For Immediate Release
Chicago, IL – March 5, 2019 – Zacks Equity Research Medifast (MED - Free Report) as the Bull of the Day, Eldorado Resorts Inc (ERI - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Boeing (BA - Free Report) , Starbucks (SBUX - Free Report) and WPP (WPP - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Yesterday’s Bear of the Day detailed some of the difficulties at Weight Watchers, highlighted by a disappointing recent quarterly report.
Today’s Bull of the Day is the other side of that coin.
Weight loss-competitor Medifast just released a sensational quarterly report, increased guidance and has seen enough upward revisions lately to earn a Zacks #1 Rank (Strong Buy).
In an indication of changing consumer preferences, Medifast is attracting new subscribers to a comprehensive health and wellness program that focuses on creating sustainable lifestyle and nutritional changes into their lifestyles - rather than a temporary diet.
Quite a few customers of other weight loss programs have unfortunately found that the results are not permanent and that they quickly fall back into old habits.
Medifast’s flagship brand and product line, OPTAVIA, is sold exclusively through a network of franchised clinics, medical clinics and the company’s own community of independent coaches who market their services in a multi-level marketing structure.
With over 20,000 doctor recommendation and a sales structure that incentivizes ongoing purchases, Medifast has created a positive feedback loop in which satisfied customers become brand ambassadors.
Plans for 2019 include an expansion to Asia-Pacific markets.
In the fourth quarter, Medifast earned $1.30/share, well above the Zacks Consensus Estimate of $1.19/share. Revenues also came in higher than expected at $145.8M versus $142.1M. Full year 2018 earnings were $4.62/share, more than doubling 2017’s net of $2.29/share.
For 2019, the company issued guidance of $6.45 – 6.65/share in earnings and revenues of $700-720M, further increases of 30% and 40%, respectively. Medifast carries Growth and Momentum style scores of “A.”
Company shares appreciated rapidly during the first three quarters of 2018, gaining almost 275% before giving up half of the gains by the end of the year.
In 2019, MED is back on a stable upward trajectory, thanks in part to the fact that at current prices, a recent dividend increase has the stock yielding 2.3% annually – which is very solid income for a stock that also has robust growth potential.
$101M of cash and cash equivalents on the balance sheet should give investors confidence that Medifast is in a position to continue paying the increased dividend.
The weight loss industry will still be pulling in revenues as long as people want to improve their appearance and health, but methods and programs fall in and out of favor. Right now, Medifast is in the driver’s seat with a popular set of options for customers and a corporate sales structure that rewards investors handsomely.
Bear of the Day:
Gaming stocks have had a rough of late with occupancies and gambler visits sliding. Some of the big casino operators are getting a boost in revenues on the island of Macau as the Chinese economy and equity markets heat back up, but solely US companies are still suffering the effects of intense competition.
The slowdown is evident in the latest quarterly report from Eldorado Resorts Inc, the operator of 28 unique properties in 13 US states. Gambling revenues are the main source of revenues at the properties, while accommodations, restaurants, entertainment and other amenities are utilized to attract gaming customers.
Eldorado’s casinos are primarily in smaller markets adjacent to urban centers and nine of its casinos were acquired during an M&A binge in 2018. The total cost was just a hair over $1.2B. In fact, all but 7 of Eldorado’s properties were acquired in the past two years. That also means that total debt at the company increased from $800M at the end of 2016 to $3.26B at the end of 2018.
Eldorado separates its properties into five regions for reporting and four out of the five saw declines in revenues during the fourth quarter of 2018 – West, down 1.7%, Midwest, down 1.9%, Central, down 0.8% and South down 5.9%. Only the East saw an increase in revenues, up 2.8%.
Eldorado also has a long history of missing the Zacks Consensus Earnings Estimate, shown in the Price, Consensus and Surprise chart below as red arrows. ERI shares took a big hit in the second half of 2018, shedding half their value. They recovered sharply in 2019 until the latest miss and the recent rally looks to be in jeopardy.
Time to Pay the Piper? Global Week Ahead
It’s an Anglo childhood story we all know, on the Pied Piper of Hamelin.
To "Pay the Piper" means to face the inevitable consequences of one's actions, possibly alluding to the story where the Hamelin villagers broke their promise to pay the piper for his assistance in ridding their town of its hideous rats.
President Trump’s former economics advisor Gary Cohn thought the Trade Wars held back the U.S. economy’s growth rate. His tax cut play would have worked up better GDP growth without that headwind.
Gary may have been dead wrong on that. The Trade Wars built up a huge quarterly sequence of inventory accumulation numbers last year. These supported GDP growth… LAST year.
Here’s the rub:
Want to know what GDPNow at the Atlanta Fed currently shows for Q1-2019? A paltry +0.3%
Does inventory overshoot inside topline 2018 GDP growth deliver inventory problems in 2019? Will this sideswipe the U.S. economy going forward?
- What’s the broad reality? The economist consensus shows less U.S. GDP growth this year than last. Regardless of trade inventory accumulations.
- Economists offer up a big mouthful — on any accumulation & decumulation phenomenon seen across a period of time. These are ‘an inter-temporal transfer of growth.’
- That low first quarter GDP growth print could also just be a winter number (with added Federal Shutdown issues).
On one point, there is no doubt: partisan political rhetoric will wash around and over this and other quarterly 2019 prints in the pipeline.
We shall see. What actually happens to GDP growth data as the New Year progresses?
In the Global Week Ahead, the U.S. has the leading hand — in terms of supplying global markets with key fundamental data.
- On Friday, Federal nonfarm payrolls, the household unemployment rate and wage growth figures are due out for February.
