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Chegg, The Goodyear Tire & Rubber Company, Lyft and Uber highlighted as Zacks Bull and Bear of the Day

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For Immediate Release

Chicago, IL – August 12, 2019 – Zacks Equity Research Chegg (CHGG - Free Report) as the Bull of the Day, The Goodyear Tire & Rubber Company (GT - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Lyft (LYFT - Free Report) and Uber (UBER - Free Report) .

Here is a synopsis of all four stocks:

Bull of the Day:

Chegg’s phenomenal run over the last three years has seen the e-commerce focused textbook firm climb from roughly $5 a share to over $40. The company is coming off a stronger-than-projected second quarter and its business model, which as expanded, appears strong as students look to save amid rising college tuition.

Chegg’s Pitch

College debt has become a hot topic over the last several years, and some current presidential candidates have offered up various solutions to the problem. But beyond the politics of it all, the facts are startling. College tuition has skyrocketed nearly 1,400% since the late 1970s, which is four times the rate of U.S. inflation. College borrowers now owe over $1.5 trillion in student loans, with more than two million having defaulted in just the past six years.

With the current situation in mind, it seems clear why college students would look for every opportunity to save on everything they can. Textbooks are notoriously overpriced, especially when they are only used for a quarter or a semester. This is where Chegg comes in. At its core, the company’s most basic sales pitch is simple: “Saving broke students one textbook at a time - Save up to 90% on textbooks.”

The Santa Clara, California-headquarter firm allows people to buy, rent, and sell textbooks online. Students can also buy and rent e-books. Plus, Chegg offers study help, tutors, and test prep on everything from math to writing. The firm now runs an online internship search platform and other tools that aim to help college students find jobs.

Price Movement

As we mentioned at the top, CHGG shares have skyrocketed over the last three years, with the company up over 550%, compared to the Computer Software-Services Market's 43% climb and the S&P 500’s 34% jump. Chegg stock is also up nearly 200% in the past 24 months and 53% in 2019. Shares of Chegg currently hover at around $43.50.

Outlook & Earnings Trends

Last quarter, Chegg’s revenue jumped 26% from the prior-year period to reach $93.9 million. The company also saw its services subscribers climb 30% to 2.2 million, with total study content views up 25% to 198 million.

Looking ahead, our current Zacks Consensus Estimates call for the company’s third-quarter 2019 revenue to surge 20.4% to $89.38 million. Meanwhile, fourth quarter sales are projected jump 25.5% to $120.1 million.

Overall 2019 revenue is expected to climb roughly 25% to reach $400.72 million. Peeking further down the road, Chegg’s fiscal 2020 revenue is projected to pop 19.4% above our current year estimate to hit $478.3 million.

At the bottom end of the income statement, CHGG’s adjusted Q3 earnings are projected to soar nearly 43% to $0.10 a share. On top of that, full-year 2019 earnings are expected to climb 42% to $0.78 per share. Then, in 2020, Chegg’s earnings are projected to reach $0.91 a share, which would represent roughly 17% expansion above our current year estimate.

Chegg also boats an impressive history of quarterly earnings beats. The firm posted adjusted Q2 EPS of $0.23, which crushed our $0.15 a share estimate. This positivity helped boost the firm’s average EPS surprise over the trailing four period to 58%.

Better yet, we can see just how positive Chegg’s earnings estimate revision activity has turned since it reported its Q2 results. Investors should take special note of the impressive jumps for fiscal 2019 and 2020.

Bottom Line

The company operates a relatively simple, yet somewhat unique business model, and has managed to thrive even as Amazon (AMZN) slowly eats away at more retail market share. Chegg’s solid earnings revisions trends help the company earn a Zacks Rank #1 (Strong Buy) at the moment. CHGG also boast a “B” grade for Growth in our Style Scores system.

Some of Chegg’s valuations metrics are stretched, which makes since given its stellar run. With that said, CHGG stock certainly appears worth considering at the moment as a growth play.

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Bear of the Day:

Times have been tough for The Goodyear Tire & Rubber Company since the start of 2018. Shares of GT tanked once again following worse-than-expected Q2 2019 earnings results on July 26. So now it’s time to see why Goodyear looks like a stock that investors likely want to shy away from for now.

Quick Q2 Overview  

Goodyear’s adjusted quarterly earnings fell from $0.62 per share in the year-ago period to $0.25 a share in the second quarter. Along with this 60% decline, GT’s earnings fell short of our $0.31 per share estimate. Meanwhile, second quarter sales slipped 5% from a year ago, with tire unit volumes down 4%.

Original equipment unit volume also dropped 11% on lower overall global vehicle production. “While second quarter results were a bit disappointing, with both volume and price and mix below where we wanted to see them, the first half overall was consistent with our expectations,” Goodyear EVP and CFO Darren Wells told analysts on the company’s recent earnings call.

“We knew that a number of macro factors would be working against us through the first half. These included higher raw material costs; a stronger U.S. dollar; weak OE volume, particularly in China and India; and increasing energy and wage inflation in Europe.”

Price Movement

We already mentioned and investors can see that GT stock has been on a significant decline over the last several years. In fact, shares of Goodyear have fallen 60% since August 2018 and have tumbled 40% in 2019 alone. GT shares are now trading at around $12, after resting at nearly $35 per share on January 1, 2018.

