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Zacks #1 Stocks on the Move 05/05/2016

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Analyst Blog

Defense Stocks Reporting Earnings on May 9: ARTX, LMIA, DCO

Posted Fri May 06, 08:45 am ET

by Zacks Equity Research

It’s almost time for a curtain call of the first-quarter earnings season, with nearly 75% of the S&P 500 members having already released their results. Nearly 71.4% of the total 374 releases surpassed earnings expectation while 56.4% topped revenue estimates. It’s so far so good, and if you add the recent weakening of the U.S. dollar, the S&P 500 members aren’t so precariously placed as they were widely thought to be.

However, overall first-quarter 2016 earnings from the S&P 500 members are expected to be 7.1% lower than first-quarter 2015 on a 1.1% decline in total revenues. Out of the 16 sectors in our coverage, nearly 50% are expected to register a decrease in earnings compared with the prior year. Aerospace’s earnings were expected to be down by 6.6% on a 0.4% decrease in revenues.

Among the 16 sectors in our coverage universe, the energy sector is expected to be the worst performer. Earnings from the energy sector are expected to be down 110.9% year over year on a 31.5% drop in revenues. Eight out of the 16 sectors are expected to come out with earnings growth this season with Automobile being the strongest at 53.2% earnings growth on 0.9% increase in revenues. For further details on earnings release kindly consult our Earnings Trend report.

Our proprietary model also shows that a stock which has a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has high chances of coming up with a positive surprise.

The top guns of the defense space like The Boeing Company BA and Lockheed Martin Corporation LMT have already released their first-quarter results. Boeing missed estimates by 3.8% while Lockheed came out with a positive earnings surprise of 2.8%.

With the first-quarter earnings season nearing its close, let’s take stock of some defense players who are going to report earnings on May 9.

Arotech Corporation ARTX, a Zacks Rank #1 stock, delivered a positive earnings surprise of 600.0% in the preceding quarter. This defense company has an ESP of 0.00% and is a leading provider of quality defense and security products. This company supplies pilot decision-making support software for the F-15, F-16, F-18, F-22, and F-35 aircraft.

The above chart indicates that Arotech Corporation delivered positive earnings surprises in two out of the last four quarters. The average positive earnings surprise was 166.67%.

LMI Aerospace Inc. LMIA, a Zacks Rank#3 stock, reported a positive earnings surprise of 185.71% last quarter. This defense company is a leading supplier of structural assemblies to the commercial, business and regional, and defense aerospace market. It supplies components to Boeing’s 737, 737 Max and 787 models. The backlog of the company continues to increase thanks to a continuous stream of orders from commercial giants. LMI Aerospace has an ESP of 0.00%.

The above chart indicates that LMI Aerospace delivered positive earnings surprises in three out of the last four quarters. The average positive earnings surprise was 223.93%.

Ducommun Inc. DCO, a Zacks Rank #5 (Strong Sell) stock, reported a negative earnings surprise of 5.41% last quarter. This  company has an ESP of 0.00% and is a global provider of manufacturing and engineering services in aerospace, defense and industrial markets. In first-quarter 2016, the company received a contract from Airbus to produce titanium structures for engine support on the A320neo aircraft.  Airbus also awarded Ducommun its first work on the A330neo platform.  Per the engineering design support contract, Ducommun will work with Airbus to improve the manufacturability, cost, and function of certain metal structure applications.


The above chart indicates that Ducommun Inc. delivered positive earnings surprises in only one out of the last four quarters. This led to an average negative earnings surprise of 70.40%.

Bottom Line

With the first-quarter earnings season nearing its close, let’s stay focused on the aerospace and defense stocks releasing their numbers on Monday.

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Lamar's (LAMR) Q1 FFO & Revenues Beat Estimates, Up Y/Y

Posted Fri May 06, 08:44 am ET

by Zacks Equity Research

Lamar Advertising Co. LAMR reported first-quarter 2016 adjusted Funds from Operations (“FFO”) of 95 cents per share, surpassing the Zacks Consensus Estimate of 87 cents and ahead of the year-ago tally of 82 cents.

