Author: AnswerStock

Constellation Brands is taking over Canopy Growth, and investors are happy about it.

The Canadian cannabis stock Canopy Growth has been in a transition period ever since last summer. In July, the board fired former CEO Bruce Linton, and the company has been looking for a replacement ever since. And now, it appears they found that person.

Today, Canopy Growth shares ticked higher after the board announced it found its new CEO. David Klein, the executive vice president and chief financial officer of Constellation Brands, will step in as CEO on Jan. 14.

This is an interesting turn of events for Canopy Growth, and investors are reacting favorably to the news. The stock rose 3.5% in premarket trading after the news came out.

The backstory on CGC’s partnership with Constellation Brands

The cannabis industry has had a tough go of it in 2019. Most cannabis companies are massively underperforming, and Canopy Growth hasn’t escaped this trend. 

HealthCanada has been slow to issue retail licenses to cannabis companies. So most cannabis companies have been slow to get their products to market, and their revenue suffered as a result. The most recent round of earnings reports reflects this. 

The hope is that these companies can stick around long enough for the cannabis industry to start picking back up. That’s why the one bright side for Canopy Growth has been its partnership with Constellation Brands.  

On Oct. 17, the next round of marijuana legalizations hit Canada, which means that it’s now legal to sell edibles, vaping products, and cannabis-infused beverages. Canopy Growth has been able to develop a number of new products, thanks in large part to its partnership with Constellation Brands.

Unlike many other cannabis companies, Canopy Growth has the cash to continue growing and developing new products. The company has more free cash flow than almost any of its competitors. It’s also in a better position to market and sell its products. 

Bottom Line

Constellation Brands has been an asset to Canopy Growth, so the addition of Klein to the leadership team could be a good move. In a press release, the company highlighted Klein’s leadership skills and his experience with consumer packaged goods and working in highly regulated environments.

Wall Street considers the company a moderate buy, and many analysts believe the company still has potential. So while Canopy Growth is still on shaky ground, this new addition could help move it in the right direction. 

Ulta beat investor expectations on earnings during Q3.

Ulta Beauty is up 29% after delivering a better-than-expected earnings report and updating its full-year guidance. The company fell slightly short on revenue but beat Wall Street’s forecasts on earnings. Here is an overview of how the company fared during the third quarter, and what’s next for Ulta in 2020.

Ulta beats investor expectations during Q3

Ulta indeed beat investor expectations during the third quarter. But the truth is, most investors had very low expectations going into this latest earnings report. 

When Ulta reported its second-quarter earnings in August, the company lowered its 2019 guidance and missed earnings estimates. In the months following the earnings report, the company’s shares dropped by more than 30%.

So going into the company’s third-quarter earnings, investors were bracing themselves for the bad news. But Ulta reported earnings of $2.25 per share, beating Wall Street’s estimates of $2.13 per share. Revenue was up by more than 7% from a year earlier, and the company matched same-store sales estimates. 

And most importantly, Ulta updated its full-year guidance, and it’s much more positive than it was in August. The company expects its same-store and e-commerce sales to grow, and the company plans to open 80 new stores. 

One of the ways Ulta has been able to boost same-store sales is by capitalizing on the demand for celebrity cosmetics lines. In particular, Kylie Jenner and YouTuber James Charles have helped drive more traffic to Ulta’s stores. 

Will the positive momentum last?

Wall Street took notice of the positive turn of events for Ulta, but some analysts cautioned that the problems aren’t over for the company. Wells Fargo analyst Ike Boruchow raised his price target on the stock but warned that many challenges still lie ahead. 

Boruchow said that the cosmetics industry is slowing, which will continue to put pressure on the company. A Nomura analyst also raised his price target but said that he believes that sales in certain categories will stay low in 2020, forcing Ulta to lower its earnings forecasts. 
Overall, the company is considered a moderate buy on Wall Street. We’ll have more insight into Ulta’s 2020 trajectory once we know the company’s full-year earnings.

Peloton’s stock fell due to an ad that viewers claimed was sexist and classist.

Peloton’s shares have been on a bumpy ride ever since its September IPO, but it seemed like the company was picking up traction in recent months. In November, the stock rose 15% and hit a 52-week high of $37.02 per share.

But that positive momentum was wiped out this week thanks to a holiday ad the company released. Many viewers responded negatively to the advertisement, calling it confusing, sexist, and classist.”

This backlash caused the company’s shares to fall 9%, wiping out over $900 million in market value overnight. 

Details on the holiday ad

Peloton originally released the ad in early November, and it’s being shown on television and YouTube. In total, the ad has been shown more than 7,000 times since it was released. 

The ad features a fit, attractive woman receiving a Peloton bike as a Christmas gift from her husband. She then films herself working out over the course of a year. 

