Tag: second quarter

Is NuScale Power’s 120% Surge Sustainable?

Posted on by The INO.com Team

Nuclear power is on the brink of a transformation, thanks to the development of small modular reactors (SMRs). These innovative designs aim to make nuclear plants smaller, simpler, and easier to construct, which could play a crucial role in the shift away from fossil fuels. With the demand for clean electricity rising, driven by advancements in artificial intelligence, manufacturing, and electric vehicles, SMRs are gaining attention as a promising solution.

What makes SMRs unique is their small size, 300 megawatts or less power capacity, about a third of the size of traditional reactors. The goal is to build them like an assembly line, with parts made in factories and then put together on-site. However, there are still major challenges in getting the first SMR up and running in the U.S., and they likely won’t be commercially available until the 2030s.

But that didn’t stop the nuclear companies from being bullish, and NuScale Power Corporation (SMR) is one of the companies developing this technology. Shares of SMR have rallied 119.3% over the past six months. Moreover, this hot nuclear stock is up more than 215% this year. But is this surge sustainable? Let’s find out.

NuScale Is at the Forefront of SMR Technology

With over $1.8 billion invested since 2007, NuScale’s reactors are designed to generate up to 77 megawatts of electricity per module. These modules can be combined, allowing a single plant to produce as much as 924 MW. What makes this design stand out is its flexibility; the reactors are pre-fabricated, transported, and assembled on-site, significantly cutting down both construction time and costs.

These reactors are incredibly versatile, making them ideal for powering remote areas, industrial plants, or energy-intensive data centers, which are expected to account for 8% of U.S. power demand by 2030. As companies strive to meet carbon-neutral goals, SMRs could play a key role in reducing reliance on fossil fuels while delivering the efficiency of nuclear power.

NuScale’s technology has certainly attracted attention. Last year, Standard Power announced plans to build two SMR-powered facilities in Ohio and Pennsylvania, aiming to generate 2 gigawatts of clean energy for local data centers (expected to be operational by 2029).

However, it’s not all smooth sailing for NuScale. A major project to deploy SMRs in Idaho was canceled after inflation and rising interest rates caused costs to skyrocket from $5 billion to $9 billion. This led to the Utah Associated Municipal Power System (UAMPS) pulling the plug on the Carbon Free Power Project, which had been in the works since 2015. Initially estimated at $3 billion, the project’s costs ballooned to $9.3 billion by 2023, making it too expensive to continue. As a result, NuScale had to take a $50 million charge.

On the regulatory side, NuScale is proud to be the only company with a Standard Design Approval from the Nuclear Regulatory Commission. However, this approval covers its older 50 MWe reactors, not the current 77 MWe models, which the company expects to be approved by July 2025.

Despite the Carbon Free Power Project setback, NuScale’s President and CEO, John Hopkins, remains optimistic. During the Q3 earnings call, Hopkins emphasized that the company is focused on deploying its SMR modules and is “poised to expand into new markets, applications, and capabilities.”

He also highlighted upcoming projects, such as plans to develop two VOYGR-12 power plants, providing nearly 2 GW of clean energy to power data centers in Ohio and Pennsylvania. This green light pave signals a big step toward commercializing NuScale’s cutting-edge technology. Moreover, with agreements to deploy its reactors in key international markets, NuScale is set for solid growth as global demand for clean, reliable energy rises.

Should You Invest in NuScale Power Right Now?

While NuScale Power shows a lot of promise, it’s important to remember that the company is still in its early stages and not yet profitable. Over the past three years, NuScale has heavily invested in research and development to bring its small modular reactors (SMRs) to market. In the last 12 months, the company reported a net loss of $82 million, with a quarterly cash burn rate estimated at $20 million.

For the second quarter (ended June 30, 2024), SMR posted nearly $1 million in revenue but a significant net loss of $74.44 million, compared to $5.79 million in revenue and a $29.73 million loss during the same period last year. Its loss from operations also stood at $41.88 million, down from $56.12 million recorded in the prior year’s quarter.

