For Immediate Release
Chicago, IL – March 14, 2019 – Zacks Equity Research Abercrombie and Fitch (ANF - Free Report) as the Bull of the Day, Cars.com (CARS - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Health Insurance Innovations, Inc. , Aflac Inc. (AFL - Free Report) and Torchmark Corp. .
Here is a synopsis of all five stocks:
Bull of the Day:
Abercrombie and Fitch is in the midst of a successful reinvention.
You don’t have to be too old to remember the days when the Abercrombie image consisted of attractive young models spritzing fragrances on passerby in front of nightclub-themed mall stores. Though the strategy seems dated now – how many mall shoppers want to be accosted by a shirtless guy with a bottle of perfume? – it actually worked well for a while and Abercrombie became one of the world’s most popular brands of clothing and accessories for teens and young adults.
By 2014, management at Abercrombie astutely realized that they were going to need a new strategy in order to continue to appeal to the notoriously fickle tastes of younger consumers. The result is a new digital approach that uses a diverse set of media outlets to support the company’s brands and styles and keep them relevant to their target audiences and also provides a convenient and easy way for those consumers to buy goods directly from the company.
The Brand Strategy
ANF operates three separate brands – Abercrombie and Fitch for the 21-24 age group, Hollister for teens and college students and Abercrombie Kids, targeting consumers from 7-14 (or their parents.)
The new strategy involves closing underperforming retail locations and remodeling existing locations to utilize a smaller footprint. It also emphasizes direct-to-consumer sales through the company’s digital “omni-channel,” which was designed to create a best-in-class customer experience while simultaneously growing profitability.
Abercrombie closed 29 stores in 2018 and plans to shutter 40 more in 2019. In most cases, store closures happen when a poorly performing outlet reaches the end of its current lease, greatly reducing the cost of shuttering locations.
Approximately 50% of existing store leases expire within the next three years, providing the company flexibility in their decisions to keep or close individual stores.
The new marketing effort focuses heavily on internet and social media channels and a reduced presence in traditional media. The company uses “influencers” on Twitter, Instagram and other platforms and recently produced an original Television series for YouTube. Broadcast on their “Awesomeness TV” channel, “The Carpe Life” features appealing glimpses of teen life while subtly including the companies wares.
After a difficult stretch in 2016 that was highlighted by four consecutive earnings misses due to slow sales and rising expenses, Abercrombie has been on a tear ever since, surpassing the Zacks Consensus Earnings Estimate eight consecutive times, highlighted by a 20% beat in the first quarter of 2019.
Net Q1 earnings at Abercrombie were $1.35/share versus an expected $1.12/share. Revenues were $1.16B, slightly topping estimates of $1.13B. The earnings improvement was largely the result of the cost saving of operating fewer retail locations and selling more product online. Roughly a third of sales occur through the online portal.
Same-store sales increased for a sixth straight quarter – a predictable outcome given the closure of low-performing retail locations. Full year Store Operating Expenses across the company in 2018 were $629M, a significant reduction from 2017’s $659M.
Abercrombie’s guidance for 2019 prompted an immediate runup in the shares, which rallied 20% the day following the Q1 report.
The company expects net sales to increase 2-4%, same-store sales up “low single digits,” and gross profit to continue to increase.
Analyst expectations for the coming two years increased almost immediately after the Q1 report. The Zacks Consensus Estimate for full year 2019 has risen 42% since before the most recent report and the estimate for 2020 is up almost 100%.
Bear of the Day:
A study by consumer automobile website Edmunds.com found that Americans rate “buying a car” more stressful than “getting married.”
What if you could buy a car with all the features you desire from the comfort of your own home? You’d get a low, no-haggle price and all the help you need with delivery and service, but without ever setting foot in a traditional dealership or talking to a salesman.
Well that’s happening, slowly but surely, but Cars.com is not going to help you.
Though the name promises a high tech alternative to the traditional dealership model, the reality leaves much to be desired. Cars.com doesn’t sell (or buy) automobiles. They function as an intermediary between buyers and sellers - and most often the sellersare dealers.
Through its recently acquired Dealer Inspire business, the company promises a faster and easier buying process, but the sellers are still traditional dealers – albeit in sheep’s clothing.
Automakers would love to eliminate their independent dealer networks and sell direct to consumers, but numerous roadblocks have been erected over the past 100 years or so. Archaic state laws that were originally intended to protect small independent dealerships from predatory practices by manufacturers now have essentially the opposite effect, allowing well-capitalized dealer ownership groups to stand in the way of the progress desired by both automakers and consumers.
When Tesla began selling cars directly to consumers, it wasn’t other manufacturers who objected, it was dealer networks who feared the imminent demise of their cash cows. Tesla didn’t have a legacy of restrictive contracts with dealers to keep it from selling its own autos, but – even after protracted legal battles and many victories – the company remains prohibited or restricted from selling its own vehicles in 6 US states.
