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AutoZone (AZO) Faces Cybersecurity Breach: Is it Time to Sell?

AutoZone, Inc. (AZO), a leading retailer and distributor of automotive replacement parts and accessories in the United States, announced that it was hacked by a ransomware gang in May this year. Bleeping Computer reported that AZO’s data stores were breached, with the personal information of approximately 185,000 customers leaked.
The Clop ransomware gang took responsibility for this cyberattack, with hackers uncovering susceptibilities in the file transfer application MOVEit.
Several other affected organizations include the Louisiana Department of Motor Vehicles, the State of Maine, British Airways, and the New York City public school system. As per the report, the total financial damage totaled around $12 billion, with estimates indicating that at least 62 million people were affected by this data leak.
The data leaked by cybercriminals is around 1.1GB in size, containing employee names, email addresses, tax information, parts supply details, payroll documents, Oracle database files, production and sales information, data about stores, and more. No customer data appears in the leaked files, Bleeping Computer noted.
AutoZone informed the U.S. authorities last week about this data breach. It took the auto company nearly three months to determine what data was stolen from its systems and who had been impacted and required to be notified.
“AutoZone became aware that an unauthorized third party exploited a vulnerability associated with MOVEit and exfiltrated certain data from an AutoZone system that supports the MOVEit application,” read the letter from AZO. The company further added that it is “not aware” of any instances where a customer’s personal information was used to conduct fraud.
However, AutoZone will provide its affected clients with a year of free credit monitoring software. This will allow them to track potential fraud and suspicious activities related to their identity and credit.
Despite this news, AZO’s shares have gained more than 6% over the past month and nearly 5% over the past six months.
Now, let’s discuss several factors that could influence AZO’s performance in the near term:
Growing Need for Auto Parts
The global auto parts market is expected to reach $1.10 trillion by 2030, growing at a CAGR of 6.8%. One of the primary factors driving the auto parts market is the increasing demand for auto vehicles worldwide. Global motor vehicle production has been rising steadily, with around 85 million vehicles produced in 2022, up nearly 6% from 2021.
The demand for auto parts has increased in tandem with this production boom. Further, the growing shift toward electric and hybrid vehicles and the manufacturing of environmentally friendly vehicle parts because of an enhanced focus on sustainability and environmental issues are propelling the market’s expansion.
Additionally, the significant surge in e-commerce platforms has a major impact on auto parts distribution and sales, providing more access for customers. Also, the rising popularity of automotive customization and the introduction of advanced technologies, such as navigation systems, infotainment systems, and advanced driver assistance systems, will boost the market’s growth.
Therefore, the growing demand for auto parts and accessories is a primary tailwind for AZO stock.
Robust Financials
For the fourth quarter that ended August 26, 2023, AZO reported net sales of $5.69 billion, beating analysts’ estimate of $5.61 billion. This compared to net sales of $5.25 billion in the same quarter of 2022. Its gross profit grew 8.8% from the year-ago value to $3 billion.
The auto parts operating profit (EBIT) came in at $1.22 billion, an increase of 10.8% from the prior year’s quarter. Its net income rose 6.8% year-over-year to $864.84 million. The company posted net income per share of $46.46, compared to the consensus estimate of $45.23, and up 14.7% year-over-year.
For the fiscal year 2023, the company’s net sales increased 7.4% year-over-year to $17.46 billion, while its gross profit rose 7.1% from the previous year to $9.07 billion. Its operating profit grew 6.2% year-over-year to $3.47 billion. The company’s EBITDAR increased 7.6% from the prior year to $4.47 billion.
In addition, AZO’s net income rose 4.1% year-over-year to $2.53 billion, and its net income per share came in at $132.36, an increase of 12.9% year-over-year. Its adjusted after-tax ROIC was 55.4%, up from 52.9% a year ago. As of August 26, 2023, the company’s cash and cash equivalents were $277.05 million, compared to $264.38 million as of August 27, 2022.
Regarding its strong performance delivered in the fourth quarter and fiscal year 2023, AZO’s Chairman, President, and CEO, Bill Rhodes, commented, “Our customer service and trustworthy advice are what continue to differentiate us across the industry, and our AutoZoners’ commitment to delivering exceptional service has allowed us to continue to deliver strong financial results.” 
“While we turn our focus to performance in the new fiscal year, we will remain committed to prudently investing capital in our business, and we will be steadfast in our long-term, disciplined approach to increasing operating earnings and cash flows while utilizing our balance sheet effectively,” Rhodes added.
Share Repurchase
Under its share repurchase program, AZO repurchased 403 thousand shares of its common stock during the fourth quarter at an average price per share of $2.502, for a total investment of $1 billion. For the fiscal year 2023, the auto company repurchased 1.5 million shares of its common stock for a total investment of $3.7 billion.
Since the inception of this share repurchase program, the auto parts retailer has repurchased a total of about 154 million shares of its common stock at an average price of $219, for a total investment of $33.8 billion. At the year’s end, the company had $1.8 billion remaining under its current share repurchase authorization.
Share buybacks might enable the company to generate additional shareholder value.
Expanding Store Footprint
During the quarter ended August 26, 2023, the auto parts giant opened 53 new stores in the U.S., 27 new stores in Mexico, and 17 in Brazil, for a total of 96 net new stores. For the year 2023, the company opened 197 net new stores. The company’s inventory also increased due to new store growth.
As of August 26, 2023, AutoZone had 6,300 stores in the U.S., 740 in Mexico, and 100 in Brazil, for a total of 7,140 stores.
Impressive Historical Growth
AZO’s revenue and EBITDA grew at respective CAGRs of 11.4% and 11.1% over the past three years. Its EBIT increased at a CAGR of 11.6% over the same period. Moreover, the company’s net income and EPS rose at CAGRs of 13.4% and 22.5% over the same timeframe, respectively.
In addition, the company’s total assets improved at a 3.5% CAGR over the same period.
Favorable Analyst Estimates
Street expects AutoZone’s revenue for the fiscal 2024 first quarter (ending November 2023) to increase 5.1% year-over-year to $4.19 billion. The consensus EPS estimate of $31.16 for the ongoing quarter reflects a 14.6% year-over-year rise. Moreover, the company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all four trailing quarters.
AZO’s revenue and EPS for the fiscal year (ending August 2024) are expected to grow 7.5% and 12.58% year-over-year to $18.76 billion and $149.01, respectively. For the next fiscal year, Street expects the company’s revenue and EPS to increase 3.7% and 9.3% from the previous year to $19.45 billion and $162.93, respectively.
Solid Profitability
AZO’s trailing-12-month gross profit margin of 51.96% is 46.5% higher than the 35.71% industry average. Likewise, the stock’s trailing-12-month EBITDA margin and net income margin of 22.75% and 14.48% are significantly higher than the industry averages of 11.04% and 4.44%, respectively.
Furthermore, the stock’s trailing-12-month ROTC and ROTA of 34.04% and 15.82% favorably compare to the respective industry averages of 6.01% and 3.97%. Also, its trailing-12-month levered FCF margin of 8.83% is 71.4% higher than the industry average of 5.15%.
Bottom Line
AutoZone reported positive earnings and revenue surprises for the last reported quarter. Further, the company’s prospects look highly promising, driven by a diversified product portfolio to meet robust demand for auto replacement parts and accessories.
The auto giant also continues to expand the physical footprint of its stores to serve its ever-growing customers worldwide.
Despite the news of its data stores getting breached in a cyberattack earlier this year, AZO could be an ideal investment now, given its robust financials, higher-than-industry profitability, and bright growth outlook.

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Analyzing Why ReNew Energy (RNW) Crushed Earnings

