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Target, Canada Goose, Boyd Gaming, MGM Resorts and Penn National Gaming highlighted as Zacks Bull and Bear of the Day

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·13 min read
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For Immediate Release

Chicago, IL – May 25, 2021 – Zacks Equity Research Shares of Target Corporation TGT as the Bull of the Day, Canada Goose Holdings Inc. GOOS as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Boyd Gaming Corporation BYD, MGM Resorts International MGM and Penn National Gaming, Inc. PENN.

Here is a synopsis of all five stocks:

Bull of the Day:

Target is the retailer built for the largest consuming generation, Millennials, with unmatched omnichannel solutions. Target is likely the most digitally adapted brick-and-mortar retailer, and it showed in its quarterly report last week. The enterprise released another record EPS driven by its ability to capture more foot traffic as economies reopen and leverage its same-day digital services (Order Pickup, Drive Up, and Shipt), which were up more than 90% year-over-year.

TGT has hit a fresh all-time high every day since its March quarter earnings last Wednesday, having surged over 10% in the past 4 days of trading, following its lofty quarterly expectations being exceeded. Target CEO Brian Cornell came on CNBC last week and said, "we are seeing a much more optimistic consumer, who is excited about getting back to the life that they haven't lived for the last year." Target appears to be the place that is bringing society back to life.

Target is a retail machine that has seemed to impress endlessly. Just when you think the company couldn't do any better, it comes out with results and forward guidance that can't be ignored. Analysts have sizably raised their EPS estimates for not only 2021 but the next few years, propelling TGT into a Zacks Rank #1 (Strong Buy).

The Digital Effect

The global pandemic pulled forward 10 years of digital demand in 10 months. Target was a brick-and-mortar retailer that was perfectly positioned for the economic lockdowns, which forced consumers & businesses to rapidly adapt their consumption patterns. The enterprise's transformation from a traditional brick-and-mortar retailer to an omnichannel powerhouse allowed the company to swiftly take market share across retail categories.

The post-pandemic new normal in which we live will continue to be driven by the ease and convenience of digital technology. Target customers have been leveraging its omnichannel solutions throughout the pandemic and will continue throughout the roaring 20s, with society now conditioned to do so.

Target's $550 million acquisition of Shipt, its same-day delivery service, at the end of 2017, may have been the savviest purchase this company has ever made. This subscription-based delivery service can provide you with home deliveries of anything from groceries to a new TV in as little as an hour. According to UBS analysis done at the beginning of 2021, Shipt could be worth as much as $14 billion, or more than 25 times what Target originally paid for only 3 years earlier. 

Financials

Target's last 4 quarters have been unbelievable, illustrating accelerating profitable growth that I never thought this stable retailer would have been able to obtain. The company demonstrated over 20% year-over-year expansion in the past 4 quarters, propelling its bottom-line to levels that many never thought were attainable (at least not anytime soon). Target's consistent margin expansion exemplifies its operational excellence.

The enterprise's $7.8 billion in cash & equivalents combined with consistently growing cash flows gives it enormous financial flexibility for internal investment or savvy external acquisitions. The business's proven ability to put its money to good use gets me excited about what the

Short-Term Risk

TGT is teetering at overbought levels, following its 4-day rally.

Its overbought RSI level could catalyze a near-term pullback in the share price, but if you can weather short-term volatility, I don't think buying TGT at its all-time highs here is crazy. In fact, following that outstanding March quarter report, TGT is actually cheaper from a P/E standpoint today than it's been all year.  

Final Thoughts

The market share gains that Target was able to obtain over the past 15 months of lockdowns will continue to be a tailwind for the business as economic reopening's increase foot traffic. Analysts have been raising their 12–18-month price targets, with the most optimistic target sitting at $300 per share (33% upside from where it's trading today). 15 out of 20 analysts are calling TGT a buy today, with 0 sell ratings.

A growth stock with a 1.2% dividend is hard to come by these days. TGT has rallied 150% from its pandemic lows, but it may still have legs to run. Consider adding Target to your portfolio as a long-term investment for the new normal.

Bear of the Day:

Canada Goose has had a good rally off its pandemic lows, having more than tripled in price. Still, I am skeptical about this luxury retailer's ability to grow into its currently rich valuation multiple. It's a very niche and cyclical business with unreliable and inconsistent revenue drivers.

GOOS sold off nearly 10% following a March quarter earnings report that beat analysts' expectations, but provided softer than expected forward guidance, forcing investors to question its current price level. Analysts have been dropping their EPS estimates since the company reported on March 14th, pushing GOOS into a Zacks Rank #5 (Strong Sell).

Unfortunate Timing 

Canada Goose is a high-end coat retailer that may be getting a little too hot going into this highly anticipated summer of restored normalcy. The seasonal nature of this retail enterprise is unfortunately timed with the end of this pandemic. As other luxury brands will likely experience a demand boost from increased foot traffic due to the economic reopening, Canada Goose will probably not capture much of that pent-up demand to spend on big-ticket items.

Seasonally the company does its worst during the summer, as you would reasonably expect from a coat company. As consumers spend that extra cash in their pocket this summer, most will not be thinking of buying a high-end winter coat, and once winter comes around, all that pent-up demand and extra cash will likely have already been spent.

Analysts have significantly dropped their EPS expectations for the current quarter in anticipation of weak demand.

Will Demand Growth Last?

From my point of view, it seems like almost everyone who wants a Canada Goose coat has already gotten one. This type of niche retail business model doesn't have the reliable, consistent revenue I like for a long-term investment. It is also a fashion brand that could quickly go out of style with shifting trends if management doesn't constantly adapt.

