Is Altria Group (MO) a High-Yield Investor's Dream?

Posted on by The INO.com Team

Altria Group, Inc. (MO), one of the world's largest producers and marketers of tobacco, cigarettes, and related products, possesses virtues appealing to income-focused investors. The company's commitment to shareholder value is evidenced by 54 consecutive years of dividend payments, the latest of which marked its 58th increase, resulting in an impressive dividend yield of 9.72%. This, along with its low non-GAAP forward P/E of 8.14x, elevates MO into a secure and appealing investment proposition.

However, income investors are advised to be diligent, given the shift in the business landscape. Despite the company's significant presence, there has been a noticeable lag in capturing the interest of certain fractions of the financial community.

The health perils associated with smoking, ranging from Cancer to chronic obstructive pulmonary disease (COPD) such as emphysema, are no secret. Nicotine's addictive nature results in many to continue smoking despite understanding these risks.

Acknowledging this reality, MO is reinventing its offerings, transitioning toward smokeless tobacco products and electronic alternatives like vapes. This shift stems from changing perceptions and attitudes toward smoking, buoyed further by the mushrooming popularity of smoking alternatives.

While venturing into vaping, MO must redouble its efforts to win significant market share. It could secure its future by matching its dominance in the traditional cigarette market within the e-cigarette industry.

Despite commanding a substantial 42.3% market share and 58.9% share in the premium segment, there are mounting concerns about the long-term ability of MO to sustain its dividend payments. This is due to the rising unpopularity of cigarettes amid health concerns.

The Richmond-Virginia-based tobacco company’s robust economic foothold is widely acknowledged. However, a slump in performance since its peak in mid-2017 has led to speculation that its glory days might be behind it. The company's recent third-quarter results substantiate these market apprehensions.

In the fiscal third quarter (ended September 30, 2023), total smokeable products volume declined 11.4% year-over-year as demand for its core cigarette business dwindled, exacerbated by the influx of illicit e-vapor products. This downturn began amid the COVID-19 pandemic and has been eating into product volumes ever since.

Its revenue for the quarter declined 2.5% year-over-year. However, MO has so far managed by consistently raising cigarette prices for a shrinking customer base, which allowed it to maintain revenue acceptable for its dividend payout, thus attracting income-oriented investors.

This year, MO has so far accrued pre-tax charges amounting to $424 million for tobacco litigation, including the settlement of JUUL-related litigation. In May, MO settled an estimated 6,000 lawsuits accusing it of exacerbating the teen vaping epidemic through its prior investment in JUUL.

In addition to falling short of Wall Street’s expectations for the third quarter of 2023, the company narrowed the current fiscal year’s adjusted EPS outlook. The company expects the adjusted EPS between $4.91 and $4.98, or a growth rate of 1.5% to 3%, down from the prior forecast of between $4.89 and $5.03, or a growth rate of 1% to 4%.

MO’s shares have dipped slightly after an underwhelming third-quarter performance and a narrowed 2023 earnings outlook. It has lost over 10% year-to-date.

Bottom Line

MO faces significant macroeconomic challenges, competition from illegal merchants and manufacturers contesting NJOY, and a substantial decline in legacy tobacco product sales.

Cigarettes constitute approximately 90% of MO's gross revenue. The firm is grappling with the consequences of its exclusive reliance on a single-market strategy. July’s Gallup poll indicates declining smoking rates in the U.S. as cigarette use drops. There is a growing concern that demographic trends might inevitably usher the company's revenue into decline.

Moreover, considering its poor fundamentals in the last reported quarter, a segment of the investment community may be suitable to assume higher execution risks, which perhaps the company's modest valuation may not have fully considered.

Its solid dividend yield compares with the S&P Index's 1.5% yield and other reliable income alternatives. Apprehensions persist, however, regarding the company's capacity to offset volume dips with long-term price hikes. Investor unease persists about the feasibility of the projected mid-single adjusted EPS growth outlook through 2028.

Along with MO's appealing valuation and high dividend yield, investors must consider the factors discussed in this article before investing in the stock.  

4 Stocks to Buy Before Black Friday 2023

Posted on by The INO.com Team

Black Friday, a renowned shopping holiday, is rapidly gaining popularity worldwide. The fervor surfaces like clockwork every year. The event signals the onset of the festive retail period, where vendors entice consumers with considerable discounts and appealing deals on merchandise.

Consumers’ scramble for long-desired products is typically the culmination of months of intense preparation undertaken by retailers, warehouse supervisors, and distribution center managers.

Financial analysts conventionally consider the sales returns on Black Friday to outline prevailing consumer confidence. For retail entities, Black Friday has consistently offered an immense financial uplift. Many consumers leverage the occasion to fulfill their Christmas shopping needs at competitive prices.

With persistent escalations in living costs pressurizing household budgets, 74% of consumers intend to exploit the November sales extravaganza in 2023. The National Retail Federation forecasts that holiday spending will increase annually by 3% to 4%. This year's total festive spending is anticipated to range between $957.3 billion and $966.6 billion.

