For Immediate Release
Chicago, IL – January 21, 2019 – Zacks Equity Research Rollins, Inc (ROL - Free Report) as the Bull of the Day, Skyworks Solutions (SWKS - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Marvell Technology Group Ltd. (MRVL - Free Report) , STMicroelectronics N.V. (STM - Free Report) and Verizon Communications Inc. (VZ - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
It’s well-known in small-business circles that the least glamorous businesses are often the most profitable for their owners. High-profile vanity projects tend to have the most competition and the weakest margins, while businesses that provide goods and services that consumers need, but don’t necessarily want to think about often stand on the firmest financial footing.
The same is also true when making investment decisions in large public companies. While exciting technology often gets the headlines, companies in less visible industries can silently rack up the profits.
Rollins, Inc is best known to American consumers as the parent of household-name Orkin Pest Control which operates 400 locations on 6 continents.It's less commonly known that Rollins also operates 17 other wholly owned subsidiaries that provide pest and vermin control services and products worldwide. In all, Rollins businesses serve more than 2 million customers.
Rollins’ strategy has been to grow both organically and through acquisitions and the company remains on the lookout for outstanding performers in the industry as potential targets. A strong balance sheet with over $100M in cash and no long term debt means they are in a position to capitalize on opportunities as they occur.
In addition to traditional ant and roach control type household services, Rollins’ companies offer a wide range of solutions to households and businesses in wildlife management, termite eradication, fumigants for the food and commodity industries and even preventative pest-control products incorporated by homebuilders into new construction projects.
Over the past year in what has been a challenging environment for many stocks, Rollins shares are up 21% versus a decline of 6% for the S&P 500.
Pest control is a naturally defensive industry – customers who are suffering an infestation tend not to be particularly sensitive to the business cycle when seeking solutions. With its global footprint and a basically even split between residential and commercial customer revenues, Rollins has been steadily growing revenues year after year.
As you might expect from a leader in a “boring” industry, earnings at Rollins have grown at a predictable 12% annualized rate over the past 5 years and in the vast majority of quarters over that period, the company has delivered a modest beat of the Zacks Consensus Earnings Estimate. In the three quarters in which they missed expectations, it has been by negligible amounts.
When Rollins reports Q4 results on January 23rd, the consensus estimate is for net earnings of $0.17/share, which would bring full year earnings to $0.73/share – a 25% increase over 2017. Modest yet positive upward revisions for 2018 and 2019 earn the company a Zacks rank #1 (Strong Buy).
Obviously, it can be difficult to get excited about stocks in an industry as pedestrian as pest control, but there’s nothing boring about owning a recession-resistant company that churns out the profits quarter after quarter, year after year. The investments that threaten to put you to sleep when you read about them also allow you to sleep easy at night.
Bear of the Day:
As far as technological innovations go, the iPhone has to go down as one of the most popular – and many would say one of the most significant – of all time. As a combination of the creative genius of the late Steve Jobs and the engineering prowess of Apple’s formidable R&D team, the iPhone literally redefined what the world thought a cellular phone could do.
Apple sold just 11.6 million iPhones in 2008 – the first full year it was available - but sales quickly picked up speed and by 2015 they were selling more than 231 million a year. Though sales eased slightly to 218 million in 2018, newer versions of the iPhone sell for significantly higher prices than earlier models, keeping revenues up. The suppliers who make components for the iPhone (as well as Android-powered competitors) also enjoyed huge success over that decade.
Early in 2019, Apple cut its current revenue guidance, citing weakening iPhone demand in China. That didn’t come as a total surprise however, because Apple’s suppliers had already been offering their own reductions in guidance for months. While none of those suppliers mentioned Apple by name, analysts had already deduced that the only customer with the order volume to affect supplier results so significantly was Apple.
Skyworks Solutions subsequently issued its own reduced guidance for fiscal Q1 revenues and earnings. Citing “unit weakness across our largest smartphone customers,” CEO Liam Griffin said revenues would be approximately $970M, down from previous guidance of $1-1.02B and net earnings would be in a range of $1.81-1.84/share, lower than the expected $1.91/share.
Skyworks does not publicly report sales by customer, but given the amount of the company’s hardware that is in each phone, analysts believe that sales to Apple amount to 35-40% of total revenues and that sales of iPhones in China alone represent more than 7%.
