Tag: Walmart Inc

October 7, 2023

The big AI and robotics concept that has attracted both Walmart and Softbank

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Symbotic technology in use at a Walmart facility.

Courtesy: Walmart

Venture-capital giant Softbank notched a $15 billion-plus gain on its 2016 deal to buy Arm Holdings when the artificial intelligence-enabling semiconductor firm went public last month. But not as many investors know about Softbank’s “other” big AI investment, Wilmington, Mass.-based software and robotics maker Symbotic, which Walmart has taken a big stake in itself.

That may soon change.

Symbotic, a company that has already generated market heat selling AI-powered robotic warehouse management systems to clients including Walmart, Target and Albertson’s, is partnering with Softbank to play in a potentially giant and transformative market. The two are teaming up in a joint venture called GreenBox Systems which promises to deliver AI-powered logistics and warehousing to much smaller companies, delivering it as a service in facilities different companies share. They say it’s a $500 billion market, and an example of the kind of change AI can bring to the economy at large.

If it works, GreenBox will reach companies that could never afford the multi-million dollar required investment, in the same way cloud computing puts high-end information tech within reach, said Dwight Klappich, an analyst at technology research firm Gartner.

“I’ve seen a lot of robotics tech and I’ve never seen anything like it in my life,” TD Cowen analyst Joseph Giordano said. “Compared to what it replaces, it’s like day and night.” 

Erasing memories of a big WeWork real estate blunder

It might even mute the memory of Softbank’s most disastrous commercial real estate management investment ever, the notorious office-sharing company WeWork. 

Like WeWork, GreenBox is a promise to fuse technology and real estate. Indeed, its  sales pitch of “warehouse as a service” recalls the “space as a service” slogan in WeWork’s 2019 IPO prospectus almost exactly. The big difference: with WeWork, outside analysts struggled to identify what technological advantage WeWork ever offered clients over working at home or in traditional offices, let alone one that justified its peak valuation of $47 billion. WeWork today is worth under $150 million and is now under bankruptcy watch as it warned in August of its potential inability to remain “a going concern,” and more recently stopped making interest payments on debt, asking lenders to negotiate.

At GreenBox, the technology is the whole point, Giordano said. And unlike WeWork, which wanted people to change the way they used offices, Symbotic and GreenBox are out to let companies that already run warehouses boost efficiency and profits, he said. 

“Contract warehousing exists today – but those operations are mostly manual,” said Robert W. Baird analyst Rob Mason.

Softbank, perhaps not surprisingly, doesn’t like the WeWork analogy even being mentioned, with spokesperson Kristin Schwarz declining an interview request for Vikas Parekh, Softbank’s representative on Symbotic’s board (Parekh is also on WeWork’s board), after the firm learned CNBC would ask about it.

“If we are to put Vikas on the record for this, the interview would need to stay focused on GreenBox, and not on any other SoftBank topics,” Schwarz wrote in an e-mail. 

Softbank owns more than 8% of Symbotic, according to data from Robert W. Baird, and took it public through a special purpose acquisition company last year. Softbank also owns 65% of the GreenBox venture, which launched with $100 million in investment by the two companies. Walmart owns another 11% of Symbotic, according to a proxy statement from the robotics company, and is by far its biggest customer until the GreenBox venture ramps up, accounting for almost 90% of revenue.

“We share the same vision of going big and going fast,” Symbotic CEO Rick Cohen said. “We believe this market is massive.”

Symbotic has generated stock-market excitement even before the GreenBox deal. Its shares are up 190% this year. Sales in its most recent quarter climbed 77%, and orders for its existing warehouse-management systems jumped to $12 billion – a backlog it would take the company years to fulfill  Add in the $11 billion of Symbotic software and follow-on services GreenBox committed to buy over six years in July, and that backlog soars to $23 billion for a company that expects its first billion-dollar revenue year in fiscal 2023, and to break even on an EBITDA basis for the first time as a public company in the fourth quarter.

The best indication of the future may be from Walmart, which bought its Symbotic stake as part of the companies’ deal to automate the retailer’s 42 U.S. regional distribution centers for packaged consumer goods.

The product is the reason why, analysts say. 

At prices of $25 million to hundreds of millions, according to a conference call Symbotic held with analysts in July, a Symbotic system blends as many as dozens of autonomous robots that scoot around warehouses at speeds up to 25 mph, moving and unloading boxes from pallets and picking orders with AI software that optimizes where in a warehouse to put individual cases of goods, and lets boxes be packed to the warehouse’s ceiling, Giordano said, wasting much less space in the building. 

The system works something like a disk drive that uses intelligence to store data efficiently and retrieve the right data on demand – but with boxes of stuff. And a large warehouse can use several different systems, piling up the required investment to get moving.

Because Symbotic’s system can track inventory down to the case easily, where stuff is put can be matched much more easily to incoming orders, making it possible to more fully automate order picking. It can also match the design of outgoing pallets to the layout of the store the pallet is headed to, speeding up unloading and shelf stocking, Klappich said. 

But the biggest innovation the tech allows is in business models, rather than in technology itself. That hasn’t spread outside of giant companies yet, but Giordano and Mason say they think it will.

The AI’s precision will let multiple companies share the same warehouse, and even commingle their goods for efficient shipping without confusion, much as cloud computing lets multiple clients share the same computer servers, Mason said. 

“Through sharing infrastructure, you can get out of the infrastructure business and focus on what’s important to you,” Klappich said. “Larger-scale automation without the capital expense has been a challenge.”

Born out of stealth work with Walmart, minting a multi-billionaire

The idea grew out of a vision Cohen had when running his family’s grocery distribution company, C&S Wholesale Grocery, which he has grown to $33 billion in annual revenue from $14 million since 1974.  Symbotic was founded in 2006, and worked in stealth mode for years while refining its prototypes with Walmart. 

“I’ve spent my whole life in the outsourcing and [logistics] business with C&S, so, this — the ability to run warehouses for people — has always been on the plate, Cohen said in the July analyst call. “We said we’re going to take care of Walmart first. …We are now starting to say, I think we can do more.”

Symbotic and C&S have made the 71-year old Cohen one of America’s richest men, with a net worth hovering around $15.9 billion, according to Forbes. 

Symbotic teamed up with Softbank to build GreenBox in order to preserve its own capital, Cohen told analysts. The joint venture was initially capitalized 65% by Softbank and 35% by Symbotic, for a total of $100 million. Analysts say the venture will require much more capital, possibly raised by having GreenBox itself borrow money in the bond market. Symbotic said it will use its share of the profits from sales to GreenBox to keep its equity stake in the joint venture around 35%.

“The question has been, who has the capital to set it all up?” Klappich said. “Softbank could be the key because they have deep pockets.”

The joint venture will buy software from Symbotic, then turn around and sell the warehouse space, equipment and related services as a package to tenants. 

Many questions remain, and potential threats from Amazon, private equity

Much else about the new company remains unknown, beginning with the identity of its not-yet-announced chief executive, Mason said. The venture could either develop warehouses or rent them, though Symbotic said it will probably mostly rent them. Pricing for the warehouse-as-a-service is undisclosed. 

But the rise of Greenbox more than doubles Symbotic’s potential market, and nearly doubles its backlog. Symbotic has said that its total market is about $432 billion, a figure chief strategy officer Bill Boyd repeated on the conference call when the GreenBox alliance was announced.  Early adopters will be in businesses like grocery and packaged goods, with Symbotic expanding into pharmaceuticals and electronics over time, according to Symbotic’s annual federal regulatory filing this year.

The GreenBox market for smaller companies shapes up as another $500 billion of possible demand, Gartner’s Klappich said. The estimates are based on the number of warehouses in those industries, the likely percentage of warehouses in each whose owners can afford the technology, either independently or through GreenBox, and the average price of Symbotic-like systems. 

The third quarter of the company’s fiscal year, which ends in October, illustrates how the company’s profits might scale. Revenue jumped 77% to $312 million, and its loss before interest, taxes and non-cash depreciation and amortization expenses shrank to $3 million. Mason says the company will turn profitable on an EBITDA basis in the fiscal year that begins this fall, before orders from GreenBox begin, and EBITDA will be “in the mid-teens” as a percent of sales by the following year.

