Ticker Reports for August 23rd
Lumen: Among Top Performers Last Month, Still Has Warning Signs
Lumen Technologies (NYSE: LUMN) has experienced skyrocketing share price in the last month, making it one of the top-performing stocks based on total 30-day returns in the area of 323% as of this writing. Earlier this month, Lumen shares topped $6 for the first time since late 2022. All of this momentum has drawn investor attention to this legacy telecommunications infrastructure firm, once written off for struggling to adapt to rapid shifts in communications technology.
Is the rally justified? Taken as a group, analysts don't believe so, at least not to the degree seen in recent weeks. An average price target of $3.74 is a full 38% lower than the current stock price, suggesting analysts expect Lumen to reverse course sharply. Taking stock of both the bullish and bearish views on Lumen may help provide retail investors with much-needed perspective before deciding to invest in this company.
Lumen's AI Focus and Microsoft Deal Signal Future Growth
Much of the excitement around Lumen relates to newfound AI potential, perhaps best encapsulated by last month's announcement of a partnership with Microsoft Corp. (NASDAQ: MSFT) in which Lumen will support the tech giant's data center expansion efforts. Besides potentially leading to billions in cash flow, the Microsoft agreement has reframed Lumen as a company poised to deliver key AI infrastructure to legions of firms looking to further integrate this tech into their business models.
Although not directly impacted by the financial component of the Microsoft agreement, Lumen's latest quarterly report also gives some reasons for optimism. Revenue was slightly under $3.3 billion, down year-over-year but ahead of analyst predictions. Adjusted EBITDA was also down by over $200 million, but the firm raised its full-year guidance in this area alongside a lift in anticipated free cash flow. Both of these are positive signs that the AI boom could have a tangible benefit for Lumen.
Lumen Faces Debt Challenges Despite Microsoft Partnership
The Microsoft partnership has drawn headlines, but digging deeper reveals that Lumen still faces a tough road ahead despite a potential second life as an AI infrastructure company.
As of the second quarter, Lumen's long-term debt totaled $18.4 billion, down slightly year-over-year. Though carrying debt isn't necessarily a bad thing, Lumen lacks a clear path out of this position. Its legacy telecom businesses are faltering, and a large-scale shift toward AI would likely require costly growth initiatives that could make the problem worse.
Looking at Lumen's latest quarterly report again, net losses narrowed significantly. Still, they constituted a shift away from net gains in 2023 when accounting for an $8.8-billion non-cash goodwill impairment charge last year. Analysts expected net losses in the second quarter of 2024, but diluted losses per share of 13 cents were more significant than the 6 cents they anticipated.
On a more granular level, many of Lumen's business lines have struggled in the last year, with Large Enterprise, Mid-Market Enterprise, North America Enterprise, Wholesale, and International sales all down year-over-year.
Trouble with legacy businesses could be partially written off if Lumen had a clear public timeline for when it will see a cash influx from the Microsoft deal and other AI efforts. At this stage, however, there is little to confirm to investors that these ventures will be able to pay down a large chunk of Lumen's debt load this year or any time soon after that. In addition to the impact of high interest rates in recent quarters, Lumen's debt concerns have become even tougher to manage.
Lumen's Rally Fueled by Speculation?
Lumen stock has quadrupled since the company's July 24 announcement of its partnership with Microsoft. Based on the factors above, it appears that a substantial driver of this rally is investor speculation that the deal signals a newly profitable path forward for the company with a history extending back almost 100 years.
Though there are reasons to be bullish on Lumen stock, the warning signs are significant and likely to remain unless there are other fundamental changes for the company on the horizon.
Ultimately, even as Lumen shares continue their stratospheric ascent, investors still have reason to consider this company cautiously before buying in.
Has Trump Finally Gone Too Far?
Lately, there's been a lot of buzz around a secret loophole executive insiders are using to make millions buying and selling their own stocks.
It's so powerful ... so profitable ... that most people immediately assume this is just another example of Trump doing what's best for business executives.
But surprisingly, this loophole has been on the books for many years and executives have been using it to make HUNDREDS of millions of dollars.
And here's the good news.
Baidu's Strong Quarter Proves a Smart Pick for Michael Burry
Recently, investors have had the chance to gain insight into the portfolios of Wall Street’s mega investors, from Warren Buffett and his multi-billion dollar positions and portfolio shifts to Michael Burry and his not-so-contrarian value investments. Michael Burry directly goes against popular culture and opinion by allocating some of his capital to Chinese stocks.
