Tempur Sealy, Wynn Resorts, Spotify, Aptiv and Republic Services highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research
·11-min read

For Immediate Release

Chicago, IL – October 28, 2020 – Zacks Equity Research Shares of Tempur Sealy International, Inc. TPX as the Bull of the Day, Wynn Resorts, Limited WYNN asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Spotify Technology S.A. SPOT, Aptiv PLC APTV and Republic Services, Inc. RSG.

Here is a synopsis of all five stocks:

Bull of the Day:

Tempur Sealy shares have skyrocketed roughly 150% since the market’s March lows to double its industry’s average climb. The mattress powerhouse has gained momentum as Wall Street watches consumers race to update their living spaces and the housing market starts to boom, as people adapt to the coronavirus.

Don’t Sleep on TPX

Right off the bat, investors should note that Tempur Sealy is set to report its Q3 2020 results before the opening bell on Thursday, October 29. And it might be prudent to wait for its actual results before making a decision. Nonetheless, TPX’s fundamentals and outlook are strong.

Tempur Sealy is one of the world's largest mattress and bedding companies that sells everything from mattresses to pillows, under different brands, which include Tempur, Tempur-Pedic, Sealy, and Stearns & Foster. The company has ramped up its digital and direct-to-consumer business to help better compete against digital-focused newcomers and bed-in-a-box firms.

Tempur Sealy also works with third-party retailers like Mattress Firm and others, and owns its own stores. Overall, the company’s beds are considered higher-end and their offerings obviously range in price. Tempur-Pedic landed at No. 1 in terms of customer satisfaction for the retail mattress segment in the J.D. Power 2019 Mattress Satisfaction Report.

Prior to the pandemic, the company had grown its sales for eight straight quarters. This run included 19% revenue growth in first quarter of 2020, 29% expansion in Q4 FY19, and 13% growth in Q3 FY19. The company’s sales dipped 8% in the second quarter, as stores and showrooms around the country and the world were impacted by coronavirus-based store closures.

Yet TPX executives said that the second quarter ended on a high note and “accelerated each month.” CEO Scott Thompson said in prepared Q2 remarks that his firm believes “the category is benefiting from a shift in consumer spend of discretionary dollars into the home category in which our products.” Tempur Sealy then in August announced its plans to open another new manufacturing facility to help it keep up with rising demand.

Other Fundamentals

TPX in mid-September raised its third quarter guidance on the back of stronger-than-projected demand. Zacks estimates call for the company’s Q3 revenue to jump 30% from $821 million in the year-ago period to $1.07 billion. Its adjusted earnings are projected to soar 67% to $2.17 per share.

Tempur Sealy’s fourth quarter EPS figure is projected to climb 19% on 7% higher sales. Overall, the company’s FY20 revenue is projected to jump 12.3% to $3.49 a share, which is set to help lift its bottom line by 46%. The mattress company is projected to follow up this growth with 7.5% higher sales in FY21 and 18% stronger earnings.

The nearby chart shows that TPX’s earnings outlook has improved. And it has crushed our adjusted earnings estimates in the last two periods, as part of four straight quarterly beats. Tempur Sealy’s positive bottom-line revisions help it land a Zacks Rank #1 (Strong Buy) at the moment, alongside its “B” grades for Growth and Momentum in our Style Scores system.

More broadly, the company stands to benefit from the housing market’s strength. For instance, U.S. home sales surged 10.5% on an annual basis in August, which came after July’s huge growth that represented the strongest monthly gain ever recorded, dating back to 1968. The impressive home-buying data continued in September, with sales of previously owned homes at a 14-year high in September—existing-home sales jumped 9.4% from August.

The housing market is finally being driven by millennials. This has industry analysts projecting a multi-year boom for the market, as the largest portion of the generation starts to get married and have kids. For instance, the Construction sector is one of only two of the 16 Zacks sectors that is projected to post earnings growth in Q3, with it expected to climb 11%, while and the overall S&P 500 is projected to dip -19.5%.

The company is part of the Retail-Home Furnishings Market that ranks in the top 7% of our more than 250 Zacks industries. TPX trades at a discount compared to its highly-ranked industry at 12.9X forward earnings vs. the 16.2X average. This also comes in near its own one-year median.

Tempur Sealy shares have soared 150% since the March lows. That said, TPX stock is essentially flat on the year and has slipped in the last month. The stock rests at around $88 per share at the moment, which gives it about 8% more room to run before it reaches its February highs.

Bottom Line

Tempur Sealy holds a Zacks Rank #1 (Strong Buy) heading into the release of its Q3 financial results. And longer-term investors might want to keep their eyes on TPX since it sits within a growing economic sector.

