Apogee Falls On Earnings And Improved Financial Condition

At first glance, you might think Apogee Enterprises (NASDAQ:APOG) is well-positioned as a manufacturer of windows but then again, maybe not. The company is focused almost exclusively on the industrial end of the construction business and there is some weakness in that area. Industrial furniture-maker Steelcase (NYSE:SCS) is another example of this problem. The furniture industry is rebounding strongly but Steelcase isn’t participating because the strength is all residential. But there is a difference here. Apogee operates in four segments and two are growing, and the company is in a much better position to leverage its rebound, and it pays a much-safer dividend.

“We delivered another strong quarter, with adjusted earnings growth and improved cash flow, despite continued challenges from COVID and soft conditions in our architectural end markets,” said Joseph F. Puishys, Chief Executive Officer. “We focused aggressively on managing costs and improving execution across our business and remain on track to achieve our full-year cost reduction goal of over $40 million.

Apogee Up On Mixed Results

Apogee delivered a mixed quarter in terms of revenue and earnings but there is a mitigating factor. The company missed on the top line but beat on the bottom line because of ongoing cost-savings that are driving YOY earnings increases. The topline revenue of $313.58 million is down 7.2% from last year and missed consensus by 580 basis points. The weakness is attributed to project delays and weak-end-markets related to the COVID-19 pandemic.

On a segment basis, Architectural Framing and Architectural Glass segments both saw declines on a YOY basis while Services and Large-Scale Optical both grew. The Architectural Services segment grew by double-digits (a little more than 11%)  while Optical returned to growth with a 4.0% increase. Together, these segments are about 30% of net revenue.

Moving down the report, the company says it is on track to meet its goal of greater than $40 million in cost savings for the fiscal year. This can be seen in the EPS, both adjusted and GAAP, which both beat the consensus by wide margins and grew on a YOY basis. The GAAP EPS of $1.42 includes proceeds from the sale-leaseback of a property that generated a significant gain along with $24 million in cash. The more-important and comparable adjusted EPS came in at $0.91 or $0.21 better than expected and up 58% from the last year.

Apogee Has A Fortress Balance Sheet And Safe Yield

Apogee is attractive for its dividend if nothing else. The stock is yielding about 2.3% with shares near $32 and there is every expectation for distribution growth. The payout ratio is less than 30% of earnings, the balance sheet is a fortress, cash is good and free-cash-flow is growing. Based on the 9-year history of increases investors should expect another increase with the next declaration due out within the next month.

“During the quarter, we took several actions to further strengthen the company’s financial position and drive value,” continued Mr. Puishys. “We completed a sale-leaseback transaction for one of our facilities, generating a significant gain on the sale and $24 million in cash. We amended our term loan, extending the maturity by three years, and we resumed repurchases of our stock. We also initiated an effort to reduce our fixed cost base, which should add to the cost savings efforts we already had underway.”

The Technical Outlook: Apogee Is In Rally Mode

The Q3 report was taken well by the market but did not spark a major move higher. In light of the recent uptrend, the post-release pullback is welcome and may lead to consolidation at this level or a pullback to firmer support. In either case, the bulls are still in control of this stock and the outlook is optimistic if not positive. If share prices pull back it will be an opportunity to buy this stock at a deeper value and higher yield. The targets for support are near $30 and $28

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It's RingCentral (NYSE: RNG) You Want In Your 2021 Portfolio, Not Zoom (NASDAQ: ZM)

RingCentral (NYSE: RNG) is a cloud-based communications platform used by businesses to allow employees to make and take calls from their computers. In other words, a textbook work-from-home stock at first glance. Their shares were up 200% from the start of 2019 through March of this year so we're running with some decent momentum before Q1’s crash clipped their wings. But while they were able to undo all of the damage by May, unlike most of their peers in the work-from-home space, they didn’t really kick on from there. They topped out at around 20% higher than their pre-COVID levels and then traded sideways in a tight range through the summer and fall.

Diverging Fortunes

At the start of this month, shares were still up 75% on the year, and if that was where they tapped out for 2020, how bad. It’s not an annual return to be sniffed at all things considered but compared to competitors like Zoom Video (NASDAQ: ZM) it would have been a bitter pill to take. Zoom was the company that came to encapsulate the rally and hype seen in work-from-home stocks this year. From the start of the year through early October, shares of the San Jose based company popped more than 700%. RingCentral investors must have been kicking themselves for backing the wrong horse.

But the closer we get to the end of the year, the more it looks like RingCentral is going to finish on the stronger foot. Their shares have rallied more than 30% in the past fortnight and are crushing Zoom over the past two months. Since October, RingCentral has tacked on 40% compared to the 25% that Zoom’s have given up. That’s a considerable divergence in the fortunes of two communications software companies and investors getting ready for a new year would do well to take notice.

