Ticker Reports for August 8th
Owens-Corning Stock: Good Value or Recession Red Flag?
A quarterly earnings beat hasn’t been enough to reverse the slide in Owens Corning (NYSE: OC) stock. In mid-morning trading the day after the maker of builder and construction materials delivered its second quarter earnings the stock is down just over 10% for the week.
Undoubtedly much of this is due to the sharp, market-wide sell-off to start the week. But is this a case of an oversold stock creating a buying opportunity or a red flag for an industry that is highly susceptible to recession pressures?
Why Revenue May Not Have Blown the Doors Off Expectations
Owens Corning delivered revenue of $2.79 billion. That missed analysts’ expectations of $2.92 billion. But it was higher than the $2.56 billion it reported in the same quarter in 2023.
However, this was the first quarter that Owens Corning realized revenue from its acquisition of Masonite, the manufacturer of “Doors That Do More.” Revenue from Doors accounted for net sales of $311 million. That’s statistically significant because without that revenue the company’s revenue would have been an even larger miss from analysts’ expectations as well aa a YOY miss.
On the one hand, this is like a pointless sports bar debate about what would have happened if something else hadn’t happened. The fact is the company did have those sales and that is likely to be a solid source of revenue and earnings moving forward. As confirmation of that, the company issued a forecast for net sales growth and EBITDA margin in the low 20-percent range for the coming quarter.
However, it’s also a data point that has to be looked at in context of the broader economy. Owens Corning is heavily reliant on a healthy market for new home construction as well as for remodeling activity.
Investors are Weighing the Company's Cautious Guidance
Looking forward, Owens Corning expects to see healthy demand for its non-discretionary items like roofing products and insulation in North America. However, it is projecting discretionary repair and remodeling activity (e.g. Doors) to remain soft in the near term.
This is similar to what investors have been hearing from other construction stocks this earnings season. That is, consumers are prioritizing must-have purchases (i.e. a leaky roof) over cosmetic remodels that they might otherwise do. Those concerns are being heightened when JPMorgan Chase & Co. (NYSE: JPM) CEO Jamie Dimon spoke of the likelihood of a h
The Fundamentals Speak to Solid Value
Owens Corning continues to execute a capital allocation strategy that focuses on delivering value to shareholders. In the quarter, the company generated $336 million of free cash flow and returned $52 million of that to shareholders via its dividend.
The company also prioritized paying down the debt it took on as a result of the Masonite acquisition and ended the quarter with a debt-to-adjusted EBITDA ration of 2.2x1 which is at the low end of its target range of 2x to 3x.
And the company’s forward P/E ratio of 9.8x is significantly lower than the average of companies in the Construction Materials sector.
History Suggests That This is Buyable Dip
This isn’t the first time that OC stock has had a sharp sell-off in the last 12 months. For example, from September 1 to October 23, 2023, Owens Corning stock dropped approximately 24% from peak to trough. And in 2024 there have been three separate drops between 8% and 12%. In each case, the stock has recovered to make higher highs.
When it comes to technical analysis, it’s important not to talk in absolute terms. However, it’s also important to follow obvious patterns. In this case, the trend suggests that this could be a buyable dip in OC stock.
And analysts continue to be generally bullish on OC stock since the earnings report. The Owens Corning analyst ratings on MarketBeat have a Moderate Buy rating on the stock with a consensus price target of $184.23. However, The Royal Bank of Canada (NYSE: RY) raised its price target from $211 to $213.
If you’re looking to trade OC stock, be aware that short interest spiked 11% in the last month. While the percentage of the stock being shorted remains very low, a spike like that suggests that many traders will keep pressure on the stock. That's reflected in the Options Chain for OC stock which is showing significantly more interest in Put options as a hedge with strike prices at $170 and $175.
CNBC's 'Prophet' issues urgent Fed warning
"How I 6X-ed my wife's 401K in 1 year"
At the peak of the dot-com boom, a former hedge fund manager put all $20,000 of his wife's 401k into shares of just ONE stock. Everyone on Wall Street said he was crazy. But a year later, that $20,000 in his wife's account was worth $120,000. Today, he says: "If you thought the dot-com mania was intense, what's about to happen in the coming weeks could be even crazier and could open up a new window of opportunity for 500%-plus gains."
