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Stock Insights And Opinions

Gap’s New CEO Revealed Her Game Plan to Turn Around the Struggling Company After...

  • After deciding not to spin out Old Navy into a stand alone company earlier this year, Old Navy CEO Sonia Syngal has been promoted to CEO of The Gap (announced March 5).  At Old Navy, Syngal had great success improving execution and driving $1 billion of incremental revenues from 2016 to 2019.
  • At The Gap her focus will be better execution, improved monetization of the brands, cutting costs, and and leveraging the company's large marketing base of 60 million active customers.
  • The past week, the company reported a strong 4Q with improved margins although there are macro related concerns for the balance of 2020.  The stock was up 7.4% on Friday.
  • Our Take: Syngal clearly has her hands full turning around The Gap.  On the one hand, there does appear to be material room for improved execution, although ultimately she needs to find a way to better drive sales trends through better merchandise which will be a challenge (although improved marketing should help).  Should be interesting to track.   

Adobe, DocuSign and Slack Suggest They Aren’t Seeing a Big Coronavirus Impact — For...

  • Subscription SaaS software business models seem to proving that they can insulate these companies from demand side market disruptions (like coronavirus).
  • Adobe and Docusign have traded up 8% and 4% respectively since reporting earnings the past month after beating 4Q estimates.  Adobe guided down slightly and Docusign raised guidance. Both management teams citing little to no impact from coronavirus.
  • In the case of Docusign, they think the virus may accelerate adoption to digital signatures. For Adobe, management does expect enterprise customers to delay new bookings and postpone some services.
  • While Slack stock has not held up trading down 8% since reporting a 4Q beat, but guided down slightly due to the macro.  This guidance surprised the market which had expected the company to be insulated from the impact of the coronavirus. Management also commented that its difficult to predict the conversion of "freemium" users to paying customers.
  • Our Take ... We are finding out why SaaS software companies get higher stock multiples.  They seem like good options with business models that are more insulated from the current environment, and likely to be leaders as the economic environment normalizes.

Two Companies Are Making Progress on Coronavirus Treatments. The Stocks Aren’t Responding.

  • Good update article that cites comments from Leerink analyst on progress of drugs at Gilead and Regeneron.  The article's title doesn't make much sense as the writer cites positive analyst comments on drugs in the pipeline and both stocks are way up from January/February lows, although off recently.  According to the analyst:
  • Early indications on Gilead’s antiviral drug Remdesivir, originally developed to treat Ebola virus, is the most promising treatment with what the analyst thinks are positive early studies in China and Korea.
  • The analyst also had positive comments on Regeneron noting it has three or four treatment strategies in the works, including an antibody cocktail that could work against different viral proteins using mouse technology.

Apple to Reopen All China Retail Stores

  • Closed since early February, Apple reopened its 42 stores in China as the government there begins to ease restrictions on businesses and the movement of people.
  • Separately, Wells Fargo upgraded the stock to OVERWEIGHT (see below).

Carnival’s Princess Cruises Reports Voluntary Pause Of Worldwide Ship Operations For 60 Days

  • While not surprising and understandable, it is still shocking to see a major company essentially shut down for 60 days. Princess Cruises  will be back in operation May 11.
  • Carnival corporation is down 11.9% and off more than 30% from its January high.
  • Viking suspended its operations until May 1.

9 Bank Stocks With Safe, Generous Dividends

  • While bank stock prices get crushed (down 30% this year) along with falling interest rates, yields can look attractive if you can take a longer view and likely take the short-term pain.
  • Importantly, analysts point out that bank dividends are generally safer than during the financial crisis. Lending standards have tightened up, banks are better capitalized, and years of stress testing have forced banks to prove their durability in scenarios such as the one we’re seeing now.
  • Payout ratios are generally 35% to 42%, according to Keefe Bruyette & Woods. The firm says these bank stocks have sustainable dividends with payout ratios below 75%.
  • Wells Fargo (6.3% yield), Citi (4.0%), Comerica (7.6%), Citizens (6.9%), Huntington (6.3%), Key Corp (6.1%), Cadence Bankcorp (8.4%), Umpqua (7.5%.

Tech Supply Chain is Recovering From Coronavirus, But Beware a Relapse

  • The tech supply chain has begun to recover in China as illustrated by Foxconn's announcement that its factories will be at 100% capacity by the end of March, if the epidemic doesn't worsen. Views are that while much of the lost business will flow over to a back-end loaded 2Q, it seems most believe that supply chain disruptions will flow into April.
  • From Bernstein: “We see further risk to numbers and sentiment, with both news flow and revisions likely to get worse before they get better in the near to medium term”.
  • Down market, obviously the demand side of the equation needs as sales of PCs and smartphones, has slowed down. It was noted by Wedbush that in China in February Apple sold 500,000 phones versus 1.27 million last year.

From Needham: Netflix Isn’t Immune to Coronavirus Impact

  • Netflix stock has held up through the coronavirus vs. other large cap stocks (and the S&P) the past month as the company is perceived to benefit from people sheltering at home.
  • Needham analyst Laura Martin has a different take.  She believes the economic impact from coronavirus domestically and internationally will impact Netflix's subscriber churn. Her view is that the Netflix service is a luxury which could be impacted by lower household income.
  • She also cites the company's high debt level which could be an issue if credit markets are impacted.
  • We are probably not on board with this call as seems to us a subscription model is preferable assuming the coronavirus doesn't impact long-term, but obviously we will see the coming months.

Airlines are Slashing Ticket Prices for Domestic Flights Amid the Coronavirus Outbreak — And...

  • In the face of the coronavirus and falling oil/jet fuel prices, airlines are cutting fares and change fees.  This is not new.  We are surprised by the magnitude of price cuts.
  • Last week, airlines dropped the average ticket price 14%, but with many destinations up to 35% (Miami, Las Vegas, New York).
  • Airlines are attempting stimulate leisure travel as corporations cut back on business travel.
  • The expectation is these price cuts will last into summer.

Regeneron: NBC News’ Lester Holt Goes Inside Lab Creating Potential Coronavirus Treatmen

  • One of the best stories from yesterday came from NBC News which showed the big science coming from bio-pharma company Regeneron which is the process of tackling the coronavirus.
  • The company is in the early stages of developing what could be both a cure and vaccine for coronavirus. Regeneron used a similar process and was the leader in the development of the vaccine for Ebola.
  • The simple description is that scientists expose mice to the virus without the ability to replicate (created by Regeneron scientists). The mice will develop antibodies to fight the virus, which will be tested and then scaled up for humans.
  • The company hopes that testing on humans will begin this summer.
  • Click through and watch the NBC News video story.