“Act as if what you do makes a difference. It does.” – William James

Thursday, December 24th Closing Price

1. STIMULUS SIGNED
2. PELOTON ACQUISITION
3. JACK MA AND ANTI-MONOPOLY PROBE
4. CORONAVIRUS STRAIN
5. REVIEW OF LAST WEEK’S EARNINGS
6. UPCOMING EARNINGS
7. MERCHANDISE
8. EDUCATIONAL LEARNING SEGMENT
9. VIDEO OF THE WEEK

MARKET LAST WEEK (12/21- 12/25)

STIMULUS SIGNED

Just a couple of days after Congress agreed to pass an $892 billion coronavirus relief bill, President Trump surprised many by strongly criticizing the bill and threatening not to sign it until Sunday night. President Trump lambasted the lengthy bill for its billions in foreign aid without focusing internally on the American people. His signature did two things for the US economy: it prevented a government shutdown on Tuesday, and it extends aid to the American people in coronavirus aid. The two key pandemic unemployment programs received their last payment this weekend. Still, due to the bill being signed on Sunday instead of Saturday, the payments could be delayed several weeks. 

The President cites too small of a direct payment in the form of a stimulus to citizens, referring to the proposed $600 stimulus as “ridiculous low. He instead proposed an increased stimulus of $2000 for individuals and $4000 for couples. 

Yesterday, President Trump ended up signing the bill as his club in Mar-a-Lago, with the stipulation that Congress consider implementing legislation to increase direct payments in the future. However, less than timely, the signing of this bill allows approximately 12 million benefit recipients to continue receiving benefits for another 11 weeks and signals an end in the Trump presidency’s latest point of contention.

PELOTON – RIDING MOMENTUM INTO THE NEW YEAR

Peloton, the American exercise equipment, and media company, have struck a deal to acquire Precor. Precor is an industry leader in exercise equipment manufacturing. This deal presents a unique opportunity for Peloton to continue to capitalize on the significant success they’ve had this year boosted by the pandemic. This deal is expected to close early in 2021 and cost $420 million but stands to return far more. Peloton has the great problem of struggling to meet their ever-growing demand for their orders. This, in conjunction with shipping delays due to the pandemic, has led to an increase in canceled orders by frustrated customers. Peloton’s stock had a meteoric ascent this year, up more than 500% on the year. A successful solution to their distribution issues will surely please their investors and pique the interest of many more.

JACK MA AND ANTI-MONOPOLY PROBE

It appears that Jack Ma would have far preferred a lump of coal this Christmas; instead, he received news that Chinese regulators were conducting an anti-monopoly probe into the Chinese monolith. This news led to a massive selloff for the E-Commerce company, with a 13% drop in share value on Christmas eve. This appears to be just the start of the implications from their recent woes, including halting the $37 Billion IPO of their subsidiary Ant Group. As of yesterday, the Zhejiang Provincial Administration for Market Regulation has concluded the probe into Alibaba, reporting that they cooperated with the investigation team promptly. Subsequently, Alibaba has announced a 67% increase in their share buyback program from $6 to USD 10 Billion over the next two years. This may be great timing considering the discount in share price, although the timing has led to speculation amongst investors. In demonstrating their confidence in their outlook, they may have provided a bit of good news. Whether this is reflected in the halting of their tumultuous stock price has yet to be seen. With Alibaba down 26% since its peak in late October, there are certainly several investors tuned in for an answer.

New Coronavirus Strain Induces Widespread Concern

Despite the FDA announcing emergency approval for immediate distribution of Pfizer and Moderna’s coronavirus vaccines, panic is still prevalent. A few new coronavirus strains have been detected in the UK, South Africa, Nigeria, and others in the past few weeks, raising questions about whether the vaccines carry the same macroeconomic implications as before. The effects of each strain are far-reaching. The strain in the UK, for example, does not appear to be more fatal, but it is reportedly 70% more transmittable, leading to dozens of countries banning travel from the United Kingdom. The Public Health Agency of Canada confirmed the first two North American cases in Ontario Saturday night. Japanese officials have announced that their borders will be closed from midnight tonight to January 31st after receiving seven positive results for the new coronavirus strain. BioNTech’s CEO has announced a “relatively high” chance the vaccine they created in conjunction with Pfizer will prove resistant to the new coronavirus vaccine. The importance of this statement’s accuracy cannot be overstated, and we can expect a significant public reaction to the conclusion one way or another.

LAST WEEK’S EARNINGS

Monday

HEICO

Heico is a company that has seen large declines this year, which is to be expected from any company that is integrated into the airline industry. A pickup in global fleet travel is necessary for the company to continue to grow. It is important to see just how negatively affected the company has been since the pandemic began and how much it’s improved as lockdown restrictions are eased.

