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I last wrote about SMART Global Holdings in late March after they delivered another earnings "trifecta" of sales and profit beats and raised guidance.
In that report, I compared the small-cap to its giant peer in the computer and mobile DRAM and NAND flash memory industry, Micron. I'll make some fresh comparisons later in today's report, right after we talk about why SGH shares were up over 25% on October 5.
Because SGH just did it again, and in a month when the broad market melted down over 5%, SMART is up over 10% from depressed valuation levels under $30.
On October 4, SMART Global reported Q4 FY18 results (ended August) and delivered yet another earnings triple-threat with top and bottom line beats and solid upward guidance. Plus the new supercomputer/datacenter division won new contracts with the US Department of Defense and the Department of Energy!
Quarter Details
SGH reported Q4 (FY18 ended August) adjusted EPS of $1.72, $0.06 better than the Zacks consensus estimate of $1.66. Revenue for the quarter came in at $374 million versus the consensus of $369 million.
Management guidance sees Q1 EPS $1.74-$1.79, vs consensus of $1.69 and Q1 revenue $375M-$390 million, vs consensus of $381.5 million. Sees Q1 gross margin 22%-23%.
“We completed fiscal 2018 with another great quarter, including the closing of our acquisition of Penguin Computing,” commented Ajay Shah, Chairman and Chief Executive Officer. “In addition, we closed our first full fiscal year as a public company with record revenues that crossed the $1 billion mark.
"Driving this performance was strength in our Specialty Memory business which had a very strong quarter and earned new NVDIMM and VLP RDIMM design wins at major Storage and Server customers. We also had design wins for our ruggedized SSD products and our Embedded Data Cache product in the Industrial Automation market. Brazil continued its strong performance and added many new memory products for PC, server and smartphone applications as well as a new polymer cell-based battery product for smartphones.
“Our new Specialty Compute and Storage Solutions business led by Penguin Computing performed well in its first quarter as part of SGH. During the quarter we won a number of key contracts with agencies within the Department of Energy (DoE), contractors to the Department of Defense (DoD) and with a number of other enterprise customers for our HPC and AI cluster products.”
Analyst Reaction
Deutsche Bank and Roth Capital Partners analysts were both pleasantly surprised by these results. But both also lowered their price targets to $50 and $60, respectively, while Stifel pounded their big bullish stake further in the ground with a flag-waving raise from $61 to $62.
In a post-earnings research note titled "More stable than feared," Deutsche Bank analyst Sidney Ho says Smart Global's guidance for in-line revenue and slightly better earnings should ease investors' fears that the weakening memory industry will lead to sharp estimate cuts. The analyst is encouraged by the company's confidence that the second half of fiscal 2019 should see strong seasonal growth driven by both Penguin and Brazil Mobile Memory businesses.
Ho believes this strength highlights the difference in business model between Smart Global and memory component suppliers such as Micron Technology (MU). Ho lowered his price target for the shares to $50 from $60 but keeps a Buy rating on the name. He notes Smart Global trades at only four times his revised 2019 earnings estimate.
Roth Capital analyst Suji Desilva maintained a Buy rating on Smart Global but cut his price target to $60 from $70. Noting that SGH represents a differentiated investment opportunity, Desilva told investors that results and guidance in the quarter both came in ahead of consensus, reflecting continued strong execution across key segments despite broader concerns about a memory demand cycle. Recent weakness in Smart Global shares represents a "mispricing" that assumes the company is exposed to a cyclical memory downturn, he says.
Jefferies analyst Mark Lipacis said that the SGH beat and raise exhibits strong growth in the franchise. Plus, the company appears to be successfully integrating its Penguin computing acquisition, which he thinks provides another secular growth element and diversifies its revenue stream. "SGH's P/ E multiple has compressed to 4X from 10X over the past 12 months as Street concerns about the semiconductor cycle have elevated. With a P/E now under 4X, we think the risk-reward ratio is particularly attractive."
