Wall Street Breakfast: The Week Ahead

AutoZone (NYSE:AZO), Aurora Cannabis (NYSE:ACB), Stitch Fix (NASDAQ:SFIX) and Nike (NKE) on September 22; General Mills (NYSE:GIS) and Cintas (NASDAQ:CTAS) on September 23; Darden Restaurants (NYSE:DRI), Jabil (NYSE:JBL), Rite Aid (NYSE:RAD), CarMax (NYSE:KMX) and Costco (COST) on September 24.

Expectations are high for Nike (NKE) heading into the FQ1 earnings report, with the China business expected to show strong growth and e-commerce continuing to support sales in the U.S. Over the last few weeks, retailers like Dick’s Sporting Goods (NYSE:DKS), Foot Locker (NYSE:FL) and Hibbett Sports (NASDAQ:HIBB) have been spinning out positive updates on sales. Analysts expect Nike to report revenue of $9.00B and EPS of $0.46. Nike trades just off its 52-week high of $120.48.
Go Deeper: See Seeking Alpha’s Catalyst Watch for earnings plays.

IPO pricings are expected for Corsair Gaming (CRSR), GoodRx (NASDAQ:GDRX), RiverNorth Flexible Income Fund (NYSE:RFM) and Amesite Operating (AMST). Of the bunch, Corsair may generate the most interest with the gaming sector heating up. The California-based provider of gaming gear and content is aiming to sell up to $252M worth of shares to value the company at up to $1.65B. Also, keep an eye on TELA Bio (NASDAQ:TELA) next week, with 34% of its outstanding float being freed up through the expiration of an IPO lock-up period. Across the Pacific in Hong Kong, secondary share offerings are expected to start trading for ZTO Express (NYSE:ZTO), Zai Lab (NASDAQ:ZLAB) and Baozun (NASDAQ:BZUN), while SoftBank (SFTNY) aims to hand over shares between September 23-25 for its secondary offering of its telcoms business.
Go Deeper: Catch up on all the latest IPO news.

The Majesco (NASDAQ:MJCO)-Thoma Bravo deal is expected to close on September 21. InnerWorkings (NASDAQ:INWK) shareholders vote on the HH Global buyout on September 24. Illumina’s (NASDAQ:ILMN) deal to buy cancer-discovery startup Grail for more than $8B could be officially announced. Anheuser-Busch InBev (NYSE:BUD) will be sized up after landing DOJ clearance to acquire Craft Brew Alliance (NASDAQ:BREW).

Merck (NYSE:MRK) is hosting a Oncology Virtual IR Briefing on September 22. On the same day, vTv Therapeutics (NASDAQ:VTVT) is scheduled to present additional positive clinical study results from its Phase 2 Simplici-T1 study of TTP399. GlycoMimetics (NASDAQ:GLYC) GMI-1070 (rivipansel) is due to present biomarker data from its Rivipansel Phase 3 RESET trial during the Foundation For Sickle Cell Disease Research meeting from September 23-25. Also during the week, Vaxart (NASDAQ:VXRT) and Novavax (NASDAQ:NVAX) will present at the SVB Leerink: CybeRx Series – Vaccine Forum. Both companies are in the COVIF-19 spotlight.
Go Deeper: Check out Seeking Alpha’s Catalyst Watch for breakdowns on the events that stand out.

Tesla (TSLA) holds its annual shareholder meeting on September 22 to be immediately followed by the highly-anticipated Battery Day event. Expectations are that Tesla will reveal plans to ramp up battery capacity, show off improved cell chemistry/performance and highlight how the cost curve could spiral downward. Wedbush Securities expects a home run from Elon Musk and gang. “We believe the company is getting closer to announcing the million mile battery at this highly-anticipated event. In our opinion this battery technology will be very advanced, potentially last for decades, withstand all types of weather/terrain, and be another major milestone for the Tesla ecosystem,” writes analyst Dan Ives. Panasonic (OTCPK:PCRFY) will be on edge to see if Tesla tips off a goal to become battery independent over time. Other stocks to watch around the event include the usual EV auto suspects like Nio (NYSE:NIO), Li Auto (NASDAQ:LI), Xpeng (NYSE:XPEV) and Kandi Technologies (NASDAQ:KNDI). There is also Glencore (OTCPK:GLCNF,OTCPK:GLNCY) to keep tabs on just in case Tesla pulls out a wildcard with its cobalt plans. Strap in for some fun.

