Business Essentials

Salesforce helped start the software-as-a-service industry that nearly every business, government, and countless other entities rely on to help them do just about everything. Its various divisions help support sales, marketing, commerce, customer and client engagement, analytics, app development, and more.   

The company has grown its top-line at an impressive clip since its 2004 IPO. CRM posted between 25% and 30% sales growth in the trailing five years. Its steady double-digit expansion highlights the strength of its business model and the constant need for companies of all shapes and sizes to adapt to the quickly changing tech-fueled landscape.

The pandemic-driven remote work environment solidified its business. Salesforce posted record sales last year, with revenue up 24% to crack $20 billion for the first time. CRM also raised its guidance and it’s poised to thrive in the hybrid work environment.

Salesforce made a splash late last year when it announced its $28 billion deal to buy Slack. The company completed that purchase in July and it is expected to help CRM compete against Microsoft (MSFT) and Zoom Video (ZM) in the evolving work communication space. The deal comes roughly two years after Salesforce paid $15 billion for data-analytics platform Tableau.

Image Source: Zacks Investment Research

Top & Bottom Line Outlook

Salesforce beefed up its offerings to help it continue to stand out in a crowded cloud-software space. Its growth outlook showcases the stability of its subscription model as well. Zacks estimates call for CRM’s FY22 (its current year) revenue to climb 24% to $26.3 billion, with FY23 projected to jump another 21% higher to come in at nearly $32 billion.

The tech firm’s adjusted FY22 earnings are projected to slip 10% from last year to $4.40 a share, with FY23 then set to bounce 4% above our current-year estimate.

Wall Street has looked beyond the YoY decline projections to Salesforce’s improving earnings estimates, which help it land a Zacks Rank #1 (Strong Buy) at the moment. The stock has also crushed our adjusted EPS estimates by an average of 68% in the trailing four quarters.

Image Source: Zacks Investment Research

Image Source: Zacks Investment Research

Other Fundamentals

Salesforce shares have roughly matched the Zacks Computer Software industry over the past five years, up around 300%. CRM has jumped 90% in the last two years to lag just behind its industry. Salesforce shares have surged 25% in the trailing six months to outclimb its peers and it hit brand new highs Wednesday.

The stock has jumped to records amid the broader big-tech resurgence that’s sent the Nasdaq to new highs once again. Investors will, however, have to wait until early December for CRM to release its quarterly results, even as Apple (AAPL), MSFT, Amazon (AMZN), and many other tech titans report their financials during the last week of October.

Salesforce still trades at sky-high valuations in terms of forward earnings and it does not yet pay a dividend as it focuses on growth. But investors have been willing to pay up for CRM for years and largely ignored its P/E ratio. Despite sitting at records, CRM trades at a nearly 10% discount to its own year-long highs at 9.5X forward 12-month sales and 20% below its high-water mark when it comes to forward earnings.

Bottom Line

The recent climb pushed Salesforce slightly above overbought RSI levels (70 or higher), with it currently hovering at 72. This could mean the stock is due for a near-term pullback, along with other tech names—the Nasdaq 100-tracking QQQ ETF is approaching overdone levels at 65, after hitting oversold territory in early October.

Still, investors with long-term horizons shouldn’t be nervous about buying stocks at their highs since timing the market is extremely difficult. And Wall Street is bullish on Salesforce, with 22 of the 26 brokerage recommendations Zacks has currently coming in at “Strong Buys.” None of the other recommendations are below a “Hold” and its overall rating has improved in the last several months.

Let’s also remember Salesforce’s offerings aren’t going out of style anytime soon and its customers become largely dependent on its constantly expanding portfolio of business software.

Today’s Bull of the Day is Olin (OLN). Olin Corporation manufactures and distributes chemical products in the United States, Europe, and internationally. It operates through three segments: Chlor Alkali Products and Vinyls; Epoxy; and Winchester.

Olin Corporation Price and Consensus

Olin Corporation price-consensus-chart | Olin Corporation Quote

Olin is a Zacks Rank #1 (Strong Buy) in the Chemical – Diversified industry. The stock just reported strong earnings after the bell last Thursday, October 21^st. Q3 earnings came in at $2.38, 14% better than expectations. That was the latest in a string of 3 consecutive quarterly earnings beats.

