For Immediate Release
Chicago, IL – August 20, 2019 – Zacks Equity Research RingCentral (RNG - Free Report) as the Bull of the Day, Tapestry Inc. (TPR - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on JD.com (JD - Free Report) , DaVita (DVA - Free Report) and Aercap (AER - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Based in San Mateo, CA, RingCentral provides solutions for business communications primarily in the United States. Its products include RingCentral Office, RingCentral Mobile and RingCentral Fax. It provides solutions such as auto-receptionist, flexible extension structure, multiple voicemail boxes, smart call routing, business answering rules, extension dialing, call transfers, and integration with smartphones.
Better-Than-Expected Q2 Earnings
RingCentral’s second quarter results showed nice growth overall, and shares popped 11% after the earnings release.
Adjusted earnings per share increased 11% to 21 cents, easily beating Street estimates; revenues jumped 34% to $215 million, also beating the consensus estimate.
Software subscriptions also saw major growth in Q2, jumping 33% year-over-year to $195 million, while ARR (annualized exit monthly recurring subscriptions) hit $831 million, increasing 32%
In the company’s Q2 earnings press release, Vlad Shumis, founder, chairman, and CEO said “We had another strong quarter. Enterprise continues to drive our growth, benefiting from strong contributions from channel. We also reached a new milestone of 30 seven-digit TCV deals… “We had another strong quarter. Enterprise continues to drive our growth, benefiting from strong contributions from channel. We also reached a new milestone of 30 seven-digit TCV deals.”
Year-to-date, RNG stock is up almost 74%, and shares have risen about 55% over the past 12 months.
Estimates have been rising lately too, pushing the stocks towards a Zacks Rank #1 (Strong Buy).
For the current fiscal year, RingCentral’s earnings growth is expected to remain positive year-over-year. 14 analysts have revised their estimate upwards in the past 60 days, and the Zacks Consensus Estimate has moved five cents higher from 73 cents to 78 cents during the same time frame.
2020 looks pretty strong too, and earnings are expected to grow more than 20%; next year’s consensus estimate sits at 95 cents per share, with eight upward revisions in the last 60 days (though four analysts cut estimates during the same time frame).
Looking ahead, RingCentral boosted its full-year outlook. It now projects revenue to surge 30% from the prior-year period to between $874 million and $877 million, up from prior guidance of $862 million to $866 million.
Earnings outlook is looking up too, and the company now expects its bottom line in the range of $0.77 to $0.79, up from $0.71 to $0.75.
If you’re an investor looking for an internet-software stock to add to your portfolio, make sure to keep RNG on your shortlist.
Bear of the Day:
Tapestry Inc. is a house of modern luxury lifestyle brands. The company's portfolio includes the Coach, Kate Spade New York, and Stuart Weitzman brands.
When the retailer recently reported fiscal fourth-quarter results, investors were disappointed. Shares plunged over 20% by midday that trading day.
Revenues of $1.51 billion were up 2% year-over-year but missed analyst expectations. The Coach brand brought in $1.1 billion, flat from the prior-year period, while Kate Spade popped 6%. Stuart Weitzman brand grew revenue by 17%.
Earnings came in at 61 cents per share, about in line with estimates; adjusted gross margin fell 0.6 percentage points to 67.3%.
"We understand that driving sustainable growth at Coach is essential to the success of Tapestry overall and are proud of the brand's performance, highlighted by seven consecutive quarters of positive comparable store sales,” said CEO Victor Luis.
Because of these results, analysts have turned bearish on Tapestry, with eight cutting estimates in the last 60 days for the current fiscal year. The Zacks Consensus Estimate has dropped 18 cents during that same time period from $2.85 to $2.67 per share.
This sentiment has stretched into 2021, and our consensus estimate has dropped 14 cents in the past two months.
TPR is now a Zacks Rank #5 (Strong Sell).
Looking ahead, Tapestry expects declines in its top and bottom lines, mostly due to new store openings and other business initiatives. Full-year guidance looks pretty good, and the company expects to see improvements in profitability at both Coach and Stuart Weitzman.
Challenges for Monetary Policy: Global Week Ahead
I see three areas of trader focus in the Global Week Ahead.
