Author: The INO.com Team

What Does Uber’s $7 Billion Share Repurchase Plan Mean for Investors?

Posted on by The INO.com Team

Uber Technologies, Inc. (UBER) recently announced a stock buyback strategy for the first time in the company's history. The company's board of directors had authorized $7 billion in share repurchases. Investors cheered the plan, evidenced by UBER’s share price rise of about 14% on February 14, despite the nationwide strike staged by Uber drivers demanding fair pay.

UBER’s Chief Financial Officer Prashanth Mahendra-Rajah said the repurchase plan “is a vote of confidence in the company’s strong financial momentum.” He added, “We will be thoughtful as it relates to the pace of our buyback, beginning with actions that partially offset stock-based compensation and working toward a consistent reduction in share count.”

UBER joins the league of tech companies, planning initiatives to enhance shareholder returns. Also, last week, the company’s CEO, Dara Khosrowshahi, said 2023 was an inflection point, marking a possible capital return to shareholders.

Stock repurchases allow firms to utilize their cash reserves to buy back their shares from the market. This reduces the total number of outstanding shares and escalates the ownership fraction for existing shareholders. Consequently, net earnings are divided among fewer shares, leading to an enhancement of earnings per share. Such a buyback could escalate UBER's Return on Equity, a parameter highlighting the proficiency with which a company generates profits from its equity.

As of December 31, 2023, UBER had expended $1.94 billion on stock-based compensation. Furthermore, in conjunction with the share count reduction, the recent buyback was aimed at counterbalancing the equity-based compensation.

The buyback revelation arrived hot on the heels of UBER's fourth-quarter results announcement, surpassing Wall Street's top- and bottom-line predictions. Khosrowshahi referred to 2023 as a landmark year of "sustainable, profitable growth" for UBER and credited this success to a shift in consumer expenditure from retail to services.

Furthermore, special mention goes to UBER’s fiscal earnings of 2023, marking its debut annual profit since its public listing. The San Francisco-based company recorded a $1.89 billion net profit on revenue worth $37.28 billion for the year ending December 31, 2023. Its operational income was $1.11 billion, compared to a loss from operations of $1.83 billion. Moreover, adjusted EBITDA increased 137% year-over-year to $4.05 billion.

UBER’s mobility segment revenue for the fiscal fourth quarter of 2023 was up 34% year-over-year, primarily attributable to the expansion of mobility gross bookings triggered by a 24% year-on-year elevation in trip volumes. Its delivery segment’s revenue was up 6% from the year-ago quarter.

For the fiscal first quarter of 2024, the company anticipates its gross bookings between $37 billion and $38.5 billion, while its adjusted EBITDA is projected to come between 1.26 billion and $1.34 billion.

The company announced new long-term financial targets indicating an anticipated surge in bookings, adjusted pre-tax earnings, and free cash flow that surpasses previous predictions.

The company expects its Gross Bookings (GBs), driven by a rise in Monthly Active Platform Consumers (MAPCs) and increased usage frequency, to experience mid-to-high teen CAGR growth over the following three years. Concurrently, it projects a high 30s to 40% adjusted EBITDA CAGR rise for the same period, achievable through scaling GBs and realizing annual margin expansion within both the Mobility and Delivery segments. The lower limit of the company's target implies a potential increase in free cash flow, amounting to approximately $9.3 billion in 2026, a near-tripling from last year's total.

Furthermore, UBER anticipates its FCF conversion to surpass 90% of adjusted EBITDA, inclusive of insurance reserve adjustments. Cash tax is predicted to be substantially below the accrual due to loss carryforward utilization.

These financial projections have fortified analysts' optimistic views on the company's potential for enhancing MAPCs and platform frequency, intensifying even more bullish analyses. Wedbush analysts, for instance, have raised their 12-month price target to $85. Gerber Kawasaki Wealth and Investment Management’s CEO and president, Ross Gerber, who is also an investor in the company, has commended it as a "fire-breathing dragon."

Echoing these positive sentiments, New Street Research Analyst Pierre Ferragu affirms UBER's growing strength in the ride-hailing market, saying, “Uber is really playing out the way we were expecting," and maintains a ‘Buy’ rating on the company's stock.

Wall Street analysts expect the stock to reach $80.41 in the next 12 months, indicating a potential upside of 1.6%. The price target ranges from a low of $62 to a high of $95.

Bottom Line

Once a noteworthy unicorn of Silicon Valley, UBER was previously valued much less than its present value, providing artificially inexpensive taxi and food delivery services.

However, a change of management, an initial public offering, and a climate unfavorable to unprofitable market share pursuit prompted UBER to revise its strategies.

Much of UBER's transformation occurred under Dara Khosrowshahi, the former chief executive of Expedia Group Inc., who took over from co-founder Travis Kalanick in 2017. Kalanick's assertive leadership style incurred UBER a reputation marred by extravagant spending, PR disasters, corrosive workplace culture, and a combative relationship with local authorities.

Khosrowshahi redirected UBER beyond its cornerstone ride-sharing into sectors like restaurant and grocery delivery and advertising, subsequently enhancing profit margins.

The pandemic made a business re-evaluation necessary, as stay-at-home measures dampened ridesharing demand. Transitioning toward a more asset-light model, UBER divested its loss-incurred bike and scooter ventures and scaled down its capital-intensive autonomous vehicles division. Meanwhile, investment in the Uber Eats service allowed it to benefit from the lockdown-induced surge in food deliveries despite the slump in shared rides. This transition vastly strengthened UBER's market value last year, which escalated to over $162 billion following February 14 gains.