Black Friday is transitioning from physical store-bound activity to being predominantly digital. In 2022, 69% of Black Friday shopping occurred online, as consumers splurged a record-breaking $9.2 billion, according to data from Adobe Analytics. Furthermore, logistical operations for this retail marathon require meticulous strategizing by retail managers, leading to millions in annual outlay.

As digital transactions encroach on the week-long event, it carries notable implications for delivery logistics. Notably, while retailers profit from the holiday season, package delivery services also stand to reap considerable benefits.

Considering this backdrop, it is pertinent to examine why United Parcel Service, Inc. (UPS), FedEx Corporation (FDX), eBay Inc. (EBAY), and Best Buy Co., Inc. (BBY) could be solid investments this festive season.

United Parcel Service, Inc. (UPS)

With a market cap of over $121 billion, UPS is a logistics behemoth that offers various integrated solutions for customers scattered across more than 200 locations worldwide.

Despite its significant standing, the company has been grappling with an assortment of challenges throughout this year. These range from a weakening demand due to economic slowdown to expensive, drawn-out labor contract negotiations, all translating into a forecasted decline in the company’s revenue and earnings for the current fiscal year.

The protracted labor talks significantly distorted UPS' earnings during the year. The resulting five-year contract led to a whopping $500 million upfront expenses in the third quarter alone. At the same time, the extended negotiations caused many customers to switch their deliveries to other networks.

However, opportunities abound as the Black Friday holiday season approaches for UPS to turn the tide. This retail extravaganza provides ample scope for UPS to augment its revenue, attract fresh clientele, and retain its existing customer base, courtesy of its high-quality service offerings.

UPS is improving the underlying quality of its business. This is most easily seen in two areas relating to its revenue. The first is the conscious decision to be more selective over deliveries rather than chasing volume growth. Second is that UPS has made great strides in expanding its connections with small and medium-sized businesses (SMB) and healthcare customers, and it's been able to significantly grow its revenue per piece in recent years.

Moreover, the company's noteworthy 4.7% dividend yield appeals to a broad swathe of income-oriented investors, and value investors also find favor given its appealing valuation metrics. The firm's below-industry non-GAAP P/E ratio presents a lucrative buying opportunity for investors.

Over the past year, the stock has lost roughly 20% and trails behind the 50, 100, and 200-day moving averages. However, Wall Street analysts forecast the stock to reach $168.30 in the next 12 months, indicating a potential upside of 17.6%. The price target ranges from a low of $100 to a high of $202.

FedEx Corporation (FDX)

The shipping and logistics company FDX, with a market cap of over $63 billion, is poised to reap significant benefits from the upcoming Black Friday sales. In anticipation of heightened online shopping activity during this period, increased demand for shipping services allows the company to expand its customer reach and deepen its market penetration.

Its potential to attract consumers by offering holiday promotional discounts on its services could significantly drive its revenue growth and expand its market share. The company's decision to partner with retailers for shipping services further bolsters the potential for enhanced revenues during this season of heightened consumer spending.

Additional services provided by FDX, including gift wrapping, package tracking and insurance, could further distinguish it in a competitive marketplace, attracting additional consumers during the holiday season.

Furthermore, FDX's effective cost-reduction strategies have successfully strengthened its financial standing. Outperforming Wall Street predictions, the international courier company reported impressive fiscal first-quarter adjusted earnings of $4.55 per share.

This robust financial performance led the company's management to elevate its future financial outlook. FDX shares gained momentum after the Memphis-based firm announced adjusted earnings expectations for fiscal 2024, projecting $17 to $18.50 per share.

The company also expects capital expenditure to reach $5.7 billion, with investment priorities geared towards improving efficiency through fleet and facility modernization, network optimization, and automation strategies.

Driven to implement transformative initiatives enhancing efficiency and reducing expenses, FDX anticipates building upon current momentum to improve profit margins and returns throughout the fiscal year. The stage is set for another year of exceptional profitability for FDX, with shares currently trading at a reasonable valuation.

Over the past year, the stock has gained roughly 45% and trades above the 200-day moving average of $237.12. However, Wall Street analysts forecast the stock to reach $297.85 in the next 12 months, indicating a potential upside of 17.2%. The price target ranges from a low of $265 to a high of $330.

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. The company initiated the publication of its discount coupons on November 6.

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.

The company recently expanded access to its Generative AI technology, an innovative system designed to upgrade the listing experience for sellers, which is now available to mobile users in the United States, the United Kingdom, and Germany, and 50% of desktop users in these regions.

However, EBAY's recent sales forecast for the upcoming holiday period has somewhat dispirited investors. Expected revenues for the current quarter are anticipated to total between $2.47 billion and $2.53 billion, which, while robust, fall below the industry analysts' average projections of $2.60 billion.

