CarMax (KMX) investors are concerned, as evidenced by a significant drop in the company’s stock. Last week, shares of the nation’s largest used car retailer fell more than 12% following a disappointing quarterly update. This decline not only wiped out a strong start to 2024 but also placed the stock down 7% year-to-date, lagging behind the S&P 500’s 7% gain. 

The sell-off was triggered by CarMax’s fiscal 2024 fourth-quarter report, highlighted by a revenue miss at $5.6 billion which was down 1.7% year-over-year. Wall Street had anticipated a slight improvement from the previous year, but instead, CarMax posted its sixth consecutive quarter of negative top-line growth.  

This downturn was primarily due to a decrease in wholesale vehicle sales, which offset an increase in retail unit sales. These results indicate that the omnichannel auto dealer is struggling to adjust to a difficult post-pandemic economic environment, a stark contrast compared to the high demand and prices notably above MRSP during the pandemic and the industry’s chip shortages.   

Additionally, CarMax did not meet analysts’ profit expectations. Fourth-quarter earnings per share fell 27% year-over-year to $0.32, significantly missing the Street’s forecast of $0.48. The lower profitability on the vehicles sold marks the second instance in three quarters that the retailer has significantly underperformed against consensus EPS estimates. 

The Cost Of Used Car Ownership Is Climbing 

In addition to missing its targets, CarMax extended its goal of selling two million cars annually. Citing “uncertainty in the timing of market recovery,” the company has extended its timeline from its original forecasts, now aiming to reach this milestone between fiscal 2026 and 2030.   

Despite higher average selling prices, which management believes will support the company in achieving its $33 billion annual revenue and 5% nationwide market share targets, these adjustments have done little to calm investor concerns.   

Recent data from CarGurus.com indicates that used car prices have begun to rise in recent weeks after several months of declines. Over the last 30 days, prices have increased by 1%, particularly for used minivans, sedans, and hatchbacks.  

While these price hikes could potentially enhance CarMax’s near-term profits, they also add financial strain on American consumers already grappling with high interest rates.   

According to the latest figures from Edmunds, the average annual percentage rate (APR) on a used vehicle climbed by 30 basis points to 11.9% in March 2024. Furthermore, tighter bank lending standards are exacerbating the challenge for used car buyers to secure financing. 

Wall Street Has Mixed Reactions 

Analyst reactions to CarMax’s disappointing fourth-quarter performance is mixed. On Monday, J.P. Morgan maintained its Sell rating on the CarMax’s stock and set a price target of $55. The firm highlighted that CarMax is experiencing stagnant volume growth at a time when the overall industry volume is showing slight growth.   

Despite J.P. Morgan’s bearish stance, it stands alone in its outlook. Among the other eight analysts who updated their views following the fourth-quarter results, the sentiment is split: four analysts are bullish and four are sitting on the sidelines.   

For instance, last week, Mizuho Securities reaffirmed its Neutral rating on CarMax’s stock but adjusted its price target down from $75 to $70, noting favorable sequential comparable sales trends but also noting the growing challenge of used car affordability.   

The current average consensus price target for CarMax is $82, which suggests a potential upside of 17% from current levels. However, given the inflationary pressures and high interest rates affecting consumers, CarMax may struggle to attract investors to its stock in the near term.  

Costco (NASDAQ:COST) holds the title as the undisputed leader in the warehouse club sector. The company, beloved for its $1.50 hot dog meal that hasn’t gone up in price since it was introduced in 1985, has recently become one of the top suppliers of gold and silver in the United States. Costco is renowned for its consistent track record of growing revenue and, more important, earnings. 

As such, investors must pay a premium for shares of Costco, reflecting its stable growth and strong market position. Currently, the stock is trading at 46 times forward earnings, which is near the upper end of its historical valuation range. This high valuation was a contributing factor to the stock’s 4% decline in March, even though the company reported year-over-year increases in both revenue and earnings. 

Costco Raises Dividend By 14 Cents Despite Rising Inflation 

Just when investors thought they might get a discount on COST stock due to the recent sell-off, Costco announced a dividend increase of 14 cents. The new quarterly dividend of $1.16 will be paid on May 10, 2024, to shareholders of record as of April 26, 2024. 

Costco’s decision to raise its dividend was not unexpected; this increase marks the 20th consecutive year that the company has boosted its payout. With a payout ratio of around 26%, Costco’s dividend remains one of the most secure in the market. 

