Chicago, IL – November 21, 2024 – Zacks Equity Research shares Dropbox DBX as the Bull of the Day and CDW Corporation CDW as the Bear of the Day. In addition, Zacks Equity Research provides analysis on United Airlines UAL, Westinghouse Air Brake Technologies WAB and SkyWest SKYW.
Here is a synopsis of all five stocks.
Bull of the Day:
Increased profitability, strong cash flow, and innovation into artificial intelligence is starting to make Dropbox stock appealing among the Zacks Internet-Services Industry, which is in the top 14% out of 250 Zacks industries.
With its cloud-based collaboration platform expanding, Dropbox shares may appeal to growth and value investors. Considering such, Dropbox stock sports a Zacks Rank #1 (Strong Buy) and lands the Bull of the Day after exceeding its Q3 expectations earlier in the month.
Increased Profitability Overview
Operating as a file hosting service, Dropbox synchronizes personal cloud and enterprise software to create, access, and share digital content.
Dropbox’s paying users stood at 18.24 million at the end of Q3 2024, up from 18.17 million in the comparative quarter. Enhancing its operating efficiency, Q3 EPS was slightly up to $0.60 and impressively topped the Zacks EPS Consensus of $0.52 a share.
Third quarter sales of $638.8 million increased 1% from a year ago and edged estimates of $636.93 million. Most intriguing and indicative of more upside in Dropbox stock is that earnings estimate revisions for fiscal 2024 and FY25 are up 7% and 9% in the last 30 days respectively. Furthermore, Dropbox's annual earnings are now expected to increase over 20% this year and are projected to rise another 9% in FY25 to $2.62 per share.
Stronger Cash Flow
Piggybacking on Dropbox's operational efficiency, free cash flow increased 9% year over year to a quarterly record of $270.1 million.
Dropbox Dash (AI Prospects)
Making good use of its free cash flow, Dropbox has planned to expand and innovate its platform. During its Q3 report, Co-founder and CEO Drew Houston stated Dropbox plans to leverage its customer base, trusted brand, and scale infrastructure to deliver on the company’s next phase of growth.
Expansion into AI may interest investors in particular, with Dropbox Dash being an AI-powered universal search tool designed to help users find, organize, and share content across various apps and platforms.
Dropbox’s Attractive P/E Valuation
With Dropbox focusing on the next phase of growth, its valuation should attract value investors. To that point, DBX trades under $30 and at a very reasonable 11.7X forward earnings multiple.
This is a sharp discount to the S&P 500’s 25.1X and the Zacks Internet-Services average of 23.5X with some of the notable names in the space being Shopify and Uber.
Bottom Line
Positive earnings estimate revisions are starting to magnify Dropbox’s attractive P/E valuation and EPS growth. With now appearing to be an ideal time to buy Dropbox’s stock, the company’s innovation is starting to make DBX look like a viable long-term investment as well.
Bear of the Day:
Despite being a leader in integrated information technology (IT) solutions, CDW Corporation reported subpar Q3 results at the end of October, leading to a drop in earnings estimate revisions.
Down nearly -20% year to date, CDW's stock lands a Zacks Rank #5 (Strong Sell) and the Bear of the Day as more downside risk may be ahead.
CDW’s Subpar Q3 Results
Weighing on investor sentiment, CDW shares have plummeted sharply over the last month after Q3 earnings of $2.63 per share missed the Zacks EPS Consensus of $2.84 by -7%. Year over year, CDW’s bottom line contracted from $2.72 a share in Q3 2023. Furthermore, CDW has missed earnings expectations in three of its last four quarterly reports with an average EPS surprise of -4.73% during this period.
This came as CDW’s Q3 sales dipped to $5.51 billion compared to $5.62 billion in the comparative quarter and missed estimates of $5.71 billion by -3%. CDW has also missed top line estimates in three of the last four quarters with an average sales surprise of -2.67%.
Slower Demand & Increased Competition
Notably, CDW attributed its subpar Q3 results to economic uncertainty and growing complexity in the technology landscape, resulting in slower customer decision-making and project delays.
CDW also alluded to increased competition and pricing intensity across all of its end markets with a few of its notable competitors being Accenture, Dell Technologies and IBM.
Declining EPS Estimates
Suggesting the decline in CDW’s stock could continue is that fiscal 2024 earnings estimates have fallen 5% in the last 30 days to $9.46 per share compared to EPS estimates of $9.97 a month ago. More concerning and taking away from CDW’s growth narrative is that FY25 EPS estimates have dipped more than 2% in the last month.
Bottom Line
Operating in a competitive landscape, it may be best to avoid CDW’s stock for now. To that point, CDW may be losing mojo but there are more appealing options in its broader Zacks Computers-IT Services Industry which is in the top 19% out of 250 Zacks industries.
Additional content:
United Airlines Expects 2024 Holiday Season to Be Busiest Ever
United Airlines, which had a busy summer this year, carrying a record 48 million passengers, expects travel to surge this winter, led by increased travel to Europe. UAL stated that bookings to European destinations have been exceptionally strong and are up nearly 30% from that recorded in 2019 and up nearly 10% year over year.
This indicates that Americans are more inclined to spend their money during holidays on experiences rather than on physical gifts. Per a recent Deloitte survey, consumer spending on holiday experiences is expected to rise 16% in 2024, while spending on physical gifts remains flat.
To meet the expected demand swell during the holiday season, UAL aims to offer nearly 60 nonstop flights each day from its hubs in the United States to Europe in November and December. This offering by UAL is more than any other U.S. airline. Furthermore, through UAL’s partners, connecting travelers can visit even more Christmas markets. UAL’s popular European destinations during the holiday period include London, Frankfurt, Munich, Paris and Brussels.
Driven by upbeat passenger volumes, UAL expects to carry 25 million passengers during the holiday period, up 6% from the year-ago level. In the event of this expectation materializing, 2024 would represent the busiest holiday period yet for UAL.
Driven by the buoyant air-travel demand scenario, shares of the Zacks Rank #2 (Buy) company have outperformed its industry and the S&P 500 index on a year-to-date basis.
A busy winter holiday season, as expected by the airline, may boost its stock price further.
Other Stocks to Consider
Investors interested in the Zacks Transportation sector may consider other top-ranked companies like Westinghouse Air Brake Technologies and SkyWest.
Westinghouse Air Brake Technologies currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
WAB has an expected earnings growth rate of 2.01% for the current year. The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average beat of 9.46%. Shares of WAB have risen 69% in the past year.
SkyWest presently flaunts a Zacks Rank #1 and has an expected earnings growth rate of 4.07% for the current year.
The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 79.12%. Shares of SKYW have climbed 136.3% in the past year.
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