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Activision Blizzard, Walt Disney, Amazon, Alphabet and Microsoft highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research

For Immediate Release

Chicago, IL – May 27, 2020 – Zacks Equity Research Shares of Activision Blizzard ATVI as the Bull of the Day, Walt Disney DIS asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Amazon AMZN, Alphabet GOOGL and Microsoft MSFT.

Here is a synopsis of all five stocks:

Bull of the Day:

Activision Blizzard shares have climbed 20% in 2020 as the coronavirus-induced stay-at-home push boosts the already-booming video game industry. ATVI’s quarterly financial results also wowed Wall Street on May 5 and its outlook is impressive within a space that’s poised to outperform during social distancing and beyond.  

First Quarantine Quarter

Activision Blizzard topped our first quarter fiscal 2020 earnings estimate by roughly 50%, with net bookings up 20% from the year-ago period at $1.52 billion. The company also raised its full-year outlook—which we will get to later—at a time when many companies are pulling their guidance due to uncertainty. ATVI closed Q1 with 407 million monthly active users.

Strength from both its Call of Duty and World of Warcraft franchises helped lift the firm. The company noted that Call of Duty: Modern Warfare recorded its highest sell-through for the franchise outside of a launch quarter.

ATVI also stated that “unit sell-through accelerated in March, driven by upgrades from Warzone as well as rising demand amidst shelter-at-home conditions.” Plus, “each of Blizzard’s key franchises experienced a month-on-month increase in MAUs in March as a result of shelter-at-home tailwinds.”

Activision Blizzard has experienced accelerating momentum in April, and executives said the coronavirus shouldn’t impact its product pipeline since the games can be worked on remotely.

CEO Bobby Kotick said on the company’s earnings call that it was “on track to deliver compelling new content, including the World of Warcraft: Shadowlands expansion and the next premium Call of Duty release,” in the second half of the year.

Meanwhile, ATVI’s esports organization has “quickly pivoted to remote production and continues to deliver live esports for both the Call of Duty League and the Overwatch League.” This could help grow the broader esports market at a time when traditional live sports are still struggling to come back.

Other Fundamentals

ATVI stock is up 20% in 2020 and 25% since the market’s March 23 lows. The stock is currently trading roughly 6% off its recently-reached 52-week highs at around $70 per share. Despite its recent climb, Activision Blizzard shares still have nearly 15% more room to run before they hit their September 2018 highs.

The nearby chart shows that ATVI has outpaced its peer group over the last five years, up 174% against 129%. ATVI is currently trading at 7.7X forward 12-month Zacks sales estimates, which is above its one-year median but below its highs of 8.1X.

Investors should also be pleased to note that Activision Blizzard’s $0.41 quarterly dividend payout is up 11% from 2019. ATVI’s 0.56% yield falls just short of the 10-year U.S. Treasury’s 0.70%, and its low payout ratio means the company will likely be able to continue to raise its dividend, while also investing in growth. And ATVI looks even stronger when we consider that rivals TakeTwo and EA don’t currently pay dividends at all.

Overall, Activision is set to benefit from the broader growth within the global gaming industry, which is projected to expand from $151 billion in 2019 to nearly $200 billion by 2022. And its Toys - Games – Hobbies industry rests in the top 6% of our more than 250 Zacks industries right now.

Outlook

Our current Zacks estimates call for ATVI’s adjusted Q2 earnings to soar 79% from the year-ago period to hit $0.68 a share. Meanwhile, second quarter revenue is projected to jump 40% to touch $1.68 billion, which highlights its expected quarantine strength. As we touched on earlier, Activision Blizzard raised its full-year fiscal 2020 revenue and earnings outlook on May 5.

The company’s fiscal 2020 sales are then projected to climb 10.6%, with its 2021 revenue set to jump another 8% higher. On the bottom line, Activision Blizzard’s adjusted fiscal year EPS figures are expected to climb 20.4% and 10.8%, respectively over this stretch. Investors can also see that ATVI’s bottom-line outlook has significantly improved since it reported its Q1 results, which is no easy task amid pandemic uncertainty.

Bottom Line

Activision Blizzard’s positive earnings revisions activity helps it earn a Zacks Rank #1 (Strong Buy) at the moment, alongside its “A” grade for Momentum in our Style Scores system. ATVI also boasts a strong balance sheet and investors might want to consider it as both a stay-at-home play alongside Netflix and others, as well as a longer-term bet on gaming.

Bear of the Day:

The coronavirus pandemic has dramatically impacted Walt Disney and it fell short of both our quarterly earnings and revenue estimates on May 5. Despite the entertainment conglomerate’s setbacks, Disney shares have soared over 40% since the market’s March 23 lows.

Quick Q2 Overview

Disney’s adjusted Q2 earnings tumbled 63% from the year-ago period to $0.60 per share, which missed our bottom-line estimate by 28%. DIS also estimated that the coronavirus drained “as much as $1.4 billion” from its operating-income line.

DIS did see its revenue grow 20%. But investors should note that this figure was boosted by the inclusion of its Fox deal and its Hulu ownership that were included for the first time in Q3 of fiscal 2019. For reference, Disney’s Q1 2020 revenue climbed 36%, with Q4 and Q3 FY19 up 34% and 33%, respectively.

Disney & the Pandemic  

These results highlight how much the stay-at-home push has hampered Disney’s various businesses. Both Disney World in Florida and Disneyland in California remain closed.

