For Immediate Release
Chicago, IL – December 26, 2018 – Zacks Equity Research Twitter (TWTR - Free Report) as the Bull of the Day, Six Flags Entertainment (SIX - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Popular, Inc. (BPOP - Free Report) , City Holding Company (CHCO - Free Report) and First Financial Bankshares, Inc. (FFIN - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
The brutal Q4 market correction is making many growth stocks investable again and one of them is Twitter.
Actually, Twitter saw a strong rally off of its October lows after reporting a 50% EPS surprise for Q3, but has slid back over 25% in the six trading sessions up to December 24.
The good news is that the stock held above those October lows just above $26 and should be on growth investor "buy lists" as the market stabilizes.
My colleague Tracey Ryniec chose Twitter for a Bull of the Day feature in November and some of her post-earnings notes are worth reviewing...
Twitter is winning over Wall Street quarter by quarter. This Zacks Rank #1 (Strong Buy) is expected to grow both revenue and earnings by the double digits in both 2018 and 2019.
Twitter operates a social media platform in 40 languages around the world that provides users with updates on what is happening, including breaking news, globally.
Big Earnings Beat in Q3
On Oct 25, Twitter reported its third quarter results and beat the Zacks Consensus Estimate by 7 cents. Earnings were $0.21 versus the consensus of $0.14. That's a beat of 50%.
Revenue rose 29% to $758 million, up from $590 million.
Of that total revenue, most came from advertising revenue which rose 29% to $650 million. Half of the advertising revenue is now coming from the video ad format.
Wall Street is always watching the Daily Active Users count, which fell to 326 million from 335 million in the second quarter but that was mostly the result of the company's policy of purging fake, spam and abusive accounts.
(end of excerpt from Tracey's Nov 14 report)
Social Media Growth That Isn't Fake News
The metrics that jump out to me here, besides the big bottom line beat, are year-over-year revenue growth of 29% -- on pace to break $3 billion this year -- in an environment where social media is under big clouds of political controversy.
If the Twitter platform is having to "self-police" to remove harmful users and accounts, and these kinds of numbers are the damage, large growth investors appear good with that.
While the Zacks Consensus profit estimate for 2018 was bumped up to $0.80 from $0.71 primarily due to the big EPS beat, a majority of analysts joined in moving 2019 EPS up 13% from $0.78 to $0.88.
That's earnings growth of just 10.5% over 2018, a phenomenal year when the company really opened the profit valves with over 80% bottom line growth.
But with revenues expected to advance nearly 15% to $3.43 billion next year, the funnel at the top is still offering plenty of opportunities for monetization.
Bear of the Day:
Six Flags Entertainment has 17 amusement parks across the United States, and one each in Mexico and Canada, with world-class coasters, family rides for all ages, up-close animal encounters and thrilling water parks.
Word is that they also have new locations coming soon in Zhejiang, China, Dubai, UAE, and Riyadh, Saudi Arabia. And stealing a page from the book of Disney theme parks, Six Flags holds long-term licenses for Warner Bros. and DC Comics characters, including Bugs Bunny, Daffy Duck, Tweety Bird, Yosemite Sam, Batman, and Superman. Additionally, the company has certain rights to use the Hanna-Barbera and Cartoon Network characters, including Yogi Bear, Scooby-Doo, The Flintstones and others.
But when the company released Q3 results in late October, investors were disappointed enough to gap the stock down over 15% from $62 to $52.
Quarterly EPS of $2.16 per share missed the Zacks Consensus Estimate of $2.32 per share, and only represented year-over-year growth of 2.4% vs $2.11 last year at this time. These figures are adjusted for non-recurring items.
This showing represented a negative earnings surprise of -6.90%. A quarter ago, it was expected that the amusement park operator would post earnings of $0.93 per share when it actually produced earnings of $0.88, delivering a negative surprise of -5.38%.
Six Flags posted revenues of $619.82 million for the quarter ended September 2018, missing the Zacks Consensus Estimate by 2.09%. This compares to year-ago revenues of $580.42 million. The company has topped consensus revenue estimates three times over the last four quarters.
Six Flags Still a Short?
SIX belongs to the Zacks Leisure and Recreation Services industry, which currently ranks in the top third of all Zacks Industries.
The company also pays a generous dividend of $3.28, which currently represents a 6.46% yield.