Analysts have taken note of the trend. Over the last thirty days, four analysts have increased their earnings estimates for next year. The bullish sentiment has pushed up our Zacks Consensus Estimate for next year from $5.77 to $7.33. A similar move on has happened on current year estimates where the Zacks Consensus Estimate is up from $6.41 to $7.95. That current year number represents year-over-year growth of an astounding 688%.

More About WGO

The company was founded in 1958 and is headquartered in Forest City, Iowa. Winnebago employs over 5,500 people and sell its products through independent dealers in the United States, Canada and internationally.

The company is valued at $2.2 billion and pays a 1% dividend. It operates in six segments that focus on towable products, motorhomes, boats and specialty vehicles.

WGO has Zacks Style Scores of “A” in Value, Growth and Momentum. The Forward PE is just under 8, which makes it attractive to value investors.

Backlog and Supply Chain Worries

The supply chain has been a big problem for certain sectors and the RV makers are experiencing a challenging atmosphere. Both Thor Industries and Winnebago have seen record demand since the COVID pandemic begun. The main issue isn’t on the consumer side, but rather a problem of manufacturing the campers fast enough.

While the backlog continues to grow, the company is seeing rapid sell-through of inventories they provide to dealers. Winnebago credits its operational excellence, which has helped them deliver for both consumers and dealer partners efficiently and profitably.

Earnings Beat

Just last week, Winnebago reported Q4 earnings, seeing a 30% surprise to the upside. Revenues came in at $1.04B v the $936 million expected and gross margins were up 150 basis points y/y.

Motorhome deliveries came in at 2.97k v the 2.28k last year and motorhome revenue was up 49% year over year. The backlog increased to 18.2k v the 9.8k last year.

CEO Michael J. Happe had some comments on the year ahead:

"We look forward to continuing our momentum into Fiscal 2022 through a continued focus on quality, service and innovation as well as an expanded portfolio of high-quality outdoor lifestyle products that empower our customers to have extraordinary outdoor experiences as they travel, live, work and play.” 

Winnebago Industries, Inc. Price and EPS Surprise

Winnebago Industries, Inc. price-eps-surprise | Winnebago Industries, Inc. Quote

Estimates Rising

The strong earnings helped analysts take numbers higher across all-time frames. For next quarter, estimates have from $2.04 to $2.40 over the last 7 days, a hike of 18%. For the current year, we see a 10% jump in estimates for that same time frame.

A couple analysts have also raised price targets since earnings:

BMO Capital has WGO at an Outperform, raising its target from $100 to $115.

Wedbush has an Outperform rating and a $94 target.

The Technical Take

The stock has been weak since earnings. This has been a theme in the industry as Thor Industries also saw a strong quarter, but then sold off. The bears point to the supply chain, but technically the stock is still in a long-term trend higher.

While WGO is below all moving averages, it is basically flat on the year. The MA’s will be resistance going forward, but if the bulls can get the stock above those levels, we could see the recent trend turn positive. Look for the $73 level to be the short-term bull/bear line in the sand.

If the stock were to trade lower on market weakness, look for the $60-62 area as support. This zone held up over the summer and is the 61.8% Fibonacci retracement buy zone, which can be found by drawing November lows to March highs.

In Summary

Travel might have been changed permanently by the pandemic as more consumers came to market for RVs. While the current situation surrounding the backlog and supply chain makes the business challenging, Winnebago continues to beat expectations.

Investors should monitor this supply chain risk, but also view any dip in the stock as a long-term opportunity as the backlog gets sorted out in 2022.

Image Source: Zacks Investment Research

They remain dirt cheap, with a forward P/E of 9.4.

LAD also has a PEG ratio of just 0.5. A PEG ratio under 1.0 usually indicates a company has both growth and value, a rare combination.

LAD's competitors such as Penske (PAG), Group 1 Automotive (GPI) and Sonic Automotive (SAH) are also cheap. They trade with forward P/Es of 8.3, 6 and 7, respectively.

LAD is shareholder friendly. It pays a dividend, currently yielding 0.4%.

The Street thinks the strong demand for autos is over.

For those investors who think the Street has it all wrong, Lithia is one to keep on your short list.

It's worth noting that Stripe, the next huge fintech IPO, is also a Fastly customer, according to the company website.

With FLSY shares at $50, it is now trading about 14 times next year's sales consensus of $405 million.