It’s worth pointing out that the company did reopen Shanghai Disneyland on May 11, with different safety measures in place. However, it’s somewhat hard to imagine the parks and resorts businesses booming anytime soon, even when they reopen in the U.S.

Meanwhile, movie theaters remain closed in many parts of the world—aside from drive-ins. This has forced Disney to postpone release dates on what it assumed would be blockbuster hits such as Mulan. And all of Hollywood is in the midst of serious production delays.

Furthermore, live sports have been off the airwaves for over two months now. That said, European soccer is slowly returning, and there are reports that the NBA—a key ESPN partner—might try to return this summer by utilizing some Disney facilities.

Wall Street was likely happy to see that the company said that it had 54.5 million Disney+ subscribers as of May 4, which is up over 20 million from the 33.5 million it reported for the quarter ended on March 28.

Disney+ is still far behind industry leader Netflix. But the early numbers show its promise and ability to compete in a competitive space.

However, production delays will likely negatively impact Disney+ programing. And Disney+, which launched in November, is still losing money and is expected to continue to for the next several years.

Outlook

Our current Zacks estimates call for Disney’s adjusted third quarter FY20 earnings to tumble from +1.35 in the year-ago period to a loss of -$0.31 a share. Peeking further ahead, its Q4 EPS figure is projected to sink 74%, with its adjusted full-year fiscal 2020 earnings expected to sink 64%.

Meanwhile, Disney’s Q3 revenue is projected to fall 34%, with the fourth quarter expected to sink 13.5%.  

Bottom Line

The nearby chart shows how far Disney’s earnings outlook has fallen. This negativity helps DIS earn a Zacks Rank #5 (Strong Sell) at the moment. Investors should also note that Disney announced that it “will forgo payment of a semi-annual cash dividend for the first half of fiscal 2020, given the significant operational and financial disruption caused by COVID-19.” The move is part of a larger effort to preserve cash amid the economic chaos.

Despite its setbacks, Disney stock has climbed over 40% since March 23 to top the S&P 500’s 32% climb and its industry’s 28%. Therefore, many on Wall Street might assume things will return to something close to normal for Disney as the global economy slowly starts to reopen. DIS stock is still down 16% in 2020 and 9% over the last year.

Some people might want to take a chance on the beaten-down powerhouse amid the uncertainty. And longer-term investors could easily look back in a few years and think Disney stock at roughly $121 is a steal. However, the near-term outlook remains rough and its recent climb might not be able to continue even if things go well on the pandemic front.

Additional content:

Amazon Focuses on Carbon Neutrality with 5 New Solar Projects

Amazon is leaving no stone unturned to achieve its carbon neutrality goals. This is evident from its continuous investments in renewable energy projects.

The company’s latest announcement of five new utility-scale solar projects is a testament to the same.

Notably, these projects will be based in the United States, China and Australia, which are equipped with a total of 615 megawatt (MW), will generate around 1.2 million megawatt hours (MWh).

The renewable capacity produced by the new projects will be utilized in supplying energy to the AWS data centers and Amazon’s fulfillment centres.

We believe the latest move bodes well for the company’s goal of utilizing 80% and 100% renewable energy by 2024 and 2030, respectively.

Amazon has been shifting focus from fossil fuels to clean energy for quite some time now. The shift to clean energy sources is anticipated to reduce costs in the near term, which is a major positive. Additionally, the company can generate healthy returns from strengthening solar and wind investments as there are several associated tax incentives.

Amazon’s Carbon Neutrality Drive

The latest move will reduce Amazon’s carbon footprint, which in turn will aid its commitment to save environment by leveraging renewable energy. This is in sync with the company’s aim to reach net zero carbon by 2040.

We note that Amazon’s China project that will be located in Shandong is a 100 MW one, which is likely to produce 128k MWh of clean energy annually.

Further, the new Australian project, which will be located in northern New South Wales, is a 105 MW solar project. It is likely to produce 250k MWh of clean energy annually.

Meanwhile, the new 80 MW and 200 MW U.S. projects will be located in Ohio. Additionally, the new 130 MW U.S. project in Virginia marks the company’s 12th renewable energy project in the state.

Notably, these projects reflect Amazon’s Climate Pledge commitment.

Carbon Neutrality Gaining Steam

Apart from Amazon, tech giants like Alphabet and Microsoft are also taking initiatives to adopt alternative energy sources to lower overall carbon emissions and cut energy bills substantially.

Google’s aggressive three-fold strategy, which includes energy efficiency, renewable energy procurement and carbon offsets, is a testament to its commitment to carbon neutrality.

Microsoft is also making every effort to become carbon negative by 2030. It inked two power purchase agreements with EDP Renewables North America LLC to work on a wind energy project based out of Paulding County, OH.

Nevertheless, Amazon strengthening carbon neutrality initiatives remain noteworthy. Apart from the latest move, the e-commerce giant recently announced four new renewable projects in Australia, Spain, Sweden, and the United States, which are expected to generate around 300 megawatt and 840k MWh of extra clean energy and renewable capacity.

Moreover, the company’s purchase order for 100,000 electric delivery trucks from Rivian remains a major positive. These emission-free vehicles will reduce carbon footprint further.

The total number of launched utility-scale wind and solar renewable energy projects of Amazon stands at 31 to date. Moreover, the total number of installed solar rooftops on fulfillment centers and sort centers stands at 60.

Further, the company has 91 renewable energy projects globally.

All these strong endeavors are expected to keep the company’s renewable energy game a step ahead of its peers.

Currently, Amazon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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