Datadog Exceeds Q2 Expectations, Solidifies Market Leadership
Datadog (NASDAQ: DDOG) is a leading provider of observability and security solutions for cloud applications. Datadog’s earnings report for the second quarter of 2024 has once again impressed Datadog’s analyst community by demonstrating the company’s strong market position. Datadog’s financial results were driven by robust revenue growth and continued customer adoption. This positive performance propelled Datadog's stock price up over 5% in pre-market trading, indicating strong investor confidence in the company's future.
In the rapidly evolving technology sector, businesses across all industries require cloud computing and digital transformation initiatives. This shift necessitates observability and security solutions to ensure the performance, availability, and security of applications and infrastructure. Datadog addresses this critical need with its comprehensive platform that integrates and automates a wide range of capabilities, including infrastructure monitoring, application performance monitoring, log management, user experience monitoring, and cloud security. This unified approach has enabled Datadog to establish a solid presence in the market, serving a diverse customer base that includes organizations of all sizes across most sectors.
Datadog's Growth Across Key Metrics
Datadog reported revenue of $645 million for the second quarter of 2024, representing a 27% year-over-year increase. This growth was fueled by several factors, including a growing customer base, increased adoption of Datadog's multi-product platform, and success in attracting larger customers. The company's focus on delivering innovative solutions that address the evolving needs of its customers has been a key driver of its success. Datadog's ability to expand within its existing customer base is also evident in the growth of customers with an annual recurring revenue (ARR) of $100,000 or more. This metric increased by 13% year-over-year, reaching approximately 3,390 customers.
Datadog's profitability also improved in the second quarter. The company reported a GAAP operating income of $13 million, translating to a 2% operating margin. On a non-GAAP basis, operating income was $158 million, with a 24% operating margin. This improvement in profitability can be attributed to efficient cost management and increased operating leverage as Datadog scales its operations. Earnings per share (EPS) was $0.12 on a GAAP basis and $0.43 on a non-GAAP basis. These figures comfortably surpassed analyst consensus estimates, further contributing to the positive market reaction.
Datadog's strong financial performance was accompanied by healthy cash flow generation. Operating cash flow for the quarter was $164 million, while free cash flow reached $144 million. This robust cash flow and a strong balance sheet with $3.0 billion in cash and marketable securities provide Datadog with the financial flexibility to invest in future growth initiatives, pursue strategic acquisitions, and return value to shareholders.
Datadog: Driving Growth Through Innovation and Strategic Expansion
Datadog's commitment to innovation is evident in its continuous stream of new product launches and platform enhancements. During the second quarter, the company announced several key updates that further strengthened its platform and addressed customers' evolving needs.
The general availability of large language model (LLM) observability addresses the increasing adoption of LLMs and generative artificial intelligence (AI). This new offering provides AI application developers and machine learning engineers with tools to monitor, improve, and secure their LLM applications effectively. This is a strategic move by Datadog, as LLMs are rapidly transforming industries and creating new opportunities for observability solutions.
Datadog also launched Live Debugger, a tool that allows developers to identify and resolve coding errors in production environments more efficiently. This capability significantly enhances developer productivity and reduces the time required to troubleshoot application issues.
Furthermore, Datadog introduced Log Workspaces, a collaborative environment for data analysis. Log Workspaces empower teams to connect logs with other datasets and perform sophisticated analytics to gain deeper insights into their business, security, and application performance. This feature enhances collaboration and accelerates problem resolution across different teams within an organization.
Other notable product updates include Datadog On-Call, a modern on-call experience with enhanced incident management workflows; Kubernetes Autoscaling, which optimizes resource utilization in Kubernetes environments; and Data Jobs Monitoring, a product designed to help data platform teams detect and resolve issues with their data pipelines. These additions contribute to a more comprehensive and integrated platform, increasing Datadog's customer value proposition.
Beyond product innovation, Datadog is actively expanding its market reach. The company recently released its State of Cloud Costs 2024 report, providing valuable insights into cloud spending trends. The report highlights the increasing usage and cost of graphics processing unit (GPU) instances, signaling a significant growth opportunity for Datadog's observability and optimization solutions in this area.
Datadog also made key additions to its leadership team, appointing Yanbing Li as Chief Product Officer and David Galloreese as Chief People Officer. Li brings extensive experience in product, technology, and engineering, while Galloreese has a strong background in human resources from leading organizations. These strategic hires signify Datadog's commitment to attracting top talent and building a solid leadership team to support its continued growth.
Datadog's Financial Outlook and Investor Perspective
Datadog provided optimistic guidance for the remainder of 2024. The company expects third-quarter revenue to be between $660 million and $664 million, while full-year revenue is projected to be between $2.62 billion and $2.63 billion. These figures suggest continued growth, driven by ongoing demand for observability and cloud security solutions.