The Big Bull Speaks
Kevin Cassidy and his team at Stifel, the unfaltering and biggest Street bulls on SGH, probably felt as vindicated as I did when shares launched 25% from $27 after earnings.
They highlighted SMART's diversification strategy as key to delivering sequential growth in all product lines that "may confound short sellers." And addressing the concerns about the memory glut/demand slowdown, here's what they had to say...
Management explained that most of their memory modules use trailing edge devices (DDR3 DRAM and SLC/MLC NAND Flash) which are less susceptible to price fluctuations. Importantly, with memory OEMs expanding leading edge capacity in new facilities, DDR3 and SLC/MLC availability has improved.
Cassidy and Co. were also very encouraged by the progress with Penguin Computing. They look forward to learning more details on this business during the Super Computing 2018 conference in Dallas, November 13-15. They continue recommending SGH shares and raised their PT an "in your face bears" buck from $61 to $62.
I've written about large-cap gold miners like Newmont Mining and Barrick Gold many times over the years for the Bear of the Day feature as both the yellow metal and its miners are stuck in long-term downtrends.
While Barrick has rallied 34% recently, after hitting 2 1/2 year lows near $9.50, following its $18 billion merger with Randgold, Newmont Mining has only rallied about 11% as gold finds footing back above $1200.
The reason for the weakness is the same as why the stock is a Zacks #5 Rank Strong Sell: persistent downward EPS estimate revisions.
What you see is EPS on the left-hand scale with each colored line representing the changes in annual estimates over time.
The right-hand scale is the stock price, showing a steady decline as an earnings revival was projected but never really showed up the past two years.
Full-year 2018 EPS is expected to show a 22% decline from last year's $1.46 in profits. The top line isn't much better with this year's expected $7.24 billion revenue haul posting as a 1.5% decline over last year.
The Monetary Myth of the Barbarous Relic
The cost of producing an ounce of gold is over $800 for the majority of miners. And one element besides the high cost of production that always hurts the miners is past hedging.
If a miner has obligations via futures, options, or OTC forward contracts to sell gold at say $1300, $1200, or even $1100, then rising spot prices don't have the direct margin leverage one would think.
And I remain bearish on gold, believing nothing in monetary policy or the inflation outlook will much help it get back to $1500 and above.
A monster rally helped close regular trading this Tuesday, and directly following we see another slew of Q3 earnings reports from some of the leading companies in their respective industries. Plenty of noise and late-trading abound, so we will keep our focus tighter and more succinct, in the interest of timeliness.
Netflix rip-roared Q3 results following a harsh Q2 that saw the company miss subscriber growth projections. Not so this quarter: total net adds were 2 million higher than projected to 7.0 million overall. This translates to 89 cents per share reported, well above the 68 cents expected and representing 207% earnings growth year over year. Revenues of roughly $4 billion in the quarter were in-line with estimates, up around 34% year over year.
Streaming grew 36% year over year for Netflix, to $9 million in streaming sales for the quarter. Global membership has now reached a total of 137 million, and Operating Margins also came in ahead of estimates, from 10.5% expected to 12% reported. Shares are way up -- 12% at this hour, though they had increased as much as 17% upon the earnings release. For more on NFLX's earnings, click here.
We see another big beat after the closing bell today from CSX Corp., the Jacksonville, FL-based railroad company: $1.05 per share as opposed to the 94 cents expected was also an improvement of 106% on the bottom line year over year. Revenues of $3.13 billion in the quarter were up 14% year over year, as well as better than the $3.04 billion anticipated.
Operating income growth was up 49% from the year-ago quarter. However, shares are trading down slightly in the after-market. The company has not missed earnings estimates in 19 straight quarters.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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SMART Global, Newmont Mining, Netflix and CSX highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – October 17, 2018 – Zacks Equity Research SMART Global Holdings (SGH - Free Report) as the Bull of the Day, Newmont Mining (NEM - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Netflix (NFLX - Free Report) and CSX Corp. (CSX - Free Report) .
