For Immediate Release

Chicago, IL – October 22, 2024 – Zacks Equity Research shares Shopify Inc. (SHOP Quick QuoteSHOP - Free Report) as the Bull of the Day and Avis Budget Group, Inc. (CAR Quick QuoteCAR - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Costco Wholesale Corp. (COST Quick QuoteCOST - Free Report) , Walmart (WMT Quick QuoteWMT - Free Report) and Amazon (AMZN Quick QuoteAMZN - Free Report) .

Here is a synopsis of all five stocks.

Bull of the Day:

Shopify Inc. stock has doubled the Technology sector over the last two years and blown it away since SHOP’s 2015 IPO.

Shopify stock crushed Amazon during both periods, yet it trades 50% below its all-time highs.

Shopify's impressive revenue and earnings outlook is driven by its expansion and profit-focused streamlining efforts. Shopify boasts a stellar balance sheet and its offerings become integral to its growing portfolio of diverse clients.

It might be time for investors to buy Shopify stock down 50% from its peaks while tons of other big tech stocks appear overheated and trade near all-time highs.

Why Shopify Continues to Thrive in an E-commerce World Dominated by Amazon

Shopify helps its clients grow online and in person in an e-commerce and retail world dominated by Amazon and Walmart. The company offers solutions across four core phases of business: start, sell, market, and manage.

Shopify’s portfolio includes everything from website creation and design to sales, marketing, payments, automation, inventory, shipping, and much more. Shopify’s customers span entrepreneurs, small and mid-businesses, and large enterprises.

Shopify is thriving in the Amazon-heavy e-commerce industry by catering to sellers and businesses, while Amazon ruthlessly focuses on getting consumers any product as fast as possible at the lowest price.

Shopify expanded from $1.1 billion in revenue in 2018 to $7.1 billion in FY23 by empowering its clients to efficiently sell across digital channels, in-store, wholesale, and beyond.

Shopify’s Growth and Outlook

Shopify makes money from recurring subscription fees and various add-ons. Shopify’s days of 60% revenue growth are over, but it is making up for that with higher prices and a focus on profits.

Shopify raised its prices in 2023 (by roughly 30% for its various plans) for the first time in over a decade.

Shopify posted a strong beat-and-raise second quarter. The company said it “is rapidly strengthening its position as a leading enabler of global commerce and entrepreneurship.”

Shopify’s Gross Merchandise Volume grew by 22% to $67.2 billion. SHOP's Gross Payments Volume reached $41.1 billion, representing 61% of GMV processed vs. 58% in the year-ago period—GPV is the amount of GMV processed through Shopify Payments.

SHOP grew its quarterly revenue by 21%, or 25% after adjusting for the sale of its logistics businesses. Subscription Solutions revenue increased 27%, “driven by growth in the number of merchants and pricing increases on our subscription plans.”

Meanwhile, Merchant Solutions revenue increased 19% to $1.5 billion. On top of that, Shopify more than doubled its free cash flow margin to 16%.

Shopify is projected to grow its sales by 22% in 2024 and 20% in 2025 to surge from $7.1 billion last year to $10.3 billion next year (SHOP did $1.6 billion in sales in pre-Covid 2019).

SHOP is expected to boost its adjusted earnings by 51% in 2024 to $1.12 a share and then boost its bottom line by 19% next year. Shopify’s upbeat earnings revisions help it land a Zacks Rank #1 (Strong Buy).

SHOP’s most accurate/recent EPS estimate for FY25 came in 13% above its already-improved consensus.

Shopify executives earlier this year reaffirmed their commitment to keeping things lean, with the company saying that employee onboarding has been “essentially flat” for the past five quarters.

Time to Buy Shopify Stock on the Dip?

Shopify shares have climbed roughly 2,800% since its 2015 IPO, blowing away Amazon’s 800% and Tech’s 300%. Shopify stock was a Wall Street star long before Covid hyper-charged the stock.

Shopify shares then got hammered by higher rates and slowing growth. Shopify trades roughly 50% below its 2021 peaks despite soaring 185% in the last two years.