Net revenue for the quarter increased 11.9% year over year to $338.5 million, outpacing the Zacks Consensus Estimate of $333 million.

Quarter in Detail

Operating income rose to $86.8 million from $67.3 million recorded in the comparable prior-year period. Adjusted earnings before interest, taxes, depreciation and amortization climbed 9.8% year over year to $130.2 million. Moreover, free cash flow increased 24.6% year over year to $78.3 million.

At quarter-end, Lamar had total liquidity of $164.5 million, of which $136.1 million was available under its revolving senior credit facility, and $28.4 million in cash and cash equivalents.

Portfolio Activities

During the quarter, Lamar acquired some assets of San Antonio, TX-based Clear Channel Outdoor Holdings, Inc. in five U.S. markets for $458.5 million in cash.

Our Take

Lamar, backed by an improving operational performance, continues to ride the growth trajectory. The company’s diversified tenant base, impressive national footprint and a healthy balance sheet bode well for the long term.

Lamar currently has a Zacks Rank #4 (Sell). Investors can also consider REITs such as Brookfield Canada Office Properties BOXC, Gaming and Leisure Properties, Inc GLPI and Whitestone REIT WSR. All these stocks sport a Zacks Rank #1 (Strong Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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Calgon Carbon's (CCC) Q1 Earnings & Sales Miss Estimates

Posted Fri May 06, 08:34 am ET

by Zacks Equity Research

Calgon Carbon’s CCC profits slipped in first-quarter 2016 as it saw lower sales in the quarter, dragged down by a weaker euro and British pound sterling. The Pennsylvania-based company logged profit of $5.5 million or 11 cents per share in the reported quarter, a roughly 50.5% drop from $11.1 million or 21 cents per share recorded a year ago. Earnings per share missed the Zacks Consensus Estimate of 16 cents.

Calgon Carbon, a prominent pollution control company, along with CECO Environmental Corp. CECE and Energy Recovery, Inc. ERII, raked in revenues of roughly $120.2 million in the reported quarter, down around 11.4% year over year. Currency swings had a $1.1 million negative impact on sales, stemming from a mightier greenback compared to the euro and British pound. Sales also lagged the Zacks Consensus Estimate of $126 million.

Gross margin (before depreciation and amortization) was 34.7% in the first quarter, down from 35.7% a year ago as the combination of a less favorable sales mix and higher pension expenses were partly offset by gains from an insurance settlement.

The company’s shares fell roughly 7% to close at $14.68 on Thursday, reflecting the lower-than-expected results.

 

 

Segment Performance

Revenues from the company’s core Activated Carbon and Service segment decreased roughly 13.4% year over year to $106.2 million in the quarter. Currency headwinds resulted in $1 million lower sales. Lower potable water market sales in all geographical regions and lower environmental air market sales, caused by lower powered activated carbon sales in North America, were partly offset by higher activated carbon pellet sales in Asia.

The Equipment division’s revenues escalated around 7.5% year over year to $11.5 million. Higher sales of carbon adsorption equipment and ion exchange equipment more than offset a decline in ballast water treatment system sales in the quarter.

Sales from the Consumer segment rose 13.6% year over year to $2.5 million in the quarter, mainly backed by an increase in the sale of carbon cloth in the defense sector.

Financial Position

Calgon Carbon ended first-quarter 2016 with cash and cash equivalents of $50.9 million, a roughly 5.2% year-over-year increase. Long term debt was $105.2 million, up roughly 33.8% year over year.

Calgon Carbon repurchased 519,000 shares worth $8.2 million through open market operations in the first quarter. It has suspended the open market repurchase program due to its planned acquisition of the Activated Carbon and Filter Business.

The company declared a dividend of 5 cents per share, payable on Jun 15, 2016.

Outlook

Moving ahead, Calgon Carbon envisions market uncertainties to continue. However, it believes that second-quarter results will be better sequentially. The company is working toward the fourth-quarter closing of its proposed acquisition of CECA’s activated carbon and filter aid business. It is also considering other growth and diversification strategies that are expected to provide positive returns from 2017.

Zacks Rank

Calgon Carbon has a Zacks Rank #4 (Sell).