The increase of 14 cents represents a 13% rise from the previous year, and this comes on top of a $15 special dividend paid to investors in December 2023. 

However, the significant aspect of this news is not just the amount of the dividend increase but its timing. Costco is voluntarily raising its dividend by 13% at a time when inflation, although lower than in 2022, is still trending above the Federal Reserve’s preferred 2% target rate. 

What implications does this have? First, it suggests that Costco does not anticipate a decrease in consumer spending. If it did, the company would likely retain more cash on its balance sheet to mitigate potential financial headwinds. 

Second, by boosting the dividend substantially, Costco is signaling to investors that it is confident about its future earnings growth 

If It Was Easy, More Companies Would Do It 

Costco benefits from a unique business model where customers pay a subscription fee to enter the store and shop. This model serves two significant purposes. First, the subscription fees contribute directly to Costco’s bottom line—an immediate and clear benefit for potential investors. 

Second, the model ensures a degree of customer loyalty. Typically, the only reason members cancel their membership is if they feel they are not using it enough to justify the annual cost. In the case of Costco, the sustained membership renewal rates indicate that customers see substantial value in their subscriptions and are willing to pay more to continue accessing Costco’s services and products. 

I’d call that a moat, even if some would disagree. And that’s another reason to invest in COST stock. 

But Is COST Stock A Buy Right Now? 

Should you invest in Costco stock for its dividend? Probably not. While Costco’s dividend is appealing, there are stocks with higher yields available if collecting dividends is your main investment goal. Owning shares of Costco is somewhat analogous to owning shares of Apple (NASDAQ:AAPL); both companies have substantial cash reserves, making the dividend almost a secondary consideration. The dividend, while a nice bonus, is not the primary reason to invest in either company. 

Continuing this comparison, Apple is currently having a challenging year, with investor concerns centered around revenue and earnings, potentially making AAPL stock look slightly undervalued. In contrast, Costco is experiencing a strong year, with no apparent worries from investors regarding its financial performance, leading some to argue that COST stock might be overvalued. 

Another aspect to consider is the history of stock splits for both companies. Apple last split its stock in 2020, marking the fifth time doing so. Costco, on the other hand, hasn’t split its stock since 2000. Given that COST stock is trading at 46 times earnings and with a stock price well over $700, a potential stock split could be an additional way for Costco to reward its investors in 2024, possibly making the stock more accessible to a broader base of investors that would attract many new investors that have been sitting on the sidelines for years, if not decades. 

Collaboration software innovator Atlassian (TEAM) is currently trading more than 50% below its peak of $483.13, mostly due to a slowdown in growth in the post-pandemic reality. Despite this, the equity research department at Barclays upgraded Atlassian shares from Equal Weight to Overweight and increased its price target from $235 to $275.   

The firm highlighted that enterprise migrations to the company’s cloud-based solutions are expected to drive long-term growth and improved margins. With a “healthier” growth profile and revenue “durability” tied to recurring cloud subscriptions, Barclays contends that Atlassian’s stock deserves a higher valuation.   

Meanwhile, other research firms remain cautious. Mizuho reduced its price target on Atlassian from $265 to $240, citing a mix of positives and negatives from its first-quarter software channel checks. Positives included increasing cloud workloads, robust cybersecurity demand, and a rise in artificial intelligence (AI) projects. However, Mizuho’s analyst also noted that many deals are being delayed and public sector demand is weakening.   

Although Mizuho maintained its Buy rating, the lowered price target reflects growing uncertainty around enterprise software spending as businesses consider potential Federal Reserve interest rate cuts. The anticipation of lower interest rates in the second half of the year may be causing Atlassian customers to hesitate on capital projects, including software investments. 

Remote Work Trends Are Alive And Well 

The trend towards a full return back to the office with limited remote work is just not a reality that will happen. According to the Pew Research Center, 41% of U.S. workers who have the ability to work from home are doing so at least part-time. Since the pandemic disrupted the traditional office model four years ago, fully remote and hybrid setups have become commonplace across various industries.  

Professions in information technology, financial services, and architecture are particularly likely to offer remote work options, which is promising for companies like Atlassian.   

Although growth has moderated from the rapid pace seen from 2020 to 2022, Atlassian continues to take advantage of strong demand for software tools that facilitate hybrid work environments. The pandemic has significantly accelerated the digital transformation globally, prompting businesses to adopt Atlassian’s broadening array of products.   

