Ticker Reports for September 9th
Why Block's Key Components Make It a Solid Investment Choice
Block Inc. (NYSE: SQ) is a financial technology (fintech) provider in the computer and technology sector focused on making commerce and financial services accessible to businesses and consumers. While the company has many synergistic and complementary products and services, it has two core ecosystems: Cash App and Square.
Block competes with other fintechs like PayPal Holdings Inc. (NASDAQ: PYPL), Shopify Inc. (NYSE: SHOP) and financial payment networks like Visa Inc. (NYSE: V) and Mastercard Inc. (NYSE: MA).
The Cash App Ecosystem Is Growing Revenues 42% YoY
The fastest-growing ecosystem is Cash App, which has averaged 42% YoY growth in the last two years. This mobile-first, all-in-one app platform provides users with tools to manage their money. It offers instant peer-to-peer payments and functions as an electronic wallet that can store cash and Bitcoin and take direct deposits. Users can obtain the Cash Card, a Visa debit card linked to their Cash App balance, to make purchases. Cash App also offers users exclusive discounts with Cash App Pay and Cash App Card.
The Cash App Card with Boost includes instant discounts and cashback rewards from select merchants in the Square merchant network. Cash App can be used to invest in stocks with zero commission trades and Bitcoin. Cash App also integrated the Afterpay buy-now-pay-later (BNPL) service, which enables users to make periodic payments on qualifying purchases.
Afterpay Drives Cash App Pay Volumes
Block CEO Jack Dorsey noted that Cash App Pay is a huge opportunity thanks to Afterpay. “The volume was up more than 7x compared to the prior year, and 18% quarter-over-quarter. What's driving the growth is our sales team, Afterpay's enterprise sales team. As of June, Cash App Pay actives were more than 80% of the scale of Afterpay US actives compared to less than 25% a year ago.”
Square Ecosystem Grows Revenues 15% YoY
Square enables small and medium-sized businesses (SMBs), merchants, and individual sellers of all sizes to start, run, and grow their businesses. Square is a mature ecosystem that has grown 15% YoY for the last two years. Square enables eCommerce and point-of-sale (POS) payment software, hardware and payment processing services, and equipment. Square was the original ecosystem that became famous, providing users with Square reader devices that attach to a smartphone or tablet, enabling them to take credit card payments. Square's suite of tools enables payroll processing loans, online stores, booking and appointments, and restaurant POS solutions.
Square's Improved Onboarding Platform
Square integrated a new onboarding platform in July 2024 and rolled it out to eligible sellers in the United States. The new process is much simpler and reduces the number of steps required to onboard onto Square from more than 30 to just four steps. It allows for more customization based on a given seller's traits, saving time while introducing them to relevant products at the optimal point during onboarding.
Bulking Up Square Partnerships
Square continues to invest in its partnerships. It already has hundreds of partners in its App Marketplace, including longstanding relations with Intuit Inc. (NASDAQ: INTU), Quickbooks, Restaurant365, and Wix.com Ltd. (NASDAQ: WIX). Square continues to explore more partnerships, notably in international markets, to simplify its packaging, pricing, and product design.
The Growth of the Parts Makes the Whole Attractive
Block reported solid Q2 2024 EPS of 93 cents, beating consensus estimates by 9 cents. Revenues grew 11.3% YoY to $6.16 billion, falling short of the $6.27 billion consensus estimates. Block processed $61.94 billion of gross payment value (GPV), up 5% YoY. Transaction-based gross profit as a percentage of GPV was 1.5%. Square generated 15% YoY growth, and Cash App generated 23% YoY growth in the quarter.
Block Raises Full Year 2024 Estimates
Block sees Q3 2024 gross profit of $2.22 billion, adjusted EBITDA of $695 million and adjusted operating income of $320 million. Block raised its full-year 2024 guidance for gross profit of $8.89 billion, up from previous guidance of $8.78 billion, adjusted EBITDA of $2.90 billion, up from $2.76 billion and adjusted operating income of $1.44 billion, up from $1.30 billion.
Dorsey stated that its Rule of 40 - meaning the profit percentage and adjusted operating income margin combined to reach 40 - is on track for 2026. Currently Block has reached 35%, up from 32%.
SQ Stock Continues to Trade in a Descending Price Channel
A descending price channel is also known as a falling price channel. It is represented by parallel diagonal upper and lower trendlines representing lower tops and lower bottoms, respectively. The only way to break the pattern is by breaking out through the upper trendline resistance.
