For Immediate Release
Chicago, IL – June 19, 2018 – Zacks Equity Research highlights QuinStreet (QNST - Free Report) as the Bull of the Day and Ambarella (AMBA - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Amazon (AMZN - Free Report) , Chevron (CVX - Free Report) and Mastercard (MA - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
QuinStreetis a Zacks Rank #1 (Strong Buy) and sports a growth style score of A. That alone gets the stock on my radar screen but lately, I have been looking hunting some bears. By that, I mean I am looking for stocks that have big short positions or at least have been attacked by the shorts.
Now I don't want to get too deep into why I want to hunt the bears, let's just say that the market conditions are ripe to force squeezes. Usually, when you think of a stock under attack from the shorts you see a large short interest... something more than say 20% of the float. With QNST, you don't really have that as only 6.4% of the float is sold short and the shorts have been covering.
The short attack came on April 11, when Kerrisdale Capital released a report that was critical of the company. As much as I would like to go into the report and discuss which is right and wrong, the Bull of the Day article is not really about that. This and other Bull of the Day articles are about how the stock became a Zacks Rank #1 (Strong Buy).
The report can be accessed here (https://www.kerrisdalecap.com/wp-content/uploads/2018/04/QuinStreet-Inc.-QNST.pdf) and it should be noted that the company was quick to answer the concerns raised. In fact, the company guided revenues above the consensus the evening of the release of the report.
The stock was $11.58 down $0.74 just after the open on the day the short report and then closed at $10.14 down $2.18 for the day. But after the close guidance was raised with the company saying that the next quarter revenues would come in over $115M when the Wall Street consensus was at $91.1M.
The next day the stock recovered, but by April 25, the next earnings day, the stock was still below where it closed on April 10.
The April 25 earnings report saw the company top the Wall Street Estimate of $0.13 by $0.03. The company reported revenue of $117.9M when the consensus was calling for $107M.
The company also guided FY18 to growth of 30% or more, which would be at least $390M compared to the $385M estimate.
The Zacks Rank
The Zacks Rank looks at the estimate revisions from all sell-side analysts that submit estimates to the Zacks Consesnsus. The Rank gives you an idea of which estimate revisions are the best ones. Earnings are a key fundamental driver of stock prices, so knowing where the estimates are headed is key.
Let's take a look at the estimates following the recent beat.
Following the most recent beat, the estimate for the current quarter moved from $0.10 to $0.12. That is a twenty percent move higher.
The current year estimate moved from $0.36 to $0.44 and over the last week or so kicked higher by another penny to $0.45.
The Zacks Consensus Estimate for 2019 moved from $0.48 to $0.56 over that same time horizon.
This is where it all gets a little tough. The valuation for QNST is pretty stiff, with a 45x forward earnings multiple. The trailing multiple isn't any better with a 50x multiple. The price to book of 4.57x is above the industry average of roughly 3.3x. The price to sales multiple is 1.6x and that is well below the industry average of 2.3x.
I mentioned at the start that the shorts have been covering. The most recent short interest report shows that there are 2.35M shares sold short, but the previous reading was more than 2.56M. THat 8% decrease suggests that the shorts might be giving up on this stock.
My experience is that once the shorts lock on to an idea, they tend to circle back at a later date. If QNST continues to beat the number and show solid revenue growth, the shorts will continue to help the stock move higher as they cover.
Bear of the Day:
Ambarella is the source of the tech behind the GoPro and super high definition cameras. That said, the company hasn't done that great of job of late in communicating with Wall Street. The most recent quarter was a nice beat, but guidance was below expectations and that sent estimates lower. When estimates fall, the Zacks Rank slides and today AMBA is the Bear Of THe Day.
AMBA reported Earnings of $0.13 on June 5 after the close. That was $0.04 better than the Wall Street Estimate. Revenues were down 11% from the previous year, but slightly ahead of the consensus estimate at $56.9M.
The company guided next quarter revenue to $60-$64M but that was well below the $68.18M consensus estimate and the stock suffered as a result.
Following the release, Oppenheimer downgraded the stock to perform from outperform noting that the company has less room for error going forward.
Several other brokers lowered price targets, with Deutsche Bank moving their number to $44 from $51. Stifel cut their target to $56 from $64 as well.
The Zacks Rank doesn't look at price targets or recommendations. It focuses only on earnings estimate revisions and following the most recent quarter AMBA estimates really moved lower.
The current quarter saw estimates chopped in half (well a penny more than a half) as they tumbled from $0.28 to $0.13.
The current fiscal years moved from $1.43 to $0.78 and the next fiscal year moved from $2.02 to $1.34.
When estimates move lower like this, investors tend to sell the stock.
A Tale of Two Central Bank Groups: Global Week Ahead
There is a big conundrum wrapped up inside this Global Week Ahead.
Isn’t it provocative?
To hold ‘live ammo’ central bank meetings across the developing world — and in Brexit England — while the world’s major developed country central bank heads enjoy a summer meeting on the coast of Portugal?
The former group of countries (Brazil, Mexico, Taiwan, the Philippines, Thailand and Hungary) is under major currency stress. This is imposed, in part, by the latter’s (the ECB, the U.S. Fed and Japan’s) changing stance on its extraordinary monetary policy stimulus decisions.
Here are Reuters’ five big themes likely to dominate the thinking of investors and traders in the coming week.
I listed the underlying factors in order of importance to global equity markets.
(1) The “Submerging” Developing Markets Hold Central Bank Meetings
Brazil, Mexico, Taiwan, the Philippines, Thailand and Hungary all have central bank meetings this week.
