For Immediate Release
Chicago, IL – June 14, 2018 – Zacks Equity Research highlights Ultra Clean Holdings (UCTT - Free Report) as the Bull of the Day, Delta Air Lines (DAL - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Netflix (NFLX - Free Report) , AT&T (T - Free Report) and Time Warner .
Here is a synopsis of all five stocks:
Bull of the Day:
Heading into 2018, investors were nervous about the semiconductor industry’s ability to maintain its hot streak. This hurt suppliers, especially those with soft outlooks of their own. But one of the most interesting stocks in this space — Ultra Clean Holdings — has successfully rebounded and now looks like an interesting pick.
Ultra Clean supplies critical subsystems to the semiconductor capital equipment, flat panel, solar, and medical device industries. The firm offers gas delivery solutions, improved cycle times, component neutral designs, and testing capabilities. Ultra Clean’s customers are primarily OEMs.
Strong full-year analyst estimate revisions have helped the stock earn a Zacks Rank #1 (Strong Buy), and its current valuation looks especially attractive right now. Let’s take a closer look.
Latest Earnings and Outlook
Ultra Clean most recently reported earnings on April 25. The firm posted adjusted profits of $0.69 per share, beating the Zacks Consensus Estimate by nine cents and improving from the $0.47 per share seen in the prior-year period. Meanwhile, revenue came in at $315 million, topping our consensus estimate of $283 million and improving from just $205 million last year.
UCTT’s solid quarter resulted in stronger analyst sentiment for the company’s full-year and next-year outlook.
Estimate revisions tend to reflect the evolving nature of business trends, and positive revisions usually reflect analyst optimism about a company’s outlook and profitability. In other words, one of the simplest ways to determine whether a stock is poised to move higher in the coming weeks is to study its latest earnings estimate revision trends.
Bear of the Day:
Rising fuel costs have caused volatility throughout the airline industry recently, and one particularly worrisome stock is Delta Air Lines.
Shares of Delta have slumped over the past few months as fuel costs put pressures on its margins and earnings per share expectations. The company recently raised its fuel costs per gallon outlook, ushering in a number of negative earnings estimate revisions and earning the stock a Zacks Rank #5 (Strong Sell).
Rising oil prices are exactly the type of thing that trigger estimate revisions in the airline industry, and this helps show the power that recent revisions have in terms of signaling near-term business trends. In this case, negative revisions confirm harsh business conditions, which is not a good sign for the stock.
What’s interesting, however, is that Delta’s slumping earnings consensus has not yet had its full effect on the stock.
Movements in consensus EPS estimates have had a noticeable effect on DAL shares over the past year, but the most recent dip in the company’s 2018 and 2019 projections has not been completely realized by the stock just yet. This should cause hesitation as it could spell trouble once investors do catch on to Delta’s current challenges.
Meanwhile, Delta has faced additional headwinds that should cause concern. In May, capacity increased 3.5% year over year, outpacing traffic growth of 2.9%. This meant that load factor—the percentage of seats filled by passengers—declined in the month, just as it did in April.
Delta’s load factor has decreased about 10 basis points on a year-to-date basis. This underscores a concern about capacity-related troubles that extend beyond industry trends.
Investors might note that Delta is now trading at just 9.3x forward 12-month earnings, which is a slight discount “Transportation – Airline” industry average of 11.9x. But we must remember that this discount is buying a sluggish stock with a concerning earnings outlook several headwinds of its own.
It feels like now is the time to sit on the sidelines and wait for Delta to make a noticeable rebound. This is obviously an iconic brand in the industry, so hopefully it will not be too long.
Here’s Why Netflix (NFLX - Free Report) Shares Surged Wednesday
Shares of Netflix moved nearly 2.5% higher in early morning trading Wednesday after the video streaming behemoth received its most bullish analyst call to date.
The call came from analysts at Goldman Sachs, who reiterated the firm’s buy rating for NFLX and increased its price target to $490 from $390. That projection would represent a nearly 35% upside to Tuesday’s close and, according to FactSet, marks the highest target out of the 36 analysts who cover Netflix.
“We believe the growing content offering and expanding distribution ecosystem will continue to drive subscriber growth above consensus expectations,” Goldman’s Heath Terry wrote in a note to clients.
The firm also raised its revenue estimates for Netflix. Shares of the streaming giant opened at $367.53, slightly more than 1% above Tuesday’s closing price—despite feeling pressure in after-hours trading in the wake of a major deal in the telecom and media space.
Indeed, yesterday afternoon a federal judge approved AT&T’s $85 billion merger with Time Warner, paving the way for massive new company which can leverage AT&T’s distribution infrastructure with Time Warner’s deep library of original content.
Changing consumer trends and consumption habits have created widespread consolidation in the telecom and entertainment industries, with network operators like AT&T desperate to own both the connection its customers use and the content they are accessing.
The merger creates another massive competitor for Netflix, which is already facing off with HBO’s over-the-top offerings and the live programming advantages of Turner Broadcasting.
The judge’s decision will also likely inform other pending media deals.
Still, Goldman’s bullish note is part of a larger trend of positive analyst sentiment for Netflix recently. The company has witnessed 14 positive revisions to its full-year EPS estimates within the past 60 days—compared to just three negative revisions in that time.
This positive revision trend has lifted the Zacks Consensus Estimate for Netflix’s current fiscal year earnings by 14 cents. Analysts now expect the video streaming company to witness EPS growth of more than 130% in 2018.
Optimism surrounding Netflix’s original content initiatives, continued subscriber growth, and improving margins has made the stock one of Wall Street’s hottest tech picks in the past year, with today’s movement adding to its nearly 140% one-year gains.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
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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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