For Immediate Release
Chicago, IL – February 8, 2021 – Zacks Equity Research Shares of Zoom Video Communications, Inc. ZM as the Bull of the Day, FireEye, Inc. FEYE as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Ford Motor Company F, Magna International Inc. MGA and NIO Ltd. NIO.
Here is a synopsis of all five stocks:
Bull of the Day:
Remote work and schooling thrust Zoom Video Communications into the spotlight last March and its stock soared for months. The video conferencing platform’s shares have pulled back significantly since October, and Wall Street is currently assessing how the rollout of the coronavirus vaccine will impact Zoom.
Despite one-hit-wonder worries, Zoom was growing before the lockdowns. And no matter what the world looks like by the summer, it seems relatively safe to say that more people will be working remotely in at least some capacity, as the long-talked about work-from-anywhere business environment begins.
Video Conferencing Future
Zoom had steadily grown its business-focused video communication platform since its founding in 2011, within a somewhat crowded space. The company then went public in April 2019 and found early success, before falling back to its early trading levels by the end of 2019. Still, ZM posted strong growth in its first year as a public company, with its fiscal 2020 revenue up 88% to $623 million for the period ended on January 31, 2020.
Then the world changed as lockdowns and social distancing forced companies and people everywhere to find ways to continue working and stay in touch. The company’s relatively easy to use cloud-based video conferencing offerings that can be used across an array of devices became a hit and a verb nearly overnight.
Luckily, ZM’s revenue comes from subscription-based paying customers, which means it doesn’t really matter that many people stopped doing family and friends Zoom calls months ago. The company offers an array of communication services and various tiers geared to different size businesses, as well as educational-focused offerings.
Even as more people return to offices around the U.S. and the world, Zoom’s offerings are still being utilized nearly non-stop in the current remote work and learning environment. And the possibility of businesses remaining in their current remote capacity in the near-term is realistic, especially for many professional services firms in big cities, where public transportation, elevators, and more hamper reopening plans.
What’s Next?
Hopefully the vaccines help life return to something far closer to normal later this year. This means that Zoom’s long-term success hinges on the official arrival of the work-from-anywhere age.
The U.S. economy is bouncing back and corporate earnings have come in far better-than-projected, even as millions of people continue to work from home. The reason is simple: so much work was being done digitally already and the proliferation of business software, SaaS, cloud computing, and more created a relatively seamless transition.
This could propel companies to permanently cut back on rent and commercial real estate expenses. Some big companies have already committed to larger-scale remote work plans and hybrid environments. And something like three days in the office and two out, could become permanent.
The pandemic might have also helped normalize fewer work trips, which offers companies the chance to save money. And as the clean energy push grows, firms might use business travel as a simple way to reduce their environmental impact—ZM highlighted the green angle before the pandemic.
Zoom knows that the current environment won’t last forever, but executives are already pretty sure the business world might have reached an inflection point. Zoom has introduced hardware offerings for homes and offices in collaboration with other tech companies. And on February 3 it announced “the general availability of Zoom Rooms innovations that will help organizations safely re-enter the office and sustain an “everywhere workforce.”
Other Fundamentals
ZM is ready to help companies with a hybrid environment and it cited a study that over 80% of employees working remotely hope to continue to “work remotely at least 50% or more once they do return to the office.” It’s not just Zoom talking up the possibilities, Verizon bought video conferencing firm BlueJeans last year and Salesforce paid $28 billion for Slack—which is the second-largest deal in software history.
Zoom’s revenue jumped by 80% in Q4 FY20 (before the pandemic), it then soared 170% in Q1, 355% in Q2, and 367% last quarter. ZM saw its customers with more than 10 employees skyrocket 485% to over 433,000, while its users contributing over $100,000 in trailing 12 months revenue jumped 140%. And executives provided upbeat guidance in early December.
Zacks estimates call for Zoom’s adjusted Q4 earnings to jump 420% to $0.78 a share on 330% stronger sales. The company is then projected to grow its sales by 153% in the first quarter of FY22 to lift its bottom line by another 270%.
Overall, the video conferencing firm’s full-year fiscal 2021 earnings are projected to climb 725% from $0.35 a share in the year-ago period to $2.89. Meanwhile, its pandemic-fueled year is expected to help its revenue climb 314% from $623 million to $2.58 billion.
Clearly, it would be nearly impossible to come anywhere near matching FY21’s growth. Nonetheless, Zoom’s sales are projected to jump another 37% or $1 billion above our current year estimate to $3.53 billion in fiscal 2022 and its adjusted earnings are projected to climb slightly.
