For Immediate Release
Chicago, IL – October 15, 2019 – Zacks Equity Research Shares of Skechers (SKX - Free Report) as the Bull of the Day, The Children’s Place (PLCE - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Netflix (NFLX - Free Report) , Apple (AAPL - Free Report) and Disney (DIS - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
If you’re out there cheering for Phase 1 of the US-China trade deal, you are not alone. The relief rally on the news has stocks pushing up towards all-time highs again. There is plenty of optimism to go around, but that doesn’t mean you should just blindly jump in and buy everything that moves. Rather, you can lean on the power of the Zacks Rank to find you stocks with strong earnings trends which are likely to continue to benefit from the surging market. One such stock is today’s Bull of the Day Skechers.
Skechers designs, develops, markets, and distributes footwear for men, women, and children; and performance footwear for men and women under the Skechers GO brand worldwide. It operates through three segments: Domestic Wholesale Sales, International Wholesale Sales, and Retail Sales. The company offers casual boots, shoes, and sandals for men; shoes, oxfords and slip-ons, lug outsole and fashion boots, and casual sandals for women; dress casuals, seasonal sandals and boots, classic and wide fit, and relaxed fit casuals for men and women; and casual athletic line for men and women under the Skechers USA brand.
Skechers is currently a Zacks Rank #1 (Strong Buy). The reason for the top ranking lies in a series of earnings estimate revisions to the upside. Over the last sixty days, analysts have been increasing their earnings estimates on the company. That bullish behavior has pushed up the Zacks Consensus Estimate for the current year from $2.03 to $2.25. Next year’s number has also increased, up from $2.26 to $2.53.
That move in estimates is likely the cause for the stock to come so strong off its 200-day moving average. Since breaking down to that important technical level in late August, the stock is up from a low of $29.01 to over $36 where it trades today. That’s a 25% upside move in less than two months.
Bear of the Day:
I understand the rally following Phase 1 of the US-China deal. Markets had been pricing in a chance that no deal gets done. That caused stocks to become oversold, betting against a deal and showing odds of a continued global slowdown. Good news is, those fears are subsiding and now we are seeing a bit of a relief rally. That doesn’t mean that investors should throw caution to the wind. In fact, there are more traps than ever being sprung in a market like this. If you’re looking to keep the odds in your favor, the Zacks Rank is a good place to start. Stocks with favorable Zacks Ranks have very strong underlying earnings trends which can help them continue to march higher. Stocks with lower Zacks Ranks have weaker or even negative earnings trends which could weigh on price in any market.
One such stock to be cautious of is today’s Bear of the Day, The Children’s Place. The Children's Place, Inc. operates as a children's specialty apparel retailer. The company operates through two segments, The Children's Place U.S. and The Children's Place International. It sells apparel, footwear, accessories, and other items for children; and designs, contracts to manufacture, and sells merchandise under the proprietary The Children's Place, Place, and Baby Place brand names. As of February 2, 2019, the company operated 972 stores in the United States, Canada, and Puerto Rico; and 217 international points of distribution operated by its 8 franchise partners in 20 countries.
While the Retail – Apparel and Shoes industry is in the Top 26% of our Zacks Industry Rank, The Children’s Place is currently a Zacks Rank #5 (Strong Sell). The reason for the unfavorable ranking is the flurry of negative earnings estimate revisions. Over the last sixty days, five analysts have cut their earnings estimates for the current year and next year. The negative revisions have cut our Current Year Zacks Consensus Estimates from $6.17 down to $5.62. Next year’s number has come down from $8.40 to $7.71.
On a positive note, while the current year consensus reflects an earnings contraction of 16.74%, next year’s EPS estimates are currently baking in earnings growth of 37.15%. If the stock can get through this initial rough patch, there could be plenty of upside action in the distant future.
Netflix's Final Earnings Before Next Wave of Competition
Netflix has fallen off its high horse over the past 3 months of trading. Shares have fallen a sizable 22% since its disappointing 2nd quarter earnings. In the face of an increasingly competitive streaming space, the video streaming king demonstrated a domestic subscription decline and a sizable deceleration in international subscription growth. Analysts have been driving their estimates down and pushed NFLX into a Zacks Rank #4 (Sell).
Netflix has the chance to redeem investor faith in its forthcoming 3rd quarter earning expected Wednesday, October 16th.
NFLX has historically been a big mover on quarterly earnings releases with the last 6 reports causing an average price action of 6.3% (3 up, 3 down). Analysts have big expectations for Wednesday’s announcement, with Zacks Consensus estimates quoting an EPS of $1.05 on $5.25 billion in revenue. This would demonstrate year-over-year growth of 18% and 31%, respectively, and would mark the firm’s best financial quarter to date.
The metric that is going to drive the stock one way or the other is subscription growth. Analysts are projecting 802,000 additional subscribers domestically and 6.2 million additional subscribers internationally. A miss on this metric will weigh negatively on NFLX’s share price.
Competition in the Space
The video streaming market is on fire, and the smoke is only going to thicken as competition saturates the industry. Apple and Disney both have subscription-based streaming services on the verge of release, creating a threatening market environment for industry pioneer Netflix.
Disney is releasing Disney+ November 12th, and it is going to shake up the streaming space. Disney will have a massive library of over 500 of your favorite movie titles (with 100 of them being straight from theaters) and more 7,500 TV episodes, in the first year of its release. All of your favorite movie Pixar classics, Star Wars Trilogies and even the beloved Marvel movies will be available at launch. Disney is also launching a handful of anticipated series that should grab subscriber attention.
Disney is pulling all of its content off of Netflix and pricing its “must-have” streaming subscription at $6.99 (or an annual fee of $69.99), almost half of Netflix’s comparable package. Disney has an enormous library of nearly a century of quality original content, and its recent acquisition of 21st Century Fox added another vast layer of exclusive content. Disney’s streaming service will undoubtedly be a threat to Netflix.
Apple will be releasing Apple TV+ November 1st and it will undercut the pricing of every other streaming service in the market at $4.99 per month. Apple rarely short sells its consumer base and has held a high-quality standard that has become synonymous with the brand. I expect that this upcoming subscription streaming service will hold the same quality standards.
Apple has an ostensibly unending cash pile to attract the best in class Hollywood talent. World-renowned director Steven Spielberg is working on an exclusive WWII series for Apple. Jennifer Aniston, Reese Witherspoon, and Steve Carrell will be staring in another exclusive series for the streaming service. There is already a long list of anticipated shows ready for the launch of Apple TV+, and the list continues to grow.
Disney+ and Apple TV+ will both be released internationally next month, and both of these brands hold substantial global clout. I believe that these two brands create a significant threat to Netflix’s global positioning.
Disney’s movie titles are known around the world, with many international box-office hits. When an international consumer is deciding on a streaming service, they are going to consider familiar titles and price point. I would think that Disney+ is the clear winner when those are the two factors going into the choice.
This week’s earnings report is going to be crucial to Netflix’s positioning before another enormous wave of competition enters the space. NFLX needs to see robust subscription growth globally. International subscribers are the primary growth driver for this firm, and the entrance of Apple and Disney could be hazardous for NFLX.
Wednesday after the bell, keep an eye out for Netflix’s subscriber growth and management’s guidance as these will be the primary catalysts of a share price move.
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