Ticker Reports for May 17th
Take-Two Interactive Software Offers 2nd Chance for Investors
Take-Two Interactive Software (NASDAQ: TTWO) turned a corner in 2022, which resulted in a 60% upswing in the stock price. The growth outlook is intact, but the Q4 results and 2025 guidance have reset the market. The problem is that the timeline for the release of Grand Theft Auto VI, the company’s flagship offering, was pushed out to early F2026 and significantly impacted the outlook for this year.
Take-Two isn’t in trouble; it is in excellent shape with a solid pipeline of new releases slated for the coming year. The problem is that investors hoped the rebound would accelerate this year, but it won’t, leaving the market in danger of extending the correction that began in February after the Q3 release. The takeaway for investors is that this is a 2nd chance to get into the rally that started two years ago, a rally that still has years to run.
Take-Two Has Solid Q4: Guides Weak for 2025
Take-Two had a decent quarter in Q4, with strengths in its key platforms that sustained the business despite the tough comp compared to last year. The $1.4 billion in net revenue is down 3.4% but edged past the consensus on strength in NBA 2K24, Zynga, and Grand Theft Auto. PC and Other Platforms were the weakest segment with a decline of 20%, 25% for bookings, offset by a much smaller decline in the others. Mobile was strongest, with a decline of -0.4% and a 0.3% increase in net bookings. Console sales fell by 2.5%, with bookings down 1.4%.
Booking was the weak link in the chain. Bookings are an indication of future revenue growth and fell by 3%. Within that, bookings from recurring customers fell by 2% and was 79% of the net. Booking weakness was seen again in the guidance for F2025 due to the delayed launch of GTQ6.
Guidance is good because revenue and bookings are expected to grow in 2025. The company also forecast revenue strength compared to the consensus reported by Marketbeat, but bookings are well below estimates. The company targets $5.6 billion in net bookings, which is $1.4 billion or 20% below the consensus. The good news is that bookings should accelerate as soon as Q1 F2026; however, that is still a long way off. Until then, earnings are good. The company’s GAAP loss widened due to significant non-cash charges and impairments; the adjusted $0.28 outpaced consensus by $0.20.
Analysts Trim Targets: Market Enters Wait-and-See Mode
The analyst's response to the Q4 results is favorable, but the group is trimming targets. The consensus Moderate Buy is unchanged, but the uptrend in the consensus price target is over, and the upside potential is capped. The first half-dozen revisions include Roth MKM, Jeffries, and Goldman Sachs updates. They all lowered their price targets to $175 to $180 to align with the broad market consensus. The consensus implies about 20% of upside but is below a critical resistance point that will likely cap gains until there is more clarity on GTA6 and bookings growth.
Take-Two Interactive's share price edged lower following the release and may move lower in the near-term. However, analysts and institutions support the market well, so the downside is limited. The low end of the analysts' expected range is unchanged and above the current price action at $147. In this scenario, the market for Take-Two is undervalued and setting up for a rebound that could begin later this year. The targets for critical support are near $140 and $130. A move below $130 could take this market down to the $100 level, but that is not expected for this tech stock.
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Deere & Company's Q2 Report: Strong Revenue, Cautious Outlook
Deere & Company (NYSE: DE) is a titan of the agricultural and construction equipment sector. Deere & Company’s financial reports often serve as a barometer for the health of these crucial market sectors. Deere & Company’s earnings report for the second quarter of 2024 was released, providing investors with insight into the company’s financial health. While showing strong revenue and earnings per share, the report also revealed a cautious outlook on the agricultural sector. The lowered guidance prompted investors to closely analyze the company’s performance and the implications for their portfolios.
Q2’s Earnings Harvest
Deere & Company's Q2 2024 earnings report gave investors a detailed view of the company's recent financial performance. While the company exceeded Deere & Company’s analyst community’s expectations on revenue and earnings per share, it also lowered its full-year profit forecast for the second time. This adjustment reflects the company's cautious outlook on the agricultural sector, which is currently facing challenges.
