Table of Contents
- 1 For Immediate Release
- 2 Bull of the Day:
- 3 Unprecedented Demand in July and August
- 4 Record Second Quarter During the Coronavirus Pandemic
- 5 Strong Full Year Guidance
- 6 A Golden Era For the Homebuilders?
- 7 Bear of the Day:
- 8 A Business Update in September
- 9 Status on Hotel Reopenings
- 10 What About the Cash Burn?
- 11 Analysts Cut 2020 and 2021 Estimates
- 12 Shares Remain Depressed
- 13 Additional content:
- 14 3 Cheap Tech Stocks to Buy Now for Your Portfolio of the Future
- 15 NIO Inc.
- 16 DouYu International
- 17 Plug Power
- 18 Just Released: Zacks’ 7 Best Stocks for Today
For Immediate Release
Chicago, IL – October 1, 2020 – Zacks Equity Research Shares of Meritage Homes Corporation MTH as the Bull of the Day, Park Hotels & Resorts Inc. PK asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on NIO Limited NIO, DouYu International Holdings Limited DOYU and Plug Power Inc. PLUG.
Here is a synopsis of all five stocks:
Bull of the Day:
Meritage Homes Corp.is perfectly situated to take advantage of the Millennial home buying rush. This Zacks Rank #1 (Strong Buy) is expected to grow its revenue by the double digits in both 2020 and 2021.
Meritage is the 7th largest public homebuilder in the United States. It has 300 communities across 9 states including Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina and Tennessee.
It focuses on first-time and first move-up buyers.
Unprecedented Demand in July and August
On Sep 21, Meritage put out a business update on its first two months of the third quarter which included July and August.
It saw “unprecedented demand” in those two months and already sold more in just 2 months than it sold in the entire third quarter of last year.
Meritage also saw the strong demand continue into September.
In July and August, total orders jumped 73% year-over-year to 2,675 homes, up from 1,549 homes in the same period a year ago.
Average absorptions for those 2 months nearly doubled over the prior year to about 6 homes per month per community, net of 13% order cancellations in 2020 and 17% in 2019.
The company expects to close out some of its communities in late 2020 and early 2021 due to the strong demand so it’s on the hunt for new land positions so it can continue to grow its community count in 2021.
Meritage expected to put a record number of new lots under control in the third quarter, possibly more than 9,000 in total.
For the first 3 quarters, that would be 17,000 lots, which is close to the total number of lots it acquired in all of 2019 and is 70% more than 2018’s 10,000 lots.
Like all the homebuilders right now, Meritage has pricing power and has been able to push through price increases which have covered the rising costs of lumber and other materials.
Margins are expected to remain high.
On July 22, Meritage reported its second quarter results and blew by the Zacks Consensus Estimate by $0.86.
Earnings were $2.38 versus the Zacks Consensus of $1.52.
That’s a beat of 56%.
After the coronavirus lock downs hit the typical spring home buying season in April, sales bounced back strongly in May and June, and resulted in the company’s two highest selling months ever and an all-time company record of nearly 3,600 orders for the quarter, up 32% year-over-year.
Order trends improved each month in the quarter with April orders, the pandemic month, 15% lower than last year, but May saw an increase of 44% year-over-year and June was even hotter, up 66% compared to 2019.
Absorptions were up 42% year-over-year and averaged about 5 homes per month in roughly 240 communities.
Demand was strong across the country, with Arizona and Texas seeing the highest absorptions.
Entry-level represented 57% of total active communities as of June 30 and 70% of total orders in the quarter, up from 41% of total communities in 2019 and just 51% of orders.
These are the Millennial buyers, of which a large contingent is reaching the important family formation years of 28-33.
Historically low mortgage rates which have fallen under 3% for a 30-year fixed rate, combined with low inventory of existing homes for sale, has pushed buyers into the new home market.
Additionally, many of Meritage’s communities are located in big city suburbs, which is exactly where the buyers wanted to be after enduring the coronavirus lock down in urban locations.
Meritage was able to improve its gross margin to 21.4%, the highest in 6 years.
It continues to have a strong balance sheet with almost $500 million in cash.
Strong Full Year Guidance
As of July 22, Meritage was already predicting a strong finish to the year with full year earnings forecast to be between $8.75 and $9.25 with gross margins of 21%.
But after the strong sales guidance, the analysts got even more bullish.
The 2020 Zacks Consensus Estimate has jumped to $9.60 from $9.53 over the last week, which is earnings growth of 49.5% over 2019 as Meritage only made $6.42 last year.
They are equally as bullish on 2021.
The 2021 Zacks Consensus has also moved higher over the last 7 days, to $11.29 from $11.02. That’s further earnings growth of 17.7%.
A Golden Era For the Homebuilders?
The homebuilders have been trudging along since 2012 with no real catalyst to spur growth until this year.
The Millennials are the second largest generation in US history, larger than even the Baby Boomers. And now they want to buy homes.
