CVS Health (CVS) Under Fire: How Will the Stock React to Pharmacist Backlash?

Posted on by The INO.com Team

Drugstore chain and pharmacy benefits manager CVS Health Corporation (CVS), with a market cap of $91.62 billion, has managed to navigate post-pandemic challenges with remarkable adeptness and resilience.

However, the specter of questionable working conditions looms large over pharmacists nationwide. Lengthy working hours, staff shortages, and an escalating workload often leave scant room for proper patient care, potentially leading to severe repercussions for pharmacists and their patients.

Waves of protest against what they perceive as substandard working conditions and unsafe patient care surged among CVS pharmacists in Missouri last Wednesday. About 22 CVS locations in Kansas City and pharmacies inside Target (TGT) stores were temporarily shut down late last week when pharmacists, supported by staff and additional healthcare personnel, raised their voices against overworking, arguing it compromised patient safety.

At the core of the matter lies understaffed pharmacies, which impede pharmacists’ ability to give patients adequate attention. This threatens the standards of care and advances the risk of medication errors. The non-unionized pharmacists called for limits on administered vaccine quantities, improved scheduling, and additional modifications.

In the face of scarce support and resources, many pharmacists cannot deliver optimal patient care. The protest led by CVS pharmacists aims to highlight these pressing issues and chart the course for a more sustainable, patient-oriented healthcare structure that prioritizes the well-being of pharmacists and their patients.

The Impact So Far

CVS shares tumbled 2.2% on Wednesday following the announcement of a second walkout by CVS pharmacists in Kansas City, MO, within a week.

Despite the corporation's apology for the delay in addressing their grievances and assurances of procedural improvements, recurring strike actions could detrimentally affect the quality of service delivery and impede its capacity to provide critical healthcare to consumers amid escalating COVID-19 cases and increased testing needs nationally.

The ongoing walkout might potentially cause turbulence in the COVID-19 booster shot rollout. Impact assessment remains uncertain as CVS pharmacists have not established the protest's duration nor its corollary effects on Target pharmacy booths and standalone drugstores.

Amid severe staffing constraints, pharmacists struggle to manage the soaring demand for COVID-19 and seasonal flu vaccinations and regular prescription needs. Consequently, customers should anticipate possible delays.

The series of protests have culminated in diminished customer satisfaction and erosion of consumer confidence, compelling some to transition to alternate pharmacy providers due to the ongoing challenges at CVS.

How CVS Might Be Affected

In the ongoing scenario, if the walkout continues, it risks not only eroding customer trust and precipitating a downward slide in sales, but it could also taint the company's reputation and brand value. This situation might indicate ineffective management, strained labor relations, and a compromised corporate culture.

Trapped in this crisis, CVS' ability to surpass rivals and its market dominance within the healthcare sector could face significant obstacles. The walkout could inflate the financial burden on CVS due to increased costs and liabilities related to potential legal ramifications arising from contract breaches or substandard practices.

Furthermore, the company’s operational efficiency and productivity are at stake as disruptions in supply chains and work processes threaten its smooth operations. These factors could collectively destabilize the company's financial stability and outlook. If unresolved over extended periods, the walkout could lead to substantial wealth erosion for shareholders.

However, amid this predicament, a few silver linings should be considered. Here are additional elements that could potentially shape CVS' trajectory in the forthcoming months:

Recent Developments

CVS, holding its position as America's largest drugstore chain, has pledged allegiance to the rising trend of biosimilars with the inception of its wholly-owned subsidiary, Cordavis. This new entity aims to liaise directly with manufacturers to commercialize or co-produce biosimilar products, reflecting CVS' strategy to mitigate drug costs for consumers by developing biosimilar medications and conducting direct negotiations with pharmaceutical companies.

This development signals promise for consumers and investors, as CVS harbors both an industry opportunity and the extensive scale required to compete effectively with eminent drugmakers.

The repercussions of the pandemic have catalyzed a paradigm shift in the U.S. drugstore industry, mainly characterized by consolidation trends. As we progress beyond this global crisis, traditional retail has faced challenges regaining traction, particularly in comparison with more robust sectors. Amid this scenario, drugstores have emerged as epicenters for evolutionary shifts and potential mergers.

