For Immediate Release
Chicago, IL – July 6, 2022 – Zacks Equity Research shares The Kroger Co.
KR
as the Bull of the Day and Activision Blizzard
ATVI
asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Meta Platforms
META
, Microsoft
MSFT
and Apple
AAPL
.
Here is a synopsis of all five stocks:
Bull of the Day
:
The Kroger Co.
sports the highly coveted Zacks Rank #1 (Strong Buy) and resides within the Zacks Retail – Supermarkets Industry.
Kroger has undergone an extensive makeover, not only regarding products but also in terms of how consumers prefer shopping for groceries.
Founded in 1883, the long-time retailer operates approximately 2,700 retail stores under its various banners and divisions in 35 states.
Share Performance
Kroger shares have been a bright spot in an otherwise dim market throughout 2022, increasing nearly 5% in value and easily outperforming the S&P 500’s decline of almost 20%.
Upon widening the time frame to encompass a year’s worth of price action, the story remains the same – Kroger shares have enjoyed a stellar run, increasing nearly 30% in value and extensively outperforming the S&P 500 in this time frame as well.
The company’s share performance is inspiring – many companies have witnessed deep double-digit valuation slashes throughout 2022.
Quarterly Performance & Valuation
Kroger has been on a blazing-hot earnings streak, exceeding bottom-line expectations in ten consecutive quarters dating back to early 2020. In its latest quarter, in the face of adverse business conditions, the company beat earnings expectations by a substantial 13% and reported quarterly EPS of $1.45.
Furthermore, the average EPS surprise has been a strong 20% over its last four quarters.
In addition to strong quarterly performance, the grocery retailer sports attractive valuation levels. Its current forward earnings multiple resides at 12.3X, marginally below its five-year median value of 12.6X and nowhere near highs earlier this year of 16.4X.
Additionally, the value represents an enticing 28% discount relative to the S&P 500’s forward earnings multiple of 17.1X.
Growth Estimates
Analysts have primarily revised their earnings outlook positively over the last 60 days. For the upcoming quarter, the $0.81 per share estimate reflects a respectable 1.3% growth in earnings from the year-ago quarter.
Furthermore, the $3.91 per share estimate for the current fiscal year represents a sizable 6.3% expansion in the bottom-line year-over-year.
Quarterly revenue is forecasted to climb to $34 billion for the upcoming quarter, a substantial 7.3% increase compared to year-ago quarterly sales of $31.7 billion.
Pivoting to current fiscal year sales, the grocery retailer is penciled in to rake in a mighty $147 billion, a notable 6.7% increase in the top-line year-over-year.
Dividends
For investors who like to get paid, good news – Kroger has that covered with its annual dividend with a yield of 1.7% and a payout ratio sitting sustainably at 21% of earnings.
Impressively, the company has increased its dividend six times over the last five years, with a five-year annualized dividend growth rate of a double-digit 13%.
Additionally, the yield is notably higher than that of the S&P 500.
Bottom Line
One of the best ways investors can find expected winners within the market is by utilizing the Zacks Rank – one of the most potent market tools out there. A portfolio consisting of Zacks Rank #1 (Strong Buy) stocks has beaten the market in 26 of the last 31 years with an average annual return of 25%.
Additionally, the top 5% of all stocks receive the highly coveted Zacks Rank #1 (Strong Buy). These stocks should outperform the market more than any other rank.
Kroger would be an excellent bet for investors looking to add a solid stock to their portfolios, as displayed by its Zack Rank #1 (Strong Buy).
Bear of the Day
:
Activision Blizzard
, a Zacks Rank #5 (Strong Sell), resides in the Zacks Toys – Games – Hobbies Industry, which currently ranks in the bottom 25% of all Zacks Industries. Due to its unfavorable Zacks Industry ranking, we expect it to underperform the market over the next three to six months.
Activision Blizzard is a leader in video game development and an interactive entertainment content publisher, most well-known for
Call of Duty
.
Currently, the company operates five business units: Activision Publishing, Blizzard Entertainment, Major League Gaming, King, and Activision Blizzard Studios.
Share Performance
Over the last year, ATVI shares have struggled immensely, declining approximately 16% in value and underperforming the S&P 500 by a wide margin.
As we can see, there was a sharp move upward in January due to the news of Microsoft acquiring the company.
Quarterly Performance & Valuation
The company has recently struggled, reporting top and bottom-line results under expectations in its latest two earnings releases. Regarding the bottom-line, ATVI reported quarterly EPS of $0.38 in its latest quarter, missing the Zacks Consensus Estimate of $0.73 by a concerning 48%.
In fact, the average EPS surprise over the last four quarters has been -7.7%.
Pivoting to the top-line, quarterly sales results of $1.5 billion in its latest quarter missed the $1.8 billion estimate by nearly 18%. It was the company’s second consecutive revenue miss, with the other one also being in the double-digits at 11%.