Energy suppliers are poised to receive increased interest as we navigate various macroeconomic influences and geopolitical disruptions, each bearing significant relevance to energy supply costs and profitability. Renewables have an element of unpredictability to the scenario, potentially distinguishing themselves from conventional energy providers regarding pricing and core offerings.
Headquartered in London, United Kingdom, ReNew Energy Global Plc (RNW) has marked its footprint in the Indian market, emerging as a noteworthy player in the renewable energy sector. This renewable energy producer primarily focuses on wind and solar energies, illustrating a concerted effort towards sustainable solutions. As of September 2023, its clean energy portfolio stands at ~13.8 GW of capacity.
The company has showcased consistent and improved performance much to the satisfaction of its shareholders, such as displayed in its impressive second-quarter results that substantially surpassed top and bottom-line estimates.
Looking ahead, RNW plans to commission between 1.75 GW and 2.25 GW by the end of the fiscal year 2024. Management projects EBITDA growth of ~35%+ per share in the fiscal year 2025.
Despite contending with the adverse impacts of the pandemic, RNW has persevered unwaveringly towards its financial objectives. With a profit after tax of $45 million in the second quarter, the company recorded one of its highest profits.
India’s renewable energy sector is thriving, propelled by a rising power demand, escalating renewable energy auctions, and shifting toward complex projects. Positioned at the vanguard of this transformative revolution, RNW maintains capital discipline while skillfully leveraging market opportunities.
The company thrives under the swift escalation in power demand and energy supply shortfalls. Softening solar module prices paints a promising backdrop for this renewable energy developer.
A critical trend identified within the industry is the escalating complexity of projects and customized solutions tailored to distribution companies’ specifications. This evolution presents an advantageous opportunity for RNW, a pioneer with the most comprehensive wind development portfolio. Their leadership status empowers them to address the distinct electricity supply profiles required accurately.
RNW has attained important projects through power purchase agreements (PPAs) and letters of awards (LoAs). These include a PPA with GUVNL, Gujarat’s Distribution Entity, for a 400-megawatt capacity and receipt of LoAs for an additional 2.9 gigawatts. Such undertakings will significantly bolster RNW’s long-term earning potential upon successful completion.
RNW is proactively exploring opportunities to broaden its portfolio to meet the rising demand for renewable energy. The company remains dedicated to its capital allocation and strategies that foster value creation.
This commitment serves as testimony to the company’s knack for attracting investments and strategic partnerships at beneficial valuations. In slightly above two years, RNW drew in an impressive $565 million via asset recycling, facilitating the use of these funds towards more lucrative opportunities.
However, not all seems well for the alternative energy company, and hence, investors could exercise caution moving forward.
RNW’s trailing-12-month Return on Common Equity (ROCE) of 2.75% is lower than the industry average of 9.10%. Also, the company resorts to substantial amounts of debt to finance its business operations. For the fiscal second quarter that ended September 30, 2023, its gross debt was $7.07 billion. This results in a strikingly high debt-to-equity ratio of 4.74.
A lower ROCE could imply that a company could still improve its returns through leverage, considering it has low debt levels. For a company like RNW, which pairs low ROCE with considerable gross debt, investors may want to proceed cautiously, given the heightened risk involved.
Another critical measure of a company’s financial health is its current ratio, gauging its capability to meet short-term liabilities. RNW’s ratio, which is at a low of 0.88, raises red flags about the company’s short-term liquidity situation.
Institutions hold roughly 55.6% of RNW shares. Of the 96 institutional holders, 44 have decreased their positions in the stock. Moreover, 20 institutions have sold out their positions (1,628,328 shares).
However, Wall Street analysts expect the stock to reach $8.63 in the next 12 months, indicating a potential upside of 37.2%. The price target ranges from a low of $8 to a high of $9.25.
Street expects RNW’s revenue for the fiscal third quarter ending December 2023 to come at $188.79 million, while EPS is expected to be negative at $0.18.
Bottom Line
The imminent growth of the renewable energy sector presents a promising landscape, and RNW is strategically situated to capitalize on this burgeoning potential. With a robust pipeline of projects, a rigorous approach, and a dedication to innovative solutions, RNW spearheads the progressive shift toward renewable energy in India.
RNW is a high-margin, low-capital turnover business, demanding significant reinvestment to sustain its market competitiveness.
Business growth typically necessitates financial investment, which can originate from sources such as retained earnings, issuance of new shares, or procuring loans. The ROCE mirrors the use of investment capital in the first two scenarios. In the case of borrowing, the resultant debt will augment returns without affecting the shareholders’ equity, thus artificially enhancing the perceived ROCE.
In RNW’s context, prospective investors could tread cautiously and wait for a better entry point in the stock, given the high debt levels and low ROCE. Furthermore, the alarming Net Operating Debt/Adjusted EBITDA (TTM) ratio of 6.21x serves as a “red flag” and signals potential financial strain in the corporation’s future.

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Is Bank of America (BAC) Stock About to Plummet Into Collapse?

The U.S. banking sector is undergoing a significant transformation, echoing societal shifts that saw payphones and video stores disappear into obsolescence. The silent erosion of bank branches has been transpiring within the financial sector for over a decade, beginning in 2010 and intensifying in recent years.
According to the U.S. Federal Deposit Insurance Bureau (FDIC), large commercial U.S. bank venues have sharply declined from 8,000 in 2000 to 4,236 by 2021, further dwindling to 4,194 in 2022. Normative banking procedures have been remarkably altered within this period, as evidenced by the dwindling count of U.S. branch bank sites directly linked to mainstream banks.
As per S&P Global Market Intelligence, U.S. banks closed 149 branches and launched 49 in March, culminating in an overall 78,588 operational branches.
Should this declining trend in bank branch numbers sustain momentum, bank branches could disappear within the next ten years. The Self Financial estimates that the U.S. bank branches will dip dramatically from about 60,000 in 2023 to 15,660 in 2030, with numerical reductions continuing until the projected total elimination of bank branches by 2034.
The national shift is exemplified by the Bank of America Corporation (BAC), the nation’s second-largest bank by assets, mapping plans to reduce the extent of its physical footprint through the closure of several branches across the U.S.
According to the OCC’s weekly circular, the Charlotte, North Carolina-based bank is actively pursuing authorization from the Office of the Comptroller of the Currency to close the branches. The applications were filed with the regulator on October 5
It has gotten into the act, closing 5% of its physical locations in Philadelphia. The anticipated closures will have a significant impact nationwide.
Let’s first understand the reason behind the closures and identify why this trend has seen a significant acceleration over the past few years.
Recent years have seen an accelerated rate of bank branch closures, amplified by changing consumer behaviors and evolving banking infrastructures. The advent of the COVID-19 pandemic and subsequent social distancing mandates in 2020 and 2021 catalyzed this trend. As foot traffic was reduced to near zero at local branches, there was a soaring increase in the adoption of digital products and banking services.
Banks are directing more resources toward enhancing their online platforms to meet customer demands for digital banking services. Consequently, the need for physical branches has diminished, prompting banks to adjust their physical footprints constantly. The practical implications include enhanced bottom lines fueled by cost savings and greater investment into technological advancements.
As banks become more digitally savvy, the industry anticipates a continuous drop in the number of branches in operation.
The banking industry’s consolidation through mergers and acquisitions has also been instrumental in accelerating this trend. Banks often buy out rivals to reduce overlapping staff, services, and facilities expenses. The result is increased profitability, with the closure of redundant branches being key to these cost-saving measures.
Large regional and national banks predominantly lead branch closure as their extensive networks provide ample cost-reduction opportunities. Nevertheless, banks of all sizes are progressively steering their investments away from physical locations and toward digital platforms.
During BAC’s quarterly earnings call, CEO Brian Moynihan shared that the company’s consumer business headcount had decreased from around 100,000 to roughly 60,000 – a decline that continues as digital banking experiences an increased adoption.
As of 2022, a clear preference for online banking among U.S. adults at 78% was evident, while only 29% preferred traditional, in-person banking. The closure of BAC branches is unlikely to impact individual accounts directly; the bank provides several channels that allow customers to access and manage their accounts, including online banking, mobile banking, ATMs, and customer service centers.
However, there is an underlying concern that BAC could alienate less tech-proficient customers like senior citizens or those with disabilities. In certain communities, the closure of neighborhood banks has caused substantial damage to local economies and heightened existing financial inequities.
The ramifications of banks disappearing from communities extend beyond convenience — for instance, residents are forced to commute further to make elementary transactions such as deposits or withdrawals. This could potentially instigate a shift of these customers to other banking institutions.
BAC might consider implementing measures such as a fee waiver for retained customers or an added fee for closing an account within a specified timeframe. Both strategies could deter clients from changing banks and concurrently generate some revenue.
Let’s look at other factors investors could consider before investing in BAC.
BAC’s investment holdings presently display considerable unrealized losses, falling short of competitive rates since 2007. As of June 30, 2023, paper losses on their debt securities exceeded $109 billion, which surged to $136.22 billion by the end of the third quarter.
With approximately $603.37 billion entangled in held-to-maturity securities, the bank’s considerable holdings in these low-yielding assets curb its capability to amplify profits through cash investments in money markets or higher-return assets.
BAC is anticipated to witness lower overall yields on its securities book for the foreseeable future. However, analysts do not expect the necessity for the bank to liquidate these holdings, thus avoiding additional losses.
The bank’s securities portfolio tilts heavily toward debt maturing after ten years. If the Federal Reserve implements another potential rate hike, the valuation of these holdings could decline further, possibly leading to a decrease in earnings from BAC’s investments.
Conversely, if interest rates stabilize or gradually decline, share prices may improve, given that the long-term securities held by the bank are expected to increase in value.
Furthermore, BAC reported a 4.5% year-over-year increase in net interest income in the fiscal third quarter of 2023, exceeding analyst expectations. However, it still lags behind its competitors, JP Morgan and Wells Fargo.
BAC has amassed unrealized losses amounting to $131.6 billion on securities, and even with government guarantees, it does raise red flags. Yet, with over $3 trillion in assets and $1.9 trillion in deposits as of September 30, 2023, BAC has sufficient financial stability to weather the storm.
For the average bank customer, an unrealized loss of this magnitude may not be of immediate concern; however, it does present a potential issue for investors. Coupled with the advantage of its massive insured customer deposits, BAC has protection against the kind of deposit flights that regional banks have undone.
Furthermore, BAC’s stocks declined about 11% year-to-date but trades above the 50-, 100-, and 200-day moving averages. However, Wall Street analysts expect the stock to reach $33.76 in the next 12 months, indicating a potential upside of 14.2%. The price target ranges from a low of $27 to a high of $51.
Furthermore, several institutions have recently modified their BAC stock holdings. Institutions hold roughly 69.9% of BAC shares. Of the 2,771 institutional holders, 1,148 have increased their positions in the stock. Moreover, 146 institutions have taken new positions (37,323,335 shares).
Bottom Line
BAC continues to streamline its operations, shifting toward a digital business platform as it grapples with decreased branch traffic and escalating maintenance costs.
The strategic shift may leave customers without access to a local branch, highlighting critical considerations for the effectiveness of the traditional cash system and underscoring the potential impact on sections of marginalized society that depend heavily on physical banking services.
Additionally, the prevailing macroeconomic volatility and high interest rates, projected to persist, raise concerns about an increase in BAC’s unrealized losses, coupled with the potential customer transition to treasuries or Money Market Funds.
Despite these challenges, shareholders can take solace in knowing that BAC’s management seems to be performing skillfully. Additionally, the era of high interest rates has resulted in a net benefit so far.
Interestingly, BAC’s interest-bearing deposits reached $1.31 trillion, reflecting depositor trust in its financial standing.
Although investor sentiment slumped over the past year, BAC maintains an impressive balance sheet fortified by sturdy profitability. Furthermore, it offers an enticing dividend yield of 3.25% on the current share price.
So, it could be wise for investors to hold on to the stock and look forward to a gradual capital appreciation. The unrealized losses might be less daunting for long-term investors focused on continuous dividend payouts.
However, investors seeking steady revenue should proceed with caution. While BAC’s forward dividend yield stands at an attractive 3.25%, exceeding the four-year average yield of 2.44%, it still falls short of the 3.78% sector median.
Considering prevailing circumstances, it may be prudent for new investors to wait for a better entry point in the stock.

