Author: The INO.com Team

Is CRISPR (CRSP) a Hidden Biotech Gem?

Posted on by The INO.com Team

Shares of CRISPR Therapeutics AG (CRSP) have gained more than 40% over the past three months against the industry’s decline of nearly 11%. Moreover, the stock has surged more than 80% over the past month.

The gene-editing stock continues to enjoy accelerated momentum from a key regulatory approval. On November 16, CRISPR Therapeutics and its partner, Vertex Pharmaceuticals Incorporated (VRTX), announced that the United Kingdom-based Medicines and Healthcare Products Regulatory Agency (MHRA) granted conditional market authorization for CASGEVY™.

CASGEVY has been authorized for the treatment of patients 12 years of age and older with sickle cell disease (SCD) with recurrent vaso-occlusive crises (VOCs) or transfusion-dependent beta-thalassemia (TDT), for whom a human leukocyte antigen (HLA) matched related hematopoietic stem cell donor is unavailable. There are nearly 2,000 patients eligible for CASGEVY in the United Kingdom.

This represents the first regulatory authorization of a CRISPR-based gene-editing therapy worldwide and offers a new option for eligible patients waiting for innovative therapies. Notably, this approval made CASGEVY the first approved product in CRISPR Therapeutics’ portfolio.

Further, CRSP and VRTX’s Biologics License Applications (BLAs) seeking approval for exa-cel for treating SCD and TDT indications are currently under review in the U.S.

The U.S. Food and Drug Administration (FDA) granted priority review to the BLA filing for exa-cel in SCD, and the exa-cel filing in TDT indication was accepted for a standard review. A final decision on the BLAs for exa-cel in SCD and TDT indications is anticipated by December 8, 2023 and March 30, 2024, respectively.

In October, an FDA Cellular, Tissue, and Gene Therapies Advisory Committee appeared satisfied with CRISPR/Vertex’s regulatory filing on exa-cel in the SCD indication. This development will likely move the gene therapy closer to gaining potential marketing approval from the agency.

Both the SCD and TDT have significant unmet medical needs. A potential approval for exa-cel in the U.S. will be a major boost for CRSP and will likely drive the stock higher in the upcoming quarters.

Meanwhile, the company is developing CRISPR candidates to create next-generation CAR-T cell therapies for treating hematological and solid-tumor cancers. Clinical trials are ongoing for its CAR-T product candidates, CTX110 and CTX 112, targeting CD10 in B-cell malignancies.

In addition, CRSP is evaluating the safety and efficacy of CTX130 in two ongoing phase I studies for treating various solid tumors like renal cell carcinoma and certain T-cell and hematologic malignancies. VCTX211, an allogeneic, gene-edited, stem cell-derived product candidate for treating Type 1 Diabetes, has been undergoing clinical trial.

A clinical trial has also been initiated for CTX310, targeting angiopoietin-related protein 3 (ANGPTL3).

Let’s discuss several factors that could impact CRSP’s performance in the near term:

Deteriorating Financials

 For the third quarter that ended September 30, 2023, CRSP reported nil total revenue, missed the analysts’ estimate of $7.96 million. That compared to revenue of $94 thousand in the same quarter of 2022. The company’s loss from operations came in at $132.41 million. Also, it reported a net loss before income taxes of $111.74 million for the quarter.

Furthermore, CRSP reported a third-quarter net loss of $112.15 million. The company’s net loss per common share came in at $1.41, narrower than the consensus estimate of $1.95.

The company’s cash, cash equivalents, and marketable securities were $1.74 billion as of September 30, 2023, compared to $1.87 billion as of December 31, 2022. The decline in cash of $128.60 million was primarily driven by operating expenses. During the third quarter, CRSP’s operating expenses were $132.41 million.

Unfavorable Analyst Estimates

Analysts expect CRSP’s revenue to significantly increase year-over-year to $104.31 million for the fourth quarter ending December 2023. However, the company is expected to report a loss per share of $0.22 for the ongoing quarter. For the fiscal year 2023, the company’s loss per share is estimated to be $3.46.

Further, CRSP’s revenue for the fiscal year 2024 is expected to decline 46.4% year-over-year to $148.08 million. Street expects the company to report a loss per share of $6.43 over the next year.

Elevated Valuation

In terms of forward EV/Sales, CRSP is currently trading at 15.16x, 370.6% higher than the industry average of 3.22x. The stock’s forward Price/Sales of 20.58x is 464% higher than the industry average of 3.65x. Additionally, CRSP’s forward Price/Book multiple of 3.34 is 40.5% higher than the industry average of 2.44.

Decelerating Profitability

CRSP’s trailing-12-month gross profit margin of negative 201.7% compared to the 56.62% industry average. Moreover, the stock’s trailing-12-month EBITDA margin and net income margin of negative 236.98% and 207.95% compared unfavorably to the respective industry averages of 5.29% and negative 5.75%.

