ChargePoint(CHPT) management revealed many key insights about the company’s prospects over the next several quarters. Investors will not want to miss this video that highlights the key messages from ChargePoint management.
*Stock prices used were the afternoon prices of March 16, 2023. The video was published on March 18, 2023.
Parkev Tatevosian is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through fool.com/parkev, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool.
NEWPORT NEWS, Va., March 18, 2023 (GLOBE NEWSWIRE) — HII (NYSE: HII) hosted commencement exercises today, celebrating 200 graduates of the company’s Apprentice School at Newport News Shipbuilding (NNS). The ceremony was held at Liberty Live Church in Hampton.
Virginia Gov. Glenn Youngkin delivered the keynote commencement address.
“Newport News Shipbuilding graduates: You build America, you run America, you are the backbone of America, and we are so proud of you,” Youngkin said. “As Governor of Virginia, it’s never been clearer that the road to American exceptionalism runs right through your classrooms and dry docks. Congratulations on honing your skill and your relentless dedication, you are the pride and future of Virginia.”
Xavier Beale, NNS vice president of human resources and trades, addressed the graduates as the shipyard’s newest leaders.
“You chose to answer the noble call to become a shipbuilder, to give of yourself to build the world’s most powerful nuclear-powered aircraft carriers and submarines,” Beale said. “You completed thousands of hours of rigorous classroom and on-the-job training to become experts in your fields. You graduate today, armed with the craftsmanship, scholarship and leadership necessary to become our next generation of shipbuilding leaders.”
Jasmine Tutt received the Homer L. Ferguson Award, which recognizes the apprentice graduating with the highest average in combined required academic and craft grades. Tutt is the first African American woman to receive the award. She is an electrical engineer at NNS and has supported a variety of programs, including Virginia-class submarine and Gerald R. Ford-class aircraft carrier construction, since joining HII in 2014.
Tutt first graduated from William & Mary with a degree in chemistry. During her time at The Apprentice School, she earned an associate’s degree in engineering from Tidewater Community College and a bachelor’s degree in electrical engineering from Old Dominion University.
During her address, Tutt asked graduates to reflect on the experiences that have shaped their apprenticeships and set them up for success as shipyard leaders.
“We’re stronger together than we are alone. Don’t forget those feelings as you help guide the next generation of apprentices and shipbuilders, because we’ll leave today as new members of a unique community of graduates unlike any other,” Tutt shared. “Within this community exists a bond of hard work, dedication, and sheer grit that is unique to having been an apprentice.”
The following is a profile of the graduating class:
Thirty-two completed an optional, advanced program, earning an associate’s or bachelor’s degree. The program includes coursework in subjects such as marine design, production planning, modeling and simulation, and marine engineering.
Seventy-nine earned honors, a combination of academic and craft grades that determine overall performance.
Two completed the Advanced Shipyard Operations Program, allowing them to continue their postsecondary education, expand their experience in waterfront operations and develop leadership skills to improve the quality and efficiency of production, manufacturing and maintenance processes.
Forty-three completed Frontline FAST, an accelerated skills training program for potential foremen.
Thirty-three inducted into The National Society of Leadership Success.
Six completed the World Class Shipbuilder Curriculum and advance optional program with a perfect 4.0 GPA
Six are military veterans or are currently serving in the armed services as reservists and guardsmen, representing every branch of the military.
Twenty-two earned athletic awards.
The Apprentice School accepts more than 200 apprentices per year. The school offers four- to eight-year, tuition-free apprenticeships in 19 trades and eight optional advanced programs. Apprentices work a 40-hour week and are paid for all work, including time spent in academic classes.
Through partnerships with Virginia Peninsula Community College, Tidewater Community College and Old Dominion University, The Apprentice School’s academic program provides the opportunity to earn associate degrees in business administration, engineering and engineering technology and bachelor’s degrees in mechanical or electrical engineering.
HII is a global, all-domain defense provider. HII’s mission is to deliver the world’s most powerful ships and all-domain solutions in service of the nation, creating the advantage for our customers to protect peace and freedom around the world.
As the nation’s largest military shipbuilder, and with a more than 135-year history of advancing U.S. national security, HII delivers critical capabilities extending from ships to unmanned systems, cyber, ISR, AI/ML and synthetic training. Headquartered in Virginia, HII’s workforce is 43,000 strong. For more information, visit:
Investing in dividend stocks can be a great way to generate passive income and build wealth over time. But with so many choices available, it can be difficult to decide which ones to add to your portfolio. One dividend stock that I view as exceptional and well worth a closer look is Dick’s Sporting Goods(DKS -1.38%). The American sporting goods retailer is a superb capital allocator, and has rewarded its shareholders with huge dividend growth.
