For Immediate Release
Chicago, IL – February 6, 2020 – Zacks Equity Research highlights Alteryx Inc. AYX as the Bull of the Day and Boeing BA as the Bear of the Day. In addition, Zacks Equity Research provides analysis onIntercontinental Exchange ICE and eBay EBAY.
Here is a synopsis of all four stocks:
Bull of the Day:
Promising software companies tend to trade at fairly high valuation multiples. The lure for investors is the scalability of the business. It can be costly to develop, test and market new software products, but once a critical mass of sales is reached, gross margins skyrocket - because the marginal cost of each deliverable is fairly small.
Once a software company swings solidly into profitability, the shares often get a boost as investors anticipate a steep increase in revenues and earnings as the stock “grows into” its previously lofty valuation.
Alteryx Inc. appears to be on the brink of just such an inflection point and a Wednesday selloff may be just the catalyst investors needed to achieve an attractive entry point.
Based in Irvine, CA in the heart of Silicon Valley, Alteryx is a fast-growing developer of data science and analytic software. Their products put the power of advanced data science in the hands of the end user.
The genesis of Alteryx was a data engine that incorporated data from the US Census and allowed customers to analyze the information graphically in order to reach target demographics as accurately as possible. Eventually, Alteryx software was included by the Census Bureau in packages of information it sold commercially.
That original product grew into analytics tools that allow customers to easily manage and evaluate sets of data of all sizes, from small and specific to huge sets of global information. The goal is to make advanced data science functionality available to solve complex business problems even to those who don’t have rigorous training in the field.
Business is booming.
After operating at near break even levels for several quarters, Alteryx broke through in Q3 2019 with a net profit of $0.24/share, handily beating the Zacks Consensus Estimate of just $0.08/share.
Analysts are expecting another profitable quarter with $0.29/share in net earnings on $131 million in revenues when the company posts year end results on February 13th, bringing full year 2019 earnings to $0.60/share – a massive improvement over the $0.02/share loss Alteryx posted in 2018.
Projections for 2020 are even better with $516M in sales and $0.83/share in net earnings – increases of 31% and 39%, respectively.
That’s really the sweet spot for a software company – the point at which earnings start to grow faster than revenues because of the effect of improving margins.
Due in part to a strong rally over the past two months, Alteryx still trades at a very rich 12-month forward P/E ratio of 175X, but investors caught a break when the shares fell more than 6% on Wednesday on no significant news for the company or the industry.
Another earnings beat next week should get Alteryx moving in a positive direction again, making this temporary selloff a buying opportunity.
Just as we often say that cheap stocks are cheap for a reason, it’s likewise true that expensive stocks can be expensive for a reason. In the case of Alteryx, the high multiple is a reflection of the company’s enormous potential.
You wouldn’t want a whole portfolio full of high-priced names, but having a few companies with this type of growth potential can represent a great opportunity to hit some home runs.
Bear of the Day:
It’s been more than a year since the first fatal accident involving Boeing’s 737 MAX aircraft and 10 months since the second crash and the subsequent worldwide grounding of the company’s most popular – and most profitable – plane.
Boeing shares took a hit on the initial news, especially the revelations that an advanced control system that had been added to the aircraft – ostensibly to make it safer – had likely contributed to both accidents as the pilots struggled to control the planes after the MCAS system took over to prevent a stall that wasn’t actually happening.
Troubling internal memos that Boeing eventually turned over amid a Congressional investigation indicated that Boeing engineers and test pilots had doubts about the safety and effectiveness of the MCAS system during the development process, yet their concerns went unheeded as the workhorse 737 became an increasingly complicated machine.
The shares tumbled from an all-time closing high of $440 in March 2019, but held fairly steady in the $350-$380 range, largely because even as Boeing temporarily suspended production of the MAX, they retained outstanding orders for the plane that stretched 5-10 years into the future. Investors believed that any revenue shortfall would be fairly quickly made up once the MAX was back in the skies.
