Ticker Reports for June 15th
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.
Buy these "two-bagger" stocks
We've put together something special for our subscribers — a free report on 5 stocks we believe could double in 2024. It's straightforward, easy to understand, and most importantly, actionable.
Download your free report today!
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.
Gold's Price Could Go Through the Roof
The perfect storm is brewing to drive gold's price through the roof!
And our weakening dollars are causing demand from Central Banks and billionaires to EXPLODE!
The elites are buying up gold like nothing we've seen before…
C3.ai Stock: The Rising Powerhouse in the AI Industry
C3.ai (NYSE: AI) has been garnering attention lately, with many investors wondering if the company could emerge as a leader in the AI field, if it is simply a sleeping giant waiting to be awakened, or if it has come too far too soon and is due for a pullback. Its RSI is now hitting 73.
To assess its potential, let's examine C3.ai's recent performance, earnings results, and current sentiment around the stock.
Overview of C3.ai
C3.ai is a prominent enterprise software company that provides artificial intelligence (AI) solutions to optimize operations and improve organizational decision-making. The company offers software-as-a-service (SaaS) applications across various industries, including manufacturing, healthcare, energy, and financial services.
These applications harness the power of AI and machine learning to drive digital transformation. Over the years, C3.ai has evolved from an energy management company to an Internet-of-Things (IoT) business, and now, it is focused on AI applications. Management believes its latest shift into generative AI is revolutionary.
The company's pre-built AI models address everyday situations in many industries, making them an attractive option for businesses that don't want to invest in developing custom models. One of C3.ai's significant emerging clients is the U.S. government, which accounted for nearly half of the company's bookings in the fourth quarter of fiscal 2024, ending April 30.
Recent Surge in C3.ai's Stock Performance
C3.ai's stock has seen a significant uptick recently. Over the past month, it surged by 31%, bringing its year-to-date performance close to a 10% gain. This surge can be attributed to its strong earnings results for the fourth quarter of fiscal 2024. Historically, C3.ai struggled to demonstrate substantial revenue growth despite its promising AI solutions. However, its latest earnings report impressed investors and led to a notable increase in its share price.
On May 29, C3.ai released its fiscal 2024 year-end numbers. During the fourth quarter, the company reported a 20% year-over-year increase in revenue, reaching $86.6 million. This was also a 10% improvement from fiscal Q3's revenue of $78.4 million. For fiscal 2025, C3.ai projects revenue between $370 million and $395 million, representing a 23% increase at the midpoint, indicating a further acceleration in top-line growth.
Despite the promising revenue projections, there are concerns regarding C3.ai's profitability. Management anticipates an adjusted operating loss of between $95 million and $125 million for fiscal 2025, deeper than the $94.9 million loss in fiscal 2024 and the $68.1 million in fiscal 2023. The company is one of the most unprofitable in the software industry, with a high cost of revenue and significant operating expenses leading to substantial losses. In Q1, despite nearly $87 million in revenue, the company incurred $35 million in the cost of revenue and $134 million in operating expenses, resulting in a 95% operating loss margin.
Current Analyst Ratings and Price Target for C3.ai
Analyst sentiment towards C3.ai is beginning to shift positively. The stock holds a "hold" rating based on twelve analyst ratings, with a consensus price target of $31.30, suggesting further upside potential. This is a notable improvement from a year ago when the stock had a "reduce" rating and a consensus price target predicting considerable downside.
However, skepticism remains high. C3.ai is one of the most shorted stocks in the market, with a short interest of 28.25%, up 3.23% from the previous month. This indicates that many are still betting against the company, reflecting ongoing concerns about its profitability, valuation, and long-term viability.
C3.ai's Significant Potential with Notable Risks
C3.ai has shown significant promise with its recent performance and earnings growth, positioning itself as a legitimate growth play within the AI industry. However, the company's substantial losses and high short interest suggest that investors should remain cautious. As the company continues to grow and evolve, its ability to achieve profitability will be crucial in determining whether it can transition from a potential sleeping giant to a dominant force in the AI sector.
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