Shopify is attempting to hold its ground at its 21-day moving average. SHOP stock is back above its 200-week moving average for the second time since its massive pullback.

SHOP stock could break above its early 2024 levels if it provides solid guidance when it reports its Q3 results.

Shopify’s 10-for-1 stock split in mid-2022 helped make it more attainable to a larger swath of investors (currently trading for around $82 a share).

SHOP’s sky-high valuation is holding the stock back, but its commitment to earnings and streamlined growth is helping.

SHOP’s 2.4 PEG ratio, with factors in its long-term earnings growth outlook, marks an 84% discount to its recent highs and not too large of a premium compared to the Zacks Tech sector (1.6).

Why Shopify is the Bull of the Day Stock

Shopify is growing its reach in a critical area of the economy. SHOP’s robust balance sheet ($5 billion in cash and equivalents $11.3 billion in total assets vs. $2.2 billion in total liabilities) will help Shopify continue to expand and possibly invest in the next critical frontier of commerce.

It might be worth adding exposure to Shopify stock 50% below its peaks while the S&P 500 trades near all-time highs.

Bear of the Day:

Avis Budget Group, Inc.’s earnings outlook has tumbled in 2024 and its most recent/most accurate EPS estimates came in well below its already beaten-down consensus.

The car rental titan’s stock has tumbled 60% in the last two years and it doesn’t look like investors should attempt to buy into Avis Budget just yet.

Avis Budget Stock 101

Avis Budget boasts roughly 10,250 rental locations in around 180 countries under its Avis and Budget brands. Avis Budget directly operates most of its car rental locations in North America, Europe, and Australasia. Outside of those regions, Avis Budget works primarily through licensees.

On top of its core Avis and Budget segments, CAR’s Zipcar brand is one of the largest car-sharing companies in the world.

The vehicle rental space is an extremely competitive industry, marked by intense price and service competition. Avis Budget's primary competitors include Enterprise Holdings, Inc. (Enterprise, National, and Alamo brands), Hertz Global Holdings, Inc. (HTZ) (Hertz, Dollar, and Thrifty brands), and many others.

The company’s total expenses jumped 20.8% YoY in 2023, and Zacks estimates call for expenses to climb by 15.6% in 2024. Avis Budget’s expenses have surged on the back of high fleet costs, with Per-Unit Fleet Costs per Month up 104% YoY to in the first six months of 2024 (up 131% in its Americas region).

Avis Budget missed our adjusted Q2 earnings per share estimate by 84% YoY.

Zacks estimates call for CAR’s adjusted EPS to fall by 83% YoY from $42.08 a share last year to $7.15 per share in 2024. CAR’s adjusted earnings already dropped 26% in 2023 and its most accurate/recent EPS estimate for FY24 came in 30% below consensus—$5.02 a share vs $7.15.

Stay Away from CAR Stock?

On top of that, Avis Budget’s most accurate/recent EPS estimate for FY25 is 25% below consensus. Avis Budget’s downward earnings revisions help it earn a Zacks Rank #5 (Strong Sell) right now.

Avis Budget stock has tumbled 60% in the past two years, helping it give up a large chunk of its massive post-Covid selloff gains. CAR trades miles below its 200-week moving average, and Avis Budget is back below its 50-day following a recent pop.

Investors might want to stay away from Avis Budget stock until it proves that its earnings outlook isn’t going to keep fading.

Additional content:

Costco: Buy, Hold or Sell Following September Sales Results?

Costco Wholesale Corp., renowned for its membership-based warehouse model, recently released its sales results for September. This data offers fresh insights into the company's performance within a rapidly evolving retail landscape. As investors evaluate the performance, a crucial question arises: Should they buy, hold or sell Costco stock?

The September sales figures arrive at a moment when inflation, ongoing geopolitical tensions, and a contentious presidential election are influencing consumer behavior. Despite these dynamics, Costco has positioned itself to meet the demands of price-conscious consumers by offering quality products at competitive prices. This strategy not only attracts new customers but also nurtures strong loyalty among existing members.

