For Immediate Release
Chicago, IL – September 21, 2017 – Zacks Equity Research Restoration Hardware(NYSE: (RH - Free Report) – Free Report)as the Bull of the Day, Finisar Corp(Nasdaq: (FNSR - Free Report) – Free Report)as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Sturm, Ruger & Company, Inc. (NYSE: (RGR - Free Report) – Free Report), American Outdoor Brands Corporation (Nasdaq: (AOBC - Free Report) – Free Report) and Vista Outdoor Inc. (NYSE: (VSTO - Free Report) – Free Report).
Here is a synopsis of all five stocks:
Bull of the Day:
Restoration Hardware(NYSE: (RH - Free Report) – Free Report), a Zacks Rank #1 (Strong Buy) is a luxury brand in the home furnishings marketplace, offering product assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, as well as baby and child products. The Company's business is integrated across its multiple channels of distribution, consists of its stores, catalogs and Websites. Restoration Hardware Holdings, Inc. is based in Corte Madera, California.
Recent Earnings Results
Management recently reported Q217 earnings where they easily beat both the Zacks consensus earnings and revenue estimates. On a year over year basis the company saw gains in GAAP net revenues +13%, adjusted net revenues +14%, comparable brand revenues +7%, adjusted net income +10.1%, and adjusted diluted earnings per share +27.3%.
The company’s core business continues to gain momentum due to their strong RH members program, and streamlined business structure. Further, management was able to reduce inventories (by almost 25%), generate increased free cash flows, and improve their supply chain.
During the second quarter, the company repurchased 12.4 million shares at a cost of $700 million cutting the total share count from 33.5 million to 21.1 million.
Management raised their 2017 revenue forecast from a range of $2.4-2.45 billion to a range of $2.42 billion to $2.46 billion. Further, the company increased adjusted EPS guidance from $1.67-1.94 to $2.43-2.67.
According to Gary Friedman, Chairman and CEO, “I am pleased to report strong second quarter results as we move past the most uncertain stages of our transformation. In 2016, we made the brave decision to transform our business from a promotional to a membership model that we believe will enhance our brand, streamline our operations, and dramatically improve our customer experience. We also began the redesign of our supply chain network, rationalizing our product offer, and transitioning inventory into fewer facilities, which will create a significantly more efficient capital model. 2016 was also the first full year of many new business initiatives such as RH Modern, RH Teen, RH Hospitality, the redesign of our RH Interiors Source Book, the expansion of RH Interior Design Services, and the addition of Waterworks to our platform. All of these investments are expected to contribute to growth in 2017 and beyond, and create long term value for our shareholders over time.”
Bear of the Day:
Finisar Corp(Nasdaq: (FNSR - Free Report) – Free Report), a Zacks Rank # 5 (Strong Sell), is a provider of fiber optic subsystems and network test and monitoring systems which enable high-speed data communications over local area networks, or LANs, storage area networks, or SANs, and metropolitan access networks, or MANs. They are focused on the application of digital fiber optics to provide a line of high-performance, reliable, value-added optical subsystems for data networking and storage equipment manufacturers.
The company recently reported Q1 18 earnings where they missed the Zacks consensus earnings estimate, but just beat the Zacks consensus revenue estimate. On a sequential basis the company saw declines in revenues -4.4%, gross margins -1.3%, operating income -26.8%, operating margins -2.6%, and net income -84.8%. At the same time operating expenses grew by +1.3%.
Due to a few headwinds, management decreased Q2 18 guidance from about $359 million to a range of $322-342 million.
Issues Facing the Company
The main reason for the decrease in revenue guidance is their 3D Sensing segment. Their expectations have been pushed out one quarter due to manufacturing process changes. The company also saw their sales of telecom products fall by -8.1% compared to the last quarter, but this was expected to some degree. Lastly, the increase in operating expenses were not offset by 3D sensing revenue due to the pushout till next quarter.
According to Jerry Rawls, CEO, “We experienced strong demand in our first fiscal quarter for our 100G QSFP28 transceivers for datacenter applications. However, our overall revenues for our first fiscal quarter were $341.8 million, a decrease of $15.7 million, or 4.4%, compared to the fourth quarter of fiscal 2017. This decrease resulted primarily from a decline in telecom revenues as well as a decrease in 10G and below datacom transceivers.”
Trump Administration Set to Ease Gun Laws: 3 Stock Picks
Shares of U.S. gun manufacturers rallied on Sep 19, after Reuters released a report revealing Trump administration’s plans to ease export of small fire arms, including assault rifles. According to the report, four senior U.S. officials from multiple agencies informed Reuters that an amendment to the legislation is in the cards. These modifications, once implemented, will reduce regulatory costs associated with the export of small arms.
