NXP Semiconductors, Six Flags Entertainment, First Solar, Canadian Solar and SolarEdge highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research
·12-min read

For Immediate Release

Chicago, IL – October 29, 2020 – Zacks Equity Research Shares of NXP Semiconductors N.V. NXPI as the Bull of the Day, Six Flags Entertainment Corporation SIX asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on First Solar, Inc. FSLR, Canadian Solar Inc. CSIQ and SolarEdge Technologies, Inc. SEDG.

Here is a synopsis of all five stocks:

Bull of the Day:

The technology sector is blasting off in the wake of the first global pandemic in over a century. The world has been scrambling to stay functional while practicing self-isolation. Tech has been the saving grace of the COVID-19 pandemic allowing society to work, shop, and be entertained without walking out their door. Semiconductors are at the heart of every advanced technology, from your smartphone to self-driving cars.

The 4th industrial revolution is upon us, and well-positioned chip makers are poised to explode out of this pandemic. NXP Semiconductors is one of those businesses primed to take-off through the roaring 20s, and it's still trading at a reasonable enough price to justify a long-term investment today. Analysts have been increasingly optimistic about this enterprise's future. Following management's guidance boost in Monday's Q3 earnings release (October 26th), NXPI was propelled to a Zacks Rank #1 (Strong Buy).

The Business

NXP Semiconductors is a Dutch chip innovator that employs 11,200 engineers across 23 countries. This enterprise controls the #1 worldwide position in chips for the identification industry (bank cards, e-governments, transportation, and access management cards), automotive, RF power transistors, and several other cutting-edge segments.

This innovation-driven company is on the front lines of autonomous driving and smart automobiles, with its automotive segment making up 47% of NXP's 2019 revenue. Its other divisions include industrial & IoT, mobile, and communication infrastructure, in that respective order of topline drivers.

Below is a breakdown from NXP's latest investor presentation of each segment's 2019 sales allocation and growth profile that the business expects from these divisions over the next 3 years.

Financials

This chipmaker has been hit by some strong, but temporary, pandemic related headwinds, which have caused some significant top and bottom-line declines. In fact, the company has been experiencing year-over-year revenue declines for the past 8 quarters. This temporary decline is the nature of the highly cyclical semiconductor space, but NXP is getting ready to springboard back into robust growth with the 4th industrial revolution paving the way.

This past quarter illustrated precisely that, with quarter-over-quarter growth of 43%, 18%, and 32% from automotive, industrial & IoT, and mobile, respectively. Management is anticipating year-over-year sales growth next quarter for the first time in 2 years, and with its consistently conservative guidance, I have no doubt it will reach and go beyond this goal.

The enterprise is rising out of the ashes of the pandemic stronger than ever, and its current share price points to opportunity.

NXPI Levels to Watch 

NXPI has had a robust recovery from the lowest level it hit on March 18th. This stock has been recently tracking quite well with the broader semiconductor industry.

NXPI hit its all-time high earlier this month, and yesterday it fought against the broader market trends after dipping below its 50-day moving average (blue line), which sits at $129 a share. These shares undoubtedly have buyers and have caught a bid at this support level.

If the stock continues to fall, look for support at $120 and $115. At these prices, I would not hesitate to purchase NXPI. And for those apprehensive investors out there, not only does this stock offer sizable capital returns but an over 1% annual dividend.

Final Thoughts

With a management team driven by returning capital to its investors, I do not doubt that this long-term investment will yield you the returns you are looking for. 14 out of 19 investors are calling this stock a buy today, with no sell ratings. If you can stomach some of the short-term volatility catalyzed by next week's election and the second COVID wave, I believe you will be happy with the results that NXPI provides your portfolio.

Bear of the Day:

The anticipated second pandemic wave is finally hitting the world, and it has investors reeling from the most exposed segments like travel and leisure. Six Flags is one such sector that has investors/traders worried, and rightfully so. This stock is down over 55% so far this year, and it looks like it could be on the brink of capitulation if it's forced to repress operations once again.

Six Flags had finally started seeing more patrons at its limit parks (9 out of 26 open, but this may all be reversed by the fall uptick in COVID-cases. Analysts have been getting anxious about where this stock is headed even before its horrendous earnings yesterday morning, pushing down their estimates on concerns of another economic cessation. SIX is currently sitting at a Zacks Rank #5 (Strong Sell).

Q3 Earnings Results

Six Flags somehow missed on already hampered expectations taking the stock down 7.5% yesterday. This amusement park giant was able to attain 2.6 million guests (19% of what they had in the same quarter last year), with 9 out of 26 parks open today.

Revenues were down 80% from the prior year, and the company managed to lose $116 million on the bottom-line this past quarter and has monthly cash outflows of $27 million per month.

The company still has $673 million in liquidity, but what happens if attendance drops to 0 again? What happens if this "new normal" avoids theme parks even after COVID-19 is done and gone?

Bankruptcy Déjà Vu

Six Flags was forced to file for chapter 11 bankruptcy in 2009 because of its excessive leverage going into the financial crisis. The parks weren't able to sustain demand, and cash-flows were unable to match debt obligations. The company was handed over to bondholders who recapitalized the company and brought them out of the ashes.