- In advance of that, the ADP private payrolls get released on Wednesday.
- Advance estimates are at +170K for the ADP and +150K for the Federal counts, respectively.
Next are five big Reuters’ themes.
These are the ones likely to dominate the thinking of investors and traders in the coming Global Week Ahead.
(1) No March 29th Brexit?
It was a bit of a U-turn by UK Prime Minister Theresa May when she signaled readiness to allow Brexit to be delayed a few months beyond the March 29 deadline to ensure Britain doesn’t crash out of the EU without a trade deal.
A “meaningful” vote on the arrangement Theresa May negotiated with Brussels will be held by March 12th in parliament.
And in another U-turn of sorts: opposition leader Jeremy Corbyn has backed holding another referendum, the first time he has endorsed giving voters a chance to change their mind. With no-deal Brexit looking less likely, sterling has posted two straight weeks of one percent-plus gains against the dollar.
So do interest rate rises come back into the equation?
Markets seem to think so — 10-year British government bond yields have risen 15 basis points in the past week. UK inflation is at two-year lows, though Bank of England policymakers have noted rising inflation expectations — one survey shows those at 5-year highs. Wage growth, too, is the fastest in a decade and job creation is strong, possibly as companies cut machinery purchases before Brexit.
So money markets now reckon there is a 62 percent chance of a rate rise by the end of 2019, up from 30 percent in mid-February. Another U-turn?
(2) A China Trade Deal Announced Soon?
He’s walked away from a deal with North Korea, yet no one seriously believes U.S. President Donald Trump will walk away from a trade deal with China, given how much is at stake for the world’s two biggest economies and their leaders.
Chinese stock markets are celebrating both — the news of a delay in higher U.S. import tariffs and hopes that trade talks will bear fruit.
After all, Trump’s economic advisor Larry Kudlow has touted “fantastic” progress on the talks.
For Chinese markets, the calendar is looking busy. Trade aside — and a possible meeting between Trump and Chinese counterpart Xi Jinping — China's parliament kicks off its annual meeting on March 5. Growth-boosting measures such as tax cuts may be rolled out, alongside laws banning forced technology transfer and government "interference" in foreign business practices — a nod to those accusing Beijing of intellectual property theft.
Finally, we will get the latest data slice on the state of China's exports and imports.That should show how much damage the U.S. onslaught has caused so far.
(3) On Thursday, March 7th, Will There Be More ECB Stimulus?
There’s palpable excitement about the prospect of another round of Eurozone stimulus ahead of the ECB’s March 7 meeting.
Most expect the bank to at least drop hints that cheap bank loans are imminent; failure to do so could put European bank stocks and Italian government bonds in the firing line.
But it’s shaping up to be an interesting meeting for other reasons, too. The ECB will release economic projections, a day after the OECD does so. Downward revisions appear likely, given that heavyweight Germany is struggling and Italy is in recession. But with most recent indicators suggesting a growth pick-up later this year, the forecasts may provide a clearer idea of the ECB’s reading on the economy.
The guidance that rates are on hold through the summer is unlikely to change, judging by remarks from future ECB chief economist Philip Lane and Bundesbank chief Jens Weidmann, who is a potential candidate as next ECB head. Investors will be looking for any sense of where the succession question stands. In short, there are great expectations and the risk is they may be disappointed.
(4) Out on Friday, the U.S. Non-Farm Jobs Report
The February employment report, due on Friday March 8, could affirm the Fed’s significant flexibility to be patient with future interest rate hikes.
The U.S. economy continues to add jobs while inflation remains very low. It added 304,000 non-farm payrolls in the first month of 2019, compared to consensus expectations of 165,000. But here’s the rub — average hourly earnings rose just 0.1 percent in January over December, the slowest climb since October 2017. That’s important because hourly earnings are watched as a key inflation gauge.
The Fed's January policy statement noted "muted" inflation pressures. More recently Fed officials say that while it's close to meeting its goals of full employment and 2 percent inflation, rising pay shows no sign of translating into price increases.
(5) Turkey’s Central Bank in Focus
Decision time is coming up at Turkey’s central bank. It’s expected to hold its main interest rate at 24 percent on Wednesday.
But the trajectory in coming months hinges to a high degree on inflation — data on Monday is expected to show February price growth at 19.9 percent, down a touch from January’s 20.35 percent.
With inflation grinding lower as the economy adjusts after last year’s currency crisis, an interest cut is on the cards sooner rather than later.
Adding to the momentum is President Tayyip Erdogan, a vocal supporter of lower interest rates. That’s especially so given Turkey’s local elections are just a month away and support for Erdogan’s AK Party has been eroded by the economic pressures. Pollsters predict that votes in Ankara and Istanbul will be on a knife edge. To ease consumer price pressures, the government has launched the sale of cheap vegetables in both cities.
Investors will be waiting to see if governor Murat Cetinkaya drops any hints on when rate cuts could begin.
Top Zacks Rank Stocks—
Let’s look into ‘fashionable’ stocks this week…
Boeing:How much higher can this DJIA darling stock go? It’s at $440 now. The Zacks Rank is indeed a #1. But The Value score is D. I would look elsewhere. But I am not a momentum chaser.
Starbucks: Here’s another overpriced ‘fashionable’ stock currently on our Zacks #1 Rank list. This one trades at $71 a share. The Zacks Value score is D.
WPP:I don’t see this name on the Zacks #1 Rank list much. It is a global Advertising and Marketing stock with a Market Cap of $13.9B. This also has a Zacks long-term VGM of A. That is very attractive.
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