• Net income of $314.0 million down from $327.9 million YoY.
• FY Q4 net income of $62.3 million down from $85.7 million YoY.
• Operating income was $376.6 million in FY 2020, compared to $457.1 million in FY 2019
• Q4 Operating income of $89.1 million down from $120.6 million YoY.
• Net sales $1,787 million FY 2020 down from $2,055.6 million FY 2019
• Q4 net sales $326.2 million down from $541.5 million YoY

Takeaways: 

Adversely affected by CoVid. Consolidated net sales for their aerospace segment decreased approximately 32% during FY 2020. Cash flow was only down from $437.4 million FY 2019 to $409.1 million FY 2020. The Pandemic is likely to continue to impact HEICO negatively. HEICO will not issue guidance for FY 2021 for this reason. A lagged return to normalcy can be expected.

TUESDAY

Carmax

As the largest used car dealer in the United States, Carmax can give a good insight into consumer spending habits. The ebb and flow of spending will tell consumers’ activity levels and if they are affected by any external factors. Lockdown restrictions are a key factor in this.

 

• The third quarter’s net earnings increased 35.9%, and net earnings per diluted share increased 36.5% YoY.

• Total used units sold increased 1.0%, while used unit sales in comparable stores were down 0.8%
• Gross profit per used unit of $2,151 was similar to the prior-year quarter.

• Total wholesale units increased 10.8%, driven by a record Q3 buy rate.
• Wholesale gross profit per unit decreased slightly to $906 despite sharp depreciation in the broader market.

• CarMax Auto Finance (CAF) income increased 54.7% due to the combined effects of favorable loan loss performance, higher net interest margin, and an increase in average managed receivables.

• Enthusiastic customer response to omnichannel experience with the majority of customers progressing more of their transaction online.

Takeaways:

Vehicle sales are down to 1% from 11% in total used vehicle unit sales with comparable store unit sales down to (0.8)% from 7.5% YoY. The surge in CoVid cases had a substantial impact on their sales when lockdown restrictions were tightened. Total used vehicle revenue increased mainly due to the average retail selling prices rising almost $700 per unit YoY. Other sales and revenues took a hit in the quarter, decreasing by $6.9 million in other revenues. Much of the business expansion hinges on vaccine distribution and return to normalcy to return to normal growth expectations.

WEDNESDAY

PAYCHEX 

Paychex is a mostly positive bag when it comes to the pandemic. The pandemic has accelerated the growth of their business due to their online and automated business model. Cloud-based technologies were exceedingly profitable and necessary pre-pandemic, and the need for them skyrocketed as business structures changed overnight. However, a decrease in jobs in the economy is bound to affect the business.

 

• The Company raises guidance as second-quarter results reflect a sequential improvement in financial performance and key business metrics.
• Diluted earnings per share and adjusted diluted earnings per share each increased 4% to $0.75 per share and $0.73 per share, respectively.
• Second-quarter service revenue was consistent with the prior-year period at $968.9 million, compared to a YoY decrease of 6% in the first quarter.
• Management Solutions revenue increased 1% to $732.8 million.
• Total revenue decreased 1% to $983.7 million.

Takeaways:
Client base increases, and their suite solutions primarily drove increased revenue YoY in that segment. PEO and Insurance Solutions revenue decreased 3% YoY to $236.1 million due to the mass shift in worksite employment and premium collection. YTD FY 2021 has seen operating income decreased 8% to $638.3 million, which is a significant amount to business operations. Changes in their operating assets and liabilities produced a 24% drop in cash flows from operations YoY. The company expects an overall flat movement in the next six months, but this is subject to change when the economy turns to normal.

 

EDUCATIONAL LEARNING SEGMENT

“Get rich or die trying”- Frank Mercado.

 

Averaging down is an exciting high-risk, high reward investment strategy. Averaging down is the practice of buying more of your original investment (shares or contracts) after the price has fallen for a lower average cost per security. For example, if 100 shares were purchased at $20 per share, and then a further 100 shares were purchased at $18 per share, the average cost per share is lowered to $19. This means that if the share price rises to $19, then the investor breaks even. If the price returns to $20, then a profit is made. This isn’t for the faint of heart and is a quick way to blow up your account. Be sure to strongly evaluate your trade thesis to determine if the risk is worth the reward to you and the timeframe on the reversal that you are predicting.

 

 

 

 

 

Copyright © Tiger Wolf Capital  All rights reserved.

Our mailing address is:
info@tigerwolfcapital.com