UBER has effectively utilized economies of scale in various markets domestically and globally, aiming for further expansion into sectors like delivery, inexpensive ridesharing options such as two-wheelers, and corporate travel products.

Another sign of UBER's improving financial health is the initiation of stock buybacks after years of amassing a $30.59 billion accumulated deficit due to unrestrained spending aimed at gaining market share and penetrating new markets.

Dividends may be forthcoming, but for now, the beginning of buybacks suggests the company might not be just a conventional tech startup depleting its cash reserves with limited results.

The buyback strategy could convey to market watchers that UBER perceives its shares to be undervalued and that it possesses robust financial prospects. By returning capital to shareholders, the company could bolster investor satisfaction and loyalty while attracting investors seeking greater returns.

The recent surge in growth and profitability implies a positive turnaround for the company. Its share price is nearing record highs concurrent with continuing revenue expansion.

Projections of an increase in orders starting from early 2024 underscore the expected continuity of the upward trend. UBER's bottom line appears to have been favorably impacted by cost control measures and economies of scale. The upward trend is expected to continue, provided the company remains on its current path and keeps up with developments in the autonomous driving sector.

Beyond its positive attributes, investors should take heed of UBER's Quick Ratio, which stands at 0.93. This could suggest a potential shortfall in quick assets to cover all its short-term liabilities. As of December 31, 2023, the company also exhibited long-term debt amounting to $9.46 billion. Against this figure, it holds cash, cash equivalents and short-term investments worth $5.41 billion, a factor not to be overlooked by investors.

Unraveling MSFT's Market Dominance: Investor Strategies Amid Record Valuation

Posted on by The INO.com Team

Microsoft Corporation (MSFT) achieved an exceptional milestone when it ended last week with a market capitalization of $3.125 trillion, becoming the world’s most valuable publicly traded company ever.

The tech company surpassed the previous record set by Apple Inc. (AAPL) when it reached a market cap of $3.09 trillion in July, as per Dow Jones Market Data. The iPhone marker ended Friday with a $2.916 trillion market cap.

MSFT’s stock has surged more than 28% over the past six months and nearly 52% over the past year, thanks to immense enthusiasm around its AI potential.

Microsoft Market Cap Milestone: Implications and Opportunities

MSFT’s historic market capitalization milestone holds significant implications for the technology sector, investors, and the global economy. To begin with, it underscores the rising dominance of large tech companies within the stock market and the broader economy.

As Microsoft becomes one of the world’s most valuable companies, it solidifies the technology sector’s influence and sheds light on the importance of innovation and digital transformation across several industries. The company’s growing investments in AI, cybersecurity, and sustainable technologies further contribute to global competitiveness and economic growth.

For investors, MSFT’s recent milestone signals opportunities for potential growth and value creation. It offers investors exposure to a diverse range of high-growth segments, such as AI, cloud computing, gaming, and productivity software. This broad business portfolio allows investors to benefit from Microsoft’s continued innovation, market leadership, and resilience in different economic conditions.

Moreover, the tech giant’s solid financial position and cash flow generation provide stability and potential for dividend growth, making it extremely attractive to income-focused investors seeking stable returns. In addition, MSFT’s strategic partnerships and acquisitions may create opportunities for investors to capitalize on synergies, expansion into new markets, and completive advantages.

In October 2023, Microsoft completed the acquisition of Activision Blizzard, a well-known video game publisher. This deal provides MSFT with a hefty portfolio of video game franchises, including Call of Duty, Crash Bandicoot, StarCraft, and Warcraft. This acquisition aligns with the company’s strategic focus on gaming and positions it for long-term growth and leadership in the gaming industry.

Talking about the ripple effects of Microsoft’s milestone, competitors may intensify their efforts to innovate, compete, or collaborate with the company in response to its market dominance and strategic moves. Consumers may benefit considerably from increased competition and enhanced accessibility of innovative tech products and services, boosting further tech adoption in daily life.

Also, policymakers may scrutinize large tech firms’ market power, data privacy practices, and potential antitrust concerns, shaping regulatory frameworks and industry dynamics.

Now, let’s discuss several factors that could impact MSFT’s performance in the near term:

Continued Progress In AI

“We’ve moved from talking about AI to applying AI at scale,” Satya Nadella, chairman and CEO of Microsoft, said in the last earnings release. “By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains across every sector.”

Over the past year, Microsoft has made significant advancements in integrating AI into its products and tools.

In January 2023, Microsoft announced a multiyear, multibillion-dollar investment with ChatGPT-maker OpenAI. The deal marked the third phase of the partnership between the two companies after MSFT’s previous investments in 2019 and 2021. The renewed partnership would accelerate breakthroughs in AI and help the companies commercialize advanced technologies in the future.

“We formed our partnership with OpenAI around a shared ambition to responsibly advance cutting-edge AI research and democratize AI as a new technology platform,” said CEO Satya Nadella.

In February, MSFT launched an AI-powered Bing search engine and Edge browser with built-in support for OpenAI’s ChatGPT to help people get more from search and the web. The new Bing search version could deliver better searches, more accurate answers, a new chat experience, and the ability to generate content.

In March, the company further announced the addition of AI tools to its Office productivity applications and introduced a feature called Microsoft 365 Copilot. The Copilot feature uses next-gen AI to automate and simplify tasks and offer suggestions. Starting September 26, Copilot begins to roll out its early form as part of its free update to Windows 11.