CVS has recently stepped up its strategic initiatives by actively seeking partnerships, pursuing growth, and implementing a consolidation plan. As a result of a policy adjustment initiated in 2021, hundreds of CVS branches are set for closure as part of the company's cost-cutting measures to pre-empt potential losses.

In late 2021, the organization confirmed that it was assessing changes in population dynamics, consumer purchasing trends, and projected health requirements to assure the optimal placement of its stores for both customers and corporate viability.

CVS plans to lessen store saturation in certain areas as part of these efforts, leading to the shuttering of roughly 300 stores annually over the next three years. This strategic decision came as CVS aimed to allocate resources better and adjust to changing customer behaviors. The company anticipates that this course of action will close nearly 900 locations by the end of 2024.

Robust Financials

CVS’ total revenues increased 10.3% year-over-year to $88.92 billion in the fiscal second quarter that ended June 30, 2023, with product revenue rising 6.6% year-over-year to $60.54 billion. The company reported an adjusted operating income of $4.48 billion. Moreover, its adjusted EPS amounted to $2.21.

Attractive Valuation

CVS’ forward EV/EBITDA of 7.92x is 36.8% lower than the 12.54x industry average. Its forward EV/EBIT and Price/Sales multiple of 8.99 and 0.26 are 44.1% and 93.3% lower than the industry averages of 16.07 and 3.86, respectively.

Robust Growth

CVS’ revenue grew at CAGRs of 8.7% and 12.6% over the past three and five years, respectively. In addition, its total assets grew at 2% and 13.4% CAGRs over the past three and five years, respectively.

High Profitability

CVS’ trailing-12-month EBITDA and EBIT margin of 5.42% and 4.17% are 3.4% and 896.2% higher than the 5.25% and 0.42% industry averages. Moreover, its trailing-12-month levered FCF margin of 5.33% is significantly higher than the industry average of 0.26%.

Growing Institutional Ownership

CVS’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently modified their CVS stock holdings.

Institutions hold roughly 77.9% of CVS shares. Of the 2,413 institutional holders, 1,090 have increased their positions in the stock. Moreover, 118 institutions have taken new positions (9,005,031 shares).

Price Performance

Even though CVS’ shares have plunged 28.2% over the past year, over the past three months, the stock gained 1.6%. Moreover, shares of CVS have gained 3.7% over the past month.

Wall Street analysts expect the stock to reach $91.53 in the next 12 months, indicating a potential upside of 31.2%. The price target ranges from a low of $80 to a high of $110.

Favorable Analyst Estimates

For the fiscal third quarter ending September 2023, analysts expect CVS’ revenue to increase 9% year-over-year to $88.43 billion, while its EPS is expected to come at $2.13. Moreover, for the fiscal year ending December 2023, analysts expect CVS’ revenue to increase 9.1% year-over-year to $351.77 billion, and EPS is expected to come at $8.60.

Furthermore, it has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

Bottom Line

CVS stands in a formidable financial position, strengthened by optimistic analyst projections, attractive valuation metrics, solid profitability, and notable progress potential. The company also possesses additional commendable characteristics.

As proof of CVS’s commitment to rewarding its investors, it boasts an unbroken track record of paying dividends for the past 25 years. The firm recently announced its forthcoming quarterly dividend of $0.605 per share on common stock, payable to the shareholders on November 1, 2023.

It pays a $2.42 per share dividend annually, translating to a 3.39% yield on the current share price. Its four-year average dividend yield is 2.70%. The company’s dividend payouts have grown at a CAGR of 5.8% over the past three years and 3.4% over the past five years.

CVS' dividends seem well-covered, signaling prudent and efficient reinvestment of earnings by management. As of June 30, 2023, the company recorded retained earnings amounting to $58.87 billion, which can be utilized to invest in furthering its growth opportunities.

Nonetheless, the recent protests underline the urgent need for revamping the pharmacy industry with a renewed focus on pharmacist and patient safety. It is crucial for the management to promptly respond to these concerns to maintain stability within the company and optimally leverage ongoing industry trends.