We'll know in a couple of weeks if customers like Apple and TikTok have had their faith restored and the growth rate for Fastly can reemerge above 20%.

Disclosure: I own shares of FSLY for the Zacks TAZR Trader portfolio.

One stock in the good graces of the rank is today’s Bull of the Day, Teck Resources (TECK). Teck is a Zacks Rank #1 (Strong Buy) in the Mining – Miscellaneous industry. Teck Resources Limited engages in exploring for, acquiring, developing, and producing natural resources in Asia, Europe, and North America. It operates through Steelmaking Coal, Copper, Zinc, and Energy segments. The company's principal products include steelmaking coal; copper concentrates and refined copper cathodes; refined zinc and zinc concentrates; energy products, such as bitumen; and lead and molybdenum concentrates. It also produces gold, silver, germanium, indium, and cadmium, as well as chemicals, industrial products, and fertilizers. 

Teck Resources Ltd Price and Consensus

Teck Resources Ltd price-consensus-chart | Teck Resources Ltd Quote

The reason for the favorable rank is the litany of positive earnings estimate revisions coming from analysts. Over the last sixty days, twelve analysts have increased their estimates for next year while ten have increased their numbers for the current year. The bullish move has pushed up our Zacks Consensus Estimates for the current year from $2.35 to $3.22 while next year’s numbers are up from $2.43 to $3.37. That means current year earnings growth is slated to come in at 312% while next year growth cools to 4.72%.

Q2 Earnings Recap

Total company sales grew by more than 20% to hit a record of $1.16 billion, while total retail segment comps increased 40% year-over-year.

CEO Richard A. Hayne said that Urban saw “powerful demand” across the majority of its product categories, especially apparel, and all of its brands recorded positive double-digit comps during the quarter.

Net income came in at $127 million, or earnings per diluted share of $1.28, also a record for the retailer.

One of URBN’s fastest growing brands is FP Movement, a division of Free People that’s focused on activewear and accessories. Q2 was a standout quarter for Movement, with revenue soaring over 200%. The brand now operates 54 shop-in-shop locations inside Free People stores and 13 standalone stores.

Nuuly is another new addition to the retailer’s portfolio; it operates a subscription rental service for women’s apparel. Urban also recently launched Nuuly Thrift, a peer-to-peer, resale marketplace that can help the company capitalize on the growing resale fashion space.

Can URBN Break Out?

 

Year-to-date, shares of URBN have jumped 19.4%, which is roughly in-line with the S&P 500’s 20% increase. Earnings estimates have been rising too, and URBN is a Zacks Rank #1 (Strong Buy) right now.

For fiscal 2022, seven analysts have revised their bottom-line estimate upwards in the last 60 days, and the Zacks Consensus Estimate has moved up 94 cents to $3.32 per share. Earnings are expected to grow considerably compared to the prior year period. Fiscal 2023 looks strong too; eight analysts have upped their outlook and our consensus estimate has climbed 36 cents to $3.05 per share.

Looking ahead, management said that consumer demand for its products continues to be robust, and that the current third quarter will show healthy sales improvement across the board. The retailer expects retail segment comps growth to land in the mid-teens range and gross profit margins to improve over 100 basis points.

Urban hasn’t been the only retailer enjoying a rebound in demand, and if the current trend continues, shareholders could be in store for even more gains.

If you’re an investor searching for a retail sector stock to add to your portfolio, make sure to keep URBN on your shortlist.

NVIDIA is the most exciting chipmaker in the market today, producing chips with unmatchable capabilities that have transformed this business into the superstar it is today. The level of growth that NVIDIA has achieved is nothing short of incredible as the enterprise sets the bar for innovation in tech.

This GPU powerhouse has been able to justify its exceptionally rich 57x P/E multiple with consistently outsized profitable growth that has driven between 40-70% year-over-year sales appreciation in the past 7 consecutive quarters (flowing down to high double to triple-digit net income expansion), along with record top and bottom-line results in each of the last 6 earnings releases.

The company is playing a critical role in the development of machine learning and artificial intelligence (AI). NVIDIA's rapidly advancing datacenter chip technology will almost unquestionably be a part of the discovery of "true AI" (machines that surpass human intellect) in the coming years/decades (many hypothesize that this will occur by 2050).

