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U.S. Steel, Signet, Bank of America, IBM and Pier 1 Imports as Zacks Bull and Bear of the Day

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For Immediate Release         

Chicago, IL – April 13, 2018 – Zacks Equity Research highlights U.S. Steel (X - Free Report) as the Bull of the Day and Signet Jewelers Limited (SIG - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Bank of America (BAC - Free Report) , IBM (IBM - Free Report) and Pier 1 Imports (PIR - Free Report) .

Here is a synopsis of all five stocks:

Bull of the Day:                                              

When new tariffs were announced on imported steel and aluminum in March by the Trump administration, the stocks of U.S. producers, including U.S. Steel, rallied sharply, buoyed by expectations for higher prices for finished products and consequently, higher earnings.

The rally was short lived however, as the next month brought widespread fears of retaliatory actions by our trading partners and even the prospect of an all-out trade war.  Investors definitely “sold the news” in materials companies.

U.S. Steel’s stock price peaked at a high of $46.01 in early March but has slid nearly 25% during the “trade-war” selloff and now trades around $36.

With trade relations softening this week between the U.S. and China and expectations for a trade-war on the back burner, investors have the opportunity to purchase this Zacks Rank #1 (Strong Buy) stock at pre-runup prices, taking advantage of its strong earnings outlook at an attractive valuation.

An American Giant

U.S. Steel, originally founded by Andrew Carnegie and purchased by J.P Morgan in 1901, has been a titan of U.S. industry for a century and a half. At one point early in the 20th century, they were responsible for 2/3 of steel production.  The 1980s brought hard times as U.S. Steel unsuccessfully sought to diversify into other industries. They subsequently divested themselves of these non-core assets. After a strong run in the early 2000s, U.S. Steel once again fell on hard times as the company faced stiff foreign competition and falling prices for its finished products.

Back on track again, U.S Steel is has refocused efforts on its core business of providing sheet and tubular steel products to a wide variety of industries, including automakers, construction, industrial equipment and oil and gas companies.  

Praising the current administration for the imposition of new tariffs, they recently announced the reopening of the long-shuttered Granite City Integrated plant in Illinois, adding significant capacity and at least 500 jobs.

Sales on the Upswing

U.S. Steel has posted a revenue surprise in each of the last three quarters and as you can see from the chart below, the stock has performed well in the wake of each of these announcements.

Sales estimates for both the next quarter and 2018 are both up 10% versus comparable periods a year ago at $3.45B and $13.48B, respectively.

Earnings Estimates Soaring

Not surprisingly given the increases in sales, earnings at U.S. Steel have been rising steadily and analyst expectations are for the trend to continue.  After earning $1.94/share in 2017, the Zacks consensus estimate for 2018 had been $3.21/share at the beginning of the year, but after a slew of upgrades lately, it now stands at $5.00/share, a whopping 56% increase in just the last 90 days.

Bear of the Day:

The mall is dead...

O.K., maybe not completely dead – there are obviously still plenty of retail malls of all shapes and sizes in operation – but the mall is certainly sick.  On life support, even.

Due mostly to changing consumer preferences and the rise of online retailing giants like Amazon, mall traffic has been declining for years.  Mall real estate vacancies nationwide now top 10%, and this week, Moody’s Investor Service reported that the first Quarter of 2018 saw the highest level ever of default on retailer’s debt with nine firms failing to make scheduled interest payments – most notably, the long-struggling department store operator Sears Holdings and privately held Claire’s Stores, which filed for Chapter 11 bankruptcy earlier this year.

Retail Jewelry Takes a Beating

Signet Jewelers Limited has been hit hard buy the shift from brick-and-mortar retailing in the jewelry sector to more efficient (and in most cases, less expensive) online options.  

Operating well-known national brands like Kay, Zales and Jared as well as a number of smaller regional brands, Signet now finds itself on uncomfortable middle ground in the industry. Lacking the cachet of Super-Luxury brands like Tiffany or Cartier, or the online traffic of popular internet jeweler Blue Nile, Signet is in the midst of a three-year restructuring plan that aims to close 200 costly retail stores and attempts to replace the lost revenue with increased online sales.  