4 Stocks to Buy Instead of TSLA as Its Downtrend Continues

Posted on by The INO.com Team

Tesla, Inc. (TSLA) aims to sell 20 million EVs a year by the end of this decade. However, the company faces steep competition from other manufacturers as they launch their battery electric vehicles (BEVs) and invest in ramping up their EV manufacturing capabilities.

To ward off competition and economic uncertainty, TSLA has cut the prices of its vehicles this year. Recently, the company cut the prices for Model 3, Model S, and Model X in the United States. In China, TSLA reduced Model S and X prices. The company has been focusing on boosting volume growth by lowering prices, but it is affecting its gross margins.

Due to price cuts, discounts, and tax credits, the company reported delivering a record-setting 466,140 vehicles during the second quarter. However, Wall Street analysts have cut TSLA’s third-quarter delivery estimates by 2%. They expect the EV maker to deliver 462,000 vehicles during the third quarter.

TSLA CEO Elon Musk had said during the second-quarter earnings call that although it was sticking to its target of producing 1.8 million vehicles, third-quarter production would take a hit due to essential factory upgrades that would take place during the quarter.

Some analysts have forecasted that delivery numbers will be less than 460,000 units. Deutsche Bank analyst Emmanuel Rosner lowered his delivery expectations to 440,000, down from his previous forecast of 455,000. Baird analyst Ben Kallo has projected that the third quarter deliveries would be 439,200 units.

Rosner said, “Tesla’s 3Q 2023 deliveries and production could miss Street expectations, but more important, we see meaningful downside risk to 2024 consensus due to limited volume growth next year.” The analyst has cut its target price on TSLA to $285 from $300.

Amid the confusion over the third-quarter deliveries and production figures, many analysts are worried that TSLA’s production next year will be lower than the previous estimates. Deutsche Bank believes the EV maker’s earnings could face headwinds in 2024. In an investor meeting, they said that TSLA suggested that it was not looking to ramp up production at its Austin and Berlin factories to 10,000 units per week next year.

The bank has forecasted that TSLA will produce 2.1 million units next year, down from the previous consensus estimate of 2.3 million units. They also reduced the price target of TSLA to $285 per share from $300.

Moreover, TSLA is currently trading at an expensive valuation. In terms of forward EV/EBITDA, TSLA’s 42.58x is 364% higher than the 9.18x industry average. Likewise, its 7.47x forward EV/Sales is 564.3% higher than the 1.12x industry average. Its 70.97x forward non-GAAP P/E is 410.1% higher than the 13.91x industry average.

Given the uncertainty surrounding TSLA’s near-term prospects, it could be wise to buy fundamentally strong auto stocks Ferrari N.V. (RACE), General Motors Company (GM), Li Auto Inc. (LI), and NIO Inc. (NIO).

Let’s discuss these stocks in detail.

Ferrari N.V. (RACE)

Headquartered in Maranello, Italy, RACE designs, designs, produces, and sells luxury sports cars worldwide. The company offers a range, special series, Icona, and supercars; limited edition supercars and one-off cars; and track cars. It also provides racing cars, spare parts and engines, and after-sales, repair, maintenance, and restoration services for cars.

RACE’s revenue grew at a CAGR of 18.2% over the past three years. Its EBITDA grew at a CAGR of 24.2% over the past three years. In addition, its EPS grew at a CAGR of 29.1% in the same time frame.

In terms of the trailing-12-month net income margin, RACE’s 19.46% is 342.8% higher than the 4.40% industry average. Likewise, its 30.86% trailing-12-month EBITDA margin is 180.3% higher than the industry average of 11.01%. Furthermore, the stock’s 6.73% trailing-12-month Capex/Sales is 109.4% higher than the industry average of 3.22%.

RACE’s net revenues for the second quarter ended June 30, 2023, increased 14.2% year-over-year to €1.47 billion ($1.55 billion). Its adjusted EBITDA rose 32.1% over the prior-year quarter to €589 million ($620.54 million). The company’s adjusted EBIT increased 35.3% year-over-year to €437 million ($460.40 million).