The company holds $130.93 million in cash, enough to last about six quarters. However, if it continues losing money, it may need to raise capital through debt or equity, which could dilute existing shareholders.

On the bright side, governments worldwide are increasingly prioritizing clean energy, and NuScale could stand to benefit from rising investments in nuclear power. With its stock trading at $10, it might seem like an attractive entry point for investors hoping to ride the clean energy wave.

However, it’s important to stay cautious. While deals like the one with Standard Power are promising, they are still potential contracts, and things can change, as seen with the terminated UAMPS deal. Plus, NuScale is still quite far from being commercially operational and awaits approval for its updated reactors. Given the uncertain path to profitability, it could be wise for investors to keep an eye on this stock and see how the story unfolds before jumping in.

Is Abercrombie’s 150% Stock Gain Justified?

Posted on by The INO.com Team

Abercrombie & Fitch Co. (ANF), a digitally-led, omnichannel specialty retailer of apparel and accessories, has shown outstanding growth, with the stock surging nearly 150% over the past year despite a challenging macroeconomic environment. This substantial rise in value has drawn attention to whether the company’s growth trajectory justifies its current stock price or if a correction is on the horizon.

By analyzing ANF’s earnings, revenue growth, and future sales forecasts, we can evaluate whether the company is positioned to sustain these gains and remain a compelling investment in the retail sector.

Solid Second-Quarter Earnings and Revenue Growth Despite Retail Headwinds

ANF’s recent financial performance has exceeded analysts’ expectations, positioning it as a leading player in the retail sector. For the second quarter that ended August 3, 2024, the company reported record net sales of $1.13 billion, representing a 21% increase year-over-year with comparable sales growth of 18%. That surpassed analysts’ revenue estimate of $1.09 billion.

The strength of Abercrombie’s brand portfolio and enhancements to its global capabilities drove broad-based growth across regions, brands, and channels. The Americas led its performance in the last quarter, with net sales growth of 23%, building on the previous year’s 19% growth. Meanwhile, its EMEA region also delivered solid results, with a 16% rise in net sales.

By brand, Abercrombie saw a remarkable 26% year-over-year growth, matching last year’s performance, while Hollister experienced a strong rebound, achieving 17% growth thanks to better-than-expected summer and back-to-school selling. The retailer’s gross profit rose 26% from the year-ago value to $736.26 million.

Further, ANF’s operating income was $175.63 million for the quarter, a sharp improvement from $89.84 million a year prior, reflecting strong operational efficiency. Its net income was $135.38 million, an increase of 130.5% from the prior year’s quarter. The company posted net income per share of $2.50, compared to the consensus estimate of $2.22, and up 127.3% year-over-year.

ANF’s impressive financial performance contrasts sharply with the broader retail environment, where many companies are struggling with weak consumer demand and supply chain disruptions.

Retail giants like Macy’s, Inc. (M) and The Home Depot, Inc. (HD) have lowered their annual sales forecasts, citing slower discretionary spending. In contrast, Abercrombie has managed to buck this trend by revamping its merchandise and focusing on clearer brand identities. The introduction of dressier apparel and fashion-forward items like cargo pants has resonated with shoppers, helping the retailer expand its customer base and attract fashion-conscious buyers.

Moreover, ANF recently expanded the Abercrombie Kids with Haddad Brands partnership. The company’s partnership with Haddad Brands will focus on creating new distribution channels for the brand and expanding the product line by introducing infant and toddler categories, complementing the existing assortment for children aged 5 to 14.

Raised Full-Year 2024 Guidance

Abercrombie’s remarkable second-quarter performance led the company to raise its full-year sales forecast. It now expects net sales growth between 12% and 13%, up from its previous guidance of 10%. The company also raised its operating margin in the range of 14% and 15%. This upward revision is notable given the broader retail sector’s challenges, including inflationary pressures and shifts in consumer behavior.