Furthermore, the stock’s trailing-12-month levered FCF margin of negative 119.66% is lower than the industry average of 0.11%. CRSP’s trailing-12-month asset turnover ratio of 0.08x is 80.5% lower than the industry average of 0.39x.

Stiff Competition

Heightened competition remains a significant headwind, with several other biotech companies using the CRISPR/Cas9 gene-editing technology to address several ailments. The main competitors of CRISPR Therapeutics include Verve Therapeutics, Inc. (VERV), eGenesis, Editas Medicine, Inc. (EDIT), Caribou Biosciences, Inc. (CRBU), Intellia Therapeutics, Inc. (NTLA), and Beam Therapeutics Inc. (BEAM).

EDIT, developing its lead pipeline candidate EDIT-301, employs CRISPR gene-editing in a phase I/II study for SCD and TDT indications. A potential approval for the candidate developed by EDIT will likely pose increased competition for CRSP in the future.

Bottom Line

CRSP, one of the first companies formed to use the CRISPR gene editing platform to develop medicines and therapies for treating several rare and common diseases, continues to report losses. While the third-quarter loss was narrower than expected, the company’s revenue missed analysts’ expectations.

Despite its deteriorating fundamentals, shares of CRSP have been surging lately on the news of winning the first-ever regulatory approval for a CRISPR-based gene-editing drug, CASGEVY (exa-cel). Exa-cel is the first therapy to emerge from a strategic partnership between CRSP and VRTX for patients with severe sickle cell disease.

In the upcoming months, the FDA will decide whether to approve exa-cel. And this decision by the FDA will determine the course of the stock.

Given CRSP’s bleak financials, disappointing analyst expectations, low profitability, stretched valuation, and stiff competition, this biotech stock is best avoided now.

Is The Williams Companies (WMB) a Durable Dividend Stock to Buy?

Posted on by The INO.com Team

The Williams Companies, Inc. (WMB), a leading energy infrastructure company, has been a reliable dividend stock over the years. The company has paid a common stock dividend every quarter since 1974 and has increased its payout in most years. The company’s dividend payments have grown at a CAGR of 6% since 2018.

The natural gas pipeline company currently offers an impressive 5.1% dividend yield, placing it toward the top end of dividend payers in the S&P 500 index, with an average yield of around 1.5%.

On October 24, WMB’s Board of Directors approved a regular dividend of $0.4475 per share or $1.79 annually, on the company’s common stock, payable on December 26, to stockholders of record at the close of business on December 8. This represents an increase of 5.3% from its fourth-quarter 2022 quarterly dividend of $0.425 per share.

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

Mixed Financial Performance

The pipeline giant reported third-quarter 2023 adjusted EPS of $0.45, beating the analysts’ estimate of $0.41. However, this compared to the adjusted EPS of $0.48 in the prior year’s quarter. The decline in the bottom year was due to lower-than-expected contributions from two major segments - West & Gas and NGL Marketing Services.

Also, WMB’s adjusted net income came in at $547 million, down 7.6% from the same quarter of 2022. But year-to-date adjusted net income grew by $171 million over the previous year to $1.75 billion.

The company’s third-quarter 2023 Available Funds from Operations (AFFO) declined slightly by $11 million from the year-ago value to $1.23 billion, primarily due to lower distributions from certain equity method investments partially offset by higher operating results excluding noncash items. However, its year-to-date 2023 AFFO increased by 9.2% year-over-year to $3.89 billion.

William’s dividend coverage ratio for the third quarter was 2.26x (AFFO basis), compared to 2.40x in the same period in 2022. Its year-to-date 2023 dividend coverage ratio was 2.38x versus $2.29x over the prior year.

WMB’s third-quarter adjusted EBITDA grew marginally year-over-year to $1.65 billion, driven by the previously described higher services revenues, partially offset by lower upstream results, reduced marketing margins, increased operating costs, and lower JV proportional EBITDA. Year-to-date 2023 adjusted EBITDA rose by $414 million over the prior year to total $5.06 billion.

Further, the company’s quarterly revenue came in at $2.56 billion, missing the consensus estimate of $2.59 billion, mainly due to lower product sales. The top line also declined from the year-ago value of $3.02 billion.

As of July 30, 2023, the natural gas pipeline company’s cash and cash equivalents stood at $2.07 billion, compared to $152 million as of December 31, 2022. Its current assets came in at $4.26 billion versus $3.80 billion as of December 31, 2022.

2023 Financial Guidance

WMB raised its midpoint of guidance and now expects full-year adjusted EBITDA between $6.60 billion and $6.80 billion. Its growth capex guidance remains unchanged, between $1.60 billion to $1.90 billion. Also, Williams expects a leverage ratio midpoint of 3.65x, allowing the company to retain financial flexibility.