Unfortunately, it may be a case of too-little-too-late.

Despite the push to increase internet sales, Signet sold only $253M worth of goods online in fiscal 2018 (its most recent full year.) Although this is indeed a big increase from the previous year, it still significantly trails industry leader Blue Nile, which had revenues of $480M in 2015 (the last year it reported publicly before being acquired by private equity firm Bain Capital) and which presumably have grown even more since then.

Disappointing Guidance

Owing partly to a quirk in the reporting cycle (a 15-week 4th quarter), Signet actually posted a $0.02 cent earnings beat in the fourth quarter - $4.28/share vs. a Zacks consensus estimate of $4.26 – but the company’s guidance for the coming year was abysmal.  Prior to the announcement, the consensus estimate for next year was for earnings of $6.45/share.  Signet shocked the markets by guiding lower by 40% to a range of $3.75 to $4.25/share.

Analysts were quick to follow with an avalanche of downgrades, resulting in a new consensus estimate in the middle of that new range - $3.99/share.  This earns Signet our worst rating, a Zacks Rank #5 (Strong Sell.)

3 Stocks to Avoid Ahead of Earnings

Stocks opened higher on Thursday as the market begins to show signs of a possible comeback, though there is hardly a guarantee the worst is over amid continued trade uncertainty. This means that many investors are eagerly awaiting first quarter earnings season to help avoid any further volatility.

Finding stocks that look poised to top quarterly earnings estimates is one of the best ways to try to beat market uncertainty. Conversely, investors should stay away from any companies that might disappoint by reporting soft or lower-than-expected earnings results.

Luckily, Zacks Premium customers can utilize the Earnings ESP Screener in order to search for stocks that are expected to surprise, in one way or the other.

This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

In contrast, a stock with a Zacks Rank #3 (Hold) or worse, coupled with a negative Earnings ESP, is one that we typically want to avoid during earnings season. Today, we are giving our readers a free look at three of these weak stocks in order to help them identify the high-risk companies ahead of their upcoming reports.

Check them out now:

1.     Bank of America (BAC - Free Report)

Although shares of BAC climbed on Thursday, the banking giant is currently a Zacks Rank #3 (Hold) and sports an Earnings ESP of -0.37%. Bank of America is scheduled to report its first quarter earnings results before the market opens on Monday, April 16.

Our current consensus estimates are calling for Bank of America to report earnings of $0.59 per share and revenues of $22.91 billion. Both of these would mark gains from the year-ago period, but BAC has witnessed three negative earnings estimate revisions within the past 30 days as well as one within the last seven days. This means Bank of America’s Most Accurate Estimate—the representation of the most recent analyst sentiment—calls for earnings of $0.58 per share. Therefore, BAC could fall short of earnings estimates.

2.       IBM (IBM - Free Report)

This historic computer power has turned much of its focus to the future with a big push into artificial intelligence and other new growth areas. IBM’s revenues are expected to climb 3% to reach $18.71 billion, while its earnings are projected to gain just 0.42% to hit $2.39 per share.

IBM is also currently a Zacks Rank #3 (Hold) and holds an Earnings ESP of -1.83%. IBM’s negative ESP figure stems from the fact that its Most Accurate Estimate falls 4 cents below our current consensus estimates. This means investors might want to avoid IBM ahead of the release of its Q1 earnings results on Tuesday, April 17. 

3.       Pier 1 Imports (PIR - Free Report)

Pier 1 is expected to report its earnings results after market close on Wednesday, April 18. The home furnishing and décor company’s top line is projected to climb by 1.88% to $538.3 million. Meanwhile, PIR’s Q1 earnings are expected to plummet by more than 44% to hit $0.19 per share.

With that said, Pier 1 is currently a Zacks Rank #3 (Hold) that rocks an Earnings ESP of -7.02%. Pier 1’s Most Accurate Estimate comes in 1 cent below our current consensus estimates, which means that Pier 1 could be poised to miss earnings estimates on top of possibly posting a substantial decline from the year-ago period.

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