Analysts are relentlessly bullish on NVDA as the company consistently blows out estimates each quarter. Sell-side analysts have been pushing up their EPS projections over every time horizon, propelling NVDA into a Zacks Rank #1 (Strong Buy). This is a stock you want exposure to as we enter the 4th Industrial Revolution.

The Business

NVIDIA has become the most cutting-edge chipmaker in the world today. The company invented the graphics processing unit (GPU), initially purposed for rendering images, but now possesses capabilities beyond graphics cards. NVIDIA's hyper-fast GPUs are becoming a necessity in datacenters specifically for the function of developing deep learning and artificial intelligence (as I mentioned above). 

Datacenters are going to be king in a world headed towards cloud computing, and Nvidia's hyper-fast GPUs are becoming a necessity. CEO and founder of Nvidia, Jensen Huang, said in a recent press release that "NVIDIA AI is enabling breakthroughs in language understanding, conversational AI and recommendation engines ??? the core algorithms that power the internet today. And new NVIDIA computing applications in 5G, genomics, robotics, and autonomous vehicles enable us to continue important work that has great impact." 

NVIDIA completely controls the datacenter GPU market with no close competitors (despite AMD's attempts). This company is crucial to the discovery of true AI, which will be an inflection point in human understanding. NVDA chips can already be found in 8 of the top 10 supercomputers and 2/3rd of the top 500. 

Nvidia is also leveraging 5G with its anticipated cloud gaming platform. Just as cloud computing is the future of business data and analytics, cloud gaming is the future of gaming. NVIDIA is making a big bet in this field with its cloud platform, GeForce NOW. This platform allows gamers to use their Macs or PCs for gaming anywhere with NVIDIA's GPUs' high-speed, low-latency technology without needing NVIDIA's hardware locally. 

Nvidia's Recent Acquisition Announcement

Nvidia announced it would be acquiring Arm Limited from Softbank (SFTBY) in an all-stock deal for $40 billion back in September of last year with a closing timeline of 18 months. If this deal goes through, it will be the largest chip deal in history, but first, it must get past the 3 major regulatory authorities, including China, which could pose a challenge amid the reheating US-China trade war. 

Regulatory bodies are delaying this deal, which catalyzed the recently added concessions NVIDIA offered to appease EU regulators in the hopes of securing the necessary antitrust approval, which pushed ths deal's value up to $54 billion. The merger was originally expected to close in March of 2022, but that is beginning to look like an aggressive timeline considering pushback from regulators in the UK and China.

Nvidia's announced acquisition would significantly expand the enterprise's chip market control. Nvidia now primarily focuses on GPUs and is leveraging the technology's hyperfast computing power to develop "true AI." The purchase of Arm will give Nvidia a firm grasp on the CPU market and provide the combined company with a whole leg in the smartphone market door. 

This AI-juiced semiconductor powerhouse and its visionary CEO, Jensen Huang, have proven that Nvidia is a force to be reckoned with. Softbank's leader, Masayoshi Son, and his close ties with Huang catalyzed this ostensible "value deal" for Arm.

This deal includes a significant amount of NVDA stock, which I believe is a big part of the reason that Son is so excited about the sale. He believes in Nvidia with Jensen Huang at the helm and wants to see his transform this business into and wants to be a part of the action. 

If this deal does end up getting rejected, it would not be the end of the world for NVDA, as its current portfolio outlay is still poised for prolific growth. It would also mean that no other company could acquire Arm Holdings moving forward. Either way, NVDA wins.

Final Thoughts

NVIDIA is a stock that I believe every investor should have some exposure to. The stock is trading at a very frothy market valuation ($556 billion market cap) and could be subject to short-term volatility because of this. However, if you bought this today and forgot about it, I am confident that you would be blown away by how much it has yielded you in the next decade or even just the next few years. 

NVDA is currently trading over 6% below its average short-term price target and 35% below its most optimistic target. 23 out of 26 analysts are calling this a buy right now, and I couldn't agree more. 

The company debuted last year when it had its IPO in August of 2020. Since then, the stock became a favorite of the meme crowd, which caused a violent spike over $40 back in March. But the last few months have not been kind, with the stock falling to all-time lows last week.

However, there has been some buying interest with the recent market rally. And with estimates ticking higher, is it time for the stock to lift off?