It’s nothing less than an assault on the free market and it takes money out of the pockets ofconsumers and automakers alike to enrich politically connected fat-cat auto dealers.
Luckily, it looks like it’s finally coming to an end.
Automakers are preparing for a sea change in the way we buy and use automobiles and it’s not likely to involve dealer networks. Ride-sharing is already taking a big bite out of ownership figures, especially younger people, and autonomous vehicles will do the same.
Manufacturers are also experimenting with subscription services that allow consumers to drive the vehicle of their choice and make trades without ever actually taking ownership of a car. Private businesses like Flexdrive, Carma and Clutch offer similar services.
Selling advertising for auto dealers is a business with a limited future and Cars.com’s recent earnings estimate revisions exemplify the concept.
In the past 30 days, the Zacks Consensus Earnings Estimates for 2019 and 2020 have fallen 25% and 20%, respectively. Those negative revisions earn Cars.com a Zacks Rank #5 (Strong Sell).
Cars.com gets a Style score of “D” in both Value and Growth and an “F” in Momentum. It’s total VGM score is also a “D.”
That's almost the worst report card we offer at Zacks.
Health Insurance Up 24% in a Year: Will the Rally Continue?
Health Insurance Innovations, Inc. shares have gained 24.2% in a year against the industry's decrease of 11.2%. The Zacks S&P 500 composite recorded a gain of a meagre 0.8%. With a market capitalization of nearly $573 million, average volume of shares traded in the last three months was 1.1 million.
Reasons Behind the Rally
The company delivered a positive earnings surprise in all the four reported quarters of 2018 with the average beat being 9.02%.
Higher revenues helped the company deliver solid results. Revenues improved 40%. Policies in force improved 2.9% over the same time frame. The bottom line increased 55.7% year over year in 2018.
Its return on equity was 31.1%, much higher than the industry average of 9.5%. Health Insurance Innovations also boasts a solid debt free balance sheet. Its sturdy cash flow supported the completion of the initial $50 million stock buyback.
Banking on operational strength, management projects 2019 revenues in the range of $430-$440 million, translating to 22-25% growth year over year. Adjusted EBITDA is expected between $72 million and $77 million, up 21-30% increase over 2017. Adjusted earnings per share are projected between $3.20 and $3.35, up 23-29% over 2017.
Why the Bull Run Should Continue
Health Insurance Innovations is well poised to capitalize on the growing demand for affordable health insurance solutions. Also, the company is focusing more on longer duration products with significantly higher lifetime value.
The company thus believes successful strategic shift toward higher lifetime value plans and e-commerce will favorably impact results.
Also, The Department of Health and Human Services of the U.S. government implemented a rule on Oct 2, 2018 that changed the maximum duration of short-term medical policies to less than one year from the present duration of less than three months. Also, the rule allows more affordable health insurance options. The company expects to gain from favorable regulatory outcomes.
Health Insurance Innovations currently sports a Zacks Rank #1 (Strong Buy). With optimism surrounding the stock’s healthy performance, the Zacks Consensus Estimate for 2019 and 2020 has moved 3% and 6.1% higher, respectively, in the past 30 days.
Health Insurance Innovation belongs to the Zacks Life Insurance industry, which is currently in the top 25% of the Zacks Industry Rank.
The stock carries a favorable VGM Score of A. This helps to identify stocks with the most attractive value, best growth rate and solid momentum.
The Zacks Consensus Estimate for earnings and revenues indicates year-over-year improvement of 47.2% and 18.3%, respectively for 2019. For 2020, earnings and revenues are estimated to increase 14.2% and 5.6%, respectively year over year. The stock carries an impressive Growth Score of A. This style score analyzes the growth prospects of a company. Back-tested results show that stocks with Growth Scores of A or B when combined with Zacks Rank of 1 or 2 offer the best upside potential.
Other Stocks to Consider
Investors interested in insurers can look at Aflac Inc. and Torchmark Corp.
Aflac provides voluntary supplemental health and life insurance products. It came up with a four-quarter average positive earnings surprise of 7.50%. It carries a Zacks Rank #2. You can seethe complete list of today’s Zacks #1 Rank stocks here.
Arch Capital Group provides property, casualty and mortgage insurance and reinsurance products worldwide. The company delivered positive surprise in all the last four reported quarters, with the average being 14.72%. The company has a Zacks Rank of 1.
Torchmark provides various life and health insurance products and annuities in the United States, Canada and New Zealand. It came up with a four-quarter average positive earnings surprise of 2.00%. It carries a Zacks Rank #2.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
See Stocks Today >>
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