Skyworks shares fell to a 52-week low of $60.72/share after the Apple announcement, but have recovered significantly even after Skyworks own warnings. Presumably, the market was expecting even worse. Because the reduction in guidance was issued after close of business for the quarter in question, it’s fairly unlikely that we’ll see a surprise in either direction when audited results are issues on February 5th, and analyst consensus is slightly above Skyworks’ own guidance at $1.85/share on $975M in revs.
Full year estimates for Skyworks have seen ten analyst downward revisions in the past 30 days, reducing the consensus from $7.27/share to $6.92 and earning Skyworks a Zacks Rank #5 (Strong Sell).
If the US and China reach a trade agreement and the Chinese economy picks back up again, smartphone component manufacturers will likely see improved results and share prices will recover. Those are big “ifs,” however.
3 “Internet of Things” Stocks to Buy Now
Tech stocks have been unpredictable lately, but there are a number of new secular trends which investors are looking to remain exposed to in the long-term. Of these, easily the most exciting for certain semiconductor companies, gadget makers, and telecom firms is the Internet of Things.
For those that don’t know, the Internet of Things is the growing world of interconnected household and industrial devices. Everyday products and machines can now be embedded with sensor technology to process data or interact with other electronic devices.
For example, consumer-level IoT products include things like Amazon’s Echo “smart speaker,” wearable motion and activity tracking products, and advanced in-car technology. On the commercial side of the IoT market, industrial manufacturers have begun implementing sensors into machines to track performance and efficiency.
(Also Read: How to Invest in the "Internet of Things")
The obvious play here for investors is semiconductor stocks, as chipmakers should be able to benefit from the growth of connected devices. But chip stocks have been sluggish recently. Wall Street is projecting an end to the extended cycle of strength for the industry, and investors are worried about headwinds such as demand and pricing.
Still, there is room for niche semiconductor firms to maintain their growth as the Internet of Things continues to blossom. And there are other ways to profit from IoT growth by maintaining a focus on other pieces of the technology that helps the network function.
With that said, we’ve found three stocks which have been flagged by the Zacks Rank that could be poised for further IoT growth soon.
1. Marvell Technology Group Ltd.
Marvell Technology is a leading designer, developer and supplier of mixed-signal and digital signal processing integrated circuits. The company’s “EZ-Connect” platform is used by a variety of global customers in the home automation, wearables, automotive, and industrial industries. MRVL is currently a Zacks Rank #1 (Strong Buy).
Marvell offers direct exposure to several IoT-adjacent markets, is comfortably profitable, and looks to have already turned the corner of the “peak-to-trough” process hitting semi stocks at the end of their growth cycles. EPS growth is expected to finish at 5% for the fiscal year ending this month, and that’s projected to take back off again to the tune of 16% in the upcoming year.
The stock has a PEG ratio of 1.41, so you’re getting a good price for that EPS growth. Moreover, Marvell is seeing remarkable revenue growth. Sales will likely improve more than 31% in the next two quarters. Full-year revenue for the next fiscal year is expected to surge 16%, and that’s on top of 21% growth this year.
2. STMicroelectronics N.V.
STMicroelectronics is a French-Italian semiconductors company. It develops circuits and discretes that are used in microelectronic devices. STM specifically markets its tiny, low-power technology for use in a wide range of Internet of Things products. Shares are holding a #1 (Strong Buy) and look to have found a supportive bottom after pulling back for much of the past year.
The stock has already surged nearly 20% from its 52-week low, and the value case is still easy to make. STM is trading at just 10.5x earnings, which is a steep discount to the industry’s 13x. It also has a reasonable P/S of 1.3. This is also something with long-term growth potential, as analysts have its annualized EPS growth rate over the next three to five years pegged at 5% right now.
3. Verizon Communications Inc.
Moving away from the chip stocks, Verizon is also a solid, stable option for IoT and 5G exposure. You might be seeing headlines recently about the telecom giant’s rivals launching their first 5G networks, but Verizon would kindly remind you that it was first to market with the new standard. This is a large part of the reason Verizon has one of the more exciting growth opportunities among the major telecoms.
Full-year earnings growth in the current fiscal year is expected to reach 25%, with long-term annualized growth projected at 4%. The stock is still relatively cheap at just 11.9x earnings. Income investors also love its 4.2% dividend yield.
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