Beginning November 1, Microsoft 365 Copilot is generally available for enterprise customers, along with Microsoft 365 Chat. Also, this AI-powered Copilot is added to the company’s cybersecurity offerings and GitHub service for software developers.

On November 8, Microsoft-owned GitHub introduced a Copilot assistant that can assist developers in working with their employers’ internal code, priced at $39 per person a month. This new launch might help the company boost profitability in its cloud business unit by taking advantage of its partner OpenAI’s technology.

On November 15, the tech giant debuted its first custom AI chip. At its Ignite conference, MSFT said the chip, Maia 100, is the first in its planned Azure Maia AI accelerator series. In addition to the Maia 100, the company introduced its first custom Arm-based Azure Cobalt, a cloud-native chip optimized for performance, power efficiency and cost-effectiveness for general-purpose workloads.

The chip will be used for cloud-based training and inferencing for AI models. With these chips, Microsoft is on par with rivals Alphabet Inc. (GOOGL) and Amazon.com, Inc. (AMZN), which have also developed their custom chips to run competing cloud platforms. MSFT added that it partnered with ChatGPT developer OpenAI to test its Maia 100 accelerator and will use those lessons to build future chips.

On January 11, 2024, Microsoft announced new generative AI and data solutions and capabilities for retailers. The company offers personalized shopping experiences through copilot templates on Azure OpenAI Service, retail data solutions in Microsoft Fabric, copilot features in Microsoft Dynamics 365 Customer Insights, and the Retail Media Creative Studio.

Robust Last Reported Financials

For the fiscal 2024 second quarter that ended December 31, 2023, MSFT reported total revenue of $62.02 billion, surpassing the analysts’ estimate of $61.13 billion. That was up 17.6% from the previous year’s quarter.

Microsoft’s Intelligent Cloud segment generated $25.88 billion in revenue, an increase of 20.3% year-over-year. The division comprises Azure, public cloud, SQL Server, Nuance, Windows Server, GitHub, and enterprise services. Within the segment, revenue from Azure and other cloud services rose 30%.

Six points of the Azure and other cloud services growth were tied to AI, Amy Hood, MSFT’s finance chief, said on a conference call with analysts.

Also, MSFT’s Productivity and Business Processes segment posted revenue of $18.59 billion, up 13.2% year-over-year. This business unit includes Microsoft 365 productivity app subscriptions, LinkedIn, and Dynamics enterprise software. The More Personal Computing segment contributed $16.89 billion in revenue, an increase of 18.6%.

The software company’s gross margin rose 20.2% from the year-ago value to $42.40 billion. Its operating income increased 32.5% year-over-year to $27.03 billion. Its net income grew 33.2% from the prior year’s period to $21.87 billion. Microsoft posted earnings per share of $2.93, compared to the consensus estimate of $2.20, and up 33.2% year-over-year.

Furthermore, cash inflows from operations came in at $18.85 billion for the second quarter, an increase of 68.7% year-over-year. As of December 31, 2023, MSFT’s total assets amounted to $470.56 billion, compared to $411.98 billion as of June 30, 2023.

For the fiscal 2024 third quarter, Microsoft expects revenue between $60 billion and $61 billion. The company sees lower-than-expected revenue and operating expenses during the quarter.

Impressive Historical Growth

Over the past three years, MSFT’s revenue grew at a CAGR of 14.1%. Its EBITDA and net income improved at respective CAGRs of 18.1% and 17.2% over the same period. In addition, the company’s EPS increased at a CAGR of 18.1% over the same timeframe, and its levered free cash flow improved at 18.9% CAGR.

Furthermore, the company’s total assets increased at a CAGR of 15.7% over the same period.

Attractive Dividend

On November 28, 2023, MSFT’s Board of Directors approved a quarterly cash dividend of $0.75 per share on the company’s common stock. The dividend is payable on March 14, 2024, to shareholders of record on February 15, 2024. The company pays an annual dividend of $3, translating to a yield of 0.71% at the current share price.

Moreover, MSFT’s dividend payouts have increased at a CAGR of 10.2% over the past five years. Microsoft has raised its dividends for 19 consecutive years.

Optimistic Analyst Estimates

Analysts expect MSFT’s revenue for the third quarter (ending March 2024) to increase 15.2% year-over-year to $60.87 billion. The consensus EPS estimate of $2.83 for the current quarter indicates an improvement of 15.5% year-over-year. Moreover, the company has topped consensus revenue and EPS estimates in all the trailing four quarters, which is remarkable.

For the fiscal year ending June 2024, Street expects Microsoft’s revenue and EPS to grow 15.3% and 19.2% year-over-year to $244.23 billion and $11.69, respectively. Also, the software maker’s revenue and EPS for the fiscal year 2025 are expected to increase 14.2% and 13.7% from the previous year to $278.98 billion and $13.29, respectively.

Solid Profitability

MSFT’s trailing-12-month gross profit margin of 69.81% is 43.2% higher than the 48.76% industry average. Likewise, the stock’s trailing-12-month EBIT margin and net income margin of 44.59% and 36.27% are considerably higher than the industry averages of 4.74% and 2.23%, respectively.

Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 39.17%, 20.77% and 17.54% favorably compared to the respective industry averages of 1.99%, 2.44%, and 0.80%. Also, its trailing-12-month levered FCF margin of 25.78% is 183.4% higher than the industry average of 9.10%.