Its bleak revenue predictions for the historically lucrative holiday quarter indicate continued difficulties in retaining customers amid fierce competition from larger competitors. Despite U.S. online sales being projected to increase by 4.8% during the holiday season spanning November 1 to December 31, EBAY faces an uphill battle to attract traffic. To weather these challenges, the company plans to enhance its cost efficiencies to safeguard profit margins and earnings.

The unexpected forecast emanated shockwaves throughout the financial sector, particularly unsettling EBAY investors. Post-announcement, the company's shares suffered a significant plunge, underscoring the heavy expectations investors attach to EBAY due to its commanding position in the e-commerce market.

Over the past year, the stock has lost over 12% and trades below its 50-, 100-, and 200-day moving averages. However, Wall Street analysts forecast the stock to reach $44.75 in the next 12 months, indicating a potential upside of 11.6%. The price target ranges from a low of $32 to a high of $56.

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.

Best Buy Co., Inc. (BBY)

BBY, with over $14 billion market cap, is a specialty consumer electronics retailer that introduces various promotional events via its recently inaugurated Holiday Gift Center – offering unique exploration and immersive discovery experiences of cutting-edge technologies for its clientele. BBY members can anticipate exclusive savings throughout the holiday period. The company will depend on its My Best Buy membership benefits to boost this year's holiday sales.

Interestingly, BBY finds itself in a unique situation this festive season as it battles to maintain market share during a time frame it typically dominates. The retailer has tempered expectations for a highly successful holiday season, which usually accounts for a significant proportion of its profit margins.

While BBY has a low non-GAAP P/E of 10.30x, its dividend yield of 5.74% remains low for various reasons. As of July 29, 2023, BBY has $8.43 billion in current liabilities and $8.30 billion in current assets. Of its current assets, $5.65 billion in merchandise inventories highly depends on consumer spending patterns.

The company’s vulnerability can be illustrated further by its lower than 1x current ratio. Given the upcoming debt maturity, the company’s fortunes largely hang on the successful sale of inventory to maintain its dividend.

This year’s holiday season provides a moment for BBY's modern retail business model – which largely thrived during the pandemic – to prove its resilience. The Richfield, Minnesota-based firm continues to concentrate on enhancing its digital capabilities, such as augmenting its omnichannel services. Its consultation service, supporting customers' personalized tech requirements, has grown in popularity.

In the second quarter that ended July 29, 2023, digital sales comprised 31% of our domestic revenue, consistent with the year-ago quarter and nearly twice as high as the domestic revenue percentage in the pre-pandemic second quarter of fiscal 2020.

Although the BBY stock has declined over 10% over the past year and is trading beneath the 100-day and 200-day moving averages, Wall Street analysts remain optimistic. They forecast the stock to reach $78.60 in the next 12 months, indicating a potential upside of 18.2%. The price target ranges from a low of $60 to a high of $110.

Even though it is perceived as a risky stock with slim margins and limited appeal to investors, BBY is determined to convince potential investors that its forward-looking strategies, industry reshaping efforts, and focus on advancing in-store experiences and robust pickup/delivery operations mark it as a worthwhile investment prospect. Hence, it could be best added to the watchlist.

Datadog (DDOG): A Software Industry Savior?

Posted on by The INO.com Team

  Shares of Snowflake Inc. (SNOW), MongoDB Inc. (MDB), and Elastic N.V. (ESTC) rallied sharply in last Tuesday’s premarket trading after Datadog, Inc.’s (DDOG) stronger-than-expected third-quarter earnings report eased fears about consumption-based software companies for the most recent quarter.

SNOW’s shares surged more than 8%, shares of MDB were up nearly 6%, while ESTC shares climbed about 4%. DDOG’s stock surged more than 24% last Tuesday, marking its best day ever. Moreover, the stock has gained more than 22% over the past month and nearly 51% year-to-date.

Mizuho desk-based analyst Jordan Klein called DDOG “clearly one of the most shorted and over-sold names” in all software and among consumption-based players. After Datadog topped expectations with its latest results and outlook, “Other peers like SNOW, MDB and ESTC yet to report should bounce, but also a good sign for AWS and Azure demand trends in my view and broader software,” wrote Klien.

Let’s determine if DDOG is a solid buy now and what the stock’s upbeat earnings report means for other computer-based software companies.

Here are some of the factors that could impact DDOG’s performance in the near term:

Robust Financial Performance in The Last Reported Quarter

For the third quarter that ended September 30, 2023, DDOG, the monitoring and security platform for cloud applications, reported revenue of $547.54 million, beating analysts’ estimate of $524.20 million. This compared to the revenue of $436.53 million in the same quarter of 2022. Its non-GAAP gross profit grew 29.5% year-over-year to $450.87 million.

Datadog continued to grow its customer base and ended the quarter with 3,130 customers worth $100,000 in annual recurring revenue (ARR). This is an increase of 140 customers from the previous quarter and 530 more than the company had a year ago, at the end of September 2022.