Here are several reasons why investors looking for income may want to put Dick’s at the top of their stock watch lists.
Impressive dividend growth
Alongside its announcement of record-setting 2022 results last week, the company surprised investors with a 105% increase to its dividend. Dick’s new quarterly payout is $1 per share, which at the current stock price gives it an attractive dividend yield of 2.8%.
Management is extremely confident about Dick’s future. “In 2023, we will grow both our sales and earnings through positive comps,” said CEO Lauren Hobart in the company’s fourth-quarter earnings release. Its momentum, Hobart added, has positioned Dick’s to simultaneously accelerate investments in its business “to fuel long-term growth opportunities, and also return significant capital to shareholders.” Further, the dividend increase reflects management’s “strong conviction” in the company’s “structurally higher sales and earnings,” she said.
This robust business momentum sets Dick’s up well for more dividend hikes in the years ahead. Making the argument for expecting additional increases even stronger, Dick’s boasts an exceptionally low payout ratio. Over the past 12 months, Dick’s distributed only 15.6% of its earnings in dividends.
More than meets the eye
Dick’s has an impressive dividend history, going back more than a decade.
Here’s one tidbit about its that history that highlights just how well this business is doing, despite an uncertain market. In 2020, Dick’s said that it was going to suspend dividend payments after many of its stores were shuttered early in the pandemic. But it didn’t end up missing a payment after all. Instead, it reinstated the program, citing extremely strong sales after those stores reopened.
Another key aspect to Dick’s history of rewarding shareholders — and a part of it that some investors may overlook — is that it occasionally pays special dividends on top of its regular dividends. In 2012 and 2021, for instance, Dick’s paid shareholders $2 and $5.50 special dividends, respectively. Highlighting how significant the 2021 special dividend was, it amounts to more than five times the boosted quarterly dividend Dick’s just announced.
Not only does Dick’s Sporting Goods offer a reliable dividend, it has also shown impressive payout growth in recent years. The company also boasts strong cash flows and continues to pursue strategic capital allocation initiatives that should benefit shareholders in the long run.
As always, do your own due diligence and research before making any investment decision. But if you are looking to add a reliable dividend payer to your portfolio, Dick’s Sporting Goods is definitely worth considering.
Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Last Friday (March 10), seemingly out of the blue, the financial world was rocked with the failure of Silicon Valley Bank (SVB VB ), then Signature Bank SBNY . This week we saw the contagion spread to Europe (Credit Suisse). The chart above shows the rapid plunge this past week in the S&P Regional Bank Index, not a pretty picture.
We did have a CPI report; it was released on Tuesday (March 14) and was nearly identical to market expectations, with Y/Y inflation falling back to 6.0%. Then on Wednesday, the Producer Price Index showed an actual fall of -0.1% for February, with the services sub-index also showing up as -0.1% for the second month in a row, something we haven’t seen for more than 7 years. The Fed meets next week, with markets now indicating that a 50-basis point rate hike is now off the table. The sentiment appears to be tilting toward between no rate hike, but 25 basis points is still a clear possibility with this Fed.
The financial world is still reeling from this turbulence. The U.S. Regulators tried to make this a one-off event. But clearly nobody bought that, as many U.S. Regional Banks had silent deposit runs on them and we just had similar drama with Credit Suisse in Europe (with the Swiss National Bank ending the drama with a 50 billion franc ($54 billion) cash loan. Then on Thursday (March 16) we learned that there is a discussion led by JPMorgan and other large money center banks to make a deposit of $30 billion into First Republic, which is the latest bank experiencing this assault of deposit runs. This gives First Republic $30 billion of liquidity to help them survive any deposit withdrawals from clients who have lost confidence.
Back to SVB. Last Friday, because they were a lender to the tech sector, especially tech start-ups, some commentators said that this was a one-off event. Relevant here is the level of uninsured deposits. As of 12/31/22, of the $175 billion of deposits, 94% were not insured (i.e., over the $250K limit).
SVB was a niche bank – it catered to technology company start-ups. Note its name and location – in the heart of Silicon Valley. When a start-up gets capital from its sponsors, its new shareholders, those sums are usually in millions of dollars. They deposit these funds into their bank account – and since SVB was the niche bank for such start-ups, the deposits were all way over the $250K FDIC insurance limit.