More recently, the integration of generative AI features into its flagship collaboration software has heightened customer interest. A year after partnering with OpenAI to incorporate AI into Confluence, Jira Service Management, and other Atlassian programs, generative AI is poised to become a vital driver of long-term growth. 

When Does Atlassian Announce Earnings? 

Atlassian is set to release its fiscal 2024 third-quarter financial results after the market closes on April 25, 2024. The company will aim to continue an impressive streak, having surpassed consensus EPS expectations in each of the last five quarters—an achievement that has contributed significantly to the stock recovering approximately 80% from its November 2022 low. 

In the second quarter of fiscal 2024, Atlassian reported a 21% year-over-year increase in revenue, marking its first-ever quarter with $1 billion in revenue. The company also surpassed the 300,000-customer milestone as more enterprises adopted its intelligent work productivity tools. Notable customers include Costco, Delta Airlines, and Domino’s, highlighting the broad appeal of Atlassian’s offerings.   

Currently, Wall Street’s price target for Atlassian stock stands at $255, suggesting a 27% upside from its present levels. This target reflects the optimism surrounding the company’s continued growth and innovation in the technology sector. 

McCormick & Company (NYSE:MKC) shares are trading near its six-month high, driven by an encouraging earnings announcement and confirmation of management’s 2024 outlook. The company surpassed expectations, with an earnings per share (EPS) of 63 cents and revenue of $1.60 billion, against forecasts of an EPS of 58 cents and $1.55 billion in revenue.

Additionally, McCormick reiterated its guidance for the year in a move that is mostly consistent with retailers who are projecting slightly softer revenue. Nonetheless, the company forecasts an adjusted EPS in the range of $2.80 to $2.85, implying at least 3% growth from the previous year.

The Consumer is Still Under Pressure

McCormick president and chief executive officer Brendan Foley noted during the company’s earnings call that “consumers remain challenged” by inflation and continue to seek value. However, during the first quarter, the company did see a shift to food-at-home consumption.

This reflects the “heads you win, tails you still win” proposition of owning MKC stock. Whether you eat at home or eat out, food needs seasoning to taste good so McCormick wins in either scenario. The company did notice a slight decrease in demand from restaurants this quarter, which translates to more home cooking by consumers.

Over the last ten years, McCormick has improved and expanded its product range to include popular brands such as Frank’s RedHot, French’s mustard, Cholula hot sauce, and Stubb’s barbecue sauce, further positioning itself deeper into kitchens everywhere.

MKC is Expensive, But Remains a Value

Before its recent earnings announcement, McCormick’s stock was valued at 22 times earnings and 20 times its expected forward earnings. Yardeni Research found that the median forward price-to-earnings (P/E) ratio for stocks within the consumer staples sector stands at 19.4.

Following a 10% surge in McCormick’s stock price post-earnings, its valuation ratios have risen to 30.6 times its current earnings and 27.4 times its forward earnings. This elevation places McCormick in the pricier valuation category. However, considering the anticipated growth in the company’s earnings and cash flow, this high valuation might actually undervalue the company’s outlook given its ability to sell to professional chefs, at-home weekend chefs, and plain consumers with no real interest in cooking other than pouring spices of sauces in food to taste better.

Getting Involved with MKC Stock

After a bullish earnings report, McCormick’s stock price gained 10% and reached its highest point since September 2023. Given the typical volatility of stocks around earnings announcements, it might be best to wait for the stock price to stabilize before buying shares.

McCormick’s stock is currently trading at the midpoint of its 52-week price range, suggesting potential for further gains, especially if analysts start to revise their price targets upward. Over the past six months, analysts have been reducing their price targets for McCormick. Yet, the company’s strong earnings could lead to a reassessment of how the Street views thes tock, as evidenced by institutional buying that has supported the stock price.

Indeed, the company’s strong earnings announcement should force analysts to reconsider their price targets for McCormick upwards, despite it currently holding a consensus rating of Hold from 19 analysts. Additionally, in November, the McCormick board announced an 8% dividend increase, marking the 37th consecutive year of dividend growth—a significant draw for investors seeking steady income.

