DBX, AMC, TSLA and AAPL as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – August 28, 2020 – Zacks Equity Research highlights Dropbox DBX as the Bull of the Day and AMC Entertainment AMC as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Tesla, Inc. TSLA and Apple Inc. AAPL.
Here is a synopsis of all four stocks:
Dropboxa pioneer of cloud storage. Having been an early mover in the cloud-computing market in 2007, it's been able to sustain a sizable market share of this proliferating segment. Dropbox has been operating in a rapidly saturating space, which has caused its stock to take a hit since it went public in early 2018, but now may be the perfect opportunity to jump into this overlooked cloud-computing name.
Analysts have been driving up their estimates following Dropbox's excellent Q2 results (posted earlier this month), pushing DBX into a Zacks Rank #1 (Strong Buy).
Since Dropbox's digital inception in 2007, the enterprise has become much more than just a cloud storage service. It is now a smart workspace platform with capabilities ranging from project management to document workflow. Dropbox is attracting new customers with its open ecosystem, allowing businesses to link third-party applications to this platform's agile workspace. These third-party applications include Salesforce and Adobe, along with a cornucopia of other highly utilized enterprise solution applications.
Since Dropbox went public just over 2 years ago, it has increased its paying user base by over 30% to 15 million. The platform has north of 550 billion pieces of content and more than 600 million registered users, with 80% of its subscribers using this service for work. Dropbox's conversion from registered users to paying users has grown since it went public, and I anticipate this conversion rate growth to continue as the business develops.
DBX has fallen under the radar after a bumpy first year, but it may be an excellent time to jump into the secular tech expansion without the fear of buying the peak. The world's rapid digitalization in 2020 has conditioned society to rely on cloud technology for daily functionality, whether it be to learn, work, or to be entertained.
Financials & Performance
The pandemic has provided all cloud players with a strong tailwind, and Dropbox is no exception. 2020 has propelled DBX into strong profitability after 13 years of a bottom-line deficit. The enterprise has continued to produce robust cash-flows since it went public in 2018 and has a fortress of a balance sheet.
The $1.1 billion in cash combined with its reliable cash-flows from its subscription services, gives the firm enormous financial flexibility for continued organic growth and strategic acquisitions. Dropbox's recent purchase of e-signature company HelloSign (closed in January of 2019) for $230 million broadened its portfolio of services and was well-timed as online document signing has taken off in 2020.
DBX has continued to outperform analysts' conservative expectations, yet the shares have only appreciated 12% this year, far underperforming its constituents in the tech-driven Nasdaq 100 by 22%. DBX has tested its February highs of roughly $23.70 three separate times since the pandemic trade began and failed to breakthrough. These shares are poised to soar through this level next time it is reached as they bounce off their 200-day moving average (shown in the TradingView video below).
6 out of 7 analysts call this stock a buy today with an average price target of $28 per share, representing a roughly 47% upside from the $20.30 it's trading at today. I would not hesitate to pull the trigger on this uncovered cloud-computing pioneer.
The movie industry is in duress, and theaters are getting the brunt of the blow. The movie theater space has been suffering for years as many consumers favor streaming from the comfort of their own homes to making the long trek to their local theater.
AMC Entertainmenthas been fighting this trend with everything they have, including a subscription-based offering. The pandemic may have put the nails in the coffin for this seemingly dying movie theater giant. Analysts have been slashing their EPS estimates to a deeper bottom line deficit for years to come, pushing AMC into a Zacks Rank #5 (Strong Sell).
Death By Streaming
Movie theaters are treading water in the video streaming economy today, hitting the media segment like a tidal wave. Subscription streaming services keep providing more and more content for seemingly unlimited viewing pleasure. There is no longer a necessity to go to the theater for entertainment, with the explosion of new streaming services completely disrupting the space.
Those film connoisseurs are still out there who want to see every movie right when they hit the silver screen, but they don't need AMC's massive empire of theaters to do so. There are enough local arthouse and boutique theaters to meet recently niched consumers’ needs.
Pandemic's Nails In The Coffin
AMC hasn't posted an annual profit (on an adjusted basis) since 2016, and every year it seems to be falling deeper into the hole. This pandemic may have been the straw that broke this theater chain's back with all its locations forced to shut down temporarily.
This movie giant, unsurprisingly, had its worst 6 months in history this year. It illustrated massive topline declines and a 2-quarter deficit of $2.7 billion, which almost quadruples all of the enterprise's annual profits combined (at least since 2013 when the company went public).