Goodyear is of course not alone as the broader Auto-Tires-Trucks Market has slipped as well. But that larger market is at least up 5% so far this year.

Outlook & Earnings Trends

Looking ahead, the Akron, Ohio-based company’s Q3 revenue is projected to slip 1.4% to $3.87 billion, based on our current Zacks Consensus Estimates. Goodyear’s full-year fiscal 2019 sales are expected to fall 2% to $15.16 billion. Despite the small projected downturn, 2020’s revenue looks poised to pop 2% above our current 2019 estimate to match 2018’s total.

The bottom end of the income statement is what appears far worse for the global tire giant. The company’s adjusted third-quarter earnings are projected to tumble roughly 28% to hit $0.49 per share. This expected decline, coupled with its Q2 downturn, is expected to push its full-year fiscal 2019 EPS figure down nearly 33% to $1.56 per share.

Investors should note that Goodyear’s earnings are projected to surge back in 2020, to come in nearly 40% higher than our current-year estimate. However, at $2.18 a share, GT’s adjusted 2020 EPS figure is still projected to fall below the firm’s 2018 levels.

Along with Goodyear’s expected earnings retreat, we can see just how much worse GT’s overall bottom-line expectations have become over the past 30 days. The drop-offs for Q2 and fiscal 2019 have fallen the most. And the company’s overall earnings revision trends tumbled for 2018, 2019, 2020, and 2021.

Bottom Line

Goodyear is a Zacks Rank #5 (Strong Sell) at the moment, based, for the most part, on its negative earnings estimate revision activity. The company also operates in an industry that is headed in the wrong direction. The Rubber – Tires industry currently sits at No. 246, which puts it in the bottom 4% of our 255 Zacks’ industries.

Therefore, investors should look for other options at the moment as no stock ranks above a #3 (Hold) out of this group. Those interested in the broader auto market might consider Zacks #2 (Buy) ranked Fox Factory Holding Corp. (FOXF). Aside from that, this market looks like one to stay away from for the time being, especially as the U.S-China trade war escalates.

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Additional content:

Uber Vs. Lyft: The Battle for Ridesharing Profits

Ride-hailing stocks have taken shareholders for a ride this Q2 earnings season. Lyft drove its value up while Uber posted less than stellar results in this past quarter of operation. The price action of these stocks since Lyft reported Wednesday evening has put into perspective market sentiment about the ridesharing category.

Uber

Uber painted a disappointing picture when they released earnings yesterday evening (July 8th) missing big on both top and bottom lines. This quarter represents the worst loss since the firm began. Granted, the IPO came with significant costs, but Uber is raising overhead faster than it can grow its topline.

This larger than expected Q2 loss has a lot to do with the increasingly saturating competition in the ride-hailing space. Uber has been quickly growing its food delivery service, which expanded over 50% in sales year-over-year. Ridesharing only grew 4% year-over-year as competition has caused the growth of this segment to stall.

Lyft

Lyft wowed investors with a robust beat on both the top and bottom lines accompanied by improved full-year guidance, which initially propelled the stock 8% but broader market volatility has brought that price down. Lyft illustrated that a ridesharing service is able to achieve economies of scale.

Lyft demonstrated a 72% year-over-year revenue growth. Lyft was able to improve their margins significantly from (38%) to (24%), which shattered analysts’ expectations of (34%).

Management is boosting full-year revenue guidance by over 6% from the prior quarter as well as reducing 2019 expected EBITDA deficit by 28%.

I believe that Uber’s underperformance is directly correlated with Lyft’s over performance as Lyft takes market share in this quasi-duopoly.

Performance

The attention-grabbing part about these ridesharing Q2 results was how they have reacted since Lyft’s release. Lyft reported its positive results Wednesday after the bell (July 7th) causing both LYFT and UBER to climb. The next day both stocks opened up over 5%, the interesting part was that UBER kept climbing into the negative earnings that evening and LYFT has been breaking down ever since open yesterday.

Even with UBER’s over 9% gap down this morning following its worse than expected results, it still outperformed LYFT since Thursday morning. UBER is up nearly 1% since Lyft’s report, and LYFT is down over 2.5%. This is a signal to me that investors buying the space are also buying the brand, and today the biggest name in ridesharing is Uber. Lyft’s optimistic forward guidance and results had a larger positive impact on Uber than it did on Lyft. Recent market volatility is playing a role in this as well.

Take Away

Lyft’s better than expected performance this past quarter was a positive sign for the entire ridesharing industry. It demonstrated to the markets that economies of scale are possible to attain in this space. At the end of the day, investors are still more bullish on Uber because of its size, portfolio diversification, and brand recognition.

The biggest concern that other investors and I have is the extent to which Uber’s topline is decelerating. Some analysts are chalking this deceleration up to a temporary pause in consumer adaptation, which will only take a little push for an accelerating topline domino effect to take place.

These stocks still pose a large risk to investors due to their lack of profitability and somewhat unproven business models. Uber and Lyft are both in uncharted and rocky waters that will take investors for ride one way or the other.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>

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