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Interactive, Banco de Chile, Kimco Realty, Simon Property and Macerich highlighted as Zacks Bull and Bear of the Day

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For Immediate Release

Chicago, IL – October 18, 2018 – Zacks Equity Research Interactive Corporation (IAC - Free Report) as the Bull of the Day, Banco de Chile (BCH - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Kimco Realty Corp. (KIM - Free Report) , Simon Property Group Inc. (SPG - Free Report) and Macerich (MAC - Free Report) .

Here is a synopsis of all five stocks:

Bull of the Day:

Back in May of 2018, shares of Match Group and its majority ownerInteractive Corporation took a major hit when Facebook announced that they would be developing their own dating app which was expected to eviscerate Match’s share of the online dating market. The concept certainly made sense at the time – if Facebook users were able to easily convert the profiles they had already created into dating resumes, demand for Match.com -- and it’s most popular product Tinder -- could dry up.

But it hasn’t happened yet and Match Group majority owner Interactive Corporation continues to turn in outstanding results.

Shares of IAC closed at $162.14 on April 30th but fell to $133.33 the next day on the Facebook news. Though Interactive Corp was unequivocally bold in explaining that they were comfortable with their 20+ year head start in the internet dating game, some investors threw in the towel, expecting that Facebook - with a market cap north of $400B and 2 billion active monthly users - would soon dominate online dating the same way it had dominated social media.

Those IAC shares are now trading at $206, thanks in part to blowout Q2 report that had the internet conglomerate earning $2.32/share in net profits, more than doubling the Zacks Consensus estimate of $0.82/share.

Thanks to full year 2018 estimates that have risen from $4.39/share to $5.37/share in the last 90 days, IAC earns a Zacks Rank #1 (Strong Buy).

Founded in 1995, Match Group and its flagship product Match.com are far and away the biggest household names in online dating.  Growing both organically and through acquisitions, the group now encompasses popular sites and apps across a broad spectrum of potential daters. Match group has 7 million subscribers worldwide and 3 million of them use Tinder - the most profitable segment of Match Group’s business for advertising.

Though Tinder is the most recognizable name in the IAC portfolio, they also operate multiple smaller services aimed at a vast range of dating preferences, broken down by age, race, ethnicity, religion and even political beliefs.

Match Group, while an independent public company, is mostly owned by Interactive Corp, which holds 81% of the economic value and 97% of the voting rights in Match Group. Originally formed as a television media company, IAC owns approximately 150 brands across a wide swath of media - primarily internet sites. Though many are household names – like Dictionary.com, Investopedia and Angie’s List - IAC is most closely associated with the Match Group because Match contributes as much as 40% of IAC’s revenue and more than half of EBITDA in any given quarter.

Sometimes a big story comes out that seems to obviously seal the fate of a company that appears to be on the wrong end of an unwinnable competitive battle.  

Sometimes that narrative is simply incorrect.

Facebook has had a rough year in 2018 with user privacy issues, concerns that its services led to election interference and most recently, a major data breach. IAC has thrived.

Interactive Corp - which just a few months ago looked to be squarely in Facebook’s sights - instead quietly went about its business, growing its most profitable businesses and rewarding faithful investors with a 50% gain.

Bear of the Day:

Earnings season is off to a positive start in the banking sector with JP Morgan, Citigroup, Goldman Sachs  and Morgan Stanley all beating consensus estimates and fueling a broad market rally.

Unfortunately, the banking situation in South America is not quite as good.

After a protracted six-year economic slowdown, South America is in the midst of what the World Bank recently described as a “fragile recovery.” Notable challenges include a stronger U.S. dollar and rising U.S. interest rates which have contributed to a “drastic fall in net capital inflows” to the region.

That October 5th World Bank report also notes that the region remains vulnerable to natural disasters such as earthquakes, floods and hurricanes. Due to high population density in vulnerable areas and lacking risk management practices, South America is at risk of serious economic shocks from natural events.