Clients stand to save money all the way through the warehouse, Klappich said.

Giordano estimated the savings at eight hours of labor per outgoing truck. The technology can also cut space rental costs by allowing goods to be packed closer together and stacked higher. 

Using the facility as a service will let seasonal companies cut back on the space and robot time they use during slow periods, rather than carry them all year. The warehouse should run with many fewer workers, Giordano said. And GreenBox will pay for upgrades to robots and software every few years, rather than making tenants invest more, he said.

Walmart led investors on a tour of its Brooksville, Fla. warehouse in April, and said technology investments like the Symbotic alliance will let profits grow faster than sales. More than half of distribution volume will move through automated centers within three years, improving unit costs by about 20% as two-thirds of stores are served by automated systems. The company has said little about the impact on jobs, but CEO Doug McMillon said overall employment should stay about the same size but shift toward delivery from warehouse roles. 

Competition will be arriving soon enough, analysts say. Building something like Symbotic, and especially moving it down into the realm where companies other than global giants can afford it, takes a combination of technology, money and vision, Klappich said. 

Amazon could expand into the space, using its warehousing expertise in a service that resembles its Web hosting business model, or private-equity firms awash in investable cash might acquire combinations of companies to produce competing products and business models, Klappich said.

For Softbank, the payoff if GreenBox works is potentially huge. Analysts on average project Symbotic shares to rise another 53% in the next year after pulling back amid recent recession fears, according to ratings aggregator TipRanks. With post-IPO estimates arguing that Arm shares will stagnate, and taking into account that Softbank paid a reported $36 billion for Arm in 2016, it’s possible Symbotic will be the bigger win in the end, at least on a percentage basis, as the 65% share of GreenBox rises in value.

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September 10, 2023

Top Wall Street analysts select these dividend stocks to enhance returns

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Verizon CEO Hans Vestberg on the floor at the New York Stock Exchange (NYSE) in New York, U.S., October 22, 2019.

Brendan McDermid

When markets get choppy, dividends offer investors’ portfolios some cushioning in the form of income.

Dividends provide a great opportunity to enhance investors’ total returns over a long-term horizon. Investors shouldn’t base their stock purchases on dividend yields alone, however: They ought to assess the strength of a company’s fundamentals and analyze the consistency of those payments first. Analysts have insight into those details.

To that effect, here are five attractive dividend stocks, according to Wall Street’s top experts on TipRanks, a platform that ranks analysts based on their past performance.

Verizon Communications

Let us first look at telecommunication giant Verizon (VZ). The stock offers a dividend yield of 8%. Last week, the company declared a quarterly dividend of 66.50 cents per outstanding share, an increase of 1.25 cents from the previous quarter. This marked the 17th consecutive year the company’s board approved a quarterly dividend increase.

Recently, Citi analyst Michael Rollins upgraded Verizon and its rival AT&T (T) to buy from hold. The analyst increased his price target for Verizon stock by $1 to $40, while maintaining AT&T’s price target at $17.

Rollins noted that several headwinds like competition, industry structure, higher rates and concerns about lead-covered cables have affected investor sentiment on telecom companies. That said, he has a more constructive outlook for large cap telecom stocks.

“The wireless competitive environment is showing positive signs of stabilization that should help operating performance,” said Rollins, who ranks No. 298 out of more than 8,500 analysts on TipRanks.

The analyst contended that the recently announced price hikes by Verizon and AT&T indicate a stabilizing competitive backdrop for wireless. He further noted that customers continue to hold onto their phones for longer, which is reducing device upgrade costs and stabilizing churn.

Overall, the analyst sees the possibility of some of the ongoing market concerns fading over the next 12 months. Also, he expects the prospects for improved free cash flow to lower net debt leverage and support the dividend payments. 

Rollins has a success rate of 65% and each of his ratings has returned 13.3%, on average. (See Verizon Hedge Fund Trading Activity on TipRanks)

Medtronic

Medical device company Medtronic (MDT) recently announced a quarterly dividend of $0.69 per share for the second quarter of fiscal 2024, payable on Oct. 13. MDT has increased its annual dividend for 46 consecutive years and has a dividend yield of 3.5%. 

Reacting to MDT’s upbeat fiscal first-quarter results and improved earnings outlook, Stifel analyst Rick Wise explained that continued recovery in elective procedure volumes, supply chain improvements and product launches helped drive revenue outperformance across multiple business units.

The analyst thinks that Medtronic’s guidance indicates that it is now well positioned to more consistently deliver better-than-expected growth and margins. He also expressed optimism about the company’s transformation initiatives under the leadership of CEO Geoff Martha.

“We view Medtronic as a core healthcare holding and total return vehicle in any market environment for investors looking for safety and stability,” said Wise, while raising his price target to $95 from $92 and reaffirming a buy rating.

Wise holds the 729th position among more than 8,500 analysts on TipRanks. Moreover, 58% of his ratings have been profitable, with each generating a return of 6.3%, on average. (See Medtronic Insider Trading Activity on TipRanks)   

Hasbro

Another Stifel analyst, Drew Crum, is bullish on toymaker Hasbro (HAS). He increased the price target for Hasbro to $94 from $79 while maintaining a buy rating, and moved the stock to the Stifel Select List.

Crum acknowledged that HAS stock has been a relative laggard over the past several years due to many fundamental issues that resulted in unhappy investors.

Nevertheless, the analyst is optimistic about the stock and expects higher earnings power and cash flow generation, driven by multiple catalysts like portfolio adjustments, further cost discipline, greater focus on gaming and licensing, as well as a new senior leadership team.

Crum noted that Hasbro grew its dividend for 10 consecutive years (2010-2020) at a compound annual growth rate of over 13%, with the annual payout representing more than 50% of free cash flow, on average. However, any upward adjustments were limited following the Entertainment One acquisition, with only one increase during 2021 to 2023.

The analyst thinks that given the current dividend yield of around 4%, Hasbro’s board might be less inclined to approve an aggressive raise from here. That said, with expectations of higher cash flow generation, Crum said that “the company should have more flexibility around growing its dividend going forward.”

Crum ranks 322nd among more than 8,500 analysts tracked by TipRanks. His ratings have been profitable 59% of the time, with each rating delivering an average return of 12.9%. (See Hasbro Stock Chart on TipRanks)

Dell Technologies

Next up is Dell (DELL), a maker of IT hardware and infrastructure technology, which rallied after its fiscal second-quarter results far exceeded Wall Street’s estimates. The company returned $525 million to shareholders through share repurchases and dividends in that quarter. DELL offers a dividend yield of 2.1%.

Evercore analyst Amit Daryanani maintained a buy rating following the results and raised his price target for DELL stock to $70 from $60. Daryanani ranks No. 249 among more than 8,500 analysts tracked by TipRanks.

The analyst highlighted that Dell delivered impressive upside to July quarter revenue and earnings per share (EPS), driven by broad-based strength across both infrastructure and client segments. Specifically, the notable upside in the infrastructure segment was fueled by GPU-enabled servers.

The analyst also noted that Dell generated $3.2 billion of free cash flow in the quarter and is currently running at over $8 billion free cash flow on a trailing twelve-month basis. This implies that the company has “plenty of dry powder” to significantly enhance its capital allocation program, he added.

“We think the catalysts at DELL are starting to add up in a notable manner ranging from – cap allocation update during their upcoming analyst day, AI centric revenue acceleration and potential S&P 500 inclusion,” said Daryanani.

In all, 60% of his ratings have been profitable, with each generating an average return of 11.5%. (See Dell’s Financial Statements on TipRanks)

Walmart

We finally come to big-box retailer Walmart (WMT), which is a dividend aristocrat. Earlier this year, the company raised its annual dividend for fiscal 2024 by about 2% to $2.28 per share. This marked the 50th consecutive year of dividend increases for the company. WMT’s dividend yield stands at 1.4%.