AMC has been fighting to avoid bankruptcy throughout the first half of 2020, renegotiating almost all its global leasing terms and raising $500 million in a desperate bond issuance. These bonds were not only first-lien secured but yielded investors 10.5%, not to mention being sold at a discount of 98 cents on the dollar. These were extremely unfavorable terms for this theater chain, but this extremely unfavorable economic climate forced their hand.
These bonds' value slid significantly in the months that followed its issuance as its rating fell deeper into probable default territory. AMC's bonds are currently rated Caa3 on Moody's scale, meaning that default is imminent with little prospect for recovery.
AMC shares boomed over 16% yesterday as speculative traders look for a reason to buy this seemingly "cheap" stock as the chain reopening an additional 170 locations. I wouldn't touch this stock with a 50-foot pole.
This stock currently has no buy ratings and is trading 78% above the average price target. It's being valued at 30% more than even its most optimistic target. Beware of these toxic shares.
Will Stock Splits Send Tesla and Apple Stocks Soaring Higher?
Much of the buzz on Wall Street these days is about Tesla, Inc. and Apple Inc. stock splits. Tesla’s shares have already soared 35% since the stock split announcement on Aug 11, propelling the electric car maker’s market valuation to $401.2 billion as of Aug 26.
Tesla will split its stock on a 5-for-1 basis. The Silicon Valley car maker’s stock currently trades above $2,000 a share, and following the split it should drop to around $400.
The company said that the move is aimed at making “stock ownership more accessible to employees and investors.” After all, Tesla’s share prices have more than tripled so far this year, making it exhorbitant for millennials and retail investors. Tesla, nevertheless, will start trading on a split-adjusted basis from Aug 31.
Similarly, Apple’s shares have jumped more than 25% since the announcement. Apple will split its stock 4-for-1, which implies that its existing shareholders will receive three additional shares for each share they currently hold. But most importantly, Apple’s stock price will drop to $125 a share after the split from the range current $500. This will thus make Apple’s stock available to a wider of investors.
But will Tesla and Apple’s stock price dip attract investors and in turn help their shares scale even higher? One thing is for sure that the stock split hasn’t changed their market cap, neither has it raised any alarm about their underlying fundamentals. Both the companies are doing pretty good lately, which gives all the more reason to keep an eye on these stocks.
Several analysts have already praised Tesla’s cash reserves, the increase in demand for its electric vehicles and its Rising Model 3 deliveries, which form a major chunk of the automaker’s overall deliveries.
Tesla is also making continued efforts to increase vehicle deliveries. Last year, Tesla delivered 367,500 vehicles, an increase of 50% year over year. And for this year, Tesla maintains the target of exceeding 500,000 vehicle deliveries despite the recent production interruptions amid the coronavirus pandemic. Higher volumes should eventually help Tesla achieve cost and production efficiencies, thereby strengthening its profit margin.
Thus, the company’s expected earnings growth rate for the current year is more than 100%, while its projected growth rate for the next year is 67.9%. In fact, the Zacks Rank #3 (Hold) company’s shares have already outperformed the broader Automotive - Domestic industry so far this year (+414.7% vs +129.8%). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
When it comes to Apple, the company recently became the first publicly traded U.S. company to breeze past a market cap of $2 trillion. The company, no doubt, has proven to be resilient to the coronavirus pandemic, and it still generates more than 80% of revenues by selling high-priced devices, primarily made in China, where the virus first broke out. By the way, combined revenues for all those high-priced devices jumped 10% year over year in Apple’s most recent fiscal quarter ended Jun 27.
And let’s admit, an almost $2-trillion valuation shows that market pundits expect almost nothing to go wrong for this tech behemoth, and are willing to pay a hefty sum for its shares. After all, despite issues, the social-distancing environment will continue to fuel growth in the segment that includes the App Store and Apple Pay. Even though Apple saw widespread retail closures in recent times, work-from-home trends and strong online sales will continue to boost overall operations.
Apple currently boasts more than 550 million paid subscribers across its Services portfolio. Further, the App Store continues to draw the attention of prominent developers worldwide, helping the company offer appealing new apps that drive App Store traffic.
Thus, the Zacks Rank #1 (Strong Buy) company’s expected earnings growth rate for the current and next year is 8.7% and 23.8%, respectively. Apple’s shares have outpaced the broader Computer - Minicomputers industry year to date (+72.3% vs +70.7%).
Having said that, history is on the side of Tesla as well as Apple. According to online broker eToro, for decades, big brand names have on average witnessed a 33% rally, a year after splitting their stock. While Apple will be splitting the stock for the fifth time in its history, it will be the first time for Tesla. And in the case of Apple, its shares have gained on average 10.4% in the following year, with its four previous splits.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
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