At the end of the ad, the woman thanked her husband for gifting her the Peloton bike a year earlier. Since being released, the ad has been parodied by comedians and inspired countless social media memes. 

This negative backlash underscores a major pain point for Peloton. The company struggles to shake its image as a luxury brand for high-end consumers. 

Management has stated that it wants to appeal to a broader range of customers, but it’s not putting its best foot forward with this ad. The bike in the video costs $2,245 to purchase, and there’s a $39 monthly subscription to access online classes.

Will the backlash hurt the company’s holiday sales?

For its part, Peloton stood by the ad, saying it was disappointed that many viewers had misunderstood the point of the ad. The company stated it had received many positive messages from individuals who were inspired by the ad.

While the holiday ad may not have helped Peloton, it probably won’t hurt them too much over the long run. A Raymond James analyst called the reactions “disappointing,” but said it shouldn’t significantly impact the company’s holiday sales. 

Lululemon’s stock is up 83% year to date.

The athletic leisurewear company Lululemon has generated a lot of buzz on Wall Street this year. The stock is up nearly 60% from a year earlier, and the company continues to exceed investor expectations with its quarterly earnings reports. 

And according to a Cowan analyst, there are more good things in store for Lululemon. Analyst John Kernan compared the company to Nike and said that he sees the company reaching a $40 billion market cap. 

The company currently has a $29 billion market cap. Let’s look at what’s been going well for Lululemon in 2019, and what we can expect going forward.

Things to like about Lululemon

Lululemon has experienced a lot of growth in 2019, largely thanks to an improvement in its men’s line, digital sales, and international growth. And the company is planning to launch a new skincare line as well.

The company has also experienced a tremendous amount of growth in its digital sales. Last quarter, the company’s digital comps increased by more than 30%. All in all, the company’s digital sales generate better margins than the company’s brick-and-mortar stores.

Lululemon’s growth in Europe did slow somewhat during its most recent quarter. However, the company has stated that Europe is closer to reaching profitability. And the company continues to make progress in China as well.

But according to Kernan, it is Lululemon’s strong customer loyalty that really makes it stand out. Plus, the company appeals to a high-end customer demographic. 

Bottom Line

Athletic leisurewear is growing in popularity with many consumers, and Lululemon is well-positioned to capitalize on this trend. The company needs to maintain its strong momentum in its digital growth. We’ll know more about that once the company releases its fiscal third-quarter earnings on Dec. 11. 

Overall, the company is seen as a moderate buy on Wall Street. The company’s average price target is $222.91, which represents a potential downside of 13%. So far, Lululemon’s shares have risen by 83%, outperforming both Nike and Under Armour.

Will Luckin Coffee overtake Starbucks as the largest coffee chain in China?

Shares of Luckin Coffee have been on fire ever since the company posted its third-quarter earnings. The stock is currently up more than 50% from a month earlier.

The Chinese coffee chain has been expanding rapidly since it launched in 2017. Its revenue continues to increase, and it has opened over 3,000 stores across China. 

This store growth puts the company on track to overtake Starbucks as the largest coffee retailer in China. Luckin has stated that it plans to hit this milestone by the end of 2019.

Let’s look at what’s going well for Luckin Coffee, as well as a few caveats to keep in mind. 

Things are looking up for Luckin Coffee

Luckin Coffee has experienced impressive growth in just a couple of years. Its revenue increased by 558% from a year earlier. And at more than $30 a share, the stock price is well beyond its $17 IPO price. 

Company management believes it is on track to surpass Starbucks as China’s largest coffee chain. And just by looking at the number, they may be right. 

Luckin earns most of its revenue by opening new stores. Over the past year, its store count grew from 1,189 stores to 3,680 stores across China. 

In comparison, Starbucks has 4,125 stores across China. Luckin is opening new stores at a faster rate than Starbucks, and its customer base continues to grow as well. 

By all accounts, it seems like Luckin Coffee is set to surpass Starbucks very soon. But the question is, is this growth sustainable? 

Is Luckin Coffee’s Growth sustainable?

There’s a lot to be optimistic about when it comes to Luckin Coffee. Its stores are popping up all over China, and its revenue continues to increase year over year. However, the company’s operating expenses continue to grow as well, and it’s still a long way from profitability.

And it remains to be seen whether Luckin Coffee’s stores have what it takes to maintain sustainable growth. Unlike Starbucks, Luckin Coffee attracts new customers by offering deep discounts and promotions. This will continue to eat into the company’s profit margins.

In the next couple of quarters, Luckin Coffee will probably “beat” Starbucks in terms of total store count in China. But the stock is still far too uncertain to be able to make any long-term predictions. 

