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Yesterday (02/25/20) post-close CVNA reported Q4 and beat on $GP/U but missed on SG&A. For the 2020 guide CVNA guided below Cons/scrape data but given track record is likely being conservative. $GP/U was materially better, but implied SG&A was much worse. Stock is -11% in after-hours.
With concerns over the Coronavirus spreading, we think US Retailers will likely be viewed as near-term relative safe-haven stocks given limited direct exposure to China. However, should the virus spread into a pandemic, especially in China, we see a greater impact to US retailers from indirect supply chain exposure or US GDP growth.
To help gear up for 2020 we analyzed 2019 performance, identified 10 key themes into 2020, analyzed post Q3 earnings reaction, and analyzed the key issue facing each stock under coverage into 2020.
Yesterday (11/06/19), after market, Carvana reported Q3. After delivering a near perfect Q2, CVNA took a small step back in Retail/Wholesale $GP/U’s and SG&A (Exhibit 8), but the financing business remains strong.
Today (10/07/19) we are assuming broader coverage of hardlines and internet retail with deep-dive reports on four companies, including a LOW downgrade to PP. We also have two ratings changes from our existing retail coverage (AAP to UP and ORLY to OP), and assuming coverage of six additional retail names with concise 1-page investment tear sheets.
Lyft: Good performance with the trees, but what about the forest?
Performance is Q2 was quite good, as a focus on better pricing and share gains for business travelers and other “high-value” routes led to better-than-expected margins. But we believe that growth in these segments is finite. Enough revenue growth to get to breakeven (from -25% EBITDA margin currently) will require Lyft to tap into the broader market, in our view. And, for that, pricing needs to go down, not up.
Takeaways from Continental earnings call
Continental is a bellwether. In our view, anyone following US suppliers should take a closer look at what they said (which we summarized in this Daily). Conti’s auto business experienced similar 1st half margin compression as suppliers we cover but they are not expecting a similar recovery in the 2nd half.
Yesterday (8/7/19) Post-market CVNA reported a significant beat driven by gross profits, which was slightly offset by SG&A (Exhibit 2). In addition to the unworldly unit growth (+95%), we came away with 3 proof points that support the long-term earnings potential of CVNA.
What to Watch for Ahead of Uber’s 2Q Earnings
Uber reports 2Q results after the close Thursday. Risk/reward skews a bit positive in our view given the recent sell-off and that we think mgmt commentary implied flat to slight reduction in 2Q EBITDA losses vs 1Q, above current consensus. We outline what else to watch for off the print.
Tenneco posted a decent quarter, and opened the door to a potential catalyst
While Tenneco’s numbers were down yoy, they were nonetheless better than expected. And the company opened the door to strategic options for its most valuable assets. TEN’s shares rallied 15%.
MGA Preview – NA Mix a Headwind in the quarter; still see downside to 2020 FCF
MGA reports Q2 before market open Thursday. We see modest downside risk due to weaker than expected production on key NA platforms. But we are more focused on factors that can help frame the outlook for 2020. Mgmt has guided to higher cash generation next yr. We’ve been bracing for pressure.
CVNA priced its 2nd ABS deal, 2019-2, which closes 6/27. With the benefit of the pre-sale reports and pricing, we estimate that Financing profit per unit will be $823/Unit in Q2, which is 31% sequentially higher than Q1 and 17% higher than we had been anticipating. Keep in mind, unlike other captive finance companies, CVNA sells the residual and recognizes all the profit up-front, which means that it benefits immediately when rates drop.
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