zacks Names “Single Best Pick to Double”

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You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.

Free: See Our Top Stock and 4 Runners Up >>

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Sunoco LP (SUN) : Free Stock Analysis Report
 
Square, Inc. (SQ) : Free Stock Analysis Report
 
Innovative Industrial Properties, Inc. (IIPR) : Free Stock Analysis Report
 
Tilray, Inc. (TLRY) : Free Stock Analysis Report
 
Lemonade, Inc. (LMND) : Free Stock Analysis Report
 
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