Shares of Roku fell 14% after being downgraded by a Morgan Stanley analyst.

Without a doubt, Roku has been one of the biggest stocks of 2019. Its shares are up 336% year to date, and the company continues to beat its sales targets and exceed investor expectations. 

But on Monday, the stock nosedived more than 14% after being downgraded by Morgan Stanley. Analyst Benjamin Swinburne increased his price target on the stock but downgraded it to a sell rating. 

Let’s look at why Morgan Stanley downgraded the stock, and what this means for Roku going forward.

The reasoning behind the downgrade

It may seem surprising that anyone would downgrade Roku after the outstanding year the company’s had. But according to Swinburne, the company’s shares have risen so much they are currently overvalued. 

He added that in spite of the company’s “sound strategy” to cash in on the streaming market, problems might lie ahead. In particular, Swinburne believes that the company’s ad revenue growth will slow considerably over the next year. 

Most of Roku’s revenue comes from its ad revenue sales. In 2019, the company’s ad revenue grew by 91%. In 2020, Swinburne is predicting this growth will slow to 57%. 

For its part, Roku declined to comment on the downgrade. 

Is there any merit to the downgrade?

Last week, Roku’s stock topped $165 per share, and as of today, the stock fell below $135 per share. So obviously, the Morgan Stanley report holds a significant amount of weight with many investors. 

But should it? The company exceeded expectations on its previous earnings report, and it has stated that it expects to exceed its 2019 guidance as well. 

However, the company still isn’t profitable. And Roku’s shares are expensive to buy right now.

But Roku has a lot of room to continue to grow in the coming years, especially since the company is only just now starting to expand into Europe. Streaming services are in-demand right now, and Roku is well-positioned to cash in on this trend. 

Final thoughts

It should be noted that most Wall Street analysts don’t share Morgan’s Stanley’s views on Roku. Out of the 13 analysts reviewing the stock, nine consider it a buy.

The company’s shares are pricey right now, so new investors may be hesitant to jump on board. But for current investors, it may be worth it to hang on a while longer.

Shares of Roku fell 14% after being downgraded by a Morgan Stanley analyst.

Without a doubt, Roku has been one of the biggest stocks of 2019. Its shares are up 336% year to date, and the company continues to beat its sales targets and exceed investor expectations. 

But on Monday, the stock nosedived more than 14% after being downgraded by Morgan Stanley. Analyst Benjamin Swinburne increased his price target on the stock but downgraded it to a sell rating. 

Let’s look at why Morgan Stanley downgraded the stock, and what this means for Roku going forward.

The reasoning behind the downgrade

It may seem surprising that anyone would downgrade Roku after the outstanding year the company’s had. But according to Swinburne, the company’s shares have risen so much they are currently overvalued. 

He added that in spite of the company’s “sound strategy” to cash in on the streaming market, problems might lie ahead. In particular, Swinburne believes that the company’s ad revenue growth will slow considerably over the next year. 

Most of Roku’s revenue comes from its ad revenue sales. In 2019, the company’s ad revenue grew by 91%. In 2020, Swinburne is predicting this growth will slow to 57%. 

For its part, Roku declined to comment on the downgrade. 

Is there any merit to the downgrade?

Last week, Roku’s stock topped $165 per share, and as of today, the stock fell below $135 per share. So obviously, the Morgan Stanley report holds a significant amount of weight with many investors. 

But should it? The company exceeded expectations on its previous earnings report, and it has stated that it expects to exceed its 2019 guidance as well. 

However, the company still isn’t profitable. And Roku’s shares are expensive to buy right now.

But Roku has a lot of room to continue to grow in the coming years, especially since the company is only just now starting to expand into Europe. Streaming services are in-demand right now, and Roku is well-positioned to cash in on this trend. 

Final thoughts

It should be noted that most Wall Street analysts don’t share Morgan’s Stanley’s views on Roku. Out of the 13 analysts reviewing the stock, nine consider it a buy.

The company’s shares are pricey right now, so new investors may be hesitant to jump on board. But for current investors, it may be worth it to hang on a while longer. 

The company beat guidance on revenue and comparable sales during the third quarter. 

On Tuesday, Best Buy reported its latest earnings report before market open, and the results couldn’t have been better. The company’s revenue and same-store sales increased, and the company experienced particularly strong domestic growth.

And Best Buy’s digital channels continue to grow and bring in new sales. Best of all, the company boosted its full-year sales on the basis of its strong pre-holiday turnout. 

These strong results helped the company hit a new 52-week high this week. Let’s look at what Best Buy did right during the third quarter, and what we can expect from the company going forward.

Here’s what happened during Q3

At one point, Wall Street was predicting that companies like Amazon would soon overtake best Buy. These concerns have faded away as the company continues to deliver strong earnings quarter after quarter.

