TickerTalk Headlines for June 26th
In this newsletter:
Regis Corporation Stock Climbs 200%: Analyzing the Catalyst
Regis Corporation (NYSE: RGS) experienced a remarkable surge yesterday, with the stock skyrocketing by 200% at the time of writing. This impressive rise, accompanied by an abnormal increase in trading volume, prompts a closer examination of the catalyst behind this movement and the company's fundamentals.
The surge in the stock came just one day after another small-cap stock, MicroAlgo (NASDAQ: MLGO), climbed triple digits. For now, small-cap stocks certainly capture traders' attention and imagination.
Catalyst for Regis Corporation's Stock Surge
The primary driver of yesterday's surge is Regis Corporation's announcement that it has entered into a new senior secured credit facility with TCW Asset Management to refinance its existing debt. This new financial arrangement includes a $105 million term loan that will replace the company's existing debt, significantly reducing outstanding indebtedness by over $80 million and saving approximately $7 million in cash interest annually.
Additionally, Regis will have access to a $25 million revolving credit facility, with both the term loan and the credit facility maturing on June 24, 2029. This refinancing marks a significant step in strengthening Regis Corporation's financial position, providing greater flexibility and reducing its debt burden.
Hair Care Services and Products: Inside Regis Corporation's Business
Regis Corporation, a consumer cyclical company, operates and franchises hair care salons across North America, functioning through two main segments: Franchise Salons and Company-Owned Salons. Its salons offer various services, including haircuts, styling (such as shampooing and conditioning), and hair coloring, while selling multiple hair care and beauty products. In addition to its salon operations, Regis runs accredited cosmetology schools, further cementing its presence in the beauty and hair care industry.
The company's revenue has steadily declined over recent years, falling from $99.1 million in Q2 2021 to $49.1 million in Q1 2024. The company previously reported its quarterly earnings on May 1. RGS reported ($1.03) earnings per share for the quarter, which topped estimates by $0.25, and reported revenue of $49.1 million.
Regis Stock Surge: Turning a 50% YTD Loss into a 50% Gain
Despite yesterday's exceptional performance, Regis Corporation has historically faced significant challenges. Since the end of 2019, the stock has been in a steep downtrend, plummeting nearly 99% from its 2019 high of $465 to a low of around $3 this year.
Before yesterday's news, the stock was down nearly 50% year-to-date, but the recent surge has now pushed the stock to a positive 50% gain for the year. The stock's wild swings can be attributed to its small float and historically low trading volume. With an average volume of just 15,000 shares, the stock had traded over 30 million shares at the time of writing, indicating an incredible surge in volume, causing significant volatility and price swings. The float of just under two million shares creates substantial supply and demand imbalances on high-volume trading days, adding to the stock's volatility.
Investment Decisions: Weighing Regis Corporation's Historical Trends
Regis Corporation's impressive surge is driven by a significant financial restructuring, which promises to reduce debt and save on interest costs. However, investors should remain cautious due to the company's volatile trading history and the potential for continued price swings. As always, conducting thorough research and considering all factors before making investment decisions is crucial, especially considering the stock's historical price trends and volatility.
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Carnival Cruise Stock Nears Analyst Forecasts on Strong Earnings
Most investors left no dry powder, Wall Street lingo for buying power, in their accounts after chasing the technology sector in its pursuit of higher prices. Other sectors, such as the consumer discretionary space, aren’t as attractive in their growth projections and sophisticated proposals to deliver value to investors, but that changes today.
Shares of Carnival Co. (NYSE: CCL) are now trading nearly 5% higher on the open. That’s after the company reported its second quarter 2024 results, which gave buyers every reason to come running to the stock and support it higher. Despite this recent rally, Wall Street analysts still forecast another double-digit run higher. This thesis is backed by all of the fundamental factors surrounding Carnival.
Some of these include the potential of the Federal Reserve cutting interest rates later this year, but before investors dig inside the outside factors helping Carnival stock rally, here’s how the company stands against peers like Royal Caribbean Cruises (NYSE: RCL) and Norwegian Cruise Line Holdings (NYSE: NCLH).
Carnival Stock Leads the Cruise Industry as Wall Street's Top Choice
Wall Street analysts have given Carnival a thumbs up on the company’s latest results. The market seems to agree with these views, considering how they bid on the stock’s price on this recent rally.
According to analysts, Carnival stock’s earnings per share (EPS) could grow by as much as 39.6% in the next 12 months, compared to projections of only 15.2% for Royal Caribbean stock and a competitive—but not as good—projection of 24.8% for Norwegian stock.
Just a month ago, in May 2024, analysts at Wells Fargo saw it fit to boost Carnival’s stock price target up to $23 a share from their previous $22 valuation. This new range means that Carnival stock needs to rally by 32.9% to prove these projections right.
Instead, Royal Caribbean stock sees only a 1.2% upside through its consensus $156.3 share price target today. Norwegian stock sees a 25.1% upside in its consensus $21.8 share price target. While Norwegian stock seems awfully close to Carnival, they have one significant difference.