Today the theme park giant has amassed almost as much debt as its pre-bankruptcy levels. Six Flags is operating quarter to quarter, just hoping that they will have enough income to cover the massive interest expense, which made up 63% of last year's interest expense. This unending pandemic might be the catalyst for a second bankruptcy, and this time it could be a complete liquidation of assets (chapter 7 bankruptcy).

If the company was forced to hinder operations at its remaining 9 parks, it could double the monthly cash outflows. The company wouldn't last more than 3 quarters before looking towards bankruptcy court at a burn rate this high.

Of course, this is a worst-case scenario. Regardless I wouldn't touch these toxic shares with a 10-foot pole. This company has been teetering the line of profitability long before this pandemic. I do not want to be apart of this declining industry as society develops a "new normal."

The Charts

SIX has been trending down since June of 2018, having lost over 70% of its value since then. SIX's chart below is a very unattractive sight for any technical trader, with its 50-day moving average (blue line) remaining below its 200-day (red line) for over a year.

Final Thoughts

Many 'value analysts' out there will convince you that this is an excellent buy at this ultra-low valuation. Don't get caught in this value trap. Six Flags is operating in a declining business, and unfortunately, the global pandemic only accelerated its obsolescence.

The stock may experience some upside if this second wave doesn't shutdown travel & leisure operations again, but I don't believe the risk you would be taking is worth the reward. I don't think the long-term value in the stock is worth the risk you'd be taking.

Additional content:

Solar Stocks to Buy as First Solar (FSLR) Smashes Estimates

First Solar posted earnings of $1.45, which blew past the Zacks Consensus Estimate of 60 cents. Revenue of $928 million was 31.1% higher than the expected $708 million.

Management commentary indicates that demand remains very strong across the world with the pandemic merely delaying project installations and tooling. China, the biggest market was set back by the pandemic but it’s broadly expected to keep its target at around 60 gigawatts per year of installed PV capacity in its fourteenth five-year plan to be adopted next year. Europe is seeing pandemic-related delays and India also monsoon-related delays. But new policy decisions this year in support of solar installations are positives for the industry.

Back in the U.S., the Energy Information Administration (EIA) forecast calls for 14 gigawatts of utility scale solar capacity to be added in 2020.There is also increasing demand from North American companies looking to reduce their carbon footprint. Management appears confident that project sales will be in line with original expectations, which led them to reinstate guidance of 5.86 gigawatts (3.7 gigawatts were shipped through the end of the third quarter).

The contracted backlog is 6.7 gigawatts (for delivery in 2021) and 3.6 gigawatts (for expected deliveries through 2022 and 2023). The opportunity pipeline for modules also looks good, totaling 8.3 gigawatts that could be booked over the next 12 months.

The main challenges for the industry are currently centered on the concentration of the supply chain in China and high spot rates for freight.

PV model manufacturers rely on Chinese polysilicon ingots and wafers to manufacture their crystalline silicon modules. So operational disruptions such as those related to the pandemic affects the entire market, which in turn drives up prices. The higher prices, along with deteriorating bilateral relationships and the volatility in supply have reignited debates about internal production in Europe and India and also increased chances of new government policy.

For FSLR, these challenges impose lower risk because the company has a vertically integrated manufacturing process that includes diversified sourcing and streamlined production, eliminating several steps that greatly increase efficiency. As a result, the company was able to maintain very high utilization rates, with a corresponding positive impact on its margins, remaining on track to lower the cost per watt by 10% this year.

The solar industry of which First Solar is a part is in the top 28% of Zacks-ranked industries. And it has been seen historically that the top 50% outperform the bottom 50% by a factor of 2 to 1. Considering this fact and First Solar’s strong performance in the recently concluded quarter, this may be a good time to invest in other solar stocks.

Here are a couple buy-ranked stocks that also look good now-

Canadian Solar

Canadian Solar is a vertically integrated manufacturer of silicon ingots, wafers, cells, solar modules (panels) and custom-designed solar power applications for both on-grid and off-grid use to customers worldwide..

Zacks Rank #2

Topped estimates in three of the last four quarters at an average rate of 28.26%.

Earnings are expected to grow 18.72% this year and 48.97% in the next.

Revenues are expected to grow 10.12% this year and 29.87% in the next.

The company is expected to report on Nov 10.

SolarEdge Technologies

The company's SolarEdge system offers power optimizers, inverters and a cloud-based monitoring platform for residential solar installations as well as commercial and small utility-scale solar installations.

Zacks Rank #2

Topped estimates in three of the last four quarters at an average rate of 13.75%.

Earnings are expected to grow -13.06% this year and 36.53% in the next.

Revenues are expected to grow 5.63% this year and 27.51% in the next.

Both revenue and earnings in 2021 are expected to be well above 2019 levels.

The company is expected to report on Nov 2.

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Canadian Solar Inc. (CSIQ) : Free Stock Analysis Report
 
First Solar, Inc. (FSLR) : Free Stock Analysis Report
 
NXP Semiconductors N.V. (NXPI) : Free Stock Analysis Report
 
SolarEdge Technologies, Inc. (SEDG) : Free Stock Analysis Report
 
Six Flags Entertainment Corporation New (SIX) : Free Stock Analysis Report
 
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