Analysts Raised Their Microsoft Price Targets

Several Wall Street analysts have raised their price targets on MSFT’s stock. D.A. Davidson analyst Gil Luria added $85 to his Microsoft price target, taking it to a Wall Street high of $500 per share. He seems impressed by the company’s near-term guidance, which highlighted “increasing demand for Microsoft Cloud as well as positive margin expansion even with increasing capital expenditures related to the build-out of their AI infrastructure.”

“Microsoft has continued to show they are a strong share gainer in this new AI landscape, which is largely driven by the company's ability to build compelling generative AI applications throughout their product suite as well as capture new AI-related workloads on Azure,” said Luria.

Meanwhile, CFRA analyst Angel Zino increased the MSFT price target by $35 to $455 a share, citing in part the value created for the company’s Office 365 division with the addition of AI assistant Copilot.

Wolfe Research analyst Alex Zukin reiterated a Buy rating on MSFT on January 30 and set a price target of $510. Alex Zubin has given Microsoft a Buy rating due to several factors, including its strong financial performance and promising growth in key areas.

Further, Jefferies analyst Brent Thill maintained their bullish stance on MSFT stock, giving it a Buy rating on January 26. Thill points to the tech giant’s expected year-over-year constant currency growth, which is projected to grow from 12% to 15%, suggesting that it is poised to achieve these targets with the aid of Activision Blizzard’s contributions.

Additionally, Thill believes that Microsoft is well-poised to benefit from the rising emphasis on AI, which is coupled with favorable cloud trends, underpinning the stock’s upside potential.

Bottom Line

MSFT beat on the top and bottom lines in the second quarter of fiscal 2024, driven by growth in intelligent cloud business. Microsoft has led groundbreaking advances such as partnership with OpenAI and the integration of ChatGPT capabilities into products and tools used to search, collaborate, work, and learn.

Further, as MSFT accelerates into AI, it is rethinking cloud infrastructure to ensure optimization across every layer of the hardware and software stack. The company’s commitment to innovations across various segments like AI, edge computing, and mixed reality positions it for long-term growth and market leadership.

Gartner forecasts worldwide software spending to reach $1.03 trillion in 2024, an increase of 12.7% year-over-year. Robust spending on software among individuals and enterprises will be a primary tailwind for Microsoft. The company’s focus on providing solutions for digital transformation, including AI, cloud-based, cybersecurity, and collaboration tools, aligns with the evolving needs of businesses seeking to modernize their operations.

Moreover, the software maker’s solid financial position, including consistent revenue growth and strong cash flow generation, provides it with enhanced flexibility for strategic investments, acquisitions, and returning value to shareholders via dividends and share buybacks.

Driven by optimism surrounding its AI potential, MSFT’s shares have surged more than 50% over the past 12 months.

Microsoft dethroned Apple as the world’s most valuable company ever, ending last week with a market cap of $3.125. Amid MSFT’s record valuation, investors may adopt different strategies to navigate the market dynamics and capitalize on potential opportunities. Long-term investors may choose to maintain their positions in MSFT, leveraging its solid fundamentals and growth prospects.

In addition, income-focused investors may find Microsoft appealing for its attractive dividend payouts and potential for dividend growth. Tactical traders can also take advantage of short-term trading opportunities in this stock, capitalizing on market sentiment, technical indicators, or macroeconomic trends.

Investor Insights Into Ark's $40M PINS Investment – Buy or Wait?

Posted on by The INO.com Team

The San Francisco-based digital content provider Pinterest, Inc. (PINS) recently experienced a spike in attention on social media and financial news websites following the company’s mixed fourth-quarter results, with the bottom line surpassing the analysts' consensus estimates but the revenue missing the same.

The image-browsing platform's shares experienced a sharp decline of approximately 10% following the release of its fourth-quarter results, primarily due to the fiscal 2024 first-quarter guidance falling short of Wall Street's expectations.

Cathie Wood-led Ark Invest purchased $40.3 million worth of PINS shares last week through ARK Innovation ETF (ARKK) (882,085 shares), ARK Next Generation Internet ETF (ARKW) (175,911 shares), and Ark Fintech Innovation ETF (ARKF) (79,485 shares).

Ark Invest's bold purchase appears to underscore confidence in PINS' long-term prospects despite recent hurdles. This optimism stems in part from the silver linings in PINS' quarterly results.

While PINS failed to meet its projection, revenue grew 12% year-over-year, reaching $981 million, marking continued double-digit growth in the second half of 2023 and its fourth consecutive quarter of acceleration in its top-line growth rate. With predictions for the first quarter of fiscal 2024 indicating a minimum of 15% revenue growth, PINS is potentially on track for yet another quarter of revenue growth.

Its sizable growth in its user base, noting 498 million global monthly active users for fiscal year 2023, reflects a 10.7% increase year-over-year. PINS' notable improvements in profitability were also highlighted. Its overall costs and expenses for the fourth quarter dropped by 9.9% compared to the prior-year quarter.

Through efficient cost management, including a 24.1% year-over-year reduction in sales and marketing expenses, PINS recorded a net income of $201.18 million for the quarter, resulting in a robust profit margin of 20.5%. Additionally, in 2023, PINS net cash provided by operating activities stood at $612.96 million compared to the previous year's total of $469.20 million.

Moreover, PINS recently commenced an advertising partnership with Amazon and also announced an upcoming collaboration with Alphabet-owned Google during its fourth-quarter earnings call. This latest partnership with Google would be PINS’ second third-party advertising partner on the social network.

While PINS management acknowledged that third-party partnerships had not substantially impacted fourth-quarter results, they noted a significant contribution to the current quarterly growth, anticipating this trend would continue. CEO Bill Ready further confirmed that the demand for third-party advertising is scaling as planned.