Shares of Meritage are hitting new 5-year highs and have soared 80.6% in 2020.
But they’re still cheap by nearly every value metric.
Meritage has a forward P/E of just 11 and a price-to-book of 0.3.
With its big earnings growth, it sports a PEG of 0.5.
The entire home building industry has been on fire in 2020.
Bear of the Day:
Park Hotels and Resorts is at the epicenter of the coronavirus pandemic as travelers stay home. This Zacks Rank #5 (Strong Sell) still doesn’t have all of its hotels reopened.
Park is the second largest publicly traded lodging REIT with 60 premium-branded hotels and resorts with over 33,000 rooms.
It’s premium properties include the Hilton Hawaiian Village Waikiki Beach Resort, Hyatt Regency Boston, Royal Palm South Beach Miami, a Tribute Portfolio Resort and the Hilton Checkers Los Angeles, among others.
A Business Update in September
On Sep 14, Park provided an operational and liquidity update as it navigates the coronavirus pandemic in one of the industries most impacted.
The Company has reopened 14 hotels since June, increasing the total number of hotels open to 46 out of its 60 hotels, or 77%.
That is 59% of total room count.
In the month of July, occupancy improved to 32.3% for the 33 consolidated hotels open during the entire month.
In the month of August, occupancy also improved to 38.8% for the 37 consolidated hotels open for that entire month.
Given the continuing impact on the business, Park did permanent property-level full-time layoffs which represented future annual savings of $50 million to $70 million throughout the portfolio based on 2019 operations.
It also extended its revolving credit facility with its lenders by 2 years, as it continues to navigate the pandemic.
Status on Hotel Reopenings
Park reopened 10 hotels in July, 2 in August and 2 in September, as of September 14.
During the fourth quarter, it hopes to open an additional 12 hotels which will bring the total of open hotels to 58, or 97% of the portfolio room count.
The remaining 2 closed hotels are expected to reopen in the first quarter of 2021.
Park’s estimated hotel level break-even occupancy is 35% to 40%, assuming a 15% to 20% decrease in ADR compared to the comparable period in 2019.
In July, the Company had 11 hotels reach operational break-even levels (inclusive of one unconsolidated joint venture hotel).
What About the Cash Burn?
As of July 31, 2020, Park had cash and cash equivalents of $1.248 million, including $35 million of restricted cash.
It’s actual monthly average burn rate during the second quarter of 2020 was $59 million.
That rate was reduced to $51 million during July 2020.
As of Sep 14, it had current total liquidity of $1.5 billion and an approximate burn rate of $50 million per month.
Park estimated it had approximately two and a half years of liquidity available to meet its financial obligations.
Analysts Cut 2020 and 2021 Estimates
Analysts have gotten bearish on Park over the last 2 months.
7 estimates have been lowered for 2020 and 2021 over the last 60 days. That has pushed the 2020 Zacks Consensus down to a loss of $1.44 from a loss of just $0.79 two months ago.
That’s an earnings decline of 150% from 2019, where the company made $2.88.
2021 has also seen the Zacks Consensus slide over the last 60 days.
Analysts no longer expect the travel industry to rebound as quickly as they once thought. They now expect 2021 earnings of a loss of $0.24, down from $0.64 two months ago.
Not surprisingly, with travel still struggling, Park hasn’t seen much of a rally in its shares this year, which remain down 54.9% year-to-date.
Over the last 3 months, they’ve mostly been treading water, however, down just 1.4%.
The Company suspended its dividend in the spring so investors have to simply wait it out and hope that travel starts to return heading into 2021.
This is a tough time for all of the hotel REITs.
3 Cheap Tech Stocks to Buy Now for Your Portfolio of the Future
September has been a wild month for the market. It began with the S&P 500 and the Nasdaq hitting new records, as Apple and other big-names continued to climb higher. The market then experienced an ultra fast selloff, with the tech-heavy index falling into correction territory in just several sessions.
Stocks have chopped around since then, and technical traders point to the 50 and 200-day moving averages for levels of resistance and support.
Traders are now betting on the continuation of volatility through the election, which is just five weeks away. The specter of the coronavirus also lingers, even as the U.S. economy and others slowly recover. This is reflected in the improving earnings outlook (also read: Handicapping the Q3 Earnings Season).
Given the historic coronavirus selloff, the fact that the proxy index for the broader market is up 4% in 2020 and 50% off its lows, seems like a win. And it’s always worth remembering that corrections are common and healthy aspects of the stock market. Plus, the Fed’s decisions to keep its interest rate pinned near zero through at least 2023 should help support stocks.