Following WMT’s upbeat fiscal second-quarter results and upgraded full-year outlook, Baird analyst Peter Benedict highlighted that traffic gains in stores and online channels reflect that consumers are choosing Walmart for a blend of value and convenience.

Benedict also noted that the company’s efforts to drive improved productivity and profitability are gaining traction.

The analyst reiterated a buy rating on WMT and raised the price target to $180 from $165, saying that the new price target “assumes ~23x FY25E EPS, slightly above the stock’s five-year average of ~22x given the company’s defensive sales mix, market share gains, and an improved long-term profit/ROI profile as alternative revenue streams scale.” 

Benedict ranks 94th among more than 8,500 analysts tracked by TipRanks. His ratings have been profitable 68% of the time, with each rating delivering an average return of 13.7%. (See Walmart’s Technical Analysis on TipRanks)  

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August 21, 2023

Weight loss drugs boost sales at retail pharmacies, but they may not help profits much

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A pharmacist displays boxes of Ozempic, a semaglutide injection drug used for treating type 2 diabetes made by Novo Nordisk, at Rock Canyon Pharmacy in Provo, Utah, U.S. March 29, 2023. 

George Frey | Reuters

Drugmakers aren’t the only ones feeling the impact of the weight loss industry gold rush. 

Retailers with pharmacy businesses, such as Walmart, Kroger and Rite Aid, said increased demand for prescription weight loss drugs helped boost sales for the second quarter. 

But analysts note that those blockbuster treatments are minimally profitable for retail pharmacies – and may even come with margin headwinds.

“More recently, you’re starting to hear retailers talk about these drugs. But I wouldn’t say they’re necessarily beneficiaries of the increased popularity,” Arun Sundaram, an analyst at CFRA Research, told CNBC. “They’re really not making much of a profit on the drugs. So it’s really just a traffic driver and not really a profit pool for retailers.” 

Buzzy drugs like Novo Nordisk‘s obesity injection Wegovy and diabetes treatment Ozempic have skyrocketed in popularity over the last year, with high-profile names like billionaire tech mogul Elon Musk among recent users.

Those treatments are known as GLP-1s, a class of drugs that mimic a hormone produced in the gut to suppress a person’s appetite. 

Other drugmakers, such as Eli Lilly and Pfizer, are developing their own GLP-1s in a bid to capitalize on a weight loss drug market that some analysts project could be worth $200 billion by 2030. An estimated 40% of U.S. adults are obese, making successful treatments a massive opportunity for drugmakers. 

But the boom in demand for GLP-1s is also being felt in other parts of the drug supply chain, including the pharmacies that dispense the prescription drugs to patients. 

Are weight loss drugs profitable? 

On an earnings call Thursday, Walmart CEO Doug McMillon said the company expects weight loss drugs to help drive sales for the rest of the year: “We still expect food, consumables, and health and wellness, primarily due to the popularity of some GLP-1 drugs, to grow as a percent total in the back half.” 

In June, likewise, Rite Aid CFO Matthew Schroeder said a jump in pharmacy revenue and the company’s decision to hike its full-year revenue guidance was “due to the increase in sales volume in Ozempic and other high-dollar GLP-1s.” Schroeder was referring to the hefty price tags of GLP-1s, which range from around $900 to $1,300 in the U.S. 

He said those drugs have high sales amounts per prescription, but emphasized that the increased volume of GLP-1s has a “minimal impact” on Rite Aid’s gross profit. 

Kroger CEO Rodney McMullen similarly said during an earnings call in June that GLP-1 drug “sales dollars are a lot bigger than the margin dollars.” 

“We would expect the GLP-1 type drugs to continue but remember, the impact on profitability is pretty narrow,” he said.

That’s because GLP-1s like Wegovy and Ozempic are branded drugs with “very, very low gross margins,” according to CFRA Research’s Sundaram. 

He said retail pharmacies generate high sales for each GLP-1 prescription they dispense but rake in low profits, which is having a slight negative impact on the overall gross margins of retailers like Walmart and Kroger. 

UBS analyst Michael Lasser similarly highlighted in a recent note that gross margins for Walmart’s U.S. business “would have looked even better had it not been for the contribution of the GLP-1 drugs since these carry very low profit rates.”

A selection of injector pens for the Saxenda weight loss drug are shown in this photo illustration in Chicago, Illinois, U.S., March 31, 2023. 

Jim Vondruska | Reuters

Gross margins for branded medications are 3.5% on average for pharmacies, according to a 2017 study from USC’s Schaeffer Center for Health Policy and Economics. That suggests it may take years before a branded drug significantly contributes to a pharmacy’s bottom line.

In contrast, gross margins for generic drugs – the cheaper equivalents of branded medications – are 42.7% on average for pharmacies. 

There are several reasons for the lower margins of branded drugs. For one, branded drugs don’t directly compete with other medications because they have patent protections. That gives drug manufacturers more power when they negotiate drug discounts with wholesalers, which purchase medications and distribute them to pharmacies. 

As a result, there is “little room for wholesalers and pharmacies to capture large margins due to their relative lack of negotiating power,” according to the Association for Accessible Medicines, a trade association representing the manufacturers and distributors of generic prescription drugs. 

What other impacts do retailers face?

But there are also other impacts of GLP-1s to consider beyond a retailer’s pharmacy business.

For companies like Walmart and Kroger, GLP-1 drugs may be indirectly impacting other business categories in a positive way.

That makes some analysts less worried about margin headwinds in pharmacy: “The gross margin headwind is less of a risk overall for Walmart because any footstep in the door often ends up with multiple items in a basket,” KeyBanc analyst Bradley Thomas told CNBC. 

“Walmart is generally not a quick store that you just pop in on the way home,” he said. “They’re going to make multiple purchases, and I think we’re seeing a lot of discretionary categories actually see a lift from some of this incremental traffic they’ve been getting lately.” 

Thomas added that GLP-1 drugs only fall under one part of Walmart’s business: “If you’re listing off the most important things that are driving Walmart’s strong sales performance right now, it’s probably not making the top 10,” he said. 

It’s a slightly different situation for Rite-Aid and similar companies like CVS Health and Walgreens.

Those companies have retail pharmacies but also other business segments that are directly affected in different ways by the boom in GLP-1 drugs.

For example, CVS also operates a health insurer and pharmacy benefit manager, or PBM, which maintains formularies and negotiates drug discounts with manufacturers on behalf of insurers and large employers.

The increased demand for GLP-1 drugs is likely more of a headwind for health insurers since they have to cover the costly drugs for beneficiaries, but CVS says “the risk is manageable” in that business division.

Meanwhile, PBMs may benefit more from the increase in GLP-1 use since they negotiate significant discounts on drugs and drive competition between manufacturers – but they often don’t pass along all of the savings to insurers.

“Each of the businesses kind of has GLP-1 in them and they are impacting them in a variety of different ways,” CVS CEO Karen Lynch said during an earnings call last month.

Correction: The Association for Accessible Medicines is a trade association representing the manufacturers and distributors of generic prescription drugs. An earlier version misstated its name.

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August 14, 2023

Jim Cramer’s top 10 things to watch in the stock market Monday

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My top 10 things to watch Monday, August 14

1. It’s a big week of retail earnings. Is Target (TGT) undervalued? Is Walmart (WMT) overvalued? Is Club name TJX Companies (TJX) going to start with its usual up two points and then cascade down two? That’s what you need to be ready for. TJX and Target report second-quarter results on Wednesday, while Walmart reports on Thursday.

2. Morgan Stanly on Monday names Club holding Nvidia (NVDA) a top pick, while predicting a beat and raise when the company reports second-quarter results on Aug. 23. But I really want to warn people that I don’t think it’s ready to be bought.

3. Mizuho on Monday raises its price target on Amgen (AMGN), a very low-risk pharmaceuticals company, to $223 a share from $214, while maintaining a neutral rating on the stock. Elsewhere, Jefferies raises its price target on Amgen to $310 a share, up from $275, and reiterates a buy rating.

4. U.S. Steel (X) rejects an unsolicited takeover bid from rival Cleveland-Cliffs (CLF) that would have valued the former at roughly $7 billion. Cliffs is willing to buy anything. But why would the Federal Trade Commission ever allow this? U.S. Steel said Sunday it’s reviewing its strategic options.