A better-ranked company in the pollution control space is Donaldson Company, Inc. DCI, carrying a Zacks Rank #2 (Buy).

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News Corporation (NWSA) Misses Q3 Earnings by a Penny

Posted Fri May 06, 08:29 am ET

by Zacks Equity Research

Rupert Murdoch-controlled News Corporation NWSA continued with its dismal performance for the third straight quarter in fiscal 2016. After posting negative earnings surprises of 28.6% and 4.8% in the first and second quarters, the company’s third-quarter earnings fell short of the Zacks Consensus Estimate by 20%. Foreign currency headwinds, soft advertising demand and lower revenues at its Book Publishing and Cable Network Programming divisions weighed upon the company’s performance in the quarter. However, expanded digital offerings, along with greater emphasis on real estate businesses, provided some cushion to the stock.

The company recorded adjusted earnings of 4 cents a share that missed the Zacks Consensus Estimate by a penny and declined substantially from 9 cents earned in the year-ago quarter. Including pre-tax charge of $280 million related to the lawsuit and discontinued operations, the publisher of The Wall Street Journal and New York Post reported quarterly loss of 26 cents a share as against earnings of 4 cents delivered in the year-ago period.

News Corporation, which split from Twenty-First Century Fox, Inc. FOXA, stated that its total revenue for the reported quarter was $1,891 million, down 7% from the year-ago quarter and below the Zacks Consensus Estimate of $1,942 million. Adverse foreign currency fluctuations hurt total revenue by $72 million.

Adjusted revenues (excluding the impact of acquisitions, divestitures and foreign currency fluctuations) dropped 5% year over year to $1,942 million.

Total advertising revenues for this Zacks Rank #4 (Sell) company declined 10% year over year to $816 million, while circulation and subscription revenues dropped 4% to $615 million. Consumer revenues fell 11% to $343 million.

News Corporation is in a transitional phase, looking to diversify its revenue streams, along with expanding its digital properties via product launches and accretive acquisitions. Management expects performance to improve in the final quarter of fiscal 2016 on the back of digital real estate business, easing of foreign currency headwinds and cost containment efforts.

News Corporation, which has a 61.6% stake in the digital real estate services company, REA, recently acquired the remaining stake in iProperty Group Limited, which has online property advertising operations in Malaysia, Indonesia, Hong Kong, Macau and Singapore, together with investments in the Philippines and India.

The company also acquired video advertisement technology company, Unruly Holdings Ltd. The buyout of Unruly offers News Corporation significant opportunity to expand in the online video advertising market by using its skills in identifying the social and viral penetration of advertisements.

News Corporation, which offers e-books for devices sold by Amazon.com Inc. AMZN and Apple Inc. AAPL, had earlier raised its stake in APN News and Media Limited, an Australian media company, to 14.99%; acquired BigDecisions.Com, the provider of financial decision-making tools; and invested in PropTiger.com, to tap the burgeoning residential real estate market in India.

Segmental Performance

Revenues from the News and Information Services segment fell 9% year over year to $1,231 million, primarily due to a 15% decline in advertising revenues and a 4% decrease in circulation and subscription revenues. The segment’s results were hurt by the adverse impact of foreign currency fluctuations, softness in the print advertising market, and a fall in free standing insert revenues at News America Marketing, partly offset by growth registered across digital advertising revenues. Adjusted segment EBITDA declined 11% to $101 million.

The Book Publishing segment, which consists of HarperCollins Publishers, reported revenues of $358 million, down 11% from the prior-year period on account of a fall in e-book sales, foreign currency headwinds, and a decline in revenues from American Sniper and the Divergent series. Digital sales constituted 21% of consumer revenues. Adjusted EBITDA for News Corporation’s book publishing business came in at $36 million, down 36% year over year.

Revenues at the Digital Real Estate Services segment went up 14% year over year to $194 million on the back of sustained growth witnessed across REA Group Limited and Move, whereas adjusted EBITDA increased 23% to $53 million.

The Cable Network Programming segment’s revenues came in at $107 million, down 8% from the year-ago quarter. Adjusted EBITDA was $36 million, up 33% year over year. Management highlighted that foreign currency headwinds hurt revenues by $9 million.