About the Company

Rocket is headquartered in Detroit, Michigan and was founded in 1985. The company has a team of 26,000 employees and its flagship company, Rocket Mortgage has consistently been named one of the “100 Best Companies to Work For” by Fortune magazine.  

Rocket has a market cap of about $32 Billion and has Zacks Style Scores of “B” in Value but “F” in Growth. The Forward PE is 7, which makes it attractive to value investors.

Q2 Earnings

Rocket reported earnings in August, seeing results come in as expected. Revenue was a slight beat, but the company posted $0.46 v $0.46 expected. Adjusted EBITDA was lower year over year, but closed loan originations came in at $83.8B v the $72.3B.

The CEO commented that they are on pace to be the largest retail home purchase lender in the nation by the end of 2023. He added that their newer businesses Rocket Homes, Rocket Auto and solar program represent significant growth opportunities. 

The company has only missed once since becoming a publicly traded stock. Rocket next reports November 11^th and estimates have been ticking higher.

Estimates

Over the last 90 days, earnings estimates have jumped higher across most time frames. For the current quarter, we have seen estimates raised by 30%, from $0.37 to $0.48. For the current year, we have seen a 6% move higher in that same time frame.

Rocket Companies, Inc. Price and Consensus

Rocket Companies, Inc. price-consensus-chart | Rocket Companies, Inc. Quote

Value play and short Interest

The low PE makes this stock very attractive to value investors. Obviously, the market thinks that growth won’t be as rosy investors think. However, if the company does beat expectations, the bulls will be quick to jump in.

Additionally, the stock has a rather large short interest, with about 12 million shares short the stock. This is about 10% of the float, so any positive catalyst will force shorts to buy back the stock.

The Technicals

As mentioned above, the stock recently hit its all-time low just under $15. But the reaction from that level has been extremely positive. The stock snapped back to the $17 area, which is the 50-day moving average. Sellers showed up there, but if the bulls get above that level, we could get some short covering to the 200-day MA.

That 200-day is currently at $19.50, or almost 20% higher from current levels. We most likely need a catalyst to get there and perhaps earnings will be just that.

Bottom Line

Rocket continues to gain market share in the mortgage market and believe their goals for next year are achievable. This stock has been forgotten by the retail crowd, but next months earnings could bring interest back into the name.

The company is utilizing data to address pain points for its customers and in watching a company event I learned that the customers are often the ones that build on the platform.  The company will then share this “best practice” with other customers in an effort to improve the overall system.

Let’s take a deeper look at this stock in this Bull of the Day article.

Description

Health Catalyst Inc. is a provider of data and analytics technology and services to healthcare organizations. Health Catalyst Inc. is based in Salt Lake City, Utah.

Earnings History

When I look at a stock, the first thing I do is look to see if the company is beating the number.  This tells me right away where the market’s expectations have been for the company and how management has communicated to the market.  A stock that consistently beats has management communicating expectations to Wall Street that can be achieved.  That is what you want to see.

For HCAT, I see a good history of beating the Zacks Consensus Estimate.  There are four beats over the last four quarters.

The average positive earnings surprise over the last fours quarters works out to be 46%, which means the company is consistently posting good-sized beats of the Zacks Consensus Estimate. 

Earnings Estimates Revisions

The Zacks Rank tells us which stocks are seeing earnings estimates move higher.  For HCAT, I see estimates moving higher.

Over the last 60 days, I see a few increases.

This quarter has seen a one cent increase.

Next quarter has held still.

The full year 2021 is holding still right now as well.

Next year has seen an increase of 1 cent.

Positive movement in earnings estimates like that is why this stock is a Zacks Rank #2 (Buy).

Valuation

The company is running a loss so there is no forward PE to lean on.  I see 8x book multiple which is a little high.  The price to sales multiple is 10.2x, and that too is a bit high.  I say that as there is great growth of 37% in the most recent quarter.  This year the company is expected to post 23.5% topline growth and accelerate to 28.5% next year.  That year over year growth is just what we love to see from a name like this.  Throw in a few positive reports and this stock could easily be up triple digits a year from now.

Chart

Health Catalyst, Inc. Price, Consensus and EPS Surprise

Health Catalyst, Inc. price-consensus-eps-surprise-chart | Health Catalyst, Inc. Quote