Fran Horowitz, ANF’s CEO, said, “We delivered a strong first half of the year, and we are increasing our full-year outlook. Although we continue to operate in an increasingly uncertain environment, we remain steadfast in executing our global playbook and maintaining discipline over inventory and expenses. We are on track and confident in our goal to deliver sustainable, profitable growth this year, while making strategic long-term investments across marketing, digital and technology and stores to enable future growth.”

Moreover, Horowitz emphasized Abercrombie’s focus on disciplined execution, particularly managing inventory and expenses while investing in marketing, digital channels, and store expansion. This strategy appears to be paying off as the company continues to post record results and improve profitability.

Analysts’ Optimism and Future Potential

Analysts remain bullish on Abercrombie’s stock, with several raising their price targets following the company’s latest earnings report. Citigroup recently upgraded their rating on ANF stock from Neutral to Buy. Also, Jefferies analyst Cory Tarlowe reiterated a “Buy” rating on ANF, increasing the price target from $215 to $220.

In addition, Dana Telsey from Telsey Advisory Group maintained an “Outperform” rating on the stock, with a price target of $208, while CFRA analyst Zachary Warring upgraded ANF from “Hold” to “Buy,” raising its price target to $198. These price targets suggest that analysts see further upside potential, driven by the company’s strong brand momentum, successful digital marketing strategies, and robust balance sheet.

Bottom Line

ANF’s around 150% stock gain is more than just a reflection of short-term market vitality; it is backed by solid earnings growth, impressive revenue expansion, and a positive outlook in a challenging retail environment. The company’s ability to revamp its product offerings, focus on profitability and raise its full-year guidance demonstrates that it is well-positioned to continue outperforming its peers.

While the stock experienced a nearly 17% drop following its last earnings report, this can largely be attributed to investor expectations of an even larger guidance increase. However, the fundamentals remain strong, and Abercrombie’s strategic initiatives and disciplined execution suggest that the stock’s rally could have more room to run.

With its robust brand positioning, expanding customer base, and operational efficiency, ANF could be an attractive buy for investors seeking exposure to the retail sector.

Why Beaten-Down Bath & Body Works Is Poised for a Comeback

Posted on by The INO.com Team

In July, U.S. retail sales rose 1% from the previous month, exceeding economists’ forecasts of a 0.3% gain. However, Bath & Body Works, Inc. (BBWI) has lagged behind the overall specialty retail sector's growth. Despite the broader Consumer Discretionary Select Sector SPDR Fund (XLY) being up about 4% so far this year, BBWI has seen its shares fall more than 30% year-to-date. This decline is significant, especially compared to the sector’s modest growth.

In this article, we'll examine Bath & Body Works’ recent earnings to gauge its performance and discuss its turnaround efforts.

With more than 1,700 stores across the U.S. and a global presence in Canada and through international partners, the Ohio-based retailer of home fragrances, body care, and soaps still relies heavily on in-store sales. However, the company’s recent performance has disappointed investors and fell short of Wall Street's expectations.

In the second quarter ended August 3, 2024, BBWI’s net sales decreased 2.1% year-over-year to $1.53 billion, slightly below analysts’ expectations of $1.54 billion. Its adjusted earnings per share for the second quarter came in at $0.37, just above the consensus EPS estimate of 36 cents but down from $0.40 last year. Non-GAAP net income also fell from $92 million to $83 million year-over-year.

Additionally, the company adjusted its full-year outlook due to economic uncertainty and cautious consumer spending. For fiscal 2024, Bath & Body Works anticipates a net sales decline of 2% to 4%, compared to the previous forecast of a 2.5% decline to flat sales. The company also lowered its full-year adjusted EPS guidance, with the midpoint now at $3.16, falling short of analysts' forecast of $3.25.