Banco de Chile -- though fairy healthy as far as South American Banks go -- has still suffered through 2018 with the shares off more than 11% amid slowing financial results and reduced earnings estimates.

Despite the recent price decline, BCH remains fairly expensive relative to the foreign bank sub-industry, trading at 16.6X forward earnings and 25X free cash flow, versus industry averages of 9.9X and 9.3X, respectively.

The real problem is reduced operating income with the Q2 cash flow statement showing operating losses of $101M during the first half of the year versus $418M in positive operating income during the same period a year earlier.

Five recent negative earnings revision have taken the consensus for full year 2018 from $6.22/share just 90 days ago to $5.37/share currently.

BCH is a Zacks Rank #5 (Strong Sell).

While the U.S. banking industry is looking as strong as ever and stands to build on earnings momentum as interest rates drift higher, investors would be wise to avoid the shares of banks in regions where significant economic and political factors uncertainty remain.

Additional content:

Is Sears’ Bankruptcy the Joyride Retail REITs Have Been Waiting For?

Retail REITs have got a reason to rejoice as the recent bankruptcy filing of Sears Holdings Corp., which is the parent company of Sears and Kmart, has opened up scope for retail REITs to recapture the Sears sites, bank on redevelopment measures, lure new tenants, and charge a higher rent from them.  

Particularly, for Kimco Realty Corp., which has exposure to 14 leases (three Sears and eleven Kmart), denoting 1.9% of the company’s total gross leasable area, this bankruptcy filing has ushered in opportunities that will help the company benefit from significant mark-to-market and long-term redevelopment prospects.

According to Kimco’s press release, with the average base rent of $5.25 per square foot for the 14 above-mentioned leases, Sears/Kmart pays among the lowest rent in Kimco’s portfolio. Meanwhile, the average tenant in Kimco’s portfolio pays $15.95 per square foot.

Therefore, the recapture of these boxes, which have favorable demographics with a population of 129,000 within a three-mile radius and an average household income of $88,000, raises hopes for significant mark-to-market potential. Specific opportunities include Whittwood Town Center in the densely populated Los Angeles suburb of Whittier, CA, Bridgehampton Commons in Bridgehampton, NY and Kendale Lakes Plaza in Miami, FL.

In fact, Kimco has been proactively curbing its exposure to Sears/Kmart since 2015 and the company gained from the recapturing of eight Sears/Kmart locations and achieved an average rent spread of 211%. The recaptures have also prompted revamp of four of those centers.

Moreover, apart from Kimco, the other well-known retails REITs — Simon Property Group Inc. and Macerich — have also made concerted efforts to revamp the former Sear sites. Leases of several such sites with Sears have been running for long and the rents paid are comparatively low. Therefore, recapturing such Sears sites gives retail REITs the chance to raise lease prices on those spaces.

Admittedly, retail REITs have been struggling for quite some time as mall traffic continues to suffer from the rapid shift in customers' shopping preference to the online channel. In fact, with e-commerce gaining market share from the traditional brick-and-mortar stores, retailers are compelled to reconsider their footprint and eventually opt for store closures, while others unable to cope with competition have been filing bankruptcies. In fact, besides Sears, the recent retail bankruptcies include that of Toys R Us and Bon-Ton Stores. These have raised concerns over cash flows of mall landlords.

Such an environment has also led to tenants demanding substantial lease concessions which mall landlords find unjustified. However, retail REITs are fighting and making immense efforts to boost productivity of retail assets by trying to grab attention from new and productive tenants, and disposing the non-productive ones. They are transforming their traditional retail hubs into entertainment destinations and lifestyle resorts in a bid to lure customers.

These REITs are avoiding heavy reliance on apparel and accessories, and rather expanding dining options, opening movie theaters, offering recreational facilities and opening fitness centers in particular. Also, retail REITs are exploring mixed-use development options, which has gained immense popularity in recent years. Although such efforts are beneficial over the long term, with huge outlay for refurbishments, growth in the profit margins of retail REITs in the near term are likely to be curbed. In addition, hike in interest rates escalate financing costs.

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