5. Citigroup on Monday downgrades Urban Outfitters (URBN) to neutral from buy ahead of the clothing retailer’s second-quarter earnings on Aug. 22, while raising its price target to $40 a share, up from $36. The firm expects URBN to deliver an earnings beat, but thinks market expectations are too high going into the print. I like this company and find this downgrade disturbing.

6. Following a red-hot initial public offering last month, Morgan Stanley on Monday initiates coverage on beauty-and-wellness company Oddity Tech (ODD) with the equivalent of a hold rating and $57-a-share price target. The bank cites “strong long-term revenue growth prospects” for Oddity, but thinks the positives are already priced into the stock’s valuation.

7. Bernstein on Monday downgrades hotel chain Marriott International (MAR) to market perform, or neutral, from outperform, arguing the stock’s short-term upside is limited by its increased valuation this year and a slowdown in the U.S. luxury space. But the firm increases its price target on Marriott to $218 a share, up from $204.

8. Mizuho on Monday raises its price target on restaurant-management-software firm Toast (TOST) to $30 a share, up from $27, while maintaining a buy rating on the stock, following its “very strong” second-quarter results. Baird, conversely, designated Toast a “bearish fresh pick” following its big run of late. The firm has a neutral rating on the stock, with a price target of $25 a share.

9. China’s Country Garden, the country’s largest private real-estate developer, suspends trading of its onshore bonds on Monday, in a sign it could soon move to restructure its debt. Shares are down roughly 17%, weighing heavily on Hong Kong’s Hang Seng Index. The news is the latest sign Beijing will likely need to step in to shore up China’s beleaguered real-estate sector.

10. Piper Sandler on Monday raises its price target on Club name Coterra Energy (CTRA) to overweight, or buy, from neutral, on expectations for “strong execution across the portfolio.” The bank increases its price target on the oil-and-gas firm to $35 a share, up from $30.

And remember to tune into the Club’s Monthly Meeting on Thursday at 12:00 p.m. ET.

(See here for a full list of the stocks at Jim Cramer’s Charitable Trust.)

As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade.

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August 1, 2023

Walmart is bringing ads to an aisle near you as retailers chase new moneymakers

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Walmart is turning more parts of its stores into advertising opportunities. For example, brands can buy a spot on its self-checkout screens.

Walmart

One of Walmart‘s latest offerings at its SuperCenters isn’t a hot new toy, snack flavor or sundress. It’s advertising.

Shoppers will soon see more third-party ads on screens in Walmart self-checkout lanes and TV aisles; hear spots over the store’s radio; and be able to sample items at demo stations.

Walmart’s push into advertising resembles similar moves by retailers like Kroger, which struck a deal to bring digital smart screens to cooler aisles in hundreds of its stores, and Target, which began testing in-store demos and giveaways, including a recent “Barbie” branded event with Mattel that took place at about 200 stores.

For Walmart, selling ad space to its wealth of existing partners is another way to capitalize on the company’s huge reach and to expand into higher-margin businesses. The discounter has nearly 4,700 stores across the U.S., with roughly 90% of Americans living within 10 miles of a Walmart store.

In the U.S., about 139 million customers visit Walmart stores and its website or app each week.

“When you think about our store, our store footprint and the percentage of Americans that we reach through our stores, we can deliver Super Bowl-sized audiences every week,” said Ryan Mayward, senior vice president of retail media sales for Walmart Connect, the retailer’s advertising business.

The company plans to ramp up in-store ads using its approximately 170,000 digital screens across its locations as well as 30-second radio spots that will be available to suppliers later this year and can target a specific store or region.

And it’s hoping at least one of the new advertising initiatives will be easy to digest: free samples in stores on the weekends.

Walmart plans to sell the demo stations to advertisers and bundle them with other ad formats that can run at the same time to make for a fuller campaign. QR codes at the demo tables will pull up online shopping options, meal ideas or seasonal information.

It tried out the new in-house approach of selling sampling stations in Dallas-Fort Worth and plans to offer the option in more than 1,000 stores across the country by the end of January.

Advertising still drives a small sliver of Walmart’s overall revenue. Its global advertising business hit $2.7 billion in the most recent fiscal year, which ended in late January. That’s less than 1% of Walmart’s total annual revenue.

Yet it is becoming a more meaningful growth engine for Walmart. CEO Doug McMillon said earlier this year that he expects company profits to grow faster than sales over the next five years, driven in part by higher-margin businesses, including advertising.

In the most recent fiscal year, Walmart’s global ads business grew nearly 30% and its U.S. ads business, Walmart Connect, rose about 40%. That’s a sharper gain than the approximately 7% increase in Walmart’s total revenue and Walmart U.S. net sales during the period.

The next frontier

As Walmart and other retailers grow their ad businesses, the store stands as the next frontier. Target, Kroger and others have pushed aggressively into retail media, a buzzy term used to describe marketing to shoppers based on customer data.

That side hustle has become a more substantial revenue stream for retailers, especially as brands look for new ways to reach big audiences. Retail media is on track to be a $45 billion industry this year, up 20% from the prior year, according to Insider Intelligence. The market researcher expects that growth to accelerate in the coming years and reach about $106 billion in 2027.

Yet up until recently, retailers, including Walmart, have largely focused on selling online ads and steered clear of adding digital signs or flashier ads to the places that draw higher traffic and drive the vast majority of sales: their own stores.

Walmart’s Mayward said the retailer has added advertising to stores “in a very deliberate and cautious way” after learning how shoppers respond to online ads.

When done right, he said ads can enhance the experience for shoppers and lift sales. For example, he said, a customer may spring for a sound bar after learning about the product on the TV wall when walking through the electronics department. They may decide to buy a jar of salsa after seeing a video of it near the aisle of their favorite bag of chips.

“It’s a complimentary advertising moment,” he said. “It’s helping you make connections between two different products and decide that you maybe need that second thing.”

Walmart is turning the approximately 170,000 digital screens across its U.S. stores into advertising opportunities. For example, a company that makes a snack or a beauty product can advertise in the TV aisle of the electronics department.

Walmart

According to Mark Boidman, head of media at New York City-based investment bank Solomon Partners, that proximity offers a unique opportunity that online advertising can’t replicate.

“It’s better to reach people with video when you’re aisles apart as opposed to miles apart,” Boidman said.

He noted it’s gotten harder for brands to get in front of large audiences as customers increasingly fracture into smaller groups that watch different TV shows, subscribe to different streaming services or tune in to different broadcast channels.

Plus, he added, they want to more closely track if marketing dollars lead to sales. Grocers and big-box retailers have valuable first-party data that can better measure that, since they can advertise a product and then use a loyalty program or sales patterns to see if it became more popular.

But that additional data can be a double-edged sword. He said companies must respect shoppers’ privacy concerns, too. If an advertisement is too targeted to an individual, they may feel creeped out.

The right balance

With the debut of more in-store ads, retailers risk those privacy concerns as well as backlash from shoppers who may see the ads as unsightly or irritating.

That’s already played out at Walgreens: The drugstore added digital smart screens that flashed ads on fridge doors in many of its U.S. stores. Some shoppers complained on TikTok and Twitter that the doors made it hard to find ice cream, pizza or other frozen and chilled items they wanted.

Walgreens CEO Roz Brewer, who stepped into her role after the deal got signed, didn’t like them either, according to a lawsuit filed last month by Cooler Screens, the company behind the tech. It alleges Walgreens was in breach of contract after breaking off an installation agreement.

The drugstore chain had agreed to install the screens in at least 2,500 stores across the U.S., according to the lawsuit, but Brewer squashed the rollout after visiting the stores and comparing the screens “to ‘Vegas’ in a derogatory way.”

Walgreens disputed Cooler Screens’ claims and said it terminated its contract with the firm based on its “failure to perform.”

Cooler Screens has converted stores’ frozen and refrigerated aisles into places where companies can advertise.

