Tag: first-quarter results

Is CrowdStrike's (CRWD) Stock Drop an Opportunity for Investors?

Posted on by The INO.com Team

CrowdStrike Holdings, Inc. (CRWD) experienced a steep decline in its stock price last Friday following a software update that triggered widespread technical outages. This mishap couldn't have come at a worse time for the company, as it is about to close its fiscal quarter at the end of this month, a period when software companies typically finalize major deals. With its shares having surged nearly 34% this year before the drop, CrowdStrike faces intense pressure as it approaches its July-quarter results.

For investors, mere expectation-matching results won't suffice; they will be looking for a strong performance that exceeds expectations and prompts an upward revision in forecasts.

On July 19, a faulty security update from CrowdStrike caused a global tech outage, affecting millions of Windows devices. Social media was abuzz with images of the infamous "blue screen of death," indicating system crashes. CrowdStrike clarified that the issue wasn’t a security breach or cyberattack but a flaw in the update affecting Microsoft Windows systems.

Despite a quick fix, the damage was done, with the stock plummeting over 20% since the incident. Microsoft Corporation (MSFT) reported that about 8.5 million devices were affected, representing less than 1% of all Windows devices. However, the outage had significant repercussions, particularly in sectors that provided essential services like hospitals, banks, and airports. This sharp decline in CRWD’s stock suggests investors are concerned about the long-term impact on CrowdStrike's position in the fiercely competitive cybersecurity market, where even minor missteps can be costly.

There's also concern about the potential financial fallout from the incident, including compensation for affected clients. While CRWD suffered, shares of its competitor Palo Alto Networks Inc. (PANW) rose by 2.8%. It's a central black eye for CrowdStrike, which is now a household name for the wrong reasons.

"This situation could have serious implications for CrowdStrike's business, particularly as it seeks to expand adoption among large enterprises to drive the next phase of growth," said Redburn analyst Nina Marques. “Furthermore, it could have impact on market-share shifts as customers seek alternative security solutions,” she added.

CrowdStrike Gets a Downgrade

Analysts are concerned that the disruptions caused by CrowdStrike's software update will delay new deals. Guggenheim's John DiFucci downgraded the stock from Buy to Neutral and stated that the global chaos caused by CrowdStrike, even if temporary, will likely negatively affect its business. He believes rebuilding its reputation might take time and could affect new business signings in the short term.

Similarly, BTIG's Gray Powell downgraded the stock to Neutral, stating that “the outage may have an impact on new customer wins and create deal delays.” He added that while the issue wasn't a security breach, the disruption violated a key principle for security vendors and might lead to demands for larger discounts or credits from existing customers.

What to Expect From CrowdStrike’s Next Earnings Report?

With the recent software mishap causing quite a stir, investors and analysts will closely monitor CrowdStrike’s following earnings report for signs of recovery. Last month, the company released its first quarter results for fiscal year 2025, which ended April 30, 2024, beating the analyst estimates for revenue and EPS.

The company reported a revenue of $921 million, a 33% year-over-year increase, against a guidance of $906 million. For the first quarter, CRWD’s earnings per share was $0.93, well above the consensus estimate of $0.89, and its revenue was higher than the analysts’ estimates by $16.21 million.

For the second quarter, the company forecasts revenue between $958.30 million and $961.20 million, with an EPS estimated at $0.98 to $0.99. Additionally, its non-GAAP income from operations is anticipated to be between $208.3 million and $210.5 million.

Meanwhile, Street expects CRWD’s EPS for the second quarter (ending July 2024) to increase 33.3% year-over-year to $0.99. Its revenue for the ongoing quarter is expected to reach $961.08 million, reflecting a 31.4% growth year-over-year. Moreover, the company surpassed consensus EPS estimates in each of the trailing four quarters, which is excellent.

For the fiscal year 2024, the company’s revenue and EPS are expected to grow 30.9% and 29.7% from the prior year to $4 billion and $4.01, respectively.

Bottom Line

Investors reacted strongly to the recent software mishap, causing CRWD’s stock to drop more than 11% on Friday. However, this reaction might be exaggerated. The incident, while disruptive, wasn’t a breach of CrowdStrike’s security and seems to be a one-off issue rather than a sign of ongoing vulnerabilities. As the company’s CEO, George Kurtz, pointed out, the problem stemmed from a botched update, causing significant but manageable disruptions. While resolving the issue could take several days, it’s unlikely to escalate further.

