For Immediate Release
Chicago, IL – August 31, 2022 – Zacks Equity Research shares Ulta Beauty, Inc. ULTA as the Bull of the Day and Meta Platforms, Inc. META as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Tesla TSLA, Amazon AMZN and Alphabet GOOGL.
Here is a synopsis of all five stocks:
Bull of the Day:
Ulta Beauty, Inc. is the largest U.S. beauty retailer and its business continues to thrive amid economic slowdown fears and inflation concerns. Ulta topped quarterly estimates on August 25 and raised its outlook once again as shoppers continue to spend big on the simple pleasures in life such as beauty.
Beauty is Booming
Ulta Beauty began to reshape the broader beauty retail space back in the early 1990s by bringing everything under one roof. Today, its rather large format stores offer cosmetics, fragrances, skin care products, hair care, salon services, and more. Ulta sells an array of brands across a variety of areas and price points from higher-end companies to its own store brands.
Ulta operates roughly 1,300 retail locations across all 50 states. Alongside its brick-and-mortar retail footprint, Ulta’s e-commerce offerings are gaining traction. The company is focused on rolling out more how-to-style videos, tips, and tutorials online. This helps mimic Ulta’s hands-on customer experience at stores that allows shoppers to try on and test various products with the help of its sales associates.
Ulta’s ability to expand its footprint and its customer base has helped it grow its top and bottom lines at truly impressive clips. Ulta opened 17 new stores and relocated 10 stores during the first six months of FY22 even as other retailers backed off on spending.
Ulta posted double-digit revenue growth every year since its public debut in late 2007, outside of a pandemic/ lockdown pullback, with shoppers having far fewer reasons to do their hair and makeup. Ulta, at one point, posted a stretch of eight-straight years of roughly 20% or higher revenue growth.
Ulta bounced back in a huge way following its covid slip, with FY21 revenue up 40%. Plus, its adjusted earnings soared from $3.11 per share to $17.98 per share in 2021, which also crushed its pre-pandemic total of $12.15 a share.
Recent Growth & Improved Outlook
Ulta’s second quarter fiscal 2022 revenue jumped 17% to help lift its adjusted earnings by 25%. More importantly, the company raised its guidance as it sees strong trends in the beauty space despite slowing overall consumer spending and inflation headwinds.
Ulta raised its revenue outlook for the year to between $9.65 billion and $9.75 billion, up from $9.35 to $9.55 billion. Plus, it lifted its comparable sales guidance all the way to 9.5% to 10.5% vs. its previous 6% to 8% range. And it now expects adjusted earnings per share between $20.70 to $21.20 compared to its prior $19.20 to $20.10 guidance.
Analysts raced to update their EPS estimates following Ulta’s beat-and-raise release on August 25. The company’s upbeat bottom-line revisions help it land a Zacks Rank #1 (Strong Buy) right now, and it’s crushed our EPS estimates by an average of 33% in the trailing four periods.
Current Zacks estimates call for Ulta’s revenue to climb 14% in 2022 to slightly under $10 billion and nearly 8% higher in FY23. Meanwhile, its adjusted earnings are projected to climb 18% this year and another 10% in 2023. And both of Ulta’s current FY22 and FY23 consensus estimates could move even higher.
Outperformance and Value
Ulta stock is bucking the market’s downturn so far this year, with its shares up around 1% vs. its industry’s 23% decline and the S&P 500’s 16% drop. This is part of an 80% run over the past 24 months to blow away the market and its broader Zacks econ sector. And the nearby chart showcases Ulta’s 340% surge in the last decade.
At around $410 per share, Ulta trades 17% below its current Zacks average price target. On the valuation front, Ulta is trading at a discount to the wider retail space at 19.0X forward earnings vs. 22.6X. More importantly, the stock is trading at a 50% discount to its own 10-year highs and offers 28% value vs. its median despite its strong price performance.
Ulta is set to repurchase roughly $900 million worth of its own shares in FY22. The firm is able to support these buybacks through a sturdy balance sheet and a strong management team. Plus, the beauty industry is booming and it shows no signs of stopping in a world dominated by social media and staying on trend.
Ulta’s business remains strong in the face of slowing consumer spending because shoppers aren’t cutting back on its beauty offerings. It is also worth remembering that many higher-income shoppers are still flush with cash and spending on everything from travel to makeup. And there is even an established phenomenon known as the lipstick effect that highlights a willingness to buy the small, fun things when people can’t splurge on big-ticket items.
It has been no easy task to stay above the selling in 2022 and fewer and fewer companies are providing upbeat guidance. Therefore, it might not be surprising to know that 17 of the 21 brokerage recommendations Zacks has for Ulta are “Strong Buys,” with nothing below a “Hold.”
Bear of the Day:
Mark Zuckerberg’s company has been on a wild ride since it decided to change its name from Facebook to Meta Platforms, Inc. last year.
Things have not gone well for Meta in 2022, and its outlook turned a lot worse after it reported its second quarter results at the end of July.
Zuckerberg announced last October that his social media company that owns Facebook, Instagram, WhatsApp, and more would soon be known as Meta Platforms. The firm is currently pouring billions of dollars and tons of resources into the metaverse, betting that people will eventually live some of their lives in a new digital world via avatars.
The metaverse reality is still years off and it might not ever come to fruition. In the here and now, Meta’s traditional social media apps are being negatively impacted by Apple’s privacy changes that require apps to ask users whether they want to be tracked.
Meta said when it reported its Q4 FY21 results that Apple’s tracking changes could cost it $10 billion in lost sales in 2022 alone. Apple’s changes have impacted Snap and countless others. Things haven’t improved much since then as advertisers also pull back on spending across the digital economy amid an economic slowdown.
