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One of the smartest ways to play a market that continues to come off the lows is to look for fundamentally sound companies that have seen positive trends in their earnings outlooks. Indexes will run into spots of technical resistance, but investors are still shopping for deals, and that's when the fundamentals can be handy.
This is why the Zacks Rank is so useful right now. The foundation of this model is the relationship between share prices and earnings estimates. When a stock's earnings estimates are revised higher, that stock tends to move in similarly positive direction over time.
One stock that the Zacks Rank has spotted in recent days is Deckers Outdoor Corporation. The company is a global footwear powerhouse, leading the design, marketing, and distribution of brands such as UGG, Koolaburra, HOKA ONE ONE, Teva and Sanuk.
DECK is holding a Zacks Rank #1 (Strong Buy) and has witnessed positive EPS estimate revisions in the past few weeks. In fact, the Zacks Consensus for its fiscal year ending in March is now two cents higher than it was just last week, and estimates for the following fiscal year have trended up to the same degree.
These positive revisions are making Deckers' near-term growth prospects look even stronger. The company is now expected to finish the current fiscal year with bottom-line growth of 19%, and that is projected to continue to the tune 7% next year. Analysts have the company's revenue growing at 3% and 4%, respectively, in those periods.
This bullishness is really no surprise when we look at Deckers' recent quarterly performances. The company has surpassed EPS estimates in each of the trailing four quarters, beating the Zacks Consensus by an average of 69% over those periods.
Deckers likely owes its current strength to the popularity of its brands. Management has a proven track record of building niche footwear brands into segment leaders, but it can't be understated how on trend its portfolio is right now. UGG has new life among its core demographic, and lines like Teva and Sanuk are really resonating with younger audiences.
Besides its Zacks Rank, DECK is holding a “C” grade in the Value category of our Style Scores system. This is because key valuation metrics are relatively in line with its peers. The stock is trading at about 16.5x earnings, which is right near where similar companies such as Steve Madden (SHOO) are at currently.
In other words, Deckers is not quite undervalued, but it also isn't overpriced. With near-term growth prospects abound and analyst estimates on the uptrend, however, this stock still looks like a good deal.
Moreover, Deckers has a long-term restructuring plan in place for investors that are interested in holding for an extended period of time. This plan has included the realignment of brands in two groups, which should allow it to better focus marketing efforts.
Deckers is also working on a store fleet optimization plan focused on striking the right balance between digital and physical stores. By fiscal 2020, Deckers expects its company-owned fleet of stores to be at about 125, with continued omni-channel e-commerce coming over the same time. The company expects this to boost profitability and shareholder returns.
All in all, it is clear that DECK has plenty to offer investors both in the near-term and in the future.
Markets have looked stronger in recent weeks, but with Q4 earnings season fast approaching, it seems prudent to avoid those stocks that have not been in favor with analysts ahead of their reports. One such company that has been spotted by the Zacks Rank is United States Steel.
U.S. Steel is a major steel producer that manufactures steel sheet and tubular products for the automotive, appliance, container, and construction industries, among others. The stock is currently sporting a Zacks Rank #5 (Strong Sell).
The Zacks Rank model is based on the relationship between share prices and earnings estimates. When a stock's earnings estimates are revised higher, that stock tends to move in similarly positive direction over time. Of course, the inverse is generally true as well.
U.S. Steel has witnessed negative EPS estimate revisions recently, both for its full fiscal year and to-be-reported quarter as well as its upcoming fiscal year. In the past 60 days, the Zacks Consensus Estimate for the company's annual earnings has dropped 54 cents. In that same time, the Zacks Consensus for the quarter U.S. Steel will soon report is down 38 cents.
Moreover, our Most Accurate Estimate—a read on earnings estimates based on recent timeliness—is six cents, or 3%, lower than the consensus. This tells us not only that estimates have trended down in the long-term, but also that the latest analyst estimates have been lower than previous expectations. This is not the trend investors want to see heading into the report later this month. Even if U.S. Steel were to outperform the new consensus, investors should remember that those expectations are muted.