Let us digress here and explain the banking process. In order for a bank to make a profit, it must have investments – either it makes loans to businesses and individuals, or it buys assets like bonds. It does that with a portion of the deposits it takes in. So, because they make loans or buy bonds, a bank doesn’t have enough cash on hand to pay back all the depositors at once. And, in normal times, they don’t have to. On a daily basis, new deposits come into a bank even as owners of existing deposits make withdrawals, usually by writing checks. This is the normal way the system works – until, that is, the public loses confidence in a particular bank, and everybody wants their deposits at the same time – that’s called a bank run. These are very rare – the last time we saw anything near to what is currently going on was in the 1930s, before FDIC insurance, although we did have some issues back in 2008.
There are sources of liquidity for a bank. They normally have lines of credit with the Federal Reserve Bank or other government agencies like the Federal Home Loan Bank. However, when those are exhausted, the bank must sell its other liquid assets, its bonds.
Prior to March 2022, bond yields were miniscule and had been so since the end of the Great Recession. The Fed had kept interest rates near zero and kept creating money until it decided to go on the fastest hiking spree since the early 1980s. Because of the length of time interest rates were low (2008 to 2022), in order to garner any sort of yield, some banks bought long duration (time to maturity) bonds. When rates rise, longer duration bonds suffer much higher price depreciation than do shorter ones. And when rates rise spectacularly fast, the bond prices fall rapidly.
It is pretty certain that SVB is not a loner when it comes to the value of their bond portfolios. It’s been a year since the Fed began hiking. So, the question becomes: If some banks have this bond problem, why aren’t there more bank solvency issues? This is what the regulators feared the weekend that SVB and Signature Bank failed.
To protect bank earnings and capital from tumbling when interest rates rise, thirty or so years ago, the accounting profession and the bank regulators set up a “Held to Maturity” classification for bank bond portfolios. Bankers could elect to put bonds in that designation, or into a separate pool called “Available for Sale.” Bonds in the “Held to Maturity” classification don’t have to be marked to market (i.e., from the purchase price, these bonds amortize or accrete toward the maturity value). The logic is, since they are “Held to Maturity,” market prices do not matter (our comment: until they do). Bonds in the “Available for Sale” account are regularly marked to market prices. The one caveat is that a bank cannot just “sell” a single bond from the “Held to Maturity” account. If it did, the entire “Held to Maturity” pool would have to be immediately marked to market.
As noted, because of the minuscule rates from the Great Recession till last March, most of the bonds in the “Held to Maturity” classification are likely to be longer-term in nature (because they had some yield when purchased during the Fed’s zero interest rate regime). As rates have dramatically risen over the past year, the market value of those bonds tanked. Clearly, in SVB’s case, the losses in the “Held to Maturity” portfolio were enough to deplete its capital and cause its insolvency.
In today’s world, some banks would suffer a significant depletion of capital if their “Held to Maturity” bond portfolios were marked to market. As a result of the SVB and Signature Bank failures, in the immediate aftermath of those failures, the regulators set up some new rules to persuade the public that their money is safe in their current banks:
They guaranteed 100% of the deposits at both SVB and Signature bank. We suspect they would extend this to any other large bank that fails in the near future. But, apparently not to small banks because, on Thursday (March 16), Treasury Secretary Janet Yellen, when asked by Oklahoma Senator Lankford if the deposits in all banks, regardless of their size, are now 100% insured, she responded: Uninsured deposits would only be covered in the event that a “failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.” [Translating that into plain English: 100% of the deposits of the large banks are now covered, but if you are a small bank, probably not. Thankfully, the media isn’t pushing this declaration.]
The regulators also set up a new lending facility for banks in which they would loan 100% of the face value of the “Held to Maturity” bonds. As a result, if that portfolio is worth, say 15% less than what it was purchased for, the bank could get 100% of their investment using those bonds as collateral. They won’t have to sell them and take a loss on their financial statements. This protects the capital position shown on the financial statements, and, at the same time, satisfies the regulators.
Like any corporation, a bank will survive if it has enough liquidity to continue operations. That’s what those new lending facilities are designed to accomplish, i.e., the provision of adequate liquidity to survive any storm.
Of course, the burning question is: Have we seen the end of this crisis? As we write, we don’t think this is over quite yet – we still have to get through the First Republic issue, and there may be other targets over the near term.
