e.l.f. Beauty and Hasbro have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – February 3, 2023 – Zacks Equity Research shares e.l.f. Beauty, Inc. ELF as the Bull of the Day and Hasbro, Inc. HAS as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Amazon AMZN, Apple AAPL and Alphabet GOOGL.
Here is a synopsis of all five stocks.
Bull of the Day:
e.l.f. Beauty, Inc. is operating on all cylinders as consumers are still buying beauty. This Zacks Rank #1 (Strong Buy) just beat on earnings for the eighth quarter in a row.
e.l.f. Beauty is a beauty company with multiple brands including e.l.f. Cosmetics, e.l.f. SKIN, clean beauty brand Well People and Keys Soulcare, a lifestyle beauty brand created with Alicia Keys.
It sells online and across leading beauty retailers in the United States. The company also has a growing international presence.
Another Big Beat in Fiscal Q3
On Feb 1, 2023, e.l.f. Beauty reported its fiscal third quarter 2023 results and blew by the Zacks Consensus for the 8th quarter in a row.
Earnings were $0.48 versus the Zacks Consensus of just $0.23, for a 108.7% beat.
Net sales jumped 49% to $146.5 million, due to strength in both retailer and e-commerce channels. It was the 16th consecutive quarter of net sales growth.
Gross margin rose 180 basis points to 67%, primarily driven by price increases, cost savings and product mix, partially offset by inventory adjustments and costs related to space gains and Spring shelf resets.
e.l.f. Beauty has improved its balance sheet over the last year.
As of Dec 31, 2022, it had $87 million in cash and cash equivalents, up from$32.9 million a year ago. It also had $62.2 million in long-term debt and finance lease obligations at the end of the year, down from $92.5 million as of Dec 31, 2021.
e.l.f. Beauty Raised Full Year Guidance
With the big earnings beat and sales jumping higher, the company raised full year guidance. Net sales are now expected to rise 38% to 39% year-over-year, up from prior guidance of 22%-24% growth.
That's a revenue range of $541-$545 million up from $478-$486 million.
Earnings are now expected to be in the range of $1.37 to $1.40 up from previous guidance of $1.07 to $1.10.
That is higher than the current Zacks Consensus which just moved up to $1.13 from $1.12 in the last week. But look for further analyst adjustments higher. That's earnings growth over 34% as the company made just $0.84 last year.
Stock Soars on Another Earnings Beat
Shares of e.l.f. Beauty have been on a tear the last 6 months, gaining 99% during that time. They jumped 15% on the big third quarter earnings beat alone.
The stock is at 5-year highs.
But earnings are also moving in the right direction, which is up.
However, you're going to pay the price if you're jumping in here. It's not a cheap stock. e.l.f. Beauty has a forward P/E of 52.
Beauty has been one of the hot industries on the reopen and it still has momentum. For those looking for a top ranked beauty company that is still posting big beats, and raising full year guidance, then e.l.f. Beauty is the one for your short list.
Bear of the Day:
Hasbro, Inc. recently warned on fourth quarter earnings. This Zacks Rank #5 (Strong Sell) also announced global layoffs.
Hasbro is a global branded entertainment leader through gaming, consumer products and entertainment. Some of its brands include Magic: The Gathering, Dungeons & Dragons, Hasbro Gaming, Nerf, Transformers, Play-doh and Peppa Pig.
Hasbro Warns on Q4 and Full Year
On Jan 26, 2023, Hasbro announced preliminary fourth quarter and full year 2022 financial results and it was below the Zacks Consensus.
"Despite strong growth in Wizards of the Coast and Digital Gaming, Hasbro Pulse, and our licensing business, our Consumer Products business underperformed in the fourth quarter against the backdrop of a challenging holiday consumer environment," said Chris Cocks, Hasbro chief executive officer.
Hasbro gave full year adjusted earnings of $4.43 to $4.45, which was under the Zacks Consensus. In the last week, 3 estimates have been cut for 2022, pushing the Zacks Consensus down to $4.50 from $4.61. That's still above the range.