Notably, this is a significant step taken by the U.S. government to revive the gun industry that has been suffering for past few months albeit Trump's strong opposition of gun control in the nation.
Details of the Altered Arms Export Law
Per the recent Reuters report, Trump’s aides are currently chalking a plan that will transfer the surveillance of international non-military firearms sales rights from the State Department to the Commerce Department. The officials expect the White House budget office to receive a draft of the updated legislation, for review, in a next few days.
Interestingly, the changes to be made in the arms export law will need no congressional approval for enactment. The officials expect the U.S. administration to publicly announce the alterations by this fall which will be followed by a period of public comment. Subsequently, implementation of the same is anticipated to be as early as the first half of the next year.
Officials believe that the new law will be more “lenient” and cut the government red tape regarding the arms sales. However, they reaffirmed that the proposed alterations will not promote deregulation of firearms.
Why the Modification?
Trump is arguably the most weapons-friendly occupant of the Oval Office in decades. Yet in the inexplicable dynamics of the firearms market, Trump’s ruin did not provide any boost to the gun industry. Instead, the FBI’s National Instant Criminal Background Check System (NICS) reveals that there were nearly 1.6 million fewer background checks conducted in the first eight months of 2017 than in the same period last year. This indicates reduced demand for fire arms.
Therefore from the point of view of boosting the ailing gun industry and the economy’s growth in turn, the aforementioned alterations seem to be a wise strategy.
Critics, in particular gun control advocates, however, remain doubtful on the proposed amendments’ impact on the economy. They believe easing of arms export rules will provide an access of state-of-the-art weapons to criminal gangs and militant groups who have used such ammunitions in U.S. mass shootings. Thus, the proposed shift will contradict Trump’s earlier vow to resist gun violence.
Gun Stocks Poised for Growth
The United States has been witnessing increased demand for non-military firearms exports of late from Canada, Australia, Thailand and Saudi Arabia, according to U.S. Census data. Therefore, if finalized, the proposed shift in the arms export regulation will significantly boost the U.S. gun industry.
Notably, the shift of arms export directive to Commerce Department is expected to increase arms sales by 15-20% annually, as projected by Lawrence Keane, senior vice president for the National Shooting Sports Foundation, a firearms industry trade association.
We have zeroed in 3 gun stocks here that have gained significantly following this news release. Considering their positive traits, investors focused in the consumer discretionary stocks can surely keep these companies in their watchlist.
Sturm, Ruger & Company, Inc. (NYSE: RGR– Free Report): This company is engaged in the design, manufacture and sale of firearms and precision metal investment castings. Its firearms include single-shot, auto-loading, bolt-action, lever action, and muzzleloading rifles in a range of hunting calibers; shotguns in three gauges; .22 caliber rimfire autoloading pistols and centerfire autoloading pistols in various calibers; single and double-action as well as muzzleloading revolvers.
Its annual earnings is expected to grow 20.9% in the next year. The company currently holds a Zacks Rank #5 (Strong Sell).
Following release of the expected alterations in favor of the arms export legislation, the company’s shares gained 13.7%, in the last trading session.
American Outdoor Brands Corporation (Nasdaq: AOBC– Free Report): The company is a manufacturer and seller of firearms and accessory products for the shooting, hunting and outdoor enthusiast. The company's product comprises pistols, revolvers, rifles, guns, handcuffs and firearm-related products and accessories.
Its earnings is expected to grow 11.2% in the next year. The company currently holds a Zacks Rank #5.
The company’s shares gained 10.1%, in the last trading session.
Vista Outdoor Inc. (NYSE: VSTO– Free Report): The company develops, manufacture and distribute optics, accessories and eyewear. Its product includes laser rangefinders, riflescopes, trail cameras, archery accessories, gun care products, mounts, powder, reloading equipment, targets as well as target systems.
Its annual earnings is expected to grow 3.1% in the next year. The company currently carries a Zacks Rank #3 (Hold).
The company’s shares rose 3.1% in the last trading session. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
It’s plausible, considering critics’ concern, that in reality the altered arms export law may do more harm to the society than boosting the economy. However, from an economic prospect it will boost the country’s GDP growth. If the current administration succeeds in maintaining a close vigil on the arm export deals, exhibiting a total intolerance to violence, then only the proposed changes are unlikely to have any detrimental impact on the economy.
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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.
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