Valuations have been kept compressed for China’s stock market, as geopolitical risks and fears of investing in overseas markets have caused investors to avoid investing in Asia’s powerhouse. However, this time, Burry is not alone. While his first pick, Alibaba Group (NYSE: BABA), may have been picked up by others like George Soros, Burry made a classic individual move into another technology blue-chip.
By making Baidu Inc. (NASDAQ: BIDU) one of his top five stock picks in his portfolio, Burry can—like other investors—be exposed to China’s growth in data and communications, as Baidu can be considered China’s Alphabet Inc. (NASDAQ: GOOGL).
After the company reported its second quarter 2024 earnings results, its stock was lower by 4.4% during the trading session, but that only adds to the potential upside to be had in the coming months.
Baidu's Financials Highlight Why Investors Should Give the Stock a Second Look
Management states in the company's quarterly earnings release that despite ongoing headwinds in the Chinese economy, investors should have nothing to worry about. Artificial intelligence and cloud business revenue offset the declines in small businesses' advertising budgets.
However, as the Chinese government continues to apply economic stimulus measures, which have already had an effect through continuously expanding manufacturing PMI indexes and positive inflation readings for every month of 2024, investors have new reasons to believe more upside could lie ahead.
Revenue jumped by as much as 12% over the past quarter for the Baidu core business, significantly above the national inflation rate to signify rising consumer demand. Because of the compressed business cycle in China right now, operating cost management is easier, so Baidu's operating income grew by a larger 24% in the quarter.
Knowing what Baidu is now capable of even during one of China's slowest business cycles, investors could find the current Wall Street forecast for 10.8% earnings per share (EPS) growth in the next 12 months. But this perspective doesn't have to be left to revision by analysts; here's what management has to say about the future.
By investing $301 million in a stock buyback program, management is broadcasting its bullish view of the stock's future. If the stock was cheap enough for management to buy, then Michael Burry may feel justified in keeping Baidu at the top of his portfolio.
Wall Street's Outlook on Baidu Stock and Its Future Potential
Despite the conservative forecasts for EPS growth set by Wall Street analysts currently, others are willing to reveal more realistic views for the company moving forward. Those at Citigroup landed on a $155 price target for Baidu stock as recently as July 2024.
To prove these targets right, the stock would have to rally by as much as 80.6% from where it trades today. Realizing that the government's economic stimulus, along with the inevitable Chinese economic recovery, could boost Baidu's earnings potential as part of the consumer sector, investors could start to take this upside more seriously.
These analysts weren't the only ones on Wall Street willing to risk their reputations for their views on Baidu stock; Primecap Management (Baidu stock's largest investor) boosted its position by as much as 17.2% during the past quarter, bringing its net investment up to $1 billion for 3.4% ownership in the company.
The concern is now centered around whether the stock offers enough of a discount today. On a price action basis, Baidu only trades at 57% of its 52-week high price, creating enough of a gap for investors to consider.
But, the crystalizing factor comes through Baidu's valuation multiples. Trading at a price-to-book (P/B) ratio of 0.8x would not only place Baidu at a discount to its book but also significantly below the rest of the computer sector's average valuation of 6.9x P/B.
While this stock does not pay a dividend yet, to cushion any volatility that investors might encounter by holding it, Baidu's consistently positive free cash flow generation can offer some of the compounding effects of reinvesting back into high-margin operations in a growing economy.
Alex's "Next Magnificent Seven" Stocks
Today Alex Green is releasing his new breakdown of AI's "Next Magnificent Seven."
So please make some time to watch it.
Intuit Beats Q4 Earnings: AI, Dividends, and a Growth Strategy
Intuit Inc. (NASDAQ: INTU) is the financial technology powerhouse behind TurboTax, Credit Karma, QuickBooks, and Mailchimp. The company continues to demonstrate its dominance in the market with the release of Intuit’s earnings report for the fourth quarter and full year of 2024. Intuit’s financial report exceeded analysts' expectations and showcased its strength and resilience in a dynamic economic environment.
Intuit Beats Expectations: Dissecting the Numbers
Intuit's earnings release was impressive as the company reported a 13% surge in full-year revenue, reaching a remarkable $16.3 billion. This growth can be attributed to the strong performance across all segments, with the Small Business and Self-Employed Group leading the charge. The company's combined platform revenue, which includes the Small Business and Self-Employed Group Online Ecosystem, TurboTax Online, and Credit Karma, witnessed a 14% increase, reaching $12.5 billion. This underscores the success of Intuit's strategic focus on building an integrated platform that caters to a diverse range of financial needs.