The cloud company’s non-GAAP operating income came in at $130.76 million, an increase of 74.7% from the prior year’s quarter. Its non-GAAP net income rose 95.5% year-over-year to $158.46 million. It posted non-GAAP net income per share of $0.45, compared to the consensus estimate of $0.34, and up 95.7% year-over-year.

Furthermore, net cash provided by operating activities increased 82.7% year-over-year to $152.78 million. DDOG’s free cash flow stood at $138.19 million, up 105.9% from the same period last year.

Upbeat Full-Year Guidance

“We were pleased with our execution in the third quarter, with 25% year-over-year revenue growth, robust new logo bookings, and a continued focus on solving our customers' DevSecOps pain points,” said Olivier Pomel, co-founder and CEO of DDOG.

“Companies across all industries and sizes are building cloud applications and services to deliver positive business outcomes, including more users, higher revenue growth, improved productivity, and cost savings. With our unified, cloud-native, end-to-end observability and security platform, Datadog is uniquely positioned to help our customers reach their goals,” added Pomel.

After upbeat third-quarter earnings and confidence in continued business momentum, DDOG raised its revenue and profit view for the full fiscal year 2023. For the full year, the company expects its revenue to be between $2.103 billion and $2.107 billion. Its non-GAAP operating income and non-GAAP net income per share are expected to be in the range of $453-$457 million and $1.52-$1.54, respectively.

DDOG now expects fourth-quarter revenue between $564 million and $568 million. The company’s non-GAAP operating income is anticipated to be between $129 million and $133 million, while its non-GAAP net income per share to be between $0.42 and $0.44.

Impressive Historical Growth

Over the past three years, DDOG’s revenue grew at a CAGR of 55%. Its tangible book value and total assets increased at CAGRs of 16.5% and 25% over the same period, respectively. Also, the company’s levered free cash flow improved at 88% CAGR over the same timeframe.

Positive Recent Developments

On November 8, Datadog expanded a strategic partnership with Google Cloud, which allows Google Cloud customers to proactively observe and secure their cloud-native and hybrid applications within Datadog’s unified platform.

As a part of the extended partnership and integrations, DDOG is one of the first AI/ML observability solution partners for Vertex AI, enabling AI ops teams and developers to monitor, analyze, and optimize the performance of their ML models in production.

Also, on August 3, DDOG announced new AI observability capabilities that assist customers in deploying LLM-based applications to production with confidence and help them troubleshoot health, cost, and accuracy in real-time.

These capabilities include integrations for the end-to-end AI stack: AI Infrastructure and compute, embeddings and data management, model serving and deployment, model layer, and orchestration framework. Datadog’s LLM observability includes model catalog, model performance, and model drift.

Datadog’s CEO Olivier Pomel told analysts on a conference call that “AI-native customers” contributed 2.5% of the company’s annualized revenue during the last reported quarter.

Favorable Analyst Estimates

Analysts expect DDOG’s revenue for the fourth quarter (ending December 2023) to grow 21.1% year-over-year to $568.56 million. The consensus EPS estimate of $0.44 for the ongoing year indicates a 68.6% year-over-year increase. Moreover, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

For the fiscal year 2023, Street expects DDOG’s revenue and EPS to grow 25.4% and 56.4% year-over-year to $2.10 billion and $1.53, respectively. In addition, the company’s revenue and EPS for the fiscal year 2024 are expected to increase 22.7% and 14.8% from the previous year to $2.58 billion and $1.76, respectively.

Rating Upgrade

Mark Murphy, an analyst at JPMorgan Chase & Co., upgraded his rating of DDOG to “Overweight” from “Neutral”, stating that the “worst period” of declining revenue growth at the solution solutions group has most likely ended. Also, the analyst bumped up the share price target of the stock to $115 from $90.

What Do DDOG’s Upbeat Earnings Mean for Other Computer-Based Software Firms?

Datadog and other consumption-based software companies, including Amazon.com, Inc.’s (AMZN) AWS, Microsoft Corporation’s (MSFT) Azure, and SNOW, among others, have been grappling with a slowdown in cloud spending by inflation-hit customers.

After COVID-19 prompted companies, governments, and schools to switch to cloud services driven by the surge in work-from-home, several cloud-computing firms enjoyed robust demand. However, when inflation hit last year, the central bank hiked interest rates, and cloud stocks began tumbling as companies responded by scrutinizing their IT spending as they engaged in cost-reduction measures.

Inflation has declined sharply from its 2022 peak, with the Consumer Price Index (CPI) showing further signs of easing in October. The core CPI, excluding volatile food and energy prices, increased 0.2% for the month and 4% year-over-year, against the forecast of 0.3% and 4.1%, respectively. The annual level was the lowest in nearly two years and down from 4.1% in September.

With these positive developments, cloud infrastructure providers indicated last month that some organizations’ cost-cutting efforts have begun to wane. Datadog’s Pomel also validated this observation, saying optimization activity among the company’s clients could be easing.