U.S. Steel's struggles have not been a secret recently. The stock is down about 40% over the past six months, vastly underperforming the industry's roughly 23% decline in that time.
One key concern for U.S. Steel is its Flat-Rolled division, which accounts for about 65% of its business. The unit actually posted healthy results in the latest quarter, but the problem is rising expenses in the segment. The company has said it is seeing higher plant-related costs as it accelerates asset revitalization investments and efforts. This could put pressure on earnings in the near-term.
Another big issue over the past year has been softening challenges to cheap steel imports. The White House's original tariffs on steel imports were seen as a huge win for domestic producers, but eventually, concessions were made that excluded a number of countries and left room for others to negotiate exclusions. This could suggest a continued threat from cheaper imported steel.
There might be a value case to be made for the stock, as such a dramatic selloff has brought down its valuation quite a bit. Shares are trading at under 5x earnings, which is a discount to the industry's average of 8x. That said, we typically suggest avoiding value traps that are seeing their earnings estimates decay. If U.S. Steel can outperform, guide higher, and assure investors that things are turning around, then this stance might change.
Netflix Shares Down 20% -- Buy Before Q4 Earnings?
Shares of Netflix jumped nearly 5% through early afternoon trading Friday on the back of two analyst upgrades. The renewed positivity comes roughly a week before the beatdown streaming TV powerhouse is set to release its Q4 earnings results. Despite NFLX’s continued post-Christmas Eve climb, Netflix stock rests roughly 20% below its highs, which means now might be the time to buy NFLX on the dip before a possible 2019 comeback.
Upgrades
Raymond James analyst Justin Patterson upgraded Netflix stock from “outperform” to a “strong buy,” citing the company’s approaching profit inflection, strong content slate, and much more. Patterson also slapped a new $450 a share price tag on NFLX, which implies a 38% upside from its closing price of $324.66 per share Thursday.
UBS also voiced positivity for NFLX stock Thursday, after analyst Eric Sheridan lifted his rating from “neutral” to “buy” and boosted his price target to $410 a share. “With content spend now at a scale of the major media companies and titles continuing to demonstrate outsized marketplace success, we see the moat around NFLX's global positioning widening and its long-term secular winner status remaining intact,” Sheridan wrote.
Investors should also note that Goldman Sachs analyst Heath Terry reiterated his buy rating and $400 price target for Netflix stock last week. All of this analyst positivity has contributed to Netflix’s 45% surge since Christmas Eve.
In fact, NFLX has destroyed its fellow FAANG powers (Facebook, Apple, Amazon and Google) to start 2019. Still, investors have a chance to scoop up NFLX stock on the dip since its stock hovered at around $340 a share through early afternoon trading Friday, which marked a roughly 20% downturn from its 52-week high of $423.21.
Netflix Overview
Netflix took home more Golden Globes a week ago Sunday, five, than any another other network or streaming service. The firm also ended HBO’s17-year run on the top of the Emmy nomination last year. Both of these award show statistics are vital to Netflix’s long-term success because in the end, the only thing that will matter in an ever-more crowded streaming space is the company’s ability to roll out hit and critically acclaimed shows and movies.
Yet, many investors have grown nervous about Netflix’s original content spending, which is set to reach $13 billion in 2018. But CEO Reed Hastings knows that his company has to offer quality and quantity to stand out and attract customers over rival Amazon Prime and others coming to market eventually. With that said, Netflix’s new CFO Spencer Neumann must try to strike a balance between spending and returning value to shareholders.
Netflix expects to produce a negative free cash flow of $3 billion in both 2018 and 2019. The company has also recently taken on more long-term debt. Yet the company clearly feels these are necessary moves to grow its subscriber base. “We recognize we are making huge cash investments in content, and we want to assure our investors that we have the same high confidence in the underlying economics as our cash investments in the past,” the firm wrote in its Q3 letter to shareholders.