Optimizing Portfolio Through Divestments and Re-Investing in Assets Strategic to Footprint

During the third quarter of 2023, WMB sold its Bayou Ethane system for $348 million in cash, representing a last-12-month multiple over 14x adjusted EBITDA. The transaction comprises long-term ethane takeaway agreements, locking in flow assurance for Discovery and Mobile Bay producers.

The proceeds from the sale of Bayou will contribute to funding the company’s extensive portfolio of attractive growth capital investments, including transactions in Colorado’s Denver-Julesburg (DJ) Basin. Williams announced an acquisition of Cureton Front Range LLC, a Denver-based, growth-oriented midstream company focused on offering creative and transparent commercial solutions to oil & gas producers in the DJ Basin.

Cureton’s asset base consists of more than 260 miles of low- and high-pressure pipelines, 109 MMcf/d of natural gas processing capacity, 64,000 horsepower of compression, and has long-term contracts with blue-chip operators covering over 200,000 dedicated acres and two million acres of AMIs.

In addition, WMB agreed to purchase KKR’s 50% ownership interest in Rocky Mountain Midstream, resulting in 100% ownership of Rocky Mountain Midstream for the company.

These strategic acquisitions have a combined value of $1.27 billion, representing a multiple of nearly 7x expected 2024 adjusted EBITDA. Further, these two assets will boost purchase multiple through increased volumes on existing processing facilities and downstream NGL transportation, fractionation, and storage assets.

These transactions are anticipated to close by the end of this year, making WMB the third-largest gatherer in the DJ Basin and staying committed to the company’s strategy of maintaining top positions in its areas of operation.

Deals and Expansion Projects

On August 3, WMB announced the execution of an agreement with Chattanooga Gas, a subsidiary of Southern Company Gas, to provide certified, low-emissions NextGen Gas over a period of three years.

Through its Sequent Energy Management business, Williams has built a marketing platform to sell trusted low-carbon and net-zero NextGen Gas to utilities, LNG export facilities, and other clean energy users with the goal of helping customers meet their climate commitments.

WMB deploys its NextGen Gas platform across its vast infrastructure network, leveraging blockchain-secured technology to track and measure emissions via the aggregation and reconciliation of several sources of data to offer a path-specific methane intensity certification.

Debt Burden

On August 8, Williams priced a public offering of $350 million of its 5.4% senior notes due 2026 (the new 2026 notes) at a price of 100.181% of par and $900 million of its 5.3% senior notes due 2028 at a price of 99.886% of par.

The new 2026 notes are an additional issuance of WMB’s 5.4% senior notes due 2026 issued on March 2, 2023, and will trade interchangeably with the $750 million aggregate principal amount of such notes outstanding, resulting in $1.1 billion aggregate principal amount of such notes outstanding.

As of September 30, 2023, the company’s total current liabilities came in at $5.53 billion, compared to $4.89 billion as of December 31, 2022.

Impressive Historical Growth

WMB’s revenue and EBITDA have grown at respective CAGRs of 10% and 14% over the past three years. The company’s net income has increased at a CAGR of 131.3% over the same timeframe, while its EPS has grown at a 131.6% CAGR. In addition, its total assets and levered free cash flow have improved at CAGRs of 4.7% and 18.3%, respectively.

Disappointing Analyst Estimates

Analysts expect WMB’s revenue to decline 12.2% year-over-year to $2.57 billion for the fourth quarter ending December 2023. The company’s EPS for the current quarter is expected to decrease 12.4% year-over-year to $0.46. Moreover, Williams missed the consensus revenue estimates in three of the trailing four quarters.

Furthermore, Street expects WMB’s revenue and EPS for the fiscal year 2023 to decline 2.7% and increase 5% year-over-year to $10.67 billion and $1.91, respectively. For the fiscal year 2024, the company’s revenue and EPS are estimated to grow 1.5% and decrease 1.4% from the previous year to $10.83 billion and $1.88, respectively.

Bottom Line

While WMB’s fiscal 2023 third-quarter earnings surpassed analysts’ expectations, its revenue missed estimates. Despite reporting top-and-bottom-line declines from the prior year’s period, the company continues to have an upbeat full-year 2023 financial guidance.

However, analysts appear bearish about the natural gas pipeline company’s near-term prospects. Declining earnings and mounting debt could result in cuts to its now attractive dividend.

Given its bleak financials and disappointing short-term outlook, waiting for a better entry point in this stock could be wise.

 

SPY: Is a Correction on the Horizon?

Posted on by The INO.com Team

Throughout 2023, the U.S. stock market experienced several micro-cycles. From January to July, the SPDR S&P 500 ETF Trust (SPY), which tracks the performance of the S&P 500 index, advanced over 19% on a total return basis. However, in late October, nearly half that momentum had withered, with the Index briefly plunging into correction territory, indicating a 10% decline from July's peaks.

The rising bond rate between late July and October contributed to the recent correction. The three-month period provided an adequate opportunity for investors to pivot away from stocks. Adding to the investors’ worries was Chair Jerome Powell’s comment: “The question of rate cuts just doesn’t come up.”