“Overall, we continue to see impact from optimization in our business, but we believe that the intensity and breadth of optimization we’ve experienced in recent quarters is moderating,” he said.

DDOG’s significant surge last week, following its upbeat earnings and optimistic guidance, also buoyed other cloud-computing names, including SNOW, MDB, and ESTC.

As per the latest forecast from Gartner, global end-user spending on public cloud is expected to rise by 20.4% to a total of $678.80 billion in 2024, an increase from $563.60 billion in 2023. Growing business needs and emerging technologies like GenAI drive cloud model innovation.

Bottom Line

DDOG, the data analytics platform provider, beat third-quarter Wall Street’s expectations for earnings and revenue. Further, the cloud company raised its full fiscal year 2023 guidance on third-quarter upside and expected continued business momentum.

Due to reduced IT spending by inflation-hit clients, Datadog’s revenue growth slowed from 83% in early 2022 to 25% now. However, this slowdown will likely “moderate and level out,” driven by the recovery in companies’ cloud spending, benefitting DDOG significantly. The company is well-positioned to serve its customers effectively with its unified, cloud-native, end-to-end observability and security platform.

According to Alex Zukin of Wolfe Research, DDOG has the potential to become the “fastest-growing software company” amid the AI boom. Datadog’s platform can offer advanced predictive analytics and intelligent alerting by leveraging new AI and ML capabilities.

Given DDOG’s solid financials, accelerating profitability, and bright growth outlook, it could be wise to consider investing in this software stock.

Red Flags: What's Driving Investor Caution With AMC, GRPN, and LCID This Week?

Posted on by The INO.com Team

The stock market appears to be regaining ground from the October slump, with noted gains in the S&P 500 and Nasdaq since the onset of November. However, while some stocks have displayed a rally, their stability remains questionable amid the Federal Reserve’s mixed signals.

Signs of a soft landing are emerging in the U.S. economy. A slowing job growth rate and reduced inflationary pressure inspired investor confidence that the Fed may refrain from further interest rate hikes and potentially consider cutting rates sooner.

Nevertheless, the market continues to grapple with volatility due to high interest rates and the daunting $33 trillion national debt posing a potential threat to the U.S. economy. Consequently, specific stocks could face increasingly volatile conditions moving forward.

This year's broad rally has not been all-inclusive, as certain equities have struggled. Despite performing well amid individual company challenges and lofty valuations, several stocks may lose their steady performance status should macro conditions deteriorate instead of improving.

In particular, Lucid Group, Inc. (LCID), AMC Entertainment Holdings, Inc. (AMC), and Groupon, Inc. (GRPN) are raising concerns among investors. Let’s delve into an in-depth analysis of this caution and what has tagged these stocks as potential red flags.

Lucid Group, Inc. (LCID)

Luxury EV maker LCID has gained considerable attention following Riyadh Air's announcement of a signed MOU with the former. This pivotal partnership is designed to encompass a range of operational, commercial, and marketing collaborations projected to heighten LCID's industry prominence significantly.

Further emphasizing its market strategy, LCID announced its adoption of Tesla’s North American Charging Standard (NACS), bolstering its customer service efforts by offering increased access to reliable and convenient vehicle charging solutions.

Despite LCID's promising potential in the burgeoning EV industry, its disappointing third-quarter financial results have exercised investor caution due to substantial shortfalls in revenue and production forecasts.

With $137.81 million in revenue in the third quarter, denoting a 29.5% year-over-year decrease, it marks four consecutive quarters when the company failed to meet market estimates. Its losses have also steadily accrued over the year. It burned through $630.89 million in the third quarter alone, amassing an annual total exceeding $2.17 billion.

The additional concern stems from significant production figures falling behind. It produced 1,550 vehicles during the quarter, representing a 32.1% year-on-year drop, signifying their lowest output figures since the company's inception. Furthermore, its Q3 deliveries of 1,457 Lucid Airs reflect a meager 4.2% increase from the prior year. This figure parallels its Q1 and Q2 metrics, generating concern amid typical expectations for escalating EV sales, particularly for startups commencing from a lower base.

Gradual delivery growth and loss escalation have raised significant questions surrounding LCID's profitability. The company has grappled with production increment challenges and slower-than-projected delivery growth, resulting in a revision of the previous sales outlook.

Initially, LCID projected a production forecast of 10,000 to 14,000 cars this year. Recent developments have led executive expectations to a more modest 8,000 to 8,500 units.

LCID shares experienced an approximate 10% decline after releasing less-than-ideal third-quarter results and decreased annual production guidance. Over the past year, it has lost 65.9%.

The company is projected to confront a slew of challenges in its trajectory. As a capital-intensive venture, it works assiduously to escalate its production efforts. As of September 30, 2023, its liquidity, including cash and short-term investments, was valued at $4.42 billion, marking a decline from the $5.25 billion as of June 30, 2023. Saudi Arabia contributed a significant proportion of this capital.

