For Immediate Release
Chicago, IL – July 31, 2018 – Zacks Equity Research highlights AT&T Inc (T - Free Report) as the Bull of the Day, Camping World Holdings (CWH - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Caterpillar (CAT - Free Report) .
Here is a synopsis of all three stocks:
Bull of the Day:
Sometimes even the Bull of the Day can sound a little bit boring, but in the world of investing, sometimes “boring” is actually perfect.
Though its iconic name invokes memories of the company founded by Alexander Graham Bell in 1880, AT&T Inc is currently a thoroughly modern commercial giant and literally the world’s single largest telecommunications company.
Born as the Bell Telephone Company, AT&T has been reinvented over and over again in a span of more than a century, emerging from the U.S. government breakup of the “Ma Bell” monopoly in the 1980’s, the widespread transition from landlines to cellular communications in the 1990’s and, most recently, the merger with Time Warner that survived a U.S. Department of Justice challenge and made AT&T not only a leader in telecommunications, but also a content and media behemoth.
The company’s subscription-based revenue model in traditional telephone services, cellular and digital media provides consistent strong cash flow and the recent acquisition promises to add powerful cost synergies and improved margins.
After the Time Warner merger, AT&T operates four distinct units:
WarnerMedia which encompasses HBO, Turner and Warner Bros. which operates the world’s largest and creates premium entertainment content.
AT&T Communications which provides over 100 million U.S customers with TV, mobile and broadband services.
AT&T International provides customers with pay television services across Mexico, Latin America and the Caribbean.
Bear of the Day:
Marcus Lemonis is the host of a popular business reality show on CNBC and his style and demeanor make him enormously likable to viewers and fans. On “The Profit,” he makes a financial investment in small companies that are struggling to grow but exhibit promise in the eyes of the successful entrepreneur. He generally assumes some temporary management responsibilities.
Lemonis’ mantra “People, Product and Process” is a really simple and valuable lesson for anyone who runs a business of any size.
With the help of his longtime mentor Lee Iacocca, Lemonis parlayed his family experience in the automobile dealership business into the creation of the world’s largest seller of Recreational Vehicles. With an impressive series of acquisitions, Lemonis has turned his company, Camping World Holdings into a $2 billion market-cap seller of RV’s, boats and a wide range of recreational accessories.
Since going public in 2016, Camping World has continued to make strategic acquisitions including the Gander Mountain and Overton’s brands in 2017.
While Lemonis is not the kind of CEO investors would generally want to bet against, he’s up against a few notable macro-economic headwinds that jeopardize near-term earnings growth at Camping World.
Rising commodity prices, rising oil prices, and rising interest rates.
The prices of steel and aluminum - major inputs in the construction of an RV - are rising, due primarily to tariffs imposed by the Trump administration and retaliatory tariffs imposed by our major trading partners.
The price of a barrel of oil has risen roughly 36% over the past year, with WTI crude going from $50/bbl in the summer of 2017 to $69/bbl today.
Federal Reserve Chairman Jay Powell has made it clear that he intends to continue steadily raising short term interest rates to keep the strong U.S. economy growing at a sustainable rate and hold inflation in the area of 2%.
This combination of factors makes RVs more expensive to manufacture, operate and finance. All of that is bad news for Camping World.
In Q1 2018, the company grew total revenues 20% to $1.06B from $881M in the year-ago period, but costs rose as well and income from operations were down 28% from $70M to $50M. Adjusted net earnings were $0.41/share.
How Will Tariffs Affect Caterpillar (CAT - Free Report) Following Strong Q2 Earnings?
Shares of Caterpillar Inc. were sideways through morning trading Monday after the company released its Q2 earnings report.
CAT saw its earnings surge 89% to hit $2.82 per share, which outpaced our Zacks Consensus Estimate of $2.66. The firm’s revenues of $14.01 billion also surpassed our projection of $13.77 billion. Caterpillar upped its full-year guidance to a range of $11 to $12 per share, which, even at the lower end, is higher than our current $10.75 estimate.
But as strong as Caterpillar’s report was, it was dragged down by the Trump administration’s tariffs.
Making America Great Again Is Hurting Caterpillar
Shares of CAT have had a solid run over the last 12 months, gaining 26.3% compared to a 4.5% industry average. But the company has recently faced some difficulties, shedding 8.7% on a year-to-date basis, which is in line with industry peers.
Caterpillar also posted a strong Q1 earnings report, but the common concern across both periods is the sizable hit to margins caused by material cost inflation. In March, President Trump imposed a 25% tariff on steel and 10% tariff on aluminum. Mr. Trump went on to state that the measure would be in place for “a long period of time."
CAT said in its latest earnings report that the tariffs will chop off between $100 million and $200 million in revenue in the second half of the year. The company also noted that higher freight costs and increased spending for targeted expenses are set to offset otherwise higher transportation sales.
The firm will announce mid-year price increases to counter the impact of higher costs.
Don’t Fret Just Yet
Even in the face of recent concerns, Caterpillar has seen positive earnings estimate revisions across the board. Projections for Q3 currently stand at $2.59 per share, while full-year estimates are $10.75, ticking up a cent in the last week. Investors should note that further revisions could be made now that the firm has reported its Q2 results.
Caterpillar remains well-positioned to capitalize on various tailwinds across each of its segments. The company continues to see “increasing sales volume, favorable price realization, and lower short-term incentive compensation expense,” according to its release. Moreover, demand is expected to continue growing as the company’s backlog increases and infrastructure spending in the U.S. and China ramps up.
CAT has now beat earnings expectations for the last 13 quarters and raised guidance for the second successive quarter. Caterpillar is also expected to return value to its investors through a new round of share repurchases set to begin in January 2019. The current $10 billion plan, which expires this year, has $4.5 billion left in repurchases to be made.
While the tariffs are a notable source of concern for investors, Caterpillar remains well-positioned for continued growth. Strong value-driven initiatives and well-executed price increases will allow CAT to remain a compelling investment in the months to come. But if rates in infrastructure spending, housing starts, and commercial construction begin to waver, Caterpillar might be one of the first to feel the burn.
Recent earnings estimate revision activity have left Caterpillar sitting at a Zacks Rank #2 (Buy), although this could change after Monday’s earnings release.
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