Cooler Screens

In an interview with CNBC, Cooler Screens co-founder and CEO Arsen Avakian acknowledged that bringing ads into physical stores is tricky. But he said stores need a more modern look that allows shoppers to search, sort and discover merchandise like they do online and in apps.

Kroger plans to install Cooler Screens in 100 stores by the end of year and reach 500 by next year. Walmart piloted Cooler Screens technology, but ultimately decided not to expand it.

Andrew Lipsman, a retail and e-commerce analyst at Insider Intelligence, said retailers have to tread lightly to avoid creating the real-world equivalent of pop-up ads.

“There’s a concern of it looking too much like Times Square,” said Lipsman, who previously worked for Cooler Screens and has closely followed retail media.

As retailers expand ads into stores, they can start with lower-risk spots like pharmacy or deli counters where customers may welcome a distraction as they wait, he said, adding that stores have plenty of subtle ads already. Brands pay for prominent spots at the end of aisles or for signs that spread the word about a seasonal snack, discount or new product.

And people have gotten used to seeing digital ads in other parts of the physical world, such as around the perimeter of major sports arenas.

“There’s digital signage everywhere,” Lipsman said. “It’s become pervasive across many contexts. It’s natural it’s going to enter the store.”

Disclosure: CNBC’s parent company, NBCUniversal, is a media partner of Walmart Connect.

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April 26, 2023

Target shoppers can now make a return without leaving the car

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Target is dangling a new perk to get shoppers to swing by its stores: customers can make returns without leaving their car.

The curbside-returns service, which began last week at roughly a quarter of Target’s nearly 2,000 stores nationwide, will be available across the chain by the end of summer. 

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Target is sweetening its curbside-pickup service, Drive Up, to attract and retain customers as the retailer braces for a potential sales slowdown and tries to hang on to pandemic-fueled gains. Total annual revenue grew by about $31 billion – or nearly 40% – from fiscal 2019 to 2022.

Now, as shoppers become more budget conscious and buy fewer discretionary items, Target said it expects comparable sales to range from a low single-digit decline to a low single-digit increase this fiscal year. At an investor day in February, it projected full-year earnings per share of between $7.75 and $8.75, below Wall Street’s expectations of $9.23 per share, according to StreetAccount estimates.

The company hopes convenient perks like curbside returns will boost customer loyalty and jolt sales.

“Any time we remove friction from our guest experience it benefits the guests and benefits Target because they deepen their relationship with us,” Chief Stores Officer Mark Schindele said. “We’ve shown that with Drive Up overall. Guests try that service, they love it and then they shop our stores more often.”

Curbside pickup became a bigger sales driver for retailers’ e-commerce businesses, especially as shoppers tried to avoid crowds during the Covid pandemic. For some shoppers, the habit has stuck as work and home schedules are fuller and commutes are back — and retailers including Target and rival Walmart now aim to capitalize on that.

Click-and-collect, a term used to describe buying online and picking up purchases curbside or in store, grew from 6% of overall e-commerce sales in the U.S. in 2019 to 11% in 2022, according to data from Euromonitor, a market research firm.

Delivery still accounts for the majority of online sales, but click-and-collect drove about $114 billion of sales in 2022 — a jump from $36 billion in 2019, according to Euromonitor.

In the U.S., the vast majority of click-and-collect comes from curbside pickups, said Bob Hoyler, industry manager for retail research at Euromonitor. 

The market research firm anticipates click-and-collect sales in dollars will grow by 8% this year, compared with 2% for delivery. The growth will be fueled by consumers who opt for curbside pickup to avoid delivery fees or shipping minimums at a time of heightened price sensitivity, Hoyler said.

Target debuted Drive Up in 2017 as a test in Minneapolis, where the company is based. It expanded the service to stores across all 50 states in 2019. It added fresh and frozen groceries in 2020, and tacked on wine and beer the following year. 

Last year, the retailer expanded the service to allow shoppers to order a Starbucks drink to retrieve when they pick up their curbside order. The service is available at about 240 stores.

Sales fulfilled through Drive Up grew more than 70% in the fiscal year that ended in late January 2022, on top of a more than 600% boom during the prior fiscal year, the company said. Drive Up sales grew more than 10% in the most recent fiscal year.

Target’s same-day services, which include Drive Up, accounted for more than half of digital sales as of late January as consumers embrace convenience. Same-day services also include Target-owned delivery service Shipt and Order Pickup, which allows shoppers to retrieve an online purchase inside of a store.

The retailer’s average fulfillment cost per unit has fallen by 40% over the past four years as those services grow, Chief Operating Officer John Mulligan said at an investor day in February. More than 95% of Target’s total sales, including digital, are fulfilled in stores.

Other retailers have added to curbside pickup. Walmart rolled out curbside returns at all of its stores ahead of the 2022 holiday season. Dick’s Sporting Goods added curbside returns to its services in 2020 and offers it across all of its stores.

Neither company would quantify the use of curbside pickup or returns, but Walmart said it has seen nearly double the volume of customers using curbside returns from its launch across the chain last fall compared with this month.

At an investor event earlier this month, Walmart CEO Doug McMillon said the retailer is competing on convenience, too. He credited pickup and delivery for driving growth in recent years, and said the company’s recent survey results show customers are choosing the big-box retail giant to save time along with money.

Yet other retailers such as Kohl’s have eliminated curbside pickup. It ended the service last summer, swapping it out for a self-pickup service inside of stores.

The company’s shift to self pickup is part of efforts to cut costs, including by reducing its payroll, Chief Financial Officer Jill Timm said in September at a Goldman Sachs conference. She said Kohl’s is also testing self checkout and self returns.

For some retailers, the time and labor of curbside pickup can be hard to justify — especially since it encourages shoppers to stay in their cars rather than step into stores where they may fill up their carts with more purchases, Euromonitor’s Hoyler said.

Those concerns fueled skepticism of curbside returns within Target, too.

Most Target returns are made at the store, according to the company. Inside of a store, a shopper may swap out a returned product for another or grab an impulse item.

At Target’s investor day in late February, Citibank analyst Paul Lejuez asked if the retailer would ultimately miss out on purchases by adding curbside returns.

Schindele, the chief stores officer, said Target is focused on the lifetime value of a customer, not just the economics of a single transaction. He said allowing curbside returns also helps the retailer get unwanted items back on the sales floor faster and lowers the cost of mail-in returns.

He added that curbside pickup still inspires browsing and other purchases. On average, about 20% of customers who pick up Drive Up orders also make an in-store purchase on the same day, he said.

“What we find is when a guest uses Drive Up — and it could be Drive Up returns, it could be Drive Up purchase — we find that they spend more money in store over the course of the year.”

During tests of curbside returns, some shoppers have stopped by just to return an item, Schindele said. Others have picked up purchases while making a return. Still others have retrieved items they bought, made a return and gotten a Starbucks drink.

For Target, curbside returns could serve as a differentiator and a complement to the merchandise mix it sells, Hoyler said. Target’s sales focus is on general merchandise, such as apparel and beauty products, with only roughly 20% of its annual sales coming from grocery items. That’s much less than Walmart, which draws nearly 60% of its annual U.S. sales from grocery.

That general merchandise tends to be returned much more often than items like milk and bananas, he said.

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April 9, 2023

Top Wall Street analysts expect these five stocks to fetch attractive returns

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A logo of Meta Platforms Inc. is seen at its booth, at the Viva Technology conference dedicated to innovation and startups, at Porte de Versailles exhibition center in Paris, France June 17, 2022.

Benoit Tessier | Reuters

Signs of a potential slowdown in the jobs market are emerging and triggering worries about an impending recession, but investors would be wise to ignore the noise.

Instead, investors should keep an eye out for stocks with strong fundamentals and robust growth potential — two characteristics that can get them through a rocky patch for the market.

To that effect, here are five stocks chosen by Wall Street’s top pros, according to TipRanks, a platform that ranks analysts based on their past performance. 

Meta Platforms 

Weakness in digital ad spending due to macro pressures has hit social media giant Meta Platforms (META) over the recent quarters. Nonetheless, the company is reducing its workforce, canceling lower-priority projects and curtailing non-headcount-related expenses to improve its profitability.  