Despite the substantial backlog of orders from Saudi Arabia, a positive factor for LCID, the hefty price tags attached to its cars restrict widespread affordability. As per the company's website, the least expensive vehicle retails at $75,000, escalating to $250,000 for the most expensive model.

Adding to its woes, the preference for trucks over sedans among many Americans further impairs LCID’s efforts to expand operations and capture greater market share over time. Subsequently, excluding orders from Saudi Arabia, LCID also grapples with potential demand issues. Given the fiercely competitive nature of the American market, carving out a substantial niche would pose formidable challenges.

AMC Entertainment Holdings, Inc. (AMC)

AMC, engaged in the theatrical exhibition business, is grappling with ongoing financial pressure amid an upsurge in its debt load and ponderous liquidity management. In September, the company closed an at-the-market equity offering, amassing approximately $325.5 million following the sale of 40 million shares at an average price of $8.14 per share.

Less than a month preceding this, AMC underwent a 1-for-10 reverse stock split to bolster its capital. Following two consecutive quarters of profitability, as of September 30, 2023, the company's cash holdings totaled $729.70 million.

AMC has embarked on another stock sale as a lifeline to sourcing necessary funds. It plans to funnel $350 million of its Class A shares in an “at the market offering.” The achieved funds would be used to enhance liquidity and manage existing debt, along with funding general corporate operations.

However, AMC’s stock plunged over 88% over the past year. A significant drop of roughly 20% was observed upon publicizing its third-quarter earnings. The earnings report was not necessarily bad, as revenues increased 45.2% year-over-year to $1.41 billion, reaping net earnings of $12.3 million – a feat driven by robust theatrical attendance for Barbie and Oppenheimer. The $350 million stock sale announcement shook investors and incited a sell-off, driving share prices below the $9 mark.

Although the company seeks to fortify its balance sheet through additional funding, forecasts do not anticipate a return to a surplus working capital soon. As of September 30, 2023, AMC's working capital deficit was $549 million, compared to the deficit of nearly $847 million as of June 30, 2023.

The third-quarter raise of over $325 million resulted in a modest improvement in the working capital balance of $298 million for the quarter. Consequently, AMC's fresh plans for equity sales may be inadequate in bridging the company’s capital gap, suggesting a need for further funds in the near term.

Moreover, AMC's working capital will likely remain negative as the cash influx will be directed towards debt repayment, potentially sparking further equity sales.

Despite making a recovery from the pandemic lows, AMC's current performance still falls short of ensuring long-term viability. Future equity sales could be on the horizon, and each presumably more dilutive than the last, particularly as the stock teeters near its all-time low levels.

Groupon, Inc. (GRPN)

GRPN has yet to achieve profitability. For the fiscal third quarter that ended September 30, 2023, its revenue declined 12.4% year-over-year to $126.47 million, while net loss attributable to GRPN came at $41.36 million or $1.31 per share.

Despite experiencing a surge over the past year, GRPN’s shares took a hit in October due to an unfavorable response to an announcement regarding an asset sale. Consequently, it is anticipated that the share price might continue to plummet.

As of September 30, 2023, the company’s working capital deficit stood at $158.06 million, slightly improving from $171.82 million as of June 30, 2023. Given its negative working capital, the company needs to secure funding to ensure survival and additional capital to facilitate a turnaround. This could potentially imply future dilution of shareholder value.

GRPN shares tumbled over 35% after announcing a new rights offering and the firm’s recognition of "challenged" business conditions. The board has approved an $80 million fully underwritten rights issue extended to all holders of its common stock. This will be done via non-transferable subscription rights to purchase common stock at $11.30 a share.

Currently, as GRPN’s share has dwindled to trade at $9.61 per share, it seems improbable that investors would be willing to purchase shares at the company’s set price of $11.30 – leaving the CEO and board members to foot the bill for this $80 million investment.

Looking ahead, for the fourth quarter of 2023, the company anticipates revenues to fall within the range of $127.5 million to $137.5 million, signifying a decline of 14% to 7% year-over-year. Furthermore, adjusted EBITDA is expected to be between $18 million and $25 million. The company’s pessimistic sentiment about revenue has spooked investors, leading to stock sell-offs.

4 Must-Have Holiday Stocks for Your Portfolio

Posted on by The INO.com Team

As the Christmas season approaches, traditionally marked by increased discretionary spending, retailers anticipate a much-needed boost. The consumer discretionary sector has faced considerable challenges in recent years, with many retailers depending on the festive season for over half of their annual sales.

Although post-Thanksgiving sales have evolved beyond their traditional one-day events, the closing weeks of the fourth quarter remain crucial for retailers seeking to improve their financial health. The National Retail Federation anticipates holiday spending this November and December to achieve record levels, projecting growth between 3% and 4% over 2022 to reach between $957.3 billion and $966.6 billion.