As we mentioned at the top, ZM shares have come back to earth over the last few months, down 35% from its October highs of over $570 a share to around $390 at the close of regular trading Thursday. The pullback has created opportunity for Zoom and proven there’s still appetite.
ZM raised $2 billion by selling more stock at $340 a share in an offering that closed in mid-January to help support its rapid expansion and help it fight against Cisco’s Webex, Microsoft’s Teams and others.
ZM stock has climbed 15% since January 12, and Zoom remains far from overbought in terms of the Relative Strength Index, with ZM sitting at around 53—an RSI above 70 is often regarded as overbought, with any number below 30 considered oversold.
Analysts have also remained high on Zoom, with the current consensus price target Zacks has accumulated at $468 a share, 20% above its current levels. And the stock has broken above its 50-day moving average to start February after failing to break through the resistance level twice in January.
Bottom Line
Zoom’s positive earnings revisions help it land a Zacks Rank #1 (Strong Buy) at the moment, alongside its “A” grade for Growth in our Style Scores system. The company has topped our bottom-line estimates by an average of 90% in the trailing four quarters and it will report its Q4 results on March 1.
Bear of the Day:
Fireye recently slipped to a Zacks Rank #5 (Strong Sell) and I am making it the Bear of the Day today. I am not doing that because I believe this is a bad stock, I am doing it to show how the Zacks Rank works. Too often I select stocks that are out of the public eye, names that are under the radar… but FEYE is not a name like that. So let’s take a look at what all this means and if there are any insights that can be learned from this article.
Description
FireEye, Inc. provides cybersecurity solutions to prepare for, prevent, investigate, respond to, and remediate cyber-attacks in organizations. The company provides network, email, endpoint, and cloud security solutions, as well as customer support and maintenance services. It also offers Helix Security Platform, a cloud-hosted security platform; Security Validation Platform against cyber attacks; Dynamic Threat Intelligence cloud, a bi-directional cloud-based service; and Mandiant Threat Intelligence that offers subscriptions to threat intelligence reports to organizations for defending cyber threats. FireEye, Inc. was founded in 2004 and is headquartered in Milpitas, California.
Earnings History
Any time I look at a stock I start with the earnings history. The basic question is whether or not management can guide Wall Street to an appropriate level. Management needs to set high expectations, but not too high that cannot be achieved. That is a skill set all on its own, but recall that disappointing the Street can have disastrous consequences.
I check the detailed estimates page of the Zacks website (https://www.zacks.com/stock/quote/FEYE/detailed-estimates) to check the Surprise History.
For FEYE, I see a great history of beating the number. Four of the last four quarters have the company topping the Zacks Consensus Estimate. The Zacks Consensus Estimate is the average of all the analysts estimates that are either submitted to Zacks from other brokerages or independent research boutiques.
What I like to see here is that the beats are generally of good size. There was one monster beat three quarters ago when the company posted a gain of 9 cents when the estimate was calling for a loss of 2 cents, so that 550% positive surprise does skew the average.
The Zacks Rank does look at the earnings history, but it really focuses much more on the revision of earnings estimates.
Earnings Estimate Revisions
After looking at the estimate revisions, I scroll higher on the “Detailed Estimates” page (https://www.zacks.com/stock/quote/FEYE/detailed-estimates) and look at the Magnitude – Consensus Estimate Trend section. That shows me how estimates for the current quarter, next quarter, current year and next year estimates have changed over a period of 90 days, 60 days, 30, days and one week ago.
For FEYE I see the current quarter and next quarter holding still over the last 90 days.
The full year numbers do see a little shuffling around. The current year saw a 2 cent increase from $0.34 to $0.36 over the last 30 days. That is something we want to see and should help the Zacks Rank.
Next fiscal year has seen estimates fall. Not by much, but really there were two revisions lower. The estimate for 2022 stood at $0.43 30 days ago, then slipped to $0.42 a week ago and is now $0.41. Those are small moves lower, but still they are lower and most stocks are seeing earnings estimates move higher.
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Valuation
Valuation is purely subjective and does not impact the Zacks Rank. That said I always take a quick look at things like the forward PE which is at 59x for FEYE. That is a little high – in that nifty fifty style range – and reasonable if there is good growth. Thing is I see only 5% topline growth in the most recent quarter (on an annual basis) and estimates are calling for only 7.5% topline growth in 2021. The price to book of 7.3x is pretty good for an asset slim business like this sot that is ok with me. I also believe the 5x price to sales multiple is in a reasonable range.
Margins are where I get a little worried. I see 64% gross margins and for a name like this I would want that number to be much closer to 80%. Operation and net margins are negative and that is not something that excites me.
