For Immediate Release
Chicago, IL – June 12, 2018 – Zacks Equity Research highlights Six Flags Entertainment Corp (SIX - Free Report) as the Bull of the Day, Thomson Reuters (TRI - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Toyota Motor Corporation (TM - Free Report) , China Petroleum & Chemical Corporation (SNP - Free Report) and Merck & Co., Inc. (MRK - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Six Flags Entertainment Corp, a Zacks Rank #1 (Strong Buy) owns and operates regional parks. The company has parks comprised of theme, water and zoological parks offering rides, water attractions, themed areas, concerts, shows, restaurants, game venues and retail outlets. The company holds long-term licenses for theme park usage throughout the United States, Canada, Mexico and other countries of certain Warner Bros. and DC Comics characters.
Recent Earnings Data
In its most recent earnings report, SIX beat both the Zacks consensus earnings and revenue estimate for the second consecutive quarter. On a year over year basis, revenues improved by +30%, and are on track to post a record performance in 2018. Moreover, the quarterly report showed that SIX posted a record-high Active Pass Base while increasing prices for both food, and ticket prices. Further, the revenue growth was also aided by a +27% increase in the total number of guests visiting the parks.
SIX recently announced that they acquired the lease rights for 5 new parks; Houston, Phoenix, 2 in Oklahoma, and Buffalo. These five parks generated 2 million attendees last year, which will be added to the 30.4 million annual visitors who attended SIX’s parks.
Further, management announced its international expansion plans as they will be adding 3 new parks in Nanjing China (expected to begin opening in 2021). This will add to its international portfolio of parks in the UAE, Saudi Arabia (announced in April of 2018), and Zhejiang China.
SIX beat both top and bottom line expectations in Q1, and is currently expected to see earnings to grow by +33.8% and revenues increase by +7.76% for fiscal year 2018.
According to Jim Reid-Anderson, Chairman, President and CEO, “We are firing on all cylinders as we made excellent progress in the quarter against each of our five growth initiatives. With our record-high Active Pass Base, ongoing price increases across all ticket and culinary programs, growing dining pass penetration, new water park openings and new international licensing agreements, we are poised to deliver another record year of financial performance in 2018. We remain laser-focused on exceeding $600 million of Modified EBITDA1 in 2018 and continue to work toward our long-term aspirational goal of $750 million of Modified EBITDA by 2020.”
Bear of the Day:
Thomson Reuters, a Zacks Rank #5 (Strong Sell), is a leading provider of value-added information and technology to users in the fields of law, tax, accounting, financial services, higher education, reference information, corporate training and assessment, scientific research and healthcare.
Recent Earnings Data
In its Q1 18 earnings report, TRI missed the Zacks consensus earnings estimate, but beat the revenue estimate. On a year over year basis earnings fell by -55.6%, and revenues declined by -51%. The company had previously announced that they will be selling a 55% stake of its Financial and Risk business to Blackstone for $17 billion. It is currently expected that management will used some of the proceeds for share buybacks.
According to Jim Smith, President and CEO, “We are encouraged by the best first-quarter performance in several years with each business having performed at or above our expectations. The health of our Q1 results gives us even greater conviction in our ability to stay focused on the opportunities at hand, while simultaneously working quickly to close the proposed F&R/Blackstone partnership and prepare both companies for future success. We are excited about the potential to further strengthen our Legal and Tax businesses -- both organically and inorganically, with the financial wherewithal and flexibility to deliver for our customers and shareholders.”
While the long term outlook for TRI is positive, the transition period over the next few years due to the sale of its Financial & Risk business has caused earnings estimates to be trimmed by several coverage analysts. Further, management significantly increased its corporate expense estimates due to stranded costs and investments; currently expected to be between $500-600 million. The completion of the deal is expected to be on 9-30-18, so these expenses could change. Further, if there is a delay on the closure of the deal, the stock repurchase program could be pushed out further than expected.
Mega-Caps Soaring in June: 3 Top-Ranked Stocks on Sale
After small-caps took charge of the bull run through February to May, mega caps returned to the forefront in June. This is especially true as the blue-chip Dow Jones index climbed 3.7% to start June, outpacing the gains of 2.7% for the S&P 500 and 2.4% for the Russell 2000. Notably, the Dow Jones surged 2.8% last week, its biggest weekly gain since March.
Improving domestic and international fundamentals, a firming dollar and compelling valuation led to the outperformance.
The recent raft of economic data points indicates robust growth after the first-quarter slowdown. American manufacturing is enjoying a 21-month winning streak, average hourly wages have been rising with 2.7% year-over-year growth, and unemployment has dropped to 3.8%, which is the lowest level since 2000. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged the most in five months by 0.6% in April, while consumer confidence rebounded near the 18-year high in May.
Most importantly, the U.S. trade deficit, which has been the key reason for the ongoing tariff threats and trade war concerns, dropped for the second consecutive month in April by 2.1%, marking the lowest level since September. The shrinking trade gap will definitely benefit exporters, leading to a surge in mega-cap stocks. In the first four months of 2018, exports to Mexico, Canada and the European Union have recorded double-digit growth. This underscores that United States is expanding strongly in these markets despite the fact that Trump is going fierce with his anti-trade policies against China and its key trading allies, which could hurt exports.
After strong acceleration in May, the U.S. dollar against the basket of currencies has started to weaken with the start of June. A weak dollar bodes well for blue-chip companies, which derive most of their revenues from international markets. This is because a weak dollar has made dollar-denominated assets cheap for foreign investors, making U.S. multinationals more competitive thereby leading to increased profits. As such, companies having a higher percentage of international sales will likely outperform.
Added to the strength is the compelling valuation. The four months of underperformance of the blue-chip index has compelled investors to look for bargain stocks. The Dow Jones has P/E ratio to forward 12 months of 16.57 compared to that of 17.29 for the S&P 500 and 26.75 for the Russell 2000.
Given the encouraging mega-cap trends, investors should stuff stocks on the cheap for outsized gains in the coming weeks. For this, we have used a Zacks Stock Screener to select stocks with a market cap of more than $100 billion, a Zacks Rank #1 or 2, and lower P/E than the Dow Jones. A top rank suggests rising earnings estimates, which indicate an optimistic view on earnings by analysts and hence higher chances of outperformance.
Finally, we arrived at three mega-cap stocks that are cheap and have the potential to deliver higher returns.
Toyota Motor Corporation - P/E Ratio: 9.35
This Zacks Rank #2 company produces, sells, leases and repairs passenger cars, trucks, buses, boats, airplanes and other products in Japan and most foreign countries. Although its earnings estimate has gone up by 92 cents for the fiscal year (ending March 2019) in a month, earnings are expected to decline 3.13%. Toyota Motor flaunts a top VGM Score of A and a market cap of $200.1 billion.
China Petroleum & Chemical Corporation - P/E Ratio: 10.53
This Zacks Rank #1 joint-stock company is focused on its core business of petroleum and petrochemicals with integrated upstream, mid-stream and downstream operations and a complete marketing network. The stock has seen solid earnings estimate revision of $1.22 for this year over the past 30 days and an expected growth rate of 62.84%. It has a market cap of $115.6 billion and a VGM Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Merck & Co., Inc. - P/E Ratio: 14.82
This Zacks Rank #2 global biopharmaceutical company provides healthcare solutions worldwide. With a market cap of $168.73 million, the stock saw no earnings estimate revision for this year in a month and has an expected earnings growth rate of 6.03%. It has a VGM Score of D.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
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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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