A significant 80% of PINS’ user base hails from outside the U.S., although this demographic generates only 20% of the company's revenue. The new alliances with tech behemoths Amazon and Google are predicted to ramp up user engagement. By tapping into the vast user bases of both Amazon and Google, PINS could potentially reach fresh audiences, subsequently expanding its user base and generating considerable growth in both user figures and platform activity. Ultimately, this will likely result in a rise in average revenue per user.

Additionally, these partnerships could enhance opportunities for monetization through advertising, affiliate marketing, and e-commerce transactions. This strategy has the potential to increase both revenue and profitability significantly.

Successfully implemented, these collaborations could consolidate PINS' competitive foothold in the digital landscape. The true success, however, will hinge on efficient execution, continued innovation, and the ability to leverage synergies among all parties involved.

Despite PINS' accelerating growth and promising upcoming partnerships, its recent stock downturn could be seen as a buying opportunity for long-term investors – an analysis backed by Ark’s substantial $40 million investment in PINS.

JP Morgan analysts echo this optimism, forecasting a robust 2024 performance for PINS. They cited new partnerships with Amazon and Google, expansion in regions beyond the U.S., and investments in new PINS platform products as reasons for their positive outlook. Jeffries analysts were similarly bullish on PINS, predicting that "the fastest rev growth rates are still ahead."

For the fiscal first quarter ending March 2024, PINS’ revenue and EPS are expected to increase 16.2% and 64% year-over-year to $700.23 million and $0.13, respectively.

Moreover, Wall Street analysts expect the stock to reach $43.11 in the next 12 months, indicating a potential upside of 16.9%. The price target ranges from a low of $33 to a high of $50.

Bottom Line

PINS is regarded as a distinct social media platform servicing a unique demographic compared to TikTok or Snapchat. It exclusively caters to individuals' interests and topic-oriented content, setting it apart from its counterparts. The platform's unique structure has garnered significant interest from advertisers, making PINS one of their top preferences. The company has successfully developed comprehensive solutions for advertisers while retaining major brand partners.

Financially stable and fundamentally robust, PINS presents an attractive option for institutional investors. Aside from Ark Investment, multiple institutions have adjusted their holdings in PINS’ stock. Institutions hold roughly 87% of PINS shares. Of the 775 institutional holders, 364 have increased their positions in the stock. Moreover, 124 institutions have taken new positions (15,034,165 shares).

PINS shows promise with revenue growth, favorable user trends, rising profitability, increasing popularity among Gen Z users domestically and abroad, and collaborations with tech giants. These factors make the platform highly appealing.

However, investors should pay heed to its higher-than-industry valuations. Investors need to determine their willingness to partake in long-term investment at no dividend payment and a forward non-GAAP P/E of 27.42x.

While some may perceive this as overpriced, others might find its valuation metrics, for instance, forward Price/Sales multiple of 6.99, justifiable based on anticipated future revenue growth.

Given these considerations, investors should proceed cautiously with any investments in PINS.

Investing in Love: 4 Stocks That Capture Valentine's Day Sentiment

Posted on by The INO.com Team

Valentine’s Day is a time to celebrate love and romance, whereby people express their affection by exchanging candy, cards, flowers, jewelry, and other gifts with their special ones. This annual Lover’s Day has become extremely popular, and creative retailers are preparing to cash in on this event.

Americans really like to spend on their loved ones for Valentine’s Day. According to the annual survey released by the National Retail Federation (NRF) and Prosper Insights & Analytics, total spending on Valentine’s Day is expected to reach a new high of $14.20 billion in 2024, or a record $101.84 per person.

“Retailers are ready to help customers this Valentine’s Day with meaningful and memorable gifts,” said Matthew Shay, NRF President and CEO. “With consumers prioritizing their spouse or significant other this year, retailers expect to see a shift in spending for certain gifting categories.”

The top gift categories include candy (57%), greeting cards (40%), flowers (39%), an evening out (32%), jewelry (22%), clothing (21%) and gift cards (19%). New spending records are anticipated for jewelry (around $6.4 billion), flowers ($2.6 billion), clothing ($3 billion) and an evening out ($4.9 billion).

More than half of customers (nearly 53%) plan to celebrate Valentine’s Day this year, on par with 52% in 2023. Overall, consumers plan to spend a total of $25.8 billion to celebrate Valentine’s Day, on par with the previous year’s spending and the third highest in the survey’s history.

Now, let’s take a close look at the fundamentals of four key stocks that might thrive this Valentine’s Day:

Berkshire Hathaway Inc. (BRK.B)

Warren Buffett is widely considered one of the greatest investors of all time. One way to share in his success is by investing in his holding company, Berkshire Hathaway Inc. (BRK.B)v, whose market capitalization stands at $861.40 billion.

BRK.B owns a mix of businesses across several industries. The profits from these businesses accumulate on Berkshire Hathaway’s balance sheet, and Warren Buffett and his team use these funds to expand the company, make new investments, and so on.

Since 1972, Buffett’s leading conglomerate owns See’s Candies, a beloved brand for candies, particularly chocolates. Today, more than 50 years later, this candy brand has grown into a testament to the power of brand loyalty, high-quality products, and intelligent management.

With its steady growth, See’s Candies provided BRK.B with an income of nearly $2 billion, representing an impressive return of more than 8,000%, or approximately 160% a year. Beyond its financial triumphs, this brand holds a special place in Buffett’s heart as it embodies his investment philosophy, which prioritizes businesses with competitive advantage, reliable cash flows, and a focus on customer satisfaction.

