For Immediate Release
Chicago, IL – November 6, 2018 – Zacks Equity Research highlights Tesla (TSLA - Free Report) as the Bull of the Day, PriceSmart, Inc. (PSMT - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Top Zacks Stock Pick: Intel (INTC - Free Report) , Sony (SNE - Free Report) and Twitter (TWTR - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Shares of Tesla have surged over 18% since the company reported better-than-expected Q3 financial results on October 24. Now, as signs once again point to the electric vehicle power’s impressive future, it’s time to see why Tesla stock looks like a strong buy.
Tesla’s quarterly revenues surged 128% from $2.98 billion in the year-ago quarter to hit $6.82 billion. This crushed our Zacks Consensus Estimate of $5.67 billion and represented an equally strong 70% jump from Q2’s $4.0 billion.
Meanwhile, at the bottom end of the income statement, Tesla swung from a loss of $2.92 per share in the year-ago quarter to report adjusted earnings of $2.90 per share. This surpassed our estimate that called for a loss of $0.55 per share. Tesla also posted GAAP net income of $312 million.
Tesla posted these great top and bottom-line performances through better Model 3 sales, along with higher average selling prices, improved automotive gross margins, and reduced operating expenses. Tesla’s mass-market Model 3 was the best-selling car in the U.S. in terms of revenue in Q3—coming in above Toyota (TM), Honda (HMC), and Ford (F)—and the 5th best in terms of volume. Weekly Model 3 production during the quarter hit 4,300 units.
Overall, Tesla delivered 56,065 Model 3s at a starting price of $49,000, which helped bring its U.S. total to nearly 70,000 vehicles. Tesla’s strong quarter allowed the company to make good on CEO Elon Musk’s promise to be both cash flow positive and profitable on a net basis in Q3. Before now, Tesla had been profitable in just two quarters.
Moving on from Tesla’s Q3 performance, investors should note that TSLA stock has outperformed the S&P 500 over the last five years. Shares of Tesla have climbed roughly 125% during this stretch, compared to the S&P’s 58% jump. There has certainly been a lot of turbulence over this stretch, but we can see that this trend has continued over the past 24 months. Plus, Tesla stock sits down roughly 11% from its 52-week high of $387.46 per share, which sets up what could be a solid buying opportunity.
Bear of the Day:
PriceSmart, Inc. has seen its stock price tank over 14% since the warehouse club company posted its fourth-quarter and fiscal 2018 financial results on October 25. The big drop off is likely due to PriceSmart’s sinking bottom-line estimates and the resignation of long-time CEO Jose Luis Laparte.
PriceSmart, which is headquartered in San Diego, is the largest operator of membership warehouse clubs in Central America and the Caribbean. The company posted fiscal fourth-quarter revenues of $777.9 million, which marked a 6% jump from the year-ago period’s $733.5 million. However, comparable store sales climbed just 0.2%.
Meanwhile, PriceSmart’s operating income fell from $30.8 million in Q4 of 2017 to $27.2 million. The firm also announced that its CEO and president Jose Luis Laparte will resign, effective November 16. Laparte took over as chief executive in July 2010 and oversaw a period of great success in terms of stock price movement from that time until PSMT stock hit its all-time high at the end of 2013.
Choosing a new CEO could end up lifting PriceSmart, but investors have clearly reacted negatively so far. The company currently operates 41 warehouse clubs in 12 countries and one U.S. territory, with 3 million cardholders. This includes seven locations in Colombia and Costa Rica, along with five in Panama. Looking ahead, the company expects to open its 44th warehouse club in the fall of 2019.
Stock Price Movement
Moving on, we can see that PriceSmart stock was once a high-flyer. With that said, shares of PSMT have plummeted over 40% in the last five years, compared to the S&P 500’s nearly 58% surge.
PriceSmart stock is down roughly 19% since the start of the year, driven by its post-fourth quarter earnings release selloff. Shares of PSMT closed regular trading at $69.77 per share on Monday, which marked a roughly 26% downturn from its 52-week high of $94.45 per share.
Outlook & Earnings Trends
Now that we have covered some of PriceSmart’s recent news, it’s time to take a look ahead. Our current Zacks Consensus Estimate is calling for the firm’s quarterly revenues to climb 3.7% to reach $795.30 million. The company’s fiscal 2019 revenues are projected to hit $3.32 billion, which would mark a 4.7% jump from 2018.
Moving onto the bottom end of the income statement, PSMT’s adjusted Q1 earnings are expected to sink by 29.7% to hit $0.52 per share. Plus, PriceSmart’s Q2 EPS figure is projected to slip by 4.5%.
We should note that PSMT has seen some negative earnings revision activity over the last 30 days. The company’s consensus estimates have also dropped off significantly during this same stretch for Q1 and Q2, as well as for its current fiscal year.
Focus on the U.S. Midterm Election: Global Week Ahead
In this Global Week Ahead, the U.S. midterm election and the Fed’s November statement-only report take center stage.
Heedless of where you invest on the globe, this divisive and historic U.S. election, and the future path of risk-free bond rates in the United States, matters to securities markets.
