Investor sentiments turned negative in September as technology stocks dragged down the overall market. The sell-off bottomed out in October, as the month did offer moments of optimism, however, that sparked brief rallies. An increase in M&A deals, and progress on the COVID-19 vaccine and medicine front were the primary drivers, before the market slumped earlier this week.
There is widespread uncertainty in the markets as investors are worried about a second fiscal stimulus package, the result of the presidential election, and another possible wave of the virus that could send the economy off the cliff. However, third quarter earnings season is now in full swing and has been resilient so far. Traders are banking on steady post-election gains even if President Trump and Republicans lose the White House and control of the Senate.
Even if these factors lead to market swings, investing in Workday, Inc. (WDAY), Whirlpool Corporation (WHR) and PulteGroup, Inc. (PHM) could be highly profitable, as the fundamental strength and growth potential of these companies should help their stocks easily brave the market volatility.
Workday, Inc. (WDAY)
WDAY provides enterprise cloud applications worldwide. Its applications help its customers manage critical business functions and optimize their financial and human capital resources. The company delivers financial management, human capital management, and analytics applications designed for the world’s largest companies, educational institutions, and government agencies. The company operates through two segments – Subscription services and Professional services.
Piper Sandler analyst Brent Bracelin has recently upgraded WDAY from Neutral to Overweight and raised his price target. He sees “several catalysts that could drive a reacceleration in subscription growth next year” and a “healthy tailwind” for the cloud-based human capital management services, driven by the pandemic’s remote work shift. WDAY was also upgraded by Jefferies Group, Stifel Financial Corp., and Citigroup (C) earlier this month.
WDAY has recently announced the availability of Workday Talent Marketplace, a talent mobility solution that enables employers to connect their people with targeted opportunities. Moreover, it has recently been positioned by Gartner (IT) in the leaders quadrant of the 2020 Gartner Magic Quadrant for Cloud Financial Planning & Analysis for the fourth year in a row.
The company reported a top-line of $1.06 billion for its fiscal second quarter that ended July 2020, increasing 19.6% year-over-year, primarily driven by the 23.1% growth in the subscription services revenue. WDAY’s cash flow from operations stood at $157.2 million compared to $100.3 million in the prior year.
EPS for the last reported quarter came in at $0.84, significantly improving from the year-ago value of $0.44, and beating the consensus estimate by 27.3%. Moreover, the company has beaten EPS estimates in three of the trailing four quarters. WDAY is immensely benefitting from product enhancements and procurement opportunities. Hence, the current year EPS is expected to grow 34.6% year-over-year.
WDAY closed yesterday’s trading session at $214.17, gaining 30.2% year-to-date. The stock is currently trading 13.9% below its all-time high of $248.75, and is up more than 46% in the last six months.
How does WDAY stack up for the POWR Ratings?
A for Trade Grade
B for Buy & Hold Grade
A for Industry Rank
B for Overall POWR Rating
WDAY is also ranked #18 out of 96 stocks in the Software – Application industry.
Whirlpool Corporation (WHR)
WHR manufactures and markets home appliances and related products worldwide. The company’s principal products include laundry appliances, refrigerators and freezers, cooking appliances, dishwashers, mixers, and other portable household appliances. It operates through four segments – North America, Europe, Middle East and Africa (EMEA), Latin America, and Asia.
RBC Capital analyst Mike Dahl has recently upgraded WHR to Sector Perform from Underperform after the strong third quarter earnings reported by the company. The firm sees tailwinds setting up for Whirlpool into the first half of 2021. Moreover, WHR had its target price raised by analysts at JPMorgan Chase (JPM) with the brokerage presently putting an “overweight” on the stock.
Valor Inovação, a leading media publication in Brazil recently recognized WHR among Brazil’s overall top ten innovative companies, and the “most innovative company” in the electronics category for its sixth consecutive year. The company has also recently introduced a new dishwasher that features their largest-capacity third rack designed to fit mugs and bowls.