Netflix is currently the largest streaming firm, boasting more users than Prime’s “more than 100 million” and Hulu’s roughly 25 million total subscribers, which soared 48% this year. Plus, the company expects to add 9.4 million subscribers in Q4 to help bring its worldwide total to 146.5 million—the firm added 8.3 million users in the year-ago period. And despite its growing revenues, subscriber growth might still be the metric Wall Street watches the most.
Q4 Outlook
Looking ahead, our current Zacks Consensus Estimate calls for Netflix’s Q4 revenues to jump 28% to reach $4.21 billion. For reference, NFLX’s revenues climbed 34% in the third quarter and 40% in both Q1 and Q2. Overall, NFLX’s full-year revenues are projected to climb 35% from $11.69 billion in 2017 to hit $15.81 billion in 2018.
Meanwhile, the firm’s adjusted Q4 earnings are projected to sink 39% from the year-ago period to hit $0.25 a share. Despite NFLX’s expected Q4 earnings decline, the company’s full-year 2018 earnings are expected to skyrocket 110.4% to reach $2.63 per share. Plus, peeking ahead to fiscal 2019, Netflix’s full-year earnings are projected to soar roughly 55% above our 2018 estimate.
Bottom Line
Netflix has gone on an incredible run over the last five years as it went from content aggregator to original TV and movie standout. Today, the company is a legitimate Hollywood studio that has attracted some of the biggest movie stars on the planet. Plus, the streaming TV market is only set to grow around the world as linear TV fades, just look at some of Roku’s early Q4 results (also read: Buy Roku Stock on the Dip After Q4 Streaming Hours Soar?).
Lastly, investors should ask themselves if they imagine Netflix stock not at least returning to its 2018 high because it still has room to climb 20% before it hits that mark.
Netflix is currently scheduled to release its Q4 financial results on January 17.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
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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Deckers, United States Steel, Netflix and Roku highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – January 14, 2018 – Zacks Equity Research Deckers Outdoor Corporation (DECK - Free Report) as the Bull of the Day, United States Steel (X - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Netflix (NFLX - Free Report) and Roku (ROKU - Free Report) .
Here is a synopsis of all four stocks:
Bull of the Day:
One of the smartest ways to play a market that continues to come off the lows is to look for fundamentally sound companies that have seen positive trends in their earnings outlooks. Indexes will run into spots of technical resistance, but investors are still shopping for deals, and that's when the fundamentals can be handy.
This is why the Zacks Rank is so useful right now. The foundation of this model is the relationship between share prices and earnings estimates. When a stock's earnings estimates are revised higher, that stock tends to move in similarly positive direction over time.
One stock that the Zacks Rank has spotted in recent days is Deckers Outdoor Corporation. The company is a global footwear powerhouse, leading the design, marketing, and distribution of brands such as UGG, Koolaburra, HOKA ONE ONE, Teva and Sanuk.
DECK is holding a Zacks Rank #1 (Strong Buy) and has witnessed positive EPS estimate revisions in the past few weeks. In fact, the Zacks Consensus for its fiscal year ending in March is now two cents higher than it was just last week, and estimates for the following fiscal year have trended up to the same degree.
These positive revisions are making Deckers' near-term growth prospects look even stronger. The company is now expected to finish the current fiscal year with bottom-line growth of 19%, and that is projected to continue to the tune 7% next year. Analysts have the company's revenue growing at 3% and 4%, respectively, in those periods.
This bullishness is really no surprise when we look at Deckers' recent quarterly performances. The company has surpassed EPS estimates in each of the trailing four quarters, beating the Zacks Consensus by an average of 69% over those periods.
Deckers likely owes its current strength to the popularity of its brands. Management has a proven track record of building niche footwear brands into segment leaders, but it can't be understated how on trend its portfolio is right now. UGG has new life among its core demographic, and lines like Teva and Sanuk are really resonating with younger audiences.
