For Immediate Release
Chicago, IL – February 12 2018 – Zacks Equity Research Take-Two Interactive Software, Inc. (TTWO - Free Report) as the Bull of the Day, Las Vegas Sands Corp. (LVS - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Unilever (UN - Free Report) , Rio Tinto (RIO - Free Report) and Celgene (CELG - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Take-Two Interactive Software, Inc. shares have fallen since the firm reported its strong fiscal third-quarter financial results last week. Despite top and bottom-line beats and impressive sales from its newest video game offering, Electronic Arts stoked fears that free-to-play power Fortnite is set to harm the paid-gaming industry. Take-Two’s downturn might, however, set up a solid buying opportunity.
Take-Two crushed top and bottom-line Wall Street estimates last Wednesday and its highly-anticipated sequel to Red Dead Redemption has sold 23 million units since its October 26 launch—to blow past Electronic Arts’ Battlefield V’s just over 7 million copies. Overall, Red Dead Redemption 2, NBA 2K19, Grand Theft Auto Online, and a few other titles helped Take-Two’s net bookings soar 140% from the year-ago quarter to reach $1.569 billion.
Still, shares of TTWO have plummeted roughly 13% since last Tuesday as investors grow worried about the possibility of Fortnite grabbing more mark share. Electronic Arts’ disappointing results, which came out a day before Take-Two, seemed to cause much of the recent industry downturn.
Electronic Arts said that it faced "significant challenges" during the quarter and expects them to continue in the current period. EA CEO Andrew Wilson mentioned competition 13 times on his company’s earnings call, but never directly mentioned Fortnite. “This year, battle royale modes became incredibly popular in shooter games,” Wilson said.
Stock Price Movement
As we touched on briefly already, shares of TTWO have suffered over the last week as Wall Street assess what’s next for the industry amid increased competition from the free-to-play power. Shares of rival publishers Activision Blizzard, Ubisoft and others fell as well last week.
With that said, Take-Two stock has outperformed its peer group, which includes Nintendo, Mattel and some of the firms we have already mentioned, during the last five years. Overall, TTWO shares rest roughly 33% below their 52-week high of $139.91 a share.
Take-Two will have to address concerns about Fortnite, which is owned by privately-held Epic Games. But we should remember that nothing last forever, and the Fortnite fad, which has exploded over the last year, could fizzle out just as quickly as it started. “We continue to have stellar results despite the fact that there are competitive titles in the market, including Fortnite,” CEO Strauss Zelnick said on Take-Two’s earnings call.
“And just by a way of example just to look at the last fiscal year, we had record results for Grand Theft Auto, we had record results for Grand Theft Auto Online and Fortnite was booming. So, there is room for plenty of hits in the marketplace. We've just had stellar third quarter.”
Take-Two also raised its full-year adjusted revenue forecast to between $2.89 billion and $2.94 billion, which did come in below Wall Street estimates of $2.98 billion. Looking ahead to the company’s fiscal fourth quarter, revenues are projected to surge 29.2% from the year-ago period to reach $531.36 million, based on our current Zacks Consensus Estimate. Plus, TTWO’s Q1 fiscal 2020 revenues are expected to soar over 80%.
At the bottom end of the income statement, Take-Two’s adjusted quarterly earnings are projected to soar 52.2% to reach $1.05 a share. Meanwhile, the firm’s first-quarter 2020 EPS figure is expected to skyrocket over 268%.
Investors should note that the company’s earnings picture has turned more negative for the current quarter and Q1 recently. But the company’s full-year 2019 and 2020 earnings picture has turned more positive over the last 30 days, which is a solid sign amid its industry’s Fortnite worries.
Take-Two is currently a Zacks Rank #1 (Strong Buy) based in part on its longer-term earnings revision picture. The company also sports “A” grades for both Growth and Momentum in our Style Scores system.
Let’s also not forget that TTWO stock rests well below its 52-week high and is trading at 23.8X forward 12-month Zacks Earnings Estimates. This marks a discount to Take-Two’s one-year high of 43.9X and its 52-week median of 30.1X and means the stock presents solid value at the moment.
Bear of the Day:
Las Vegas Sands Corp.stock has climbed 4% since it reported its Q4 and fiscal 2018 financial results on January 23. Despite the casino and resort firm’s post-earnings jump, shares of LVS have fallen 17% in the last year as Wall Street’s concerns about the broader industry heat up.