Other Financial Aspects

News Corporation ended the quarter with cash and cash equivalents of $1,972 million, borrowings of $369 million, and shareholders’ equity of $11,646 million, excluding non-controlling interest of $199 million.

Capital expenditures of $180 million were incurred during the first nine months of fiscal 2016, while the company generated free cash flow of $362 million.

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Orbital ATK (OA) Posts in-Line Q1 Earnings, Revenues Lag

Posted Fri May 06, 08:25 am ET

by Zacks Equity Research

Orbital ATK, Inc.’s OA first-quarter 2016 adjusted earnings of $1.31 per share came in line with the Zacks Consensus Estimate but surged 14.9% from the year-ago tally.

On a GAAP basis, the company reported earnings of $1.19 per share, compared with 87 cents earned in the prior-year quarter.

Total Revenue

Orbital ATK's total revenue in the first quarter was $1,065 million, lagging the Zacks Consensus Estimate of $1,138 million by 6.4%. Reported revenues also fell 4.6% from the year-ago figure of $1,116 million, primarily due to lower sales from Defense Systems Group.

Segmental Update

Flight Systems Group: Segment sales dipped 2.7% year over year to $356 million. Adjusted operating income, however, climbed 11.9%. Lower sales at Propulsion Systems were mostly offset by increased sales and profit margins at the Launch Vehicles division.

Defense Systems Group: The segment reported sales of $437 million, down 12.9% year over year. Adjusted operating income was also down 23.1% primarily due to higher product shipments in first-quarter 2015.

Space Systems Group: The segment reported sales of $287 million, flat year over year, while adjusted operating income surged 40.7% primarily on the back of higher profit margins at Satellite Systems.

Highlights of the Release

Total adjusted operating income climbed 7.6% to $125.6 million backed by higher contributions from Flight Systems Group and Space Systems Group, partially offset by lower income at Defense Systems Group.

Cash and cash equivalents in the reported quarter was $74 million as of Apr 3, 2016, down from $104 million as of Dec 31, 2015.

Long-term debt as of Apr 3, 2016, stood at $1,551 million, up from $1,436 million as of Dec 31, 2015.

Capital expenditure was $22.6 million in the quarter. The company used $75.1 million in operating activities.

The company had firm backlog of around $8.6 billion as of Apr 3, 2016, up 8% from the year-ago quarter, while its total backlog was up 23% to nearly $14.8 billion (including options, indefinite quantity contract and undefinitized orders).

Share Repurchase & Dividend Payment

Orbital ATK repurchased nearly $27 million of its common stock and paid dividends of around $18 million during the first quarter of 2016, returning a total of $45 million to shareholders.

New Business

In the first quarter of 2016, the company recorded nearly $2,505 million in new firm and option contract bookings. In addition, it received around $720 million in option exercises under existing contracts.

Guidance

The company maintained its 2016 earnings guidance in the range of $5.25–$5.50 per share on revenues of $4,575–$4,650 million. Free cash flow is expected to be between $275 million and $325 million, while capital expenditure is projected at about $200 million.

Peer Releases

Spirit AeroSystems Holdings, Inc. SPR posted first-quarter 2016 adjusted earnings of $1.29 per share, beating the Zacks Consensus Estimate of $1.06 by 21.7%.

Raytheon Company RTN reported first-quarter 2016 adjusted earnings from continuing operations of $1.43 per share, beating the Zacks Consensus Estimate of $1.36 by 5.1%.

The Boeing Company BA reported first-quarter 2016 adjusted earnings from continuing operations of $1.74 per share, lagging the Zacks Consensus Estimate of $1.81 by 3.9%.

Zacks Rank

Orbital ATK currently carries a Zacks Rank #3 (Hold).

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FireEye (FEYE) Down Despite Lower-than-Expected Q1 Loss

Posted Fri May 06, 08:24 am ET

by Zacks Equity Research

Shares of FireEye Inc. FEYE tumbled over 9% in afterhours trading yesterday after the company reported weaker-than-expected top-line numbers for first-quarter 2016 and trimmed its full-year revenue forecast. However, the company’s bottom-line results outpaced the Zacks Consensus Estimate.