October witnessed the weakest performance in the S&P 500 since 2018 – its third successive month of contractions. This decline was perhaps predictable, considering the economic forecast concerns, stubborn inflation rate, prolonged apprehension over Federal Reserve policy rates, and geopolitical turmoil.

The financial picture brightened in November when stocks rallied robustly, nearly restoring the S&P 500 to its July peak. Making an impressive rebound in just 16 sessions, the S&P 500 effectively exited its correction phase, marking the swiftest turnaround since the 1970s.

As evidence of an overheated economy finally began to cool, investor tension eased, and the S&P 500 got a significant boost, surging by 8.5%. This surge brought its progress close to a 20% year-to-date increase, coinciding with the 10-year Treasury rates plunging below 4.5%.

Furthermore, another lower-than-expected inflation reading offers a flicker of hope that the contentious battle against inflation might soon abate.

As the Thanksgiving holiday curtails November's U.S. trading week, investors are waiting to see if this resurgence in the stock market will endure until year’s end.

So, is the pathway clear?

While drawing definite conclusions could be too soon, let’s look at some promising indications suggesting the rally could persist until the close of the year…

After the Fed’s 20 months of stringent monetary policy tightening, it remains unclear to officials if the financial conditions are sufficiently restrictive to control inflation – a rate seen as surpassing the central bank's 2% target.

Despite this uncertainty, the Fed maintains interest rates within the expected range of 5.25%-5.50%. Chairman Jerome Powell has not dismissed the possibility of further monetary tightening, leaving markets to ponder possible future actions of the Fed.

Forthcoming economic indicators will primarily guide decisions regarding future rate hikes. Depending upon inflation trends, there is potential for introducing interest rate cuts during the second quarter of 2024 or the following months.

If the Fed successfully facilitates a "soft landing" for the economy, implementing rate cuts while avoiding a recession, this could potentially set off a stock market rally. Conversely, investors might encounter unexpected skepticism if economic growth continues at its current pace and inflation returns in the following months.

Consumer spending is paid attention to, which, till now, has been crucial for sustaining economic growth amid climbing interest rates that often lead to economic slowdown. Historically, November has proven to be a strong month for the S&P 500, with an average yield of 0.88%, making it the third most lucrative month.

Historically, the S&P 500 recorded positive returns 68% of the time during Thanksgiving week, an achievement exceeding the average week. The sales recorded during Thanksgiving and Black Friday act as a barometer of market sentiment. Strong retail figures may herald the beginning of a robust shopping season, potentially boosting stock prices.

U.S. consumer spending accounts for about 70% of the economy. However, core U.S. retail sales registered a marginal increase of just 0.2% in October as higher borrowing costs and persistent effects of inflation curbed spending, leading to struggles for retail stocks. An uptick in sales could lay the groundwork for a December rally.

Displaying a notable robustness, the U.S. economy has continued to grow at over 2% annualized pace in the first and second quarters of 2023, surging to a 4.9% annualized growth rate in the third quarter. There is additional optimism as the GDPNow forecast for the fourth-quarter GDP has been revised upward to 2.1%.

Favorable economic circumstances like a robust employment market coupled with a resolute trend in consumer spending have contributed significantly to the sustainability of this positive economic momentum. Corporate earnings, too, reflected optimistic trends in the third quarter, a sign that economists regard as propitious.

Analysts are hopeful for a mildly favorable turn in earnings moving forward. While current economic metrics remain somewhat subdued, they do not signal an impending recession. Consequently, the equity market remains a scene of active engagement.

However, should investors be more cautious? Quite likely. Let’s understand why…

This year's most optimistic occurrence was when the small-cap stocks in the Russell 2000 significantly eclipsed the returns of the SPY. Especially notable is the seemingly undervalued status of the small-cap index, which further intensifies with prospective Fed’s interest rate cuts scheduled for the first half of 2024. Historically,  debt-heavy small-caps perform well during Fed-induced rate reductions. Consequently, small-caps could potentially witness a significant boost as investors begin to speculate on the completion of the Fed's interest rate hike cycle.

The sign of an assuredly bullish market is the heightened risk appetite, funneling investors toward smaller, growth-oriented companies. This pattern aligns with the traditional long-term advantage of small caps over large caps, an edge not witnessed in recent years.

However, certain risks continue to loom. Most significantly, small-caps' vulnerability to recessions.

Despite Russel 2000’s attractive valuation, large-cap stocks have carried on their ascent while small caps are again underperforming, sparking questions regarding the genuine bullish nature of this market.

SPY’s promising gain offers encouragement. This arises from the fact that it's challenging to maintain a confident bullish stance when all the gains are primarily accruing to the so-called ‘Magnificent 7’, previously known as FAANG. These stocks have mainly driven the market-cap-weight gain in the S&P 500 in recent years, leaving the rest of the stock and bond market on the sidelines.