Las Vegas Sands owns The Venetian and The Palazzo resorts in Las Vegas, along with a property in Singapore and multiple properties on the Cotai Strip in Macau. The company has continued to invest in all of its markets and has remained positive about its opportunities in Macau. Las Vegas Sands executives said the firm is moving forward with investments in the many of their operations in Macau.
In Macau, like in Las Vegas, the firm also operates retail businesses and entertainment attractions, which LVS thinks will help it grow in Macau for years to come. But Las Vegas Sands is set to face a possible slowdown in Macau as the broader Chinese economy suffers. Many industry analysts expect the southern Chinese territory, which is currently the world’s largest gambling region, to see revenues fall slightly in 2019 after two years of double-digit growth.
Even the smallest downturn in Macau could hurt casino operators since the region pulled in $37 billion in 2018 against $6.6 billion in Las Vegas. More specially, the region’s high-rollers, which account for nearly half of global gambling revenues, might decrease their spending. But Las Vegas Sands’ portfolio of properties in the area are said to be better positioned than others as they also accommodate more casual gamblers.
Stock Price Movement
As we touched on at the top, shares of LVS are down roughly 17% over the last 12 months, which falls below its peer group’s—which includes MGM Resorts (MGM), Caesars Entertainment (CRV), Wynn Resorts (WYNN), Melco (MLCO), and others—roughly 15% average decline. The S&P 500 has climbed approximately 2% during this stretch.
We can also see that LVS stock has lagged its industry over the last five years. Las Vegas Sands shares closed regular trading up 1.00% to $59.60 a share Monday, which marked a roughly 27% downturn from their 52-week high of $81.45 per share.
Kick the Can Down the Road: Global Week Ahead
In the Global Week Ahead, what should traders make of U.S. trade negotiators in Beijing and a Brexit showdown at the House of Commons?
In short, it’s “kick the can down the road” time for the U.S. and U.K. When one is led by delusional thinking, there can be no stomach for reality.
Psychology Todayhas keen insights into such folk—
“The Delusional Belief is something very important for those who hold them. That is why they are blind to counter-evidence because they do not want to change their belief.
“Delusional reasoning can be described by an over-reliance on instinctive (rapid and non-reflective) thinking and an under-reliance on analytical thinking (deliberative, effortful).”
On we must go. Now, let’s consult our neighbors to the North, for a keen perspective on politics in both the USA and the U.K. On these (analytical) excerpts, I am in agreement.
Here's how Canada’s Scotiabank put the U.S. China trade situation—
“The resumption of the US-China trade negotiations happens, as a top US delegation travels to Beijing on Wednesday and Thursday. Setting a date for a potentially decisive Trump-Xi summit could follow this. That date has been pushed out to sometime after March 1st when the US tariff moratorium expires.
“The most likely scenario is probably for the tariff deadline to be pushed out, in keeping with the observed experiences during NAFTA negotiations when the Trump administration was routinely—if not laughably—too aggressive with its deadlines given the complexity of the negotiations.
“In the end, the expedited timeline resulted in the Trump administration largely caving on its core early demands, leaving NAFTA 2.0 resembling much of NAFTA 1.0.”
Again, a Canadian view on Brexit—another time delay the likely outcome—
“Thursday’s Brexit vote may inform next steps on the path to otherwise crashing out of the EU on March 29th, but as yet they don’t know what they’ll be voting upon! That in itself may indicate that the vote could well be to delay the deadline if not revisit it altogether given the low likelihood of finding a workable solution to the Irish border.”
Let’s move on to Reuters in London’s five big world market themes. These likely dominate the thinking of investors and traders in the Global Week Ahead.
(1) Doves, Doves, Everywhere
It’s just over a week since the U.S. Federal Reserve formally paused its rate-rise campaign but central bankers around the world are falling over themselves to emulate Chair Jerome Powell’s dovish turn.
Australia’s Philip Lowe, having said for a year the next rate move was up, suddenly declared rates could go either way. The European Central Bank can hardly cut its minus 0.40 percent rate but a new round of bank funding stimulus is now widely expected.
The rate cycle has turned across emerging markets, too — India has cut rates for the first time in 18 months; several others including Brazil have hinted at cuts ahead. And upcoming central bank meetings in New Zealand and Sweden are sure to highlight growth concerns.
The shift is showing up on currency markets. The dollar fell in December and January as the Fed pause was priced in. Now it’s everyone else’s turn: the Aussie has lost more than 2 percent since Lowe’s Feb 6 comments; the euro has had its biggest weekly drop in four months and MSCI’s emerging currency index is retreating after rising three months straight. If everyone joins the Fed in the doves camp, the greenback, with the highest interest rates in the G10 group, may resume its ascent. Analysts reckon it has stalled, but only time will tell.
