For Immediate Release
Chicago, IL – May 2, 2019 – Zacks Equity Research highlights Ford (F - Free Report) as the Bull of the Day and American Airlines (AAL - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Qualcomm (QCOM - Free Report) and Fitbit (FIT - Free Report) .
Here is a synopsis of all four stocks:
Bull of the Day:
Ford has come a long way since the American auto-industry almost failed in March of 2009. They have achieved steadily increasing revenues growing on an annual average of 3.6% since 2009. In Q1 this growth was illustrated yet again beating their estimated EPS by almost 70% representing growth Y/Y, which analysts were not expecting. Yearly EPS estimates just went from negative for 2019 and 2020 to positive as analysts recognize operational excellence in America’s oldest automotive company.
In their most recent quarter, Ford grew both its SUV and truck businesses increasing sales by 5 and 4.1% Y/Y respectively. These two segments are the bread and butter of Ford, making up over 80% of the vehicles sold. Fords smaller cars underperformed the rest of the portfolio losing 23% YoY. The F-Series truck remains Fords highest performing vehicle and continues to gain market share with the closest competitor delivering 95K fewer trucks this quarter, expanding this margin by 16K trucks from Q1 last year. With oil prices down over 15% from their high in Q4, consumers are feeling more confident about buying larger cars. Ford struggled international losing market share in every market outside the US and an overall negative EBIT. Luckily 70% of their revenue and over 100% of EBIT comes from North America where they were actually able to gain market share and improve margins.
Future of Ford
Ford is always looking forward as a firm and has a large research and innovation center in Silicon Valley with over 160 top researcher, engineers, and scientists. They are making the connection between automotive and computer technology a priority. Electric and autonomous cars will be the future of the automotive industry and Ford is dedicated to being a front runner in this race. They plan on having a fully autonomous car available to the public by 2021. Ford says it will launch 40 electric cars by 2022 for global consumers.
Ford has been reducing the number of vehicle platforms they use in order to achieve larger economies to scale. They currently have 9 car platforms one-third of what they had in 2007 and are going to reduce this to 5 moving forward. This will cut manufacturing costs as well as make it easier for Ford to pivot to consumer needs and get vehicles to market faster.
Currently, F is trading at a discount for all major valuation metrics. Ford is valued at 8.44x forward P/E compared to the broader auto industry trading on average at 10.18x. They are trading at less than half of the industries average P/S and P/B. Ford is rewarding investors with a 5.74% dividend yield far above the 3% industry average.
Ford is trading at $10.30, still 22% off of its high last year and is likely to bust through last year’s high if these favorable economic conditions continue. One concern with any automotive company is that they are incredibly cyclical and are directly correlated with consumer discretionary spending. If the economy turns south, people will not be buying as many cars and this will have a materially negative effect on Ford’s profits. Looking just at analysts’ outlook for F I am very optimistic about its future, especially with the discount it is currently trading at and the 5.74% dividend to curb investors’ concerns. F - Zacks Rank #1 (Strong Buy).
Bear of the Day:
American Airlines is down almost 20% over the past 52-weeks and analysts continue to adjust earnings downward. Over the past 90 days AAL 2019 earnings have been adjusted down by 9%, and 2020 EPS estimates have been adjusted down 8% in the same time frame. The most accurate analysts have estimates even lower than the consensus. The current outlook for AAL looks grim pushing it into Zacks Rank #5 (Strong Sell).
Reasons to Sell
American Airlines currently has 24 Boeing 737 MAX planes making up 2% of its fleet, the second most in the US behind Southwest. The Boeing MAX is currently grounded until August when they will reassess this timeline and likely add another 3-9 months until these planes can fly again. American Airlines will likely have a 1% loss in capacity, according to management guidance, until 2020. This may not sound like a lot, but when you take into account the efficient margins that the MAX was expected to bring to the table the impact is multiplied.
Rising oil prices are the most substantial concern for any airline, with it being their largest variable cost. Oil is up over 30% this year so far and could continue. OPEC agreed to cut 1.2 million BPD in supply, turmoil in Venezuela is killing their oil production and Iran oil sanctions is going to be pulling over 1 million BPD off the market starting tomorrow. Oil prices are subject to continue to increase if these supply concerns aren't fully priced in. This increase will have a materially adverse effect on American Airline’s bottom line.
What concerns me most about this stock is its negative earnings growth. American Airlines has had consistent to growing revenue since 2015 but has lost almost 70% on its bottom line in the past 3 years with margins falling drastically.
Reasons to Hold
American Airlines has substantially underperformed the market & the airline industry, but this stock may be oversold. Currently, AAL is trading at a P/E of 6.23x significantly below the industry average of 10.36x. Price to sales and price to cash-flow are also both considerably below the industry average. Unfortunately, AAL has all the momentum pushing it down. This downward momentum is subject to continue with the negatively adjusted guidance and oil price increases but look to buy AAL below $30. From the analyst reports that I have examined many of them are setting a long term price target of $41. I wouldn’t short this stock but watch it continue to fall and maybe buy on an upswing.
Qualcomm (QCOM - Free Report) Beats, Investors Sell the News
Qualcomm posts its first quarterly report since its settlement with Apple (AAPL) had been announced on IP rights and usage, and the company beat estimates on both top and bottom lines after the closing bell Wednesday. Earnings of 77 cents per share surpassed the 71 cents in the Zacks consensus, on revenues of $4.98 billion which easily outpaced the expected $4.8 billion.
The earnings beat is nothing new for Qualcomm, which has not missed in any quarter since the reconfiguration of Zacks earnings data (calendar Q2 2015), with a trailing 4-quarter average of +19%. And the IP deal with Apple — bringing an end to litigation between the two companies, along with Apple licensing Qualcomm’s chips for 6 years, likely for use with Apple’s coming 5G iPhone — happened in early April, after Qualcomm’s fiscal Q2 had concluded.
Qualcomm did indicate an expected gain from the deal in its fiscal Q3 of $4.5-4.7 billion, indicated to be a GAAP payment. Shares, which had taken off like a rocket on the Apple deal announcement a month ago, are selling the news in late trading, down 4.3%.
Fitbit also outperformed expectations in its Q1 report also released Wednesday afternoon: -15 cents per share was better than the -22 cents analysts were looking for. Revenues of $272 million easily topped the consensus $259.88 million. But Q2 guidance on the bottom line was worse than current estimates, while they remained in-line with current top-line consensus. Devices sold grew 36%, but Average Selling Price fell 19%. Shares are trading up 1.8% in after-hours.
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