For Immediate Release
Chicago, IL – July 14, 2020 – Zacks Equity Research Shares of Turtle Beach Corp HEAR as the Bull of the Day, Eventbrite EB as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Thermo Fisher Scientific TMO, UBS Group AG UBS and Canadian Pacific Railway CP.
Here is a synopsis of all five stocks:
Bull of the Day:
Turtle Beach Corp is a Zacks Rank #1 (Strong Buy) that is an audio technology company that designs audio products for consumer, commercial and healthcare markets. The San Diego company was founded in 1975 and has over 200 full-time employees.
Turtle Beach has a very low market cap of $250 million with a forward PE over 30. Those that invest should be aware that the stock is pretty volatile with a 1.82 beta.
Return to Glory
If this stock sounds familiar, it’s because Turtle Beach was one of the hottest stocks in early 2018. The company had some nice earnings beats early that year, which was attributed to the success of Fortnite and other games that demanded headsets made by the company.
The stock went from an unknown $3 stock to a $34.50 in just three months. HEAR slowly fell back to earth the rest of the year and in the March panic earlier this year, the stock bottomed out under $4 a share.
However, due to the COVID-19 lockdowns, battle royale games are hotter than ever. With more players, comes more buyers of headsets, which has propelled earnings and the stock once again.
On May 7th the company reported 69% surprise earnings beat and guided both the top and bottom line higher. A month later, the company guided even higher, raising Q2 earnings to $74-77 million vs the $43.6 million expected. The company once again cited Fortnite as the root cause for their success. Here is the CEO Juergen Stark some with comments after the guide higher:
“Retail demand has remained strong and, we believe, sales have been highly limited by continuing supply constraints, such that any increase in supply leads directly to revenues and sell-through. We were able to further significantly increase factory output and expedite deliveries into the second quarter to achieve additional expected sales of at least $27 million above our prior outlook. We expect that strong operational execution as well as tight coordination with our retail partners to productively allocate supply will enable us to achieve record sales in the second quarter of this year and, given our strong share position, for the overall console headset market as well.”
The guide higher has forced analysts to take their estimates higher and in a big way. Over the last 30 days, estimates have gone from negative $0.29 to positive $0.29, meaning the company will go from losing to making money. For the current year, estimates have gone from $0.01 to $0.56 over the same time period.
While the increased demand likely won’t continue forever, the demand from the lockdowns is helping current sales. Consumers are planting themselves in front of the computer and they want top quality headphones.
The Technical Take
The stock is above all moving averages, with the 200-day at $9.40 and the 50-day at $12.35. Momentum investors should keep an eye on the 21-day at $15 as a possible spot to buy into as the stock holds its trend.
The Fibonacci setup, drawn from 2019 highs to recent lows, gives us a 61.8% break and targets above. Longer-term levels to look out for are the $28 level (161.8%), $34.5 (all-time highs) and $43 (261.8%).
The COVID stocks remain hot. Turtle Beach is only now getting going and it is one of the only lockdown stocks that hasn’t run to previous highs yet. While this can be a bad signal, the company is still little known and that run in 2018 was way overdone. With 20% of the float short, watch for the squeeze to continue if the company can keep the sales momentum going.
Bear of the Day:
Eventbrite is a Zacks Rank #5 (Strong Sell) that offers a platform allowing users to provide online event planning services. The company publishes, promotes and sells tickets through social networks and e-mails.
The San Francisco company was founded in 2008 and IPO’d in 2018. Eventbrite has over 1100 employees and has a market cap of $770 million.
The company and the stock have a somewhat depressing problem in the fact that a lot of events are cancelled because of the pandemic. For those working events that the company is promoting, there is little interest as fear has control of the consumer. While economies have reopened, there is little evidence that the pent-up demand will help the company get to where it was before the pandemic.
Shift of Focus
Even before the pandemic the company was struggling to impress investors. After an IPO debut that topped out at $40, the company traded in a range between $15-20 before falling under $10 after the lockdowns.
The company decide to focus on its most valuable customers which were self-service event creators. The word of mouth viral nature of that business allows a reduction of costs and growth in their most profitable area.
The bull case would point to the shift as a reason the company will survive the pandemic and come out stronger on the other end, but with economies shutting down again due to more cases in COVID-19, there are uncertainties on when live events will come back.
Earnings and Estimates
On May 11th, the company reported a Q1 EPS miss of 489%. Revenue came in with a big miss as well, with the company seeing $49.1 million v the 70.5 million expected.
While the company has seen a bounce back in online events and paid ticket volume, analysts have continued to lower estimates. Over the last 90 days, estimates have fallen from -$1.35 to -$2.64 for the current year. Estimates have ticked slightly higher for next year, but that is taken into consideration that we will be free of the pandemic.
The stock tried to break above $12, but that idea was rejected and the stock is below the 50-day moving average. The lows of the year are $5.71 and another bad quarter could force a break of the $8 level and a trip to retest those lows. For the bulls, a move over $11 would be a good sign.
There are plenty of stocks to choose from that are making new highs every day. Eventbrite should be avoided until the pandemic is over and bearish technicals are broken. If the company can come out of this mess alive, there might be hope in the very long-term.
Time to Study Earnings: Global Week Ahead
In the Global Week Ahead, the Q2 U.S. earnings season kicks off.
Thirty-two S&P 500 names report results, including: JP Morgan, Citibank, Wells Fargo, Goldman Sachs, BofA, Morgan Stanley, BlackRock, State Street and Netflix.
“Bottoms-up” consensus expects earnings per share (EPS) to average $25.60 across Q2, down -6% from Q1, and close to a -40% drop in y/y terms.
