For Immediate Release
Chicago, IL – October 18, 2016 – Zacks Equity Research highlights definitely OSI Systems (NASDAQ:(OSIS - Free Report) – Free Report) as the Bull of the Day and Red Rock Resorts (NYSE:(RRR - Free Report) – Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Nationstar Mortgage (NYSE:(NSM - Free Report) –Free Report), Best Buy (NYSE:(BBY - Free Report) –Free Report) and Performance Food Group (NYSE:(PFGC - Free Report) – Free Report).
Here is a synopsis of all five stocks:
Bull of the Day:
OSI Systems (NASDAQ:(OSIS - Free Report) – Free Report) is a name that is flying under the radar for most investors. Let's take a look at the fundamentals of this stock and explore why it is a Zacks Rank #1 (Strong Buy) and the Bull of the Day.
Why I Like It
This is a small-cap stock which would outperform if the market moves higher.
A good earnings history when compared to the Zacks Consensus Estimate.
From May to August there were consistent monthly increases in the Zacks Consensus Estimate for 2016.
A solid name in a space that will retain national attention given the increase in terrorism over the last several years.
Follow Brian Bolan on twitter at @BBolan1 and on StockTwits at the same address.
The Recent Numbers
I like to do a review of the most recent quarter for stocks that I highlight as Bulls of the Day. OSIS reported the June 2016 quarter back in mid-August, so we are only weeks away from the company reporting the September quarter.
The most recent quarter was a beat on bottom. The company posted EPS of $0.55 when the Zacks Consensus Estimate was calling for $0.49. Revenue came in $11M below expectations for a 4.8% negative revenue surprise. As a result, the stock was bid up by 9.4% in the session following the report.
OSI Systems makes electronic systems and components. The company's Security segment provides baggage and parcel inspection, cargo and vehicle inspection, hold baggage and people screening, radiation detection and explosive and narcotics trace detection systems. The company was founded in 1987 and is headquartered in Hawthorne, California.
The company has a good history of beating the Zacks Consensus Estimate. There have been two miss and three beats in the last five reports.
The estimate picture looks really good, with the Zacks Consensus Estimate for 2016 moving from $2.49 IN May to $2.51 in July and is now at $2.64
The 2017 number has not moved since it was first published at $3.45 back in June of this year.
Investors are looking at a slightly mixed picture when it comes to the valuation for OSIS. The forward earnings multiple of 25x is ahead of the 19x industry average. The price to book multiple of 2.3x is below the industry average of 3x, but the price to sale multiple of 1.5x is higher than the 1.1x industry average.
As I look at revenue and earnings growth, I see why the company is trading at higher earnings and sales multiples. The company is simply growing the top line at a faster rate than the industry, with growth of 7% expected for fiscal 2017 compared to an industry average of 0.7% revenue growth. This big revenue growth translates into expected earnings growth of 25% whereas the industry is looking at 20% EPS growth over the same time period (fiscal 2017).
Bear of the Day :
Red Rock Resorts (NYSE:(RRR - Free Report) – Free Report) has only reported one quarter. It is now a Zacks Rank #5 (Strong Sell) and is the Bear of the Day. Let's take a look at why this is the case.
Red Rock Resorts operates gaming, hotel, and casino properties. It operates 21 casino and entertainment properties primarily located in Las Vegas. The company was formerly known as Station Casinos Corp. and changed its name to Red Rock Resorts, Inc. in January 2016.
RRR missed the Zacks Consensus Estimate of $0.40 by $0.16 for a negative earnings surprise of 40%. Revenue came in at $351M while the Zacks Consensus Estimate was looking for $352M.
The Zacks Consensus Estimate has been falling over the last few months. The FY16 estimate stood at $1.58 in July and then fell to $1.45 in August. The estimate currently states at $1.31.
Next year has also seen a move lower in estimates with the 2017 Zacks Consensus Estimate moving from $1.94 to $1.79 over the same time period.
The decline in estimates is the main reason this is a Zacks Rank #5 (Strong Sell) and the Bear of the Day.
Stocks Trade on Fresh Earnings
This Global Week Ahead tees up a hybrid, three-part schedule of events. In the simplest of statements, I don’t see a big picture target driving trader sentiment.
If I were placing a short-term bet anyway, I would go with a big surprise coming from the Q3 earnings season. It beats the other two possibilities — a final U.S. presidential debate and Mario Draghi’s latest rate announcement — in terms of moving stocks. The latter 2 headline events shouldn’t offer ‘new’ news.
Earnings season. That’s where a big stock market surprise can lay in the weeds. Those of us who work at Zacks definitely subscribe to that core thesis.
However, a steady recent rise in oil and commodity prices, and the modest rise in producer prices in China, are big tells. A negative EPS surprise coming from the key Energy and Materials sectors is not in the Q3 cards.
Nevertheless, company earnings reports should be your focus — as a trader this week, and in the next few weeks.
First up -- and most important to markets -- Q3 earnings season picks up.
With just 7% of companies reporting last week, 76% have reported earnings above their mean estimate, while 62% reported sales above mean estimates. That sounds pretty good.
The estimated S&P 500 EPS decline for Q3-2016 stands at -1.8%. If that number sticks, it will be the 6th consecutive quarter offering traders an EPS decline. Remember, though, stock markets look ahead 6 to 12 months.
How about stock market valuations? The forward 12-month P/E ratio for the S&P 500 is 16.4. This is based on the S&P 500 index trading at 2132 and a forward 12-month EPS estimate of $130.08. That valuation is relatively high, but not that high. This mostly says big event risks have fallen off.
Second, we have a 3rd U.S. Presidential debate on Wednesday. ‘Nuff said there.
Also on Wednesday, we get the latest Mainland China GDP growth data. There should be no China fundamental surprises, given central planning instruments.
USA housing starts and permits data come out too. They look strong this fall. Though housing prices in a number of key urban markets are starting to fall back a bit. Home sellers are piling up out there. Be aware of that dynamic.
Finally, Mario Draghi gives up a press conference and announces his latest policy rates on Thursday.
The ECB’s negative rate of -0.4% is not expected to move up or down. The refi rate at 0.00% is also expected to stick around. Comments made during the press conference are the most important.
Three Top Zacks Rank Stocks —
(1) Nationstar Mortgage (NYSE:(NSM - Free Report) – Free Report) : This $1.4 billion market cap company is in the home mortgage business. It acquired a Zacks #1 Rank (STRONG BUY) and has a long-term Zacks VGM score of A. Fresh USA housing starts and permits data come out on Wednesday.
(2) Best Buy (NYSE:(BBY - Free Report) – Free Report) : This $12.4 billion market cap company is a big box consumer electronics retailer. The Zacks #1 Rank (STRONG BUY) and a Zacks VGM score of A look attractive.
(3) Performance Food Group (NYSE:(PFGC - Free Report) –Free Report) : This $2.4 billion market cap company markets and distributes food and food-related products. Its operating segments consist of Foodservice, Vistar, and PFG Customized. The Zacks #1 rank (STRONG BUY) and Zacks VGM score of B look attractive.
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About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year. See these high-potential stocks free >>.
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