Ticker Reports for June 13th
Dave & Buster's Stock Offers a Prime Buying Opportunity
Dave & Buster’s Entertainment’s (NASDAQ: PLAY) Q1 report left something to be desired but did not give sufficient reason to sell off the way it did. While sales are sluggish and margins are weakened, mitigating factors include remodeling efforts, investments in efficiency and growth, and solid cash flow that drives shareholder value. Shareholder value is seen in the balance sheet and robust capital return, improving shareholder leverage in leaps and bounds.
Dave & Buster's Entertainment Falls On Weak Results
Dave & Buster’s struggled in Q1, with comps falling more than expected and business investment cutting the margin. The company reported $588.1 million in net revenue for a decline of 1.5% compared to last year, missing the consensus estimate by 450 basis points.
However, the decline is small given the company’s growth over the past two years, which is over 30%. At the current level, Dave & Buster’s business is more than 60% larger than in 2019, while the stock price aligns with comparable levels, suggesting a deep value opportunity. Comps are down 5.6%, offset by adding six new stores, providing leverage as the year progresses.
Margin news is mixed. The company’s margin shrank in all comparisons to leverage the decline in the bottom line. The adjusted $1.12 in earnings is down 22% compared to last year and missed consensus by $0.58, leading the market to fall. However, the contraction is largely due to $10 million in one-off spending to aid the company’s growth.
Dave & Buster’s does not give specific guidance but is expecting to accelerate store openings as the year progresses and is advancing its international expansion. The company signed a new letter of intent for five stores in the Philippines, bringing the pipeline total to seven countries and thirty-eight stores, four of which are expected to open within the next twelve months. Regardless, execs affirmed their resolve to hit $1 billion in annual EBITDA within the next few years.
Dave & Buster’s Had a Cash-Flow Negative Quarter
Dave & Buster’s had a negative cash flow quarter due to its investments. However, the cash flow was positive when adjusting for the $10 million in labor and marketing costs associated with the new store roll-out. Even so, the impact on the balance sheet was minimal, allowing the company to sustain its fortress-like quality and aggressively repurchase shares.
The company isn’t paying a dividend, but buybacks in Q1 totaled $50 million, worth 2.4% of the count and aided a 14.1% reduction in the average quarterly count. Because cash flow is solid, the company is on track to grow, margin improvement is expected, and the repurchase authorization has $150 remaining, investors should expect aggressive repurchasing to continue and possibly spike now that shares have been discounted.
Undervalued Dave & Buster’s Has a Double-Digit Upside Potential
Analysts' reaction to the news is tepid. The few revisions tracked by MarketBeat include lowered price targets but no downgrades. The takeaway is that the stock is pegged at a firm Moderate Buy and deeply undervalued relative to the consensus. The consensus estimate implies a 45% upside but is falling; the low target is among the freshly set and the more important figure to watch. It implies a 25% upside for this discretionary stock.
The technical action in Dave & Buster’s stock is range-bound. The market has moved sideways within the range since mid-2019 and is now heading to test support at the mid-point. The mid-point provided significant resistance between 2021 and 2023 but was broken late last year. In this scenario, the market should continue to support the stock near this level, which will lead to a rebound later in the year, but there is a risk of a deeper pullback. If support fails to hold at $33, shares of PLAY could fall to the low-end range, where they would present an even deeper value for investors.
Trump Warns Gov. Can Confiscate Your Money. CBDC's give Gov. absolute
Donald Trump once again sounded the alarm against Fed-controlled digital currencies (CBDCs).
If these plans are implemented, it could mean the end of America as we know it.
The FOMC Decision Means Higher Prices for Stocks This Summer
The Federal Open Market Committee (FOMC) didn’t exactly give the market what it wanted, but the policy statement and outlook have the S&P 500 (NYSEARCA: SPY) on track to hit new highs. High inflation and high interest rates aside, the US economy is growing, labor markets are healthy, and inflation is tracking lower, which has the Fed on track to cut rates. In the eyes of the market, the statement signals a pivot in policy that should spur economic activity and S&P 500 earnings growth. High inflation and interest rates are a worry in this environment, but the index can continue to climb higher.
