Chicago, IL – September 13, 2023 – Zacks Equity Research shares Splunk SPLK as the Bull of the Day and Shoe Carnival SCVL as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Visa Inc. V and Mastercard Inc. MA.
Here is a synopsis of all four stocks.
Splunk is a Zacks Rank #1 (Strong Buy) that develops and markets cloud services and licensed software solutions. The company enables enterprises to gain real-time operational intelligence by harnessing the value of their data.
The stock was a favorite back in 2020, but plummeted over 70% into the 2022 lows. But recently, investors have come back into the stock, helping SPLK almost double off those lows set back in October.
The most recent catalyst was an earnings report that helped the stock jump 25% in just a couple weeks. So the question for investors now is if this strong momentum can continue and if Splunk can ever get back to those lofty 2020 highs.
The company incorporated in 2003 and is headquartered in San Francisco, California. It employs 8,000 and has a market cap of $20 billion.
The company’s offerings enable users to investigate, monitor, analyze and act on machine data and big data, irrespective of format or source, and helps in operational decision making.
The stock has a Zacks Style Score of “B” in Growth and Momentum. However, the stock scores an “F” in Value. The Forward PE is 33 and the stock pays no dividend.
Splunk reported Q2 earnings in late August seeing an 84% EPS beat. The company also raised its full year outlook on the top and bottom line.
Splunk guided Q3 revenue at $1.02-1.04B vs the $986M expected and guided FY24 revenues at $3.93-3.95B vs the $3.90B expected.
Cloud revenue was up 29% y/y and operating margin was 16.7%, up from 3.6% last year.
Their customer base is getting larger as well, with customer with ARR over $1M at 834, which is up 111 year over year.
With the strong guidance, analysts were quick to hike estimates and lift price targets.
For the current quarter, we see numbers go from $0.77 to $1.11, a jump of 44%.
Next quarter has been flat, but looking at the current year and next year, we see analyst lifting numbers over the last 30 days.
For the current year, we see estimates have ticked 20% higher going from $3.13 to $3.76. For next year we see a hike of 17%, with analysts lifting numbers from $3.60 to $4.22.
Almost every analyst on the street lifted their price targets the day following earrings. Here are a few firms lifting targets:
Wedbush- Reiterated SPLK with a Neutral, price target: $105 from $86
JPMorgan Chase- Reiterated SPLK with Neutral, price target: $120 from $100
RBC- Reiterated SPLK with Outperform, price target: $132 from $125
Splunk was a post-covid favorite in 2020, hitting highs of $225. But it sold off over the last three years, with the stock falling to $65 before rallying to $125 recently.
The stock is well off its lows, but investors should lower their expectations before thinking $200 is coming soon. It will take a while to repair all that damage and there will be resistance levels up above. Look for $140 and $175 to be issues to the upside.
For those looking for an entry, below are some levels to watch:
21-day Moving Average (MA): $112
50-day MA: 108
200-day MA: $97.50
Fibonacci support (50%): $110
Fibonacci support (61.8%): $107
The $107-110 area would be the buy zone with a lean against the 200-day MA.
While it is hard to chase a stock that is up 25% in the last month and almost 100% on the year, Splunk is certainly one to watch.
On the fundamental side, the company is back on track when it comes to earnings and growth. On the technical side, there are buyable pullback setups that investors should be watching for.
Bulls should be looking to accumulate shares at support levels and watch estimates for any big changes in expectations.
Shoe Carnival is a Zacks Rank #5 (Strong Sell) that operates as a family footwear retailer in the United States. The company offers a broad assortment of moderately priced dress, casual and athletic footwear for men, women, and children with emphasis on national and regional name brands.
The stock has struggled all year, trading lower by about 13%. Investors must ask themselves why the stock is down when the overall market is up.
The answer seems to be earnings, with the company missing two of the last three quarters.
Shoe Carnival is headquartered in Evansville, IN.The company was founded in 1978 and employs 2,500 people. It operates 404 stores in 33 states and Puerto Rico, and offers online shopping at its website.
SCVL is valued at $600 million and has a Forward PE of 7. The stock holds Zacks Style Scores of “A” in Value, but “F” in Growth. The stock pays a dividend of about 2%.