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Is CRISPR (CRSP) a Hidden Biotech Gem?

Shares of CRISPR Therapeutics AG (CRSP) have gained more than 40% over the past three months against the industry’s decline of nearly 11%. Moreover, the stock has surged more than 80% over the past month.
The gene-editing stock continues to enjoy accelerated momentum from a key regulatory approval. On November 16, CRISPR Therapeutics and its partner, Vertex Pharmaceuticals Incorporated (VRTX), announced that the United Kingdom-based Medicines and Healthcare Products Regulatory Agency (MHRA) granted conditional market authorization for CASGEVY™.
CASGEVY has been authorized for the treatment of patients 12 years of age and older with sickle cell disease (SCD) with recurrent vaso-occlusive crises (VOCs) or transfusion-dependent beta-thalassemia (TDT), for whom a human leukocyte antigen (HLA) matched related hematopoietic stem cell donor is unavailable. There are nearly 2,000 patients eligible for CASGEVY in the United Kingdom.
This represents the first regulatory authorization of a CRISPR-based gene-editing therapy worldwide and offers a new option for eligible patients waiting for innovative therapies. Notably, this approval made CASGEVY the first approved product in CRISPR Therapeutics’ portfolio.
Further, CRSP and VRTX’s Biologics License Applications (BLAs) seeking approval for exa-cel for treating SCD and TDT indications are currently under review in the U.S.
The U.S. Food and Drug Administration (FDA) granted priority review to the BLA filing for exa-cel in SCD, and the exa-cel filing in TDT indication was accepted for a standard review. A final decision on the BLAs for exa-cel in SCD and TDT indications is anticipated by December 8, 2023 and March 30, 2024, respectively.
In October, an FDA Cellular, Tissue, and Gene Therapies Advisory Committee appeared satisfied with CRISPR/Vertex’s regulatory filing on exa-cel in the SCD indication. This development will likely move the gene therapy closer to gaining potential marketing approval from the agency.
Both the SCD and TDT have significant unmet medical needs. A potential approval for exa-cel in the U.S. will be a major boost for CRSP and will likely drive the stock higher in the upcoming quarters.
Meanwhile, the company is developing CRISPR candidates to create next-generation CAR-T cell therapies for treating hematological and solid-tumor cancers. Clinical trials are ongoing for its CAR-T product candidates, CTX110 and CTX 112, targeting CD10 in B-cell malignancies.
In addition, CRSP is evaluating the safety and efficacy of CTX130 in two ongoing phase I studies for treating various solid tumors like renal cell carcinoma and certain T-cell and hematologic malignancies. VCTX211, an allogeneic, gene-edited, stem cell-derived product candidate for treating Type 1 Diabetes, has been undergoing clinical trial.
A clinical trial has also been initiated for CTX310, targeting angiopoietin-related protein 3 (ANGPTL3).
Let’s discuss several factors that could impact CRSP’s performance in the near term:
Deteriorating Financials For the third quarter that ended September 30, 2023, CRSP reported nil total revenue, missed the analysts’ estimate of $7.96 million. That compared to revenue of $94 thousand in the same quarter of 2022. The company’s loss from operations came in at $132.41 million. Also, it reported a net loss before income taxes of $111.74 million for the quarter.
Furthermore, CRSP reported a third-quarter net loss of $112.15 million. The company’s net loss per common share came in at $1.41, narrower than the consensus estimate of $1.95.
The company’s cash, cash equivalents, and marketable securities were $1.74 billion as of September 30, 2023, compared to $1.87 billion as of December 31, 2022. The decline in cash of $128.60 million was primarily driven by operating expenses. During the third quarter, CRSP’s operating expenses were $132.41 million.
Unfavorable Analyst Estimates
Analysts expect CRSP’s revenue to significantly increase year-over-year to $104.31 million for the fourth quarter ending December 2023. However, the company is expected to report a loss per share of $0.22 for the ongoing quarter. For the fiscal year 2023, the company’s loss per share is estimated to be $3.46.
Further, CRSP’s revenue for the fiscal year 2024 is expected to decline 46.4% year-over-year to $148.08 million. Street expects the company to report a loss per share of $6.43 over the next year.
Elevated Valuation
In terms of forward EV/Sales, CRSP is currently trading at 15.16x, 370.6% higher than the industry average of 3.22x. The stock’s forward Price/Sales of 20.58x is 464% higher than the industry average of 3.65x. Additionally, CRSP’s forward Price/Book multiple of 3.34 is 40.5% higher than the industry average of 2.44.
Decelerating Profitability
CRSP’s trailing-12-month gross profit margin of negative 201.7% compared to the 56.62% industry average. Moreover, the stock’s trailing-12-month EBITDA margin and net income margin of negative 236.98% and 207.95% compared unfavorably to the respective industry averages of 5.29% and negative 5.75%.
Furthermore, the stock’s trailing-12-month levered FCF margin of negative 119.66% is lower than the industry average of 0.11%. CRSP’s trailing-12-month asset turnover ratio of 0.08x is 80.5% lower than the industry average of 0.39x.
Stiff Competition
Heightened competition remains a significant headwind, with several other biotech companies using the CRISPR/Cas9 gene-editing technology to address several ailments. The main competitors of CRISPR Therapeutics include Verve Therapeutics, Inc. (VERV), eGenesis, Editas Medicine, Inc. (EDIT), Caribou Biosciences, Inc. (CRBU), Intellia Therapeutics, Inc. (NTLA), and Beam Therapeutics Inc. (BEAM).
EDIT, developing its lead pipeline candidate EDIT-301, employs CRISPR gene-editing in a phase I/II study for SCD and TDT indications. A potential approval for the candidate developed by EDIT will likely pose increased competition for CRSP in the future.
Bottom Line
CRSP, one of the first companies formed to use the CRISPR gene editing platform to develop medicines and therapies for treating several rare and common diseases, continues to report losses. While the third-quarter loss was narrower than expected, the company’s revenue missed analysts’ expectations.
Despite its deteriorating fundamentals, shares of CRSP have been surging lately on the news of winning the first-ever regulatory approval for a CRISPR-based gene-editing drug, CASGEVY (exa-cel). Exa-cel is the first therapy to emerge from a strategic partnership between CRSP and VRTX for patients with severe sickle cell disease.
In the upcoming months, the FDA will decide whether to approve exa-cel. And this decision by the FDA will determine the course of the stock.
Given CRSP’s bleak financials, disappointing analyst expectations, low profitability, stretched valuation, and stiff competition, this biotech stock is best avoided now.