Nevertheless, this is what poor Fed policy (both keeping interest rate too low for too long, and then spiking them) has done to the banking system. This is what happens when there is a singular goal (2% inflation) that is pursued without regard to the health of the entire system, which, by the way, is clearly a responsibility of the Fed.
As we have discussed in prior blogs, there is a Recession coming:
Via the lagged impacts of the Fed tightening moves that have already occurred;
Via the inevitable tightening of bank lending in the wake of the current instability in the banking system;
As indicated by the fall of the Leading Economic Indicators over the past year;
Because retail sales are soft;
Because corporate profits are falling;
……. The list goes on.
Prior to last week’s banking sector instability, markets were braced for a 50-basis point hike in interest rates at the Fed’s March 21-22 meeting. The consensus now is a toss-up between no hike and 25 basis points. In our view, given the instability in the banking system (which the Fed is supposed to be concerned with), and the fact that the recent Producer Price Index was -0.1% for February, any rate hike appears to us to be overkill. We are very firmly in the rate reduction camp. That’s because we think the Recession will break other things in the economy – we just don’t know what or when!
Nearly 200 more banks may be vulnerable to the same type of risk that took down Silicon Valley Bank: The value of the assets they hold.
There are 186 banks across the country that could fail if half of their depositors quickly withdraw their funds, a new study published on the Social Science Research Network found. Even insured depositors — those with $250,000 or less in the bank — could have problems getting their cash if these institutions face the sort of run that Silicon Valley saw a week ago.
The concern is that these banks hold a significant amount of their assets in interest-rate sensitive financial instruments like government bonds and mortgage backed securities. The value of those older, low-interest investments dropped sharply as the Federal Reserve hiked interest rates over the past year.
In the case of SVB, the Santa Clara, California-based institution parked much of its cash in long-term government bonds, which are ultra-safe in terms of losing the initial investment, but were not worth as much as when SVB bought them, because interest rates have since gone higher. The bank had to sell off some of those bonds to meet customer demands for withdrawals at less than it paid for them, resulting in a nearly $2 billion loss.
When SVB disclosed that loss, along with a plan to raise an additional $500,000 million from Wall Street, it sparked fears among its venture capital and tech start-up-heavy customer base that the bank was insolvent. In a social media-fueled panic, customers rushed to withdraw their money out of concern that the bank would run out of case — a classic bank run.
The federal government stepped in to promise it would back all depositors, not only those with the FDIC-limit $250,000, in an effort to stop a wider panic where depositors started pulling money from other banks that are roughly the same size.
Now, the study shows that a slew of those other banks could be vulnerable to the same developments if a high percentage of worried customers start trying to withdraw their deposits.
“Our calculations suggest these banks are certainly at a potential risk of a run, absent other government intervention or recapitalization,” the economists wrote.
The study looked at banks’ asset books nationwide, and found an estimated $2 trillion loss in their market value.
So one day Silicon Valley Bank (SVB) was a bank, and then the next day it was a smoking hulk that looked as though it might bring down a whole segment of the US banking sector. The US government, which is widely regarded by the denizens of Silicon Valley as a lumbering, obsolescent colossus, then magically turned on a dime, ensuring that no depositors would lose even a cent. And over on this side of the pond, regulators arranged that HSBC, another lumbering colossus, would buy the UK subsidiary of SVB for the princely sum of £1.
Panic over, then? We’ll see. In the meantime it’s worth taking a more sardonic look at what went on.
The first thing to understand is that “Silicon Valley” is actually a reality-distortion field inhabited by people who inhale their own fumes and believe they’re living through Renaissance 2.0, with Palo Alto as the new Florence. The prevailing religion is founder worship, and its elders live on Sand Hill Road in San Francisco and are called venture capitalists. These elders decide who is to be elevated to the privileged caste of “founders”.
To achieve this status it is necessary to a) be male; b) have a Big Idea for disrupting something; and c) never have knowingly worn a suit and tie. Once admitted to the priesthood, the elders arrange for a large tipper-truck loaded with $100 bills to arrive at the new member’s door and cover his driveway with cash.
But this presents the new founder with a problem: where to store the loot while he is getting on with the business of disruption? Enter stage left one Gregory Becker, CEO of SVB and famous in the valley for being worshipful of founders and slavishly attentive to their needs. His company would keep their cash safe, help them manage their personal wealth, borrow against their private stock holdings and occasionally even give them mortgages for those $15m dream houses on which they had set what might loosely be called their hearts.