There’s no sign of an imminent certification for the 737 Max to resume commercial flights and even the most optimistic estimates now anticipate that the middle of 2020 is the earliest possibility. Former Boeing CEO Dennis Muilenburg was ousted by the board of directors and his replacement David Calhoun has been incentivized with a possible bonus of up to $7 million if he achieves several milestones – chiefly overseeing the return of the 737 MAX to the skies.
The spread of the deadly Coronavirus and a corresponding severe drop-off in air travel to, from and within China has added to fears of softening demand for new aircraft orders.
The most recent Boeing annual report issued at the end of January shows the effect of the 737 grounding in stark detail.
Revenue was down 25 percent between 2018 and 2019, from $101.1 billion to $76.6 billion. Operating cash flow had been $15.3 billion in 2018 turned into an operating loss of $2.4 billion. Core earnings of $16.01/share in 2018 became a net loss of ($3.47)/share in 2019.
Recent analyst downward revisions earn Boeing a Zacks Rank #5 (Strong Sell).
The earnings presentation also included a frankly worded warning about the potential impact on future results. Boeing cited the timing and conditions of regulatory approvals, the ongoing production rate and delivery profile and an estimated $4B of “abnormal” production costs to be expensed as incurred, but primarily in 2020. Those are expenses associated with the suspension of production and the eventual resumption of production at low output.
Management noted that they are prudently managing liquidity and preserving balance sheet flexibility – a worthy endeavor, but hardly the encouraging language of a company that’s firing on all cylinders.
Boeing is a veritable titan of US engineering and manufacturing and it’s likely that once the 737 mess is resolved, the company will regain its positive earnings trajectory. For the time being however, investors would be wise to steer clear of Boeing until the timing of the recovery is more clear.
Owner of NYSE Approaches eBay, Creates Buying Opportunity
Intercontinental Exchange, an unlikely acquirer, has shown interest in the online marketplace giant eBay. ICE, owner of the New York Stock Exchange, confirmed its interest in buying eBay in a press release at the end of the trading day on February 4th, shooting EBAY shares up almost 10%. ICE stock has traded down over 8% since this news was released.
ICE wants EBAY shareholders to be aware of its interest in the company, as they believe an acquisition would be beneficial to shareholders of both firms. Below is a quote directly from ICE’s press release.
“Over ICE’s 20-year history, the company’s track record of creating shareholder value, both through organic growth and acquisitions, speaks for itself. ICE does look to explore potential opportunities that it expects will deliver enhanced shareholder value and will continue to do so in the future.”
A financial exchange and an ecommerce site may sound like an odd couple, but they are more similar than you think. Both of these businesses provide effectively the same essential function, connecting buyers and sellers. The only real difference is that one marketplace is for financial instruments, while the other is for consumer products.
EBAY is looking ripe for a buyout with this stock trading at its lowest forward P/E (12.2x) in over a decade, before ICE’s announcement. It wouldn’t surprise me at all if this global online marketplace has been approached with other offers.
ICE is an acquisition machine, but up until this point, the firm has only been interested in businesses that expand its core competencies, financial data and exchanges. eBay would be an out of the box acquisition for ICE. Analysts & investors are concerned that eBay would not create nearly the same cost synergies as an exchange, and it is vague how this acquisition would further ICE’s move towards becoming a data-driven business.
Founder, Chairman, & CEO Jeffrey Sprecher has a sound track record of successful acquisitions that have created value for his shareholders since the firm was founded two decades ago. Sprecher has pushed ICE’s share price up over 1333% since it went public at the end of 2005.
All the stars would have to align for this deal to go through. This is not the first time ICE has approached eBay, and according to the press release, eBay has not engaged the current offer in a meaningful way. Even if eBay does agree to the acquisition, it is going to take some convincing to get ICE’s shareholders onboard with this acquisition.
I have confidence in management’s insight into the matter, and if this does go through, I have faith that this will benefit ICE’s long-term objective. Regardless of what happens, I believe that the share price drop has created a buying opportunity for this financial powerhouse.
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