During the third quarter, Best Buy’s revenue rose 1.8% to reach $9.76 billion. This revenue growth was largely the result of an increase in same-store sales and robust domestic growth. 

But the company’s digital growth has been a big factor in its ongoing success as well. Its online sales grew by more than 15% from a year earlier. Best Buy followed in the footsteps of other online retailers by offering a variety of fulfillment options for its customers. 

According to CEO Corie Barry, customers can choose free next-day delivery, or they can pick up their item in-store within an hour of placing the order. These fulfillment options should help the company drive more sales during the holiday shopping season.

Best Buy is also expanding its services by offering in-home installation and advisory services to its customers. The company has already seen a major payoff from this; its customer satisfaction ratings have increased, and its sales continue to grow.  

Bottom Line

Best Buy investors were also pleased to see that the company raised its full-year guidance. The company raised its forecasts on its revenue, comparable sales, and non-GAAP earnings for 2019. This means that Best Buy is on track to end the year strong.
2019 has been a great year for the company, and its shares are up more than 54% year to date. Wall Street reacted positively to the news, and overall, analysts consider the stock a moderate buy going forward.

The analyst downgraded Netflix due to increased competition and poor cash flow. 

On Monday, a Wells Fargo analyst turned bearish on Netflix. Analyst Steven Cahall downgraded the company from market perform to underperform. Cahall also lowered his price target on the stock from $308 per share to $265.

Shares of Netflix fell midmorning after being downgraded, though they did bounce back by market close. Let’s look more closely at why the company was downgraded, and what this means for Netflix going forward.

Cash flow and competition weigh on Netflix

When it comes to free cash flow, most Wall Street analysts expect the company to break by 2022. But according to Cahall, this is unlikely to happen before 2024, and even then he believes the returns will be modest.

The reason? The company’s ongoing investments in original movies and television shows.

Netflix continues to invest heavily in original content for its subscribers. And given increased competition from companies like Disney, Apple, and AT&T, the company will have to double down on its efforts. According to Cahall, this will continue to weigh on the company’s free cash flow. 

Cahall acknowledged that the company will continue to find ways to increase its profits and grow its subscriber base in the coming years. But he believes that both will be expensive to maintain, adding, “If content is king, then cash is queen.”

Bottom Line

As far as Wall Street analysts go, Cahall’s opinions on Netflix seems to be in the minority. The company is considered a moderate buy with an average price target of $366.47. Out of the 32 analysts reviewing the stock, most consider it a buy.  

For most of 2019, Netflix investors have been anxiously anticipating how the launch of Disney+ would affect the company. But even after a mostly successful launch, recent data suggests that few Netflix subscribers plan to leave the platform and switch to Disney+.

The company isn’t in the clear just yet, but the current signs seem to point to continued growth. Only time will tell if Cahall’s assertions about Netflix are correct.

Heading into its third-quarter earnings, the stock is up 35% year over year.

On Tuesday, Dollar Tree is scheduled to release its third-quarter earnings report. The company has performed well this year, and at the time of this writing, the stock is up 24% year to date. Overall, the company is considered a moderate buy on Wall Street.  

The company’s made several positive changes over the past year, including closing underperforming stores and renovating over 500 others. These efforts seem to have paid off since the company has seen its comps increase in its renovated stores.

4 Things to Watch on Tuesday

Here are four things to watch for from Dollar Tree’s third-quarter earnings report.

1. Will the company’s comparable sales continue rising?

Last quarter, Dollar Tree’s comparable sales rose by 2.4%. This was a modest improvement, but it was the highest level of growth the discount retailer had seen in years. Investors will be looking to see if this growth can continue and if Dollar Tree can deliver higher same-store sales numbers this time.  

2. How will rising tariffs affect Dollar Tree?

Rising tariffs are a concern for most retailers, and Dollar Tree doesn’t have the luxury of negotiating with its vendors. The retailer expects to get hit with more than $25 million in tariffs by the end of December. Investors will be looking to see how rising tariffs weigh on the company’s margins. 

3. What will the company do about its FDA warning?

Earlier this month, Dollar Tree received a warning letter from the FDA. The letter stated that the company is selling potentially unsafe over-the-counter medication. 

The medication is sold under the Assured Brand line. The manufacturers violated a number of federal laws when it came to testing the finished product. 

The FDA had previously warned Dollar Tree about this, but the company continued importing medication from this manufacturer anyway. The company has two weeks to explain how it will correct the violation. 

4. What is the company’s full-year outlook? 

And finally, investors want to see that the company’s momentum is continuing to increase. If the company can pull off a strong third quarter, it should be on track to finish 2019 on a high note.