Guidance—if provided—becomes critical. So too will survival measures such as cash on hand.
Major corporate earnings marks will update the battle over broad S&P 500 valuations:
· - Price-to-trailing earnings on the S&P 500 is at 22.4.
· - Price to 2020 expected earnings is higher at 25.4. This measure is clearly impacted by the COVID19-hit to profits in H1-2020. But traders are more forward looking.
· - Perhaps a better measure? Compare S&P 500 share prices to expected earnings in the first full year of expected recovery. That’s 2021. Valuations by this yardstick are not excessive at 19.6 times.
If Q2 earnings growth, and more importantly forward outlooks, surprise to the upside? There could be room for multiple expansion on top of it.
Finally, there is always the Fed’s money printing exercise to factor in. And easing by 84 of the world’s central banks. That is the biggest coordinated easing event in modern history.
Next are Reuters’ five world market themes, reordered for equities—
(1) Major S&P 500 Companies Kick Off Q2 Earnings Season
America Inc. kicks off its second-quarter earnings season from Tuesday, and Refinitiv data predicts a -44.1% slump — the biggest since the 2008-9 crisis.
Coronavirus-linked shutdowns will have wiped out profits especially in the energy, consumer discretionary and industrials sectors. Back in January when the pandemic had yet to make headlines, Q2 earnings were seen growing +7.2%.
There may be silver linings. Recent equity rallies imply investors are disregarding Q2 reports and focusing on the outlook. And a “substantial earnings beat” is likely, say BofA analysts, citing economic data improvements in May and June. More importantly for markets, companies will offer “very positive forward guidance,” BofA predicts.
(2) Is This Chinese Stock Rally to Be Trusted?
A recent editorial in the official China Securities Journal calling for a healthy bull market fueled an equity buying rush, lifting stocks +14% so far in July.
But opening some newspapers elsewhere, this state-sponsored editorial begins to take on the air of distraction. Factory-gate prices are falling, and payrolls were cut for the sixth straight month, a private business survey shows.
Then there’s politics. Western pushback against Hong Kong’s new security law is gaining momentum, with Washington imposing sanctions on several Chinese officials. Canada and Australia have suspended extradition treaties and Britain opened a citizenship pathway for Hong Kongers. India has banned dozens of Chinese social media apps after border clashes.
Beijing’s response has been bluster — but investors should be wary. It may not be just the yuan and Chinese shares building up a head of steam.
(3) Where Does Gold ($1,800 per ounce) Go from Here?
Up 19% this year, gold has had a stellar run, recently cracking the $1,800 per-ounce level to scale nine-year peaks.
Several factors have driven the precious metal’s ascent, especially the safe-haven bid as the coronavirus wreaked havoc. As economies re-opened from May, retail buying helped accelerate the rally. Now focus is on gold as an inflation hedge.
With central banks and governments in full stimulus mode, inflation will be roused from its decade-long slumber, economists expect, though that’s a long-term rather than immediate possibility.
Between coronavirus risks and inflation expectations, speculators are taking no chances — positioning data indicates a market very long on gold. Prices will hit $2,000 within a year, Goldman Sachs predicts.
(4) The European Central Bank Meets on Thursday
Southern European bonds and the euro have rallied hard in the two months since France and Germany mooted a 750 billion-euro ($848 billion) post-COVID-19 recovery fund.
On July 17-18, European leaders meet to hammer out details. But differences remain on whether the fund should be based on loans or grants; if the proposal stumbles, markets will take it badly.
Even a watered-down deal would be significant as it will allow the bloc to move towards mutualizing debts. It could mark Europe’s “Hamilton moment” — a reference to the first U.S. Treasury Secretary Alexander Hamilton who in the 1790s engineered a deal allowing the federal government to assume the debts of individual states, selling Treasury bonds to fund them.
The European Central Bank, meanwhile, meets on Thursday. Decisive EU action to revive the economy would ease pressure on the bank to deliver more stimulus. It might then consider buying more supranational debt for its asset-purchase scheme, as a recovery fund would help make the EU the region’s biggest supranational issuer.
(5) OPEC Meets on Wednesday, July 15th
With the world economy seemingly past its worst and energy demand slowly recovering, OPEC and its ally Russia are expected on July 15 to whittle down the 9.7 million barrels-per-day production cut made in June to protect crude prices from collapse. Effective August, the cut will then stand at 7.7 million bpd.
The question now is to what degree the relentlessly rising U.S. coronavirus count hampers economic recovery. The news isn’t good elsewhere, either: India’s June fuel demand, for instance, fell 7.9% versus year-ago levels.
OPEC moves to release more crude onto markets will come amid renewed oversupply fears. Oil market risks are “almost certainly to the downside,” the International Energy Agency warns.
Top Zacks #1 Rank (STRONG BUY) Stocks
(1) Thermo Fisher Scientific: This is a $153B market cap stock with a whopping $382 share price tag. I see a Zacks C for Value, a C for Growth, and a D for Momentum. They play ball in the Medical-Instruments industry.
(2) UBS Group AG: This is a $42.7B market cap stock with a $12 share price. I see a Zacks A for Value, a Zacks B for Growth, and a Zacks B for Momentum. The big banks kick off Q2 earnings season this week. Can foreign bank stocks like this get moving?
(3) Canadian Pacific Railway: This is a $34.7B market cap stock with a $257 share price tag. I see a Zacks C for Value, a Zacks B for Growth, and a Zacks D for Momentum. Does ratifying the new USMCA make any difference here? Or is it all virus driven?
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