Analysts have generally expressed positive views on Datadog's performance and prospects. Many have maintained buy or outperform ratings on the stock, citing the company's strong execution, product innovation, and ample market opportunity. However, it is essential to note that the competitive landscape in the observability market is evolving, with new entrants and existing players vying for market share. Datadog's future success will depend on its ability to maintain its technological edge, expand its platform capabilities, and effectively compete in this dynamic market.
"A very dark day is coming to America"
Wall Street Legend on Economy: "If you knew what I know, you'd be terrified too."
Something huge is headed to America's shores – and it scares the hell out of Wall St. legend Louis Navellier. When it makes landfall, its impact will be more violent and more severe than any financial crisis we've ever seen… "No matter how prepared you think you are, you aren't prepared enough," he warns.
Cybersecurity Stock Surges, Promising Double-Digit Gains
Fortinet (NASDAQ: FTNT) stock surged more than 25% following its Q2 release because it reached an inflection point. The company's lean into unified SASE and Security Ops resonates with businesses, providing a simpler approach to cloud-based cybersecurity. It is developing into a market leader, as evidenced by its ranking in Gartner Magic Quadrant reports. The company is the #1 single-source vendor and the only cybersecurity vendor mentioned in all the available half-dozen Magic Quadrant cybersecurity reports. The takeaway for investors is that business is growing, the moat is widening, profits are robust, cash flow is sound, and shareholder value is rapidly improving.
Among the pertinent details from the report is the balance sheet. The company’s positive cash flow quarter and free cash flow allowed for a substantial build-up in cash and equivalents, improving its net cash position and increasing assets, while liabilities and debts remained flat. The critical detail is that shareholder equity inverted from deficit to $288.2 million and is expected to continue growing as the year and years progress.
Fortinet Has Beat and Raise Quarter
Fortinet had a solid quarter, with revenue rising 11% to $1.43 billion compared to last year. The revenue beat the consensus estimate reported by MarketBeat on strength in the critical, higher-margin services segment. Services grew by 20%, offset by a 4.4% decline in products, leading to a substantial improvement in systemwide margin. The only area of concern is the billings, which are flat compared to last year and indicate tighter cash flow. Offsetting that is a 15% increase in deferred revenue, suggesting cash flow will improve with time.
The margin is impressive. The company widened its gross and adjusted operating margins, with the adjusted margin up 820 basis points. The net result is $0.57 in adjusted EPS or about 4000 basis points of outperformance. Again, the cash flow is a concern because it is down YoY but sufficient to sustain the outlook while allowing the company to reinvest and develop newer technologies. Still, cash flows are sufficient to produce a cash-flow-positive quarter, setting it up to resume share buybacks. The company hasn’t bought back any shares for two quarters but has more than $1 billion available under the current authorization.
Guidance is the best news in the report. Billings are expected to remain flattish for the quarter, but revenue will grow sequentially and year-over-year to $1.475 billion at the midpoint of guidance. That is above the consensus midpoint and compounded by an expectation for margin strength to continue. Margin will contract from the record level set in Q2 but remain strong at 31% adjusted, producing an expected $0.56 to $0.58 in adjusted earnings. That is more than a dime above consensus, and strength is expected to carry through the year’s end: the full-year guidance was improved at the top and bottom line, putting the low end of the new range above the high-end of the previous.
Analysts Raise Targets and Lift Sentiment for Fortinet Stock
The analyst response to Fortinet’s news is overwhelmingly bullish. Nearly half of the 33 analysts tracked by MarketBeat issued a revision, including an increased rating, price target, or both. No reduced price targets or sentiment reductions have been recorded, leaving the sentiment at Hold but firming and the range of price targets rising. The consensus assumes a low-single-digit advance from the $70 level but a new all-time high at the range high end. Because more than half the fresh targets are above $75, investors may expect this stock to move into the high end of its trading range with a growing probability for a new all-time high.
The technical details suggest that this cybersecurity stock will rocket higher. The 25% gain sparked by the Q2 results confirms support at the cluster of moving averages and is compounded by a strong Buy signal in the indicators. The stochastic and MACD converge with the price action and outlook, showing bullish crossovers low in their ranges, leaving ample room for this market to run. The critical resistance targets are near $71 and $80; a move above $70 will likely result in a quick move to $80. A move above $80 will set a fresh all-time high and could lead to a sustained uptrend. The stock price could advance another $30 in that scenario.
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