Ultimately, McCormick remains a compelling stock to own as at its core it is a reliable consumer staples company that offers a growing dividend and potential for appreciable gains in a favorable economic climate

Palantir Technologies (NYSE:PLTR) shares are down around 5% during the final five days of the first quarter of 2024, providing fuel for those investors who have long deemed the stock fundamentally overvalued. This sentiment was echoed by analysts at Monness, Crespi, and Hardt, who downgraded PLTR from Neutral to Sell, critiquing its valuation as excessively high and predicting a further decrease to $20 per share within the next 12 months—a potential 18% drop.

The skepticism surrounding Palantir’s valuation is justified, given its current trading at 143 times earnings after the stock’s 190% run higher. It’s reasonable for investors who entered at PLTR’s near-penny stock levels to lock in profits and pat themselves on the back for a great trade.

Passive investors considering purchasing PLTR for their long-term portfolio will likely look at the lofty valuation and pass on owning shares. But this might be a mistake as Palantir’s high valuation comes with a compelling growth story. Investors willing to navigate through the company’s volatility might find Palantir a worthwhile addition to their portfolio.

Growth Now, Earnings Later

Palantir’s strategic moves since its public debut in 2020 has been aimed at diversifying its client base by focusing on the commercial sector. Initially, there was investor criticism against its heavy reliance on government contracts.

However, the recent increase in its commercial customer count by 55% and a 32% growth in revenue from this segment highlight Palantir’s successful expansion beyond its government clientele. This surge is partly attributed to the effectiveness of the company’s AIP bootcamps, which offer potential clients a hands-on experience with its AIP platform, suggesting that Palantir’s strategies to bolster its commercial presence are paying off.

Meanwhile, Palantir’s government sector business continues to flourish, underscored by a recent $178 million contract from the U.S. Army for its TITAN program. This balance between expanding its commercial footprint while sustaining growth in government contracts solidifies Palantir’s business model and ability to listen to and address investor concerns.

Despite criticisms around profitability, Palantir’s financial health does not seem to be damaged. The emphasis on prioritizing revenue and market share growth has not precluded profitability. The shift towards profitability, as evidenced by its first full year of profitable earnings and an improved operating margin from just over 5% at the end of 2023 to 8.79%, indicates Palantir’s ability to grow sustainably. This growth suggests that Palantir is well-positioned for long-term success, despite growing competition from long-established rivals and newer ones.

Actions Speak Louder Than Words

For all the negative sentiment among analysts, institutional investors are still buying PLTR stock. In the last year, institutional investors purchased nearly $7.5 billion of the company’s stock while selling just $613 million worth of shares. While institutional ownership is only around 45%, this pattern of buyers outnumbering sellers has been in place since the stock debuted in 2020.

As an investor, this should make you ask should you be following what investors are saying or what they are doing. In the case of Palantir, the answer seems clear. The “big money” believes Palantir stock is moving higher. That means that when it comes to the company’s valuation, you should pay attention to what the company reports more than what the analysts believe should happen with the stock.

Traditionally, the taxi service sector has lagged in innovation. However, Lyft (LYFT) is one of the small handful of companies in existance that can significantly alter this perception.

During its recent fourth quarter earnings call in February, Lyft, headquartered in San Francisco, emphasized ‘innovation’ nearly a dozen times, underscoring its dedication to offering new transportation options that appeal to American commuters and travelers.

This emphasis on innovation was a key highlight in a very positive Q4 report, helping Lyft shares become one of the standout momentum stocks this year. Specifically, Lyft’s stock is up more than 60% since its earnings report and about 150% from its record low in May 2023.

During the holiday quarter, Lyft delivered an adjusted net profit of $0.18 per share versus expectations of eight cents. This success was driven by a 10% rise in active riders, a 26% increase in ride volume, and reduced operating expenses, primarily from layoffs. With rival Uber also delivering strong Q4 results, the bullish sentiment around Lyft’s stock is showing no signs of slowing down.

LYFT is finally getting some buy ratings

RBC Capital upgraded Lyft’s stock rating from Sector Perform to Outperform on March 6 and established a Street high price target of $23.00. This upgrade was based on confidence in Lyft’s profitability for 2024 and confirmation of a stronger market position which may even expand into food delivery. The research firm also supports a potential merger between Lyft and DoorDash to bettantier compete against Uber.

Analysts at Argus Research similarly upgraded Lyft’s stock rating from Hold to Buy, in part due to the leadership of Lyft’s new CEO, David Risher. The research firm is bullish on the stock amid solid fundamentals in the ridesharing industry.