CEO Gina Boswell acknowledged the need for adjustments, citing challenging macroeconomic conditions and slower-than-expected sales recovery. “While I’m dissatisfied with the pace of our return to sales growth, I remain confident in our strategy and the progress we are making,” Boswell stated during an analyst call. Further, President Julie Rosen noted that the semiannual sale underperformed, particularly affecting body care. She pointed out that issues with store presentation and marketing failed to resonate with customers, contributing to weaker performance.

Despite this, certain areas showed promise, including the men’s body care category, one of the fastest-growing segments. Additionally, the lip care line has gained traction, especially among younger customers, with year-to-date sales doubling in stores that feature popular items like scrubs, masks, and tints. In another move to diversify its product offerings, the company plans to introduce its laundry line across all U.S. stores by the end of September, supported by a national ad campaign to drive customer awareness and adoption.

One of BBWI’s most significant strengths is its growing loyalty program. With 37 million members, an 8% increase from year-over-year, the program now accounts for 80% of U.S. sales, which is quite impressive given that it was launched just two years ago. Additionally, 43% of enrollees are new customers, indicating untapped potential for increased sales.

To leverage this loyal customer base, Bath & Body Works could explore strategies like encouraging frequent purchases or introducing a subscription tier to boost engagement and revenues.

Moreover, the company continues its expansion efforts internationally, with new store openings in South Korea and London. CEO Gina Boswell emphasized that “international markets remain an attractive pillar” of the company’s growth strategy, noting that international retail sales grew by double digits in the second quarter, particularly in areas unaffected by conflicts in the Middle East. It underscores the brand’s potential to thrive as it taps into new markets and builds on its global footprint.

Bottom Line

As the U.S. economy shows resilience with stronger-than-expected GDP growth, largely driven by solid consumer spending, there’s a growing case for a soft landing. With inflationary pressures easing, evidenced by the lower second-quarter core PCE price index, the Fed will likely move forward with a rate cut in September. This creates a favorable environment for retail stocks like Bath & Body Works to rebound.

The potential rate cuts, coupled with improving consumer sentiment, could spur a resurgence in consumer spending, particularly as we approach the holiday season. BBWI is well-positioned to benefit from these tailwinds. Therefore, investors could consider buying this stock now, ahead of a potential recovery fueled by easing interest rates and a boost in holiday shopping.

Coinbase’s $50 Million Bet on Pro-Crypto Candidates

Posted on by The INO.com Team

The 2024 U.S. Presidential election has seen a surge of activity from the crypto industry, with various groups and lobbyists backing candidates who they believe will best represent their interests. So far this year, crypto companies have collectively invested approximately $119 million in political contributions, primarily channeling these funds into crypto-focused super PACs. And that’s just up until June 30.

This level of spending has positioned the crypto industry as the largest corporate political donor in 2024, making up 48% of all corporate donations. In fact, political contributions from crypto firms have skyrocketed by over 3000% this year, making them a dominant force in the election.

According to Public Citizen, no industry “has so wholeheartedly embraced raising as much directly from corporations and openly using that political war chest as a looming threat (or reward) to discipline lawmakers toward adopting an industry’s preferred policies.”

Leading the charge is Coinbase Global, Inc. (COIN), America’s largest registered crypto exchange, which has funneled more than $50 million into key races and pro-crypto political action committees (PACs) this election cycle. However, the overall decline in the crypto market has taken a toll on COIN’s performance, with the exchange seeing a 28% drop in average daily trading volumes compared to the previous quarter. This decline is partly due to decreased user engagement and trading activity on the platform.

COIN’s market share fell from 44.6% in the first quarter to 41.2% in the second quarter due to heightened competition from platforms like Robinhood Markets, Inc. (HOOD), which led to users migrating elsewhere. The recent bearish trend in the crypto market is primarily attributed to Vice President Kamala Harris's surge in the polls, which suggests she has a strong chance of winning the presidency.