The daily descending price channel for SQ commenced at $87.52 on March 13, 2024. Incidentally, this is also the average analyst consensus price target. SQ consistently made lower highs on bounces, followed by lower lows on drops. The daily anchored VWAP overlaps with the upper descending trendline at $67.13, forming a double resistance level. The daily relative strength index (RSI) fell to the 42-band. Fibonacci (Fib) pullback support levels are at $58.97, $55.13, $51.29, and $45.82.
Block’s average consensus price target is $87.52, and its highest analyst price target sits at $106.00.
SQ continues making lower highs and lower lows, as represented by the falling price channel. Bullish investors can consider using cash-secured puts at the fib pullback support levels. A wheel strategy can be executed by writing covered calls after being assigned to generate income and provide a buffer against a deeper pullback.
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Is Applied Digital's Stock Set to Surge With NVIDIA's Backing?
Applied Digital (NASDAQ: APLD) saw its stock soar nearly 20% last week after announcing a significant $160 million strategic financing deal through a private placement, priced at market value. This investment came from institutional and accredited investors, including tech giant NVIDIA (NASDAQ: NVDA) and Related Companies, one of the largest privately-owned real estate firms specializing in complex infrastructure and data center development.
Should investors take notice of Applied Digital, now backed by one of the world's most influential companies?
Overview of Applied Digital's Core Services and Data Centers
Applied Digital designs, develops, and operates data centers across North America, providing critical digital infrastructure solutions for the high-performance computing industry. Its services range from artificial intelligence (AI) cloud services to high-performance computing and crypto data center hosting.
Despite this futuristic focus, the stock's performance has been underwhelming. It has a history of lengthy downtrends and only occasional periods of liquidity above its 200-day simple moving average (SMA). Despite the boost from recent news, APLD is down nearly 50% from its 52-week high and remains negative 32% year-to-date.
Recent earnings results provide additional insight into the stock's struggles. On August 28, 2024, Applied Digital reported a ($0.52) loss per share, missing analysts' expectations by $0.29 while generating $43.7 million in revenue, slightly above the $42.7 million estimate. The underwhelming earnings miss adds context to why the stock has struggled to find momentum in recent months.
The News That Sent Applied Digital Soaring
Let's take a closer look at what catalyzed last week's surge. Applied Digital announced it had entered into definitive agreements for a $160 million private placement financing involving institutional and accredited investors. Among these backers are NVIDIA and Related Companies, both significant names in their respective fields.
The placement is set at the market, with Applied Digital agreeing to issue 49,382,720 shares at $3.24 per share, representing the last closing price on September 4, 2024. The funds from this deal are expected to solidify Applied Digital's position as a leader in the accelerated computing space.
This strategic partnership with NVIDIA sends a clear signal about Applied Digital's potential. Having such a tech giant on board adds credibility to Applied Digital's operations and could help the company expand in crucial areas like AI infrastructure. Additionally, Related Companies' involvement further underscores the significance of Applied Digital's role in building the infrastructure that supports these emerging technologies.
Mixed Sentiment Around Applied Digital
Despite this financing deal's excitement, sentiment toward Applied Digital remains mixed. Analysts covering the stock are bullish, with five analysts giving it a Buy rating and an average price target forecasting an 80% upside from current levels. Notably, on September 5, Roth MKM reiterated its Buy rating with a $10 price target.
However, skepticism is evident, especially with the rise of short interest rates. As of August 15, short interest in APLD stood at 17.32%, a 6% increase from the previous month. Such a high level of short interest indicates that some market participants believe the stock could be overvalued or face significant challenges. A rising short interest suggests a bearish sentiment and an expectation that Applied Digital's stock price could fall further in the medium to long term.
Adding to the cautious sentiment is the lack of insider buying over the past year. Instead, insiders have been selling, with nearly $600,000 worth of stock offloaded through multiple transactions.
Should Investors Be Cautious Despite NVIDIA's Support for Applied Digital?
With one of the world's most influential companies, NVIDIA, backing Applied Digital, investors have a compelling reason to pay attention. The $160 million strategic investment validates the company's potential in the digital infrastructure and AI space. However, mixed sentiment, including rising short interest and insider selling, should temper expectations.
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4 Reasons to Consider Adding General Mills to Your Portfolio
General Mills Inc. (NYSE: GIS) is a global branded consumer and pet food product manufacturer. The consumer staples sector leader has a portfolio of over 100 brands that range from cereals, snacks, ice cream, and yogurt to baking mixes, pet foods, and frozen and shelf-stable foods and meals. The company competes with Kraft Heinz Co. (NASDAQ: KHC), Hormel Foods Co. (NYSE: HRL), PepsiCo Inc. (NASDAQ: PEP), and Post Holdings Inc. (NYSE: POST). With so many choices of stocks, here are four reasons to consider adding GIS to your portfolio.