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4 Must-Have Holiday Stocks for Your Portfolio

As the Christmas season approaches, traditionally marked by increased discretionary spending, retailers anticipate a much-needed boost. The consumer discretionary sector has faced considerable challenges in recent years, with many retailers depending on the festive season for over half of their annual sales.
Although post-Thanksgiving sales have evolved beyond their traditional one-day events, the closing weeks of the fourth quarter remain crucial for retailers seeking to improve their financial health. The National Retail Federation anticipates holiday spending this November and December to achieve record levels, projecting growth between 3% and 4% over 2022 to reach between $957.3 billion and $966.6 billion.
Deloitte’s annual Holiday Retail Survey projects that 2023 consumer spending will exceed pre-pandemic levels for the first time, with the average consumer predicted to spend $1,652 on gifts, up 14% year-over-year.
Interestingly, there is a commonly observed “Santa Claus Rally” phenomenon in the financial market during this period – a seasonal surge in volume and trading that tends to last until Christmas. LPL Financial found that since 1950, a Santa Claus rally has occurred around 79% of the time.Year-end holiday shopping, driving sales for retailers and related businesses, can increase stock prices. Investors are generally keen on a year-end rally that boosts their portfolios, while professional traders often consider it an influential factor in determining their year-end bonuses. The occurrence of a Santa Claus rally this year could be welcomed, given the sluggish behavior of stocks since August.
Investment focus is shifting toward stocks presenting the most significant opportunities now, with some manifesting more profitability potential than others if acquired before price surges. Many investors are identifying holiday stocks to capitalize on with the holiday shopping season looming.Given this backdrop, let us delve into an in-depth analysis of consumer discretionary stocks Amazon.com, Inc. (AMZN), Walmart Inc. (WMT), Target Corporation (TGT), and Etsy, Inc. (ETSY) now.
Amazon.com, Inc. (AMZN)
As the winter holiday season draws near, e-commerce behemoth AMZN, with a market cap of over $1 trillion, is ramping into full festive gear. The Seattle-based firm hosted its recent Prime Day event on October 10 and 11, further revealing plans to enfold 250,000 additional personnel across its global operations in anticipation of the busy year-end shopping frenzy.
AMZN’s biannual Prime Days are effective levers for amplifying revenue. The July event yielded over $12 billion worth of sales – a record-breaking feat that crowned it the most successful Prime Day ever. Striving to expand the holiday shopping duration, the company has been progressively ushering its secondary Prime Day event into the fourth quarter.
The impact extends beyond just the Prime Days. The company also greatly benefits from the surge in sales during the Black Friday and Cyber Monday promotions tied to the Thanksgiving holiday, offering substantial financial reinforcements. The company forecasted revenue between $160 billion and $167 billion for the current holiday quarter. However, analysts polled by LSEG were expecting revenue of $166.62 billion, at the higher end of AMZN’s guidance.AMZN has restructured its delivery network in its retail operations to strategically position goods closer to customers, allowing for faster, more cost-effective order fulfillment. The enhancement of its same-day delivery services has positively influenced its profit margins by encouraging shoppers to place orders more frequently and in larger quantities.
For the fiscal fourth quarter ending December 2023, its revenue is expected to increase 11.2% year-over-year to $165.86 billion, while EPS could reach $0.76, up significantly year-over-year.
On the stock market front, shares of AMZN have appreciated over 69% year-to-date and are trading above the 50-, 100-, and 200-day moving averages – an apparent sign of a bullish trend.
Echoing these encouraging prospects, Wall Street analysts expect the stock to reach $176.13 in the next 12 months, indicating a potential upside of 24%. The price target ranges from a low of $145 to a high of $230.
Walmart Inc. (WMT)
Initially established as a conventional brick-and-mortar retailer, WMT has become an influential omnichannel contender. The company’s strategic acquisitions of Bonobos, Moosejaw, and Parcel and its partnerships with industry giants Shopify and Goldman Sachs underscore this evolution. Further efforts, such as introducing delivery programs Walmart + and Express Delivery and investing in Flipkart – an acclaimed online e-commerce platform – exemplify these changes.
These mechanisms have strengthened the retail behemoth’s position, allowing it to remain resilient within the dynamic landscape of the retail industry. The company’s adaptive initiatives ensure continuous relevancy and competitiveness in this changing ecosystem.
The prominent discount retailer goes the extra mile for the holiday season, employing additional personnel and offering round-the-clock service from Thanksgiving to Christmas to accommodate last-minute shoppers. The company notably profits from Black Friday, Cyber Monday, and Boxing Day promotions, with attractive offers ranging from electronics and toys to clothing.
WMT’s in-store and virtual purchases witnessed a substantial escalation during the holiday season, complemented by an upswing in the market.WMT’s second-quarter financial performance exceeded Wall Street predictions, and the company elevated its full-year guidance. Propelled by robust grocery sales and enhanced online expenditure, the retailer registered a remarkable second-quarter earnings per share of $1.84, while revenue touched $161.63 billion.
The retail giant revealed a 24% year-over-year growth in its e-commerce sales during the second quarter of 2023, with same-store sales observing a 6.4% uptick. WMT anticipates a 4% to 4.5% overall surge in annual sales.
For the fiscal fourth quarter ending January 2024, its revenue is expected to increase 3.6% year-over-year to $158.42 billion, while EPS is anticipated to reach $1.66.
Shares of WMT have gained over 15% year-to-date and trade above the 50-, 100-, and 200-day moving averages, indicating an uptrend. Moreover, Wall Street analysts expect the stock to reach $180.46 in the next 12 months, indicating a potential upside of 9.8%. The price target ranges from a low of $165 to a high of $210.
Target Corporation (TGT)
Boasting a market cap exceeding $51 billion, TGT has demonstrated robust financial health in 2023, successfully safeguarding its profit margins amid a challenging retail environment. The firm maintained solid earnings and cash flow despite subdued consumer spending in fundamental areas like home décor.
As holiday shoppers navigate TGT’s illustrious aisles, they are presented with the retailer’s holiday price match guarantee – a strategy aimed at streamlining shopping experiences while offering optimal pricing. Frequently running comprehensive sales on daily essentials and holiday requisites – from electronics to clothing and household goods, TGT facilitates economical purchases, countering rising inflationary pressures.
TGT adopts a strategic stance this festive season by emphasizing affordability in its holiday marketing schemes. Guided by the motto “However You Holiday, Do It For Less,” TGT links everyday items within its seasonal collection, providing an affordable range for consumers facing economic challenges.Recognizing that 75% of TGT customers initiate their digital shopping journeys on mobile platforms, the corporation has augmented its investment in digital channels by 20% in 2023, specifically focusing on media mix optimization throughout the holiday period. This concerted effort towards optimizing digital footprint hones in on social media.
Furthermore, TGT’s innovative advertising campaigns encapsulate broad holiday themes like “Lights,” “Magic,” and “Style,” demonstrating their application across various product categories. These aspirational campaigns aim to inspire consumers as they prep for holiday social events, alongside fulfilling their routine shopping needs.
Enhancing its product offering, TGT has introduced thousands of new items this year, expanding from toys priced at $25 to affordable $1 stocking stuffers. The corporation spotlights partnerships with renowned brands, including Fenty Beauty, Kendra Scott, and Mattel and private label introductions like the recent Figmint kitchen range.
For the fiscal fourth quarter ending January 2024, its revenue and EPS are expected to increase 1.2% and 19.4% year-over-year to $31.77 billion and $2.26, respectively.
Wall Street analysts expect the stock to reach $145.03 in the next 12 months, indicating a potential upside of 32%. The price target ranges from a low of $105 to a high of $180.
Etsy, Inc. (ETSY)
Renowned as a premier online hub for handcrafted and vintage goods, ETSY is an ideal platform for consumers looking for inventive gift options, particularly during the bustling winter holiday season. The broad spectrum of products available on ETSY – from jewelry and clothing to toys and home décor – caters to the preferences of its 97.3 million active users offered by 8.8 million energetic sellers.
However, this year has posed significant challenges for ETSY. ETSY grapples with unfavorable financial outcomes, unlike its competitors, who have rebounded from pandemic-induced downturns. The company experienced another decline following the release of its third-quarter earnings report.
ETSY’s unique business model – a marketplace that emphasizes handcrafted and vintage items and operates via network effects and switching costs – may be attractive, but ultimately, consistent growth is vital to sustain investor interest. While ETSY insists on its distinct positioning within a large potential market, its struggle to bolster gross merchandise sales (GMS) post-pandemic suggests that the demand for its products may be more limited than anticipated.
Growth in GMS was barely perceptible in the third quarter at just 1.2% year-over-year to $3 billion. GMS per active buyer was down 6% to $127, possibly reflecting the economic challenges.
Moreover, the company estimated GMS for the fourth quarter of 2023 to decline in the low-single-digit range year-over-year. This could deteriorate into a mid-single-digit drop if financial circumstances worsen and stabilize or marginally increase if conditions improve.
CEO Josh Silverman said, “There’s no doubt that this is an incredibly challenging environment for spending on consumer discretionary items. It’s therefore important to acknowledge that this volatile macro climate will make it challenging for us to grow this quarter.”
Yet, amid this financial gloom, bright spots are visible for ETSY. For the fiscal third quarter that ended September 30, 2023, active buyers on the ETSY marketplace witnessed a 4% year-over-year increase, totaling 91.6 million, with growth in U.S. active buyer trends for the first time in seven quarters. The company has reactivated 6 million buyers, marking a 19% year-over-year uptick, and retention rates exceed pre-pandemic levels.
Simultaneously, ETSY’s seller base surged 19% to 8.8 million overall. An additional 400,000 sellers have joined the Etsy marketplace in the quarter, bringing its total to 6.7 million. These sellers may use the platform to supplement their income amid inflationary and other economic strains.
However, it is crucial to point out that even though other discretionary retailers are grappling with the prevailing economic climate, ETSY continues to underperform compared to its e-commerce competitors. This inevitably prompts queries regarding when or whether we might witness a resurgence in ETSY’s growth on par with its peers.
For the fiscal fourth quarter ending December, its revenue and EPS are expected to increase 1.7% and 16.2% year-over-year to $820.69 million and $1.33, respectively. Wall Street analysts expect the stock to reach $74.39 in the next 12 months, indicating a potential upside of 16.3%. The price target ranges from a low of $50 to a high of $125.