Lurking behind these two marquee events, the U.S. Q3 large-cap earnings season winds down this week. Thus far, 74% of S&P 500 companies have reported earnings, and 78% of those firms have surpassed estimates. If earnings growth holds at +24.9%, it marks the 2nd-highest growth rate seen since Q3-2010.
More than 70 companies in the S&P 500 report quarterly financial results.
The week’s earnings include: Marriott International, Qualcomm and Walt Disney.SoftBank, Occidental Petroleum, Siemens, Activision Blizzard, BMW, Toyota, Eli Lilly, AstraZeneca and Brazilian oil firm Petrobras are also set to report earnings.
To tie all of this together, I listed the five big Reuters in London world market themes, in order of importance to equities.
(1) U.S. Midterm Elections
If the last five U.S. midterm elections are anything to go by, investors should be long U.S. stocks on Tuesday to make the most of a knee-jerk upwards move, no matter what the outcome. Equities have risen the day after each of the past five midterms.
During President Obama’s second term in November 2014, stocks rose 0.6 percent when Republicans made broad gains and took control of the Senate. Energy stocks got a particular boost on hopes of approvals for pipelines. And Obama’s first-term midterm elections also saw stocks grind higher after Republicans took control of the House.
Going back to 2006 during President George W Bush’s second term, stocks nudged 0.2 percent up when Democrats took control of the house; while in 2002 stocks rose 0.9 percent.
A Republican win this time around, that which allows them to retain total control of Congress, could boost stocks as it would increase the chances of more tax reform and further de-regulation.
Still, a Democratic takeover of the House may not significantly shake the market if it has effectively been priced in — offering the prospect of gridlock and stability in policy.
(2) What About China’s Currency Moves?
Is there light at the end of the trade war tunnel?
U.S. President Donald Trump and Chinese President Xi Jinping both seemed optimistic about resolving their bitter trade dispute after Thursday’s phone discussion and ahead of a high-stakes meeting at the end of November in Argentina.
Hopes for a possible deal propelled the yuan away from the psychological threshold of 7 to the dollar, for now. The currency had been under pressure amid worries over slowing growth in the world’s second largest economy.
And despite a raft of stimulus measures announced by Beijing having already brightened investors’ mood, the jury is still out as to whether the yuan could crash through that key level, according to a Reuters poll.
If it does, consensus predicts the move to be gradual unless economic conditions in China deteriorate further. Trade data out this week will surely be scoured for clues on that.
(3) Give European Equities a Second Look
As the European earnings season continues to rumble on, analysts are scratching their heads as to what exactly triggered a sharp selloff across global equity markets last month, which seems to have hit price performance but left earnings expectations largely intact.
Some say investors were just pricing in the fact U.S. stocks aren’t going to be able to provide 20 percent earnings growth every quarter — and taking prices down from their exuberant record high levels.
If they’re beginning to look for alternatives to the United States that still have some earnings improvement to deliver, Europe is starting to look viable. Analysts expect quarterly year-on-year earnings growth in Europe to edge above those in the U.S. in 2019.
Yet in the short-term, investors still have a few hurdles to jump, most notably Italian banks’ earnings this week which could deepen the gloom around lenders’ ability to withstand the steep sell-off in government bonds.
(4) The U.K. Tries to Get Brexit Sorted
Sterling’s rally last week was the second-biggest of the year.
Fueled by reports that the United Kingdom and the European Union have made progress on a deal to give London basic access to EU markets after Brexit and a rally in global stocks, traders lost no time in snapping up the heavily shorted currency.
But some warn that markets may be getting overly excited. While expectations of a deal at a summit on Nov. 21 have grown, domestic political challenges still abound and market indicators reflect those concerns.
Morgan Stanley strategists say market sentiment is extremely bearish on sterling, with gauges indicating traders are paying more premiums to buy currency options to brace for a rocky ride ahead. And expectations are that that roller coaster ride may last for some time with implied volatility curve spreads between 1-year and 1-month options near their flattest levels this year.
(5) Talking Turkey
The strong relief rally that has lifted Turkey’s markets over the last month will face a crucial test on Monday when national inflation figures are released.
Signs are that the data won’t make for very pleasant reading. Retail price numbers from Istanbul released on Thursday showed a 3.5 percent month-on-month surge and the city is home to a fifth of Turkey’s population, so it tends to be a good guide for national inflation.
Economists now expect Monday’s figure to come in at around 26 percent and the peak might still be another month or two away. So having been charging back into Turkey in recent weeks, investors might begin to remember why they left in the first place.
Top Zacks Rank Stocks—
(A) Intel: This is a $220B market-cap stock, and the leader of the chip stocks. Yes. The stock is back to a Zacks #1 (STRONG BUY) rank. The Value score is A and the Growth Score is B.
Can the chip stocks get it going after the midterms?
(B) Sony: This is a $67B market-cap Japanese tech stock. The latest PMIs for this country are good. The Value Score is A and the Growth scores is C.
(C) Twitter: Surprise, surprise. This U.S.-based social media stock is on our Zacks #1 Rank list this week. President Trump loves this service. The midterms this week will show if it has delivered for him. The market cap is $26B and the Value Score is F.
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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.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
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