The New Normal Isn’t New Anymore, It’s Just Normal
Investors must remember where it came from to keep the current Fed policy in perspective. FOMC policy had been ultra-lenient for over a decade until early 2025, when the committee began its tightening cycle. At the time, the call was to “normalize” interest rates and the economy, which is where we are today. Historically, FOMC policy averages between 4% and 10%, which puts the current policy in the low-end range. In this situation, the FOMC could continue to hike rates again if necessary to curb inflation.
Inflation is cooling; that’s a fact. The latest CPI report aligns with an outlook that inflation will cool to the FOMC target of 2% by 2026. The problem for the FOMC is that inflation is cooling ever so slowly, leaving them little choice but to keep rates where they are. As it has been all along, the risk for them is that cutting rates too soon will unleash the economy and spur inflation to new heights. The housing market alone has enough pent-up demand to sustain economic growth and consumer prices.
Among the Fed's problems is interest rates. They can’t keep them high forever because rising rates impact everyone's borrowing costs, including the US government. The Committee for a Responsible Federal Budget estimates that a 50 basis point hike would increase the budget deficit by $1 trillion and put the US on the brink of default.
The CBO estimates that credit costs will run nearly $850 billion this year alone and double in the next decade due to the deficit and high rates, increasing the risk of default. In this environment, the Fed is left walking a tightrope between fiscal policy and fiscal responsibility. Rates must stay high enough to combat inflation but low enough that US debt doesn’t spin wildly out of control.
The FOMC Said Higher for Longer and Meant What It Said
The Fed indicated it would cut rates this year but trimmed the forecast from three cuts to one. The best-case scenario is that this cut will come by November, but there is risk. The pace of inflation hasn’t slowed enough to warrant a rapid pace of rate cutting, which means the Fed may only cut once and then sit back to see what happens. Because the pace of inflation isn’t slowing quickly and the Fed is notorious for walking back on its outlook, it is also possible there will be no cut this year. As it is, the CME FedWatch Tool shows the market pricing in the first cut for November.
The outlook for earnings is what is driving the market. The consensus estimates that S&P 500 earnings growth will accelerate sequentially through the end of the year and that annual growth will accelerate from this year to the next. This outlook shows that the S&P 500 is in rally mode, and it looks like it will continue to rise. The technical action following the Fed announcement was tepid but led to a significant gap higher the next and is confirmed by buy signals in MACD and stochastic.
There is substantial potential in the S&P 500. The market is moving higher after breaking out of a secular grade trading range with a magnitude of nearly 1,300 points. Because the move to new highs is driven by earnings growth, earnings growth acceleration, and a forecast for the trend to continue, it could easily move above the breakout point by the exact figure. This puts a target of SPX 6,100, which may be reached by the end of the year.
Prepare for a Recession Unlike Any Other
Dave Ramsey Is Dangerously Wrong And Here's Why>>
Asked whether we're on the cusp of a US Dollar crash, Dave Ramsey made a stunning miscalculation while live on air:
"Am I worried about this? Absolutely not."
Frankly, I've never seen someone so confident in being wrong…
Because what's happening to the US Dollar is not something you should "keep an eye on"…
But instead, is an imminent threat you should get ahead of right NOW.
Here's Why Analysts Boosted Walmart Stock's Valuation
Shares of Walmart Inc. (NYSE: WMT) are reaching a new all-time high this week after analysts at HSBC decided to boost their price targets on the stock higher. Seeing the company’s valuation as high as $81 a share, daring the stock to rally by an additional 22.2% from its already elevated levels today. These aren’t the only analysts seeing the stock’s potential being this high.