Besides its Zacks Rank, DECK is holding a “C” grade in the Value category of our Style Scores system. This is because key valuation metrics are relatively in line with its peers. The stock is trading at about 16.5x earnings, which is right near where similar companies such as Steve Madden (SHOO) are at currently.
In other words, Deckers is not quite undervalued, but it also isn't overpriced. With near-term growth prospects abound and analyst estimates on the uptrend, however, this stock still looks like a good deal.
Moreover, Deckers has a long-term restructuring plan in place for investors that are interested in holding for an extended period of time. This plan has included the realignment of brands in two groups, which should allow it to better focus marketing efforts.
Deckers is also working on a store fleet optimization plan focused on striking the right balance between digital and physical stores. By fiscal 2020, Deckers expects its company-owned fleet of stores to be at about 125, with continued omni-channel e-commerce coming over the same time. The company expects this to boost profitability and shareholder returns.
All in all, it is clear that DECK has plenty to offer investors both in the near-term and in the future.
Bear of the Day:
Markets have looked stronger in recent weeks, but with Q4 earnings season fast approaching, it seems prudent to avoid those stocks that have not been in favor with analysts ahead of their reports. One such company that has been spotted by the Zacks Rank is United States Steel.
U.S. Steel is a major steel producer that manufactures steel sheet and tubular products for the automotive, appliance, container, and construction industries, among others. The stock is currently sporting a Zacks Rank #5 (Strong Sell).
The Zacks Rank model is based on the relationship between share prices and earnings estimates. When a stock's earnings estimates are revised higher, that stock tends to move in similarly positive direction over time. Of course, the inverse is generally true as well.
U.S. Steel has witnessed negative EPS estimate revisions recently, both for its full fiscal year and to-be-reported quarter as well as its upcoming fiscal year. In the past 60 days, the Zacks Consensus Estimate for the company's annual earnings has dropped 54 cents. In that same time, the Zacks Consensus for the quarter U.S. Steel will soon report is down 38 cents.
Moreover, our Most Accurate Estimate—a read on earnings estimates based on recent timeliness—is six cents, or 3%, lower than the consensus. This tells us not only that estimates have trended down in the long-term, but also that the latest analyst estimates have been lower than previous expectations. This is not the trend investors want to see heading into the report later this month. Even if U.S. Steel were to outperform the new consensus, investors should remember that those expectations are muted.
U.S. Steel's struggles have not been a secret recently. The stock is down about 40% over the past six months, vastly underperforming the industry's roughly 23% decline in that time.
One key concern for U.S. Steel is its Flat-Rolled division, which accounts for about 65% of its business. The unit actually posted healthy results in the latest quarter, but the problem is rising expenses in the segment. The company has said it is seeing higher plant-related costs as it accelerates asset revitalization investments and efforts. This could put pressure on earnings in the near-term.
Another big issue over the past year has been softening challenges to cheap steel imports. The White House's original tariffs on steel imports were seen as a huge win for domestic producers, but eventually, concessions were made that excluded a number of countries and left room for others to negotiate exclusions. This could suggest a continued threat from cheaper imported steel.
There might be a value case to be made for the stock, as such a dramatic selloff has brought down its valuation quite a bit. Shares are trading at under 5x earnings, which is a discount to the industry's average of 8x. That said, we typically suggest avoiding value traps that are seeing their earnings estimates decay. If U.S. Steel can outperform, guide higher, and assure investors that things are turning around, then this stance might change.
Netflix Shares Down 20% -- Buy Before Q4 Earnings?
Shares of Netflix jumped nearly 5% through early afternoon trading Friday on the back of two analyst upgrades. The renewed positivity comes roughly a week before the beatdown streaming TV powerhouse is set to release its Q4 earnings results. Despite NFLX’s continued post-Christmas Eve climb, Netflix stock rests roughly 20% below its highs, which means now might be the time to buy NFLX on the dip before a possible 2019 comeback.
Upgrades
Raymond James analyst Justin Patterson upgraded Netflix stock from “outperform” to a “strong buy,” citing the company’s approaching profit inflection, strong content slate, and much more. Patterson also slapped a new $450 a share price tag on NFLX, which implies a 38% upside from its closing price of $324.66 per share Thursday.