Analysts’ concerns are valid, but the company’s strong revenue growth and expanding opportunities “across Mexico, Brazil, and the broader Latin America market,” where CrowdStrike recently partnered to spread its Falcon platform, offer compelling reasons for optimism. The rise in e-crime in Latin America presents a significant revenue opportunity for CrowdStrike. Plus, S&P 500 inclusion means that plenty of index-fund holders will indirectly invest in CRWD.

The stock’s high forward non-GAAP P/E ratio of 65.84x, compared to the industry average of 24.89x, might deter some investors, but short-selling CrowdStrike could be risky. The stock will likely rebound and continue rising as long as the growth narrative holds.

Moreover, Mizuho analyst Jordan Klein even views the current dip as a chance to buy, likening it to a “one-time discount sale.” So, while the recent dip in CRWD might be unsettling, it presents a potential buying opportunity for long-term investors seeking quality exposure in the cybersecurity sector.

Can McDonald's $5 Meal Deal Boost Its Stock Performance?

Posted on by The INO.com Team

McDonald’s Corporation (MCD), the global fast-food chain, recently announced the highly anticipated $5 Meal Deal, set to roll out on June 25 for a limited period at participating restaurants in the U.S. This strategic move comes as part of McDonald’s strategy to enhance affordability and attract customers amid ongoing macroeconomic pressures.

In recent years, McDonald's has faced criticism as prices surged, resulting in less revenue from lower-income consumers and reduced foot traffic in its stores. 

Understanding the $5 Meal Deal

The $5 Meal Deal includes your choice of a McDouble or McChicken sandwich, 4-piece Chicken McNuggets, small fries, and a small soft drink. This offering aims to provide consumers with a substantial meal at a competitive price point, echoing MCD’s commitment to delivering value to its customer base.

The company is extending enticing offers through the McDonald’s App, including a promotion where customers can receive free medium fries with a $1 minimum purchase for “Free Fries Friday,” available nationwide until the year’s end.

Additionally, franchisees in communities are celebrating summer by offering local special deals. For instance, in Memphis, Tennessee, customers can take advantage of a Buy One Get One for $1 deal on breakfast sandwiches and steals on lunch and dinner fan favorites such as a Double Cheeseburger & small fries pairing for $3.50 in Columbus, Ohio. In Western New York, MCD offers a mix-and-match McChicken and McDouble deal for just $3.99.

“Affordable prices and creating memorable moments are what McDonald’s is all about,” stated John Palmaccio, McDonald’s Owner/Operator and Operator’s National Advertising (OPNAD) Fund Chair. “As small business owners, it’s our responsibility to deliver great value to our local communities when they need it most. The $5 Meal Deal is the perfect complement to the everyday local deals customers can find in store and on the app, like the 25 percent off any purchase of $10 or more deal that I'm offering at my restaurants in Savannah, Georgia.”

McDonald’s Enhanced Focus on Affordability

During an earnings call in late April, MCD’s CEO Chris Kempczinski emphasized the company’s commitment to affordability in 2024, responding to customer concerns over recent price increases. According to a report by the New York Post in July, a McDonald’s located at a Connecticut rest stop was pricing a Big Mac combo meal at $18.

“Consumers continue to be even more discriminating with every dollar that they spend as they face elevated prices in their day-to-day spending, which is putting pressure on the industry,” said Chris Kempczinski. “It’s imperative that we continue to keep affordability at the forefront for our customers.”

Moreover, McDonald’s chief financial officer (CFO) Ian Borden said at an investor conference that lower-income customers have been cutting back spending on fast food and other types of restaurants. Borden hinted at concerns about inflation and possibly depleted pandemic savings, which resulted in customers choosing to eat out less often.

MCD reported mixed first-quarter results as profits were hurt by the effects of inflation on consumers and continued boycotts in the Middle East. For the quarter that ended March 31, 2024, McDonald’s reported revenues of $6.17 billion, slightly beating analysts’ estimates by 0.01%. That compared to $5.90 billion in the prior year’s quarter.

The company’s global comparable sales increased 1.9% in the quarter and reported U.S. comparable sales growth of 2.5%. The fast-food chain said the average check rose thanks to higher menu prices; however, it has also scared away some low-income customers.

Demand in McDonald’s International Developmental Licensed Markets was even weaker. The segment, which includes restaurants in the Middle East affected by the Israel-Hamas war and related boycotts, decreased comparable sales by 0.2% during the quarter.

