For Immediate Release
Chicago, IL – August 10, 2018 – Zacks Equity Research highlights Ralph Lauren Corporation (RL - Free Report) as the Bull of the Day, Wynn Resorts (WYNN - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Chemours (CC - Free Report) , Pulte (PHM - Free Report) , The Michaels Companies (MIK - Free Report) , General Motors (GM - Free Report) and General Electric (GE - Free Report) .
Here is a synopsis of all seven stocks:
Bull of the Day:
Purveyors of luxury apparel and accessories have been on a strong run lately and the cream of the crop is one of the most recognizable names in the business – Ralph Lauren Corporation. The high-end fashion giant operates the venerable Polo brand and a dozen other labels, including Chaps and Ralph Lauren for Women. They manufacture and market clothing and accessories for both men and women across the spectrum from casual sportswear to formalwear as well as accessories and fragrances.
The company’s well-defined plan of strategic initiatives includes: Winning over a new generation of customers, Energizing core products, Driving targeted expansion, Leading with digital sales and advertising and operating with discipline to fuel growth.
In RL’s most recent earnings release on July 31st – the company’s fiscal first quarter - they beat on both the top and bottom lines, reporting earnings of $1.54/share on sales of $1.39B, versus Zacks Consensus Estimates of $1.39/share and $1.36b, respectively. It was Ralph Lauren’s 14th consecutive positive earnings surprise.
Analysts have taken note of RL’s recent strength with 5 upward revisions in the past 30 days, earning the company a Zacks Rank #1 (Strong Buy).
Full year 2018 earnings are now expected to be $6.56/share, up from $6.12 90 days ago. Estimates for 2019 have increased from $6.60/share to $7.15/share over the same period.
In the competitive fashion industry, only companies with a reputation for style and quality and strong brand recognition can maintain healthy gross margins. Few brands are as recognizable as Ralph Lauren and they’re working hard to keep it that way - just as they have for the last 50 years.
Bear of the Day:
It’s been a rough stretch lately for Wynn Resorts and unfortunately, it’s not over yet. A big earnings miss last week is only the latest in a string of adverse events and negative publicity for the operator of casinos and resorts in Las Vegas and on the island of Macau in China.
Expected to have earned $2.03/share in Q2, Wynn reported a net of only $1.53/share – a 25% disappointment. Revenues lagged as well with the company taking in $1.6B versus an expected $1.7B.
Analysts were quick to lower their estimates for the full year 2018 with 6 downgrades in the past 30 days. The Zacks Consensus Estimate for the year now stands at $7.86/share, 7% lower than just 30 days ago when WYNN was expected to earn $8.45/share. Estimates for 2019 have been reduced by a similar percentage.
WYNN is now a Zacks Rank #5 (Strong Sell).
Unfortunately, the stain of the allegations against Steve Wynn remain on the company, both internally and externally. The company filed an 8-K with the SEC last week stating that it had completed its own internal investigation into Mr. Wynn’s alleged misconduct and subsequent settlements with his accusers but would not release the findings until the conclusion of concurrent investigations by the Nevada and Massachusetts state gaming commissions.
The Massachusetts investigation is especially troubling for the company because a possible consequence is the revocation of WYNN’s gaming license, which would presumably force a sale of the Boston Harbor property. It’s already been speculated that WYNN has been shopping for a buyer for the new resort, but a forced sale would almost certainly net less than an orderly and voluntary transaction.
WYNN is an example – much like Papa John’s – of what can happen when a charismatic founder remains in control of the company and squarely in the public eye. Essentially, all the eggs are in one basket. If the founder takes a fall, the company does as well.
It’s been a lean period for the industry, especially operators in Las Vegas who have seen vacation visits drop off as more gaming options become available nationwide, but Investors interested in Gaming stocks would be better served to consider Penn National Gaming, a Zacks Rank #2 (BUY) or Caesar’s Entertainment Group, a Zacks Rank #3 (HOLD).
Zacks Value Investor is a podcast hosted weekly by Zacks Stock Strategist Tracey Ryniec. To listen to the podcast, click here: (https://www.zacks.com/stock/news/317203/the-key-to-spotting-a-value-trap)
The Key to Spotting a Value Trap
Welcome to Episode #104 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
Interest in value stocks is on the upswing even though growth stocks continue to outperform value.
When are Stocks a Value?
Normally, you’d have a cheap stock when it has a low P/E or other low value fundamentals like price-to-book and price-to-sales ratios.
But solid value fundamentals aren’t the only criteria for determining a value stock versus a value trap.
The Key to Spotting a Value Trap
The one thing that separates the value stock from the trap is earnings growth.
A stock could be dirt cheap, but if earnings are declining, that’s probably the reason its so cheap. The more intriguing scenario is when the stock is cheap but earnings are on the rise.
Investors should ask themselves:
Is the company expected to grow earnings this year and next?
Are analysts raising estimates, instead of cutting them?
Tracey screened for cheap stocks and then picked 5 of them to see if she could spot the value stocks from the value traps.
Value Stock or Trap?
1. Chemours has a forward P/E of just 8. This chemical giant is dirt cheap. It recently saw double digit growth across all key metrics as sales rose 14% in the second quarter. Are the numbers too good to be true?
2. Pulte has been cheap for most of 2018. Most of its homebuilder competitors are also cheap stocks. Wall Street has turned its back on the industry this year due to the Fed’s plan to raise interest rates several more times this year which is likely to raise home mortgage rates. Pulte has a forward P/E of just 8.3 and a price-to-sales ratio of only 0.9. But are earnings estimates on the rise or are they falling?
3. The Michaels Companies is one of the cheap retail stocks. Its forward P/E is just 8.8 and it has a P/S ratio of only 0.7. While it won’t report earnings until the end of August, 1 estimate was revised in the last week. Is the analyst bullish or bearish?
4. General Motors has been cheap for some time. It’s forward P/E is just 6.2 and it has a P/S ratio of only 0.4. It has been rewarding shareholders with a juicy dividend, currently yielding 4%. But possible auto tariffs loom on the horizon. Is it a true value or a trap?
5. General Electric isn’t as cheap as some of the others with a forward P/E of 13.5. However, it does have a value P/S ratio of just 0.9. Everyone knows what its issues are in 2018 but will it break out of the slump in 2019 and beyond?
What else should you know about value stocks versus value traps?
Tune into this week’s podcast to find out.
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