The Upgrade Cycle Has Only Just Begun
I have been predicting an upgrade-led rally almost since the beginning of the 2nd quarter earnings reporting cycle. The consensus targets for 2nd quarter earnings were too low and the targets for 3rd quarter, 4th quarter, and full-year 2020 earnings are still too low. The upgrades began to trickle in a few weeks ago with the end of the reporting cycle. Now the flow is beginning to pick up speed and underscore two things. The first is that the upgrades are spread across a broad swath of the market, the second is trends supporting the market are secular … and accelerating.
FedEx Charges Higher After Upgrade Cycle
FedEx (NYSE:FDX) received not one but ten (10) positive analyst comments after it released fiscal 1st quarter earnings. The shipping giant says its package volume jumped 31% in the quarter on increased eCommerce traffic and that trends suggest the gains are sustainable. Revenue topped the consensus by $1.77 billion or 10%, 1000 basis points, despite the well-known fact eCommerce is booming. Earnings were equally impressive, EPS came in at $4.87 versus the consensus $2.69 as pricing and volume increases combine to juice margins.
Bank of America analyst Ken Hoexter says "These results bring a $15-$16/sh EPS outlook for this year into the discussion, from a floor of $9 last year, and will have investors looking forward to when $20 will be back in range … We believe the company is well-positioned for a multi-year run of strong earnings growth.”
The consensus price target for FDX is now in the range of $300. That’s well above current price action and a new all-time high.
Overstock.com A Bargain After Sell-Off
Shares of eCommerce giant Overstock.com (NASDAQ:OSTK) have been in correction mode the last few weeks and trimmed more than 30% off of share prices. The move is due to an oversized equity offering completed in August that helped the company raise more than $177 million. Now, with shares trading at a deep discount the analysts are starting to get interested again. The latest to initiate coverage is Credit Suisse but there have been three announcements over the past week alone. Credit Suisse initiated the stock at a buy with a target of $90 or an upside of 20%.
“OSTK is an online Home Furnishings retailer, that has an opportunity to reverse years of underperformance, and capitalize on home furnishing’s strong online growth … We see upside potential in the near term (Q3/Q4) based on positive internal momentum and favorable external drivers, with positive long-term implications from this growth and incremental customer engagement. Overall, we believe the stock offers unique relative value and profitability within the broader eCommerce/retail spectrum."
Zillow Group At The Juncture Of Two Secular Trends
Zillow Group (NASDAQ:ZG) is at the juncture of two secular trends, digital and housing, that are going to drive its growth for many years to come. The company just got a “catalyst call” rating from Bank of America citing the SPAC buyout of online real estate service OpenDoor. The deal for OpenDoor is worth $4.8 billion setting Zillow Group up for a multiple-expansion of the core business. Bank of America also noted strengthening trends within the real estate market as drivers of growth.
Notably, the September read of the NAHB Home Builders index is extremely bullish. The headline reading of 83 is up 5 points from August and shows accelerating, record levels of activity in the housing market. Sales of houses is up 5 points to 88, the expectation of future sales up 6 points. The most noteworthy figure is, however, traffic of prospective buyers which is up 9 points in one month.
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