For Immediate Release
Chicago, IL – July 12, 2021 – Zacks Equity Research Shares of Best Buy Co., Inc. BBY as the Bull of the Day, Inovio Pharmaceuticals, Inc. INO as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Volkswagen AG VWAGY, Telefonaktiebolaget LM Ericsson ERIC and Nokia Corporation NOK.
Here is a synopsis of all five stocks:
Bull of the Day:
Headquartered in Richfield, MN, Best Buy is a specialty retailer that offers a wide selection of consumer electronics, home office products, entertainment software, home appliances, cell phones, and even health and wellness products. The company has two key segments, Domestic Operations and International Operations, and does business throughout the U.S., Canada, and Mexico.
Q1 Earnings Recap
When Best Buy released its first quarter report last month, investors and Wall Street were expecting big results, and the retail chain more than delivered.
Sales for the period spiked 37% to $11.6 billion compared to $8.6 billion in the year ago quarter and $9.1 billion in Q1 2019. Best Buy’s top line continued to benefit from an almost perfect selling environment: cash rich customers focused on upgrading their home.
Even more impressively, U.S. sales jumped 38%.
Profit margins increased as well, but rising costs in fulfillment and labor weighed on its bottom line a bit. Non-GAAP diluted EPS came to $2.23 per share, and operating margin rose to 2.2% of sales.
“The year has clearly started out much stronger than we originally expected [and] sales momentum is continuing into Q2,” said CFO Matt Bilunas.
Can BBY Surge Higher?
Year-to-date, shares of BBY have been a little volatile, up about 11% compared to the S&P 500’s 16.3% increase. Earnings estimates have been rising too, and BBY is a Zacks Rank #1 (Strong Buy) right now.
For fiscal 2022, 10 analysts have revised their bottom-line estimate upwards in the last 60 days, and the Zacks Consensus Estimate has moved up $1.24 to $8.53 per share for the same time period. Earnings are expected to grow about 7.8% compared to last year. Fiscal 2023 looks strong too.
Looking ahead, comparable sales are expected to rise between 3% and 6% for 2022 compared to the 1% increase the company had originally forecasted. Comparisons will be tough for Best Buy (and many other retailers) as the economic reopening accelerates; management is also concerned that consumers may spend less on home tech purchases in favor of more travel and dining out.
But, the overall sentiment on BBY is bullish, and investors can take comfort in the company’s attractive valuation—shares only trade at 12.7X forward earnings—as well as its solid 2.6% dividend yield.
If you’re an investor searching for a retail stock to add to your portfolio, make sure to keep BBY on your shortlist.
Bear of the Day:
Inovio Pharmaceuticals discovers, develops, and delivers a new generation of diseases, called DNA vaccines, focused on cancers and infectious diseases. The company’s electroporation DNA delivery technology uses brief, controlled electrical pulses to increase cellular DNA vaccine uptake.
The Latest on INO’s COVID-19 Vaccine
Even though Inovio announced its discovery of a coronavirus vaccine during the early days of the pandemic, the company’s R&D efforts have turned out to be a big disappointment.
The FDA halted the phase 3 portion of its clinical study for INO-4800 last year, citing safety concerns with its vaccine injector, and then the company sued its own vaccine contract manufacturer because of a supply dispute.
The last major blow came back in April, when the U.S. government told the company that it wouldn’t fund the final phase of its study due to “the changing environment of COVID-19 with the rapid deployment of vaccines.”
All of these delays pushed Inovio way behind top guns like Pfizer and Moderna in the vaccine race, and it’s now unlikely that INO-4800 will play a role in fighting COVID-19 in the U.S.
Even more, it’s still uncertain when Inovio will generate any significant sales from INO-1800, but it does have more than $500 million in cash on hand, which will provide some sort of financial cushion in the meantime.
INO is now a Zacks Rank #5 (Strong Sell).
Three analysts have cut their full year earnings outlook over the past 60 days, with Inovio’s bottom line expected to grow only 0.93% year-over-year. Wall Street has slashed its earnings picture for 2022 as well, and next year’s consensus has fallen 64 cents to a loss of $0.82 per share.
Shares have been volatile so far in 2021. Year-to-date, INO is down almost 6% compared to the Nasdaq and S&P 500’s gain of 14% and 16.3%, respectively.