So SVB was awash with money. But, as programmers say, that was a bug not a feature. Traditionally, as Bloomberg’s Matt Levine points out, “the way a bank works is that it takes deposits from people who have money, and makes loans to people who need money”. SVB’s problem was that mostly its customers didn’t need loans. So the bank had all this customer cash and needed to do something with it. Its solution was not to give loans to risky corporate borrowers, but to buy long-dated, ostensibly safe securities like Treasury bonds. So 75% of SVB’s debt portfolio – nominally worth $95bn (£80bn) – was in those “held to maturity” assets. On average, other banks with at least $1bn in assets classified only 6% of their debt in this category at the end of 2022.
There was, however, one fly in this ointment. As every schoolboy (and girl) knows, when interest rates go up, the market value of long-term bonds goes down. And the US Federal Reserve had been raising interest rates to combat inflation. Suddenly, SVB’s long-term hedge started to look like a millstone. Moody’s, the rating agency, noticed and Mr Becker began frantically to search for a solution. Word got out – as word always does – and the elders on Sand Hill Road began to whisper to their esteemed founder proteges that they should pull their deposits out, and the next day they obediently withdrew $42bn. The rest, as they say, is recent history.
What can we infer about the culture of Silicon Valley from this shambles? Well, first up is its pervasive hypocrisy. Palo Alto is the centre of a microculture that regards the state as an innovation-blocking nuisance. But the minute the security of bank deposits greater than the $250,000 limit was in doubt, the screams for state protection were deafening. (In the end, the deposits were protected – by a state agency.) And when people started wondering why SVB wasn’t subjected to the “stress testing” imposed on big banks after the 2008 crash, we discovered that some of the most prominent lobbyists against such measures being applied to SVB-size institutions included that company’s own executives. What came to mind at that point was Samuel Johnson’s observation that “the loudest yelps for liberty” were invariably heard from the drivers of slaves.
But the most striking takeaway of all was the evidence produced by the crisis of the arrant stupidity of some of those involved. The venture capitalists whose whispered advice to their proteges triggered the fatal run must have known what the consequences would be. And how could a bank whose solvency hinged on assumptions about the value of long-term bonds be taken by surprise by the impact of interest-rate increases? All that was needed to model the risk was an intern with a spreadsheet. But apparently no such intern was available. Perhaps s/he was at Stanford doing a thesis on the Renaissance.
The Market Leader’sCybersecurity Ambition Is Obvious
CrowdStrike (NASDAQ:CRWD) continued to be ranked first in IDC’s annual Worldwide Modern Endpoint Security Market Share report for the third consecutive year. The company has proven to be the market leader, with 17.7% of market share between June 2021 and June 2022, against Microsoft’s (MSFT) 16.4% at the same time.
It was also important to highlight its continuous gain in market share from 2021 levels of 12.6%, against MSFT’s 11.2% in 2021. In a market that was becoming increasingly competitive, it is apparent that consumers were growingly confident in CRWD’s cybersecurity offerings.
Most of the success might be attributed to CRWD’s pioneering integration of AI and cybersecurity capabilities since the launch of Falcon in 2013. This allowed the company to “effectively process and correlate the massive volume of data across its entire platform,” while also delivering massive cost efficiencies and improving security outcomes.
In the most recent earnings call, the management did not hold back either, and deemed MSFT’s cybersecurity offerings as “not good enough,” as highlighted by George Kurtz, CEO of CRWD:
And we’ve been winning because of our coverage across multiple operating systems, the complexity of Microsoft, 6 consoles. In fact, just today alone, they had 6 signature updates. And in January, as I call them the 3 Cs, the last one is catastrophe, during our incident response engagements, the majority of the systems that are breached are using Defender. (Seeking Alpha)
Perhaps this was why MSFT had been so eager to integrate AI tools into its cloud offering, Azure, on top of adopting multiple AI tools across its ecosystem. Nonetheless, it remains to be seen if the company will be able to leverage the hype and triumph over CRWD’s multi-faceted cybersecurity offerings, especially since the former’s “Defender costs twice as much” as the latter’s Falcon.
SentinelOne (S) had not been spared either, losing two of its key leaders to CRWD at a time of an elongated sales cycle. A new role had been created for Daniel Bernard, as a Chief Business Officer, to accelerate its penetration and contract wins in the small to medium size businesses. This was on top of Raj Rajamani, who joined the company as Chief Product Officer for data, identity, cloud, and endpoint security.