The cyber security solution provider posted adjusted loss (excluding one-time items but including stock-based compensation) of 83 cents per share, narrower than the Zacks Consensus Estimate of a loss of 89 cents.

However, on a year-over-year basis, FireEye’s loss per share widened by 3 cents mainly due to higher operating expenses resulting from stepped-up investments in research and development, and marketing strategies which more than offset the benefit of higher revenues.

On a GAAP basis, the company reported a loss of 98 cents per share compared with the year-ago loss of 88 cents.

Revenues

FireEye reported first-quarter revenues of $168 million, up 34% year over year, primarily aided by solid yield from sales and marketing strategies, and strength in the network security market. A large number of deal wins and customer additions during the quarter also drove the top line.

However, quarterly revenues came near the low end of management’s guided range of $167–$177 million and missed the Zacks Consensus Estimate of $185 million. The company believes that the revenue miss was mainly a result of “many of the product-heavy deals pushed into future quarters”.

Segment-wise, Product revenues tanked 16.2% year over year to $33.7 million. Subscription and Services revenues, on the other hand, surged 57.7% to $134.3 million, driven mainly by continued transition to subscription and cloud-based offering.

Billings increased 23% to $186 million.

Operating Results

Adjusted gross profit jumped 31.1% from the year-ago quarter to $107.4 million. However, gross margin contracted 140 basis points (bps) to 63.9% mainly due to the addition of iSIGHT cost of goods sold and higher payroll expenses, which more than offset the benefit from strong margin expansion at Subscription and Services, resulting from economies of scale and an increase in customer base.

Adjusted operating expenses increased 20.7% year over year to $244.5 million due to stepped-up investments in research and development, and marketing strategies. As a result, the company posted adjusted operating loss of $137.2 million, which was also 13.6% wider than the year-ago quarter loss of $120.7 million.

Adjusted net loss for the first quarter was $130.5 million, or 83 cents per share, compared with the year-ago net loss of $122.2 million or 80 cents.

Balance Sheet & Cash Flow

FireEye exited the quarter with cash and cash equivalents and short-term investments of roughly $921.1 million. Accounts receivable were $141.2 million, compared with $172.8 million at the end of fourth-quarter 2015. During the quarter, the company used $22.5 million of cash for operating activities.

Guidance

Citing some deals postponed to future quarters, FireEye revised its revenue guidance for the full year. The company lowered its revenue guidance range to $780 million and $810 million (mid-point: $795 million) from the previous projection of $815–$845 million (mid-point: $830 million). The Zacks Consensus Estimate of $830 billion stands higher than the mid-point of the guided range.

However, non-GAAP billings are still anticipated in the range of $975 million to $1.055 billion. The non-GAAP operating margin guidance range of -22% to -24% of revenues also remains unchanged.

Further, the company continues to expect non-GAAP loss per share of $1.20 and $1.27 (mid-point: $1.235), much narrower than the Zacks Consensus Estimate of a loss of $2.92. The company projects operating cash flow of $70–$80 million and capital expenditures on property and equipment of nearly $35 million during the year.

For the second quarter, FireEye anticipates revenues in the range of $178 million to $185 million (mid-point: $181.5 million), much below the Zacks Consensus Estimate of 194 million. Non-GAAP billings are expected in the range of $200 million to $215 million. Non-GAAP operating margin is projected to remain in the range of -31% to -33% of revenues.

Moreover, the company expects to post non-GAAP loss per share of 38–40 cents (mid-point: 39 cents), much narrower than the Zacks Consensus Estimate of a loss of 78 cents.

Our Take

FireEye, headquartered in Milpitas, CA, is a global provider of web, email, file and malware security to enterprises and governments. Although the company’s bottom-line results fared better than the Zacks Consensus Estimate, revenues fell short of the consensus mark as many deals were pushed out into the future quarters.

The company also lowered its full-year revenue guidance citing the expected impact of this delay on forthcoming results.

Nonetheless, despite the persistent macro uncertainty, the company seems positive thanks to a healthy security market, strong product line-up, deal wins and investment plans, which should boost results in the long run.