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Walt Disney (DIS) Pre-Earnings Analysis – What to Expect

The Walt Disney Company (DIS), a leading media and entertainment company, posted mixed results for its fiscal 2023 third quarter. The company reported third-quarter adjusted EPS of $1.03, beating analysts’ expectations of $0.98. Its revenue came in at $22.33 billion, lower than the consensus estimate of $22.53 billion.
The company is set to report its fourth quarter and fiscal full year 2023 financial results on November 8, 2023, after the market closes. Analysts expect DIS’ revenue and EPS for the fourth quarter (ended September 2023) to increase 6.2% and 137.6% year-over-year to $21.41 billion and $0.71, respectively.For the fiscal year 2023, the company’s revenue and EPS are expected to grow 7.7% and 4.2% from the prior year to $89.09 billion and $3.68, respectively.Shares of DIS have plunged more than 18% over the past six months and 5% year-to-date.
Let’s review in detail what has happened over the past few months and discuss the key factors that could influence DIS’ performance in the near term:
Recent Developments to Further Streaming Objectives
On November 1, DIS announced that it would acquire the remaining 33% stake in Hulu, LLC held by Comcast Corp.’s (CMCSA) NBC Universal (NBCU) for at least $8.60 billion, a deal that would give DIS complete control of the streaming service. Disney had run Hulu since 2019, when Comcast gave up its authority to Disney and effectively became a silent partner.
On September 11, DIS and Charter Communications, Inc. (CHTR) announced a transformative, multi-year distribution agreement that maximizes consumer value and supports the linear TV experience as the industry evolves. As part of the agreement, the majority of DIS’ networks and stations will be restored to Spectrum’s video customers.
Under this deal, Disney+ Basic ad-supported offering will be included in Spectrum TV Select Video packages. Also, ESPN+ will be included in the Spectrum TV Select Plus Video package, and ESPN’s flagship direct-to-consumer Service will be made available to Spectrum TV Select subscribers upon launch.In a joint statement, Robert A. Iger, DIS’ CEO and Chris Winfrey, President and CEO at CHTR, said, “Our collective goal has always been to build an innovative model for the future. This deal recognizes both the continued value of linear television and the growing popularity of streaming services, while addressing the evolving needs of our consumers.”
Also, on August 9, Disney+ announced that an ad-supported offering will be available in select markets across Europe and Canada starting November 1 after the successful ad-tier launch in the U.S.
Plans to Double Investment in Parks and Cruises Business
DIS said in a securities filing it will nearly double its planned investment in its parks segment to more than $60 billion over 10 years. With all other divisions struggling, Disney’s theme parks, experiences and products segment has been a bright spot in the third quarter. The division saw a 13% rise in revenue to $8.30 billion, mainly driven by strength from its international parks.
But the company’s domestic parks, particularly Walt Disney World in Florida, have witnessed a slowdown in attendance and hotel room occupancy.
Bleak Financial Performance in the Last Quarter
For the third quarter that ended July 1, DIS reported revenues of $22.33 billion, up 3.8% year-over-year, primarily driven by growth in its parks, experiences and products division. However, its top-line numbers came short of analysts’ expectations.
Revenues and operating income from the Disney Media and Entertainment Distribution segment dropped 1% and 18% year-over-year to $14 billion and $1.13 billion, respectively.
The company reported $2.65 billion in restructuring and impairment charges, dragging it to a rare quarterly net loss. Most of these charges were what DIS called “content impairments” related to pulling content off its streaming platforms and ending third-party licensing agreements. Disney’s net loss was $460 million, or $0.25 per share, compared to net income of $1.41 billion, or $0.77 per share, in the prior year’s quarter.
Excluding those impairments, the company recorded an adjusted EPS of $1.03, compared to $1.09 during the year-ago period.
Subscriber losses also continued, with the company reporting 146.1 million Disney+ subscribers during the third quarter, a decline of 7.4% from the prior quarter. Most subscriber losses were from Disney+ Hotstar, where Disney witnessed a 24% drop in users after it lost the rights to Indian Premier League cricket matches.
Disappointing Historical Growth
Over the past three years, DIS’ revenue grew at a CAGR of 8.7%. However, the company’s EBITDA and net income declined at CAGRs of 5.7% and 28.5%, respectively. Its EPS decreased at a CAGR of 31.1% over the same period.
Also, the company’s tangible book value and levered free cash flow declined at respective 4.6% and 6.5% CAGRs over the same time frame.
Streaming Division Faces Several Challenges
Global media and entertainment conglomerate DIS’ streaming division lost $512 million in the fiscal 2023 third quarter, compared to $1.06 billion during the same quarter of 2022. It brings its total streaming losses since 2019, when Disney+ was introduced, to more than $11 billion.
To make the streaming business more profitable, DIS’ CEO Bob Iger has shifted the focus at Disney+ from quick subscriber growth, which requires expensive market campaigns, to making more money from the existing Disney+ subscribers. The price for access to an ad-free version of Disney+ increased to $13.99 per month beginning October 12, previously $10.99 per month.
The company also increased the price of Hulu without ads to $17.99 per month, a 20% price hike. However, the monthly price of Disney+ and Hulu’s ad-based tiers and the annual price of ad-based Hulu remained unchanged.
“We’re obviously trying with our pricing strategy to migrate more subs to the advertiser-supported tier,” Mr. Iger told analysts on a conference call.Along with this pricing news, the company announced it will roll out tactics to mitigate password sharing.
A primary challenge Disney faces is heightened competition in the streaming industry. Among various video streaming giants, including Netflix, Amazon Prime Video, and emerging entrants such as HBO Max and Apple TV+, DIS must differentiate itself in terms of content quality and pricing to stand out in this crowded market.
Further, as consumers continue to feel the pressure of increasing prices and persistent inflation, they will cut back on their media and entertainment spending.
Continued Issues in Media Business
The company still relies on old-line channels such as ESPN, its flagship sports brand, and ABC for approximately a third of its operating profits. Cord-cutting, sports programming costs, and a soft advertising market hurt these outlets. DIS’ traditional channels had $1.90 billion in third-quarter operating income, a decline of 23% from a year earlier.
It was the second straight quarter in which Disney’s traditional TV business reported a sharp drop in operating income. The company cited lower ad sales at ABC, partially due to viewership declines, lower payments from ESPN subscribers, and increased sports programming costs.
Bottom Line
While DIS’ turnaround plan, including a mix of price hikes across its streaming operations, increasing ads, cutting costs, and other strategic initiatives, could drive long-term growth, the company grapples with several challenges. In August, Disney’s shares hit a new nine-year low below $84 as investors were unconvinced with CEO Iger’s turnaround plan.
The media and entertainment giant posted mixed financial results in the last reported quarter, plagued by streaming woes and increased restructuring costs resulting from pulling content from its platforms.
Further, DIS’ short-term prospects seem uncertain as the company continues to struggle with making its streaming business profitable, improving the quality of its films, and the slowdown in the traditional media business, which is challenged by declining subscribers and a soft advertising market.Disney also faces heightened competition. The streaming industry is exceptionally competitive, and Disney must strike a proper balance between content quality and prices to stand out in this crowded market and be profitable.
Given its deteriorating financials, decelerating profitability, and uncertain near-term prospects, it could be wise to avoid this stock now.

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SPY: Mapping the Road to Recovery – Strategies for Cautious Investors