Over the past year, one prevalent error among investors was underestimating the potential rise in price-to-earnings multiples, particularly for large-cap and mega-cap stocks like those comprising the ‘Magnificent 7.’

Furthermore, the era of viewing stocks as the sole viable investment option has waned. For the past two years, investors have experienced attractive returns through bonds or even by allocating a portion of their portfolio to a money-market fund, with several offering yields exceeding 5%.

Bottom Line

Within just three weeks of November, a significant shift occurred — from initial skepticism about the bull market's validity to witnessing its first correction and ultimately seeing the S&P 500 Index rise to a new historical peak. A swift recovery saw stocks rise again, erasing the memory of the recent correction.

Every sector within the S&P 500 Index closed in positive territory, with more cyclical and economically sensitive industries leading the charges. This demonstrates the enduring expansion and robustness of the bull market, which, up until recently, has primarily been propelled by the strong performances of ‘Magnificent 7.’

With the current bullish trend and the anticipated positive impact of the holiday season, stocks could maintain their rally, even reaching previous high levels.

Bank of America Corporation's strategists suggest that due to U.S. companies' resilience in dealing with higher rates and macroeconomic disturbances, the S&P 500 is on track to reach a fresh peak in 2024. Meanwhile, RBC's projection for the SPY's EPS in 2024 stands at $232, indicating a promising trajectory for additional gains in the coming year.

However, the existing price of the index appears to already factor in the expected recovery in the SPY's forecasted EPS for 2024. Therefore, it may not be sufficient to drive the index's growth at this year's remarkable pace. It should also be noted that potential factors like a recession or emergent political or geopolitical unrest could pose further complications. Therefore, investors should tread with caution.

7 Historically High Performing Thanksgiving Stocks

Posted on by The INO.com Team

Amid mounting global challenges, it's essential to savor the lighter aspects of life. History shows a bullish trend during the holiday-shortened Thanksgiving week, fueled by increased consumer spending, the surge in holiday travel, and a lower cost of Thanksgiving spread.

Retailers anticipate robust sales during the festive week to turn over a profit for the year. Consequently, they offer discounts and attractive deals on overstocked items, seasonal goods, high-priced commodities, and holiday decor and gifts. Over the past decade, the retail sector has consistently surpassed the S&P 500 during this time frame.

2023 is predicted to witness a record-breaking holiday expenditure during November and December, indicating growth between 3% and 4% over 2022, snowballing the total spent from $957.3 billion to an estimated $966.6 billion. A 2023 Deloitte holiday survey suggests consumers are projected to spend an average of $1,652 during this holiday season, exceeding the pre-pandemic spending levels.

Despite witnessing a dip in October – its first in seven months – U.S. retail sales are expected to rebound. Despite economic uncertainties pressurizing customers, they prioritize holiday expenses during this year's shopping season and are looking for attractive deals and promotions to guide their expenditures.

Approximately 90% of shoppers planning to shop during the Thanksgiving break aim to visit a store to make purchases or collect an online order, with 84% planning to shop online.

Auto manufacturers were grappling amid the United Auto Workers strike. After successful negotiations with General Motors, October 30, 2023 marked the end of the strike. Kelley Blue Book reports that many car dealerships hoarding new vehicles due to fears of scarcity are currently dealing with an oversupply. The average dealership now boasts a 67-day supply of vehicles, although certain brands are still coping with undersupply. The swing in supply could generate lucrative deals for the holiday season.

The airline industry is bracing for the imminent holiday season, expecting record passenger volumes. The Transportation Security Administration projects a staggering 30 million passengers to be screened, potentially setting a new travel record. The pinnacle of this busy stretch is expected to be the Sunday following Thanksgiving, with approximately 2.9 million air travelers anticipated.

According to the Federal Aviation Administration, Thanksgiving flights could peak at 49,606 on the preceding Wednesday – a significant rise compared to last year's all-time high of 48,192. Many airlines are adequately prepared for severe weather conditions, having learned lessons from the previous year when they were compelled to cancel thousands of flights across the country due to adverse weather.

Thanksgiving continues to defy economic headwinds like rising inflation and dwindling consumer savings. Understanding the holiday's implications goes beyond recognizing it as a time for feasting and expressing gratitude; it is also crucial to comprehend its effects on stock market trends.

In the weeks leading up to Thanksgiving, the stock market traditionally experiences more substantial activity as traders recalibrate their strategies. Historically, the S&P 500 has closed the week on an optimistic note three-quarters of the time since 1961, with a median gain of 0.3%.

Furthermore, the S&P 500 has posted positive figures for the week two-thirds of the time, presenting investors with a median gain of 0.75%. Notably, amid the 2008 Global Financial Crisis, the S&P 500 reported an impressive 12% profit during Thanksgiving week.