Shoe Carnival reported earnings in late August, missing expectations by 12%. Revenues were down year over year and they cut their outlook.
For FY23, the company now sees $3.10-3.25 v the 3.60 expected. Same Store Sales are now expected at -8% to -6% v the -2% to +2% expected. The company cut new store expectations to 6-10 v the prior 10-20.
Gross margin was an issue too, down 40bps year over year.
In their back to school update the company said that “Market conditions continued to modestly improve in early third quarter 2023 versus second quarter 2023.” Management added that August sales and profits were close to record highs and margins were near records.
While the back-to-school season seems to be doing well, estimates are coming down.
Since earnings analysts have lowered estimates.
Over the last 30 days, numbers for the current quarter were cut from $1.28 to $1.02, or 25%.
For the current year, analysts lowered estimates from $3.60 to $3.17, or 12%.
When you zoom out on the SCVL chart something becomes very clear. The $20 level is very important.
From 2018 to 2021 this was the resistance. The stock broke out in early 2021 and has come back to the $20 level where it has been supported.
If this level breaks, the stock could see another leg lower to the $15 area.
Looking at resistance, all the moving averages are above the current rpice. The 21-day is sloping lower and is currently under $23.
The $24 level is where both the 50-day and 200-day reside. They are flat for now and would offer major resistance on any rally.
It has been a tough year at the carnival, but the show must go on. The back-to-school report was positive, but the company needs a full quarter to change the trend in the stock.
Bulls need to be cautious of the $20 level and for now, there seems to be better places to put money to work.
Late last month, the Wall Street Journal reported that payments technology juggernauts like Visa Inc. and Mastercard Inc. intended to hike credit card fees paid by merchants when they accept cards from customers, which were expected to materialize in October and April. However, the companies avidly disagreed with the claims and painted a picture that asked some credible questions.
CMSPI, a consulting firm, told the Wall Street Journal that the new fee structure will likely boost costs to merchants by an additional $502 million per year. More than half of that amount would come from network charges, while interchange fees, commonly known as swipe fees, were expected to provide the rest.
Per Nilson Report, last year, U.S. merchants paid around $93 billion to Visa and Mastercard in credit-card fees, which surged from the 2012 level of $33 billion. It should also be noted that the volume of digital transactions has significantly jumped during this time, along with the revenues of the merchants.
Mastercard stated that it has no intention of hiking network fees or interchange rates in the United States this fall. Visa said through a blog post that its overall interchange fees on its network remained flat for the past ten years. It also pointed out some programs it launched to reduce interchange fees. Last year, it decreased fees by 10% for 90% of businesses in the United States. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Increased competition in the payment processing market can potentially reduce swipe fees for merchants, which the regulators and legislators have been talking about for some time (Credit Card Competition Act bill), but it can negatively impact security. As cheaper payment does not automatically translate to the same or higher level of security, which is already being provided by companies like V and MA, it can push merchants and other stakeholders in the payments space to increase fraud detection and security-related investments.
With growing digital transactions, attempted frauds and security threats increased many folds, leading to higher demand for better and more effective security technologies and related R&D, which comes with expensive price tags. It will likely be difficult for some smaller rivals to cough up such amounts from the get-go.
Moreover, lower credit card processing fees can affect rewards programs and similar services. To compensate for lower revenues from processing fees, financial institutions, including credit card issuers can cut back rewards, which will impact the consumers.
The legislators argue that the new measures will inject competition in the payments space through the usage of alternative credit card processing networks, which will likely increase the decision-making power of the merchants and break up the duopoly. This can reduce costs for merchants, which is crucial, especially for the smaller ones who were badly hurt during the pandemic and from inflationary pressures.
Lower credit card fees are expected to provide some impetus to the margins of small businesses, which account for the vast majority of the total U.S. businesses. This is important, keeping in mind that the U.S. unemployment rate was at 3.8% in August, up from 3.5% at 2022-end. Although the latest rate is well below 5.2% witnessed in August 2021, it is still the highest since March 2022.
As both sides have some valid points, all eyes are on the legislative developments waiting to see how the situation plays out.
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Mastercard Incorporated (MA) : Free Stock Analysis Report
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