Here is a synopsis of all four stocks:
Bull of the Day:
I last wrote about SMART Global Holdings in late March after they delivered another earnings "trifecta" of sales and profit beats and raised guidance.
In that report, I compared the small-cap to its giant peer in the computer and mobile DRAM and NAND flash memory industry, Micron. I'll make some fresh comparisons later in today's report, right after we talk about why SGH shares were up over 25% on October 5.
Because SGH just did it again, and in a month when the broad market melted down over 5%, SMART is up over 10% from depressed valuation levels under $30.
On October 4, SMART Global reported Q4 FY18 results (ended August) and delivered yet another earnings triple-threat with top and bottom line beats and solid upward guidance. Plus the new supercomputer/datacenter division won new contracts with the US Department of Defense and the Department of Energy!
Quarter Details
SGH reported Q4 (FY18 ended August) adjusted EPS of $1.72, $0.06 better than the Zacks consensus estimate of $1.66. Revenue for the quarter came in at $374 million versus the consensus of $369 million.
Management guidance sees Q1 EPS $1.74-$1.79, vs consensus of $1.69 and Q1 revenue $375M-$390 million, vs consensus of $381.5 million. Sees Q1 gross margin 22%-23%.
“We completed fiscal 2018 with another great quarter, including the closing of our acquisition of Penguin Computing,” commented Ajay Shah, Chairman and Chief Executive Officer. “In addition, we closed our first full fiscal year as a public company with record revenues that crossed the $1 billion mark.
"Driving this performance was strength in our Specialty Memory business which had a very strong quarter and earned new NVDIMM and VLP RDIMM design wins at major Storage and Server customers. We also had design wins for our ruggedized SSD products and our Embedded Data Cache product in the Industrial Automation market. Brazil continued its strong performance and added many new memory products for PC, server and smartphone applications as well as a new polymer cell-based battery product for smartphones.
“Our new Specialty Compute and Storage Solutions business led by Penguin Computing performed well in its first quarter as part of SGH. During the quarter we won a number of key contracts with agencies within the Department of Energy (DoE), contractors to the Department of Defense (DoD) and with a number of other enterprise customers for our HPC and AI cluster products.”
Analyst Reaction
Deutsche Bank and Roth Capital Partners analysts were both pleasantly surprised by these results. But both also lowered their price targets to $50 and $60, respectively, while Stifel pounded their big bullish stake further in the ground with a flag-waving raise from $61 to $62.
In a post-earnings research note titled "More stable than feared," Deutsche Bank analyst Sidney Ho says Smart Global's guidance for in-line revenue and slightly better earnings should ease investors' fears that the weakening memory industry will lead to sharp estimate cuts. The analyst is encouraged by the company's confidence that the second half of fiscal 2019 should see strong seasonal growth driven by both Penguin and Brazil Mobile Memory businesses.
Ho believes this strength highlights the difference in business model between Smart Global and memory component suppliers such as Micron Technology (MU). Ho lowered his price target for the shares to $50 from $60 but keeps a Buy rating on the name. He notes Smart Global trades at only four times his revised 2019 earnings estimate.
Roth Capital analyst Suji Desilva maintained a Buy rating on Smart Global but cut his price target to $60 from $70. Noting that SGH represents a differentiated investment opportunity, Desilva told investors that results and guidance in the quarter both came in ahead of consensus, reflecting continued strong execution across key segments despite broader concerns about a memory demand cycle. Recent weakness in Smart Global shares represents a "mispricing" that assumes the company is exposed to a cyclical memory downturn, he says.
Jefferies analyst Mark Lipacis said that the SGH beat and raise exhibits strong growth in the franchise. Plus, the company appears to be successfully integrating its Penguin computing acquisition, which he thinks provides another secular growth element and diversifies its revenue stream. "SGH's P/ E multiple has compressed to 4X from 10X over the past 12 months as Street concerns about the semiconductor cycle have elevated. With a P/E now under 4X, we think the risk-reward ratio is particularly attractive."