Its adjusted net profit rose 33.1% year-over-year to €334 million ($351.89 million). Also, its adjusted EPS came in at €1.83, representing an increase of 34.6% year-over-year.

Analysts expect RACE’s revenue for the quarter ending September 30, 2023, to increase 25.8% year-over-year to $1.55 billion. Its EPS for the fiscal period ending March 2024 is expected to increase 8.8% year-over-year to $1.94. It surpassed the consensus EPS estimates in each of the trailing four quarters.

General Motors Company (GM)

GM designs, builds, and sells trucks, crossovers, cars, and automobile parts; and provides software-enabled services and subscriptions worldwide. The company operates through GM North America, GM International, Cruise, and GM Financial segments.

On August 16, 2023, GM invested $60 million in a Series B financing round of AI and battery materials innovator Mitra Chem. The company’s AI-powered platform and advanced research and development facility in Mountain View, California, will help accelerate GM’s commercialization of affordable EV batteries.

Gil Golan, GM vice president, Technology Acceleration and Commercialization, said, “This is a strategic investment that will further help reinforce GM’s efforts in EV efforts in EV batteries, accelerate our work on affordable battery chemistries like LMFP, and support our efforts to build a U.S.-focused battery supply chain.

On April 25, 2023, GM and Samsung SDI announced that they plan to invest more than $3 billion to build a new battery cell manufacturing plant in the United States, slated to start operations in 2026.

GM Chair and CEO Mary Barra said, “GM’s supply chain strategy for EVs is focused on scalability, resiliency, sustainability, and cost-competitiveness. Our new relationship with Samsung SDI will help us achieve all these objectives. The cells we will build together will help us scale our EV capacity in North America well beyond 1 million units annually.”

GM’s revenue grew at a CAGR of 13.6% over the past three years. Its EBIT grew at a CAGR of 46.6% over the past three years. In addition, its net income grew at a CAGR of 82.4% in the same time frame.

In terms of the trailing-12-month levered FCF margin, GM’s 7.27% is 42.3% higher than the 5.11% industry average. Likewise, its 15% trailing-12-month Return on Common Equity is 34.2% higher than the industry average of 11.17%. Furthermore, the stock’s 5.95% trailing-12-month Capex/Sales is 84.9% higher than the industry average of 3.22%.

For the second quarter ended June 30, 2023, GM’s total revenues increased 25.1% year-over-year to $44.75 billion. Its net income attributable to stockholders rose 51.7% year-over-year to $2.57 billion. The company’s adjusted EBIT rose 38% year-over-year to $3.23 billion. Also, its adjusted EPS came in at $1.91, representing a 67.5% increase year-over-year.

For the quarter ending September 30, 2023, GM’s revenue is expected to increase 3.9% year-over-year to $43.52 billion. Its EPS for fiscal 2023 is expected to increase 1.5% year-over-year to $7.70. It surpassed the consensus EPS estimates in each of the trailing four quarters.

Li Auto Inc. (LI)

Headquartered in Beijing, the People’s Republic of China, LI designs, develops, manufactures, and sells new energy vehicles in the People’s Republic of China. The company provides Li ONE and Li L series smart electric vehicles. It also offers sales and after-sales management, technology development, corporate management services, as well as purchases of manufacturing equipment.

LI’s revenue grew at a CAGR of 263.4% over the past three years. Its total assets grew at a CAGR of 115.8% over the past three years.

In terms of the trailing-12-month levered FCF margin, LI’s 23.51% is 360.2% higher than the 5.11% industry average. Likewise, the stock’s 7.69% trailing-12-month Capex/Sales is 139.2% higher than the industry average of 3.22%.

LI’s total revenues for the second quarter ended June 30, 2023, increased 228.1% year-over-year to RMB28.65 billion ($3.91 billion). Its gross profit rose 232% over the prior-year quarter to RMB6.24 billion ($853.63 million). The company’s non-GAAP income from operations came in at RMB2.04 billion ($279.07 million), compared to a non-GAAP loss from operations of RMB520.80 million ($71.25 million).