While Meta is calling 2023 the “Year of Efficiency,” JPMorgan analyst Doug Anmuth says that the company is “building the critical muscle for financial discipline over the long term.” (See Meta Platforms Financial Statements on TipRanks) 

Anmuth expects Meta’s revenue to return to double-digit growth in the second half of 2023 and 2024, fueled by several key drivers like artificial intelligence and product-driven improvements to the ad stack following the implementation of Apple’s App Tracking Transparency feature, the rise in the engagement and monetization of Reels, and the solid rise in click-to-message ads.   

“While Meta shares have more than doubled off the early November lows, we still think there’s meaningful upside ahead driven by accelerating revenue growth, continued cost efficiencies, and still attractive valuation,” the analyst said.  

Based on his bullish investment thesis, Anmuth raised his December 2023 price target for META stock to $270 from $225 and reiterated a buy rating. He is ranked No. 157 among the more than 8,300 analysts tracked by TipRanks. His ratings have been profitable 58% of the time, with each rating delivering an average return of 14.5%.  

SoFi Technologies 

Next on our list is fintech firm SoFi Technologies (SOFI), which offers digital financial services to over 5.2 million members. SoFi recently announced the acquisition of fintech mortgage lender Wyndham Capital Mortgage. The acquisition is expected to drive SoFi’s mortgage growth and operational efficiencies and broaden its mortgage product offerings.  

Jefferies analyst John Hecht, who ranks No. 366 among more than 8,300 analysts tracked by TipRanks, expects the Wyndham acquisition to help SoFi accelerate its mortgage originations volume “at the same time as the SOFI bank continues to grow deposits at an accelerated pace of 7.3x in 2022.” Note that SoFi’s mortgage segment accounted for about 4% of total originations in the fourth quarter of 2022.      

The analyst also highlighted that the Wyndham acquisition would “minimize” SoFi’s dependence on third-party partners and processes, thus driving cost savings over the long term.  

Hecht reiterated a buy rating on the stock with a price target of $8 saying, “We view the transaction favorably as it is strategic and will enhance SOFI’s mortgage segment, while taking advantage of the current Fintech valuation environment as an opportunity to build into the next mtg. cycle.” 

Hecht has a success rate of 59%, and each of his ratings has returned an average of 9.2%. (See SoFi Insider Trading Activity on TipRanks) 

PVH 

Apparel company PVH (PVH), which owns popular brands like Calvin Klein and Tommy Hilfiger, delivered better-than-expected results for the fourth quarter of fiscal 2022. The company is optimistic about the road ahead, supported by its PVH+ Plan, a multi-year direct-to-consumer and digitally-led growth strategy that aims to further strengthen the Calvin Klein and Tommy Hilfiger brands.  

Guggenheim analyst Robert Drbul feels that the PVH+ Plan would drive favorable earnings revisions and multiple expansion. The analyst sees “an attractive risk reward profile” in PVH stock based on the company’s earnings growth potential and current valuation.  

“We believe in Tommy and Calvin brand strength globally and ongoing margin initiatives at the company, which we anticipate will position PVH favorably as the world continues to reopen and recover,” the analyst said.   

Drbul raised his price target for PVH stock to $110 from $105 and reiterated a buy rating based on the company’s streamlining efforts, revenue growth potential, and margin expansion possibilities. 

Drbul holds the 364th position among the more than 8,300 analysts followed by TipRanks. His ratings have been profitable 62% of the time, with each rating delivering an average return of 8%. (See PVH Stock Chart on TipRanks)  

Walmart 

Drbul is also bullish on retail giant Walmart (WMT). After attending the company’s investment community meeting in Tampa, Florida, the analyst reaffirmed a buy rating on Walmart with a price target of $165.  

Drbul said that Walmart is well-positioned in the current retail backdrop and has one of the strongest leadership teams, referring mainly to its CEO Doug McMillon, whom he called “one of the best visionaries.” Despite the ongoing uncertainty, Drbul expects WMT shares to touch new highs as the company continues to execute its growth strategy. (See Walmart Insider Trading Activity on TipRanks) 

The analyst highlighted the significant progress that Walmart has made on the e-commerce front and its focus on technology. E-commerce now contributes to $82 billion or 14% of Walmart’s overall sales, up from $25 billion or 5% of sales five years ago. Walmart sees an opportunity for its e-commerce business to reach $100 billion in the near future.    

“Combining this meeting’s top-line objectives and strategies, along with its relentless tech-enabled focus, Walmart is executing several initiatives that stand out as margin-enhancing, including the focus on automation, and its market fulfillment initiatives that further utilize technology and robotics,” said Drbul.  

Overall, he is upbeat about Walmart’s long-term strategy, including its efforts to enhance the omnichannel shopping experience and build a more diversified profit base that’s “led by a growing marketplace and fulfillment services, advertising, financial services, data monetization, and its healthcare offering.” 

Airbnb  

Airbnb (ABNB), an online marketplace for short-term rentals, ended 2022 with market-beating fourth-quarter results. The company is benefiting from pent-up travel demand despite persistent macro pressures.  

Recently, Tigress Financial Partners’ analyst Ivan Feinseth increased his price target for ABNB stock to $185 from $160 and maintained a buy rating. The analyst acknowledged that the company continues to benefit from solid travel demand and the shift in consumer preference to “alternative, better-value accommodations.”  

“ABNB remains at the forefront of how consumers prefer to travel by offering a broad variance of accommodations from budget to extravagant and meeting the needs for a broad range of stay duration while benefiting significantly from ongoing hybrid work and travel trends,” said Feinseth.  

He expects a notable rise in Airbnb’s return on capital over time, boosted by the booking fee income of its asset-light business model. The analyst listed several drivers of the company’s future growth, including the ability to enhance capacity by adding new hosts, investment in new technologies, international expansion, cobranded buildings and growing partnerships with travel service providers.  

Feinseth ranks No. 154 among the more than 8,300 analysts tracked by TipRanks. Additionally, 62% of his ratings have been profitable, with an average return of 12%. (See Airbnb Hedge Fund Trading Activity on TipRanks)  

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March 26, 2023

Shrinking food stamp benefits for families mean yet another challenge for retailers

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A worker carries bananas inside the Walmart SuperCenter in North Bergen, New Jersey.

Eduardo Munoz Alvarez | AP

For some shoppers who already struggle to cover grocery bills, the budget is getting tighter.

This month, pandemic-related emergency funding from the Supplemental Nutrition Assistance Program, formerly known as food stamps, is ending in most states, leaving many low-income families with less to spend on food.

More than 41 million Americans receive funding for food through the federal program. For those households, it will amount to at least $95 less per month to spend on groceries. Yet for many families, the drop will be even steeper since the government assistance scales up to adjust for household size and income.

For grocers like Kroger, big-box players like Walmart and discounters like Dollar General, the drop in SNAP dollars adds to an already long list of worries about the year ahead. It’s likely to pressure a weakening part of retailers’ business: sales of discretionary merchandise, which are crucial categories for retailers, as they tend to drive higher profits.

Major companies, including Best Buy, Macy’s and Target, have shared cautious outlooks for the year, saying shoppers across incomes have become more careful about spending on items such as clothing or consumer electronics as they pay more for necessities such as housing and food.

Food, in particular, has emerged as one of the hardest-hit inflation categories, up 10.2% year-over-year as of February, according to the U.S. Bureau of Labor Statistics.

“You still have to feed the same number of mouths, but you have to make choices,” said Karen Short, a retail analyst for Credit Suisse.

“So what you’re doing is you’re definitely having to cut back on discretionary,” she said.

The stretch has made it impossible for some to afford even basic items. It’s still too early to see the full impact of the reduced SNAP benefits, said North Texas Food Bank CEO Trisha Cunningham, but food pantries in the Dallas-Fort Worth area have started to see more first-time guests. The nonprofit helps stock shelves at pantries that serve 13 counties.

Demand for meals has ballooned, even from pandemic levels, she said. The nonprofit used to provide about 7 million meals per month before the pandemic and now provides between 11 million and 12 millions meals per month.