This yield became richer on Christmas Eve when shares made a new 52-week low near $50.
On December 14, I identified the stock as a high-probability short candidate around $60 after shares had closed the Oct 23 gap down and put in a lower high. My first target was $52 (near the Oct lows) and my second target was $48, site of the 2017 lows.
So with that strong yield and 15-20% gains for short players since earnings, is it time for shorts to close the trade or do new lows suggest a trip to $48?
One key indicator may be the duration of the stock's time in the Zacks "penalty box." SIX first became a Zacks #4 Rank (Sell) in early October before their earnings report, as analysts were lowering EPS estimates into the quarterly report.
Then it slipped to the cellar of the Zacks Rank with a #5 Strong Sell rating after their report, as the analysts delivered a stronger verdict about the declining growth trajectory.
Now SIX is slowly climbing out of the cellar with a move back to a #4 Rank as older estimate revisions roll off of the model's calculation, which looks only at a 60-day window of analysts changes.
3 Banks Ready to Continue Their Winning Ways in 2019
The banking industry seems to have been benefiting the most from the interest rate hikes this year. Year 2018 has seen four Fed rate hikes so far, the latest one being announced last week. Moreover, this is the ninth rate hike since December 2015.
Notably, banks derive benefits from a steep yield curve i.e. when long-term rates are greater than short-term rates. This is because, when short-term rates rise (to which deposits are tied), banks can charge more on loans (to which long-term rates are tied) if long-term rates are higher than short-term ones.
This helps in expanding net interest income, as well as net interest margins, for banks. Moreover, rising rates reflect an improving domestic economy as it implies that the credit quality is improving, which is beneficial for banks' profitability.
Therefore, while the recent inversion of the yield curve, which is also perceived as an early indication of an impending recession, might temporarily be bad news for banks, the banking industry as a whole is expected to still benefit from these rate hikes going into 2019, given that the Fed now plans two hikes next year as opposed to three.
In addition to this, the Tax Cut & Jobs Act, which helped banks improve their corporate earnings in 2018, is expected to aid earnings growth in the coming few quarters.
Further, given the expectation for potential lesser regulations, banks are expected to gain in the future. If the central bank’s latest proposal to significantly raise the threshold for SIFI to $250 billion in assets from the current $50 billion gets implemented, compliance costs will come down and banks will be able to utilize the freed-up capital to generate more revenues.
Additionally, the steps toward easing regulations related to the Volcker Rule are a positive for banks as it will no longer prohibit them from conducting proprietary trading.
Thus, while the uncertainty related to the U.S.-China trade war and other global issues might have a negative impact on the overall finance sector in 2019, bank stocks are expected to continue to benefit from the rise in rates as well as potential lesser regulations.
Selecting 2019 Bank Stock Winners
Based on strong fundamentals and solid earnings growth prospects, we have shortlisted stocks that are expected to continue their winning streak in 2019.
For this, we have taken the help of the Zacks Stock Screener to choose stocks that have a market cap of more than $100 million and currently carry a Zacks Rank #1 (Strong Buy) or #2 (Buy). Our research shows that stocks with a Zacks Rank #1 or 2 offer the best investment options. You can see the complete list of today’s Zacks #1 Rank stocks here.
Further, these stocks have handily outperformed the S&P 500 Index so far in 2018.
Here are the three bank stocks that meet the criteria:
Popular, Inc.’s shares have gained 29.4% year to date against 9.6% decline for the S&P 500 Index. With a market cap of $4.61 billion, the company provides retail, mortgage, and commercial banking products and services. The stock currently has a Zacks Rank of 2.
The company’s Zacks Consensus Estimate for 2019 earnings has been revised 1.7% upward over the past 60 days.
City Holding Company also has a Zacks Rank of 2 at present. It has a market cap of $1.06 billion, and provides banking, trust and investment management, and other financial solutions in the United States. The stock has gained 2.4% year to date against 9.6% decline recorded by the S&P 500 Index.
Over the past 60 days, its earnings estimates for 2019 have been revised nearly 1% upward.
First Financial Bankshares, Inc. provides commercial banking products and services, and has a market cap of $3.68 billion. The company’s shares have gained 20.7% year to date against 9.6% decline of the S&P 500 Index. The stock currently carries a Zacks Rank #2.
Over the past 60 days, its Zacks Consensus Estimate for 2019 earnings has remained unchanged.
In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?
These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>
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