For Immediate Release
Chicago, IL – December 27, 2019 – Zacks Equity Research Spotify (SPOT) as the Bull of the Day, Columbus McKinnon Corp. CMCO as the Bear of the Day. In addition, Zacks Equity Research provides analysis on GreenTree Hospitality Group Ltd. GHG, American Outdoor Brands Corp. AOBC and Entercom Communications Corp. ETM.
Here is a synopsis of all five stocks:
Bull of the Day:
Shares of Spotify have surged 35% in the last three months and it crushed Q3 Wall Street estimates, posting surprise positive earnings. Spotify has also continued to expand its paid subscriber base in a crowded streaming music market and focused on new ways to grow.
Spotify helped jump start the paid streaming music space back in 2008 that has helped reinvigorate a music industry that long feared illegal downloads would take over. In fact, streaming represents roughly 80% of recorded music sales, according to industry reports, and Spotify is the world’s largest streaming music company.
Spotify beat Q3 2019 top and bottom line estimates at the end of October and reported adjusted earnings of +$0.41 per share, which destroyed our Zacks estimate that called for a loss of -$0.40 per share.
The streaming music powerhouse also posted its 8th consecutive quarter of positive free cash flow. And SPOT saw its total monthly active users jump 30% to 248 million, which outpaced the high end of its own guidance.
More importantly, the company’s vital Premium Subscribers—who pay monthly fees for ad-free music—surged 31% to 113 million. The growth was driven by the continued success of its $14.99 a month Family Plan and the $4.99/month Student Plans. This user expansion has helped curb some of Wall Street’s worries that Spotify’s much larger tech titan peers, including Apple and Amazon would make things far harder on the much smaller firm.
Tech Giant Competition
Apple Music has grown in popularity, but luckily for Spotify the iPhone giant hasn’t tired to undercut its pricing models with both their individual premium plans coming in at $9.99 per month. Meanwhile, Amazon’s premium streaming music service hasn’t gained as much steam as Jeff Bezos might have hoped. Meanwhile, Google and Pandora (owned by Sirius XM) are part of a larger group of third-tier players.
Overall, Spotify has been able to grow in the crowded and lucrative streaming music space compared to its rivals. Last quarter, Spotify said, “relative to Apple, the publicly available data shows that we are adding roughly twice as many subscribers per month as they are. Additionally, we believe that our monthly engagement is roughly 2x as high and our churn is at half the rate.” Spotify boasted similar claims about its superiority to Amazon.
Investors should also note that Spotify has invested heavily in its podcast business over the last year and it is now the second-largest player in the growing market behind only Apple. SPOT plans to increase its podcast unit to help bring in more advertising dollars as the division only accounts for 10% of its ad revenue. It is worth noting that 90% of the company’s total revenue currently comes from its non-ad supported Premium business.
But the Stockholm-headquartered firm’s paid-users still hear ads through podcasts that have ads as part of their own separate business model. “We continue to see exponential growth in podcast hours streamed (up approximately 39% Q/Q) and early indications that podcast engagement is driving a virtuous cycle of increased overall engagement and significantly increased conversion of free to paid users,” Spotify wrote in prepared Q3 remarks.
Spotify went public in April of 2018 and found early success. Then SPOT stock fell from August 2018 until near the end of the year. Shares of SPOT are now up 34% in 2019, 35% in the last 12 weeks, and 6% in the past month, all of which outpace the S&P 500’s average climbs.
Clearly, Spotify is still a growth stock, with its valuation still pretty out of whack as it spends to expand. But Wall Street seems okay with its focus on expansion in a crowded and growing space. Meanwhile, SPOT holds a “B” grade for Growth in our Style Scores system and it is part of an industry that rests in the top 30% of our more than 250 Zacks industries.
Outlook & Earnings Trends
Spotify’s Q4 fiscal 2019 revenue is projected to jump 22.6% to $2.09 billion, based on our current Zacks estimates (Spotify reports its sales in euros). Looking further ahead, SPOT’s full-year fiscal 2019 revenue is projected to surge roughly 28% to reach $7.56 billion, with 2020 projected to come in nearly 25% higher at $9.43 billion.
For reference, Spotify’s full-year fiscal 2018 revenue climbed 28.5%, which shows that the firm’s top-line growth is expected to churn along at a solid pace.
At the bottom end of the income statement, the firm’s adjusted quarterly earnings are projected to tumble from +$0.41 per share to -$0.48. Plus, Spotify’s full-year earnings are expected to sink from -$0.60 to -$0.90 a share as it spends on expansion. Then, peeking ahead, SPOT’s fiscal 2020 adjusted EPS figure is projected to improve significantly to a -$0.50 loss.
We can also see just how much more positive Spotify’s adjusted earnings outlook appears. The firm’s full-year fiscal 2019 estimate is up 50% in the last 60 days and 73% over this same stretch for 2020.
Spotify’s strong upward earnings revision trends help the firm earn a Zacks Rank #1 (Strong Buy) at the moment. SPOT does face tough competition, but growth-focused tech investors might want to take a bite out of Spotify because of its ability to thrive in an industry that looks poised to expand for years to come.