“We knew these [extra SNAP funds] were going away and they were going to be sunsetted,” she said. “But what we didn’t know is that we were going to have the impact of inflation to deal with on top of this.”

Shifting market share

So far, retail sales in the first two months of the year have proven resilient, even as consumers contend with inflation and follow a stimulus-fueled boom in spending in the early years of the pandemic. On a year-over-year basis, retail spending was up 17.6% in February, according to the Commerce Department.

Some of those higher sales have come from higher prices. The annual inflation rate is at 6% as of February, according to the Labor Department’s tracking of the consumer price index, which measures a broad mix of goods and services. That index has also gotten a lift from restaurant and bar spending, which has bounced back from earlier in the pandemic and begun to compete more with money spent on goods.

Yet retailers themselves have pointed out cracks in consumer health, noting rising credit card balances, more sales of lower-priced private label brands and shoppers’ heightened response to discounts and promotions.

Some retailers mentioned the SNAP funding decrease on earnings calls, too.

Kroger CEO Rodney McMullen called it “a meaningful headwind for the balance of the year.”

“We’re hopeful that everybody will work together to continue or find additional money,” he said on the company’s earnings call with investors earlier this month. “But as you know, because of inflation, there’s a lot of people whose budget is under strain.”

Credit Suisse’s Short said for lower-income families, the food cost squeeze comes on top of climbing expenses for nearly everything else, whether that’s paying the electric bill or filling up the gas tank.

“I don’t think I could tell you what a tailwind is for the consumer,” she said. “There just isn’t a single tailwind in my view.”

Emergency allotments of SNAP benefits previously ended in 18 states, which could preview the effect of the decreased funding nationwide. In a research note for Credit Suisse, Short found an average decline in SNAP spending of 28% across several retailers from the date the additional funding ended.

Some grocers and big-box retailers could feel the impact more than others. According to an analysis by Credit Suisse, Grocery Outlet has the highest exposure to SNAP with an estimated 13% of its 2021 sales coming from the program. That’s followed by BJ’s Wholesale with about 9%, Dollar General at about 9%, Dollar Tree at about 7%, Walmart’s U.S. business with 5.5% and Kroger with about 5%, according to the bank’s estimates, which were based on company filings and government data.

Retailers that draw a higher-income customer base, such as Target and Costco, should feel comparatively less effect, Short said. If nothing else, the dwindling SNAP dollars could shift shoppers from one retailer to another, she said, as major players seek to grab up market share and undercut on prices.

Fewer dollars to go around

Another factor could make for a bumpier start to retailers’ fiscal year, which typically kicks off in late January or early February: Tax refunds are trending smaller this year.

The average refund amount was $2,972, down 11% from an average payment of $3,352 as of the same point in last year’s filing season, according to IRS data as of the week of March 10. That average payout could still change over time, though, as the IRS continues to process millions of Americans’ returns ahead of the mid-April deadline.

Dollar General Chief Financial Officer John Garratt said on an earnings call this month that the discounter is monitoring how its shoppers respond to the winding down of emergency SNAP benefits and lower tax refunds.

He said stores did not see a change in sales patterns when emergency SNAP funds previously ended in some states, but he added that “the customer is in a different place now.”

Tax refunds can act as a cash infusion for retailers, as some people spring for big-ticket items like a pair of brand-name sneakers or a sleek new TV, said Marshal Cohen, chief industry advisor for The NPD Group, a market research company.

This year, though, even if people get their regular refund, they may use it to pay bills or whittle down debt, he said.

One bright spot for retailers could be an 8.7% cost-of-living increase in Social Security payments. Starting in January, recipients received on average $140 more per month.

However, Cohen said, the cash influx might not be enough to offset pressure on younger consumers, particularly those between ages 18 and 24, who have just started jobs and face milestone expenses like signing a lease or buying a car.

“Everything’s costing them so much more for the early, big spends of their consumer career,” he said.

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March 15, 2023

Zipline unveils P2 delivery drones that dock and recharge autonomously

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Logistics startup Zipline has flown more than 38 million miles with its autonomous electric delivery drones since the company was founded in 2014. Zipline put its first fleet to work in Rwanda, delivering blood and other health supplies to clinics and hospitals. Since then, the Silicon Valley startup has expanded its service in six other countries, with limited delivery service and distribution centers in three states.

On Wednesday, Zipline showed off its next-generation aircraft, which it hopes will make rapid aerial deliveries an everyday convenience for customers throughout the U.S., even in densely populated urban areas.

Zipline’s new drone, dubbed the Platform 2 or P2 Zip, is capable of carrying up to eight pounds worth of cargo within a ten-mile radius, and can land a package on a space as small as a table or doorstep.

“The reason that number is important,” says Zipline CEO and co-founder Keller Rinaudo Cliffton, “is that when you look at e-commerce in the US, a vast majority of packages weigh five pounds or less.”

Zipline cofounders, CEO Keller Rinaudo Cliffton and CTO Keenan Wryobek

Zipline

The P2 Zip can travel ten miles in ten minutes, and the company can make a delivery approximately seven times faster than any typical service you may order from today, the CEO said. Rapid deliveries by drone may put an end to “porch pirates,” Rinaudo Cliffton said, referring to the theft of packages left on a doorstep while the customer is away from home.

While Zipline’s original drone, the P1 Zip, features a fixed wing or glider-like design, the P2 employs both lift and cruise propellers and a fixed wing. These help it maneuver precisely and quietly, even in rainy or windy weather.

To deliver cargo to a customer’s door, the P2 Zip hovers around 300 feet above ground level and dispatches a kind of mini-aircraft and container called the “droid.” The droid descends on a long thin tether, and maneuvers quietly into place with fan-like thrusters before setting down for package retrieval.

Zipline’s original P1 drones will remain in production and in wide use, says Rinaudo Cliffton. The P1 Zip can fly a longer distance, delivering up to five pounds of cargo within a 60-mile radius, but it requires a larger space for take off, landings and “the drop.”

The P1 Zip lets cargo down with a parachute attached, so its payload lands within a space about the size of two car parking spots. After a P1 Zip returns to base, an employee needs to disassemble it, then set up a new one, dropping in a freshly charged battery for the next flight.

Zipline’s new P2 Zip can dock and power up autonomously at a charging station that looks something like a street lamp with an arm and a large disc attached to that arm:

A rendering of P2 Zips charging at a docking station.

Zipline

Zipline docks can be installed in a single parking spot or alongside a building depending on zoning and permits. Zipline envisions the docks set up by restaurants in a downtown shopping district, or alongside the outer wall of a hospital, where the droid can be inserted into a window or dumbwaiter, retrieved, and reloaded by healthcare workers indoors.

Setting up one of these docks takes about as much work as installing an electric vehicle charger, Rinaudo Cliffton said.

Before developing the P2 Zip, Zipline had established logistics networks in Cote d’Ivoire, Ghana, Japan, Kenya, Nigeria and Rwanda already. It is operating some drone delivery networks in the US, in North Carolina, Arkansas and Utah — but the P2 will help it expand that network.

Partners who plan to test deliveries via P2 Zip include the healthy fast-casual restaurant Sweetgreen, Intermountain Health in Salt Lake City, Michigan Medicine, Multicare Healthcare System in Tacoma, Wash., and the government of Rwanda.

Zipline is not alone in its ambitions. Zipline is part of a program with other startups like DroneUp and Flytrex to make deliveries for Walmart. Amazon, meanwhile, has been working on making drone deliveries a reality here for nearly a decade, although that business has struggled to overcome a thicket of regulation and low demand from test customers.

Quiet and green is the goal

Zipline head of engineering Jo Mardall told CNBC the company focused much of its engineering on making sure the drones were not just safe and energy-efficient, but also quiet enough that residents would embrace their use. 

“People are worried about noise, rightly. I’m worried about noise. I don’t want to live in a world where there’s a bunch of loud aircraft flying above my house,” he said. “Success for us looks like being in the background, being barely audible.” That means something closer to rustling leaves than a car driving by. 

