For Immediate Release
Chicago, IL – March 10, 2020 – Zacks Equity Research Shares of Garmin GRMN as the Bull of the Day, Splunk SPLK asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Alphabet GOOGL, AT&T T and Amazon AMZN.
Here is a synopsis of all five stocks:
Bull of the Day:
Garmin became famous for its in-car GPS devices, smartwatches, and fitness trackers that compete against the likes of Apple and Fitbit. The electronics firm, which topped our Q4 estimates, also sells everything from high-end fish finders to advance radars for aviation and boating.
Garmin’s Pitch to Investors
Garmin’s in-car navigation systems helped it become a household name, but its automotive business has faltered recently as smartphones become ubiquitous and carmakers build in their own offerings. In fact, its auto unit sales dipped 14% in 2019. Despite the downturn, Garmin’s overall fiscal 2019 sales jumped 12% to $3.76 billion.
The Switzerland-headquartered firm on February 19 topped both our fourth quarter 2019 earnings and revenue estimates. GRMN noted that fitness, aviation, marine, and outdoor revenue collectively jumped 18%. “We entered 2020 with a great lineup of recently introduced products with more on the way,” CEO Cliff Pemble said in prepared remarks. “We are excited about the future because each business segment offers unique growth opportunities for 2020 and beyond.”
GRMN’s 2019 sales growth came on top of 2018’s 7.2% revenue expansion and represents the fourth straight year of top-line expansion. Along with its revenue growth has come solid stock price performance, with shares up 65% in the last five years to top its industry’s 57% average.
More recently, Garmin shares have jumped over 33% in the last two years to easily top its industry’s 7% climb. The stock has fallen over the last month and is down about 18% from its late February 2020 highs at around $81.16 a share. This downturn coincides with the broader coronavirus-based market selloff that is now racing to end the bull market after stocks tumbled again Monday.
Clearly, some investors might want to stay away from buying given that the coronavirus continues to spread outside of China, in the U.S. and beyond. With that said, it never hurts to add stocks to your watchlist. And Garmin announced last month that it proposed to raise its dividend by 7%, which would put the new quarterly payout at $0.61 a share, up from $0.57 per share.
Even without this planned increase, Garmin’s yield currently rests at around 2.8%. This easily tops Apple’s 1.07%, Microsoft’s 1.26%, and the S&P 500’s 2.04% average, which is based on the SPDR S&P 500 ETF Trust.
On the valuation side, GRMN is trading at 18.8X forward 12-month earnings estimates right now. This marks a discount compared to its one and three-year high of 24.1X, as well as its three-year median of 19.9X. Plus, GRMN’s Electronics – Miscellaneous Products industry sits in the top 31% of our 255 Zacks Industries.
Moving on, our current Zacks estimates call for Garmin’s first quarter sales to pop 9.4% to reach $838.4 million. Meanwhile, the company’s fiscal 2020 sales are projected to jump 6% to $3.98 billion, with 2021’s figure set to pop another 4.4% to reach $4.16 billion.
At the bottom end of the income statement, Garmin’s adjusted Q1 earnings are projected to surge 18% to come in at $0.86 a share. Overall, the company’s adjusted fiscal year EPS figures are expected to climb by 3.6% in each of the next two years. This would come on top of 2019’s 21% earnings growth.
The nearby chart helps show investors how much Garmin’s longer-term earnings estimates have climbed since it posted it Q4 results. This positivity helps it earn a Zacks Rank #1 (Strong Buy) at the moment, which coupled with its dividend yield, might make it worth considering.
Bear of the Day:
Splunk is a data analytics software company that offered disappointing guidance on March 4. Shares of Splunk have now fallen over 17% since then and it might be time to stay away from SPLK.
What the Splunk…
Splunk is a data-analytics-software firm that has grown quickly in the big-data age. The firm was founded in 2004 and its name is a play on the word spelunking, which is most reliably defined as the recreational exploration of caves—in this case big-data. SPLK’s technology is designed to help firms “investigate, monitor, analyze and act on data at any scale, from any source over any time period.”
The company has seen its revenue skyrocket from $451 million in 2015 all the way to $2.36 billion in fiscal 2020—its most recently reported period. Splunk’s expansion comes as part of the ongoing big data revolution and it aims to continue to grow with its Data-to-Everything Platform.
