For Immediate Release
Chicago, IL – July 9, 2020 – Zacks Equity Research Shares of T-Mobile TMUS as the Bull of the Day, Macy's M asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on JPMorgan Chase JPM, Delta Air Lines DAL and MCHI.
Here is a synopsis of all five stocks:
Bull of the Day:
T-Mobile is a primary driver of the 5G revolution, and its growth-oriented strategy makes it the most attractive stock in the mobile provider space. This enterprise is the only wireless carrier that can boast of 12 straight quarters of top and bottom-line expansion (on a year-over-year basis). The global pandemic doesn't appear to be dampening its (growth) spirits as the company comes out of Q1 virtually unscathed.
Analysts continue to raise their EPS guidance for TMUS over the next few years along with their price targets, pushing this stock into a Zacks Rank #1 (Strong Buy).
The merger between T-Mobile and Sprint was finalized on April 1st, making the combined company a telecom powerhouse with a secure grip on the number 3 spot amongst telecom behemoths.
According to a T-Mobile press release regarding the merge, "the enhanced scale and financial strength of the combined company will drive a planned investment of $40 billion into its network, business and more over the next three years. Synergies achieved from the integration have the potential to unlock massive scale and unleash at least $43 billion in value for shareholders."
In Q1, T-Mobile grew its customer base by 649,000, illustrating the strongest growth in the industry. This builds on the 1.4 million new customers in Q4 and 1.1 million in Q3 of last year.
I expect this best-in-class expansion rate to continue as it grows out its 5G network and capitalizes on the new combined enterprise's synergies. T-Mobile's budget offering is becoming increasingly attractive for millennials and Gen Zs, who are finally getting off their parents' phone plans.
The younger gen alignment of the business is going to drive this company and its stock to the stratosphere.
The Valuation & Opportunity
T-Mobile's fair value is difficult to establish before Sprint is fully integrated into the business. The stock's valuation has been a bit stretch amid this pandemic due to the enterprise's immunity to the economic downturn and the merger being finalized.
I think that TMUS's seemingly frothy valuation is justified, but I'm not sure how much further it can be stretched. Q2 earnings are going to be crucial for the stock's continued expansion.
I remain confident in T-Mobile's long-term potential, despite its somewhat frothy valuation. As a long-term investor, I wouldn't hesitate to pull the trigger on some of these shares with a plan to average down if we were to see a correction. As a short-term trader/investor, I may wait for these shares to correct towards their 50-day moving average, just south of $100 per share.
TMUS does not offer a dividend, but its growth potential should more than satisfy investors' return requirements. TMUS has already rallied 35% so far this year, far outperforming its cohorts and the broader market as investors price in the budding synergies between these two telecom giants.
I expect these shares to experience volatility in the short-term, but if it can deliver on its $43+ billion in synergy proposition, I think TMUS has an enormous amount of growth ahead.
Bear of the Day:
The retail apocalypse is hitting the fan, and antiquated brick-and-mortar retailers are going belly up left and right. Macy's, a company that survived through two World Wars, the Great Depression, and even the Civil War, is now on the brink of insolvency. Analysts have been continually reducing their EPS estimates for Macy's, dropping M to a Zacks Rank #5 (Strong Sell).
The COVID Effect
The global pandemic has been devastating to brick-and-mortar retailers across the country. Storefronts have been forced to close their doors, and when they can reopen, they are only permitted to admit a fraction of the capacity. The retailers that have not successfully adopted an ecommerce or omnichannel strategy have suffered, and many have been forced to file for bankruptcy protection.
Long-standing consumer discretionary staples like Brooks Brother, Neiman Marcus, and JC Penney (JCP) have already filed. Still, I anticipate another wave of bankruptcies to hit the longer this pandemic plagues our economy. Macy's looks like they may be next on the list.
Macy's fully withdrew its entire $1.5 billion line of revolving credit to maintain liquidity in Q1. The company is just hoping that the $1.5 billion will last them through the remainder of this crazy year. Analysts are anticipating Macy's to report a bottom-line loss for the rest of the fiscal year.
Straw That Broke The Camel's Back
Macy's has been struggling for years as the world transitions away from the seemingly archaic department store model and towards digitally-driven online sales. The ease and convenience of shopping on Amazon (AMZN) compared to navigating Macy's massive and cumbersome departments is an attractive product offering. The younger generations are pushing the economy online and leaving department stores like Macy's out to dry.
The company has been experiencing declining sales for roughly 5.5 years now, and its bottom-line continues to deteriorate. M has lost over 90% of its value over the past 5 years. This year alone, the stock has declined roughly 60%, not to mention its credit has slipped into junk bond territory.
Despite the stock's already massive drop, 25% of its shares are still held short. Investors are pricing in insolvency, and I wouldn't want to be anywhere close to these shares if/when it is announced.
Markets Get a Boost from Chinese Equities
Market indexes finished up today, continuing an overall strong past couple weeks of regular trading sessions pocked with moments of temporary bearishness, like yesterday or a week ago Thursday. The Nasdaq managed to close at another new all-time high, up 1.44% to 10,492.50. The S&P 500 rose nearly 0.8% on the day to 3170. The Russell 2000 picked itself up from yesterday, as did the Dow — both up 0.7%.
Data points overall remain a bit scarce in our current situation — this changes next week when Q2 earnings season shifts into a new gear, including fresh reports from JPMorgan Chase and Delta Air Lines — but we did see a new read (“new,” though for the month of May) on Consumer Credit: -$18.2 billion was lower than the -$15.5 billion consensus, but much improved from the downwardly revised -$70.2 billion for April. This marks the lowest we’ve seen Consumer Credit since 2015, when credit hit a record-low of -$111.81 billion.
If there is a relatively under-reported bullish case for market activity of late, it may be considered to be the rebound in Chinese equities. We see a 5-year breakout in Chinese stocks, partly due to national banks putting as much as $100 billion in equity exposure in the world’s second-largest economy.
Might this be a play on China’s relative strength in bouncing back from the coronavirus pandemic? Certainly if any country had a head start on doing so, it would be China, where COVID-19 reportedly began. But if Chinese banks are indeed making a push into domestic stocks, this might go a long way in helping investors get onboard. The Mainland China ETF (iShares/MSCI) grew 4.3% on Tuesday alone, and 16.2% over the past month.
Tomorrow we get a new weekly tally of Initial Jobless Claims and Continuing Claims, where for 13 straight weeks we’ve seen initial claims numbers fall. That said, we’re still north of 1.4 million new claims each week going back to mid-March, which illustrates that — while the U.S. labor market has moved impressively from its deep lows a few months ago — we still have a lengthy road ahead until we’re back to shattering new employment levels.
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JPMorgan Chase Co. (JPM) : Free Stock Analysis Report
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
Macys, Inc. (M) : Free Stock Analysis Report
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TMobile US, Inc. (TMUS) : Free Stock Analysis Report
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