Costco’s September Sales Reflect Continued Demand

Costco's ability to offer products at lower prices than many of its competitors is a major draw for its customer base. The company’s bulk purchasing model allows it to negotiate favorable terms with suppliers and pass the savings on to consumers. This pricing strategy attracts a broad demographic, from budget-conscious families to small businesses, enhancing Costco's appeal across various market segments.

For the five weeks ending Oct. 6, comparable sales rose 6.7%. This stellar performance follows consecutive increases of 5% and 5.2% in August and July, respectively. September’s total and comparable retail sales saw a boost of about two percent in the United States and one and one-half percent globally, driven by solid consumer demand in the final week of the month, largely influenced by Hurricane Helene and disruptions from port strikes.

When adjusting for the effects of gasoline prices and foreign exchange rates, Costco’s comparable sales paint an even more impressive picture. The company’s total comparable sales, excluding these external factors, increased by 8.9% in the last month.

As a result, Costco's net sales for September rose 9%, reaching $24.62 billion, up from $22.59 billion in the same period last year. This follows a sales improvement of 7.1% reported in both August and July, reflecting a strong and consistent sales performance in the past few months.

Costco’s Membership Model Pivotal to Business Strategy

Costco’s membership model, where customers pay an annual fee for access to its warehouse stores, ensures a steady revenue stream. This is a unique advantage that sets Costco apart from many other retailers, providing it with a more predictable income, even in uncertain economic conditions. The company benefits from substantial recurring revenues through membership fees, with renewal rates exceeding 90% in key markets such as the United States and Canada.

Last month, Costco raised its membership fees for U.S. and Canadian customers. Gold Star, Business and Business add-on memberships now cost $65 annually, reflecting a $5 increase, while Executive Memberships have increased from $120 to $130. This move also comes with a boost in the maximum annual 2% Reward for Executive Members, up from $1,000 to $1,250.

We note that Costco ended the final quarter of fiscal 2024 with 76.2 million paid household members, up 7.3% from the prior year. Executive memberships, a more profitable category for Costco, grew by 9.6% year over year to reach 35.4 million, now accounting for 46.5% of all paid members and driving 73.5% of worldwide sales.

Can Costco Maintain Its Edge?

Costco's impressive sales figures are part of a larger retail picture where competition is intensifying. Rivals like Walmart, which also caters to value-conscious consumers, are investing in expanding their e-commerce capabilities and enhancing customer experience. Amazon continues to dominate online shopping, pushing traditional retailers to innovate rapidly.

Costco’s membership model and bulk-buying advantages give it a notable edge in customer retention and operational efficiency. However, to stay ahead, Costco must effectively leverage its strengths while adapting to shifting consumer behaviors and technological advancements. Costco’s efforts in expanding its online presence, which include improving its digital shopping experience and logistics, are key to its success. The company registered a 22.9% increase in e-commerce comparable sales in September.

Is Costco’s Stock Price Overvalued or Premium Justified?

Costco stock has been a standout performer, with shares rallying 24.8% over the past six months, outpacing the industry's rise of 14.4%. This impressive growth underscores investor confidence in Costco’s business model.

However, the stock is trading at a significant premium to its peers. Costco's forward 12-month price-to-earnings ratio stands at 49.33, higher than the industry’s ratio of 29.65 and the S&P 500's ratio of 22.2.

Now the question arises: Is Costco’s current price warranted, or is it overvalued in today’s market?

Well, Costco’s premium valuation reflects investor confidence in the company’s ability to deliver consistent growth and maintain its competitive advantage. While the stock’s current price may seem high, its robust business model, strong customer base and reliable revenue streams justify the premium.

Costco Stock: Buy, Hold or Sell?

Costco's robust membership model, combined with its ability to adapt to evolving market trends, solidifies its position as a leader in the retail sector. Although the stock's premium valuation may cause hesitation among some investors, Costco's favorable product mix, consistent store traffic and strong pricing power mitigate these concerns. Its solid liquidity position reinforces the company's capacity to navigate economic uncertainties effectively. With a Zacks Rank of #2 (Buy), Costco demonstrates strong potential for continued growth, suggesting that investors may find compelling upside opportunities in its stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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