Furthermore, the fast-food chain giant posted a first-quarter non-GAAP net income of $1.96 billion, or $2.70 per share, up 1.1% and 2.7% year-over-year, respectively. However, McDonald’s non-GAAP earnings per share missed the consensus estimate of $2.73.

Historical Impact of Value Meal Promotions on McDonald's Revenue and Stock Price

Historically, MCD’s promotional strategies, particularly those centered around value meal deals, positively impacted its revenue and stock performance. One notable example is McDonald’s “Dollar Menu,” which has been a recurring promotion aimed at offering affordable meal options to customers. Introduced in various forms over the years, including the current “$1 $2 $3 Dollar Menu,” these deals typically feature a selection of items priced attractively at $1, $2, or $3, such as sandwiches, sides, and beverages.

In the past, McDonald’s saw a significant uptick in customer visits and transaction sizes when value menus were heavily promoted. The attraction of affordable pricing has historically driven increased foot traffic and stimulated incremental purchases beyond the promoted items. This phenomenon underscores the effectiveness of value-driven promotions in boosting MCD’s sales volume and overall revenue.

Moreover, the company’s ability to sustain profitability during value-driven promotions is supported by its operational efficiencies and scale advantages, allowing it to maintain attractive margins despite lower price points. Simultaneously, McDonald’s stock experienced periods of growth attributed to enhanced consumer appeal and increased market share within the fast-food industry.

Bottom Line

During the first quarter, MCD slightly beat analyst expectations for revenue. However, the company’s earnings missed estimates as its results were hurt by the impact of elevated inflation on consumers and boycotts in the Middle East. As a result, CEO Chris Kempczinski said in a late April quarterly earnings call that McDonald’s has to be “laser-focused on affordability.”

The fast-food chain giant has since promised lower prices and expressed interest in winning over inflation-weary customers. As McDonald’s is exploring more avenues to win customers back, it recently announced the $5 Meal Deal, available starting June 25 for a limited time at participating restaurants nationwide. This move is a response to a decline in low-income customer traffic and a broader industry shift toward more value-focused offerings.

Historically, McDonald’s promotions like the “Dollar Menu” and “$1 $2 $3 Dollar Menu” illustrate their potential to impact revenue and stock performance significantly. By attracting more customers through value offerings, McDonald’s increases short-term sales and strengthens its market position and investor appeal over the long term.

Therefore, McDonald’s $5 Meal Deal represents a pivotal initiative to capitalize on consumer demand for value-driven meal options. While the immediate financial impact will depend on execution and consumer response, historical data suggests a potential positive impact on revenue and stock performance. Investors and market analysts will likely closely monitor the rollout and consumer reception, anticipating insights into MCD’s resilience and strategic agility in navigating current economic challenges.

Bank of America (BAC) Payout Potential for Income Investors

Posted on by The INO.com Team

Headquartered in Charlotte, North Carolina, Bank of America Corporation (BAC), the financial juggernaut boasting $3.20 trillion in assets, has been a boon for investors lately. Over the past six months, shares of the mega-bank have delivered returns of 50.2%. Impressive, isn’t it?

Moreover, BAC now ranks as the second-largest holding in Berkshire Hathaway's (BRK.A) (BRK.B) portfolio, with well-known investor CEO Warren Buffett showing confidence in the bank’s long-term success. Berkshire owns around 1.03 billion shares in Bank of America, representing a 13.1% stake as of December 31, 2023.

Warren Buffett's knack for investing in profitable ventures has made Berkshire a top conglomerate. Berkshire's investment in BAC is driven by factors including the bank's robust financial position, diversification of financial services, and growth potential. Buffett, known for seeking companies with solid fundamentals and competitive advantages, sees Bank of America meeting his standards. So, does this signal a bullish outlook on the bank’s prospects?

Here's a closer look at whether BAC holds promise for investors seeking to emulate Buffett's investment philosophy.

How Did the Bank Perform in Q1?

Bank of America’s top line in the fiscal 2024 first-quarter results revealed a marginal year-over-year decline, reaching $25.82 billion due to the lower net interest income (NII) generated across its business segments. NII decreased by 3% year-over-year to $14.03 billion, with higher deposit costs outweighing increased asset yields and modest loan growth.

Despite the drop, the company delivered better-than-expected NII performance, which is $100 million higher than the last quarter. BofA had predicted a decrease of $100 million to $200 million from the fourth quarter of 2023 to the first quarter of 2024. Moreover, BAC’s Global Wealth and Investment Management segment reported a record revenue of $5.60 billion, up 5% year-over-year.