News Corp (NWS, NWSA) will host a virtual Dow Jones Investor Day on September 21 featuring both the News Corp and Dow Jones CEOs. HubSpot (NASDAQ:HUBG) is due to hold its Analyst Day event on September 22 with a focus on the company’s products, performance, and financials. Intuit (NASDAQ:INTU) will host a half-day virtual investor event on September 23 with presentations from CEO Sasan Goodarzi, CFO Michelle Clatterbuck and other leaders. Michaels Companies (NASDAQ:MIK) is hosting a Virtual Investor Day on September 24 that will feature a strategic overview including updates on growth opportunities, new market opportunities and the capital allocation strategy.The Brookfield family of companies will hold an investor day event on September 24. Brookfield Asset Management (NYSE:BAM) will be the leadoff position to give an update on business conditions, followed in order by Brookfield Renewable Partner (NYSE:BEP), Brookfield Property Partners (NASDAQ:BPY), Brookfield Business Partners (NYSE:BBU) and Brookfield Infrastructure Partners (NYSE:BIP).

SpaceX’s (SPACE) SN8 Starship rocket will take a test flight sometime next week, with plans to soar up to 60K feet and then return to Earth in a controlled landing. The launch will mark the first time three Raptor engines will be tested together as a single unit. SpaceX is tracking toward a final version of Starship that will feature six Raptors and be capable of carrying up to 100 people to the moon, Mars and other distant destinations. While SpaceX isn’t a publicly-traded stock, the company’s high-profile launches have helped draw interest into space-related names like Maxar Technologies (NYSE:MAXR), Virgin Galactic (NYSE:SPCE) and the Procure Space ETF (NASDAQ:UFO).

Conferences highlights: The Stephens Virtual Bank Forum that runs from September 22-24 will feature Ameris Bancorp (NASDAQ:ABCB), Enterprise Financial Services (NASDAQ:EFSC), Fulton Financial (NASDAQ:FULT), Pinnacle Financial Partners (NASDAQ:PNFP) and Univest Financial (NASDAQ:UVSP) among others. Oppenheimer is holding a fall summit focused on Specialty Pharma, Rare Disease and Gene Therapy. Some of the companies due to present include Sunesis Pharmaceuticals (NASDAQ:SNSS), Brainsway (NASDAQ:BWAY), Orchard Therapeutic (NASDAQ:ORTX), CohBar (OTC:CWBR) and Aldeyra Therapeutics (NASDAQ:ALDX). The Sidoti Virtual Conference running from September 23-24 will feature a large number of small-cap companies identified as high quality. Some of the notable presenters include Winnebago (NYSE:WGO), TrueBlue (NYSE:TBI), Lydall (NYSE:LDL) and Kforce (NASDAQ:KFRC). Finally, the Bernstein Strategic Decisions Conferences runs from September 23-24, with presentations from Novo Nordisk (NYSE:NVO) and Koninklijke Philips (NYSE:PHG) looking like the standouts.
Go Deeper: See Seeking Alpha’s Catalyst Watch for which presentations may stand out.

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Dividend Challenger Highlights: Week Of September 20

Introduction

The Dividend Champions list is a monthly compilation of companies which have consistently increased their annual dividend payouts, and the latest edition may be found here. However, since this list is only produced once per month, the data in it can quickly get out of date. Furthermore, with over 750 companies on the list, the sheer amount of data can quickly become overwhelming. In this weekly series, I highlight recent and upcoming dividend related activity for companies holding Challenger (5-9 years) status.

In the data presented below, Yield is forward annualized and Years reflects the up-to-date streak, including dividends declared since the last edition of the Dividend Champions list.

Dividend Changes

In the past week, the following companies on the Challengers list declared dividends which changed from their previous payouts.