With the S&P 500 sitting around 6.4% off its early September records, investors with a longer-term outlook might want to consider adding a few stocks. So let’s explore three cheap tech-focused stocks, trading under $20 per share, that look set to grow within futuristic industries…
Prior Close: $18.81 USD
Electric vehicles have transitioned from hype to the realistic future of the industry, as nearly all major automotive firm races to roll out their own EV offerings in an effort to catch up to Tesla. Luckily for investors, the EV market is not a zero-sum game, and Chinese EV maker NIO has become a rising star in the booming space. The firm’s EV sales are growing and it’s also focused heavily on providing customer support, autonomous driving tech, and most importantly, batteries, which are the lifeblood of the industry.
NIO delivered 10,331 vehicles in Q2 FY20. This marked 190% growth from the year-ago period’s 3,553. The firm’s revenue surged 140% and its gross margin climbed from negative -33% in Q2 FY19 to +8.4%. This helped it crush our bottom-line estimate. NIO then in early September released August delivery data that showed another 104% climb in deliveries to put its year-to-date total at 21,667, up 110%.
Zacks estimates call for NIO’s Q3 revenue expansion to top last quarter’s showing at 144%. Overall, the company’s FY20 sales are projected to jump 91% to reach $2.16 billion, with FY21 expected to come in another 76% higher to hit $3.79 billion. Meanwhile, NIO’s adjusted losses are set to trend in the right direction and its positive earnings revision activity helps it land a Zacks Rank #2 (Buy) right now.
NIO’s success in the Chinese market has garnered praise from analysts, including Deutsche Bank. The firm just recently said that the company had potential to be the “next iconic auto brand,” when it raised its price target and recommitted to its “buy” rating. This note helped send NIO stock soaring Tuesday, up 8% through early afternoon trading to $20.31 per share. NIO shares are now up over 750% since the market’s March lows and 1,200% from Sept. 2019 when they were trading for under $2 a share.
Prior Close: $13.96 USD
DouYu is a live streaming firm focused on video gaming and e-sports. The company, which went public in July 2019, is backed by Chinese social media and gaming powerhouse Tencent and has drawn comparisons to Amazon’s Twitch. DouYu is set to expand with the broader gaming space that is projected to soar from $159 billion in 2020 to over $200 billion by 2023, with China playing a big role.
Investors should know that Tencent proposed in August that DouYu enter into a stock-for-stock merger with rival HUYA. The firm is currently evaluating the “preliminary non-binding proposal.” The deal would create a powerhouse in the streaming gaming industry in the world’s second-largest economy. But it’s unclear if it will happen.
DOYU’s adjusted fiscal 2020 earnings are projected to soar over 235% to $0.57 a share on 27% higher sales that would see it reach $1.32 billion. Peeking further ahead, the company’s adjusted FY21 EPS figure is projected to climb another 37% on roughly 30% stronger revenue. The stock has earned some positive bottom-line revisions recently to help it grab a Zacks Rank #2 (Buy), alongside its “B” grade for Growth and “A” for Momentum in our Style Scores system.
DOYU shares have surged 100% since March 23 to double the gaming market’s average. The stock is now up 70% in the past 12 months, against its industry’s 5% decline. DouYu’s expansion includes a 17% drop from its early September highs, which could set up a better buying opportunity for those high on the stock. And even though it has easily outpaced the gaming market, which includes Activision Blizzard, Electronic Arts and others, it trades at a solid discount in terms of forward sales.
Prior Close: $13.20 USD
Plug Power helped commercialize hydrogen fuel-cell technology. The firm’s hydrogen and fuel cell technology began by “replacing lead-acid batteries to power electric industrial vehicles, such as the lift trucks customers use in their distribution centers.”
PLUG has since expanded its offerings to the on-road EV market, which includes buses and delivery vehicles. The firm is part of the growing hydrogen power market and its hydrogen fuel cell-based turnkey solutions are being used by the likes of BWM, Amazon, Walmart and others.
Plug Power plans to help power everything from warehouses and data centers to zero-emission on-road vehicles for decades to come. Wall Street showed its increased appetite for the stock after it announced in early August that it was selling almost 31 million shares for $10.25 each. PLUG shares have skyrocketed 320% in 2020 and 70% since the end of July. The stock is now up nearly 600% in the last two years.
Meanwhile, Morgan Stanley and others have taken a liking to this pure-play clean energy stock, as hydrogen-based solutions become more economically viable. Plug Power topped our Q2 estimates in early August. And Zacks estimates call for its full-year 2020 revenue to jump 35% to reach $300.9 million, with FY21 expected to surge another 31%. This would mark three-straight years of 31% or higher top-line expansion. PLUG is also expected to continue to cut its adjusted losses.
Plug Power is a Zacks Rank #3 (Hold) at the moment that has seen its earnings revisions trend in the right direction recently. PLUG also rocks an “A” grade for Momentum. Plus, six of the eight brokerage recommendations we have for Plug Power come in at a “Strong Buy.” And no matter who is in power in Washington, market forces are slowly shifting toward clean and renewable energy.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that have beaten the market more than 2X over with a stunning average gain of +24.3% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>
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