News and Views

The Official Blog of WhaleWisdom.com

FedEx Corp. (FDX) had a disappointing performance over the past year, facing challenges in 2019 and 2020. As a result, the shares of the delivery company have fallen by over 32% versus an S&P 500 decline of 9.7%.  Overall, analysts have been bearish on the stock, decreasing price targets, as institutional investors began to turn negative on FedEx in the fourth quarter, with nearly two sellers for every buyer.

FedEx reported weak results in March, due to soft economic conditions amid the Coronavirus pandemic, higher ground costs from expanded service offerings, while cutting ties with a significant customer.  Still, FedEx beat earnings per share estimates by $0.14 and revenue estimates by $800 million.

Uninspiring Change

(WhaleWisdom)

Hedge funds’ and institutions’ fourth quarter activity was uninspiring.  During the quarter, the aggregate 13F shares for institutions increased by about 2.1%, to roughly 187.9 million from 183.9 million three months earlier. However, there were 700 institutional sellers and just 480 institutional buyers of the stock during that period. Also, hedge funds similarly increased their total 13F shares held by 2.5% in the fourth quarter, up to 52 million from 50.8 million. But there were 117 sellers of the stock, to only 83 buyers.

(WhaleWisdom)

 

Better Estimates for 2021

Analysts estimate that revenue will decline by approximately 0.9% in 2020 to $69.1 billion, and later increase by about 3.0% in 2021.  Meanwhile, earnings are forecast to drop by 38.9% in 2020 to $9.51 per share, with a modest 17% rebound in 2021.

Analysts Cut Price Targets

Despite the long-term promise, analysts have been lowering their price targets on the stock.  BMO Capital Markets lowered its price target to $115 from $150, while maintaining a Market Perform rating.  Also, Goldman Sachs lowered its price target to $153 from $175, while retaining a Conviction Buy rating.

A slightly optimistic view comes from Baird, which notes that the stock is positioned for an economic recovery once the Coronavirus is contained.  The firm maintained its price target of $140 as well as an Outperform rating.

Bearish Market with a Glimmer of Hope

Despite the past year’s downward trend, analysts appear to have some hope.  While there’s an expectation of a slowdown in global shipping activity, and currently a negative business impact from the Coronavirus, the future containment of the virus brings with it an opportunity for financial recovery.  For the brave investor that’s not deterred by the market drop or choppy seas, it may be worthwhile to ride out the storm.

Netflix Weathers the Storm

Posted on March 23rd, 2020

Netflix, Inc.’s (NFLX) stock has performed reasonably well during this recent period of market volatility, falling by just 14.2% from its highs, versus the S&P 500’s fall of almost 32%.  Over the past year, Netflix’s value has decreased by approximately 12% in comparison to the S&P 500’s loss of 19.2%.

Netflix is an American streaming media service provider and production company with domestic and international segments.  The company has had continued success due to its ability to adapt to customer needs and shift its business model.  It’s not surprising that the stock is ranked at six on the WhaleWisdom Heatmap.

Positive Movement

Netflix moved to six on the WhaleWisdom Heatmap v2.0, up from 35 during the fourth quarter of 2019.  While 15 filers have decreased their positions, 16 filers have increased their holdings, and the stock has landed in the top ten holdings among these top hedge funds 18 times.

 (WhaleWisdom)

Hedge Funds Maintain Interest

While aggregate 13F shares decreased slightly in the fourth quarter of 2019, interest remained and helped it to climb to a position of 37 from 135 on the original WhaleWisdom Heatmap.  During that quarter, the aggregate 13F shares held by hedge funds increased to approximately 121.1 million from 117.7 million, about a 2.9% increase.  The institutional activity was not quite as favorable, seeing a decrease of about 0.1%, with the aggregate 13F shares held decreasing to approximately 353.4 million from 353.7 million.  Looking at hedge fund activity, 47 created new positions, 83 added to existing ones, 34 exited, and 124 reduced their holdings.