The company reported revenue of $15.24 billion for the quarter, exceeding analyst estimates of $13.3 billion. Earnings per share came in at $8.53, topping analysts predictions of $7.86. However, Deere's net income fell by 17% compared to the same period last year, demonstrating the company's struggle to maintain profitability in the challenging agricultural industry.
A closer examination of Deere's segment performance reveals the source of this mixed bag of results. The company's Production and Precision Agriculture segment, which encompasses large and mid-size tractors, combines, and other equipment, saw revenue decline by 16% to $6.58 billion. This segment's performance reflects the softening demand from farmers struggling with lower commodity prices and higher input costs.
Deere's Small Agriculture and Turf segment, which includes mid-size and small tractors and other equipment, experienced a more significant decline, with revenue falling by 23% to $3.19 billion. This segment's performance is particularly noteworthy, as it signals a broader downturn in agricultural demand.
While not immune to broader economic trends, the Construction and Forestry segment fared relatively better, with a 7% revenue decline to $3.84 billion. This performance suggests that the construction industry remains relatively stable compared to the agricultural sector.
Deere's Financial Services segment, which provides financing solutions to farmers and construction companies, reported a net income of $162 million, a significant increase compared to the same period last year. This segment benefits from higher interest rates and increased portfolio balances but is also facing pressure from higher credit losses and less favorable financing spreads.
Analyst Sentiment on Deere
Analyst sentiment on Deere remains positive, with a consensus rating of Moderate Buy. The average price target for Deere's stock is $436.93, suggesting a potential upside from current levels. However, analysts are closely monitoring the agricultural sector's challenges and subsequent impact on Deere's business.
Analysts are concerned about the near-term outlook for the agricultural sector, citing the impact of lower commodity prices, higher input costs, and declining farm income. They are also watching for signs of improvement in the global economic environment, which could provide some relief to the agricultural sector.
Analysts remain optimistic about Deere's long-term growth potential despite the near-term headwinds. They highlight the company's investments in technology, such as precision agriculture, and its commitment to sustainability initiatives as key drivers of future growth.
Deere's Long-Term Strategy
Despite the near-term challenges facing the agricultural sector, Deere & Company remains committed to its long-term growth strategy. The company is actively investing in technology and innovation to improve farm efficiency, profitability, and sustainability.
Deere's investments in precision agriculture technology, such as automation, data analytics, and machine learning, are transforming farming practices. These technologies help farmers to optimize crop yields, reduce input costs, and minimize environmental impact.
Deere is also committed to its sustainability initiatives to reduce its carbon footprint and promote sustainable farming practices. The company is developing and introducing equipment that uses alternative fuels and reduces greenhouse gas emissions, aligning with global efforts to mitigate climate change.
In addition to its core agricultural business, Deere is expanding into new markets and product lines. The company is actively exploring opportunities in renewable energy and infrastructure development, seeking to leverage its technological expertise and global reach.
Challenges and Risks Facing Deere
Despite Deere & Company's commitment to innovation and diversification, it faces several challenges and risks that could impact its future performance. These challenges are often intertwined, reflecting the complex dynamics of the agricultural and construction industries.
The agricultural sector is inherently cyclical, subject to fluctuations in commodity prices, weather patterns, and government policies. These factors can significantly impact farm income and demand for Deere's equipment. Lower commodity prices, driven by global supply chain disruptions, geopolitical instability, and increased production, can reduce farmer profitability, decreasing demand for agricultural equipment.
Higher input costs, including fertilizer, fuel, and labor, are another significant challenge facing the agricultural sector. These rising costs squeeze farmer’s profit margins, making investing in new equipment more difficult. Inflationary pressures further exacerbate this issue as the cost of equipment and other inputs rises.
The rapid pace of technological advancement presents opportunities and challenges for Deere. New technologies, such as autonomous vehicles, drones, and data analytics platforms, are emerging and could disrupt the traditional agricultural equipment market. Deere must adapt to these changes, investing in research and development to maintain its technological leadership.
Deere & Company's commitment to innovation, diversification, and sustainability positions the company for long-term success. However, investors should be aware of the company's challenges and risks, particularly in the agricultural sector. Investors should carefully assess Deere's valuation, risk profile, and potential for future growth before making an investment decision. They should also monitor the company's financial performance, response to industry challenges, and progress in advancing its long-term growth strategy.