Also, its non-GAAP net income stood at RMB2.73 billion ($373.46 million), compared to a non-GAAP net loss of RMB183.40 million ($25.09 million).

Street expects LI’s revenue for the quarter ending September 30, 2023, to increase 245.3% year-over-year to $4.64 billion. Its EPS for the quarter ending December 31, 2023, is expected to increase 151.7% year-over-year to $0.34. It surpassed the Street EPS estimates in three of the trailing four quarters.

NIO Inc. (NIO)

Based in Shanghai, China, NIO designs, develops, manufactures, and sells smart electric vehicles in China. It offers five- and six-seater electric SUVs and smart electric sedans. The company also offers power solutions, power chargers and destination chargers, power mobile, power map, and One Click for power valet service.

On July 12, 2023, NIO announced that it closed the $738.50 million strategic equity investment from CYVN Investments RSC Ltd, an affiliate of CYVN Holdings L.L.C., an investment vehicle majority owned by the Abu Dhabi Government with a focus on advanced and smart mobility. The NIO and CYVN entities would collaborate strategically in international business and technology cooperation.

NIO’s revenue grew at a CAGR of 70.6% over the past three years. Its total assets grew at a CAGR of 55.7% over the past three years.

In terms of the trailing-12-month Capex/Sales, NIO’s 17.62% is 447.9% higher than the 3.22% industry average.

For the second quarter ended June 30, 2023, NIO’s total revenues fell 14.8% year-over-year to RMB8.77 billion ($1.20 billion). Its adjusted loss from operations widened 132% year-over-year to RMB5.46 billion ($746.93 million). In addition, its adjusted net loss attributable to ordinary shareholders of NIO widened 140.2% year-over-year to RMB5.45 billion ($745.56 million).

Furthermore, its adjusted net loss per share attributable to ordinary shareholders widened 144.8% year-over-year to RMB3.28.

For the quarter ending September 30, 2023, NIO’s revenue is expected to increase 47.2% year-over-year to $2.66 billion.

Should QUALCOMM (QCOM) Downsizing Be a Warning Sign to Investors?

Posted on by The INO.com Team

The extensive chip utilization in diverse industries and the rising inclination toward innovative technologies are projected to propel semiconductor demand. The industry is further bolstered by enticing governmental incentives and investments.

QUALCOMM Incorporated (QCOM), with a market cap of $123.06 billion, specializes in wireless technology development, licensing, and smartphone chip design. The company's key patents pertain to CDMA and OFDMA technologies, pillars of all 3G, 4G, and 5G networks. As the world's principal vendor of wireless chips, it provides top-tier handset manufacturers with cutting-edge processors.

Despite its position, recent news of impending layoffs has raised some concerns. The company predominantly plans staff reductions and other resizing endeavors for the fourth quarter of the fiscal year, which is expected to be completed in the first half of 2024.

QCOM, having a presence in over 12 Chinese cities primarily for its semiconductor and mobile telecommunications businesses, reiterates its steadfast commitment to spearheading advanced technology development within the country. Furthermore, it ensures a supportive transition for its employees affected by restructuring, providing them with substantial redundancy packages.

QCOM's staff reduction strategy in China and Taiwan forms a part of its broader restructuring initiative, intended to navigate through the dwindling consumer demand for smartphones and other gadgets equipped with its technology.

According to Canalys’ figures, the global smartphone market suffered a sixth straight quarterly decline for June 2023. Despite a cautious optimism for potential market recovery, QCOM is feeling the impact of this downturn. This contraction, intensified by escalating competition from Chinese chipmakers, took a toll on the company’s revenue and profit margins in the last quarter.

The layoff news timing coincides with the ongoing trade tensions between the U.S. and China and Beijing's imposition of a partial ban on using iPhones by government personnel. This situation creates additional strain, as QCOM is a significant supplier to Apple, Inc (AAPL). However, the successful introduction of the iPhone 15 in mainland China might help mitigate some of these ordeals.