UBS also voiced positivity for NFLX stock Thursday, after analyst Eric Sheridan lifted his rating from “neutral” to “buy” and boosted his price target to $410 a share. “With content spend now at a scale of the major media companies and titles continuing to demonstrate outsized marketplace success, we see the moat around NFLX's global positioning widening and its long-term secular winner status remaining intact,” Sheridan wrote.
Investors should also note that Goldman Sachs analyst Heath Terry reiterated his buy rating and $400 price target for Netflix stock last week. All of this analyst positivity has contributed to Netflix’s 45% surge since Christmas Eve.
In fact, NFLX has destroyed its fellow FAANG powers (Facebook, Apple, Amazon and Google) to start 2019. Still, investors have a chance to scoop up NFLX stock on the dip since its stock hovered at around $340 a share through early afternoon trading Friday, which marked a roughly 20% downturn from its 52-week high of $423.21.
Netflix Overview
Netflix took home more Golden Globes a week ago Sunday, five, than any another other network or streaming service. The firm also ended HBO’s17-year run on the top of the Emmy nomination last year. Both of these award show statistics are vital to Netflix’s long-term success because in the end, the only thing that will matter in an ever-more crowded streaming space is the company’s ability to roll out hit and critically acclaimed shows and movies.
Yet, many investors have grown nervous about Netflix’s original content spending, which is set to reach $13 billion in 2018. But CEO Reed Hastings knows that his company has to offer quality and quantity to stand out and attract customers over rival Amazon Prime and others coming to market eventually. With that said, Netflix’s new CFO Spencer Neumann must try to strike a balance between spending and returning value to shareholders.
Netflix expects to produce a negative free cash flow of $3 billion in both 2018 and 2019. The company has also recently taken on more long-term debt. Yet the company clearly feels these are necessary moves to grow its subscriber base. “We recognize we are making huge cash investments in content, and we want to assure our investors that we have the same high confidence in the underlying economics as our cash investments in the past,” the firm wrote in its Q3 letter to shareholders.
Netflix is currently the largest streaming firm, boasting more users than Prime’s “more than 100 million” and Hulu’s roughly 25 million total subscribers, which soared 48% this year. Plus, the company expects to add 9.4 million subscribers in Q4 to help bring its worldwide total to 146.5 million—the firm added 8.3 million users in the year-ago period. And despite its growing revenues, subscriber growth might still be the metric Wall Street watches the most.
Q4 Outlook
Looking ahead, our current Zacks Consensus Estimate calls for Netflix’s Q4 revenues to jump 28% to reach $4.21 billion. For reference, NFLX’s revenues climbed 34% in the third quarter and 40% in both Q1 and Q2. Overall, NFLX’s full-year revenues are projected to climb 35% from $11.69 billion in 2017 to hit $15.81 billion in 2018.
Meanwhile, the firm’s adjusted Q4 earnings are projected to sink 39% from the year-ago period to hit $0.25 a share. Despite NFLX’s expected Q4 earnings decline, the company’s full-year 2018 earnings are expected to skyrocket 110.4% to reach $2.63 per share. Plus, peeking ahead to fiscal 2019, Netflix’s full-year earnings are projected to soar roughly 55% above our 2018 estimate.
Bottom Line
Netflix has gone on an incredible run over the last five years as it went from content aggregator to original TV and movie standout. Today, the company is a legitimate Hollywood studio that has attracted some of the biggest movie stars on the planet. Plus, the streaming TV market is only set to grow around the world as linear TV fades, just look at some of Roku’s early Q4 results (also read: Buy Roku Stock on the Dip After Q4 Streaming Hours Soar?).
Lastly, investors should ask themselves if they imagine Netflix stock not at least returning to its 2018 high because it still has room to climb 20% before it hits that mark.
Netflix is currently scheduled to release its Q4 financial results on January 17.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>
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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.