Bear of the Day:

Wynn Resorts has fallen victim to circumstances that are completely out of its control. The coronavirus has devastated industries that require people to be in close quarters, especially “non-essential” activities, of which casinos and resorts are near the top of the list alongside concerts, movie theaters, and more.

Despite making a comeback off its lows, WYNN, like other travel and hospitality stocks, are still down big in 2020. And even as the economy rebounds and people try to return to more normal lives, the coronavirus might prevent a real comeback for Wynn and others for some time.

Bad Cards

Wynn owns and operates Wynn Las Vegas, as well as Encore Boston Harbor, Wynn Macau, and Wynn Palace, Cotai. The company posted two solid years of revenue growth in FY17 and FY18, with a slight (1.6%) sales decline last year. Then the coronavirus turned into a global pandemic, which caused its first quarter revenue to fall over 42%. Wynn’s sales then tumbled 95% in the second quarter, as its business came to an abrupt halt.

Luckily for Wynn and its employees and consumers, it did begin to reopen its doors over the summer and its outlook is improving. “We are pleased to be up and running again in each of our markets. In early June, we reopened nearly our entire Wynn Las Vegas and Encore campus with an intense focus on cleanliness and safety. Similarly, in Boston, we reopened Encore Boston Harbor on July 12 to a positive reception as many of our customers currently prefer to stay close to home,” CEO Matt Maddox said in prepared remarks.

“In Macau, the authorities have begun to gradually and thoughtfully ease some visitation restrictions, and we are confident the market will benefit from the return of the Chinese consumer as we move through the back half of 2020.”

What’s Next

The nearby chart shows that Wynn stock was already trending in the wrong direction well before the spring of 2020. Wynn shares have now tumbled roughly 50% in the last three years and are down over 12% in the last six months. The stock closed regular trading Tuesday at around $72 per share, which puts it about 50% off its 52-week highs.

Zacks estimates call for Wynn to post an adjusted Q3 loss of -$3.19 a share, on 72% lower revenue. The gaming giant’s fourth quarter sales are then projected to slip only 50%, with its adjusted loss expected to come in at -$1.79 a share.

Bottom Line

At the moment, the company’s full-year revenue is projected to fall 63% from $6.61 billion in FY19 to $2.45 billion in FY20. That said, Wall Street will likely start to take notice that Wynn’s revenue is projected to bounce back in a big way in fiscal 2021, with estimates calling for 115% expansion above the current-year estimate to reach $5.24 billion.

Wynn is still projected to report a loss in FY21 and its earnings revisions have trended heavily in the wrong direction to help it hold a Zacks Rank #5 (Strong Sell) at the moment. That said, if these positive top-line trends continue, which could be driven by its key Macau segment, investors might want to bet on a comeback. But it’s likely best to stay away until some signs of positive momentum pop up.

Additional content:

Is a Beat in Store for Spotify (SPOT) This Earnings Season?

Spotify Technology will report third-quarter 2020 results on Oct 29, before the bell.

The company’s earnings surprise history hasn’t been impressive. It delivered a negative earnings surprise of 60.2% in the last four quarters, on average.

Q3 Expectations

The Zacks Consensus Estimate for revenues in the to-be-reported quarter is pegged at $2.34 billion, indicating year-over-year growth of 18.8%. Growth of subscribers and monthly active users (MAUs) during the lockdown period is likely to have benefited the top line. However, average revenue per user (ARPU) is expected to have declined due to shifts in both product and geographic mix. Revenues increased 13% year over year in the second quarter of 2020.

Gross margin is expected to be lower due to impacts of seasonality. Notably, the metric is comparatively lower in the first and third quarters as costs of promotional campaigns are high compared with the second and fourth quarters. The company is expected to have incurred a loss of 59 cents per share in the to-be-reported quarter. It incurred earnings of 41 cents in the second quarter of 2020.

What Our Model Says

Our proven model predicts an earnings beat for Spotify this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Spotify has an Earnings ESP of +43.88% and a Zacks Rank #3.

Other Stocks That Warrant a Look

Here are a couple other stocks from the broader Zacks Business Services sector that investors may consider, as our model shows that these too have the right combination of elements to beat on earnings this season.

Aptiv has an Earnings ESP of +13.04% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Republic Services has an Earnings ESP of +1.93% and a Zacks Rank #3.

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Wynn Resorts, Limited (WYNN) : Free Stock Analysis Report
 
Republic Services, Inc. (RSG) : Free Stock Analysis Report
 
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