GOOS's over 36x forward P/E is very difficult for me to justify under the conditions I laid out above. I am not suggesting that you short sell this stock, but it may be prudent to take profits or reduce your exposure to this position at these levels if you are long.

Additional content:

Online Betting Prospects Bright: 3 Gaming Stocks in Focus

The prospects of the U.S. sports betting have changed drastically over the past three years. Thanks to the Supreme Court ruling in 2018, which overturned the Professional and Amateur Sports Protection Act (PASPA) that banned sports betting outside Nevada. Legalization of sports betting outside Nevada has given the industry a new lease of life.

Sports betting has been legalized in Nevada, Delaware, New Jersey, Mississippi, West Virginia, New Mexico, Pennsylvania, Rhode Island, Arkansas, New York, Iowa, Oregon, Indiana, New Hampshire, Illinois, Michigan, Montana, Colorado, Washington, D.C., Tennessee, Virginia and North Carolina. Moreover, other states are likely to follow the trend is the coming months.

iGaming Market Gains on Pandemic

The coronavirus pandemic has rattled most of the industries and Gaming has been no exception. Casino visitations in 2020 declined sharply due to lockdowns and other coronavirus-related restrictions. This provided an opportunity for casino operators to focus on online betting.

Although the majority of the casinos have reopened with safety protocols, gaming revenues are below the pre-pandemic level. In such a scenario, companies are focusing more on iGaming business operations to generate online gambling revenues.

Per ResearchAndMarkets, the global online gambling market is likely to reach $97.69 billion, witnessing a CAGR (2020-2025) of 11.31%. Growth in the gambling market is likely to be driven by increase in smartphone adoption and improving internet infrastructure globally.

Per Nielsen report, in first-quarter 2021, the online gambling industry, primarily sports betting, spent $154 million on local TV advertisements, up $10.7 million from the start of 2019. The spending is likely to increase as more states allow online betting in the months ahead.

Some of the popular igaming applications include DraftKings, Barstool, FanDuel, BetMGM, BetRivers, Fox Bet and BetMonarch. Markedly, the applications have been an important medium for gamers to connect, learn and inspire amid the stay-at-home restrictions.

Development in latest online gaming technology to drive revenues has led many companies to invest heavily in digital initiatives to improve reliability and customer services. According to the American Gaming Association, sports betting in the United States generated revenues of $1.5 billion in 2020, up 69% year over year. In first-quarter 2021, sports betting revenues improved 270% year over year.

We have highlighted three Gaming stocks that have a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), and are likely to witness robust growth backed by online betting. You can see the complete list of today's Zacks #1 Rank stocks here.

3 Gaming Stock to Focus On

Boyd Gaming: Boyd Gaming has been undertaking efforts to expand online betting offerings. During second-quarter 2020, the company expanded its partnership with FanDuel Group, which includes retail sports books at seven Boyd properties, mobile sports betting apps in Pennsylvania and Indiana as well as the online gaming site in Pennsylvania.

During third-quarter 2020, the company continued to expand its partnership with FanDuel Group, thereby launching mobile sports betting products in Illinois and Iowa. Going forward, the company is optimistic about online gaming prospects in Ohio, Louisiana, Missouri and Kansas. Apart from FanDuel, the company continues to focus on Stardust brand to expand its online gaming presence. During second-quarter 2021, it rolled out of Stardust online casinos in Pennsylvania and New Jersey.

In the past year, shares of the company have gained 201.9%, compared with the industry's rally of 65.9%. The Zacks Rank #1 company is estimated to report earnings of $3.24 in 2021, against a loss of 15 cents in the prior-year quarter. The company also has an impressive long-term earnings growth rate of 19.8%.

MGM Resorts: Sports betting and iGaming continues to be a major growth driver following the legalization of sports betting outside Nevada. Thereby, the company continues to focus on sports betting expansion. Earlier, BetMGM and GVC Holdings — announced a second round of investment. This brings the total investment to $450 million.

During first-quarter 2021, BetMGM reported solid results on the back of market share gains in existing markets, and new entries such as Iowa, Michigan and Virginia. As of February 2021, BetMGM's market share stood at 22% in its active markets. It also reported strengthening of position in New Jersey with market share gains of more than 30%.

Meanwhile, BetMGM operations contributed $163 million to net revenues during the first quarter. The operation results are encouraging compared with the total net revenues of $178 million in 2020.

In the past year, shares of the company have gained 149.8%. The Zacks Rank #3 company is expected to report year-over-year earnings growth of 15.4% in 2021.

Penn National Gaming: The company is focusing on sports betting expansion to drive growth. On Jan 22, 2021, it unveiled Barstool Sports online sports betting app in Michigan. Notably, the company witnessed solid demand and acquired a significant number of new customers on the back of Barstool media partnership tools.

The company's Barstool Sportsbooks and iCasino offerings in Michigan and Pennsylvania continue to drive its performance. On Mar 11, 2021, Penn National launched the Barstool Sportsbook app in Illinois, where the company performed better than expected in the first 30 days of launch. During the period, 54,700 new customers were registered. Despite the coronavirus pandemic, the company announced that it will continue to invest in projects, which will generate EBITDA in the short term.

In the past year, shares of the company have gained 155.3%. The Zacks Rank #3 company is anticipated to report year-over-year earnings growth of 148% in 2021.

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Target Corporation (TGT) : Free Stock Analysis Report
 
MGM Resorts International (MGM) : Free Stock Analysis Report
 
Penn National Gaming, Inc. (PENN) : Free Stock Analysis Report
 
Boyd Gaming Corporation (BYD) : Free Stock Analysis Report
 
Canada Goose Holdings Inc. (GOOS) : Free Stock Analysis Report
 
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