For most people, chocolate and candy are the perfect way to celebrate Valentine’s Day as they associate them with emotional connections, primarily driving See’s Candies sales and ultimately giving a significant boost to BRK.B’s stock.

BRK.B’s trailing-12-month EBITDA margin of 31.46% is 49.4% higher than the 21.05% industry average. Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 15.63%, 9.86%, and 7.52% are higher than the industry averages of 10.67%, 6.41%, and 1.09%, respectively.

For the first nine months that ended September 30, 2023, BRK.B’s total revenues increased 21.1% year-over-year to $271.11 billion. Its earnings before income taxes were $73.23 billion versus a loss before income taxes of $52.61 billion in the prior year’s period. Its net earnings came in at $59.39 billion, compared to a loss of $40.24 billion in the same quarter of 2022.

Analysts expect Berkshire Hathaway’s revenue and EPS for the fiscal year (ended December 2023) to increase 4.1% and 24.4% year-over-year to $314.42 billion and $17.39, respectively. Moreover, the company topped the consensus EPS estimates in three of the trailing four quarters.

BRK.B’s stock is already up nearly 11% over the past six months and has gained more than 28% over the past year. Further gains could come with a Valentine’s Day rally.

PayPal Holdings, Inc. (PYPL)

Another stock that could capture Valentine’s Day sentiment is PayPal Holdings, Inc. (PYPL). With a $63.14 billion market cap, PYPL operates as a technology platform enabling digital payments on behalf of merchants and consumers. As digital payments continue to rise across the globe, PayPal remains a strong player in the fintech industry.

Valentine’s Day might cause an influx of online transactions. Spending surges as consumers celebrate Valentine’s Day with memorable gifts for their friends and loved ones, propelling digital payments worldwide and benefiting PYPL considerably.

On January 25, 2024, PYPL announced six innovations to revolutionize commerce through artificial intelligence (AI) driven personalization for merchants and consumers. During the PayPal First Look keynote, President and CEO Alex Chriss introduced a completely new PayPal checkout experience; Fastlane by PayPal, a faster guest checkout experience; and Smart Receipts, giving customers AI-personalized recommendations from merchants.

Further, the company introduced the PayPal advanced offers platform so merchants can provide personalized, real-time offers to consumers and drive sales; a reinvented PayPal consumer app offering shoppers new ways to earn cash back; and Venmo’s enhanced business profiles so that small businesses can find and engage new customers and grow their businesses.

PYPL’s trailing-12-month ROCE, ROTC, and ROTA of 20.55%, 9.43%, and 5.17% favorably compared to the industry averages of 10.76%, 6.44%, and 1.08%, respectively. Also, the stock’s 18.40% trailing-12-month levered FCF margin is 3.2% higher than the industry average of 17.83%.

During the fourth quarter that ended December 31, 2023, PYPL’s non-GAAP net revenues increased 8.7% year-over-year to $8.03 billion. Its non-GAAP operating income grew 10.6% from the prior year’s quarter to $1.87 billion. Its non-GAAP net income and non-GAAP EPS came in at $1.60 billion and $1.48, up 13.2% and 19.4% year-over-year, respectively.

Furthermore, the company’s free cash flow was $2.47 billion, an increase of 72.3% year-over-year. Its fourth-quarter total payment volume (TPV) grew 15% from the year-ago value to $409.80 billion. Its payment transactions rose 13% year-over-year to $6.80 billion.

As per its financial guidance, PayPal expects net revenue to increase by nearly 6.5% and 7% on a foreign-currency neutral basis (FXN) for the first quarter of fiscal 2024. Its non-GAAP earnings per share are expected to grow in mid-single digits compared to $1.17 in the previous year’s period.

For the full year 2024, the company’s non-GAAP earnings per share are expected to be in line with $5.10 in the previous year.

Analysts expect PYPL’s revenue and EPS for the first quarter (ending March 2024) to increase 6.7% and 4% year-over-year to $7.51 billion and $1.22, respectively. Additionally, the company surpassed consensus revenue estimates in each of the trailing four quarters, which is impressive.

PYPL’s stock has surged more than 8% over the past three months.

Movado Group, Inc. (MOV)

With a $616.47 million market cap, Movado Group, Inc. (MOV) designs, markets, and distributes watches worldwide. The company offers its watches under the Movado, Concord, Ebel, Olivia Burton, and MVMT brands, along with licensed brands like Coach, Tommy Hilfiger, HUGO BOSS, Lacoste, and Calvin Klein. If your loved one appreciates luxury watches, Movado could be an exciting pick this Valentine’s.

The company has a robust capital allocation strategy. MOV paid a cash dividend of $0.35 for each share of the company’s outstanding common stock and class A common stock held by shareholders of record as of the close of business on December 12, 2023. Its annual dividend of $1.40 translates to a yield of 4.95% on the current share price. Its four-year average dividend is 4.22%.

Moreover, the company’s dividend payouts have increased at an 11.8% CAGR over the past five years.

Also, during the third quarter of fiscal 2024, Movado Group repurchased around 69,700 shares under its November 23, 2021, share repurchase program. As of October 31, 2023, the company had $18.60 million remaining available under the share repurchase program.

MOV’s trailing-12-month gross profit margin of 55.71% is 57% higher than the 35.48% industry average. Likewise, the stock’s trailing-12-month EBIT margin and net income margin of 9.86% and 8.34% are higher than the industry averages of 7.53% and 4.74%, respectively.