This article will delve into the influence of Thanksgiving on various sectors like food, beverage, auto, e-commerce, and travel stocks. The seven stocks that could benefit from the holiday week are discussed below:

Amazon.com, Inc. (AMZN)

E-commerce behemoth AMZN is primed to reshuffle the deck of the festive commerce landscape. With a soaring 71.3% year-to-date gain, the company's performance deserves praise. The most recent earnings report depicts an impressive 12.6% revenue surge, hitting a staggering $143.08 billion. AMZN's efforts have been focused on more than just following the market trend, but indeed establishing it.

Market murmurs reflect the awe inspired by the company. Its impressive market cap exceeding $1.48 trillion, coupled with an energetic average volume of 52.49 million, reveals the momentum of AMZN this Thanksgiving.

In a period blossoming with high consumer activity, hundreds of millions of goods are purchased from AMZN. Thus, the company’s fourth-quarter results will provide Wall Street with a comprehensive snapshot of the festive shopping season.

Analysts expect AMZN’s revenue to increase 11.2% year-over-year to $165.85 billion, while EPS is expected to be $0.76, up significantly year-over-year.

Monster Beverage Corporation (MNST)

The Corona, California-based energy drink provider MNST maintains a consistent demand for its beverages, unfazed by frequent price uplifts. The third quarter’s profit surpassed expectations, catalyzed by increased energy drinks and hard seltzers prices.

A decrease in freight and aluminum can costs from the peaks experienced during COVID-19 has inadvertently facilitated the elevation of previously pressured margins.

As of May 2022, MNST beverages have reached the list of top-selling energy drinks in America. The company's momentum will likely persist as a dynamic array of product launches is forecasted to encourage stable growth. A profound distribution network across international markets and a focus on expanding opportunities bode well for future gains.

Bolstered by robust demand trends, sound pricing strategies, and continuous product development, MNST's resilience stands firm. Net sales for the 2023 third quarter increased 14.3% to $1.86 billion. Analysts expect MNST’s revenue and EPS to increase 16.3% and 36% year-over-year to $1.76 billion and $0.39, respectively.

General Motors Company (GM)

2023 is shaping to be a benchmark year for car consumers seeking year-end deals. An unprecedented converging scenario involving elevated inventory levels, significantly increasing interest rates, and traditional holiday discounts is navigating toward big discounts.

Annually, the holiday season witnesses an eruption of optimum offers from car dealerships. Conscious that consumers are more inclined to spend during the festive season, automakers and dealerships deliver enthralling promotions, markdowns, and exclusive deals.

Consequently, after years of observing these seasonal conventions, buyers expect bountiful year-end car discounts, often holding back on purchases until December to avail of them.

For November, GM offers notable cash rebates on various 2023 models. Buyers can expect up to $4,000 off the GMC Sierra 1500 and $3,500 off the Silverado 1500. On average, a rebate of around $1,500 is currently on offer across all GM models.

This tactic could pivotally steer the Detroit-based auto giant's fortunes upward as we enter the holiday season. Amid these developments, for the fiscal quarter ending December 2023, analysts expect GM’s revenue and EPS to be $39.58 billion and $0.97, respectively.

Delta Air Lines, Inc. (DAL)

As Americans traverse the nation to unite with their families during the Thanksgiving season, the holiday is anticipated to act as a definitive marker for the aviation industry's capacity to navigate the year-end festivity period despite facing hurdles of sustained deficit of air traffic controllers.

DAL, bolstered by its strong position, is primed to capture a sizable share of this travel surge. Boasting one of the most comprehensive domestic route networks within the continental U.S., DAL is optimally set up to accommodate these customers.

Being one of the four major carriers dominating over 60% of the U.S. aviation market, DAL persistently demonstrates robust bookings – a trend spearheaded by its premium offerings, which significantly eclipsed the main cabin reservations in recent quarters. Catering to premium passengers has successfully insulated DAL from some of the financial strains budget airlines have faced recently.

DAL projects to witness between 6.2 million to 6.4 million passengers this Thanksgiving, an increase of 5.7 million passengers the airline accommodated last year and is anticipated to surpass the 6.25 million passengers transported in 2019.

DAL emerges as a promising prospect for investors weighted towards capitalizing on dwindling oil prices and the future supply chain improvement. These factors stand to positively impact profit margins within the aerospace industry down the line.

For the fiscal quarter ending December 2023, analysts expect DAL’s revenue is expected to increase 3.9% year-over-year to $13.96 billion, while EPS is expected to be $1.14.

eBay Inc. (EBAY)

With over $20 billion in market cap, EBAY, an established e-commerce heavyweight, is tirelessly striving to attract its consumers' interest and spending power. Customers seeking automotive necessities, smartwatches, and Apple products can reap the benefits of up to 75% discount by commencing their shopping endeavors with EBAY this holiday season.