With the U.S. dollar crashing through emerging market currencies like a wrecking ball right now, what the banks do and what they say will be important.
Reuters’ polls show they are all expected to hold their fire for now, although there is an outside chance that Mexico and the Philippines could pull surprise hikes. That means it will mostly be about the rhetoric and who might be preparing to move.
Brazil's markets are pricing 2.5 percentage points worth of hikes between now and this time next year. Mexico sees around 75 basis points. Thailand and Taiwan may point to one or two hikes later in the year, and even Hungary's central bank is expected to ditch its dovish tones in the wake of a sharp fall in the forint.
(2) A Big Developed Country Central Bank Confab Happens in Portugal
On Monday, a three-day ECB forum on central banking kicks off in Sintra, Portugal, but under a very different backdrop to last year's summit.
The ECB has warned markets it will end its bond-buying program by the end of the year, but it has also pledged to keep rates low possibly until after summer 2019. That has cheered bond and stock markets no end, but less so the euro.
Rewind to a year ago when ECB chief Mario Draghi told the folks gathered at Sintra that deflationary forces had been replaced by inflationary ones, putting markets on alert for tweaks in the ultra-loose policy.
Yet with the end of ECB QE now in sight, a taper tantrum along the lines of last year's appears to have been avoided. Italian bonds have just enjoyed their best week since September 2012. But Sintra speakers will still be listened to because any signs of a European growth setback could complicate the QE exit path. Next Friday's "flash" Eurozone PMI data for June may also provide some insight on this front.
More generally, Sintra is a big central banking shindig: alongside Draghi will be the Bank of Japan's Kuroda and the U.S. Federal Reserve's Jerome Powell. All three have had their moment in the spotlight in the past week at their central bank meetings.
But another big-name governor — the Bank of England's Mark Carney — is not scheduled to speak. His bank holds a policy meeting next Thursday, though it is not expected to change interest rates.
(3) On Thursday, U.S. Fed Bank Stress Tests Come Out
In June 2017, when U.S. banks cleared the Federal Reserve's annual stress test, their shares surged as the results unleashed a massive round of stock buybacks and dividend increases.
Don't look for the same outcome this week when the 2018 vintage is released.
The largest U.S. banks have notably underperformed their smaller, regional rivals so far in 2018, and even if some do get more cushion to increase their capital return programs, few analysts believe that will be enough to put them back in the lead.
A flattening yield curve and underwhelming loan growth are among the big culprits weighing on the performance of large banks, and that doesn't look like it's changing anytime soon.
The latest Fed data on commercial and industrial loan growth shows smaller banks holding a greater-than-4-percentage-point lead over large banks in that key lending category. Small bank C&I loan growth is up 6.7 percent year over year, while for the biggest banks it is just 2.4 percent.
And the Treasury yield curve — a key indicator of bank net interest margins — has flattened further since the Fed's latest rate hike. The spread between 2-year and 10-year Treasury yields is below 40 basis points and the narrowest in nearly 11 years.
(4) An OPEC Meeting Happens. They Review Their Production Agreement
OPEC and its oil allies meet in Vienna on Friday and Saturday this week, to review their production agreement.
U.S. President Donald Trump has again been blaming the group for rising oil prices — they are up almost 60 percent over the last year — so the political pressure is on to pump more.
The big producers are divided, though. While Russia is pushing for a significant output hike, Saudi Arabia favors a modest one. Others, like Iran, Iraq and Venezuela, want no change at all.
Most oil watchers do expect an increase, however, before the end of the year. Negotiations should therefore center on the scale, timing and phasing of any output boost. Also key will be whether it is agreed by the entire group or implemented by Saudi Arabia and Russia without wider backing.
(5) Turkey Has June 24th Elections
Several things are complicating life for Turkey's Tayyip Erdogan before the June 24th elections.
Hoping to use a beefed-up presidency to tighten his grip on the economy and monetary policy, Erdogan is finding he may not win in the first round after all. What's more, the AK party could even lose its parliamentary majority.
Second, the lira is heading rapidly back to record lows despite 425 bps in interest rate rises. With the Fed propelling the dollar higher, the lira's woes might continue. Its weakness will certainly exacerbate double-digit inflation. On economic growth — which Erdogan touts as one of the triumphs of his 15-year tenure — there are warnings.
Data shows Turkish growth running at 7.4 percent, making it one of the world's fastest-growing economies. But borrowing costs have soared, with the government paying almost 16 percent for 10-year cash in local bond markets, up 500 bps since the end of 2017.
That could hint at a sharp slowdown because the growth bonanza hinges largely on credit, which is expanding around 20 percent year-on-year. Indeed, Turkey's highly indebted companies and banks may already have run into trouble. For Erdogan, a self-declared "enemy of interest rates,” it could mean accepting more rate rises and slower growth. First though, he needs to win the election — at least in the second round.
Top Zacks #1 Rank (STRONG BUY) Stocks—
(1) Amazon: It’s an $832B stock now. And the long-term Zacks VGM score is a solid F, with an F in Value.
Nobody cares about Value stocks, only chasing Momentum stocks like this higher and higher. When does that tune change?
(2) Chevron: OPEC holds a meeting in Vienna this week. This is a Zacks #1 Rank stock with a Zacks VGM score of A.
There’s an A for Growth here. That is contingent on stronger oil prices.
(3) Mastercard: It’s a $200 stock now, with a $208B market cap, due to the ongoing shift to digital transactions.
We don’t need to talk more about Bitcoin. We DO need to talk more about Mastercard and Visa.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Download it free >>
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