Furthermore, CRWD chose to aggressively expand its R&D expenses by +63.8% YoY, against MSFT’s moderate increase of +28.5% and SentinelOne’s increase of 43.6% YoY, despite the uncertain macroeconomic outlook. Through these strategies, it seems apparent that CRWD remains highly committed to its forward execution, in order to expand the top/ bottom line while growing its market share.
Statistics Demonstrate CRWD’s Growing Leadership
In the recent earnings call, CRWD also reported excellent adoption growth to 62% (+2 points QoQ/ +5 YoY) for five or more modules, 39% (+3 points QoQ/ +5 YoY) for six or more, and 22% (+1 point QoQ/ +22 YoY) for seven or more, as of January 31, 2023.
Combined with the stellar dollar-based net retention rate of 125.3% as of FQ4’23 (+3.5 points QoQ/ +1.4 points YoY), it was unsurprising that CRWD reported expansion in the ending Annual Recurring Revenue [ARR] to $2.56B (+9.4% QoQ/ +50.5% YoY).
This was proof that the company’s cybersecurity offerings remained mission critical to most consumers despite the tightened corporate spending, as highlighted by George Kurtz, CEO of CRWD:
We converted our pipeline into wins and built a record Q1 pipeline even as sales cycles elongated as we saw late in Q3, and we did not see the typical budget flush as organizations continue to work through macro concerns. (Seeking Alpha)
CRWD’s improving gross margins of 75% (inline QoQ and -2 points YoY) by the last quarter also demonstrated its stellar business model, being largely unimpacted by the rising inflationary pressures. Particularly, its adjusted operating income grew faster by +81% YoY to $355.6M in FY2023, against its revenues of +54% YoY to $2.24B, implying the increased selling/marketing efficiencies over time.
As a result, these strategies helped significantly expand CRWD’s Free Cash Flow to $676.80M (+46.3% YoY) and improved its balance sheet with net debts of -$1.96B (+56.8% YoY) by FY2023. Combined with the notable lack of layoffs thus far, we reckon there are still massive tailwinds for the stock’s outperformance over the next few years.
So, Is CRWD Stock A Buy, Sell, or Hold?
CRWD 1Y EV/Revenue and P/E Valuations
CRWD is currently trading at an EV/NTM Revenue of 8.79x and NTM P/E of 52.67x, lower than its 1Y mean of 14.53x and 117.89x, respectively. Based on the projected FY2025 EPS of $2.84, we are looking at a moderate price target of $149.58, suggesting an excellent 23.2% upside potential from current levels.
CRWD, ZS, OKTA, S 1Y EV/Revenue
While rich, CRWD’s valuation is still relatively reasonable compared to its cybersecurity peers, such as Zscaler (NASDAQ:ZS) at an EV/NTM Revenue of 8.27x, while Okta (NASDAQ:OKTA) trades at 5.85x, and S at 5.52x.
CRWD 5Y Stock Price
We believe the optimism in its share price and valuations are further supported by CRWD’s excellent FQ1’24 guidance of revenues between $674.90M and $678.20M (+39% YoY), against consensus estimates of $673.30M. Its guided adj. EPS of up to $0.51 (+64.5% YoY) looks stellar against estimates of $0.46 as well, significantly aided by the fact that only CRWD and ZS achieved positive adj. EPS thus far.
For FY2024 (CY2023), the company also expects to record revenues of up to $3.01B and adj. EPS of up to $2.39, suggesting a tremendous YoY improvement of +34.3% and +71.4%, respectively, despite the downturn experienced by most global companies thus far.
The robust market demand for cybersecurity offerings was also observed by other companies, given ZS’s optimistic revenue guidance of +43.3% YoY in FY2023 (August 2022 to July 2023), OKTA‘s +17.2% in FY2023 (February 2023 to January 2024), and S’s +105.5% in FY2023 (February 2023 to January 2024).
As a result of the optimistic factors above, it was not surprising to see CRWD record an impressive 31.6% recovery from the January 2023 bottom, suggesting its excellent support at those levels. Considering the attractive upside potential to our price target, interested investors may still add at current levels, while understanding that the company is not expected to see GAAP profitability until FY2025.
The headline over the past week had been the collapse of SVB Financial (SIVB) and Signature Bank (SBNY), with many analysts concerned about “a broader banking meltdown.”
