For Immediate Release
Chicago, IL – August 7, 2019 – Zacks Equity Research Interactive Corp (IAC - Free Report) as the Bull of the Day, Barclays PLC (BCS - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Amazon (AMZN - Free Report) , Disney (DIS - Free Report) and Fortinet, Inc. (FTNT - Free Report) .
Here is a synopsis of all six stocks:
Bull of the Day:
The broad market indexes have been in free fall since last week’s announcement that the Trump administration would impose 10% tariffs on $300 billion worth of Chinese imports. The potential effects are wide ranging for any company that depends on trade with China, Chinese-sourced components or even the foreign exchange markets as the Chinese government allows the Yuan to trade lower in order to keep the prices of its goods competitive.
All selling is not created equal however, and many companies with little or no exposure to the trade war have seen significant declines even though their results are unlikely to be materially affected. In a “risk-off” environment, often the baby is thrown out with the bathwater.
Interactive Corp is one of those stocks. Heading into their quarterly earnings report on Wednesday, there’s no reason to believe the global economic conditions will hinder the company’s performance. IAC has beat the Zacks Consensus Earnings Estimate during the past six consecutive quarters.
Back in May of 2018, shares of Match Group and its majority owner Interactive Corporation took a major hit when Facebook announced that they would be developing their own dating app which was expected to eviscerate Match’s share of the online dating market. The concept certainly made sense at the time – if Facebook users were able to easily convert the profiles they had already created into dating resumes, demand for Match.com - and it’s most popular product Tinder - could dry up.
But it hasn’t happened yet and Match Group majority owner Interactive Corporation continues to turn in outstanding results.
Though Interactive Corp was unequivocally bold in explaining that they were comfortable with their 20+ year head start in the internet dating game, investors threw in the towel, expecting that Facebook - with a market cap north of $500B and 2 billion active monthly users - would soon dominate dating the same way it had dominated social media.
Thanks to full year 2019 estimates that have risen from $4.22/share to $4.80/share in the last 90 days, IAC earns a Zacks Rank #1 (Strong Buy).
Founded in 1995, Match Group and its flagship product Match.com are far and away the biggest household names in online dating. Growing both organically and through acquisitions, the group now encompasses popular sites and apps across a broad spectrum of potential daters. Match group has 7 million subscribers worldwide and 3 million of them use Tinder - the most profitable segment of Match Group’s business for advertising.
Though Tinder is the most recognizable name in the IAC portfolio, they also operate multiple smaller services aimed at a vast range of dating preferences, broken down by age, race, ethnicity, religion and even political beliefs.
Match Group, while an independent public company, is mostly owned by Interactive Corp, which holds 81% of the economic value and 97% of the voting rights in Match. Originally formed as a television media company, IAC owns approximately 150 brands across a wide swath of media - primarily internet sites. Though many are household names – like Dictionary.com, Investopedia and Angie’s List - IAC is most closely associated with the Match Group because Match contributes as much as 40% of IAC’s revenue and more than half of EBITDA, in any given quarter.
Importantly, with a negligible amount of total revenues coming from the Asia Pacific region and no products sold that are subject to tariffs, IAC looks to be well-insulated from the dicey global economic headwinds that are weighing on the major indices. Now looks to be a good opportunity to take advantage of the indiscriminate selling during the past few trading sessions and pick up IAC shares on sale as we approach Q2 earnings.
Bear of the Day:
Last Wednesday, The Board of the US Federal Reserve cut the Fed Funds target rate by 25 basis points in the face of the continued threats to global growth they see on the horizon. Thanks to sluggish growth in Europe and an escalating trade war dispute between the US and China, traders and investors expect another cut at the September meeting and Fed Funds futures at the CME currently imply a 65% chance of a 25 basis point cut and a 35% chance of a 50 basis point reduction.
In general, interest rate cuts are a positive development for businesses because they reduce the cost of borrowing and make capital investments less expensive, but there’s one specific class of business that suffers when rates are low – financial lending institutions.
London-based Barclays PLC is one such institution that is finding the current interest rate climate difficult.
The most recent management commentary on Barclays financial results contains numerous references to the “challenging” environment.
While the short-term rates in the US are at historically low levels, they remain in positive territory, while European Central bank rates are effectively zero, and longer-term debt markets in Europe aren’t much higher. Thanks to a massive undertaking of quantitative easing, European government bond yields remain well below their US equivalents.
Low rates decimate profits at lending institutions because they reduce the spread between borrowing and lending rates to uncomfortably low levels.
During 2019, Barclays shares have badly lagged the performance of the foreign banks sub-industry and the S&P 500, falling 6% versus gains of 3% and more than 15%, respectively.
Quite admirably, Barclays management has focused on cost cutting and operational efficiency and in the long term, those moves might pay off, but it’s not a plan for growth in the near future. They’re basically treading water. 3,000 layoffs were recently announced this past Spring, even after management vowed that no jobs would be lost.
Certainly, you can’t fault a nimble management team or taking aggressive steps to ensure survival in the worst possible conditions, but jobs cut don’t tend to be an indication of growth prospects. Recent global events make it likely that rates will stay low for the foreseeable future.
Earnings estimates for Barclays have been falling lately, earning the beleaguered bank a Zacks rank #5 (Strong Sell).
Even worse than falling earnings estimates for banks are low marks in Return on Equity, Return on Assets and Return on Capitol and Barclays trail the industry average in each category.
Investors looking for opportunities in the Banking Sector would be better served looking at US regional banks OFG Bancorp or Hilltop Holdings, both Zacks Rank #1s (Strong Buy).
Currency War, Amazon Dips, TTWO Climbs, Disney Earnings & Why Fortinet (FTNT - Free Report) Stock is a Strong Buy: Free Lunch
On today’s episode of Free Lunch here at Zacks, Associate Stock Strategist Ben Rains dives into the escalating trade war between the U.S. and China that turned into a currency fight Monday. The shows then moves onto Amazon’s recent woes, Take-Two Interactive’s major surge, and much more, including a Disney earnings preview.
The Dow and the S&P 500 suffered major downturns Monday after President Trump called China a currency manipulator. The Chinese yuan fell as much as 1.9% to a record offshore low. The U.S. Treasury also labeled China a currency manipulator for the first time in over 20 years. In retaliation, Beijing announced that Chinese companies will suspend U.S. agricultural purchases.
The heightened trade war worries, amid overall global economic uncertainty, could see the Federal Reserve consider more interest rate cuts this year. Meanwhile, Amazon stock has faced its worse downturn in more than a decade over the last week-plus.
Tuesday also saw Take-Two Interactive stock soar nearly 10% after the video game maker impressed Wall Street, even as tech giants such as Google are set to enter the quickly growing gaming market.
All eyes on Wall Street will then turn to Disney after the closing bell, with the company set to report its Q3 fiscal 2019 financial results. But more than its results, investors need to watch for any updates on Disney’s streaming TV push as it prepares to challenge Netflix, Amazon, Apple, and others.
The episode then closes with a look at why cybersecurity firm Fortinet, Inc. is a new Zacks Rank #1 (Strong Buy) stock.
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