Most recently, the parent company of Facebook and Instagram reported its first-ever decline in revenue, with sales down around 1%. The company also fell short of our EPS estimate and provided downbeat guidance.
The nearby chart showcases how far Meta’s FY22 and FY23 consensus EPS estimates have fallen, down 16% and 22%, respectively. Meta’s downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now.
Zacks estimates call for Meta’s revenue to dip 1.3% in 2022, with it projected to post 11% higher sales in 2023. But its days of 20% or more sales growth might be over, at least for now. Meanwhile, its adjusted earnings are projected to fall by 30% this year and only climb 13% in FY23 to come in well short of its FY21 levels.
Meta is still a strong company with 2022 sales set to top $115 billion in a down year. Meta also boasts an impressive balance sheet and reaches billions of people a day via its various platforms.
Still, investors might want to stay away from Meta for the moment because Wall Street is dumping it amid all of the digital ad fears, TikTok competition worries, and its big bets on the metaverse.
Should You Buy Tesla (TSLA) Post-Stock Split?
Electric vehicle (EV) behemoth, Tesla recently completed a 3-for-1 stock split, making its shares more attractive to retail investors. Is the stock worth a buy now post the split at its current price levels of around $280 a piece?
Stock Split Back in Fashion
When Tesla last split its stock in August 2020, shares skyrocketed, thanks to an influx of new buyers and increased liquidity. Shares have been on a massive run since then, with the company joining the elite $1-trillion club in October 2021. The stock had become quite expensive for investors who were a little tighter on the budget, grinding down the overall trading volume and driving away potential investors.
Noting the steep price tag of Tesla shares, the company again decided to split its stock, making its shares more affordable. In June 2022, TSLA announced that its board approved a three-for-one stock split, subject to shareholder approval at the company’s annual meeting on Aug 4.
Stock splits have actually gained massive traction over the past few years. It’s one of the more positive announcements that shareholders can receive. Besides Tesla, we’ve witnessed several market titans undergo a stock split so far in 2022, including Amazon and Alphabet.
Amazon announced its 20-for-1 split back in early March, representing the company’s first split since 1999. Needless to say, it shocked the market. The split went into effect a few months later, on Jun 6.Back in February, Alphabet announced its plans to split its stock 20-for-1. Like AMZN, buyers came out in full force for GOOGL shares. Alphabet shares started trading on a split-adjusted basis on Jul 18.
Of course, a stock split doesn’t affect a company’s market capitalization. However, it lowers the price of each share, providing ease for the stock price to multiply once again and offering investors with sizable gains.
Coming back to Tesla, we believe that the company has a host of potential catalysts surrounding it, which makes it an attractive buy now.
Key Growth Drivers
Over the years, EV maker Tesla has evolved into a dynamic technology innovator. It is the market leader in battery-powered electric car sales in the United States, with roughly 70% market share. The company’s flagship Model 3 is the best-selling EV model in the United States. Model Y has also gained immense popularity.
The automaker is riding on the robust demand for Models 3 and Y, which form a major chunk of its total deliveries. Deliveries of Model 3/Y witnessed a CAGR of more than 74% between 2019 and 2021. Musk remains optimistic about meeting the average annual deliveries growth target of 50% over a multi-year horizon. Production ramp-up at gigafactory 4 (in Berlin) and 5 (in Austin) and introduction of new models, including Semi and Cybertruck from next year, are set to support deliveries growth.
High volumes are aiding Tesla in achieving cost and production efficiencies, thereby strengthening margins. While the temporary decline in Shanghai production volume resulted in a sequential fall in gross margins in the last reported quarter, the metric is likely to show improvement in the second half of 2022.
Tesla posted the sixth straight earnings beat in the last reported quarter. Even in the face of harsh business conditions, the company’s top and bottom lines in the second quarter grew 41.6% and 56.5%, respectively.
The company has had zero issues with generating serious revenue growth. Since 2016, Tesla’s annual revenue has soared 668%. TSLA has managed to grow its annual revenues by double-digit percentages each year since 2012. Thanks to strong deliveries and a rise in the average selling price of vehicles, we believe Tesla would maintain its upward trajectory in automotive revenues.
Tesla’s energy generation and storage revenues are also growing, thanks to the positive reception of Megapack and Powerwall products. The efforts to strengthen its balance sheet are also praiseworthy. Simply put, Tesla seems to be firing on all cylinders.
For the current fiscal year (FY22), the EV titan is projected to generate $85 billion in revenues, implying a double-digit uptick of nearly 58% year over year. In FY23, the top line is forecast to rise by an additional 41%.
The Zacks Consensus Estimate for FY22 earnings per share is pegged at $3.73, suggesting year-over-year growth of 65%. The bottom line is projected to increase another additional 35.5% in FY23.
While Tesla continues to look grossly overvalued, its share price has anyway long been divorced from the company’s fundamentals. As an auto manufacturer delivering roughly a million cars per year, it would need to increase production by 16 times to reach fair value. But then again, Tesla is not just any other auto manufacturer but also a battery/software developer, a solar tech company and an innovation powerhouse. In fact, TSLA is often labeled by many as a tech company.
Tesla’s innovative engine, brand value and growth prospects are way better than other companies in the same space. So even as the EV market gathers momentum with competition heating up, Tesla looks set to remain a leading player.
So, with its shares being well below its all-time highs post stock split, TSLA is worth scooping up now for long-term gains. For investors who can swallow elevated valuation levels and are looking for companies with robust growth prospects, Tesla should be on the top of their list.
Tesla currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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