In addition, BAC’s net income applicable to common shareholders fell by 19.8% from the prior year’s quarter to $6.14 billion. Its EPS came in at $0.76, representing a decline of 19.2% year-over-year.

Compared to the previous year’s period, the company’s provision for credit losses rose by 41.7% to $1.32 billion. Also, its total net charge-offs increased 85.6% year-over-year. The net charge-offs as a percentage of average loans and leases outstanding stood at 0.58%, compared to 0.32% in the prior-year quarter.

On the other hand, the company’s CET1 ratio came in at 11.8%, compared to 11.4% in the prior-year quarter. Also, its total loans and leases rose 0.2% year-over-year to $1.05 trillion. As of March 31, 2024, Bank of America’s liquidity remained strong, with cash and cash equivalents at $313.40 million, albeit a decline of 5.9% from $333.07 billion as of December 31, 2023.

Brian Moynihan, BAC’s Chair and CEO, said, “We reported a strong quarter as our businesses performed well, adding clients and deepening relationships. We reached 36.9 million consumer checking accounts, with 21 consecutive quarters of net checking account growth. Our Wealth Management team generated record revenue, with record client balances, and investment banking rebounded.”

“Continued strong earnings and strong expense management both position our company to continue to drive our market leading positions across our businesses,” Moynihan added.

What’s Ahead?

Street expects BAC to generate a revenue of $25.31 billion for the second quarter (ending June 2024), indicating a slight increase compared to the same period last year. The company’s earnings per share is expected to stand at $0.81 for the ongoing quarter.

For the fiscal year ending December 2024, analysts anticipate a revenue surge of 3.4% year-over-year, reaching $101.91 billion. They forecast that earnings per share will reach $3.23, up 4.7% year-over-year. Further, the company’s revenue and EPS for the fiscal year 2025 are expected to grow 2.5% and 8.7% year-over-year to $104.49 billion and $3.51, respectively.

Additionally, the company has comfortably surpassed consensus revenue estimates in three of the trailing four quarters, so there is a low likelihood of another miss in the upcoming period.

Dividend Sustainability Makes It Attractive for Income Investors

Thanks to its robust capital strength, with a common equity Tier 1 capital of $197 billion (exceeding regulatory requirements by $31 billion), the bank was able to support clients and return $4.4 billion to shareholders in the first quarter through dividends and share repurchases.

BAC rewards shareholders a dividend of 2.5% (or $0.96 annually), significantly higher than the S&P 500's average of 1.4%. That means BAC shareholders get over 78% of the income generated by America’s leading stock index.

Moreover, BofA has a commendable track record of dividend increases, with compound annualized growth rates (CAGRs) of 9.3% over the past three years and 10.5% over the past five years. With a record of 10 years of consecutive dividend growth, the bank has shown a steady and reliable history of doing so.

The company has a payout ratio of 32.5%, demonstrating a prudent balance between rewarding shareholders and retaining earnings for future growth. While past performance does not indicate future results, the company's steadfast commitment to dividend growth suggests that the management is unlikely to break its streak in the near term.

Bottom Line

Despite the mixed financials, BAC's recent first-quarter report showcased the strength of its diversified business model. Notably, the bank saw a significant 35% increase in investment banking fee revenue, driven by a timely rebound in deal activity. Also, its sales and trading revenue experienced a notable resurgence, marking its most robust first-quarter performance in over a decade.

Moreover, the company’s dividend sustainability and growth prospects highlight its attractiveness for income-focused investors seeking reliable cash flow and capital appreciation.

According to Statista, the U.S. wealth management market is expected to expand at a CAGR of 7.9%, resulting in a market volume of $87.35 trillion by 2028. Meanwhile, the U.S. retail banking market is projected to hit $91.47 billion, growing at a CAGR of 4.3% during the forecast period (2024-2028).

Given the inflationary pressures, the Federal Reserve is unlikely to cut rates in June, meaning interest rates will remain higher for longer. While this may enable banks to charge higher loan rates, they may face increased deposit costs, potentially impacting their margins. Bolstered by an adjusted ROTCE of 13.88% and a CET1 ratio of 11.8%, we believe the company is well-equipped to thrive in a higher interest rate environment.

Looking at valuation, BAC’s forward non-GAAP P/E of 11.89x is 14.1% higher than the industry average of 10.42x. Likewise, in terms of forward Price/Sales, the stock is trading at 2.96x, 18.4% higher than the industry average of 2.50x.

So, while existing shareholders have reason to cheer, potential investors might wait for a better entry point in this stock.