Critics fear her policies might be even less favorable to the sector than the Biden administration’s. This worry is compounded by the fact that Harris has been relatively quiet on the issue, unlike her opponent, Donald Trump, who has been a vocal supporter of the crypto industry.

The crypto market’s reaction seems heavily influenced by these shifting political dynamics, especially after President Joe Biden’s decision to step back, which has caused unease among crypto investors. Many fear that without Trump’s support for more lenient crypto regulations, Harris might implement stricter measures that could stifle the market’s growth. However, it’s possible that these risks are now being overestimated in the market.

Despite these concerns, the long-term fundamentals of the crypto industry appear strong. Institutional adoption is rising with the introduction of Bitcoin and Ethereum ETFs, and cryptocurrencies are gaining broader acceptance as legitimate investment options. Let’s look at the fundamentals of COIN in more detail.

COIN's total revenue for the second quarter (ended June 30, 2024) amounted to $1.45 billion, up 104.8% year-over-year, while its subscription and services revenue increased 17% sequentially to $599 million. The exchange managed to stay profitable even in a challenging crypto market with a modest net income of $36.15 million, compared to a loss of $97.41 million in the prior year’s quarter.

Previously, Coinbase relied heavily on transaction fees, which fell by 27% due to lower trading volumes. However, its focus on expanding subscription-based revenue through products like blockchain rewards and custodial services has bolstered its income stream. Additionally, the company has delivered positive adjusted EBITDA for six consecutive quarters despite various crypto market conditions.

Coinbase has evolved into an all-weather company with increasingly diversified revenue streams, making it more stable and less dependent on the volatile nature of cryptocurrency markets. This diversification not only helps mitigate the impact of market volatility but also provides resilience if any specific part of the business faces challenges.

Bottom Line

While there’s been a lot of concern about what a Harris presidency might mean for the cryptocurrency market, I believe these fears are overblown. Both the U.S. stock market and crypto have shown resilience under various administrations, and the global nature of crypto makes it unlikely that any one leader could derail its progress.

Additionally, Congress appears to be moving in a more supportive direction for crypto, with bipartisan efforts to establish favorable legal frameworks. For instance, Senate Majority Leader Chuck Schumer has expressed optimism about passing crypto-related legislation by the end of the year. This continued legislative push should provide a more stable environment for the crypto industry.

Considering COIN’s ability to adapt to political shifts and the growing investor confidence in crypto, we believe holding on to this stock could be a wise choice. As the crypto market matures, Coinbase is expected to thrive regardless of who occupies the White House, making it a solid long-term investment.

Why CrowdStrike and Fortinet Could Be September's Top Performers

Posted on by The INO.com Team

August was a wild ride for the S&P 500, marked by sharp swings that kept investors on their toes. After a sharp 6.1% drop in the first three days, the large-cap benchmark managed to rebound, closing the month with a 2.3% gain. The S&P 500 finished August at 5,648.40, just shy of its record high from mid-July.

Surprisingly, the so-called “Magnificent Seven” stocks that have driven much of the market’s momentum this year, didn’t top the gainers list. Instead, two cybersecurity giants, CrowdStrike Holdings, Inc. (CRWD) and Fortinet, Inc. (FTNT), took the spotlight. With their recent performance, there's an expectation that these companies could be September’s top performers. So, what’s fueling their rally?

CrowdStrike’s Rebound from Its Global-Outage-Induced Slump

July 19 was a tough day for CrowdStrike investors. A software update from the company led to a major IT outage that affected some of its biggest clients, including airlines and banks, causing an estimated $5.4 billion in losses. This sparked fears that the brand damage could hurt CrowdStrike's future business.

As a result, CRWD stock took a hit, plunging 36% to a low of $218 by early August. It was the second-worst performer in the S&P 500 during July. However, the company managed to turn things around in August, with its stock climbing 20% for the month to rank as the index’sc.