All in all, FEYE needs to show more growth and improve its execution to drive higher earnings. That will really justify the high forward earnings multiple and probably attract more investors to its stock.
Additional content:
3 Stocks to Watch as Electric Vehicles Gain Traction
The electric vehicle (EV) revolution has begun and 2021 could be a bombastic year for electric car makers and related companies globally. While the fight against the pandemic continues, global warming concerns keep bothering countries across the globe. President Joe Biden has already made EVs and green initiatives a top priority for the United States and supports the rollout of EVs with big tax incentives and government funding.
EV Revolution Push Auto Giants to Pivot
The EV industry is young and growing rapidly. The number of pure-play EV manufacturers compared to traditional automakers is significantly low. However, traditional automakers are also producing electric vehicles and investing millions to catch up with the conversion. On Jan 28, General Motors reported that it plans to end production of all diesel and gasoline-powered cars, trucks and SUVs by 2035. The automaker will shift its entire new fleet to EVs as part of a broader plan to become carbon-neutral by 2040.
Many other automakers are also joining the race like German auto giant Volkswagen topped EV sales in Norway last year leaving Tesla in second position. Tech giant Apple is also venturing into the electric car race. On Feb 3, Korean automaker Kia Motors reported that Apple will invest $3.6 billion in Kia as part of a deal to build Apple cars in Kia’s U.S. factory.
Per a EV-Volumes.com report, 2020 had been a great year for plug-in vehicles, it generated sales of 3,24 million, compared to 2,26 million in 2019. The report also states that EV sales in the United States outperformed the automarket, thanks to the introduction of the Model-Y by Tesla.
As said in the article, the EV market is dominated by Tesla, which had 62% of all Plug-in Vehicle sales and 79% of all BEV sales in America. Looking at the future, IHS Markit forecasts global EV sales to growth of 70% in 2021 and in 2025 global sales will top 12.2 million, at a CAGR of 52%.
Biden’s Administration to Support EV Adoption
Just after the inauguration, President Biden signed an executive order to rejoin the Paris agreement on climate change, which Trump had withdrawn from the agreement in 2017. To tackle global warming and move quickly on climate change action, he directed the administration team to consider revising vehicle-fuel emissions standards.The Trump administration had cut down emissions standards, weakening the climate rules in favor of fossil fuel producers.
Biden has prioritized climate change and that includes giving consumers incentives to adopt electric vehicles. In the current scenario, consumers can get a federal tax credit of up to $7,500 on the purchase of an all-electric or plug-in hybrid EV but the facility is not available for all EVs.
However, Biden’s administration supports “cash for clunkers” rebate program. This would encourage car buyers in America to trade their older vehicles for new EVs. This will help in rapid conversion of high carbon footprint creating vehicles and boost sales of EVs.
According to the U.S. Department of Energy, the United States currently has less than 29,000 public EV chargers, which cannot cater to the entire country’s needs. To counter the deficit, Biden has promised public investment of $400 billion in clean energy to boost battery technologies and electric vehicles. A part of that investment will also be used in installation of 500,000 new EV charging outlets by the end of 2030.
3 Stocks to Watch Out For
The advancement of technology, rising concerns over global warming and government’s initiatives to support clean energy will play a crucial role in boosting the EV market. Here are three EV and related stocks that investors can look out for.
Ford Motor designs, manufactures, markets, and services a range of Ford cars, trucks, sport utility vehicles, electrified vehicles, and Lincoln luxury vehicles. The company plans to invest $29 billion in electric and autonomous vehicles. Ford’s expected earnings growth rate for the current year is more than 100% compared with the Zacks Automotive – Domestic industry’s projected earnings growth of 26.5%.
The Zacks Consensus Estimate for the company’s current-year earnings has been revised 20.7% upward over the past 60 days. Ford flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Magna International designs, develops and manufactures automotive systems, assemblies, modules and components. The company is forging production partnerships with LG Electronics to supply electric motors, inverters and onboard chargers and many more. Magna’s expected earnings growth rate for the current quarter is more than 100% compared with the Zacks Automotive – Original Equipment industry’s projected earnings growth of 24.9%.
Magna flaunts a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved 5.2% up over the past 60 days.
NIO Ltd. designs, manufactures and sells electric vehicles. The company that belongs to the Zacks Automotive – Foreign industry has an expected earnings growth rate of 33.9% for the current year. The Zacks Consensus Estimate for its current-year earnings has moved 8.9% up over the past 60 days. Nio carries a Zacks Rank #3 (Hold).
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