For Immediate Release
Chicago, IL – December 19, 2018 – Zacks Equity Research Abercrombie & Fitch (ANF - Free Report) as the Bull of the Day, Halliburton (HAL - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Veeva Systems Inc. (VEEV - Free Report) , Attunity Ltd. and Nice Ltd. (NICE - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
All eyes are on the Fed today, and Wall Street is likely rooting for a more dovish tone from the central bank amid fresh economic uncertainties. These question marks have sent investors running from stocks, but if the market does get what it wants from the Fed, these same investors could return in search of bargains.
One such bargain is specialty retailer Abercrombie & Fitch.The company operates more than 1,000 stores across three brands—Abercrombie & Fitch, Abercrombie Kids, and Hollister—that focus on upscale casual wear primarily for teens and young adults. ANF is currently sporting a Zacks Rank #1 (Strong Buy).
Abercrombie reimagined its brand several years ago, ditching the sexualized advertising and uptight employee dress code it had become known for. Its stores, and the apparel therein, got brighter, more modern, and back on trend.
It took a few years for these changes to materialize in terms of financial results, but the stock finally started to pick up steam last year. ANF emerged has one of 2017’s hottest momentum stocks and carried that rally well into 2018. Prior to its pullback, the stock had rallied more than 200% from its five-year low to the 52-week high reached this summer.
However, our recent stretch of market-wide volatility has battered these types of momentum plays as well as many retailers. But that same selling now makes ANF look cheap, especially as its earnings outlook continues to improve.
The keys to the thesis for ANF right now are P/E contraction and price-to-consensus divergence. The P/E contraction portion is relatively simple. Abercrombie is on track for significant EPS growth this fiscal year, and its outlook for next year is rising thanks to positive earnings estimate revisions. As that trend holds, a dip in the price makes the Forward P/E equation look even better.
ANF is now trading at just 19.6x forward 12-month earnings, which is near its lowest valuation in a year. This might not be attractive if the core business conditions were sluggish, but as the company’s latest earnings report showed, that’s hardly the case.
Abercrombie most recently reported earnings just a few weeks ago. For its fiscal third quarter, the retailer notched EPS of 33 cents, crushing the Zacks Consensus of 18 cents and improving 10% from the year-ago period. Net sales of $861 million were only flat on a year-over-year basis, but that result was well ahead of our consensus estimate of $854 million. Comps in the period were up 3%, marking the fifth consecutive quarter of comps for ANF.
More importantly, Abercrombie noted that its Q3 momentum carried into the start of Q4. Management expects a busy holiday shopping season and reaffirmed its previously stated outlook for the full fiscal year. Moreover, gross margin is likely to be flat or up slightly and operating expenses are expected to decline 1% to 2%, the company said.
This type of report paints a picture of a healthy specialty retailer in the midst of a strong consumer spending environment. This reinforces the value case that was made above; “cheap” stocks are great, but they’re better when the company’s core business is looking good.
Bear of the Day:
There’s hope that the Fed can spark a market-wide rally today, but with fresh economic uncertainties are clearly still weighing on global investors. With that said, it feels prudent to avoid stocks with their own company- and industry-specific headwinds right now. One such example is Halliburton.
Halliburton is one of the world’s largest providers of products and services to the energy industry. It currently has 14 product service lines, including pipeline services, production solutions, and several drilling-related services.
HAL is sporting a Zacks Rank #5 (Strong Sell) and has tumbled more than 35% in the past six months. Most recently, management warned of a slowdown in the Permian Basis that will cause damage to Q4 earnings. The company said that transportation bottlenecks in the oil-rich region have forced domestic producers to cut down on their spending.
Moreover, oil prices crashed to a one-year low on Tuesday amid growing concerns on the demand side. Domestic producers are now operating at razor-thin margins, so there could be increased pressure to reduce spending in the near future. HAL remains heavily levered to changes in the overall energy price environment, and recent volatility in that world will cause even more headaches for the stock.
These price headwinds add to a longer list of problems for Halliburton, including the failure of its proposed merger with Baker Hughes that is still causing problems for its balance sheet. The deal was called off in early 2016, forcing Halliburton to book $3.5 billion in termination fees—one of the largest of these charges in U.S. corporate history.