ATVI’s valuation levels appear a bit stretched, further displayed by its Style Score of a D for Value. Its 31.6X forward earnings multiple is undoubtedly pricey and is well above its five-year median value of 27.1X.
Additionally, the value represents a steep 84% premium relative to the S&P 500’s forward P/E ratio of 17.1X.
Growth Estimates
Analysts have extensively dialed back their earnings estimates over the last 60 days with a 100% revision agreement percentage. For the upcoming quarter, the $0.45 per share estimate reflects a disheartening 50% decrease in earnings from the year-ago quarter.
Additionally, the $2.82 per share estimate for the current fiscal year represents a nasty 25% decline in earnings year-over-year.
Top-line projections show softening as well. For the upcoming quarter, the Zacks Consensus Sales Estimate of $1.5 billion reflects a 21% decrease from year-ago quarterly sales of $1.9 billion.
Furthermore, the $7.8 billion FY22 revenue estimate represents a 7% decline in revenue year-over-year.
Bottom Line
ATVI shares have been the victim of a double-digit valuation slash over the last year. This, paired with the earnings picture softening, paints a grim picture for the company within the short term.
The company is a Zacks Rank #5 (Strong Sell) and a stock that investors will be better off staying away from for now.
Instead, investors should pivot to stocks that either carry a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) – the odds of reaping considerable gains are much higher within the companies that carry these ranks.
Additional content:
Meta Platforms to Discontinue Crypto Wallet Novi
Meta Platforms
recently announced that it is discontinuing its cryptocurrency wallet pilot project — Novi. In a recent
post
, the company stated that both the Novi app and Novi on WhatsApp would not be available from Sep 1, 2022.
This is a major setback for Meta Platforms in its efforts to develop Metaverse as an independent commercial platform as both the crypto and NFT market came crashing down. Customers will be unable to add funds from July 2022 to their Novi wallet and are advised to withdraw funds before September 2022.
The Novi crypto wallet was initially launched as a pilot program in October in Guatemala and select areas of the United States. It had custody support from Coinbase Global and Paxos stablecoin USDP.
However, despite the custody support of Coinbase, which is the largest U.S. cryptocurrency exchange trading some 50 different digital assets, the market scenario and volatility have forced Meta Platforms to shut its operations for Novi.
The closure of the digital payments project marks the end of Meta Platforms’ venture into the crypto market.
Previously, Meta Platforms’ Diem cryptocurrency was shelved even before it commenced operations as several high-profile partners bailed out due to increasing scrutiny from lawmakers and financial regulators on the company.
Meta’s Metaverse Ambitions Take a Hit Due to Volatility
Meta Platforms is currently facing the worst downturn in the company’s history due to the global macro-economic situation, geopolitical tensions, rising inflation and FED interest rate hikes.
Amid such market volatility, the company intends to make its way out of the crypto market at the moment. Meta Platforms’ revenue growth was driven exponentially by the e-commerce boom amid the pandemic, which in turn has been funding its Metaverse dreams.
However, it was momentum growth and is finally slowing down. Meta’s revenue growth has been significantly impacted by the Russia-Ukraine war, which can be described as a black swan event.
This kind of negative global geopolitical situation and inflation, which the war has aggravated, have hurt the company’s stock price.
Shares of Meta Platforms, which currently has a Zacks Rank #4 (Sell), have tumbled 49.8% in the year-to-date period compared with the Zacks
Internet – Software
industry decline of 48.6%.
You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
The situation is not expected to get better in the near term as negative sentiments are evident with traders shorting shares of every major tech stock in the NASDAQ composite, including Meta Platforms’ tech peers, who are looking to venture into the Metaverse, including
Microsoft
and
Apple
.
Microsoft shares have lost 22.9% in the year-to-date period compared with the Zacks
Computer-Software
industry’s decline of 25.9%.
Apple’s shares have fallen 20% in the year-to-date period compared with the Zacks
Computer – Mini computers
industry’s decline of 19.7%.
As a result of the current market volatility, traders and investors are bearish regarding the cryptocurrency markets. The global crypto market cap shrunk to $977 billion after touching the $3-trillion mark in November last year. The price of almost every major cryptocurrencies like Bitcoin and Ethereum is now worth half or even less than their all-time highs.
Even though Meta Platforms’ short-term growth looks tepid, the company’s decision to stop certain investments that are costing it huge amounts of money is in alignment with its long-term growth.
Meta Platforms is currently looking to increase its revenues from its Family of Apps business segment, which will fund the growth of its Metaverse.
As a result, Meta has been investing heavily in developing AI, which is expected to drive revenue growth across the ad business.
As Meta bets on building the Metaverse for the future, investment in AI is expected to bring lofty ROI for the company and separate its services from competitors. This will help the company regain lost market share in the long term.
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.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit
https://www.zacks.com/performance
for information about the performance numbers displayed in this press release.
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