The droid component of the P2 Zip is designed to enter distribution centers through a small portal, where it’s loaded up with goods for delivery.

Zipline

The P2 Zips have a unique propeller design that makes this possible, Mardall explained, adding, “The fact that the Zip delivers from from 300 feet up really helps a lot.”

Mardall and Rinaudo Cliffton emphasized that Zipline aims to have a net-beneficial impact on the environment while giving business a better way to move everything from hot meals to refrigerated vaccines just in time to customers. 

Unmanned aerial vehicles, they explained, avoid worsening traffic congestion by going overhead. And since Zipline’s drones are electric, they can be powered with renewable or clean energy, without the emissions from burning jet fuel, gasoline, or diesel.

But most importantly, the CEO said, Zipline’s drone delivery allows companies to “centralize more inventory,” and “dramatically reduce waste.”

A study published by Lancet found that hospitals using Zipline services were able to reduce their total annual blood supply waste rate by 67%, the CEO boasted.

“That is a mind-blowing statistic, and a really big deal. It saves health systems millions of dollars, by reducing inventory at the last mile and only sending it when it’s needed.”

Zipline is aiming to bring that efficiency to every corner of commerce, the CEO said. It’s also aiming to keep the cost of drone delivery competitive with existing services, like FedEx and UPS, or food delivery apps like Uber Eats and Instacart.

But first, the startup plans to conduct more than 10,000 test flights using about 100 new P2 Zips this year. With its existing P1 drones, Zipline is already on track to complete about 1 million deliveries by the end of 2023, and by 2025 it expects to operate more flights annually than most commercial airlines.

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February 26, 2023

Top Wall Street analysts expect these stocks to thrive despite macro pressures

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An EV600 all-electric light commercial vehicle purpose-built for the delivery of goods and services, built by GM’s electric commercial vehicle business, BrightDrop, is seen in Detroit, Michigan, in this undated photograph.

Brightdrop | Handout | via Reuters

Layoff announcements and warnings of an economic downturn from multiple CEOs during the earnings season have made it difficult to look beyond the ongoing turmoil and pick good stocks for the long term. 

To help with the process, here are five stocks chosen by Wall Street’s top pros, according to TipRanks, a platform that ranks analysts based on their track records.

Walmart

Walmart (WMT) topped analysts’ expectations for the fiscal fourth quarter as budget-conscious customers preferred to shop at the big-box retailer due to its lower-price offerings. However, it issued a subdued sales outlook, as stubbornly high inflation continues to impact spending on discretionary items.

Nonetheless, Guggenheim analyst Robert Drbul noted that Walmart is starting the new fiscal year on “solid competitive and operational footing.” The analyst also highlighted the retailer’s market share gains in grocery, growth in private brands and the improvement in inventory levels.

“We continue to believe Walmart is well positioned in an uncertain macro environment, with its price and value proposition and with increased convenience and assortment, despite persistent indicators of pressure on the consumer, including stubborn food inflation,” Drbul said.

The analyst also thinks Walmart can gain more business from higher income families “because the company has made strides in pickup, delivery, and membership.” Drbul reiterated a buy rating on Walmart and a price target of $165.

Drbul ranks 247th among over 8,300 analysts on TipRanks. Moreover, 65% of his ratings have been successful, with each generating a 9.8% average return. (See Walmart Hedge Fund Trading Activity on TipRanks.)

Crocs

Casual footwear maker Crocs (CROX) is seeing robust demand for its products despite difficult macro conditions. Its fourth-quarter revenue surged 61%, reflecting organic growth and the momentum of the Heydude brand, which the company acquired in 2022.  

While Crocs acknowledges the macro headwinds affecting it, it is confident about achieving a record 2023, fueled by demand for its sandals, international growth potential of the Crocs brand and higher market penetration of the Heydude brand in the U.S.

Reacting to the results, Baird analyst Jonathan Komp commented, “The Q4 update included multiple positive developments, including stronger-than-expected Q4 EBIT margin performance, continued robust brand momentum, and reassuring 2023E EPS guidance which is front-weighted and includes multiple areas of conservatism.”

Komp raised his 2023 and 2024 earnings per share estimates, stating that Crocs remains a “favorite idea” at current valuations, given the company’s multiyear growth potential. He reiterated a buy rating and increased his price target to $175 from $155.      

Komp holds the 386th position out of more than 8,300 analysts followed on TipRanks. His ratings have been profitable 54% of the time, with each rating generating a 13.8% average return. (See Crocs Blogger Opinions & Sentiment on TipRanks)

The Chefs’ Warehouse

Another company that has displayed strength amid difficult conditions is Chefs’ Warehouse (CHEF), a distributor of specialty food products. It distributes over 55,000 products to more than 40,000 locations in the U.S. and Canada.

Chefs’ Warehouse’s fourth-quarter adjusted earnings per share surged nearly 85% year over year, driven by robust sales and improved margins. The company has been boosting its business through organic growth and key acquisitions. In the fourth quarter, the company acquired Chef Middle East, which helped it expand into new markets like United Arab Emirates, Qatar and Oman.

Following the fourth-quarter results, BTIG analyst Peter Saleh reiterated a buy rating and “Top Pick” designation on CHEF, with a price target of $48. Saleh, who ranks 346 out of 8,341 analysts tracked by TipRanks, thinks that “continued sales and earnings progression builds out the company’s favorable long-term potential.”

Saleh noted that the company is “still undervalued given the consistent growth it is achieving.” He also pointed out that investors misunderstood the recent convertible notes issuance, stating, “We believe investors missed the technical details in the filing that place the dilution overhang much higher than the stated conversion price. In our view, this could act as a tailwind for the shares in the near-term.”

Saleh’s ratings have been profitable 65% of the time and each rating has generated a 12.5% return, on average. (See Chef’s Warehouse Stock Chart on TipRanks)

Datadog

Next on our list is cloud-based software company Datadog (DDOG), which recently reported market-beating fourth-quarter results. That said, investors were spooked by its revenue outlook for the first quarter and full year 2023. Macro uncertainties are impacting the cloud spending of Datadog’s larger customers, thus affecting its expansion rate.

Baird analyst William Power lowered his 2023 revenue estimate based on the company’s outlook. He also reduced his operating income forecast to reflect continued growth investments made by the company. (See Datadog Insider Trading Activity on TipRanks)

Nevertheless, Power remains bullish about the long-term prospects of Datadog, as the company has “one of the broadest platforms and a strong R&D engine.” The analyst also noted “strong enterprise trends,” with the company ending the fourth quarter with nearly 2,780 customers contributing annual recurring revenue of $100,000 or more, up from 2,010 customers last year.

Power maintained a buy rating on Datadog and a $100 price target. He ranks 268 among more than 8,000 analysts tracked on TipRanks. Moreover, 55% of his ratings have been profitable, with each rating generating a return of 15.5%, on average.    

Applied Materials

Applied Materials (AMAT) provides manufacturing equipment and software to makers of semiconductors, electronic devices and related industries. Despite the ongoing challenges in the semiconductor space, the company delivered better-than-expected fiscal first-quarter earnings.  

Cheering the results, CEO Gary Dickerson stated that the company’s resilience is backed by its “strong positions with leading customers at key technology inflections, large backlog of differentiated products and growing service business.”

Needham analyst Quinn Bolton increased his price target for Applied Materials to $135 from $120 and reiterated a buy rating following the recent results. Bolton noted that ICAPS (chips for IoT, Communications, Auto, Power and Sensors) “stole the show” in the report. (See Applied Materials Financial Statements on TipRanks)

“ICAPS was the main focus on the call as it was mentioned 56 times and rightfully so. AMAT has become incrementally more positive on ICAPS than it was last Q, as it is set to grow Y/Y in 2023 even in the face of China export restrictions,” Bolton said.

He further explained that the market growth of ICAPS is way higher than the leading edge chips this year due to “end market strength, higher capital intensity, and government incentives.”

Bolton’s convictions can be trusted, given that he is ranked number 1 among more than 8,300 analysts in the TipRanks database. Additionally, his track record of 70% profitable ratings, with each rating delivering an average return of 39.8%, is laudable.

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