EBAY constantly refines its strategies to uphold its preeminence in an industry characterized by relentless evolution and revolution. As the holiday season looms, its performance is under intense scrutiny as never before, making its sales forecast a widely watched indicator in the e-commerce landscape.

For the fiscal quarter ending December 2023, analysts expect EBAY’s revenue and EPS to be $2.51 billion and $1.02, respectively.

Conagra Brands, Inc. (CAG)

CAG, a leading North American food company, stands to gain as the anticipated cost of this year's Thanksgiving meal is set to decrease.

American Farm Bureau Federation survey has revealed that the average expense of a conventional Thanksgiving dinner for 10 people in 2023 will be roughly $61.17, or under $6.20 per individual. This reduction is largely attributed to a 5.6% year-over-year decrease in turkey prices and notable reductions in the whipping cream and cranberries prices by 22.8% and 18.3%, respectively.

The declining grocery costs could lead to a sales uptick for CAG this festive season.

Moreover, preparing a Thanksgiving dinner also encompasses multiple stressors, including shopping, planning, and the actual cooking process. However, CAG's sophisticated meal-kit delivery service can eliminate two primary pressure points.

By delivering all the necessary pre-portioned and prepared ingredients required to prepare a mouthwatering meal directly to the customer's doorstep, CAG offers a solution for consumers to enjoy a stress-free holiday season.

For the fiscal quarter ending November 2023, analysts expect CAG’s revenue and EPS to be $3.25 billion and $0.68, respectively.

United Airlines Holdings, Inc. (UAL)

UAL anticipates a record-breaking surge in travelers this Thanksgiving holiday season, projecting significant revenue growth. The holiday travel period, defined as November 17 to November 29, sees the airline expecting to serve over 5.9 million passengers. This indicates a roughly 5% rise compared to 2019 and a significant 13% increment from last year's figures.

UAL plans to operate an average of over 3,900 daily flights to manage the increased traffic, translating to approximately three departures per minute. Therefore, the airline has introduced over 550,000 seats to accommodate high passenger volumes.

UAL attributes its heightened demand to the success of its basic economy pricing option. This economical ticket option allows UAL to compete effectively against rival ultra-low-cost carriers.

UAL’s third-quarter revenue from its basic economy rose 50% annually. UAL’s CEO Scott Kirby credits this substantial gain to the company’s “improved product.”

For the fiscal quarter ending December 2023, analysts expect UAL’s revenue is expected to increase 9.5% year-over-year to $13.58 billion, while EPS is expected to be $1.69.

Is Lululemon Athletica (LULU) Set to Surge 18%?

Posted on by The INO.com Team

Shares of Lululemon Athletica Inc. (LULU) have witnessed continued momentum. Over the past month, the stock has gained 8.7%. Its recent uptrend appears to be the result of a research note issued on November 17 from analysts at Truist Financial, which initiated coverage on LULU shares.

The firm set a “Buy” rating and a $500 price target on LULU stock. This target implies more than 18% upside from the current price level.

Truist Financial likes LULU’s growth profile compared to other retailers in the athletic apparel space. In their coverage of LULU, analysts noted that they “believe Lululemon has some of the strongest brand loyalty in the activewear industry as its direct to consumer model enables it to invest more in product & foster deeper customer relationships.”

This brand loyalty, combined with the retailer’s continued expansion initiatives in several key global markets, could provide significant growth that other retailers may struggle to achieve in the upcoming years.

LULU’s shares have surged more than 13% over the past six months and 30.6% year-to-date to close the last trading session at $422.44. Moreover, the stock is trading above its 50-day and 200-day moving averages of $393.67 and $366.77, respectively, indicating an uptrend.

Now, let’s discuss several factors that could impact LULU’s performance in the upcoming months:

Addition to S&P 500 Index

Inclusion to the S&P 500, the most widely followed benchmark of the U.S. stock market, added to an already winning year for LULU. The Canadian athletic clothing company joined the major equity benchmark before the opening of trading on October 18.

“We look upon the addition of shares to the major index as a potential catalyst for incremental interest and buying,” Oppenheimer analyst Brian Nagel wrote in a note to clients.

Despite prevailing economic uncertainty, higher-income consumers' willingness to keep spending on renowned apparel brands, including Lululemon and Abercrombie & Fitch Co., lifted shares.

Positive Recent Developments

On September 27, LULU and Peloton Interactive, Inc. (PTON) announced a five-year strategic global partnership through which Peloton will become the exclusive digital fitness content provider for Lululemon, and Lululemon will be the primary athletic apparel partner to Peloton.

This multi-dimensional agreement brings together the best in fitness content and athletic apparel to inspire a combined community of more than 20 million members and guests globally. This collaboration will enable Lululemon to enhance its brand awareness, acquire more customers, and generate incremental revenue through PTON’s online channels and physical stores.

On June 6, lululemon and Xponential Fitness, Inc. (XPOF), the largest global franchisor of boutique fitness brands, renewed their partnership, bringing an expanded selection of digital workouts to Lululemon Studio. This collaboration builds upon the success of the initial launch last October and further enhances the distinctive offerings available to Lululemon Studio members.