In terms of forward P/E, MOV is currently trading at 14.8x, 12% lower than the industry average of 16.83x. The stock’s forward EV/Sales of 0.78x is 36.7% lower than the industry average of 1.23x. Also, its forward EV/EBITDA of 7.36x is 27.3% lower than the industry average of 10.13x.

MOV’s reported net sales of $187.69 million for the fiscal 2024 third quarter ended October 31, 2023. Its net income came in at $17.67 million, or $0.77 per share, respectively. As of October 31, 2023, the company’s cash and cash equivalents were $200.97 million, compared to $186.67 million as of October 31, 2022.

Street expects MOV’s revenue and EPS for the fiscal year (ending January 2025) to increase 3.3% and 7.9% year-over-year to $689.90 million and $2.06, respectively. Also, the company has topped the consensus EPS estimates in all four trailing quarters.

Shares of MOV have surged more than 4% over the past three months and approximately 12.7% over the past nine months.

Signet Jewelers Limited (SIG)

The last stock, Signet Jewelers Limited (SIG), also tends to shine around Valentine’s Day. For those who want to go beyond chocolates, jewelry is a classic Valentine’s Day gift. Signet Jewelers, with a market cap of $4.56 billion, owns brands like Key Jewelers, Zales Jewelers, Diamonds Direct, James Allen, and Banter by Piercing Pagoda and could benefit from a surge in sales.

After all, SIG’s trailing-12-month EBIT margin and net income margin of 8.49% and 6.29% are higher than the respective industry averages of 12.73% and 32.77%. Similarly, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 29.14%, 11.39%, and 7.61% are significantly higher than the industry averages of 11.43%, 6.08%, and 4.08%, respectively.

In terms of forward non-GAAP P/E, SIG is currently trading at 10.29x, 36.4% lower than the industry average of 16.17x. The stock’s forward EV/Sales of 0.81x is 34.1% lower than the industry average of 1.23x. Moreover, its forward Price/Sales of 0.63x is 31.9% lower than the industry average of 0.93x.

In the fiscal 2024 third quarter ended October 28, 2023, SIG’s reported sales of $1.39 billion. The company reported non-GAAP operating income and non-GAAP EPS of $23.90 million and $0.24, respectively. Its cash and cash equivalents totaled $643.80 million as of October 28, 2023, compared to $327.30 million as of October 29, 2022.

“We’re reaffirming guidance for FY2024 with the full year outlook updated for the profitable and strategic sale of 15 primarily luxury watch stores in the U.K. We continue to make progress expanding gross margin through merchandise and sourcing strategies and growth in services revenue,” said Joan Hilson, Chief Financial, Strategy & Services Officer.

“Cost savings initiatives are on track and healthy inventory enables product newness as we enter the holiday season and improved free cash flow, allowing Signet to return nearly $160 million to shareholders already this year,” he added.

For the fiscal year 2024, Signet expects total sales to be in the range of $7.07 billion-$7.27 billion. The company’s operating income and EPS are expected to be $397-$437 million and $9.55-$10.18, respectively.

SIG’s stock has climbed more than 28% over the past six months and is up nearly 34% over the past year.

Bottom Line

Every year on February 14, people celebrate love with their “valentine,” and most will break the bank by buying flowers, chocolates, jewelry, and other gifts for their beloveds. Today, this event is a big business. NRF survey shows that Valentine’s Day is returning to its romantic traditions, with total spending on significant others reaching a new record of $14.20 billion this year.

Therefore, it could be wise to add the featured stocks to one’s watchlist ahead of Valentine’s Day.

Is Walmart (WMT) Stock Split a Catalyst for Growth?

Posted on by The INO.com Team

Consumers have long relied on Walmart Inc. (WMT) for affordable goods, a key feature of the retail chain's offerings. Now, the company’s investors will also be offered 'value deals' as WMT initiates steps to make its equity more accessible.

On January 30, the retail giant declared its intention to effectuate its shares' affordability in line with increasing store managers' salaries and providing annual grants of up to $20,000.

The corporation announced a share-splitting strategy that awards shareholders in possession of WMT stock as of February 22 with three shares for each one owned. This move marks the first of its kind since 1999.

Stock splits often garner significant media attention, particularly when happening at corporations like WMT. The common stock volume would be increased from approximately 2.7 billion to roughly 8.1 billion. As a result, each share will hold a smaller percentage of the company, decreasing its nominal value.

Although this may give an impression of cheaper stock, it's important to note that the size of the overall business, whether calculated by earnings, cash flow, or revenue, remains constant. The stock splitting will not affect any valuation but will divide the company's metaphorical share pie into additional pieces. Hence, investors will maintain the same business percentage ownership as prior to the split.

This does not necessarily imply irrelevant implications for investors concerning WMT's 3-for-1 stock split; rather, it piques interest in the company's motivations for such a move.

WMT proposed that the stock split aims to incentivize employees to invest in their corporation's shares. The company highlighted that over 400,000 employees participate in its established Associate Stock Purchase Plan, enabling them to buy stocks through payroll deductions and benefit from a 15% match on the first $1,800 contributed annually. Regardless, how this split will impact the company's future trajectory and investor sentiment remains to be seen.

CEO Doug McMillon said of the decision: "Sam Walton believed it was important to keep our share price in a range where purchasing whole shares, rather than fractions, was accessible to all of our associates. Given our growth and our plans for the future, we felt it was a good time to split the stock and encourage our associates to participate in the years to come."