First, stateside, on the U.S. corporate earnings slate, big-name retailers take center stage.
Major department store earnings continue to disappoint. However, big-box retailers may tell us a different story about retail.
Last week, Walmart surprised investors with strong Q2 earnings. It posted growth in numerous categories. As swaths of U.S. consumer tariffs loom on Sept. 1st and Dec. 15th, Walmart found a preliminary way to deliver strong results.
Big retail names to report this week: Home Depot, Kohl’s, Lowe’s, Target, Nordstrom and Dick’s Sporting Goods.
Traders should look for more clues.
How do these retailers plan to tackle the coming U.S. tariffs, as the self-created U.S. trade war with China rages?
Second, the Fed is in Jackson Hole, Wyoming for its annual summer confab.
This year’s theme, Challenges for Monetary Policy, appears a fitting one. The world’s central banks keep cutting policy rates in a bid to stir macro activity.
A mounting pile of negative-yielding debt — almost $17 trillion — indicates profound gloominess over the state of the world economy.
Some analysts expect no firm commitments from Mr. Powell and for markets.
- Traders currently price an added 65 basis points of Fed cuts this year.
- Others argue we could see yet another pivot — from a Fed that has recently wrong footed investors with its messaging.
“We would expect to see Powell and others use the venue as a platform to attempt to ‘out dove the doves’ and provide sufficient monetary accommodation via the forward guidance channel and stabilize …risk assets.”
-- Ian Lyngen, strategist at BMO Capital Markets, in the Financial Times
Third, inside the global markets last week, turmoil swept Argentine assets.
This followed the shocking defeat of President Mauricio Macri in the primary elections. It raises new fears. The crisis could spread to other emerging markets.
Watch out for that!
Next are Reuters’ five world market themes for the Global Week Ahead. I re-ordered these in importance to equities.
(1) Watch for More Red Flags Signaling U.S. and Global Recessions
Investors have been fretting that the U.S. inverted bond yield curve is pointing to a U.S. recession in the next couple of years, but warning signs pointing to more immediate trouble have been flashing this week elsewhere in the world.
In China, industrial output hit a more than 17-year low in July, highlighting again the damage from the protracted U.S.-China trade dispute.
Europe Inc. is suffering from recession, with profits in the three months to the end of June expected to fall for a second consecutive quarter, while data showed Germany’s economy went into reverse in the second quarter, reinforcing worries about the region’s macro and corporate health.
In another sign of deepening stress in the bloc, stocks in the big European banks plunged on Thursday to their lowest since 2012 at the peak of the Eurozone debt crisis.
They are now on the brink of hitting their lowest since the 1980s as negative rates, stiff regulation and rising costs take their toll.
With bond yields showing no signs of staging a major recovery any time soon, investors will likely remain cautious on the battered banking sector.
(2) Time for ‘Flash’ Manufacturing PMIs
If economists could take any consolation at all from the steadily worsening economic data worldwide, it was that the malaise has appeared confined to manufacturing.
Services, which comprise the bigger part of developed countries’ GDP, has held up pretty well. July numbers, though, were sobering — purchasing managers indexes (PMI), generally a good measure of overall economic health, hinted that factories’ sickness may be spreading.
So advance August PMI readings, due on Thursday, will draw scrutiny, especially with global bond markets flagging a looming economic downturn.
Take the United States. Manufacturing here slowed to a near 10-year low in July, to the neutral 50-mark on the PMI index yet services accelerated to 53, the IHS Markit data showed. But readings from the Institute for Supply Management suggested services were about to take a hit, with new orders hitting three-year lows.
In the Eurozone, a dismal manufacturing print of 46.5 contrasted with services at a relatively robust 53.2. But services were down from June, while composite PMIs that combine both sectors slipped to three-month lows of 51.5.
Globally, manufacturing PMIs are deep in the red, with only services holding the composite print above the 50-mark.
If the upcoming ‘flash’ PMIs confirm that the manufacturing downturn is affecting the services industry, bond markets’ assessment of the economic outlook may be correct.
(3) The Fed Releases Latest Minutes on Wednesday
On Wednesday, the U.S. Federal Reserve releases the minutes of its last meeting, revealing what policymakers said about the flattening Treasury yield curve and the strength of support for July’s quarter-point rate cut.