Paradoxically, the season traditionally associated with the supernatural often aligns with a propitious period for Wall Street. This is due to the ‘Halloween Effect,’ which generally casts a favorable light on financial markets. However, this was not the case in October, which proved somewhat unsettling for investors.
The SPDR S&P 500 ETF Trust (SPY) witnessed a decline in October, marking its third consecutive loss-registering month and the most prolonged losing streak since the beginning of the pandemic in 2020. Given the global upheavals, this decrease was not entirely surprising.The Russia-Ukraine conflict, geopolitical tension in the Middle East, and rising interest rates have negatively affected financial markets. As October’s harsh investment climate subsides, investors should prepare for possible additional volatility in November, known historically as one of the stock market’s most fluctuant months.
The U.S. stock market indices rallied nearly 2% intraday amid positive quarterly financial results and expectations that the Federal Reserve has concluded its interest rate hike campaign. The S&P 500 rallied by 79.92 points or 1.89%, reaching 4,317.78.Let’s look at some key factors that contributed to the recent market downturn and the potential implications they may hold for the near future. These will undoubtedly serve to drive future investment strategies:
Interest Rate Hikes
Nearly 20 months into the Federal Reserve’s rigorous monetary policy tightening, it remains ambiguous to officials whether financial conditions are adequately restrictive to control an inflation rate viewed as exceeding the central bank’s 2% objective.
The Fed kept the interest rates steady within the 5.25%-5.50% range, as predicted. Chair Jerome Powell has not ruled out further monetary tightening measures. Most investors have interpreted these elevated interest rates as precursors to a significant economic cooldown from a robust rate of 4.9% recorded in the third fiscal quarter of 2023.
Incoming economic indicators will chiefly influence decisions concerning future rate hikes. Depending on inflation trends, there is potential for interest rate cuts to be introduced during the second quarter of 2024 or in subsequent months. If the Fed manages to usher the economy towards a “soft landing,” implementing rate cuts while skirting a recession, this could potentially trigger a stock rally. However, should economic growth maintain its current momentum and inflation revive in the ensuing months, investors could face an unforeseen disenchantment.
Bond Rate
The Fed’s interest rate hike measure serves as a tactic to raise borrowing costs, consequently moderating economic activity and curbing inflation. Since inflation remains above its 2% target, it is plausible that interest rates will maintain their elevated status for an extended period.
Growing concerns about the longevity of these heightened interest rates have spurred a persistent rise in the U.S. 10-year yield. Moreover, robust U.S. retail sales, labor market data, and inflation figures exceeding expectations have contributed to this yield surge.
After remaining below 4% for most of the year, 10-year U.S. Treasury note yields crossed 5% – the first in 16 years. The recent escalation in interest rates across multiple bond market segments may be attributed to a combination of factors that have transformed the investment landscape.As of the beginning of October 2023, yields on short-term debt securities persist at an elevated level, culminating in an unconventional investment climate that prompts investors to consider the optimum positioning of assets within fixed-income portfolios.
Three primary factors underpin the current leap in bond yields — the Fed’s assertive approach to quelling inflation, the formidable strength of the U.S. economy so far into 2023, and an increasing supply of U.S. Treasury securities.
However, despite bond rates retreating after breaching the 5% level, the stock market has failed to bounce back as anticipated. There exists a possibility of bond rates recovering once again. Currently, investors are adopting a wait-and-see strategy, interested in discerning what transpires next.
Job Growth
The job market report surfaced amid the pivotal moment in the marketplace following the Fed’s recent policy verdict. It exposed a deceleration in job creation across the U.S. economy for October, confirming the prevailing anticipation for a slowdown. This may alleviate pressure on the Fed in their ongoing efforts to combat inflation.
According to the Bureau of Labor Statistics, nonfarm payroll growth totaled 150,000 in October, while the unemployment rate escalated to 3.9%. The unemployment rate has reached its highest since January 2022, as last month’s auto strikes negatively impacted the labor market.
Wages, a critical variable for tracking inflation and assessing worker leverage in the labor market, rose at a softer-than-anticipated pace last month. Average hourly earnings increased 0.2%, less than the projected 0.3% increase, whereas the 4.1% year-on-year increment slightly exceeded forecasts. Concurrently, the average working week slightly dipped to 34.3 hours.
ISM Manufacturing
Institute for Supply Management has reported alarming contraction within the manufacturing sector, triggering renewed anxiety about a potential recession. The ISM manufacturing index dropped to 46.7% last month, compared to September’s 49% reading. The data was weaker than expected, as economists predicted it to remain stable.
While an index below 50 might be viewed positively by some, indicating a slowing economy that could reduce inflation and potentially hasten Fed rate decreases, others are cultivating fears of an impending recession that could devastate stock value.
ISM Services
Services demand initially surged as American consumers readjusted to pre-COVID-19 life. However, this growth appears to have plateaued, with consumer preference again favoring goods over services. Expenditure on goods drastically exceeded outlays on services in the third quarter.
The services industry, constituting two-thirds of the U.S. economy, experienced its second consecutive month of slowdown in October. However, projections indicate potential momentum recovery in the future attributable to increased growth in new orders.
The ISM non-manufacturing PMI recorded its five-month low, falling to 51.8 from 53.6 in September. The Services PMI has been on a downward trend since experiencing a six-month peak in August.
New orders received by service businesses increased to 55.5 last month, though export orders suffered, reflecting the dollar’s increasing potency against the currencies of the U.S.’ principal trading partners.
Meanwhile, services inflation persisted, creating challenges for the Fed’s efforts to reduce inflation to its 2% target. The prices of services proved less responsive to interest rate increases. The measure of prices paid for services businesses for inputs decreased slightly to 58.6.Ultimately, the declining services PMI could signal a worrying contraction in the services sector that may deter investors and negatively impact stock prices.
CPI Report
The Consumer Price Index (CPI), a key indicator of economic health, has significantly decreased post its summer 2022 peak, which marked a forty-year record high of 9.1%. The CPI observed a 0.4% month-to-month increase in September and a 3.7% year-over-year increase.
However, the continuous elevation of energy and food commodity prices has triggered concerns regarding potential inflation. A sustained surge in fuel and food costs has the potential to undermine recent advances in mitigating inflation rates. Similarly, the ongoing Israel-Hamas conflict adds another level of uncertainty due to potential disruptions this could cause in the global energy market, particularly if the violence escalates to destabilize the oil-rich Middle East.
Considering these factors, inflation levels may remain elevated over a more extended period than what is currently projected by financial markets. This could necessitate the Fed to increase interest rates and maintain them at these higher levels over an extended duration.
If this circumstance arises, it would indicate that the Fed’s battle against inflation is far from over. This could undermine investor confidence in the stability of the financial market.
Q3 Earnings Season
As Wall Street sails into the third quarter’s reporting season, investors are keenly anticipating earnings slated for release in November. Analysts’ predictions for the quarter have taken a significant upturn, with current projections anticipating a year-over-year earnings growth rate of 2.7% for S&P 500 firms, according to data by FactSet.
Bottom Line
Amid forthcoming U.S. polls, shifting monetary policies, and mounting Middle East tensions, a general air of unease is inescapable in the current climate. Citigroup Inc’s Jane Fraser said, “We’re sitting here with a backdrop of the terrorist attack in Israel and the events that have unfolded since, and it’s desperately sad. So, it’s hard not to be a little pessimistic.”
Experts are slowly retreating from their predictions of a soft landing on the economic front, with a growing faction anticipating a significant downturn by 2024. Paul Singer from Elliot Management speculates that such a decline or a noticeable recession might encourage the Fed to reduce interest rates to as low as 1%-3%, a figure considerably lesser than projections for future interest rates. Citing fears of an increasingly volatile global economy, Singer urges investors to tread cautiously.
In addition to deteriorating manufacturing and services PMI, the consumers, accountable for approximately 70% of the economic activity, are under substantial duress. Credit card debt and auto loan balances have reached historical highs while student loan repayments – after more than three years of taxpayer-funded pause – resume for over 40 million Americans. These mounting financial pressures, coupled with high interest rates, are creating formidable economic challenges that could likely impact earnings moving forward.
The rise of U.S. Treasury yields amplifies the allure of bonds over stocks, exacerbating a pre-existing equity sell-off and potentially impacting long-term equity performance. There is very little risk premium in buying the S&P 500 compared to the “risk-free” rate provided by U.S. Treasuries.Current equity valuation perhaps relies heavily on unrealistically optimistic earnings estimations. If higher interest rates do indeed dampen the economy’s pace, as many analysts predict, achieving the desired targets might become an uphill task. The S&P 500 companies, according to LSEG IBES, are projected to escalate their earnings by 12.1% in 2024. Should excessively high interest rates persist, attaining such targets appears challenging.

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Is NVIDIA (NVDA) Stock at Imminent Risk Due to a New Loophole?