(WhaleWisdom)

Promising Predictions

Analysts’ estimates are encouraging, with sales predicted to grow about approximately 20.9% in 2020 and by 18.6% in 2021.  Meanwhile, earnings are forecast to grow by 45.4% to $6.00 in 2020 and 39.9% in 2021 to $8.40.

Analysts See a Silver Lining

In addition to positive outlooks for the current and coming year, analysts also see a silver lining to business and market disruptions caused by the current global Coronavirus pandemic.  Analyst Justin Patterson, of Raymond James Financial, is one of the optimists.  The analyst notes that as customers stay home amid virus risk, they’re looking to companies like Netflix for online entertainment.  The considerable increase in usage may cause service disruption, but Patterson views temporary disruptions as manageable, while lengthy interruptions could prove problematic to Netflix’s value.

Favorable Outlook

There’s optimism for sales growth estimates, and in general, the stock has been moving in the right direction.  Netflix is a global streaming media powerhouse, and, understandably, there’s been a mixed movement in hedge funds’ positions given the overall market volatility amid the Coronavirus pandemic.  However, what is worth repeating is that Netflix has the potential for some benefit from the effects of the pandemic and, more importantly, has performed relatively well during a time of market volatility.

Kroger Displays a Steady Rise

Posted on March 16th, 2020

The Kroger Co. (KR) experienced its ups and downs in 2019 and early 2020. Still, its overall performance displayed a rise in value, and the fourth quarter was especially promising with Warren Buffett, Chief Executive Officer of Berkshire Hathaway, Inc., and renowned investor, starting a position.  Kroger retails groceries, fuel centers, and jewelry stores throughout the United States.  Kroger also manufactures and processes some of the food sold in its supermarkets.

Performance Has Outpaced the S&P 500

Kroger has performed better than the S&P 500 over the past year, with its value increasing by approximately 24.1% as of March 13, 2020, in stark comparison to the S&P 500’s decrease of 3.5%.  Hedge funds have demonstrated faith in the stock and were buying shares during the fourth quarter as well.

Kroger Added to Berkshire’s Portfolio

Warren Buffett has shown a strong interest in Kroger by not only adding it as a new holding but also by being one of the top holders of the company’s stock.  During the fourth quarter, Buffett bought 18.9 million shares of the shares, a market value of $550 million.  It puts his firm among the top 10 holders of the stock.

(WhaleWisdom)

Hedge Funds Are Buying

Hedge Funds were also buying the stock, with the number of aggregate 13F shares increasing by approximately 3.4%, to roughly 229.5 million shares from 221.9 million shares as of December 31, 2019.   Looking at the top hedge funds, 21 created new positions, 35 added to an existing position, and 59 reduced their holdings, as 20 exited.

(WhaleWisdom)

Continued Growth Is Anticipated

Kroger is not an expensive stock and trades with a price to earnings ratio of 12 based on fiscal 2022 earnings estimates.  Sales are expected to grow by approximately 2.0% in both 2020 and 2021, while earnings are predicted to grow to $2.36 per share in 2020 and $2.46 per share in 2021.  Projections continue upward for 2022, with sales growth estimated at 2.2% and earnings estimated to climb to $2.57 per share.

Steady Momentum Attracts Investors

While sales growth estimates are modest, the stock keeps moving in the right direction.  Kroger is one of the United States’ largest grocery chains, and bullish investors see a real potential for payoff.  Understandably, hedge funds have held and added to positions, as the stock has outpaced the S&P 500 and garnered the attention of some well-known investors.  Then factor in recent peaks in consumer demand related to U.S. pandemic concerns, and you have an even higher likelihood of sales growth and happy investors.

Adobe, Inc.’s (ADBE) stock has been rising in recent months but has hit a rough patch recently during a period of stock market turmoil. It has resulted in the shares falling by 12% from its recently set high on February 19. Still, Adobe has outperformed the S&P 500, rising by approximately 31.8% in comparison to the S&P 500’s gain of about 8.2% over the past year.

