For Immediate Release
Chicago, IL – May 7, 2019 – Zacks Equity Research Anglogold Ashanti (AU - Free Report) as the Bull of the Day, Anderson Flooring (AFI - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Alphabet (GOOGL - Free Report) , Lyft (LYFT - Free Report) and GrubHub (GRUB - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Those of you that followed the old philosophy of “Shut up and buy the dip” benefited today. After President Trump rocked the market with his strong stance on the China deal, speculators jumped in and pounded the market. Small caps led the way higher, digging out of their early hole and bursting though to highs not seen in weeks. In an environment like that, it’s tough to buck up and buy into the selloff. What if you pick a dud? What if your stock is on the edge of a swirl down the bowl? One way to avoid that potential situation is by buying stocks with great earnings trends. Stocks that have seen earnings estimates from analysts push to the upside. One way of uncovering stocks like this is by leaning on the power of the Zacks Rank.
That Zacks Rank can help you find stock ideas like today’s Bull of the Day Anglogold Ashanti. AngloGold Ashanti Limited operates as a gold mining company. It also produces silver, uranium, and sulphuric acid; and dóre bars. The company operates 14 mines and 3 projects in 10 countries in South Africa, Continental Africa, the Americas, and Australasia. AngloGold Ashanti Limited was incorporated in 1944 and is headquartered in Johannesburg, South Africa.
The reason for the favorable Zacks Rank lies in the series of earnings estimate revisions to the upside. Over the last sixty days, two analysts have increased their earnings estimates for both the current year and next year. The bullish revisions have increased the Zacks Consensus Estimate for the current year from 75 cents to 99 cents while next year’s number has shot up from 69 cents to $1.17. But that really hasn’t shown up in the stock price as the stock has remained under pressure, coming down from highs over $14 to the $11 level.
Bear of the Day:
It looked like curtains for the market early on Monday as traders came in to sell the market following President Trump’s tweet about the China trade deal. Luckily, the market recovered of the lows, with the small caps of the Russell managing to breakeven. You may think that because of that you can just jump in and buy any stock you see. To the contrary, many risks still loom in the market. By avoiding stocks with negative earnings estimate revisions, you can avoid potential pitfalls that lie ahead. One way of finding these stocks is by leaning on the power of the Zacks Rank. Today’s Bear of the Day is one of those stocks that may carry more risk than you’d expect.
Today’s Bear of the4 Day is Zacks Rank #5 (Strong Sell) Anderson Flooring. Armstrong Flooring, Inc., together with its subsidiaries, designs, manufactures, sources, and sells resilient flooring products for use primarily in the construction and renovation of commercial, residential, and institutional buildings in North America and the Pacific Rim. The company sells its products to independent wholesale flooring distributors, retailers, builders, contractors, installers, property management firms, homeowners, and others.
The reason for the unfavorable Zacks Rank lies in the series of recent earnings estimate revisions to the downside. Over the last sixty days, our current year Zacks Consensus Estimate has come down from 53 cents to 26 cents. Next year’s number has dropped from 70 cents to 55 cents. With estimates moving in the wrong direction, investors should make sure they understand the long-term goals of the company.
The Building Products – Wood Industry ranks in the Bottom 16% of our Zacks Industry Rank.
Should You Buy Uber Pre-IPO?
Ride hailing companies are coming of age. Soon after its younger cousin Lyft filed for an IPO, Uber is slated to do likewise.
One can’t help wondering why the company is choosing to go public at a time when the perceived value of its brand seems to be declining and multiple problems appear to be plaguing it. In fact, the risk section of its prospectus is long enough to arouse fear in most.
The primary issues before the company and those that investors must be concerned about include
1. Its ability to recruit and retain drivers without increasing costs significantly
2. Its ability to retain and grow the user base without increasing the fares significantly
3. Its ability to diversify successfully beyond ride sharing into the chosen areas of food delivery, other mobile (escooters and ebikes), trucking/logistics, autonomous driving, etc.
4. Its ability to deal with significant and growing competition in each of its served markets
5. Its ability to generate profits
6. Its ability to stay out of regulatory trouble with respect to anti-competitive behavior, user data (privacy and security) and also improper cash usage in certain developing countries
7. Uber also has the job of undoing its unsafe image and poor corporate culture under former CEO and founder Travis Kalanick who’s still on its board (there is considerable improvement on this front already)
8. In addition, there’s the concern that some early investors might be looking to cash out since Uber’s valuation seems to be falling (and could fall further if Lyft’s fortunes are any indication)
Drivers of several Uber, Lyft and other ride hailing apps in New York, San Francisco, Chicago, Los Angeles, San Diego, Philadelphia and Washington, DC are joining a strike called by the New York Taxi Workers Alliance (NYTWA) for a couple of hours on Wednesday morning. They are seeking job security, living wages and a restriction on the amount ride hailing companies can collect from each fare.