1) General Mills Has an Iconic Brand Portfolio
Chances are you were introduced to Generals as a child eating your cereal in the mornings. Its brands cater to the whole consumer lifecycle. Its iconic cereal brands include Cheerios, Cooke Crisp, Cocoa Puffs, Dunkaroos, Kix, Wheaties, Lucky Charms, and Cinnamon Toast Crunch. You may have had Bisquick pancakes, Yoplait, or Oui yogurt as part of your breakfast routine. You may find yourself snacking on Nature's Valley granola bars, Fiber One, or Lara bars throughout the day. For dessert, you treated yourself to Haagen-Dazs ice cream or baked Betty Crocker cupcakes. These are just a fraction of the over 100 brands in General Mill's portfolio. Don't forget to feed your puppies their Blue Buffalo kibble and snacks.
2) General Mills’ Resilient Business Model Has Stood the Test of Time
General Mills has been producing foods since 1866, even before the stock market existed, as a flour mill. The merger of Washburn Crosby Co. and several flour mills created General Mills in 1928. It went public on the New York Stock Exchange on November 30, 1928, and has paid a dividend every single year since then, making it one of the original Dividend Aristocrats. The company has lasted through every economic boom and bust cycle, bull and bear market, economic expansion, and recession and continues to thrive.
The company recently affirmed its fiscal full-year 2025 guidance of flat to 1% growth in organic sales and adjusted EPS between -1 and 1%. Its fiscal first quarter of 2025 earnings are due pre-market on September 18, 2024. Goldman Sachs started its coverage with a Buy rating and a $76 price target.
3) General Mills Continues to Innovate
To survive 96 years on the NYSE requires innovation to stay on top of trends. General Mills is actively innovating and expanding its brand and product portfolio, catering to ever-evolving consumer preferences. General Mills recently launched Cheerios Veggie Blends, which are made with a quarter cup of fruit and veggies per serving, exclusively available at Walmart Inc. (NYSE: WMT) stores. Nature Valley Protein Smoothie Bars make for a great morning smoothie alternative. Nature Valley French Vanilla Protein Granola offers 13 grams of protein per serving.
The company has also invested in artificial intelligence (AI) to analyze and leverage customer data for targeted marketing campaigns and product and recipe innovations. AI is also used to predict consumer demand and optimize inventory and supply chain management to grow efficiencies. The company has a generative AI internal assistant, MillsChat, to aid employees in writing, summarizing, and enhancing productivity.
4) The Valuation and Dividend Are Attractive
General Mills is a dividend aristocrat paying out a 3.20% annual dividend yield. As a consumer staples sector leader, the stock is a resilient defensive hedge during economic downturns and falling stock markets, as evidenced by its 52-week highs being hit during the market sell-off in September 2024. The stock trades at a modest 19.49x forward earnings, price-book at 1.84x, and price-sales at 0.89x. The stock has proven to be historically resilient in bear markets, generating a 9% return during the real estate crisis and financial meltdown of 2008.
GIS Stock is in a Parabolic Arc Pattern
A parabolic arc usually precedes a price peak. The stock forms a rounding bottom and then gathers momentum as it surges past previous resistance levels and continues to gain momentum until hitting new highs.
GIS formed a parabolic arc after bottoming out on its fiscal Q4 2024 earnings gap to $61.48 on June 26, 2024. GIS formed a rounding bottom and lifted to complete the upside gap fill at $67.10. GIS gained momentum and accelerated to new 52-week highs at $75.54, just shy of its highest analyst price target. The daily relative strength index (RSI) is overheating at the 79-band. Fibonacci (Fib) pullback support levels are at $71.00, $67.36, $63.51, and $61.48.
General Mill’s average consensus price target is $69.07, and its highest analyst price target sits at $106.00.
Actionable Options Strategies: GIS’s parabolic arc runup ahead of earnings suggests a potential sell-the-news reaction. Bullish investors should wait until after they report earnings pre-market on September 18, 2024, to selectively enter on pullbacks using cash-secured puts at the fib pullback support levels to buy the dip and write covered calls to execute a wheel strategy for income on top of the 3.20% annual dividend yield. Remember that if GIS falls to the lower fib levels, the annual dividend rate will rise.
A Poor Man’s Covered Call (PWCC) strategy is a less capital-intensive way to collect income. It involves buying deep-in-the-money (ITM) back-month calls or even LEAPS and selling out-of-the-money (OTM) front-month calls. The Theta erosion on the back-month calls is slower than the front-month calls to enable premium income. Don't use margin on the options contracts, as you'll be paying margin interest, which eats into your premiums.
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