As of 2023, Norwegian only held 8.6% of the market, while Carnival took over 55% of the industry. Considering that Carnival holds a significantly larger share of the market, investors can lean on Carnival rather than Norwegian to deliver upside in the coming months, and the most recent quarter proves this right.
Carnival Stock Primed for Rally Following Strong Results
After posting a net loss of $407 million a year ago, Carnival pushed out a net profit of $92 million in the most recent quarter. This massive turnaround justifies the rally investors are seeing today.
More than that, operating cash flows nearly doubled over the year, giving investors a free cash flow (operating cash flow minus capital expenditures) of $1.3 billion compared to $625 million a year prior.
As the company also posted record operating income for the second quarter, management had another piece of evidence to boost their 2024 guidance. Total customer deposits reached a record high of $8.3 billion, compared to the previous record of $1.1 billion.
This made analysts’ – and management’s – job easier to project the company’s financials moving forward, but here’s a snippet. “We are very pleased with the continued acceleration of demand for 2025 and beyond…” is the sentiment leading the increased guidance to end the year for Carnival stock.
While some investors may be wary of a press release that sounds too optimistic, there is a genuine reason consumers are feeling comfortable – and confident – spending more on travel and leisure in the coming quarters.
The Technical Factors Propelling Carnival Stock Upwards
According to the CME’s FedWatch tool, the Fed is looking to cut interest rates by September of this year. This means cheaper – and more flexible – financing for consumers, likely boosting demand for consumer discretionary stocks like Carnival.
Understanding the validity of these trends, those at Price T Rowe Associates boosted their stake in Carnival stock by 1.5% over the past quarter, bringing the asset manager’s net investment up to $22.3 million in dollar terms. Considering Carnival stock’s $21.6 billion market capitalization, this position represents roughly 1% ownership in the company, not insignificant.
Last but not least, 9.8% of Carnival stock’s outstanding shares are held in short positions, which is close to placing the stock at risk of another run higher, as short sellers will realize this is a winning stock and be forced to close their positions (which involves repurchasing the stock, increasing upward pressure).
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Pure Storage Stock Doubles in 6 Months and Can Double Again
Pure Storage (NYSE: PSTG) is riding a wave of demand, with revenue rising and margins expanding. The combination has lifted the stock price by 500% since the 2020 low and by 100% in the last six months. Because the latest earnings report included accelerating results, showing momentum building, and profits growing, this stock could rise by 100% again. The caveat for investors is that the ride to new highs won’t come in a straight line, and price corrections will come. The takeaway is that this budding large-cap tech stock is on track to sustain a high level of growth and provide shareholder value; buy it on the dip.
Pure Storage Well-Positioned in an AI-Centric World
Pure Storage is a diversified data storage and management company. It operates via the cloud and on-premise hardware, utilizing its Purity software system to provide enterprise-level services. Features include data encryption, always-on data capture/management, database-as-a-service, AI-as-a-service, and storage. Among the company's many partners is NVIDIA (NASDAQ: NVDA), which is helping to build out the AI enterprise.
Highlights from the latest earnings report include top- and bottom-line strength driven by increased client count and deepening penetration of services, a theme echoed among leading cloud-based service providers. Among the features that set Pure Storage apart from its competitors is its ability to unify fragmented data sources in a cross-cloud environment.
The company reported $693 million in net revenue, a 17% gain over last year, beating the consensus estimate by more than 200 basis points. The more significant detail is that the margin widened to leverage strength on the bottom line. The $0.32 in EPS reversed a loss in the previous year and outpaced the consensus by 5000 basis points, leading management to raise guidance and some analysts to raise estimates and stock price targets. The guidance may be cautious because subscription revenue and ARR lead the results.
Analysts Lead Pure Storage to Fresh Highs
Pure Storage price action peaked in early June but will likely set another fresh high because the analysts are leading the market. The post-release action is mixed and includes a single downgrade, but it is Equal Weight from Overweight and assumes the market is fairly valued near its current level. The remainder of the revisions were positive, extending the trend and forecasting that this stock will trade closer to $80 or about 25% to 30% upside from the current price action.
Insiders are selling this stock, but it is not a problem for the market. Insider selling is consistent with companies utilizing share-based compensation; the group still owns roughly 4% of the stock. The bigger worry is institutional activity. The institutions own nearly 85% of the stock and have been selling into the rallies. So far, group rotation has helped support the market trend and lift the stock price, but that could change. The rally will be over when the institutions stop buying on the dip.
Pure Storage Stock Gains Momentum: Valuation Not a Concern
The $80 high price target set by analysts is not a 100% gain for the market but would extend a trend that shows strong momentum. The monthly price action chart shows momentum clearly, with rising MACD converging with the latest high. Convergences do not guarantee that a trend will continue, but they do raise the odds considerably, and business fundamentals, not hope, support this trend. In this scenario, a break to new highs would signal a trend continuation that would attract new money and momentum players to help drive the market even higher.
The valuation is a slight concern, with the stock trading at 40x this year’s earnings outlook and 33.5x next year, but it is factoring in solid growth for the foreseeable future. The valuation falls below 30x within the three-year forecast and to lower levels further out, making it a value among leading tech growth companies.
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