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Analysts Still Want Double-Digit Upside Out of Applied Materials
Investors may have noticed a recent hype surrounding technology stocks, with a particular niche calling for additional attention. Those in the semiconductor industry responsible for making all of artificial intelligence’s promises today have seen preferential treatment from the markets and Wall Street analysts. However, not all stocks in this space are created equal.
Shares of Applied Materials Inc. (NASDAQ: AMAT) have changed a little this week, as investors are likely looking to take a breather after the stock rallied by as much as 37.3% in the past six months. While some investors may be squirming to take some profits off the table, especially after disappointing Federal Reserve (the Fed) timetables regarding interest rate cuts, that is far from what portfolios may need today.
A better medicine can be found in picking some of these stocks that have yet to see the valuation expansions others experienced. Nvidia Co. (NASDAQ: NVDA) and Advanced Micro Devices Inc. (NASDAQ: AMD) saw their market capitalizations more than double in the past year. Yet, Applied Materials’ valuations show that it could have a 25% leg to push higher.
The Economy Needs Applied Materials to Stay
As the U.S. government pushes its plan to onshore semiconductor manufacturing, decreasing the world’s exposure to Asian regions, where Taiwan Semiconductor Manufacturing Company Ltd. (NYSE: TSM) reigns king as one of the world’s leading provider of chips, Applied Materials could see more significant growth than is expected.
Taiwan Semiconductor recently received a $12 billion grant from the U.S., which will help the company build out its necessary factories to diversify the semiconductor supply chain. The supply chain was severely disrupted during COVID-19, causing shortages in every consumer electronic product.
Others are hopping on this bandwagon, with Intel Co. (NASDAQ: INTC) and even Samsung Electronics Co. (OTCMKTS: SSNLF) receiving a few billion themselves to start building manufacturing infrastructure in the U.S.
The keyword here is manufacturing, as in the manufacturing sector itself. Analysts at The Goldman Sachs Group Inc. expect to see a breakout in the industry throughout 2024, a thesis investors can find in the bank’s 2024 macro outlook report.
Because the Fed is looking to cut interest rates this year, leading to a weaker dollar, American goods could become more attractive in the eyes of foreign buyers. February’s ISM manufacturing PMI index posted a 6.4% bump in export orders; it looks like Goldman’s thesis is correct.
Bringing a fundamental reason to stay within manufacturing stocks and an even more significant global trend in artificial intelligence, it is time for investors to find out why Applied Materials is a top candidate on this list.
Don’t be Fooled by The Quarter
Flat revenue, that’s what the company’s press release says about the first quarter of 2024. Though an 11% boost in earnings per share (EPS) shows the business’s operations are becoming more efficient – and profitable – despite seeing no material increase in the top-line.
This is because of the easing supply chains in the semiconductor space, helping improve pricing power for companies like Taiwan Semiconductor Manufacturing and Samsung, which are top customers for Applied Materials.
If the world wants more advancements in AI. That’s good for Taiwan Semiconductor’s business, which is also suitable for Applied Materials. Moving past this obvious economic fact, here’s where investors can get some extra juice to squeeze.
Analysts at Cantor Fitzgerald saw it fit to slap a $260 price target on Applied Materials, calling for up to 21.5% upside from where the stock trades today. Following this trend, UBS analysts pushed for $235 a share, or roughly 10% above today’s price.
Compared to Advanced Micro Devices, which trades at 72% of its 52-week high, Nvidia stock reached 97% of its 52-week high, showing investors how winners will always attract bullish traders to bid them higher.
As an extension to Nvidia’s price action, Applied Materials is flirting with making new all-time highs, but wait, there’s more. Compared to the computer sector’s 265.2x P/E multiple, Applied Materials stock trades at 25.2x to bring a discount of 90% to the industry.
The so-called 'smart money' took notice, which could be one reason behind the $128.4 billion of institutional inflows into Applied Materials stock over the past 12 months. These institutions could be looking to close the stock's massive valuation gaps.
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