Moreover, China’s overarching smartphone market is contending with challenges, too. Sales declined by 4% during the second quarter of 2023, marking a record low for second-quarter sales since 2014, as per the market research firm Counterpoint.

Furthermore, QCOM cautioned that the cost-cutting measures will result in restructuring charges, a significant portion of which will be accounted for in its fourth-quarter report. QCOM projects its August sales to range between $8.1 billion and $8.9 billion, a dip from $11.4 billion in the year-ago quarter, while EPS is anticipated to decline between $1.37 and $1.57 from $2.54 during the prior-year quarter. This represents a notable setback for the organization.

Potential Implications of the Impending Layoffs

On the positive side, these drastic steps may enable the company to curtail its operating costs, enhancing profitability and cash flow. This could augment the firm's earnings per share and future dividend payouts. It may also steer QCOM toward concentrating on its principal business and strategic growth areas like 5G technology, automobiles, and the IoT.

Conversely, there may be negative repercussions. These layoffs could tarnish QCOM’s reputation and affect employee morale and customer trust. It may also decelerate the firm's research and development activities, consequently diminishing the potential for innovation in the long run. The company could find itself vulnerable, exposed to legal complications and heightened regulatory scrutiny, particularly in China, where it grapples with anti-trust investigations and patent disputes.

Therefore, the repercussions of these layoffs on shareholders will likely hinge on QCOM's capability to efficiently carry out its restructuring plan and adapt to shifting market conditions. The company's stock prices have been volatile after the layoff announcement, signifying a wave of uncertainty and investors' ambivalent responses.

Nevertheless, within this challenging scenario, it is also crucial to point out a few potential areas of optimism. Here are some additional factors that could potentially influence the QCOM’s course in the upcoming months:

Recent Developments

On September 11, QCOM confirmed a strategic alliance with Apple Inc. (AAPL) to supply its Snapdragon 5G Modem-RF Systems for upcoming smartphone iterations set to launch in 2024, 2025, and 2026. The partnership reaffirms QCOM’s sturdy standing within the industry.

Moreover, on August 4, QCOM joined forces with Robert Bosch GmbH, Infineon Technologies AG, Nordic Semiconductor, and NXP Semiconductors to financially back a German-based company specifically committed to bolstering global adoption of RISC-V.

The joint venture aims to accelerate the development and market introduction of products rooted in RISC-V technology across diverse industries. The widespread acceptance of the RISC-V technology envisages fostering more diversity within the electronic field - diminishing entry obstacles for nascent and smaller enterprises while facilitating greater scalability for well-established firms.

Robust Financials

For the fiscal third quarter ended June 25, 2023, QCOM’s total revenues came in at $8.45 billion, while its Earnings Before Taxes (EBT) stood at $1.76 billion. Its net income and earnings per share stood at $1.80 billion and $1.60, respectively.

For the same quarter, QCOM’s net cash provided by investing activities amounted to $1.74 billion, compared to net cash used by investing activities of $4.88 billion. Moreover, total cash and cash equivalents at the end of the quarter stood at $6.18 billion, up 93.2% year-over-year.

Furthermore, as of June 25, 2023, QCOM’s total current liabilities amounted to $8.46 billion, compared to $11.87 billion as of September 25, 2022.

Attractive Valuation

In terms of forward non-GAAP P/E, QCOM’s 13.23x is 37.8% lower than the 21.28x industry average. Likewise, its forward EV/EBITDA multiple of 9.84 is 28% lower than the industry average of 13.66. Its 11.33x forward EV/EBIT is 36% lower than the 17.71x industry average.

Robust Growth

QCOM’s revenue grew at CAGRs of 24.5% and 11.2% over the past three and five years, respectively. In addition, its levered free cash flow grew at 43.9% and 9.9% CAGRs over the past three and five years, respectively.

High Profitability

QCOM’s trailing-12-month EBITDA and EBIT margin of 34.28% and 29.51% are 274.5% and 553.9% higher than the 9.15% and 4.51% industry averages, respectively. Moreover, its trailing-12-month cash from operations of $8.65 billion is significantly higher than the industry average of $60.08 million.

