Kohl's, Shopify, Canadian Solar, Sunworks and Sunrun highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – April 15, 2019 – Zacks Equity Research Kohl’s Corporation KSS as the Bull of the Day, Shopify SHOP as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Canadian Solar Inc. CSIQ, Sunworks Inc. SUNW and Sunrun Inc. RUN.
Here is a synopsis of all five stocks:
As Amazon has decimated the traditional retail landscape with its popular online marketplace, we’ve been hearing about the imminent demise of brick and mortar retailers for years. Old habits are hard to break however, and especially in the apparel business, many customers continue to prefer an in-person shopping experience.
Savvy traditional retailers like Kohl’s Corporation are actually adapting quite well to this new environment, restyling and re-sizing store locations and engaging in innovative partnership opportunities. Recent changes at Kohl’s allow the company to continue offering a wide variety of desirable brands in retail locations, and at prices that are competitive with online sellers.
Kohl’s calls the strategy to optimize retail locations “rightsizing” which means matching the square footage of stores to customer foot traffic and inventory needs. In some cases this means making the stores smaller, and stores that remain the same physical size still get optimized with new interior layouts but become “operationally smaller” through reductions in inventory and improved displays and fixtures.
Kohl’s also started a pilot program in to share five retail locations with Aldi Supermarket stores and recently added a plan to co-locate with 10 Planet Fitness Gyms.
These partnerships appear to be win-win situations in that they reduce one of the most significant cost for physical stores – rent - for Aldi and Planet Fitness, while encouraging more foot traffic for Kohl’s stores by being located next to businesses that still attract customers to physical locations and are naturally resistant to online competition.
The Planet Fitness partnership is also a good fit for Kohl’s renewed focus on Active/Athletic apparel which includes expanding into new categories like golf and outerwear. Active/Athletic sales at Kohl’s have doubled over the past four years and now make up 20% of business.
Kohl’s is also operating 13 experimental “Small Format” stores which – at 35,000 square feet – have 60% less physical space and also 60% less inventory than the standard size stores. The spaces are designed to be flexible and efficient and also serve as locations where customers can pick up (and exchange or return) purchases that they have made online through the company’s website.
These smaller stores will likely be key to Kohl’s partnership with the online giant itself – Amazon – in which Kohl’s will sell the Amazon Echo and other devices in 200 of their stores and also allow in person returns of products purchased on Amazon.
Returns and exchanges have remained a challenge for online retailers and many customers continue to prefer executing them in in person, rather than using the mail or shipping services. Kohl’s CEO, Michelle Gass describes the Amazon partnership (and specifically the returns initiative) as an opportunity for the two companies to “leverage each other’s strengths.”
After a difficult end to 2018 – along with the rest of the equity markets - a series of recent earnings beats has Kohl’s shares rising again, and future estimates continue to rise. All 10 of the analysts who’s coverage is included in the Zacks rank for Kohl’s have raised their expectations for the current fiscal year in the past 60 days, earning the innovative retailer a Zacks Rank #1 (Strong Buy).
On paper, Shopify looks like an ingenious business idea – to create and maintain tools that allow smaller businesses to compete with the giants, particularly Amazon, in online sales.
The burden of developing and maintaining a dedicated platform for online sales is an onerous task for small businesses, prohibiting them from taking on the proverbial “800 pound gorilla” in the space.
Shopify counts more than 800,000 merchants as customers who collectively sold over $40 billion worth of products and services last year. Shopify’s customers can also access applications for electronic advertising, shipping and data collection.
These cloud-based services are a lifeline for small businesses who simply don’t have the scale to handle all the aspects of the online marketplace on their own, and the tools that Shopify provides prevent a great deal of effort that would have been redundant - instead offering economies of scale to even the smallest merchants.
So what’s the problem? How can Shopify possibly be “Bear of the Day?”
Because they just don’t make very much money.
With net earnings of less than $0.05/share in three of the past four quarters, estimates of $0.41/share for 2019 and a stock price that’s seen rapid appreciation over the past two years, Shopify is trading at a sky-high level of valuation. It’s current 12M forward P/E ratio is just shy of 500X!
While it’s certainly possible for a young and growing company to thrive without producing net earnings – Amazon itself famously avoided worrying about the net number for more than a decade, furiously reinvesting revenues into expansion on it’s rise to becoming one of the biggest companies in the history of the world – it’s not clear that Shopify is on the same sort of trajectory.
Notable short sellers have targeted the company’s shares, citing the recent runup and questioning how many of Shopify’s customers are unique, active and profitable. The company doesn’t break out that data (though 800,000 does sound like an awfully high number.)
Shopify shares have gained more than 75% since the Christmas Eve selling flush in 2018 even as earnings estimates have moved in the opposite direction. With 14 downward earnings estimate revisions in the past 60 days taking the Zacks Consensus Estimate from $0.67/share down to $0.41/share, Shopify gets a Zacks Rank #5 (Strong Sell).
Shopify is one of those Bear of the Day stocks that seem almost like a good investment. There’s nothing wrong with the way they run the business and their core ideas have proven market value. The share price has simply come too far, too fast to be reasonably justified based on current forecasts.
3 Solar Stocks Worth Buying Ahead of Earnings Season
U.S. solar stocks started 2019 on a solid note, with growth projections provided by analysts in view of rapidly declining solar module costs and consequent increase in installations. This marked a dramatic reversal from 2018 when major policy changes by the U.S. and Chinese governments - the global solar leaders – created a topsy-turvy situation for solar players.
Coming to first-quarter performance, the industry outperformed the broader market. Evidently, the solar market gained a solid 28.9% in the January quarter compared with the S&P 500 Composite’s rise of 13.7%.
We have briefly mentioned some projections and the factors leading to such estimations. These should make investors confident about the below mentioned solar stocks’ capability to post strong first-quarter numbers.
A Solid Rebound
The U.S. solar industry experienced catastrophic loss of 26.9% in 2018 largely due to tariffs that were imposed on solar cells and modules. These tariffs caused a few cancellations of solar projects and obstructions in the industry’s growth trajectory. Per a report by The Solar Foundation, solar employment declined nearly 3.2% in 2018 from 2017. However, recent forecasts reflect increased chances of the market rebounding this year.
With a backlog of utility-scale projects and new policy incentives in key states, the outlook for solar jobs is expected to improve in 2019. Survey respondents predict that solar jobs will increase 7% in 2019. Per the latest insight report by the Solar Energy Industries Association (SEIA), total installed PV capacity in the United States is expected to rise 14% in 2019. We may expect the U.S. solar space to reflect similar growth trends.
Factors Driving Solar Growth
Deployment of utility-scale projects remains a major growth driver for the U.S. solar market. Moreover, decline in module costs due to a shift in Chinese feed-in tariff policy is driving procurement of utility-scale solar projects. Other growth catalysts include the technological advances made for battery storage and grid operators’ expanding toolset for renewable power integration. Such developments must have led Wood Mackenzie to lift its utility solar forecast for 2019 to 7.2 gigawatt-direct current (GWdc) from 6.9 GWdc.
With the help of the Zacks Stock Screener, we have identified three solar stocks that possess a favorable Zacks Rank and solid long-term earnings growth expectations.
Canadian Solar Inc., a manufacturer of solar PV modules, boasts a solid long-term earnings growth rate of 32%. It currently carries a Zacks Rank #2. You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sunworks Inc., a solar power systems provider, boasts a solid long-term earnings growth rate of 10%. It currently sports a Zacks Rank #1.
Sunrun Inc., a solar energy systems provider, has a solid long-term earnings growth rate of 20.8%. It currently carries a Zacks Rank #2.
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