Furthermore, FireEye’s strategy of growing through acquisitions is encouraging. The latest of such acquisitions was that of iSIGHT Partners during the first quarter. The deal has beefed up FireEye’s cyber security suite and enhanced its competitive dynamics.

FireEye has also acquired Invotas, a firm specializing in improving response times post a cyber attack. The company’s product, Security Orchestrator, is designed to compile information from a range of security products and automate responses when an incident occurs.

Furthermore, the company has recently launched FireEye Essentials, a lower-cost and simpler version of the FireEye Global Threat Management Platform. The company is targeting smaller, mid-market companies with the new offering.

All these moves signal FireEye’s efforts on moving beyond the enterprise-level, end-point protection products it had initially started with. These factors are also likely to aid the company’s long-term results.

However, an uncertain economic environment, competition from the likes of Palo Alto Networks Inc. PANW and Juniper Networks Inc. JNPR, and currency headwinds remain concerns.

Currently, FireEye carries a Zacks Rank #2 (Buy). A stock worth considering in the broader technology sector is Paycom Software Inc. PAYC with a Zacks Rank #1 (Strong Buy).

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Utility Stocks Reporting Early Next Week: AES, CNP, XEL

Posted Fri May 06, 08:22 am ET

by Zacks Equity Research

The Q1 earnings cycle is nearing its end. As of May 4, 2016, 81.3% of the market cap of the S&P 500 index have reported results. So far, overall first-quarter earnings have recorded a 7.5% year-over-year decline on a 1.9% slip in revenues.

In the utility sector, 76.7% of the market cap have reported results as of yet. Overall sector earnings show a 5.1% decline during the quarter on a 9.1% drop in revenues.

Taking into account companies that are yet to report quarterly numbers, earnings are estimated to fall 4.8% on a 1.7% dip in revenues. For more details, you can go through our Earnings Trend report.

Majority of utility earnings in the first quarter were, to some extent, hurt by warmer-than-expected temperatures this winter. However, a gradually declining unemployment rate, low interest rate and the sector’s investment initiatives put the companies in a better position than most of the other S&P 500 index members.

Let’s take a look at some utilities that are scheduled to report first-quarter earnings early next week.

The AES Corporation AES, a Zacks Rank #4 (Sell) stock with an Earnings ESP of 5.26%, is set to report first-quarter 2016 results before the market opens on May 9. Last quarter, the company posted a positive earnings surprise of 3.03%. On its fourth-quarter 2015 earnings call, AES Corporation had lowered its 2016–2018 adjusted EPS expectations to reflect a major impact from macroeconomic factors such as devaluation in foreign currencies, changes in commodity prices, and lower demand and higher interest rates in Brazil.

However, the company has maintained a flexible liquidity position. In 2016, it expects to generate approximately $1.3 billion of proportional free cash flow, which translates into 90 cents per share. The company also projects parent free cash flow of about $675 million. (Read more: AES Corporation Q1 Earnings: Stock to Disappoint?).



The above chart indicates that AES Corporation was able to deliver positive surprises in two of the last four quarters. However, due to larger negative surprises in the other two quarters, the overall average surprise was a negative 3.85%.

CenterPoint Energy, Inc. CNP will release first-quarter 2016 financial results before the market opens on May 10. Last quarter, the utility reported a positive earnings surprise of 8.33%. CenterPoint Energy is focused on upgrading its infrastructure and improving reliability. It has set a capital outlay of $6.2 billion for the 2016–2020 period, including an allocation of $1.4 billion for 2016.

This Zacks Rank #2 (Buy) company has an Earnings ESP of -9.38%. For this quarter, the company expects earnings in the range of $1.12 to $1.20 per diluted share. It aims to achieve bottom-line growth of 4–6% on the back of its existing businesses and investments through 2016. An investment of $363 million in Enable Midstream preferred security and expansion of the company's non-regulated Energy Services business should accelerate bottom-line growth further. However, due to warmer-than-normal temperature in winter, household expenditure on heating was lower, which is expected to dent its revenues in the first quarter. (Read more: CenterPoint Q1 Earnings: What's Ahead for the Stock?).