Lyft received its third buy rating of the month on March 15th, this time from Piper Sandler. This analyst is optimistic that Lyft will see benefits from a more robust U.S. consumer market and that the introduction of new products will lead to increased bookings.

Ride-hailing customers are getting more options

In recent months, Lyft has modernized the ride-hailing business model by giving customers greater flexibility when it comes to membership, booking, and the ride experience. Recent product launches include:

• Women+ Connect: A unique feature for women who prefer to ride or drive with another woman. Since going live in September 2023, the Christina Aguilera-backed product has resonated with female customers and drivers alike and is now available nationwide.
• Priority Pickup: An upgrade tailored to businesses that gives time-sensitive professionals a faster pickup service.
• Extra Comfort: A premium ride type introduced in October 2023 that lets riders opt for newer, roomier vehicles that offer more legroom, a quieter ride, and match known temperature preferences.
• On-time Pickup Promise: Launched in November 2023 as part of Lyft’s Scheduled Ride option, this gives customers up to $100 if their ride doesn’t arrive within 10 minutes of their pickup time. The guarantee helped boost scheduled airport rides by 37% during Thanksgiving week.

During the Q4 earnings call, CEO David Risher emphasized that “continuous innovation” is a central theme for 2024, aiming to provide compelling reasons for consumers to prefer Lyft over Uber. If the introduction of new products leads to enhanced financial outcomes as analysts anticipate, Lyft’s stock rally could extend significantly further.

Cummins Inc. (CMI) shares hit a record intraday high of $297.11 on March 21^st as shares are up more than 20% for the year. This surge is driven by growing optimism regarding a revival in global construction and infrastructure projects.

In early March, Cummins won a bullish rating from UBS analysts as the research firm upgraded its rating on Cummins’s stock from Neutral to Buy. UBS noted in its report that the heavy-duty trucking leader is likely to enjoy a surge in demand from truck and machinery manufacturers, potentially driving a 10% to 15% increase in earnings per share (EPS) by 2026.

The upgrades follow Cummins’ fourth quarter financial report that showed revenue grew 10% year-over-year to $8.54 billion. Although soft demand from China led to a worse than expected 8% profit decline, fiscal 2023 EPS was still up 27%. The performance reflects easing trade tensions, increasing North American truck production, and favorable pricing.

Next-gen diesel engine launched

Cummins stands as a global leader in the production of fuel-efficient diesel and gasoline engines. With fuel prices remaining significantly high in comparison to natural gas, manufacturers are increasingly relying on Cummins to enhance the cost-effectiveness of their trucks for end-users. Additionally, the company is benefiting from the escalating environmental regulations implemented by both the U.S. and international governments.

In response to robust demand, Cummins continues to lean on its century-long legacy of innovation. Recently, it introduced the X15 diesel engine, hailed as its most efficient offering for the heavy-duty on-highway market. This engine is compliant with the 2027 Environmental Protection Agency (EPA) standards and is equipped with advanced digital features, including predictive service recommendations, to facilitate fleet management and operations.

Hedge funds are backing up the truck

The financial strength and positive outlook of Cummins is not being ignored by hedge fund managers. In the fourth quarter of 2023, hedge funds acquired a net 426,000 shares of Cummins, elevating their collective ownership to roughly 9.17 million shares. Notably, hedge fund investment in Cummins has surged by over 40% since the fourth quarter of 2022.

This heightened interest from hedge funds in the last quarter saw the entry of three new players— Aristeia Capital, Gotham Asset Management, and Graham Capital Management. Additionally, seven other firms expanded their holdings, including Fisher Asset Management, led by Ken Fisher, which declared a stake valued at $620.7 million. Christopher Niemczewski of Marshfield Associates also increased his investment in Cummins, making it account for more than 5% of his portfolio.

Growing dividend is an attraction

Recently, the Board of Directors announced a cash dividend of $1.68 per share. For 18 consecutive years, Cummins has consistently increased its dividend payments, making it an attractive option for investors focused on income, particularly as the stock reaches new highs.

Over the past decade, the dividend provided by Cummins has grown at a compounded rate of 11.2%, contributing to the stock’s annualized total return of 8.9%. Alongside its promising growth potential linked to worldwide infrastructure investment, Cummins currently provides a forward yield of 2.3%.