The Biden Administration has reinforced measures to curb the semiconductor exports of U.S. chipmakers to China, effectively plugging regulatory loopholes identified last year.
This move enhances the stipulations set forth by the U.S. Commerce Department, which unveiled stringent export control rules that were first established in October 2022. The revised regulations will block some AI chips beneath the existing technical parameters. Additionally, companies will now be required to declare shipments of certain other products. These fresh limitations will bolster the effectiveness of American controls and limit ways to circumvent these restrictions further.
This prohibition is part of a broad legal and financial policy strategy to promote U.S. national security, especially considering heightened competition with China. These unprecedented measures are intended to constrain Beijing’s technological and military ambitions. The initiative seeks to halt supplies of critical technology to China that could be utilized across various sectors, including advanced computing and the production of weaponry.
These heightened restrictions on tech exports to China coincide with American efforts to ease strained relations between the two largest global economies. This shift in policy toward China heralds a significant turn in U.S.-China tech diplomacy.
Last year, government restrictions prevented the Santa Clara, California-based chipmaker NVIDIA Corporation (NVDA) from shipping two of its most technologically advanced AI chips to Chinese customers – chips recognized as an industry-standard in developing chatbots and similar AI systems.
However, NVDA quickly adapted by releasing new, less sophisticated variants for the Chinese market that complied with U.S. export controls. They created the H800 semiconductor chip to replace the previously banned H100 for China, along with the development of the A800 to replace the A100 for Chinese firms. The H800 boasts comparable computing power to the company’s more potent H100 chip in specific AI capacities, albeit with some performance limitations.
However, according to NVDA’s recent SEC filing, these restrictions apply to several of the company’s chips, including the A100, A800, H100, H800, L40, L40S, and RTX 4090. This affects all systems sold with these chips, including their DGX and HGX systems.
Previously, in June, NVDA’s CFO Colette Kress downplayed the impact of the potential export restrictions, asserting that they would not yield an “immediate financial impact” but that subsequent limitations, unexpected at the time, “would have an immediate material impact on our financial results.”
The U.S. chipmaker is at risk of losing $5 billion worth of orders from China due to the chip export ban. The orders were placed for 2024 by leading Chinese tech giants such as Alibaba, ByteDance, and Baidu. Before the imposition of the ban, NVDA expected to begin fulfilling some of these orders by November 15, the initial cut-off date for blocking shipments of advanced AI chips to China. Unless the U.S. government issues the required licenses necessary to make the deliveries, NVDA may have to cancel the lucrative orders.
Despite looming challenges, NVDA has consistently exceeded Wall Street’s expectations with its strong earnings performance over the previous two quarters. This success is primarily attributed to the surge in demand for computer chips that power the ongoing AI revolution. Analysts had collectively forecasted earnings per share of $2.07 and sales of $11.09 billion for the last reported quarter. However, NVDA surpassed these estimates by posting earnings of $2.70 per share and sales of $13.51 billion.
Strategic collaborations between countries are anticipated to spur AI adoption worldwide. Tech companies of varied sizes are earmarking substantial investments in AI data centers to stay competitive. Latest projections suggest that the market for AI semiconductors will grow at a 30.3% CAGR to reach $165 billion by 2030. This surge in demand could favor NVDA owing to its current dominance in the AI chip industry.
To maintain its competitive edge, NVDA persistently advances its technological offerings like its recent GH200 Grace Hopper Superchip platform. The new chip platform, engineered explicitly for certain AI applications, including LLM and generative AI, could keep the company one step ahead of its rivals in the AI chip market.
Furthermore, NVDA accentuated an already robust quarterly report with a projected revenue of approximately $16 billion for the upcoming quarter, surpassing average analyst forecasts. However, concerns regarding export regulations imposed on China could jeopardize the company’s continued streak of success.
For the fiscal third quarter ending October 2023, analysts expect NVDA’s revenue and EPS to increase 169.6% and 481.3% year-over-year to $15.99 billion and $3.37, respectively.
One of the significant contributors to this year’s 23% increase in the Nasdaq index is NVDA stock, which is currently experiencing a nearly 16% decline from its record peak closing value of $493.55, achieved on August 31.
Following the recent implementation of U.S. regulations, NVDA’s share price saw about a 5% decrease. It trades beneath its 50-day and 100-day moving averages, respectively, indicating a downtrend.
However, Wall Street analysts expect the stock to reach $645.53 in the next 12 months, indicating a potential upside of 55.8%. The price target ranges from a low of $560 to a high of $1,100.
Bottom Line
Earlier this year, NVDA earned a coveted spot in the $1 trillion club following an impressive surge in its revenue guidance due to substantial order volume from the burgeoning generative AI industry. Notably, its stock has recorded a remarkable 180% increase year-to-date, an extraordinary achievement for an enterprise of its size.
This soaring valuation can be chiefly attributed to the enthusiasm surrounding NVDA’s high-performance chip technology – currently in high demand due to the growing focus on AI and ML capabilities being deemed essential by several industries.
With NVDA’s shares trading at 19 times sales and 38 times earnings, it is certainly priced for perfection, signifying that any stumble could significantly affect it.
Despite the company’s previous assertion that restrictions will unlikely cause short-term impact, now they appear to have the potential for long-term consequences. A projected robust quarter suggests NVDA shares could prove a solid long-term investment.
However, given the ongoing market instability, tepid price momentum and varying analyst estimates, it may be prudent to wait for a better entry point in the stock.
NVDA is preparing to announce its financial results for the forthcoming quarter within a few weeks. This report will help better assess the impact of the export restrictions on the company’s financials.

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Impact of Lackluster Earnings on XOM and CVX — What’s Next for the Energy Stocks?

Oil behemoths Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) recently reported third-quarter results, indicating enduring difficulties in accelerating oil production growth. Earnings have significantly dropped from the year-ago quarter, failing to meet the Wall Street projections. Nonetheless, both firms reported an upswing in earnings quarterly.
XOM’s oil production has tumbled, while CVX has faced setbacks impacting key growth endeavors in Kazakhstan and the major hubs of oil production, including the Permian Basin in West Texas and New Mexico.
The market reaction to the earnings reports was swift and severe. CVX’s shares plunged about 7%, and a descent of 1.9% in XOM’s shares was observed despite rising oil prices due to escalating tensions in the Middle East. This response underscores investor anxieties about these fossil fuel behemoths’ long-term viability and fiscal discipline relative to sectors like technology.
Both companies confirmed technical issues in the Permian region, including constraints on wastewater production, high concentrations of carbon dioxide in natural gas, and challenges encountered by production partners during fracking operations. The complications of oil production expansion, coupled with operational problems, are anticipated to influence a surge in industry-wide costs.
However, not all seems grim for the oil corporations. The oil majors are reportedly amplifying their capital investments within the oil and gas sector, undeterred by growing global consensus on a shift towards clean energy alternatives. The acquisitions underscore the enduring interest of the oil companies in profitable oil and gas ventures.
These strategic moves suggest that these corporations do not anticipate a decline in oil demand in the future. Instead, they lean toward believing that oil’s role will remain pivotal in the world’s energy matrix for the foreseeable future.
The International Energy Agency’s (IEA) forecast of oil demand peaking by 2030 amid expanded use of renewable energy sources. The prediction undermines the justification for increased expenditure on fossil fuels and further prompts the question of why cash-rich oil titans are not pivoting toward green energy ventures.
The answer lies partly in the clean energy transition being a long-term, costly process, complicated further by the current economic backdrop of persistent inflation, escalating borrowing expenses, and continual supply chain difficulties.
For the past two years, geopolitical instability – from Russia’s military aggression in Ukraine to long-standing conflicts in the Middle East, has fostered unpredictability in energy prices. This has prompted concerns over energy demand, infusing uncertainties in the market. Additionally, easing oil and natural gas prices has exacerbated the profitability challenges of XOM and CVX.
A cautious approach has pervaded the market, with participants adopting a vigilant stance, awaiting the outcomes of pivotal events, including the U.S. Federal Reserve policy meeting and China’s latest manufacturing data.
In its most recent Commodity Markets Outlook, the World Bank projected global oil prices to reach around $90 a barrel during the last quarter of the year before diminishing to an average of $81 a barrel throughout the coming year as global economic growth decelerates. Such a decline could cast a shadow over the financial health of XOM and CVX.
These corporations, heavily vested in the extraction and sale of oil and gas, stand at risk of substantial revenue reductions, which could compromise their net profitability. Dwindling prices could pose formidable challenges for these companies in securing funds for new ventures and investments, jeopardizing their future profitability.
On the flip side, however, OPEC+ and Russia’s prolonged production cuts, in addition to the geopolitical turmoil, could exacerbate supply chain disruptions, propelling oil and gas prices in the future. This development creates a conducive climate for extraction and ensuing production activities.
Let’s see some other factors that have the potential to influence the stocks’ performance in the near term:
Exxon Mobil Corporation (XOM)
With a market cap of over $419 billion, XOM explores and produces crude oil and natural gas in the United States and internationally.
The cash influx enabled XOM to authorize a $60 billion acquisition of Pioneer, which attracted international media attention. Experts predict the strategic maneuver could boost XOM’s domestic oil production twofold, catapulting the company into the top tier of American producers. It could stimulate added consolidation within this fragmented sector, strengthening American shale producers’ role as the commanding players in the international oil market.
However, XOM’s third-quarter profits fell by over half of its record high last year due to a decline in oil and gas price realizations, although the company’s refinery throughput rose to 4.2 million barrels a day, the most since XOM merged with Mobil 24 years ago. The energy giant’s revenue slid 19% year-over-year to $90.76 billion, while non-GAAP earnings per share reached $2.27, falling short of analysts’ predictions.
The dwindling profits were influenced by an approximately 60% decrease in natural gas price realizations and a 14% reduction in oil price realizations. The company also reported a 69.9% decline in earnings from its chemical products division due to increased feedstock prices and overproduction.
In the quarter, it returned $8.1 billion to the shareholders, comprising $3.7 billion in dividends and $4.4 billion in share buybacks.
Moreover, XOM announced an increase in its fourth-quarter dividend to $0.95 per share, payable on December 11, honoring its excellent history of shareholder returns. A testament to the company’s reputation is its consistent record of paying dividends for 40 uninterrupted years.
Its annual dividend rate of $3.80 per share translates to a dividend yield of 3.60% on the current share prices. The company’s dividend payouts have grown at a CAGR of 1.5% over the past three years and 2.7% over the past five years.
The stock trades lower than the 50-, 100-, and 200-day moving averages, indicating a downtrend. However, Wall Street analysts expect the stock to reach $128.32 in the next 12 months, indicating a potential upside of 21.6%. The price target ranges from a low of $105 to a high of $150.
Institutions hold roughly 60.4% of XOM shares. Of the 3,637 institutional holders, 1,589 have increased their positions in the stock. Moreover, 147 institutions have taken new positions (9,154,521 shares).
For the fiscal fourth quarter ending December 2023, analysts expect its revenue and EPS to be $92.28 billion and $2.20, respectively.
Chevron Corporation (CVX)
Boasting a market cap of over $275 billion, CVX offers administrative, financial management, and technology support services for energy and chemical operations.
The firm’s recent $53 billion acquisition of Hess, recognized as one of the largest operators in North Dakota’s Bakken shale play, substantiates its massive investment amid the global shift towards cleaner energy. Even though this transaction could slightly increase the region’s oil production, industry analysts do not anticipate a revival to its peak pre-pandemic boom days.
Bakken oil production is anticipated to drop to 1.15 million bpd from 2026 and remain stagnant until 2030. A slow decay will follow this due to depleting reserves. It is yet to be ascertained if an infusion of new investments or technological advancements can counteract a longer-term decrease in Bakken output.
CVX also emphasizes the importance of consistent dividend distribution, demonstrating an unwavering commitment to operational diversity, having done so for an impressive 35 consecutive years. This reliability is quite remarkable considering the unpredictable nature of the energy sector.
In 2023, the company paid a dividend of $6.04 per share, which translates to a dividend yield of 4.18% on the current share prices. The company’s dividend payouts have grown at a CAGR of 5.6% over the past three years and 6% over the past five years. Although, it is worth noting that the decline in dividend payout rate over time might adversely influence investors seeking a steady source of passive income.
CVX adopts a moderate approach concerning leverage. During periods with low oil prices, the company can incur debt to finance its capital investment needs and maintain dividend payouts. When energy prices rebound, which historically they always have, the company can offset the debt. This prudent strategy offers reassurance to even the most conservative investors about the integrity of the company’s dividend capabilities.
For the fiscal third quarter that ended September 30, 2023, CVX’s upstream production segment earnings dipped 38.2% year-over-year to $5.76 billion. However, it increased only 16.6% from the second quarter, despite the substantial increase in oil prices.
Profit in CVX’s non-U.S. production segment, accounting for about two-thirds of its total output, declined 37.7% year-over-year but increased about 12% quarterly. Its U.S. production earnings increased 26.4% quarterly but declined 39% year-over-year.
The U.S. net oil-equivalent production was up 20% year-over-year and set a new quarterly record, primarily due to the acquisition of PDC Energy, Inc., which supplemented the quarter’s output with an additional 179,000 oil-equivalent barrels per day, and net production increases in the Permian Basin.
The stock trades lower than the 50-, 100-, and 200-day moving averages, indicating a downtrend. However, Wall Street analysts expect the stock to reach $189 in the next 12 months, indicating a potential upside of 30.9%. The price target ranges from a low of $166 to a high of $215.
Institutions hold roughly 71.4% of CVX shares. Of the 3,473 institutional holders, 1,718 have increased their positions in the stock. Moreover, 203 institutions have taken new positions (9,253,853 shares).
For the fiscal fourth quarter ending December 2023, analysts expect its revenue and EPS to come at $54.46 billion and $3.68, respectively.
Considering the oil stocks’ tepid price momentum, mixed analyst estimates, and financials, it could be wise to wait for a better entry point in the stocks.