The marked pessimism was evident, with many banking stocks declining drastically over the past week. This has also been seen in Bank of America’s (NYSE:BAC) stock prices, plunging by -15.54% to $28.76 since the market opened on March 06, 2023.
Particularly, the peak recessionary fears and the Fed’s continuous hikes have partly contributed to these issues, and also due to SIVB’s high reliance on startup/VC funding. Unprofitable startups had struggled over the past year, as capital funding dried up after a year of hyper-pandemic valuations in 2021.
The phenomenon forced these startups to rapidly draw down their deposits with SIVB to cover their cash burn, triggering cash flow issues for the bank. Particularly, the total deposits of $173.1B comprised 81.7% of its liquidity of $211.8B by the latest quarter. With over $42B of deposits drawn within a day, it was unsurprising that the SIVB collapse had occurred as rapidly as it did, resulting in the second-largest bank failure in US history.
For now, BAC reported $1.93T of deposits (-6.3% YoY) (with $1.4T of retail deposits) held on its balance sheet as of the latest quarter, comprising of 63.2% of its total assets at $3.05T (-3.4% YoY). For the sake of comparison, JPMorgan Chase (JPM) reported $2.04T of deposits (+5.1% YoY) in the US, comprising 55.7% of its total assets by the latest quarter.
The bank also only had 37.9% of the deposits as uninsured, compared to SIVH’s 88%. Given these numbers, BAC’s prospects appeared relatively safe, significantly aided by the de facto bailout. Particularly, up to 51.8% of the bank’s deposits were resilient, as highlighted by Brian Moynihan, CEO of BAC, in the recent earnings call:
These consumer deposits are being very sticky of $1 trillion. That stickiness, along with net checking account growth reflect the recognition in the value proposition of a relationship transactional account with our company. (Seeking Alpha)
This was further aided by BAC’s Global Liquidity Sources of $694B in bank entities, primarily “deposited with the Federal Reserve Bank and, to a lesser extent, central banks outside of the US” in FY2022. The sum comprised 68.4% of its liquidity sources of $868B. These implied a relatively secure form of liquidity, due to the regulator’s role in managing monetary policy and regulating the financial system in the US.
In addition, the FDIC had swooped in to stem the potential contagion and reassure the banking industry of sufficient liquidity at the two shuttered banks, “with no losses to be borne by taxpayers.” Interestingly, the regulators had done nothing when a similar “bank run” occurred during the cryptocurrency crisis.
On one hand, banks may have access to “easier funding,” suggesting that they do not need to realize losses on securities to raise capital in the panic-driven event of a bank run. Particularly, most of these issues were sparked by SVIB’s choice of selling $21B worth of securities at a -$1.8B loss on March 08, 2023, implying its urgent need to shore up its balance sheet then.
On the other hand, the February CPI remained elevated at 6%, matching market estimates. The labor market was also overly robust, with wages still growing and claims for unemployment declining. This had formerly triggered Powell’s hawkish tone in the recent congressional testimony, with market analysts concerned about a raised terminal rate to 5.5%.
We must also highlight that the Fed is due to meet again on March 21, 2023, with 82.7% of market analysts expecting another 25 basis point hike then. Therefore, the unbalanced push and pull factor between monetary policies and market sentiments may trigger further volatility in the banking market.
In the meantime, BAC’s position among the top three banks in the US temporarily cemented its prospects, with up to $15B in new deposits received over the past few days. The same had been witnessed with JPM, with tech companies opting to switch operations to the latter, as discussed by Michael Imerman from the University of California Irvine:
The top six banks in the US are and have been too big to fail, the financial crisis over 10 years ago demonstrated that. So it’s safer to go with a name with higher degree of certainty. (Bloomberg)
Then again, BAC would need to proceed with caution from here, due to the expanding gross unrealized losses in available-for-sale [AFS] securities at $4.78B (+602.9% YoY) and held-to-maturity [HTM] debt securities at $108.59B (+738.5% YoY) in FY2022. This was compared to $0.68B and $12.95B in FY2021, respectively.
The trend continued at JPM as well, with similar losses of $11.2B (+379.4% YoY) in AFS securities and $36.7B (+1055% YoY) in HTM securities in FY2022. On top of that, BAC also reported an elevated unrealized loss-to-equity ratio of 7.2%, compared to JPM’s 5.6% and Wells Fargo & Company’s (WFC) 6.9%, though notably improved from Citigroup’s (C) 18.9%.