The above chart indicates that CenterPoint Energy was able to beat earnings estimates in two of the last four quarters. The average positive earnings surprise was 0.64%.

Xcel Energy XEL will release first-quarter 2016 financial results before the market opens on May 9. Last quarter, the company’s earnings were on par with estimates. It carries a Zacks Rank #4 (Sell) and has an Earnings ESP of -6.25%. Xcel Energy’s first-quarter earnings are expected to benefit from rate increases approved in various jurisdictions in the previous year. However, unseasonably warm weather dented fourth-quarter 2015 earnings by 7 cents and is expected to continue doing so in the first quarter. (Read more: Will Xcel Energy Q1 Earnings Disappoint Expectations?).



The above chart indicates that Xcel Energy was able to deliver a positive surprise in only one out of the last four quarters. This led to an average negative surprise of 1.38%.

Bottom Line

Given a number of S&P 500 earnings releases scheduled for next week, investors should keep an eye on the earnings releases by these utility companies.

Stay tuned for our full earnings articles to see how these stocks finally fare this season.

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mREITs Q1 Earnings to Watch on May 9: STWD, IVR, CLNY

Posted Fri May 06, 08:20 am ET

by Zacks Equity Research

While majority of the real estate investment trusts (“REITs”) have already reported their earnings for the Jan-Mar quarter, a number of mortgage REITs are yet to come up with their quarterly numbers.

Unlike other categories of REITs, mortgage REITs or mREITs – the name that investors are most familiar with –  do not actually own commercial properties, office buildings, residential complexes, shopping malls or premium outlets. Instead, they either loan money to property owners, or simply purchase existing mortgages and/or mortgage-backed securities (MBSs). These companies borrow money at a very low rate of interest, and in turn, use it to purchase MBSs.

So, a low interest rate environment serves as a boon for the mREIT industry. However, during the Jan-Mar quarter, the possibility of a rate hike due to a better job report, higher consumer spending and improved inflation data kept the mREIT industry on tenterhooks.

Notably, two important companies American Capital Agency Corp. AGNC and Annaly Capital Management, Inc. NLY missed earnings estimates during the quarter.

Let’s see how things are shaping up for the three mREIT stocks that are scheduled to release results on May 9.

Starwood Property Trust, Inc. STWD has an Earnings ESP of 0.00% and a Zacks Rank #3 (Hold). Our proven model does not conclusively show that Starwood Property Trust is likely to beat earnings this quarter. This is because the company lacks the right combination of two key ingredients – a positive Earnings ESP (the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate) and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3.



Invesco Mortgage Capital Inc. IVR has an Earnings ESP of -5.00% and a Zacks Rank #3. The combination of Invesco Mortgage Capital’s Zacks Rank #3 and negative ESP makes surprise prediction difficult.

Colony Capital, Inc. CLNY has an Earnings ESP of 0.00% and a Zacks Rank #3. So, Colony Capital too does not fit the bill of a positive surprise.

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Construction Stocks to Post Earnings on May 9; AFI, PGEM, CBPX

Posted Fri May 06, 08:18 am ET

by Zacks Equity Research

The Q1 performance across the broader construction sector has given investors ample reasons to rejoice. Leading homebuilders, Lennar Corporation LEN and KB Home KBH – the first ones to report quarterly earnings in March – posted positive sales and earnings surprises. Other industry bigwigs like PulteGroup, Inc. PHM and D.R. Horton, Inc. DHI also beat the Zacks Consensus Estimate for both earnings and sales on the back of higher home sales.

Almost all homebuilders agree that the spring selling season was off to a good start with strong demand and traffic trends. The companies are also optimistic that the growth momentum will be sustained through the rest of the year. Despite a weak start this year amid equity market volatility and global concerns, the construction sector seems to have recovered on the back of strong housing fundamentals. Positives like an improving economy, rising wages, favorable job outlook and a tight supply situation raise optimism about the sector’s performance for the rest of 2016.

Increase in home construction activity not only benefits homebuilders but also spurs demand for homebuilding materials, home decoration products and other related businesses. This, in turn, boosts the growth prospects of companies manufacturing these products.