Increases:

Decreases:

None

Last Chance to Buy

These companies have ex-dividend dates approaching. The following tables indicate the last day you can buy these stocks in order to be eligible for the upcoming dividend. Tables are sorted alphabetically by symbol.

Monday, Sept. 21 (Ex Div 9/22)

Tuesday, Sept. 22 (Ex-Div 9/23)

Wednesday, Sept. 23 (Ex-Div 9/24)

Thursday, Sept. 24 (Ex-Div 9/25)

Friday, Sept. 25 (Ex-Div 9/28)

Money on the Way

The following companies have dividend pay dates in the upcoming week (Tuesday through the following Monday). Check if you want your DRIPs to reinvest at these yields…or take the cash and go have a steak dinner!

Conclusion

I hope you found this article useful. Please let me know if you have any ideas for improving the format or data included in this series.

Looking for more in depth analysis of high quality dividend stocks? Check out the Dividend Kings marketplace service!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Zuora: If You’re Looking For Deep Value In Tech,…

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Right now, tech stocks are reeling again. Some of the year’s biggest winners have sold off to the tune of 15-20%, but some of the year’s losers are getting swept up in the storm as well. While it’s true that execution has lagged behind for some of the tech and software stocks that failed to rally this year, cheap valuations have made it possible to “dumpster dive” for value-oriented software stocks that could make for great turnaround stories.

Zuora (ZUO) is one of those names. An ERP system that is dedicated specifically toward subscription-model businesses (think other enterprise SaaS companies, streaming companies like Netflix (NFLX), or even newspapers and magazines), Zuora was initially popular when it went public in mid-2018 at $14 per share. In the early few months of trading, Zuora’s stock had initially shot up to has high as the mid-$30s (up 2x, similar to what Snowflake (SNOW) is doing now – and perhaps serving as a warning against investing in high-flying IPOs). But fast forward to today – the stock is now trading far below its initial IPO price, and the 35% declines Zuora has seen in the year to date has dramatically paled in comparison to gains seen by higher-growth SaaS stocks.

Data by YCharts

It’s hard to make an argument for Zuora on fundamentals alone – its execution since the pandemic has been troubled, due to the fact that not many companies are exactly trying to implement complex new ERP systems in the midst of a pandemic. But given that the entire tech sector has ridden up to bubble-level multiples, I’m far more interested in going after low-risk value names that could be potential rebound stories than I am in trying to squeeze further upside out of this year’s biggest gainers.

The key pieces of the bullish thesis for Zuora are:

• The world is moving to a subscription-based economy. Arguably the enterprise software company predated this subscription revolution – instead of paying upfront for expensive software licenses, the newest apps are now accessed through the cloud and paid for on monthly or annual terms, either based on the volume of usage or the number of seats. Consumer services followed suit – now we can hardly even remember the days when we paid for music or movies instead of streaming them and paying a monthly fee. Zuora’s technology, meanwhile, helps to solve some of the complex backend and administrative challenges associated with running a subscription business.
• Applicability of subscription model is vast. Subscriptions are as old as time – before SaaS companies existed, we had long subscribed to newspapers and magazines. But the benefits of this business model is just now catching on to both consumers and companies, and in recent years we’ve seen on-demand subscriptions pop up for categories like fitness, meals, and even healthcare.
• Zuora is conservatively managed. No one can argue that growth has slowed. But on the upside, we like that Zuora has compensated for lower growth by beefing up its margins and it is also now cash flow positive.
• Deep value stock. At current share prices near $9.50, Zuora trades at a market cap of just $1.12 billion, making it among the smallest-valued recent tech IPOs. After we net out the $179.2 million of cash and $8.3 million of debt on Zuora’s latest balance sheet, its enterprise value is just $950 million. Wall Street, meanwhile, is forecasting $324.5 million in revenue next year for FY22 (+9% y/y). That isn’t exciting growth, but there’s already plenty of pessimism baked into Zuora’s bargain-basement 2.9x EV/FY22 revenue valuation.

With valuation seemingly on investors’ minds again (as judged by the continued tech selloff), the appropriate strategy is to pivot into value while retaining tech exposure. Zuora fits that bill nicely.