Deloitte's annual Holiday Retail Survey projects that 2023 consumer spending will exceed pre-pandemic levels for the first time, with the average consumer predicted to spend $1,652 on gifts, up 14% year-over-year.

Interestingly, there is a commonly observed "Santa Claus Rally" phenomenon in the financial market during this period – a seasonal surge in volume and trading that tends to last until Christmas. LPL Financial found that since 1950, a Santa Claus rally has occurred around 79% of the time.
Year-end holiday shopping, driving sales for retailers and related businesses, can increase stock prices. Investors are generally keen on a year-end rally that boosts their portfolios, while professional traders often consider it an influential factor in determining their year-end bonuses. The occurrence of a Santa Claus rally this year could be welcomed, given the sluggish behavior of stocks since August.

Investment focus is shifting toward stocks presenting the most significant opportunities now, with some manifesting more profitability potential than others if acquired before price surges. Many investors are identifying holiday stocks to capitalize on with the holiday shopping season looming.
Given this backdrop, let us delve into an in-depth analysis of consumer discretionary stocks Amazon.com, Inc. (AMZN), Walmart Inc. (WMT), Target Corporation (TGT), and Etsy, Inc. (ETSY) now.

Amazon.com, Inc. (AMZN)

As the winter holiday season draws near, e-commerce behemoth AMZN, with a market cap of over $1 trillion, is ramping into full festive gear. The Seattle-based firm hosted its recent Prime Day event on October 10 and 11, further revealing plans to enfold 250,000 additional personnel across its global operations in anticipation of the busy year-end shopping frenzy.

AMZN's biannual Prime Days are effective levers for amplifying revenue. The July event yielded over $12 billion worth of sales – a record-breaking feat that crowned it the most successful Prime Day ever. Striving to expand the holiday shopping duration, the company has been progressively ushering its secondary Prime Day event into the fourth quarter.

The impact extends beyond just the Prime Days. The company also greatly benefits from the surge in sales during the Black Friday and Cyber Monday promotions tied to the Thanksgiving holiday, offering substantial financial reinforcements. The company forecasted revenue between $160 billion and $167 billion for the current holiday quarter. However, analysts polled by LSEG were expecting revenue of $166.62 billion, at the higher end of AMZN's guidance.
AMZN has restructured its delivery network in its retail operations to strategically position goods closer to customers, allowing for faster, more cost-effective order fulfillment. The enhancement of its same-day delivery services has positively influenced its profit margins by encouraging shoppers to place orders more frequently and in larger quantities.

For the fiscal fourth quarter ending December 2023, its revenue is expected to increase 11.2% year-over-year to $165.86 billion, while EPS could reach $0.76, up significantly year-over-year.

On the stock market front, shares of AMZN have appreciated over 69% year-to-date and are trading above the 50-, 100-, and 200-day moving averages – an apparent sign of a bullish trend.

Echoing these encouraging prospects, Wall Street analysts expect the stock to reach $176.13 in the next 12 months, indicating a potential upside of 24%. The price target ranges from a low of $145 to a high of $230.

Walmart Inc. (WMT)

Initially established as a conventional brick-and-mortar retailer, WMT has become an influential omnichannel contender. The company’s strategic acquisitions of Bonobos, Moosejaw, and Parcel and its partnerships with industry giants Shopify and Goldman Sachs underscore this evolution. Further efforts, such as introducing delivery programs Walmart + and Express Delivery and investing in Flipkart – an acclaimed online e-commerce platform – exemplify these changes.

These mechanisms have strengthened the retail behemoth's position, allowing it to remain resilient within the dynamic landscape of the retail industry. The company's adaptive initiatives ensure continuous relevancy and competitiveness in this changing ecosystem.

The prominent discount retailer goes the extra mile for the holiday season, employing additional personnel and offering round-the-clock service from Thanksgiving to Christmas to accommodate last-minute shoppers. The company notably profits from Black Friday, Cyber Monday, and Boxing Day promotions, with attractive offers ranging from electronics and toys to clothing.

WMT's in-store and virtual purchases witnessed a substantial escalation during the holiday season, complemented by an upswing in the market.
WMT’s second-quarter financial performance exceeded Wall Street predictions, and the company elevated its full-year guidance. Propelled by robust grocery sales and enhanced online expenditure, the retailer registered a remarkable second-quarter earnings per share of $1.84, while revenue touched $161.63 billion.

The retail giant revealed a 24% year-over-year growth in its e-commerce sales during the second quarter of 2023, with same-store sales observing a 6.4% uptick. WMT anticipates a 4% to 4.5% overall surge in annual sales.

For the fiscal fourth quarter ending January 2024, its revenue is expected to increase 3.6% year-over-year to $158.42 billion, while EPS is anticipated to reach $1.66.

Shares of WMT have gained over 15% year-to-date and trade above the 50-, 100-, and 200-day moving averages, indicating an uptrend. Moreover, Wall Street analysts expect the stock to reach $180.46 in the next 12 months, indicating a potential upside of 9.8%. The price target ranges from a low of $165 to a high of $210.