At $4.50, that's an earnings decline of 14% from last year.
3 estimates were also cut for 2023, pushing the 2023 Zacks Consensus Estimate down to $4.92 from $5.00. But that would be an earnings rebound of 9.2%.
Layoffs and Cost Savings
Hasbro also announced leadership and organization changes, including eliminating 1,000 jobs, or approximately 15% of its global workforce. Additionally, President and Chief Operating Officer, Eric Nyman, would be departing and the Consumer Products business would report directly to the CEO.
The layoffs will start in the next several weeks.
Hasbro expects, with the layoffs as well as the ongoing systems and supply chain investments, to achieve its goal of $250 to $300 million in annual run-rate cost savings by year-end 2025 which was announced in Oct 2022.
Shares Plunged Over the Last Year
Given the falling earnings estimates and earnings warnings, it's not surprising that shares are down 33%.
It will report fourth quarter earnings on Feb 16, 2023. Presumably, there will be some kind of outlook or guidance about Q1 and/or 2023 given then.
Shares are cheap, with a forward P/E of 12.2.
It also pays a big dividend, currently yielding 4.7%. But I caution investors about chasing yield as earnings are on the decline.
Instead, investors might want to wait on the sidelines for a positive turn in the business before jumping in.
Did Jay Powell Give a Green Light to Stock Investors?
Federal Reserve chair Jerome Powell addressed the world economy on Wednesday and announced that he and his committee decided to raise the federal funds rate 0.25% to 4.5-4.75%. This was as expected, but the most important bits came during the press conference.
Depending on whether you are a bull or bear you may be interpreting what Jerome Powell said in different ways. The bulls are feeling reassured. Powell acknowledged that “the disinflation process has started,” and how incredibly relieving it is to see that process begin. The bears, however, were focused on his saying that it would be “very premature to declare victory,” over inflation. And that some sectors of the service economy have yet to see any disinflation at all.
The stock market has corrected significantly since the beginning of the rising rates policy and has now discounted the worst. As unlikely as it seemed, it appears Jerome Powell and the Fed have pulled off the goldilocks ‘Soft Landing,’ where they have lowered inflation in such a way that the economy didn’t need to slow significantly, and employment remained robust.
One of the most important indicators for the Fed is the ECI (Employment Cost Index), which measures wages. One of the biggest risks for inflation is a wage-price spiral, but the ECI is showing consistent decreases.
Looking back at other bear markets we see that earnings always bottom out after the market, because markets are forward-looking. Furthermore, financial conditions have loosened quite significantly already. According to the Financial Conditions Index, economic policy is as loose as it has been in other recent expansionary periods.
While Jerome Powell has been successful in initiating disinflation, there is no guarantee it will continue to improve. Worse yet, because expectations have become so hopeful about disinflation, even a small miss to the upside on inflation can really shake the markets. What if inflation is stickier than expected?
Earnings seem to be coming in around expectations, but that is because analyst expectations were extremely low. What if there is a secondary push lower in the economy just as everyone is getting bullish again?
Furthermore, with the now easing conditions of financial markets, and such robust employment, how do we know this won’t reignite inflation?
Statistics Favor the Long-Term
These issues are never black and white, and the case can easily be made for bears or bulls. Something the data tells us conclusively is that over the long term, stocks are an extremely good investment. Whether you buy in a bull market or a bear market, the real edge is focusing on owning quality businesses, with improving earnings over the long run.
Stocks to Watch
Some of the best stocks in the world have been completely battered by the rising rates environment. But that dynamic is slowly switching over. And this may be a great opportunity for investors to start buying stocks still in correction territory. With the Fed easing off the breaks, it’s possible stocks will see a continued rally.
Although they will be reporting earnings on Thursday, February 2 after the close, Amazon, Apple and Alphabet are hard to ignore at this point. They are extremely dominant, and innovative businesses that have been beaten down significantly.
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