Growing Institutional Ownership

QCOM’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently modified their QCOM stock holdings.

Institutions hold roughly 73% of QCOM shares. Of the 2,508 institutional holders, 1,111 have increased their positions in the stock. Moreover, 142 institutions have taken new positions (7,940,217 shares).

Price Performance

Even though QCOM’s shares have plunged marginally year-to-date to close the last trading session at $109.19, over the past five days, the stock gained 1.2%.

Wall Street analysts expect the stock to reach $136.30 in the next 12 months, indicating a potential upside of 24.8%. The price target ranges from a low of $100 to a high of $150.

Favorable Analyst Estimates

For the fiscal fourth quarter ending September 2023, analysts expect QCOM revenue and EPS to come at $8.51 billion and $1.90, respectively. Moreover, for the fiscal year ending September 2024, analysts expect QCOM revenue and EPS to surge 5.6% and 10.9% year-over-year to $37.67 billion and $9.19, respectively.

Bottom Line

Despite experiencing a deceleration during the latter half of the preceding year, the semiconductor industry hit an unprecedented milestone in annual sales with a growth of 3.3% year-on-year. While there are hurdles ahead, expert views remain largely optimistic considering the industry’s pervasive applications expansion.

In addition to industry tailwinds, QCOM finds itself poised in an enviable financial space. Optimistic analyst forecasts, compelling valuation metrics, steadfast profitability, and distinctive growth prospects augment this fortitude.

Further solidifying this perspective is QCOM's unwavering commitment to its investors, substantiated by its uninterrupted history of dividend payouts over the past 19 years. It pays a $3.20 per share dividend annually, translating to a 2.92% yield on the current share price. Its four-year average dividend yield is 2.31%. The company’s dividend payouts have grown at a CAGR of 6.9% over the past three years and 5.4% over the past five years.

However, potentially casting a shadow over these optimistic forecasts are QCOM’s planned layoffs, which could influence the company’s performance and stock prices. But the impact largely hinges on its historical performance and future earnings estimates.

McDonald’s (MCD) Could Be Involved With Another Coffee-Related Lawsuit: Buy or Sell?

Posted on by The INO.com Team

McDonald's Corporation (MCD) finds itself in hot water again as a new civil case was filed on September 14 at the San Francisco Superior Court. An elderly woman named Mable Childress alleged that she suffered severe burns on her stomach, groin, and leg after she spilled hot coffee on herself while drinking due to an improperly attached lid.

The plaintiff also alleged in the lawsuit that the restaurant employees refused to help her. According to Childress’ lawyer, they “didn’t give her the time of day.” The lawsuit alleged that the plaintiff was suffering from physical pains, emotional distress, and other damages. Also, it alleged that the restaurant’s negligence was a “substantial factor” for Childress’ injuries.

Peter Ou, the owner of the MCD drive-thru in San Francisco denied that the store manager and employees refused to help her. He said, “We take every customer complaint seriously and when Childress reported her experience to us later that day, our employees and management team spoke to her within a few minutes and offered assistance.”

“My restaurants have strict food safety protocols in place, including training crew to ensure lids on hot beverages are secure,” he added. He further stated that the company was reviewing this new legal claim in detail.

This latest lawsuit over spilled coffee might remind people of the much-talked-about hot coffee episode nearly thirty years ago where plaintiff Stella Liebeck suffered third-degree burns in her pelvic region when she accidentally spilled coffee on her lap while purchasing at an MCD restaurant. Liebeck had to undergo skin grafting and had to follow it up with two years of medical treatment.

Liebeck wanted $20,000 from MCD to settle the case, but the company refused to pay that amount. Instead, the company offered her $800, which was insufficient to cover her medical expenses. A suit was filed at the U.S. District Court for the District of New Mexico, accusing the company of gross negligence.

The jurors found that MCD’s coffee was 30 to 40 degrees hotter than what was served by other restaurants. The jurors also found that many people had gotten burnt before due to MCD’s hot coffee, but the company did not change its policy of keeping coffee between 180 - 190 degrees Fahrenheit.