Investors were relieved to see that the fallout from the outage wasn't as severe as initially feared. When the company reported earnings, it did lower its guidance but reassured investors that customers still wanted to do business with it.

In the second quarter, CRWD generated $963.87 million in revenue, up 32% year-over-year, beating the high end of management's forecast. Perhaps it suggests the global outage in July had a minimal financial impact, especially since it occurred just two weeks before the quarter’s end. However, for fiscal 2025, the company adjusted its full-year revenue forecast slightly downward to a range of $3.89 billion to $3.90 billion, from the previous $3.98 billion to $4.01 billion. Despite this, the new forecast still indicates a healthy 27.5% growth from fiscal 2024, which is encouraging for investors.

On the bottom line, its non-GAAP attributable net income came in at $260.76 million or $1.04 per share, reflecting an increase of 44.9% and 40.5% year-over-year, respectively. Despite the challenges, the company’s long-term outlook remains promising, with a goal to reach $10 billion in annual recurring revenue (ARR) by fiscal 2031. This ambitious target represents a potential 159% growth over the next six years. Moreover, CrowdStrike's introduction of “commitment packages” for customers is expected to positively impact the net new ARR.

Analysts like Stephen Bersey remain optimistic about CrowdStrike’s future and believe that “the bad news is behind us.” In this view, “CrowdStrike’s native-AI design gives it a structural competitive advantage and places it ahead of peers and leverages AI-driven growth.” With that said, CRWD’s 20% gain in August could be just the start of a continued recovery in September.

Fortinet’s Strong Comeback Reverses Six-Month Downtrend

Fellow cybersecurity company, Fortinet’s impressive rebound in August has been a breath of fresh air for investors who were reeling from its previous billings miss. After a robust earnings report that exceeded expectations, the cybersecurity giant made a strong comeback reversing a six-month downtrend, which sent its stock soaring as much as 28% on that day.

The company's strong market position has translated into an impressive financial performance. In the second quarter of 2024, FTNT’s revenues increased 10.9% year-over-year to $1.43 billion, driven by strong growth in services revenues. Its non-GAAP net income amounted to $439.90 million and $0.57 per share, indicating an increase of 46.4% and 50% year-over-year, respectively.

Building on this quarter’s momentum, Fortinet projects third-quarter revenues between $1.45 billion and $1.51 billion, alongside billings of $1.53 billion to $1.60 billion. Shares of FTNT have already surged more than 30% year to date, catching the attention of both investors and analysts. With the cybersecurity sector booming and Fortinet's continued innovation in security solutions, the company is well-positioned to capitalize on emerging trends.

Fortinet’s strength lies in its robust market position and relentless focus on innovation. The company's FortiOS operating system and Security Fabric architecture provide a seamless and integrated security solution that meets the complex demands of today's digital landscape. Moreover, FTNT’s commitment to innovation is evident in its development of advanced technologies like AI-powered FortiGuard Labs and the GenAI assistant, FortiAI, which streamline threat investigation and network management.

For 2024, FTNT anticipates revenue between $5.8 billion and $5.9 billion, with a non-GAAP operating margin of 30% to 31.5%. Non-GAAP earnings per share are projected to fall between $2.13 and $2.19. As the focus on digital security intensifies, Fortinet’s cutting-edge solutions are well-positioned to maintain its leadership in the industry.

Bottom line

Cyber-attacks are becoming more frequent and severe, with a 30% year-over-year increase in weekly attacks on corporate networks in the second quarter of 2024 and a 25% rise compared to the previous quarter. On average, organizations now face 1,636 attacks per week, highlighting the relentless and sophisticated nature of today's cyber threats.

As businesses increasingly prioritize digital security, the cybersecurity market is projected to soar, reaching $500.70 billion by 2030, growing at a CAGR of 12.3%. This continued expansion in the cybersecurity sector could create a promising environment for CRWD and FTNT, making them attractive additions to your portfolio.