Q2 download

Let’s now go through Zuora’s most recent quarterly update and why shares sank in September. Take a look at the earnings summary below:

Figure 1. Zuora Q2 earningsSource: Zuora Q2 earnings release

Now, Zuora’s second-quarter was already spewing some problems, to say nothing yet of its Q3 outlook. Zuora’s revenue grew 8% y/y to $75.0 million, slightly overshooting Wall Street’s mark of $73.5 million (+5% y/y), but decelerating dramatically from 15% y/y growth in Q1. We had hoped back in Q1, because revenue had accelerated from 11% y/y growth in Q4, that Zuora would continue to execute well throughout the year – but clearly the pandemic has had an outsized impact.

Tien Tzuo, Zuora’s CEO, acknowledged on the Q2 earnings call that the company should have executed better and that results weren’t satisfactory.

Here’s some additional context that Tzuo provided during his prepared remarks that detail some of the actions Zuora is taking to improve growth:

Given that our market is expanding, I do believe our growth can be better. The leadership we’ve added to the company and the improvements we’ve made to our internal processes over the past year have helped us make good progress on building the foundation to scale for years to come. While it’s increasingly apparent that COVID will be with us for some time, we are optimistic about the future for the following reasons.

We’ve made some great new hires and completed our management team. We’re seeing good overall demand with double-digit pipeline growth quarter-over-quarter. Our sales productivity per rep continues to improve as we get more comfortable in the go-to-market motion. We’re retooling our pricing and deal structures to right-size our initial wins and enable us to grow with our customers. And we see our near-term business improving and expect better billings growth next quarter.”

The piece about pipeline growth is particularly encouraging. Even though sales cycles may be lengthened at the moment, having a broadened universe of leads (plus an expanded sales team to chase them) is a positive signal for future quarters. A few other positive highlights to note from the quarter:

• Zuora executed 41 go-lives in the quarter, which is impressive given that there is typically little desire to onboard complex ERP systems amid the current macro environment
• Transaction volumes processed on the Zuora platform increased 26% y/y, affirming the company’s thesis that despite near-term challenges, the pandemic has actually made the long-term case for both subscription products and Zuora more relevant

Unfortunately, it was Zuora’s lowball outlook that cut the legs from underneath the stock. Zuora is guiding to just $73-$75 million in revenue for Q3 – representing just 2-4% y/y growth, which is basically no growth at all in the tech world. Wall Street, meanwhile, had hoped for 5% y/y growth. We do note, however, that consensus is still calling for growth to re-accelerate to the high single digits (and in my view, even low teens may be possible) in FY22, which would be supported by Zuora’s current pipeline growth.

Figure 2. Zuora Q3 outlookSource: Zuora Q2 earnings release

We do have profitability improvements to note on the upside, however. At least as Zuora’s growth rates are declining, its loss margins are on the rise. In particular, we note that Zuora shrunk its pro forma operating losses (after adding back stock comp and other non-cash expenses) to -$1.6 million, representing a near-breakeven -2% pro forma operating margin – a full eleven point improvement versus -13% in the year-ago quarter.

In addition, we note that in the first half of the fiscal year, Zuora has improved its operating cash flows to $6.8 million, up from a loss of -$11.1 million in the year-ago quarter.

Figure 3. Zuora OCF trendsSource: Zuora Q2 earnings release

With cash flow trending positive and with ~$170 million of net cash on Zuora’s balance sheet, we’re not concerned about Zuora’s liquidity despite its current difficulties in sales execution.

Key takeaways

Make no mistake – Zuora has a long way to go in recovering to its pre-pandemic performance. But now the stock’s <3x valuation multiple already more than compensates for its lower-growth reality and may set Zuora up for a strong rebound when value returns in vogue. Use the dip as a buying opportunity.

For a live pulse of how tech stock valuations are moving, as well as exclusive in-depth ideas and direct access to Gary Alexander, consider subscribing to the Daily Tech Download. For as low as $17/month, you’ll get valuation comps updated daily and access to top focus list calls. This newly launched service is offering 30% off for the first 100 subscribers. 

Disclosure: I am/we are long ZUO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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