Then again, as the term suggests, the losses may not be realized after all, if the debt is not sold. Furthermore, BAC has excellent liquidity sources in deposits and does not appear to be in urgent need of selling any of its HTM securities.
US Treasuries Yield Curve
Nonetheless, we reckon the pessimism in the US banking industry may persist a little longer, until a Fed pivot occurs and the US Treasuries yield curve normalizes.
As a result, is it wise to add BAC here? While the sentiment has naturally improved from the regulatory aid in the US and the UK, Mr. Market will be watching closely for any signs of cracks in other mid-sized banks. If the contagion is stopped, we may see the stock recover moderately from these levels, in our view.
In separate news, investors have also flocked to “safer assets” such as gold, with prices rallying by +5.23%/ $91 to $1.9K at the time of writing, compared to the pre-pandemic average of $1.3K. While another financial crisis may have been averted, it remains to be seen if we may escape a hard landing.
BAC 2Y Stock Price
For now, the BAC stock is trading near the previous July and October 2022 support levels of $30, way below its 50-day moving average, suggesting a potential bounce if the market and regulatory support are robust enough. Otherwise, it is not overly bearish to assume another slide to the November 2020 bottom of the mid $20s.
Nonetheless, we are cautiously rating BAC as a buy here, attributed to its excellent liquidity and long-term standing as a legacy bank in the US, as discussed above. With things seemingly quieting down, we may see market sentiments improving moving forward, assuming that the Fed’s next hike is as expected.
Then again, anyone adding here must also size their portfolios appropriately, since the uncertain macroeconomic outlook is unlikely to lift in the short term.
Mike Sakuraba graduated with double major of English and Economics. Part time writer, part time investor, full time dad. Mike loves writing about technology, sports, and investing.
Is Everyone Against NVIDIA? If you have been hanging around FinTwit or Reddit lately, you might have noticed a lot of negative sentiment against NVIDIA ($257.25|0.72%). NVIDIA is a company that I have written about many times in the past. It is a company that I believe will have a major hand in the future of industries like artificial intelligence. This article will talk briefly about being able to separate a stock from a company. I do not believe that everyone who is shorting NVIDIA hates the company. I believe that they are shorting the stock, which has skyrocketed in recent weeks. What’s the difference?
Bullish on a Company, Bearish on the Stock That might seem counterintuitive to you but trust me, it is entirely possible. You can think NVIDIA is going to be one of the tech leaders in the future, and it likely will be. But you can also think that the stock is too expensive, especially given the current economic climate. When there is about to be a recession, company earnings need to be reined in a bit more. This is because we are expecting a period of slower, if not negative growth. When a stock trades higher than a reasonable price multiple, we can say that the stock is overvalued. This doesn’t mean we hate the company. It means the stock needs to come back down to a more realistic valuation.
With NVIDIA, the stock is currently trading at a Price to Earnings ratio of about 147. If you weren’t sure, this is abnormally high. NVIDIA’s stock is also trading at an all-time high price, relative to the price of the NASDAQ exchange. Another sign that the stock has overshot during this recent run.
These are the primary reasons that many traders are choosing to short NVIDIA’s stock. So far this year, NVIDIA’s stock has gained nearly 80%. This is compared to just 15% by the QQQ which tracks the NASDAQ index and 2.4% by the S&P 500. Is this a reason to short NVIDIA? It’s a compelling reason to expect a higher chance of downside than upside in the near future. Would I short NVIDIA? I typically don’t short stocks, especially those that have been on such a roll in recent weeks. Every time someone has said they are shorting NVIDIA, it has gained another 10%.
Is NVIDIA Stock a Buy? The semiconductor stocks are due for a bit of a cooling-off period in my opinion. AMD ($97.84|1.28%) is also up by 53% so far this year, so NVIDIA isn’t the only red-hot chip stock. NVIDIA is a company I believe can be a part of a long-term investment portfolio. Would I buy it at these prices? I would certainly wait for a pull-back of some sort. Stocks don’t always just go up! This is also a reminder to not just blindly follow people on social media. How do we know they actually shorted NVIDIA? Be mindful of your own investment choices and use your own analysis before making any moves.
Disclaimer: I have no positions in any of the stocks mentioned.
I wrote this article myself, and it expresses my own opinions. I have no business relationship with any
company whose stock is mentioned in this article. All information should be independently verified and
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