Target Corporation (TGT)

Boasting a market cap exceeding $51 billion, TGT has demonstrated robust financial health in 2023, successfully safeguarding its profit margins amid a challenging retail environment. The firm maintained solid earnings and cash flow despite subdued consumer spending in fundamental areas like home décor.

As holiday shoppers navigate TGT’s illustrious aisles, they are presented with the retailer's holiday price match guarantee – a strategy aimed at streamlining shopping experiences while offering optimal pricing. Frequently running comprehensive sales on daily essentials and holiday requisites – from electronics to clothing and household goods, TGT facilitates economical purchases, countering rising inflationary pressures.

TGT adopts a strategic stance this festive season by emphasizing affordability in its holiday marketing schemes. Guided by the motto "However You Holiday, Do It For Less," TGT links everyday items within its seasonal collection, providing an affordable range for consumers facing economic challenges.
Recognizing that 75% of TGT customers initiate their digital shopping journeys on mobile platforms, the corporation has augmented its investment in digital channels by 20% in 2023, specifically focusing on media mix optimization throughout the holiday period. This concerted effort towards optimizing digital footprint hones in on social media.

Furthermore, TGT's innovative advertising campaigns encapsulate broad holiday themes like “Lights,” “Magic,” and “Style,” demonstrating their application across various product categories. These aspirational campaigns aim to inspire consumers as they prep for holiday social events, alongside fulfilling their routine shopping needs.

Enhancing its product offering, TGT has introduced thousands of new items this year, expanding from toys priced at $25 to affordable $1 stocking stuffers. The corporation spotlights partnerships with renowned brands, including Fenty Beauty, Kendra Scott, and Mattel and private label introductions like the recent Figmint kitchen range.

For the fiscal fourth quarter ending January 2024, its revenue and EPS are expected to increase 1.2% and 19.4% year-over-year to $31.77 billion and $2.26, respectively.

Wall Street analysts expect the stock to reach $145.03 in the next 12 months, indicating a potential upside of 32%. The price target ranges from a low of $105 to a high of $180.

Etsy, Inc. (ETSY)

Renowned as a premier online hub for handcrafted and vintage goods, ETSY is an ideal platform for consumers looking for inventive gift options, particularly during the bustling winter holiday season. The broad spectrum of products available on ETSY – from jewelry and clothing to toys and home décor – caters to the preferences of its 97.3 million active users offered by 8.8 million energetic sellers.

However, this year has posed significant challenges for ETSY. ETSY grapples with unfavorable financial outcomes, unlike its competitors, who have rebounded from pandemic-induced downturns. The company experienced another decline following the release of its third-quarter earnings report.

ETSY's unique business model – a marketplace that emphasizes handcrafted and vintage items and operates via network effects and switching costs – may be attractive, but ultimately, consistent growth is vital to sustain investor interest. While ETSY insists on its distinct positioning within a large potential market, its struggle to bolster gross merchandise sales (GMS) post-pandemic suggests that the demand for its products may be more limited than anticipated.

Growth in GMS was barely perceptible in the third quarter at just 1.2% year-over-year to $3 billion. GMS per active buyer was down 6% to $127, possibly reflecting the economic challenges.

Moreover, the company estimated GMS for the fourth quarter of 2023 to decline in the low-single-digit range year-over-year. This could deteriorate into a mid-single-digit drop if financial circumstances worsen and stabilize or marginally increase if conditions improve.

CEO Josh Silverman said, "There's no doubt that this is an incredibly challenging environment for spending on consumer discretionary items. It's therefore important to acknowledge that this volatile macro climate will make it challenging for us to grow this quarter."

Yet, amid this financial gloom, bright spots are visible for ETSY. For the fiscal third quarter that ended September 30, 2023, active buyers on the ETSY marketplace witnessed a 4% year-over-year increase, totaling 91.6 million, with growth in U.S. active buyer trends for the first time in seven quarters. The company has reactivated 6 million buyers, marking a 19% year-over-year uptick, and retention rates exceed pre-pandemic levels.

Simultaneously, ETSY's seller base surged 19% to 8.8 million overall. An additional 400,000 sellers have joined the Etsy marketplace in the quarter, bringing its total to 6.7 million. These sellers may use the platform to supplement their income amid inflationary and other economic strains.

However, it is crucial to point out that even though other discretionary retailers are grappling with the prevailing economic climate, ETSY continues to underperform compared to its e-commerce competitors. This inevitably prompts queries regarding when or whether we might witness a resurgence in ETSY’s growth on par with its peers.

For the fiscal fourth quarter ending December, its revenue and EPS are expected to increase 1.7% and 16.2% year-over-year to $820.69 million and $1.33, respectively. Wall Street analysts expect the stock to reach $74.39 in the next 12 months, indicating a potential upside of 16.3%. The price target ranges from a low of $50 to a high of $125.