What happened
Wednesday just gets redder and redder. As of 3:20 p.m. EDT, the Dow Jones Industrial Average is down 4.4%, the Nasdaq 4.5%, and the S&P 500 index worst of all -- off 4.6%.
Among the stocks getting chewed up today are three that seem (at first glance) to have little in common:
- Cable provider Comcast Corporation (NASDAQ:CMCSA) -- down 6.4%
- Home improvement retailer Lowe's Companies (NYSE:LOW) -- down 6.7%
- And travel reservations website operator Expedia Group (NASDAQ:EXPE) -- crashing 7.8%.
Why?
IMAGE SOURCE: GETTY IMAGES.
So what
These three companies don't seem to be related. They don't even all trade on the same stock exchange. And yet, closer examination shows that the three stocks do in fact have one big thing in common:
They all got attacked by stock analysts today.
Beginning with Comcast, this morning Goldman Sachs pulled its "conviction buy" rating on the cable giant, downgrading to merely buy, reports TheFly.com. You might think that, with half the country sheltering in place at home with little to do but watch TV, this would be prime time for a TV stock to outperform. But as Goldman Sachs points out, Comcast isn't going to be able to take full advantage of this dynamic in 2020 because of the ongoing cord-cutting among its subscribers. Despite Comcast's rising revenue from raised rates and increased sales of internet service, S&P Global Market Intelligence data show a steady deterioration in Comcast's operating profit margins over the last five years as the cord-cutting trend has picked up steam.
On top of that, Goldman notes that Comcast (which owns Universal Studios, its associated theme parks, and the NBC television network) will suffer from delayed film releases, park closures -- and even the postponement of the 2020 Olympics this year.
Luckily for Lowe's and Expedia, they don't own any of those things, but the news isn't much better for them. Lowe's stock got its price target clipped at Jefferies today, cut to $115 a share on worries that social distancing could keep shoppers out of stores even after we flatten the curve on the coronavirus outbreak.
And Expedia suffered a downgrade at Argus, which warns that "significantly impacted" demand for travel services in the age of the coronavirus is sapping revenue and could cause Expedia to violate its debt covenants this year -- creating a technical default.
Now what
For now, Argus is only downgrading Expedia to hold, and with Expedia stock priced below 14 times trailing earnings today (and down by more than half over the past year), it's possible this is as bad as it will get for that stock. Lowe's, at just 15 times earnings, doesn't look unreasonably priced for long-term investors, either. Comcast, at 12 times earnings, could be the biggest bargain of all...but for the fact that it's lugging around $112 billion in debt -- about 70% of its own market cap!
If I had to pick one of the three that I like best, it would probably be Expedia. A victim of travel bans and plummeting vacation interest it may be in the short term, but with the least debt of the three stocks named (just $1.8 billion, net of cash on hand), and superb free cash flow of $1.6 billion (more than three times reported net income), Expedia looks to me like the business that could bounce back fastest, and furthest, once this pandemic-inspired recession is over.
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