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Is Intel (INTC) a Bullish Powerhouse Software Stock to Buy Now?

Intel Corporation (INTC), a world leader in the design and manufacturing of computing and other related products, reported fiscal 2023 third-quarter results, surpassing analysts’ expectations on the top and bottom lines. Also, the company provided strong fourth-quarter guidance, implying revenue growth for the first time since 2020.
After posting better-than-expected earnings, INTC’s shares surged more than 9% on Friday. Moreover, the stock crossed the 50-day and 200-day moving averages of $35.58 and $32.07, respectively, indicating an uptrend.
The chipmaker posted third-quarter adjusted EPS of $0.41, beating analysts’ estimate of $0.22. INTC’s revenue was $14.16 billion, above the consensus estimate of $13.60 billion. However, it dropped nearly 7.7% year-over-year, marking the seventh consecutive quarter of declining sales.
But INTC told investors last Thursday that it expects revenue to grow again in the current quarter.
The boost to Intel’s earnings was mainly due to gains made by its foundry business and growing interest in AI, signs of a recovery in the PC market, and management’s ability to stay on course for several initiatives it had previously laid out for the company.
“We delivered a standout third quarter, underscored by across-the-board progress on our process and product roadmaps, agreements with new foundry customers, and momentum as we bring AI everywhere,” said Pat Gelsinger, Intel CEO.
“We continue to make meaningful progress on our IDM 2.0 transformation by relentlessly advancing our strategy, rebuilding our execution engine and delivering on our commitments to our customers,” he added.
Gelsinger told analysts on a call that the company would slash costs by about $3 billion this year. CFO David Zinsner said that Intel’s EPS benefitted from controlling expenses, with operating expenses decreasing 15% from a year ago. INTC said it has 120,300 employees, a decline from 131,500 last year.
Now, let’s discuss several factors that could impact INTC’s performance in the upcoming months:
Positive Recent Developments
On October 30, Intel announced its intent to operate Programmable Solutions Group (PSG) as a standalone business. This move will give PSG the flexibility and autonomy to fully accelerate its growth and effectively compete in the FPGA industry, which serves various markets like the data center, communications, industrial, automotive, aerospace and defense sectors. 
“Our intention to establish PSG as a standalone business and pursue an IPO is another example of how we are consistently unlocking more value for our stakeholders. This will give PSG the independence it needs to keep growing share in the FPGA market, differentiating itself with capacity and supply resilience from IFS, and allowing Intel product teams to focus on our core business and long-term strategy,” said Pat Gelsinger.
On September 29, INTC’s new Fabin Ireland began high-volume production of Intel 4 technology, which uses extreme ultraviolet (EUV) technology. With its Fab 34 production milestone, Intel executes its plan to users in the future for products such as INTC’s upcoming Intel® Core™ Ultra processors, which will pave the way for AI PCs and future-generation Intel® Xeon® processors coming in 2024.
The company’s rising investments in Ireland and existing and planned investments in Germany and Poland create a first-of-its-kind end-to-end leading-edge semiconductor manufacturing value chain in Europe. They serve as a catalyst for additional ecosystem investments and innovations across the European Union (EU).
Mixed Performance in the Last Reported Quarter
For the third quarter that ended September 30, 2023, INTC’s net revenue decreased 7.7% year-over-year to $14.16 billion. Sales in its Client Computing group, including laptop and PC processor shipments, declined 3% from the year-ago value to $7.90 billion. Intel’s Data Center and AI division, which offers server chips, witnessed a sales drop of 10% year-over-year to $3.81 billion.
The company said it has been seeing competitive pressure and a smaller overall market for server processors. Also, Intel’s Network and Edge segment’s revenue was $1.45 billion, down 32% year-over-year.
INTC’s gross margin came in at $6.02 billion, a decline of 7.9% from the prior year’s quarter. However, the company’s non-GAAP operating income grew 16.3% year-over-year to $1.92 billion. Also, non-GAAP net income attributable to Intel was $1.74 billion or $0.41 per share, compared to $1.53 billion or $0.37 in the previous year’s period, respectively.
As of September 30, 2023, the company’s cash and cash equivalents stood at $7.62 billion versus $11.14 billion as of December 31, 2022.
Mixed Historical Performance
INTC’s revenue has declined at a CAGR of 12.2% over the past three years. Its EBITDA has decreased at a 39.3% CAGR over the same period. However, the company’s tangible book value and total assets have improved at respective CAGRs of 22.5% and 9.1% over the same timeframe.
PC Market Showing Signs of Recovery
After two years of steady declines due to COVID-related slowdowns, inflationary pressures, and higher interest rates, the PC industry appears to be showing signs of life, which would be a boon for INTC.
“There is evidence that the PC market’s decline has finally bottomed out,” said Mikako Kitagawa, Research Director at Gartner.
“Seasonal demand from the education market boosted shipments in the third quarter, although enterprise PC demand remained weak, offsetting some growth. Vendors also made consistent progress towards reducing PC inventory, with inventory expected to return to normal by the end of 2023, as long as holiday sales do not collapse,” she added.
According to preliminary results by Gartner, worldwide PC shipments totaled 64.3 million units in the third quarter of 2023, down 9% year-over-year. While the third quarter’s results marked the eighth consecutive quarter of decline for the global PC market, Gartner expects the market to begin recovery in the fourth quarter of 2023.
Furthermore, the agency projects 4.9% growth for the global PC market for next year, with growth expected in both the enterprise and consumer segments.
Solid Fourth-Quarter Guidance
The company’s fiscal 2024 fourth-quarter guidance implies revenue growth for the first time since 2020. Intel expects revenue to come between $14.60 and $15.60 billion. Non-GAAP EPS attributable to Intel is expected to be $0.44 for the fourth quarter.
Mixed Analyst Estimates  
Analysts expect INTC’s revenue to increase 7.5% year-over-year to $15.09 billion for the fourth quarter ending December 2023. The consensus earnings per share estimate of $0.45 for the ongoing quarter indicates a 346.7% year-over-year improvement. Moreover, the company has topped the consensus revenue estimates in three of the trailing four quarters.
However, the company’s revenue and EPS for fiscal year 2023 are expected to decline 14.7% and 48.5% year-over-year to $53.76 billion and $0.95, respectively.
For 2024, Street expects INTC’s revenue and EPS to grow 13% and 98.8% year-over-year to $60.73 billion and $1.89, respectively.
Bottom Line
Although INTC’s third-quarter earnings and revenue beat analyst estimates, its revenue declined from the year-ago period. After reporting better-than-expected earnings, primarily driven by growth in its foundry business, rising interest in AI, and signs of a recovery in the PC market, the chipmaker expects revenue to grow in the fourth quarter.
While the PC market is recovering after two years of sales declines, there could be a delay in the full recovery of demand for PCs due to prevailing macroeconomic uncertainties. Also, Intel continues to grapple with increased competition and production challenges that could limit the potential for gains in its stock in the near term.
Given its mixed financials and uncertain near-term prospects, it could be wise to wait for a better entry point in the stock.