Robust Financial Performance in the Last Reported Quarter

The athletic apparel retailer reported sales and earnings that surpassed Wall Street’s estimates in the second quarter of fiscal 2023. LULU reported net revenue of $2.21 billion, beating the analysts’ estimate of $2.17 billion. This compared to the revenue of $1.87 billion in the second quarter of 2022.

The company’s sales were fueled by solid growth internationally, including a 61% increase in China. LULU’s CEO Calvin McDonald said e-commerce and in-store sales are performing “incredibly well” in China. The retailer has 107 stores in the country and plans to open nearly 35 stores internationally during the ongoing fiscal year, and the majority will be in the region, McDonald added.

Moreover, lululemon opened ten net new company-operated stores during the second quarter, ending with 672 stores.

LULU’s gross profit grew 23% from the year-ago value to $1.30 billion. Its income from operations rose 19.5% from the year-ago value to $479.26 million. The company’s net income increased 18% from the prior year’s period to $341.60 million. Its earnings per share came in at $2.68, above the consensus estimate of $2.54 and up 18.6% year-over-year.

As of July 30, 2023, the retailer’s cash and cash equivalents stood at $1.11 billion, compared to $498.83 million as of July 31, 2023. Its current assets came in at $3.32 billion versus $2.39 billion as of July 31, 2022. Inventories at the end of the fiscal 2023 second quarter increased 14% to $1.70 billion compared to $1.50 billion at the end of last year’s second quarter.

Upbeat Full-Year 2023 and Long-Term Outlook

“Our performance remained strong in Q2 as both revenue and EPS exceeded our expectations. Our ongoing momentum is a reflection of our portfolio approach to growth, differentiated business model, and innovative product assortment. We are excited about our opportunities in the second half of the year and look forward to continue delivering on our Power of Three ×2 growth plan,” said Meghan Frank, LULU’s Chief Financial Officer.

For the third quarter of fiscal 2023, the retailer expects net revenue to be in the range of $2.165 billion to $2.190 billion, representing growth of approximately 17% to 18%. LULU's earnings per share are anticipated to be in the range of $2.23-$2.28 for the quarter.

For the full year, LULU expects net revenue to be between $9.51-$9.57 billion, representing growth of 17%-18%. This is above the prior guidance of $9.44-$9.51 billion. The apparel retailer's earnings per share are expected to be between $12.02 and $12.17 for the year, compared to the previous range of $11.74 to $11.94.

The company's Power of Three ×2 growth plan suggests a doubling of the business from 2021 net revenue of $6.25 billion to $12.5 billion by 2026. The key pillars of this ambitious plan are product innovation, guest experience, and market expansion. The growth strategy includes a plan to double men’s, double direct-to-consumer, and quadruple international net revenue relative to 2021.

Impressive Historical Growth

LULU’s revenue and EBITDA have grown at respective CAGRs of 31.7% and 36.4% over the past three years. The company’s EBIT has increased 39% over the same timeframe, while its net income and EPS have improved at CAGRs of 23.1% and 24.2%, respectively.

Additionally, over the same period, the company’s total assets have grown at a CAGR of 19.7%, and its levered free cash flow has increased at a 30.9% CAGR.

Favorable Analyst Estimates  

Analysts expect LULU’s revenue to increase 17.8% year-over-year to $2.19 billion for the third quarter ending October 2023. The consensus earnings per share estimate of $2.28 for the ongoing quarter indicates a 14% year-over-year improvement. Moreover, the company has topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.

The company’s revenue and EPS for fiscal year (ending January 2024) are expected to grow 18.3% and 20.9% year-over-year to $9.59 billion and $12.17, respectively. For the next year 2025, Street expects LULU’s revenue and EPS to increase 13.4% and 15% from the previous year to $10.88 billion and $14, respectively.

Bottom Line

LULU’s revenue and earnings beat analysts’ expectations in the last reported quarter. The apparel retailer posted solid financial results and raised its full-year 2023 guidance.

CEO Calvin McDonald said, “Our Q2 results highlight the ongoing strength of the business amid a dynamic operating environment. I am proud of how our teams continue to deliver on our vision and offer an exciting pipeline of new products and experiences to our guests around the world. Our continued ability to gain market share and bring new customers into the brand illustrates the significant runway ahead for lululemon.”

The company’s continued business momentum reflects its differentiated business model, a diverse and innovative product assortment, and strategic initiatives to expand its brick-and-mortar footprint.

LULU’s stock is up more than 30% year-to-date and could climb even higher. Despite weakness in the overall apparel market, lululemon had a strong year owing to several factors, including solid financial performance, joining the S&P 500 index, and more.

Given its solid financials, impressive price performance, improving profitability, and optimistic long-term outlook, LULU is an ideal buy now.