Adobe has historically seen success from its multimedia and creativity software products, and its versatility in changing to meet industry demands and more recent strategy of expanding digital marketing software is also paying off.  This has resulted in investors eagerly awaiting Adobe’s first quarter 2020 results to be reported on March 12.  Hedge funds appear to be drawn to the positive momentum of earnings and revenue growth, and the stock now ranks an impressive fourth on the newly created WhaleWisdom Activist Heatmap.

Adobe’s Impressive Climb

Adobe’s climb to 4 from 34 on the WhaleWisdom Heatmap is an impressive feat, and recent global market events shouldn’t overshadow that.   The latest 13F filings for the fourth quarter of 2019 saw seven of the top Hedge Funds holding the stock, with six of them increasing their holdings.

(WhaleWisdom)

Favorable Results Are Expected

Analysts anticipate promising results in the first quarter of 2020 from Adobe, with earnings expected to have grown by roughly 31% to $2.24 per share and revenue estimated to have increased by 17.3% to approximately $3.1 billion.  Earnings and revenue are predicted to continue to rise year over year in 2020, climbing by 45.2% from $9.81 per share, with revenue increasing by almost 18% to $13.2 billion.

 Analysts Are Optimistic

Adobe has its share of fans, and actions by analysts offer one more sign of positive trends.  Jennifer Lowe at UBS Group AG raised the price target on the stock to $430 from $360 and maintained UBS’s buy rating.  Meanwhile, Morgan Stanley’s analyst, Keith Weiss, also raised the firm’s price target on Adobe to $450 from $410 and maintained an overweight rating on the stock.

 

Hedge funds continue to add and expand Adobe’s stock within their portfolios, based upon past trends and in anticipation of the shares’ improving outlook.  While Adobe’s stock isn’t cheap, the company’s history of savvy business decisions helps to contribute to its favorable outlook.  Investors that take note of the past performance and act on upcoming forecasts are likely to see a positive payoff in 2020 and 2021.

Apple Inc.’s (AAPL) stock had a big run in 2019, with shares rising approximately 86% versus the S&P 500’s gain of 28.9%.  Apple also had a favorable start in January 2020, but it appears that the tides are changing.

In two months, the stock has taken a turn lower due to increasing fears of the Coronavirus’s potential economic impact, falling 16% since its peak on February 12.  Apple’s value saw a decrease of about 6.9% overall from January to the end of February 2020, slightly better than the S&P 500’s decline of approximately 8.5%.  Institutions were dumping Apple in the fourth quarter, ahead of the general market sell-off and taking advantage of the stocks massive 2019 gains.

Institutions Are Selling

Institutions were selling Apple at a pace of more than two to one in the fourth quarter.  The stock fell on the WhaleWisdom Heatmap to 130 from 9, with aggregate 13F shares decreasing by approximately 2% as of December 31, 2019, to roughly 2.57 billion shares from about 2.63 billion shares three months earlier. The steep selloff may have been due to Apple’s high price to earnings ratio on a historical basis.

(WhaleWisdom)

Hedge Funds Dumping Shares Too

The number of hedge funds in the equity also fell, with their total 13F shares decreasing by approximately 1.0% to 735.8 million, from 743.4 million.  Overall there were, 32 hedge funds that created new positions, 131 adding to an existing position, 39 which sold out, and 277 which reduced their positions.

High Valuation

One reason why the stock may have taken a dive is its extremely high valuation.  Apple’s stock reached its highest levels in a year, climbing to a one-year forward PE ratio of nearly 22, higher than its historical range of 11 to 16.

A Rocky Road Paved with Optimism

Analysts look for strong earnings and revenue growth and have been raising their estimates as a result.  Sales are expected to grow by approximately 7.9% in 2020 and by 9.7% in 2021.  Earnings are predicted to increase to $13.63 per share in 2020 and $15.65 per share in 2021.

These estimates are an improvement from prior ones on January 9, with sales predictions for 2020 up by approximately 1.7% and earnings up by $0.52.  Should fears surrounding the Coronavirus be overblown, there’s a strong possibility that the stock will rebound in the months ahead.