The problem is summed up by an NYTWA member: "Uber claims that we are independent contractors even though they set our rates and control our work day."
Driver dissatisfaction is a big problem that is likely to remain because all employees expect increments even when the value of the services delivered don’t increase. In Uber’s case, some drivers complain that they don’t get paid as much as regular taxicabs, but the law of demand states that this would cause them to quit. In most cases when drivers pull out, it’s because they don’t want to work for incentives. On the other hand, the company needs to lower cost if it is to contain price increases and continue taking share from traditional cabbies.
Dissatisfaction among its 3.9 million drivers is widespread not only in the U.S. but also in other key markets like India.
Lyft reportedly defended its position in an emailed statement: "Over 75% drive less than 10 hours a week to supplement their existing jobs. On average, drivers nationwide earn over $20 per hour." So Lyft’s position seems to be that it doesn’t control the work day as claimed by the NYTWA worker, in which case, fewer drivers will be driven to a strike.
Uber’s S1 indicates that it pays 70-80% of gross bookings to drivers. So unless there’s something seriously wrong with the operating model, drivers shouldn’t be complaining at all.
According to its S1 filing, Uber’s monthly active platform users (MAPC), defined as unique consumers using Ridesharing, New Mobility or Uber Eats services at least once a month averaged quarterly, were 91 million at the end of 2018.
Ridesharing and Uber Eats with 70 million+ and 15 million+ users, respectively, together constitute the “core” platform. User growth continues to grow strongly (at around 34% in 2018, significantly slower than the 51% growth in the prior year).
Users naturally want to pay as little as possible while drivers want to earn as much as possible. This led to the creation/promotion of UberPOOL. Uber started increasing rates on the single passenger rides so more and more people opted for POOL, which was half the cost. Then it started increasing rates on POOL, so they were almost level with normal unshared taxi services.
Getting paid for two or three trips in one (trips grew 37% in 2018 over the 58% increase in the prior year), while not having to figure out where to go since there are now common pick up spots, has been a good deal for drivers, who remain dissatisfied. In the meantime, users are beginning to see that prices go on rising as deliveries drop in value.
UberPOOL still remains a good option for many office goers, so if prices don’t go on increasing, the user base will continue to expand till there is critical mass in many more cities. As Uber says, many of the markets in which it operates are significantly underpenetrated, averaging at around 2%, so there is significant room for growth. Any price hike can only come in areas where it has already attained critical mass.
Of the $11.3 billion Uber generated in 2018, $9.2 billion (81%, up 33% from 2017) came from ridesharing, less than 7% came from Uber Eats (up 149%), around 1% from Uber Freight and the balance from other areas. So while one diversification idea appears to be working out, the others like freight, ebikes and escooters, and particularly autonomous vehicles are still years in the making.
Even the ridesharing business is far from mature since expanding in underpenetrated markets, which appears to be a key growth strategy will require investment in human resources, local knowledge, advertising and technical support among other things.
The S1 says that Eats will require significant further investment, which can be justified by its high growth rate (nearly 168% increase in gross bookings in 2018 over the 2017 level).
Escooters and things are experiments at best now and the company has made some acquisitions and collaborations in the space the benefits of which aren’t evident as of now.
On the other hand, autonomous vehicles are a market the company has to crack, there’s no choice in this. If it has effective automation in driving, it can keep the driver cost in check.
Second, if it doesn’t do this, others like Alphabet’s Waymo are going to get there. Then there’s nothing to stop them from taking over not only the ride sharing business but also other markets like food delivery, trucking etc, totally devouring Uber’s business. Uber may be able to deploy cars from traditional auto makers that incorporate self-driving technology, but Waymo appears to be in the lead.
Uber is primarily a logistics business. It has fleet management software and maps that help it determine how to most profitably deploy vehicles for the transport of people, food or other goods. The growing digitization of our lives has led to a healthy volume of startups and others like Lyft and GrubHub in the space.
Additionally, large technology companies that already possess some of the building blocks like Google’s maps, customer data, and artificial intelligence (AI); and Amazon’s logistics, robotics, customer data and AI also pose challenges.
The company had an operating loss of $3 billion for the year, down from $4.1 billion in 2017. But it intends to invest heavily in expansion of the core business as well as its future growth in freight and autonomous technology and doesn’t expect to see profits in the foreseeable future. Revenue growth slowed significantly from 106% in 2017 to 42% in 2018. If revenue growth continues to decelerate while costs continue to increase, investors may not get a good return on their investment.
Uber has presented a business proposition with significant growth prospects. The company is also in possession of key technologies and has a broad presence in a large number of markets where its services have achieved a certain level of popularity.
At the same time, its road to profitability lacks clarity. In this situation, and given that the company has been in operation for several years already without anything to show in terms of profit or plans of attaining profitability any time in the near future, there is considerable risk in investing in the shares.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Will you retire a millionaire?
One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”
Click to get it free >>
Zacks Investment Research
800-767-3771 ext. 9339
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.