According to a jury’s verdict in 1994, the victim was granted $200,000 in compensatory damages for her pain, suffering, and medical costs, but it was later reduced to $160,000 by the trial judge as they found her 20 percent responsible. She was also paid $2.7 million in punitive damages, which was reduced to $480,000. Later, the two warring parties settled for a confidential amount.

Earlier this year, MCD faced a lawsuit after a toddler received second-degree burns from a scalding hot chicken nugget dispensed at a Tamarac, Florida drive-thru restaurant. A Broward County jury found that MCD and franchise owner Upchurch Foods failed to warn or provide reasonable instructions over the harm that the hot McNuggets could possibly do.

The jury awarded the Florida family $800,000 for pain and suffering, disfigurement, mental anguish, inconvenience, and loss of capacity to enjoy life. Out of the $800,000, the jury determined that $400,000 is for the injuries sustained in the past and the rest for the damages that will be sustained in the future.

Going by the company’s history of dealing with similar lawsuits, I don’t see the recent ‘hot coffee’ lawsuit to have a material impact on MCD’s financials. Instead, here’s what could influence MCD’s performance in the upcoming months:

Robust Financials

MCD’s revenues from franchised restaurants increased 11.5% year-over-year to $3.93 billion for the second quarter ended June 30, 2023. Its total revenues increased 13.6% year-over-year to $6.50 billion. The company’s non-GAAP net income increased 22.7% year-over-year to $2.32 billion, and its non-GAAP EPS rose 24.3% year-over-year to $3.17.

Favorable Analyst Estimates

Analysts expect MCD’s EPS for fiscal 2023 and 2024 to increase 14.7% and 7.5% year-over-year to $11.59 and $12.45, respectively. Its fiscal 2023 and 2024 revenues are expected to increase 9.7% and 6.8% year-over-year to $25.42 billion and $27.14 billion, respectively.

High Profitability

In terms of the trailing-12-month gross profit margin, MCD’s 57.45% is 62.1% higher than the 35.45% industry average. Likewise, its 53.79% trailing-12-month EBITDA margin is 388.6% higher than the industry average of 11.01%. Furthermore, the stock’s 8.64% trailing-12-month Capex/Sales is 168.6% higher than the industry average of 3.22%.

Stretched Valuation

In terms of forward EV/EBITDA, MCD’s 17.80x is 91.6% higher than the 9.29x industry average. Likewise, its 9.58x forward EV/Sales is 749% higher than the 1.13x industry average. Its 23.28x forward non-GAAP P/E is 64.6% higher than the 14.15x industry average.

Solid Historical Growth

MCD’s EBIT grew at a CAGR of 15% over the past three years. Its EBITDA grew at a CAGR of 13.2% over the past three years. In addition, its EPS grew at a CAGR of 19.7% in the same time frame.

Bottom Line

MCD is no stranger to lawsuits as it had to pay $800,000 earlier this year due to the McNugget burn lawsuit. Moreover, this is not the first time MCD has faced a lawsuit over hot coffee. In the earlier cases, the victims had received third or second-degree burns, which are considered severe.

However, according to the lawyer of the current hot coffee spill case, the plaintiff wants her medical expenses to be paid for and is not looking for a payday. MCD is highly likely to get fined and will likely be asked by a jury to compensate the victim. This is unlikely to have any effect on MCD’s business prospects.

The company has bold expansion plans, likely to fuel its growth in the upcoming years. Therefore, despite its stretched valuation, it could be wise to buy the stock now, given its high profitability, robust financials, and solid historical growth.

100 Best Stocks for October

Posted on by The INO.com Team

Please enjoy this updated version of weekly commentary from the Reitmeister Total Return newsletter. Steve Reitmeister is the CEO of StockNews.com and Editor of the Reitmeister Total Return.Click Here to learn more about Reitmeister Total Return

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Steve Reitmeister
…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com & Editor, Reitmeister Total Return

SPY shares were trading at $433.56 per share on Thursday afternoon, down $5.08 (-1.16%). Year-to-date, SPY has gained 14.63%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.