Only yesterday, Morgan Stanley upgraded RingCentral shares to Overweight, calling it a "pure-play leader” that was “showing top-line acceleration from partnerships ramping”. They also slapped a fresh price target of $420 onto the stock which is about 10% higher than the all-time highs it closed at last night. The previous day, Mizuho were also out with bullish comments and a price target raise.

Looking Ahead

On the flip side, Zoom is fast becoming an over hyped and bloated tech name, with a vicious price-to-earnings ratio of 280 and more downgrades of late than upgrades. JPMorgan moved them down to Neutral earlier this month as the vaccine started being delivered, citing concerns about Zoom’s ability to maintain such a high valuation in a post pandemic world. Credit Suisse went a step further earlier this month and maintained their Underperform rating on the stock which, ominously, has been in place since April.

Of the two work-from-home stocks, Zoom was the better buy for 2020. There can be no doubt about that. But it looks like it’s had its moment in the sun and if anything flew a little too close to it. RingCentral on the other hand has the appearance of a stock that’s just getting going, and I know which one I’d rather be adding to my portfolio for 2021.

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Redfin (NASDAQ: RDFN) is Changing the Real Estate Industry, Should You Buy?

Selling a home is expensive. With home prices setting record highs, the typical 2.5% agent listing fee can easily reach five figures. I’ve long thought that there must be a better way. A cheaper way.

Redfin (NASDAQ: RDFN) has found that way and executed. The online real estate broker charges a commission of just 1.5% for each home sold.

The company pulled it off by turning the traditional brokerage model on its head. Instead of paying its agents a percentage of the total commission, Redfin pays them a salary. With nearly 2,000 salaried lead agents – and growing – Redfin is building a strong presence across the country.

Redfin Offers Customers Other Ways to Sell Their Houses

Typically, a real estate broker sells a customer’s house by advertising it and finding a buyer. The broker doesn’t take much of a role in making the property more attractive, and the buyer tends to be the end-user.

Redfin, however, is offering alternative options for homeowners.

Its RedfinNow service lets customers sell their house to the company for a 7% service fee. Sounds pricey, but this option can be a godsend for a cash-strapped customer who may have just lost their job.

Obviously, this introduces a level of risk for Redfin. What happens if the market crashes? Management is aware of this risk, so Redfin only offers this service under certain circumstances.

Redfin also offers a concierge service; sellers pay a 2.5% listing fee to work with Redfin to make repairs and upgrades. The seller pays foots the bill, but Redfin uses its network to coordinate the work through contractors.

I think the concierge service has a lot of potential because it’s a win-win for Redfin and its customers. Redfin’s customers can leverage the company’s expertise and connections to get a better ROI on their upgrades than they ever could on their own. Redfin pockets the extra 1.5% without taking on any risk, but the customer ultimately ends up paying an average real estate commission for well-above-average value.

Redfin Has Plenty of Room for Growth 

Look at the Q3 2020 numbers for Redfin and you’ll see:

• Revenue was down 1% yoy to $236 million.
• Gross profit of $93 million was up 74% yoy.
• Net income was $34.2 million, up from $6.8 million in the same period a year ago.

Gross profit and net income growth look great, but what happened with revenue?

CEO Glenn Kelman explained the disconnect, saying the revenue dip was “due to a pandemic-driven shortfall in the number of RedfinNow homes we could sell. Our RedfinNow business of buying and selling homes has an outsized impact on revenue because we have to account for the entire home value, not just the transaction fees we get from a brokered sale.”

Redfin’s core business recorded revenue growth of 36% yoy in Q3. And the thing is, that revenue growth may not slow down any time soon. Consider that:

• Redfin only has a 1.04% share of the existing home market in the US.
• Customer inquiries for Redfin’s agents or partners agents increased 58% yoy in October, accelerating from a 38% yoy increase in July.
• The company’s website receives nearly 50 million monthly visitors, and it does an excellent job of converting them into customers.

Redfin trades at nearly 9x forward sales, and it has recorded a net loss of around $40 million over the last 12 months, but this is the type of company that can see explosive revenue growth for longer than you expect.

Gross profit over the first nine months of 2020 came in at $152 million, up 45% from the $104.5 million recorded over the first nine months of 2019. Let’s say gross profit grows at a CAGR of 30% for Redfin over the next five years: that would take it to over $550 million by 2025. I’m not making any predictions – it will certainly be higher or lower than that – but I’m just trying to illustrate what’s possible for an industry disruptor that is just getting started.

Best to Hold Off

Okay, you may have thought I was going to tell you to buy Redfin as soon as you finish this article, but you may want to hold off because shares are EXTENDED. RDFN plummeted nearly 13% on November 9 on the Pfizer (NYSE: PFE) vaccine news, but has nearly doubled in the less than six weeks since then.

There are lots to love about this company, but a pullback is almost certainly coming, so  look for one of two things:

1. A short-term consolidation – think 3-4 weeks – that ends in a convincing breakout.
2. A 15-20% pullback that culminates with a strong reversal.

Keep a close eye on Redfin – you don’t want to miss an opportunity to get in.

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