But it’s not all doom and gloom for Inovio. It recently expanded a partnership with Advaccine Biopharmaceuticals Suzhou; the two companies will launch a global phase 3 trial before the end of summer. Plus, recent phase 2 data showed that patients who received its vaccine candidate had good neutralizing antibody and T-cell response levels. Overall, INO-4800 was well tolerated.
Share performance going forward will depend on how well this new trial goes, but because of the stock’s recent unpredictability, it may be best to stay on the sidelines for now.
Huawei Inks 4G Deal with Volkswagen: A Marriage of Convenience?
China-based telecommunications equipment manufacturer, Huawei Technologies recently inked a licensing deal with a supplier of Volkswagen to let its 4G technologies for use in the German automobile manufacturer’s vehicles for wireless connectivity. The transaction, for an undisclosed amount, is reportedly one of the largest of its kind in the automotive industry and marks a striking deal among all adversities between two struggling entities.
While Volkswagen is facing the heat from a global shortage of chips that are integral to car manufacturing, Huawei is striving to generate revenues from other avenues like patent licensing agreements amid stifling U.S. sanctions against its core smartphone and telecommunications equipment. Let us dig a little deeper into this “marriage of convenience” to gauge the underlying metrics.
Chip Shortage Hurting Car Production
Rapid strides in technology have led to the digitization of the auto industry. Semiconductor chips have evolved as an essential building block within car manufacturing, courtesy of features like assisted driving, in-car entertainment, smart dashboards, Bluetooth connectivity and more.
In addition to increased wireless connectivity and infotainment options, chips are also essential for the electric vehicle industry and hold the keys for improvement in the battery efficiency of green vehicles. Stricter emission and fuel-economy targets, ramp up of charging infrastructure and supportive government policies have increased the demand for green vehicles and concurrently semiconductor chips.
However, a faster-than-anticipated recovery from the pandemic-induced crisis and inclement weather conditions have led to an acute demand-supply imbalance for semiconductor chips, forcing several automakers to reassess their production schedules and adjust their manufacturing operations in accordance with the inventory amid supply chain bottlenecks.
Volkswagen is also not immune to this operational headwind and is perhaps aiming to improve its existing product line-up with improved wireless connectivity options by leveraging Huawei’s 4G technology.
4G Patent Licensing: A Saving Grace?
Although 5G technology is increasingly gaining in precedence across the world, the fact that Volkswagen has decided to implement 4G technology in its cars speaks volumes about the reality that 5G for automobiles is a distant horizon. Without a mainstream 5G network, car manufacturers are finding it difficult to adapt to technologies like edge computing and vehicle-to-everything equipment that require faster 5G access.
The improved wireless connectivity will likely enable the German car manufacturer to offer more digital mobility services to users on the go and is expected to be made available in about 30 million vehicles.
The transaction marks Huawei’s foray into intelligent vehicles and other new sectors with more than 100 patent license agreements in place, after its bread and butter businesses of network equipment and smartphone manufacturing were crippled by the U.S. embargo. The United States has long suspected Huawei to be an extension of China’s government due to the close ties of its founder with the military.
Moreover, the fact that Huawei’s products are remarkably cheap owing to the huge subsidies by the government to undercut other 5G equipment manufacturers has perennially evoked a feeling of mistrust. This ultimately led the U.S. government to add it to the Entity List – a list of entities that are ineligible to receive any item without government approval.
The White House has also extensively used its diplomatic channels to urge its allies to shun Huawei from their 5G wireless networks, citing security threats and espionage by China’s government. This, in turn, led to dwindling revenues from the equipment manufacturing business as Nordic telecommunications equipment manufacturers like Ericsson and Nokia Corp. emerged as viable replacements.
Despite the roadblocks, Huawei has been able to dig deep into its resources and devise a survival strategy that aims to bypass the constraints by focusing more on its individual capabilities. The company reportedly holds more than 100,000 active patents across more than 40,000 patent families. Huawei aims to capitalize on these gold mines to tide over the storm and probably make up for the lost revenues arising from various geo-political restrictions.
It appears that the China-based firm is not likely to cede its leading market position without giving a tough fight, posing concerns that rivals cannot probably ignore.
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