A closer look at the segment-specific performance reveals the key drivers of this growth. The Small Business and Self-Employed Group reported a 19% increase in revenue, driven by the continued strength of QuickBooks Online, which experienced a 19% revenue increase for the year. This growth can be attributed to a combination of factors, including an expanding customer base, higher effective prices, and a strategic shift in product mix. Additionally, the Online services revenue within this segment surged by 21% for the year, fueled by growth in payments, payroll, capital, and Mailchimp. This highlights Intuit's ability to capitalize on the growing demand for online financial solutions among small businesses.
Intuit's Consumer Group, which includes the popular TurboTax, also delivered a strong performance, with revenue growing by 7% to reach $4.4 billion. TurboTax Live, the premium offering that provides users with on-demand access to tax experts, was a standout performer, with revenue surging by 17%. This growth underscores the increasing demand for personalized and expert-driven tax solutions.
Credit Karma and ProTax: Expanding the Ecosystem
While the Small Business, Self-Employed, and Consumer Group were the primary growth drivers, Credit Karma and the ProTax Group contributed to Intuit's overall success. Credit Karma, which provides free credit scores and personalized financial recommendations, achieved a 5% revenue growth, reaching $1.7 billion for the year. This growth was driven by strength in areas like auto insurance, personal loans, and credit cards. Furthermore, Credit Karma Money, a platform that offers digital banking and financial management tools, continues to gain traction in the market.
The ProTax Group, which caters to tax professionals, also demonstrated solid growth with a 7% increase in revenue for the year. This growth reflects the continued reliance of tax professionals on Intuit's software and services to manage their clients' tax needs effectively.
Intuit's Global Expansion and Strategic Evolution
Intuit's commitment to global expansion is evident in its 13% annual growth in international online revenue on a constant currency basis. This international growth, coupled with the robust performance of its core segments, has prompted a strategic renaming of the Small Business and Self-Employed Group to the Global Business Solutions Group. This new name better reflects Intuit's expanding global footprint and ambition to become the preferred platform for businesses of all sizes, from small startups to mid-market enterprises.
Investing in the Future: Capital Allocation Strategy
Intuit's financial performance has enabled the company to invest strategically in its future growth.
During fiscal year 2024, the company repurchased $2.0 billion of Intuit stock, demonstrating confidence in its long-term prospects.
Furthermore, the Board approved a new $3.0 billion repurchase authorization, giving the company a total authorization of $4.9 billion to repurchase shares.
In addition to share repurchases, Intuit’s dividend increased by 16% to $1.04 per share, payable on October 18, 2024, highlighting Intuit's commitment to returning value to its shareholders.
Charting the Course: Future Guidance and Strategic Pillars
Looking ahead, Intuit has provided strong guidance for fiscal year 2025. The company projects revenue to be between $18.160 billion and $18.347 billion, representing a growth of approximately 12% to 13%. This optimistic outlook is supported by continued growth across all segments, with the Small Business and Self-Employed Group expected to lead the charge with a projected growth of 16% to 17%.
Intuit's strategy is anchored in its artificial intelligence (AI) driven expert platform. This innovative approach leverages the power of artificial intelligence to deliver personalized financial solutions, simplify complex tasks, and empower users to make informed decisions. This strategy is further bolstered by the company's "Five Big Bets" strategy, which is focused on areas that drive innovation and long-term growth. These include revolutionizing speed to benefit, connecting people to experts, unlocking smart money decisions, disrupting the small business mid-market, and becoming an AI-driven expert platform.
Analysts Echo Optimism Around Intuit’s Strategic Vision and Growth
Intuit’s analyst community has largely echoed Intuit's optimism. Many have praised the company's strong financial performance, strategic vision, and ability to adapt to evolving market dynamics. The consensus among analysts is that Intuit is well-positioned for sustained growth in the years to come, driven by its innovative product portfolio, strong customer relationships, and expanding global footprint.
Intuit: A Future Forged in Innovation and Customer-Centricity
Intuit's fourth-quarter and full-year 2024 earnings report reveals a company performing exceptionally well. The company's impressive financial results, forward-looking strategy, and commitment to customer-centric innovation provide a picture of a business poised for continued success. Intuit's strategic investments in AI, its focus on global expansion, and its unwavering commitment to solving customer problems position it as a leader in the financial technology space. As Intuit continues executing its strategic roadmap, it is well-equipped to deliver long-term value to its investors and solidify its position as a driving force in financial technology.
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