Bear of the Day:
Columbus McKinnon Corp. fell short of our quarterly estimates last quarter and its CEO will step down after less than three years in the top spot. On top of that, Columbus McKinnon faces a near-term downturn in the broader manufacturing and industrial sectors.
What’s Going On?
Columbus McKinnon is a leading manufacturer of motion control products, technologies, systems, and services that help industrial-focused firms of all shapes and sizes “efficiently and ergonomically move, lift, position, and secure materials.” Its portfolio includes everything from light rail workstations to hoists.
The Buffalo, New York-based firm is currently divesting some of its less profitable businesses. The company has also closed some of its facilities as part of its “80/20 Process,” which aims to simplify its business, reduce its operating footprint, and more.
This has helped Columbus McKinnon improve its gross margin and management is confident in its longer-term outlook. However, the company fell short our Q2 fiscal 2020 estimates in early November and it has been negatively impacted recently by “industrial market headwinds, higher medical costs, tariffs,” and more.
Then, on December 11, the company announced that chief executive Mark Morelli would step down from his role, effective January 10, 2020, to take over as CEO of Fortive's NewCo. The news took Wall Street by surprise because its stock tumbled roughly 11% in one day. CMCO’s chairman Richard H. Fleming will step in as interim CEO until the company finds a replacement.
Columbus McKinnon’s Q3 fiscal 2020 revenue is projected to slip 7.5% from the year-ago period to reach $201.06 million, based on our current Zacks estimates. Looking further ahead, the firm’s full-year sales are expected to fall 5.8% in 2020 and another 0.35% in 2021.
The company’s bottom line is also expected to dip in the third and fourth quarters of fiscal 2020, to the tune of -3.3% and -2.9%, respectively. Plus, the charts above and below show investors that Columbus McKinnon’s earnings outlook has trended in the wrong direction.
Columbus McKinnon’s negative earnings revision activity helps it hold a Zacks Rank #5 (Strong Sell) right now. The firm is also part of an industry that rests in the bottom 10% of our more than 250 Zacks industries.
Plus, a transition at the top is never easy, but one that comes amid a business overhaul and a near-term uncertain economic picture for the manufacturing space is even harder. Despite all of this, CMCO stock is up 32% in 2019 and 14% in the last three months and currently hovers right near its 52-week highs.
CMCO stock could be one to avoid for now based on its short-term uncertainty. With that said, some investors might want to leave Columbus McKinnon on their watch list given some of its fundamentals.
3 Beaten-Down Consumer Stocks to Bounce Back in 2020
The Consumer Discretionary sector is quite competitive and fragmented with companies vying for a bigger slice of the market on attributes such as price, products and speed-to-market. Undoubtedly, consumers remain the driving factor of the sector. An improving job scenario, rising wages and spiraling confidence are encouraging consumers to spend more. Falling interest rates have made borrowings cheaper for consumers.
Recently, the Commerce Department reported that consumer spending rose 0.4% at an annualized rate in November, the best rise since July. In fact, personal income increased 0.5% in November after rising 0.1% in October. Moreover, growth in income was strongest since August.
Americans continue to splurge, a tell-tale sign that the economy is growing at a steady pace. As consumers continue to remain confident about their well-being, it seems prudent to invest in stocks that are poised to grow on rising consumer spending.
However, one cannot ignore some facts. The sector has turned highly competitive. To gain market share, companies are constantly making investments to upgrade themselves and indulging in marketing as well as advertising activities. Again, the imposition of tariffs due to the U.S.-China trade war might hurt the near-term results of some companies in this industry. Any increase in price may compel consumers to hold back their discretionary spending.
Considering the aforementioned factors, if investors are eager to lap up opportunities in this volatile and speculative sector, a prudent move would be to buy the beaten-down stocks with encouraging fundamentals and solid earnings growth prospects. Here we have highlighted three stocks that have lost more than 10% year to date but still look well poised for 2020. These stocks carry a Zacks Rank of #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
3 Prominent Picks
Investors can count on GreenTree Hospitality Group Ltd., a franchised hotel operator. This Zacks Rank #1 company has a long-term earnings growth rate of 17.6%. The Zacks Consensus Estimate for earnings for the next financial year has remained unchanged at $5.82 over the past 30 days and indicates a sharp year-over-year improvement of roughly 20%. The stock has a VGM Score of B. We note that the stock has fallen 10.7% year to date.
American Outdoor Brands Corp., which is a manufacturer and seller of firearms and accessory products for the shooting, hunting and outdoor enthusiasts, is a solid bet with a VGM Score of A. This Zacks Rank #2 company has a trailing four-quarter positive earnings surprise of 9.1%, on average. Moreover, the Zacks Consensus Estimate for earnings for the next financial year has improved by 11.5% to $1.16 over the past 30 days and suggests year-over-year growth of 43.2%. We note that the stock has fallen 28.2% so far in the year.
You can also consider Entercom Communications Corp., a media and entertainment company, engaged in radio broadcasting business. This Zacks Rank #2 company has delivered a positive earnings surprise of 16.7% in the last reported quarter. Moreover, the Zacks Consensus Estimate for revenues and earnings for next financial year indicates year-over-year growth of 3.9% and 31.7%, respectively. The stock has a VGM Score of A. We note that the stock has fallen 15.3% year to date.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>
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