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Target, Gap, Beyond Meat, McDonald's and Costco highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research

For Immediate Release

Chicago, IL – December 6, 2019 – Zacks Equity Research Target TGT as the Bull of the Day, Gap GPS asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Beyond Meat BYND, McDonald’s MCD and Costco COST.

Here is a synopsis of all five stocks:                        

Bull of the Day:

Target has been a star in the struggling retail space this year, with gains of over 88% since the beginning of the year. The company has continued to beat analysts’ growing expectations, and the stock price keeps hitting new highs with its unending rally. Analysts continue to raise EPS estimates for TGT, propelling this stock into a Zacks Rank #1 (Strong Buy).

Surviving the Retail Apocalypse

The “retail apocalypse” driven by online retail giant Amazon , has been taking out brick-and-mortar storefronts across the US with more than 9,300 retail stores closing their doors in 2019. There has been a shift in the retail space, and only a few brick-and-mortar retail niches have been able to survive.

Millennials are changing the landscape in which businesses operate, with Silicon Valley leading the charge. Our world is becoming centered on the interconnected digital network we call the internet. The internet was built to hold and share data, making the transfer of data timely and seamless. Today the internet is allowing for a timely and seamless transfer of goods.

We, as millennials have grown up to recognize the importance of both convenience and value as standards of living. Target is able to hit both of those qualities. It’s easy to navigate and aesthetically pleasing floor plan combined with its discount products, not to mention its prolifically expanding online presence (7.5% of total Q3 revenue).

As the rest of the retail is close more and more of their brick-and-mortar stores, Target has been able to able to grow its store count. Its digital channel grew its sales by 31% this past quarter, which is on top of 49% growth a year prior.

Despite TGT’s massive run-up this year, it is still trading at discounted multiples to its industry, though compared to the stock 5-year forward P/E trend, it is trading at the highest end. Target’s quickly growing omnichannel offering is expected to improve the company’s topline while expanding margins, which would push its valuation further. I may wait for a pullback before putting on a sizable position.

Not only is TGT driving investor with significant share price returns but is yielding an over 2% dividend that investors can fall back on. The stock also has a .55 beta because of its discount quality, which means that it will create a slight hedge for your portfolio.

Take Away

Target is a safe investment with a sound product offering that attracts Millennials and Gen Zs, which makes it a robust long term investment, especially factoring in the 2.12% dividend. I may wait for a small pullback in share price before putting on any substantial position, considering the blazing rally this stock has had this year.

Bear of the Day:

Gap and its subsidiaries are another victim of the retail apocalypse. This firm is doing so poorly that it is spinning off its only growing brand Old Navy so that it doesn’t sink with the rest of the ship. Gap is down roughly 37% so far this, underperforming the already dismal retail apparel sector. Analysts' pessimism continues towards this falling stock, pushing it into a Zacks Rank #5 (Strong Sell).

The Business

Gap Inc. includes Banana Republic, Gap, Athleta, and Old Navy, which is in the process of being spun off as its own company. This firm has had a very disappointing last year, with the past 4 quarters illustrating a topline decline. This most recent quarter demonstrated the worst Q3 profitability since 2012, as this firm falls into the depths of the retail apocalypse.

Even just looking at this company’s investor relations page, you can tell that there are more significant issues with the company. Everything is disorganized and aesthetically displeasing. It isn’t intuitive, and finding the most recent earnings press release took a hunt. This illustrates this firm’s archaic practices that have led them to where they are today.

Every segment this last quarter declined year-over-year, margins are thinning, and everything is pointing to a dying company. Guidance was further lowered, and comparable sales are expected to be down in the mid-single digits. This negative narrative is only going to decline further once the growing Old Navy is completely divested.

Management’s sentiment was very negative, and the interim CEO Robert Fisher said: “We are not pleased with the third quarter results,” something you rarely see from a company head in an earning press release. This is a sign of major systemic issues within the company that I don’t believe will be easily managed.

Robert Fisher just became Gaps interim CEO one month ago after Art Peck stepped down from his position following a very disappointing last 4.5 years in the job. The company has lost 59% of its value in the previous 5 years, and unless the business makes significant systemic changes to its operations, I fear that the firm will not stay afloat much longer.