The Big Bull Speaks
Kevin Cassidy and his team at Stifel, the unfaltering and biggest Street bulls on SGH, probably felt as vindicated as I did when shares launched 25% from $27 after earnings.
They highlighted SMART's diversification strategy as key to delivering sequential growth in all product lines that "may confound short sellers." And addressing the concerns about the memory glut/demand slowdown, here's what they had to say...
Management explained that most of their memory modules use trailing edge devices (DDR3 DRAM and SLC/MLC NAND Flash) which are less susceptible to price fluctuations. Importantly, with memory OEMs expanding leading edge capacity in new facilities, DDR3 and SLC/MLC availability has improved.
Cassidy and Co. were also very encouraged by the progress with Penguin Computing. They look forward to learning more details on this business during the Super Computing 2018 conference in Dallas, November 13-15. They continue recommending SGH shares and raised their PT an "in your face bears" buck from $61 to $62.
Bear of the Day:
I've written about large-cap gold miners like Newmont Mining and Barrick Gold many times over the years for the Bear of the Day feature as both the yellow metal and its miners are stuck in long-term downtrends.
While Barrick has rallied 34% recently, after hitting 2 1/2 year lows near $9.50, following its $18 billion merger with Randgold, Newmont Mining has only rallied about 11% as gold finds footing back above $1200.
The reason for the weakness is the same as why the stock is a Zacks #5 Rank Strong Sell: persistent downward EPS estimate revisions.
What you see is EPS on the left-hand scale with each colored line representing the changes in annual estimates over time.
The right-hand scale is the stock price, showing a steady decline as an earnings revival was projected but never really showed up the past two years.
Full-year 2018 EPS is expected to show a 22% decline from last year's $1.46 in profits. The top line isn't much better with this year's expected $7.24 billion revenue haul posting as a 1.5% decline over last year.
The Monetary Myth of the Barbarous Relic
The cost of producing an ounce of gold is over $800 for the majority of miners. And one element besides the high cost of production that always hurts the miners is past hedging.
If a miner has obligations via futures, options, or OTC forward contracts to sell gold at say $1300, $1200, or even $1100, then rising spot prices don't have the direct margin leverage one would think.
And I remain bearish on gold, believing nothing in monetary policy or the inflation outlook will much help it get back to $1500 and above.
Additional content:
Netflix (NFLX - Free Report) Posts 207% Earnings Growth, CSX Beats
A monster rally helped close regular trading this Tuesday, and directly following we see another slew of Q3 earnings reports from some of the leading companies in their respective industries. Plenty of noise and late-trading abound, so we will keep our focus tighter and more succinct, in the interest of timeliness.
Netflix rip-roared Q3 results following a harsh Q2 that saw the company miss subscriber growth projections. Not so this quarter: total net adds were 2 million higher than projected to 7.0 million overall. This translates to 89 cents per share reported, well above the 68 cents expected and representing 207% earnings growth year over year. Revenues of roughly $4 billion in the quarter were in-line with estimates, up around 34% year over year.
Streaming grew 36% year over year for Netflix, to $9 million in streaming sales for the quarter. Global membership has now reached a total of 137 million, and Operating Margins also came in ahead of estimates, from 10.5% expected to 12% reported. Shares are way up -- 12% at this hour, though they had increased as much as 17% upon the earnings release. For more on NFLX's earnings, click here.
We see another big beat after the closing bell today from CSX Corp., the Jacksonville, FL-based railroad company: $1.05 per share as opposed to the 94 cents expected was also an improvement of 106% on the bottom line year over year. Revenues of $3.13 billion in the quarter were up 14% year over year, as well as better than the $3.04 billion anticipated.
Operating income growth was up 49% from the year-ago quarter. However, shares are trading down slightly in the after-market. The company has not missed earnings estimates in 19 straight quarters.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.