Those at J.P. Morgan Chase & Co. also see the stock potentially going higher to the same $81 level, and today’s economy has everything to do with it. It looks like stocks willing to step away from corporate greed, despite the opportunity to keep margins at record highs, are receiving most of the market’s attention and reward through more bullish price action.
Restaurant stocks like McDonald’s Co. (NYSE: MCD) and Yum! Brands Inc. (NYSE: YUM) is experiencing the same dynamic, as markets are now rewarding how Yum! is willing to help today’s inflation-choked consumer. At the same time, McDonald’s takes advantage of today’s market by passing costs onto the consumer to expand margins.
Walmart's Price Reductions: A Welcome Relief in Today's Economy
Walmart has historically been the discount consumer staples stock that people go to for their home and grocery needs. Hence, its brand moat carries some goodwill apart from unrepeatable strength.
Walmart is now cutting prices on thousands of items across its locations to build more upon this popularity. Joining this trend comes Target Co. (NYSE: TGT), Walgreens Boots Alliance Inc. (NASDAQ: WBA), and even Amazon.com Inc. (NASDAQ: AMZN).
Because today’s consumers have had to deal with higher interest rates, making shopping on credit cards all that much harder, going to Walmart and seeing lower prices is a welcome relief sure to be rewarded by more shopping volumes and foot traffic.
More than that, the U.S. economy is suffering from an economic phenomenon called stagflation, which is defined as low economic growth and high inflation. Now that inflation stood above 3% over the past quarter, and U.S. GDP growth was revised to 1.3%, the economy begins to fit the stagflation definition.
For this reason, earnings per share (EPS) growth is becoming more critical than ever. While some may worry that lower prices could undercut Walmart stock’s EPS growth, the opposite is true.
What Drives Walmart Stock's Promising Growth Prospects for the Future
Trends in the Consumer Discretionary Select Sector SPDR Fund (NYSEARCA: XLY) show why Walmart stock is set up for success in the coming months.
Over the past 12 months, Walmart has outperformed the sector by as much as 20%. The same is true for the Consumer Staples Select Sector SPDR Fund (NYSEARCA: XLP), as Walmart outperformed it by up to 25%.
Price action is driven by Walmart's passing short-term profits to help its consumers access more affordable items during this economic storm. Looking at the past to guide Walmart's future potential growth, investors can find this in the company's latest quarterly earnings report.
Earnings per share grew from $0.21 in 2023 to $0.63 in the most recent quarter, reporting a growth rate of 200% over the year. Considering that analysts only see single-digit growth in EPS for the next 12 months, investors could safely assume that these projections may be on the conservative end of the spectrum.
Finding another reason to justify more than today’s growth projections and backing HSBC’s new price target, investors can look to Walmart’s recent margins and return on invested capital (ROIC) rates to predict what the stock could do next.
The Role of Walmart Stock's Profits in Enhancing Future Investor Returns
Of course, with these new growth prospects under its belt, Walmart’s management is looking to reward those shareholders who patiently stuck with the company despite these decisions to cut prices on items, which could seem to hurt the company’s profitability.
Recent results show up to 15% ROIC rates and a net operating cash flow of $4.2 billion. These figures allowed management to buy back as many as 18 million shares in the open market for a total value of $1.1 billion.
Share buybacks can significantly boost investor returns over time, so management knows exactly what it’s doing when allocating large amounts of capital to buy back stock despite it being near all-time highs.
Knowing that standing in the way of a company looking out for today’s inflation-choked consumer could be futile, bearish traders decided to step out of the picture. Over the past month, Walmart’s short interest declined by 7.7%, opening the way for bullish traders and investors to take over.
MarketBeat Media, LLC dba TickerReport
345 N Reid Place, Suite 620, Sioux Falls, SD 57103.
0 Response to "🌟 Here's Why Analysts Boosted Walmart Stock's Valuation"
Post a Comment