(2) Less than 50 Days to Brexit
Less than 50 days before Britain’s EU departure date, markets’ conviction that a no-deal Brexit will be avoided may be starting to fade.
There is not that much Prime Minister Theresa May can update UK lawmakers on when she addresses them on Feb. 13. This will be followed by debate in parliament where lawmakers can propose changes, known as amendments.
There are signs that going into that session, currency traders are ramping up their cautious bets on the pound.
Shorter-dated risk reversals, ratios of calls to puts on the pound, indicate investors are now more inclined to buy options to protect against a deeper fall in the pound versus the dollar, rather than anticipate big gains.
That demand for puts has also put a floor under implied volatility, a gauge of expected swings in the currency and a key input to option prices. One-month and one-week implied vols, as they are known, have risen in the past week, after falling steadily in January.
That caution has rippled into cash markets. The pound has fallen back below a key technical market level — the 200-day moving average, an indication investors are no longer bullish on the currency’s prospects. In fact, sterling has traded below that average since May 2018, only briefly popping above that in January.
(3) Hard Data on China Trade Out on Thursday
As Chinese markets reopen after the Lunar New Year, they may get more hard evidence on the damage done by the Sino-U.S. trade war.
Data on Thursday is expected to show exports as well as imports contracting, with the latter taking an extra punch from slowing domestic demand.
If March 1 passes without a trade agreement with Washington, Chinese exports to the United States will be subject to additional tariffs. So hopes are pinned on the U.S. trade delegation, which travels to Beijing on Monday, led by Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin. But President Donald Trump has somewhat dampened hopes of a breakthrough, saying he had no plans to meet Chinese President Xi Jinping in the coming month.
If talks collapse and tariffs increase on March 2, it will spell more pain for China’s economy — and the rest of the world. In turn it will increase pressure on Chinese policymakers to ramp up stimulus at next month’s parliamentary summit.
(4) A Recession in Europe?
For months, the question on a lot of people’s lips has been whether the U.S. economy is headed for recession, but it looks like the Eurozone could get there first.
The European Commission shocked markets by slashing growth and inflation forecasts for the bloc. Thursday’s release of the “flash” GDP data is likely to show the region grew 0.2 percent in Q4. Evidence is already piling up that Germany, the bloc’s largest economy, was teetering on the brink of recession towards the end of 2018 due to global trade headwinds and a cooling Chinese economy.
The picture beneath may be even less rosy. German industrial output has fallen for four months straight, reinforcing expectations the economy actually contracted in Q4. That would translate into a recession after GDP fell in the third quarter.
Markets have taken notice. German 10-year bond yields now are just 10 basis points away from zero percent — territory that in bond markets reflects dire concern about economic conditions.
(5) What Did the U.S. Shutdown Cost?
Clouds are gathering on the horizon for the world’s top economy — global growth headwinds and the trade war are taking a toll while another government shutdown may be lurking around the corner.
Markets will be scouring various U.S. consumer and producer inflation data out in the coming days to see just how accommodative the Federal Reserve can be after Chairman Powell said in January the case for raising rates had “weakened.” The Fed’s post-meeting statement had also dropped its earlier expectation for “some further” tightening.
Latest jobs data showed workers’ wage gains dipped slightly on a year-over-year basis, pointing to further reprieve from rate-hike concerns.
The U.S. government has also endured a 35-day government shutdown that ended on Jan. 25, cost the economy at least $3 billion and inflicted hardship on unpaid workers. Lawmakers are resisting President Trump’s demand for funds to build a Mexican border wall. They have until Feb. 15 to find a compromise.
Top Zacks Stocks—
Unilever: With the Eurozone possibly heading into a recession, there should be no surprise this marquee Staples stock is a Zacks VGM score of A.
The Zacks #1 Rank makes it tastier. But only for long-term investors, given the risk-off tone for broad European indexes at the moment.
Rio Tinto: Don’t forget about the surge in iron ore prices, due to the Vale dam collapse. This is an Australian company with a Zacks VGM score of A and a Zacks #1 Rank.
Iron ore stocks like this have been surging on that news.
Celgene:It’s going to get bought by Bristol Myers. But that didn’t stop this Zacks VGM score of A and a Zacks #1 Rank stock from making it on my list.
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