The stock market’s stellar performance in 2023, coupled with better-than-expected January job figures, has triggered a surge in retail investor activity. GenZ investors, having limited trading funds, could be attracted by WMT's strategic decision to split its shares.

There seems to be a correlation between stock splits and an outperforming stock. This trend may be attributable to the momentum leading up to the split, as such occurrences often follow substantial price gains or heightened investor interest. WMT anticipates that this move will spur increased purchasing among its employees, potentially driving the stock price upwards.

However, certain additional factors could also contribute to the surge in WMT's stock price:

WMT’s retail segment epitomizes stability, boasting over 10,000 stores and achieving a same-store sales growth (U.S. segment) of 4.9% in 2023's third quarter, resulting in a new record for its trailing-12-month revenue of $638.79 billion.

On top of this, WMT is pursuing overlooked growth opportunities, notably in the realm of advertising. In partnership with The Trade Desk, a leading advertising technology firm, WMT has seen swift progression in its advertising endeavors, a promising venture given e-commerce competitors' significant advertising revenue over the past year.

Over the past year, WMT’s stock climbed approximately 20% as the company enhanced its online shopping services and offered higher employee remuneration. E-commerce continues to thrive for WMT, demonstrated by a 24% year-on-year increase in U.S. online sales for the quarter that ended October 31, 2023. This boom can be seen throughout the year with similar growth across preceding quarters. WMT’s U.S. e-commerce sales grew 27.2% year-over-year in the first quarter and 24% year-over-year in the second quarter.

Moreover, WMT has announced plans to launch 12 additional stores and upgrade a smaller location to a Supercenter – an indicator of imminent growth.

Furthermore, WMT is set to publish its fiscal fourth-quarter earnings on February 20. Analysts anticipate its EPS to come at $1.63 and revenue at $169.24 billion. The fiscal fourth quarter that ended January of 2023 saw the company report quarterly earnings of $1.71 per share, and net sales reached $162.74 billion. If WMT reports another resilient quarter, it is likely to provoke a further increase in its stock price.

WMT shares sit slightly below $170 and trades above the 50-, 100-, and 200-day moving averages of $159.06, $160.27, and $157.91, respectively, indicating an uptrend.

Jefferies raised WMT’s stock price target to $195 from $190, thereby affirming a buy rating on the shares ahead of the earnings report. It anticipates a modest sales beat for WMT, with cautious guidance for fiscal 2025, factoring in the continued slowdown in inflation.

Bottom Line

WMT is a notable player on Wall Street, and its distinctive position is fueled by not only its status as one of the world's most extensive retail chains but also its resilience during diverse market situations. WMT has been considered a recession-proof stock due to the consistency of its revenues and sales, even amid various economic upheavals. People put away their discretionary purchases during tough times but continue filling their grocery baskets, often seeking cost-effective options, a specialty of WMT.

WMT's history also boasts of 11 two-for-one stock splits, which have created attractive entry points for investors previously unable to access the stocks due to high prices, potentially driving up stock costs with their participation. Employees, too, may find the affordability appealing for their Employee Stock Ownership Plan (ESOP) benefits, prompting additional stock procurement.

Investing in WMT the day after its last stock split in 1999 would have yielded a price return of approximately 268%, comparable with S&P's 274% return. With the inclusion of the dividend, this could have surpassed S&P over an equivalent duration.

Particularly for long-term investors seeking both growth and income, WMT can be a favorable bet, considering its global brand recognition and historically robust financial positioning. This is crucial as the company continually expands its operations.

Moreover, WMT has reliably paid dividends over 50 consecutive years, pointing toward dependable shareholder value creation. The annual dividend stands at $2.28 per share, which translates to a dividend yield of 1.35%, given the existing share prices. Its four-year average dividend yield is 1.57%. WMT's dividend payments have grown at a CAGR of 1.8% and 1.9% over the past three and five years, respectively.

WMT's anticipated stock split will not affect these dividends. Considering a 3-for-1 split, this would adjust the quarterly dividend to $0.19 per share (current $0.57 per share), equating to an annual return of $0.76 per share. With approximately 8.1 billion shares outstanding, WMT would need an annual free cash flow of nearly $6.16 billion for the yearly return. Based on free cash flow of $4.34 billion and net cash provided by operating activities of $19.01 billion for the nine months that ended October 31, 2023, it appears plausible that the dividends will remain adequately covered after the split.

Usually, a business opts for a stock split when the cost of its shares becomes high, creating a psychological barrier for retail investors who may find it impossible to purchase a single share. Nevertheless, almost every brokerage, including WMT's Associate Stock Purchase Plan, now offers the opportunity to buy fractional shares, rendering the nominal value of a single share less significant than before. However, post-split, the attraction lies in owning a larger number of shares at an equivalent total investment rather than a fractional portion.

Moreover, when WMT employees purchase company stock, they essentially become part owners. As such, their personal financial standing becomes interwoven with the company's long-term success, potentially sparking a profound investment in the company's future.

WMT's impending stock split could potentially foster an ‘ownership mentality’ among its workforce. Investors are advised to bear in mind insider ownership when researching stocks. While insider ownership does not guarantee successful investments, it can imply an alignment of interests between insiders and common shareholders. However, investors should always remember to prioritize the business's underlying health.

Nonetheless, WMT's recent stock split – the first in 25 years – may raise eyebrows. Considering that the last split in 1999 coincided with the dot-com burst, could it be possible that WMT is employing the split as a defensive strategy, ideally ensuring sufficient operational capital to weather potential storms? Hence, a certain level of unease may accompany the news of the split taking place at the current low price.