Halliburton is now facing a stretched balance sheet. At the end of the most recent quarter, the company had approximately $2.06 billion in cash/equivalents and $10.42 billion in long-term debt, representing a debt-to-capitalization ratio of 53.6%. This is more than double its industry’s average of 24.0%.
Investors should have more questions about the company’s valuation, too. HAL has a modest “C” grade in the Value category of our Style Scores system, which points to potential weaknesses in key value metrics. Notably, its P/B ratio of 2.8 is a significant premium to the industry’s 0.8 average, and its P/S of 1.1 is pricey compared to the industry’s 0.6.
Typically we suggest investors looking at this specific industry move their search elsewhere. Unfortunately, the “Oil And Gas - Field Services” group is in the bottom 32% of the Zacks Industry Rank, and good options look sparse right now. A lot of the companies in this industry are going to be facing the near-term price headwinds that HAL is seeing, and that means volatility for the lot of them.
3 Cloud Stocks to Buy Right Now
In a matter of just a few years, “the Cloud” has evolved from a budding new tech feature to one of the main factors driving growth in the technology sector. Cloud computing is now an essential focus for software-related companies, and cloud stocks have piqued the interest of many tech-focused investors.
New technologies and changing consumer behavior have changed the shape of the technology landscape, and an industry that was once centered on the personal computer has adapted to survive in the world of mobile computing and the Cloud. The markets have been paying attention, and some of the best tech stocks have been those that are either primarily cloud-based companies, or those that have shown growth in their cloud operations.
Of course, recent bouts of market-wide volatility have battered these high flyers, but if the bulls can win back momentum heading into the New Year, investors might find that cloud stocks are now available on the cheap.
With this in mind, we’ve highlighted three stocks that are not only showing strong cloud-related activity, but also strong fundamental metrics. Check out these three cloud stocks to buy right now:
1. Veeva Systems Inc.
Veeva makes cloud-based solutions for the pharmaceutical and life sciences industries. Its main offerings are presented in a software-as-a-service model and delivers industry-specific tools for CRM, content management, and many other enterprise applications. Shares of Veeva currently hold a Zacks Rank #1 (Strong Buy).
VEEV has emerged as a hot growth and momentum stock this year, adding more than 55%—even after recent market-wide pullbacks—amid strong earnings improvements. The firm is projected to finish its current fiscal year with earnings growth of 70% and has a long-term expected growth rate of 19.5%. Veeva is also generating cash flow growth in excess of 86.6% currently.
2. Attunity Ltd.
Attunity is a provider of software solutions that enable access, management, sharing, and distribution of data across enterprise platforms and the Cloud. Simply put, Attunity customers have real-time access to a plethora of data and information whenever it’s needed. The firm works closely with trusted cloud leaders like AWS, Cloudera and Microsoft.
ATTU is sporting a Zacks Rank #1 (Strong Buy). The reason for this strong rank is a number of recent positive earnings estimate revisions. These bullish revisions have pushed the Zacks Consensus Estimate for ATTU’s current year EPS to 45 cents from 26 cents, while next year’s consensus has moved to 56 cents from 32 cents.
Part of this has to do with Attunity’s most recent quarter, in which the firm delivered earnings of 20 cents per share against estimates of just three cents. Now, current-year growth estimates are calling for revenue and earnings to improve by 35% and 550%, respectively.
3. Nice Ltd.
Nice is one of the largest tech companies in Israel, which has quickly become a hotbed for innovation in the industry. The firm makes enterprise software solutions, including cloud solutions, used for customer engagement, compliance, and security purposes. Notably, it offers cloud products that host contact centers, provide analytics, and manage artificial intelligence applications.
NICE sports a Zacks Rank #1 (Strong Buy) and has held up quite nicely during this stretch of selling. The stock is just 6% below its peak and looks poised to make new highs on the back of fresh earnings and revenue growth. Plus, rising earnings estimates have caused significant P/E contraction. On a forward 12-month basis, NICE is trading at just 21.5x earnings, its lowest valuation in over a year.
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