WHR’s delivered net sales growth of 3.9% globally to $5.3 billion, driven by solid industry demand across the globe in the second quarter that ended June 2020. Organic net sales increased 7% compared to the year-ago quarter to $5.45 billion. Its EMEA market saw sales growth of 15.4%, while sales in Latin America rose 13.7%, but coronavirus-induced supply constraints drove North America and Asia sales 1.6% and 1.4% lower, respectively, in the quarter. Cash flow from operations improved by approximately $1 billion.
EPS for the quarter came in at $6.27, implying a 12.6% increase year-over-year. WHR gives investors another reason to cheer by raising its dividend for the eighth consecutive year. It will now pay out a dividend of $1.25 per share, which is a 4.2% rise from the prior amount of $1.20. Its cost-cutting initiatives and strong demand place it well for further growth. EPS for the succeeding year is expected to increase 21.7% year-over-over.
WHR closed yesterday’s trading session at $195.82, gaining 36.4% year-to-date. It has recently hit 52-week high of $207.3, and is up nearly 78% in the past six months.
It’s no surprise that WHR is rated a “Strong Buy” in our POWR Ratings system. It has a grade of “A” in Trade Grade, Buy & Hold Grade, and Industry Rank, and a “B” in Peer Grade. In the 69-stock Home Improvement & Goods Industry, it is ranked #3.
PulteGroup, Inc. (PHM)
PHM primarily engages in the homebuilding business, mortgage banking operations, and title operations, and ranks as United States’ third largest homebuilding company with operations in 23 states and 42 major markets. The company acquires and develops land primarily for residential purposes. It offers various home designs, including single-family detached, townhouses, condominiums, and duplexes.
Raymond James analyst Buck Horne recently upgraded PHM to a Strong Buy from the previous rating of Outperform. Horne calls PHM his favorite homebuilding idea. RBC Capital Analyst Mike Dahl adds that the company is well positioned on land, margins, and mix to produce a fourth consecutive year of above 20% return on tangible equity in 2021. Consequently, he upgraded the stock to Outperform from Sector Perform citing the recent 14% pullback in the stock creating an attractive opportunity. Moreover, Susquehanna analyst Jack Micenko upgraded its previous rating from Neutral to Positive the same day as RBC.
Del Webb, PHM’s leading builder of active adult communities for those 55 and older, expanded in the Twin Cities market last month with the announcement of its second community, Kinsley by Del Webb. In the third quarter that ended September 2020, the company operated out of an average of 892 communities which is an increase of 3% over prior year average community count of 865.
Home sale revenues for the last reported quarter increased 7% year-over-year to $2.8 billion. Higher revenues for the period were driven by a 4% increase in closings to 6,454 homes. Net new orders surged 36% to 8,202 homes, while the net new order value grew 43% to $3.6 billion, year-over-year. Higher orders in the quarter were driven by continued strong demand among first-time buyers.
EPS for the quarter came in at $1.54, rising 55.6% year-over-year and beating the consensus estimate by 37.5%. Moreover, the company has an impressive history of reporting an earnings surprise in each of the trailing four quarters. PHM also returned $0.12 per share back to its shareholders in the form of dividends. The housing market is the hottest in years with demand fueled by low interest rates. Hence, analysts expect current year EPS to grow 16.9% compared to the year-ago value.
PHM closed yesterday’s trading session at $41.33, with a year-to-date gain of 7.5%. The stock had hit a fresh high of $35.23 earlier this month. PHM is up more than 52.6% in the past six months.
Under POWR Ratings, the company has been accorded an “B” rating for Trade Grade. Within the 21-stock Homebuilders industry, it is ranked #13.
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WDAY shares were trading at $209.95 per share on Wednesday afternoon, down $4.22 (-1.97%). Year-to-date, WDAY has gained 27.67%, versus a 3.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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