Among these, construction materials companies Vulcan Materials Company VMC and Martin Marietta Materials, Inc. MLM reported solid Q1 earnings and sales surprises on the back of rising demand for their aggregates (used for construction activity). Building products manufacturers, Masco Corporation MAS and Headwaters Incorporated HW also delivered positive earnings surprises. Though Masco’s sales fell slightly short of expectations, sales at Headwaters beat the same. Increase in construction and repair as well as remodeling activity boosted sales at almost all segments for these two companies.

Three companies from the construction sector, Armstrong World Industries, Inc. AWI, Ply Gem Holdings, Inc. PGEM and Continental Building Products, Inc. CBPX are set to report their quarterly results on May 9. Will these companies put up a decent performance as well? Let’s have a look at what might be in store for them.

Armstrong World Industries

Pennsylvania-based, Armstrong World Industries is global leader in suspended ceiling solutions that are used in renovation as well as new construction. Last month, the company completed the previously announced spin-off of its flooring business into an independent public company, Armstrong Flooring, Inc.

The company posted a negative earnings surprise of 15.62% last quarter. The company surpassed estimates in two and missed expectations in the other two of the past four quarters. This resulted in an average positive surprise of 8.82%.

The company has an Earnings ESP of 0.00% and a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for the quarter is pegged at 46 cents.

Ply Gem Holdings

The manufacturer of exterior building products posted a positive earnings surprise of 250.0% last quarter. The company surpassed estimates in three out of the past four quarters but missed the same in one, resulting in an average positive surprise of 61.56%.

The company has an Earnings ESP of 0.00% and a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for the quarter is pegged at a loss of 23 cents.

Continental Building Products

The building products company delivered in-line earnings last quarter. The company reported in-line earnings in two out of the past four quarters with an average negative surprise of 1.67%.

The company has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). The Zacks Consensus Estimate for the quarter is pegged at 16 cents.

Stay Tuned! Check later on our full write-up on earnings releases of these stocks.

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Geron (GERN) Q1 Loss In-Line, Imetelstat Remains in Focus

Posted Fri May 06, 08:18 am ET

by Arpita Dutt

Geron Corporation GERN reported a loss of 6 cents per share in the first quarter of 2016, unchanged from the year-ago period and in-line with the Zacks Consensus Estimate.

Total revenues increased 39.5% from the year-ago period to $749,000 in the first quarter of 2016. The Zacks Consensus Estimate forecasted no revenues for the first quarter.

Revenues included royalty and license fee revenues under various non-imetelstat agreements.

Research and development (R&D) expenses remained flat at $5 million reflecting the impact of higher costs for the company’s share of development expenses under the imetelstat collaboration with Johnson & Johnson’s JNJ Janssen Biotech partially offset by lower personnel related expenses resulting from the 2015 organizational resizing.

R&D expenses are expected to increase during the remainder of the year as the development of imetelstat continues.

Imetelstat is currently in a phase II study (IMbark) in patients with DIPSS intermediate-2 or high-risk myelofibrosis who have relapsed after or are refractory to a JAK inhibitor. An internal review to determine the adequacy of one or both of the initial dosing arms is slated for the second half of the year. Based on this review, a decision will be taken regarding the continuation/halting/modification of the dosing arms or the selection of alternative doses.

Imetelstat is in a phase II/III study (IMerge) as well for myelodysplastic syndrome (MDS). An internal review of this study (to support advancement into Part 2) is also expected in the second half of the year.

General and administrative expenses increased 4.3% to $4.8 million.

Geron is currently working on expanding its pipeline – the company is seeking to add new oncology candidates, programs or companies to its portfolio.

Geron is a Zacks Rank #3 (Hold) stock. We are positive on the company's agreement with Johnson & Johnson which provides it with a strong partner as well as funds. The company’s growth prospects currently depend entirely on the successful development of imetelstat which is its sole pipeline candidate.

We expect investor focus to remain on imetelstat and business development updates.

Some better-ranked stocks in the health care sector include ANI Pharmaceuticals, Inc. ANIP and Cambrex Corporation CBM. Both are Zacks Rank #1 (Strong Buy) stocks.

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