Gap and Banana are higher end brands but have been forced to substantially discount their prices in order to get customers in the door. This has set a precedent in the market for these brands, and consumers will now only purchase them when they are severely discounted. This is cutting the firm’s ability to profit.

Take Away

This stock has been a falling knife for some time now, and the continued negative earnings justify its downward trajectory. I would stay away from these shares as they have fallen victim to the retail apocalypse.

Additional content:

Beyond Meat Strikes Costco Deal: Should Investors Buy BYND Stock?

Beyond Meat announced Thursday that its plant-based burger patties would appear in select Costco stores. The move from the young company comes as competition for retail shelf space intensifies against rival plant-based meat producer, Impossible Foods and others.

Beyond Meat said that its popular Beyond Burgers will be sold at Costco stores in states including Texas, Florida, and New York for $14.99 per eight-patty pack.

BYND

Beyond Meat has been one of the most prolific IPOs of 2019 and currently sits around $72.37 per share, which represents around a 189% return. BYND stock at one point rose over 858% to trade at $239.71 per share. The company’s miraculous run brought a massive amount of attention to the stock, but, with it, came many doubts about the run’s sustainability.

Beyond Meat’s stock pulled back recently, so is its Costco announcement enough for investors to hop back on the BYND bandwagon?

Competition and Sustainability

As Beyond Meat’s stock began to soar to incredible heights, Wall Street began to question if the run was warranted, given the unknown scale of the plant-based food market and rising competition in the space.

The Good Foods Institute, a Nonprofit organization, calculated that the plant-based food market is now worth almost $4.5 billion in the U.S. and has grown around 11% in just the last year. Plant-based meat itself grew 10% last year, which was down from the 25% growth it saw in the previous year.

However, industry analysts from Markets and Markets still project that the plant-based meat industry will grow internationally from $12.1 billion in 2019 to a $27.9 billion market by 2025.

Plant-based milk products bring in around $1.86 billion in domestic sales and are the definitive leader in the plant-based food market. The plant-based milk products now hold a 13% market share in the overall retail milk market thanks to the 61% growth it saw from 2012 to 2017.

Some bullish Beyond Meat investors hope that plant-based meat products can follow the same trajectory. The plant-based meat industry brings in about $801 million in the US yearly, which could give the product a long growth runway.

Moving Forward

The plant-based meat industry looks poised to continue its growth and Beyond Meat will have to distinguish its products as larger companies set their sights on the emerging market. Beyond Meat’s partnerships with McDonald’s and others are a step in the right direction.

Procuring more restaurant and retail partnerships is vital for Beyond Meat. The restaurant partnerships will be especially crucial as it will help establish Beyond Meat’s brand awareness, which will become paramount as more meatless products hit retail shelves.

Our fiscal 2019 estimates call for sales to soar over 213% to reach $275.28 million. Meanwhile, the company is projected to report an adjusted loss of $0.20 per share.

Looking ahead to the next fiscal year, our estimates project sales to climb 65.7% to hit $456.23 million. And BYND is expected to jump from a full-year loss to positive earnings of +$0.39 per share.

Takeaway

Beyond Meat’s remarkable run has captivated Wall Street in 2019 and has made it the standout IPO of the year as it has outpaced IPO class peers. The growth runway for the plant-based meat industry looks promising but it must capitalize on its first-mover advantage.

Its Costco announcement did little to please investors just yet. But the continued effort to get Beyond Meat’s products into more stores and restaurants is a good sign moving forward. While our estimates project a significant top-line slowdown in fiscal 2020, it also calls for Beyond Meat’s first profitable year, which would be a great feat for the young company.

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Click to get this free report The Gap, Inc. (GPS) : Free Stock Analysis Report Target Corporation (TGT) : Free Stock Analysis Report Costco Wholesale Corporation (COST) : Free Stock Analysis Report McDonald's Corporation (MCD) : Free Stock Analysis Report Beyond Meat, Inc. (BYND) : Free Stock Analysis Report To read this article on Zacks.com click here.