But given what has transpired in bond and stock markets since that meeting, the more relevant headlines should spring from the Fed’s annual Jackson Hole Symposium later in the week, with Chairman Jerome Powell to address the forum on Friday.
Now that the long-awaited inversion of the two-year/10-year yield curve has actually happened, there is some question whether the Fed will lean harder on the easing side to re-steepen the curve and quash recessionary interpretations.
The Fed looks boxed in. Wall Street has had a torrid few days, having lost more than 4% this month. All Treasury maturities now yield less than 2% for the first time ever.
Then add President Trump’s tweets about “clueless” Powell and the “crazy” inverted yield curve even as Washington’s trade wars dent business confidence.
Meanwhile, strong July retail sales and gangbuster Walmart earnings indicate the economy’s all-powerful consumer is undaunted. That argues against the Fed doing much more.
Still, futures traders see no chance the Fed will stand pat in September, with CME’s FedWatch tool showing about a 67% probability of a 25 basis-point cut and 33% odds for a 50-point cut.
By the end of the year, money markets are 78% positive that the target Fed funds range will be 50-75 basis points lower than the current 2.00-2.25%.
(4) Yen Getting Stronger, Causing Concern
As if Japan’s economy didn’t already have enough headwinds, a rising yen has joined the mix.
The past week’s gyrations in U.S. Treasuries, including a short-lived inversion that whipped up recession fears, plus weaker stock markets, rising volatility and more Trump capriciousness on the trade war with China have sent investors scurrying into the safe havens of gold and the yen.
While Japan’s growth has been picking up ever so slightly, the headwinds from an upcoming sales tax hike, trade tensions with neighbor South Korea and the threat of U.S. tariffs on its auto exports are set to keep consumption and trade weak in the second half of the year.
Next week’s trade data is expected to show exports fell for the eighth month in July, while a Reuters manufacturing sentiment index should reflect rising concerns.
Meanwhile, the Bank of Japan appears helpless as a worldwide decline in bond yields drags its 10-year yield to below the minus 0.2% floor it has set as part of its yield curve control policy, and as the yen rises 3% in a matter of days.
If it really wants to cap the rising yen and put a floor under yields, it needs to stop buying the bonds it mops up as part of its quantitative easing policy. But that would erode its credibility and backfire on the economy.
(5) Italian Prime Minister Addresses Senate Tuesday
Global bond market developments have of late overshadowed Italian political shenanigans, but that may soon change.
Prime Minister Giuseppe Conte addresses the Senate on Tuesday, after it frustrated Deputy Prime Minister Matteo Salvini’s attempt to pull the plug on his coalition with the 5-Star Movement and trigger snap elections.
Meanwhile, 5-Star politicians themselves are discussing forming a coalition with the opposition Democratic Party.
The prospect of election uncertainty had sent Italy’s 10-year bond yield premium above Germany to 239 basis points a week back.
It’s retreated since then to around 200 bps. But if President Sergio Mattarella decides there’s no way of creating a stable government, early elections will be called, probably for late October.
Zacks #1 (STRONG BUY) Rank Stocks –
(A) JD.com:This $37.6B market stock is currently pricing at $31 a share. The share price has been consolidating around this level since April. It may be time for a new share price leg higher (to $45?), in particular, if an announcement of Chinese stimulus arrives this week or next.
The company is a Mainland Chinese e-commerce competitor to Alibaba inside China. I see a Zacks Value score of B and a Zacks Growth score of A.
(B) DaVita: This is a $9.2B market cap U.S. kidney dialysis stock, currently pricing at $58 a share. The Zacks Value score is A and the Growth score is B.
I see another quantitative attraction. The Zacks Industry Rank is a sweet #33 out of 256 (top 13%).
(C) Aercap:This is a huge Netherlands-based aircraft leasing company. Shares are ADRs for U.S. buyers. It has a Zacks Value score of A.
Can stocks with global businesses like this get any “lift” while the rest of Europe suffers? Let’s watch and see if an announcement of a German fiscal stimulus boosts a stock like this, in the days and weeks ahead.
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