The San Francisco-based firm’s 2020 revenue jumped 31% to reach $2.36 billion and its adjusted Q4 earnings matched our estimate, even though it posted a GAAP loss.
Investors should also note that the company has completed its transition to a cloud-based business model. “Our shift to a renewable model is 99% complete as customers are now predominantly opting for term and cloud contracts,” CEO Doug Merritt said on the firm’s Q4 conference call.
“The flexibility and predictability of our new Data-to-Everything pricing options have made it easier to do business with us and for customers bring data to every question, decision and action. And now we’re focusing squarely on cloud as a driver of our next phase of growth.”
Splunk noted on its recent earnings call that 35% of its software business came from the cloud in 2020. SPLK executives now expect its cloud unit to account for over 60% of total software bookings in fiscal 2023.
Looking ahead, Splunk said it expects its fiscal first quarter 2021 revenue to come in at approximately $450 million. The company also said that its “non-GAAP operating margin is expected to be approximately negative 25%.”
Meanwhile, our current Zacks estimate calls for Splunk’s adjusted Q1 earnings to tumble from +$0.02 in the year-ago period to a loss of -$0.16 per share.
On top of this, its full-year sales guidance came in below analyst estimates. The company’s fiscal 2021 revenue is projected to climb 9.4% to $2.58 billion. Meanwhile, its adjusted 2020 earnings are projected to dip 1.1% this year to $1.86 per share.
The nearby chart shows just how much Splunk’s earnings estimates have fallen since it reported its results last week. For instance, its Q1 estimates tumbled from -$0.04 to -$0.16 a share and its fiscal 2020 figure dropped from +$2.30 to $1.86 a share.
This negative earnings revision activity helps Slunk earn a Zacks Rank #5 (Strong Sell) at the moment. SPLK also holds “F” grades for both Value and Growth in our Style Scores system to help it earn an overall “F” VGM score.
Now isn’t time to give up on Splunk outright, but given its rough near-term outlook and the current market volatility, it seems best to stay away from SPLK for now.
Google Ties with AT&T to Offer 5G Edge Computing Solutions
Alphabetis making every effort to integrate the cutting edge 5G networks into its cloud services in a bid to deliver enhanced cloud experience.
The company’s cloud computing arm, Google Cloud’s latest partnership with AT&T is a testament to this fact. Both the companies are committed to combining software and data services and 5G.
Google Cloud aims to leverage AT&T’s 5G network to build a suite of business products which will offer low latency and strong security to the companies.
Moreover, the underlined 5G based computing solutions portfolio will leverage Google’s Artificial Intelligence (AI), Machine Learning (ML), analytics and strength in Kubernetes. Additionally, these solutions are expected to serve various use-cases well.
5G Move to Benefit Google
Google Cloud is likely to gain strong momentum across customers with the latest move as the 5G edge computing solutions under review are expected to aid businesses in innovating end user experiences by optimizing operations and reducing latency.
Further, the solutions are likely to help the enterprises from various industries like manufacturing, gaming, transportation and retail among others, in addressing real business challenges.
We note that the latest move will expand the company’s cloud services portfolio, which in turn is expected to sustain its cloud business performance in the near term.
Notably, Google cloud generated revenues of $2.6 billion, which accounted for 5.7% of the total revenues, in fourth-quarter 2019. Further, the figure improved 53% on a year-over-year basis.
With the latest move, Google ups the ante against Amazon, which is also leaving no stone unturned to deliver low-latency experience to cloud customers via 5G network.
Amazon Web Services (AWS) announced AWS Wavelength is a combination of AWS compute and storage services, and cutting edge 5G networks.
Further, the company has joined forces with Verizon in order to leverage the latter’s 5G networks in order to develop applications serving use-cases with single-digit millisecond latencies.
Moreover, this partnership will aid Amazon in making AWS Wavelength available across the United States. Additionally, the company has teamed up with Vodafone, SK Telecom, and KDDI to make the service available in Europe, South Korea, and Japan by 2020.
Nevertheless, Google’s deepening focus toward strengthening cloud offerings is likely to continue aiding its market position in the cloud computing market.
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