For Immediate Release
Chicago, IL – November 1, 2019 – Zacks Equity Research Realogy (RLGY - Free Report) as the Bull of the Day, Berry Global (BERY - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Under Armour (UAA - Free Report) , Lululemon (LULU - Free Report) and VF Corp (VFC - Free Report) .
Here is a synopsis of all four stocks:
Bull of the Day:
Realogyis a Zacks Rank #1 (Strong Buy) and is going to be reporting next week. The stock is a little lower today, but here is the rub, the Federal Reserve just cut interest rates again and that means consumers have more spending power ... at least they do when it comes to buying a new home.
Lower rates mean lower payments and that means more people can afford new or better homes. RLGY is positioned to benefit from this as they own a host of brands that serve the real estate market. Coldwell Banker and Century 21 are two of the more recognizable brands in the mix.
Right now, RLGY is a Zacks Rank #1 (Strong Buy) and let's explore why that is in this Bull of the Day article.
Realogy Holdings Corp. is a provider of real estate services. The Company through its subsidiaries provides real estate brokerage services, relocation services, and title and settlement services. The Company's brands and business units include Better Homes and Gardens(R) Real Estate, CENTURY 21(R), Coldwell Banker(R), Coldwell Banker Commercial(R), The Corcoran Group(R), ERA(R), Sotheby's International Realty(R), NRT LLC, Cartus and Title Resource Group. Realogy Holdings Corp. is headquartered in Parsippany, New Jersey.
RLGY has a subpar earnings history. This is clearly not the reason the stock is a Zacks Rank #1 (Strong Buy). It has met the Zacks Consensus Estimate in each of the last two reports, but prior to that it missed two times as well. We have seen much better in terms of beating the number.
The Zacks Rank care most about the movement in earnings estimates and RLGY has a lot of positive earnings estimate momentum.
I see increases for this quarter, next quarter, this year and next year.
The Zacks Rank focuses more on the full year, so over the last 60 day the number for 2019 moving from $1.04 to $1.08 is what we want to see. The 2020 number has moved from $1.20 to $1.29 over the same time horizon.
Value players will love this stock as it trades at just under 8x forward earnings and a price to book of 0.43x. Growth is slowing for RLGY, but the stock looks to have bottomed and is bracing for home buying and selling demand to increase with the lower rates.
Bear of the Day:
Berry Globalis a Zacks Rank #5 (Strong Sell) as estimates fell substantially following recent earnings miss. The stock is now the Bear of the Day, so let's take a look at what happened here.
Berry Global Group, Inc. manufactures and distributes nonwoven specialty materials, engineered materials and consumer packaging products in the market. The company services personal care, healthcare as well as beverage and food markets in South America, North America, Asia and Europe. This Evansville, IN-based company was formerly known as Berry Plastics Group, Inc, but changed its official name to Berry Global Group, Inc in April 2017. The company employs around 24,000 people globally.
The earnings history here is not the worst I have ever seen, but it is not the best. I see two misses in the last two reports and before that there were two beats. The misses, however, are bigger than the beats on a percentage basis and that makes the average surprise a negative 4% over the last four quarters.
Esimates are dropping in a big way for this stock. I see the current quarter moving from $0.90 to $0.74 over the last 90 days. The next quarter also has seen a move lower from $0.82 to $0.70 over the same time horizon.
The Zacks Rank pays the most attention to annual numbers and over the last 60 days we have seen the 2019 number move from $3.41 to $3.25. The 2020 number has slipped from $4.28 to $3.82 over that same time period.
Growth is slowing here, with the top line contracting 6.5% over the last year. That has brought the valuation down to very reasonable levels, with a forward PE of 11x and a price to sale of 0.7x. The price to book at 3.6x is still a little high for me, but if this company can get margins to move higher that should take care of itself.
Under Armour is set to report its third quarter results Monday, November 4, before the opening bell. The athleisure company has seen its shares rise 16.8% in 2019 thus far, outperforming the broader apparel market’s 11.7% run.
The apparel giant is in the middle of a restructuring plan that was implemented to help the company stimulate its stagnant growth as well as cut costs and reduce inventory levels. The company also recently announced that founder and CEO, Kevin Plank, would be stepping down from the chief executive position and Patrik Frisk would be taking his place on January 1, 2020.
Under Armour’s Issues Mount
The shakeup on the executive level comes as Under Armour has been struggling to compete with athleisure rivals like Lululemon. Patrik Frisk spent nearly three decades working in the apparel, footwear, and retail industries, and has been Under Armour's president and chief operating officer since 2017. Prior to joining UAA, Frisk held various positions at VF Corp, where he oversaw outdoor brands like North Face, Timberland, JanSport, Lucy and SmartWool.
When Frisk joined Under Armour, the company’s growth had decelerated, so he helped launch a multi-year restructuring plan that is now in its third year. The company faces an uphill battle to get its business in a position to better compete with the industry titans. Revenue at its core North American market, which accounted for 69% of its top line last quarter, has fallen annually for four straight quarters. It expects that dismal performance to continue with a "slight decline" in revenue for the full year.
The company is also spending an alarming amount on endorsement deals for high profile athletes. Under Armour had originally thought that greater scale and better brand awareness should reduce reliance on celebrity spokespeople and big spending but they haven't. Under Armour's selling and administrative expenses amounted for 42% of the brand's total revenue, versus Nike's comparable figure of 32%.
Apart from Under Armour’s mounting selling expenses, Frisk is also tasked with rebuilding the apparel giant’s corporate culture. Under Armour’s corporate culture was accused of culminating a male dominant and misogynistic work environment. The company has also had many executives step down for unknown reasons, which is another worrying sign coming from the firm’s corporate level.
Kevin Plank’s refusal to compete with Lululemon in the booming athleisure market reflects the potential lack of confidence in the business’ ability to compete for market share in the athleisure space. The refusal to diversify its business away from the saturated footwear and athletic apparel market left many people confused considering the rate at which the athleisure market is growing. Plank stated that they would rather focus on its performance products, but many investors believe that Under Armour just isn’t in a position to even attempt to compete against Lulu’s pricing power and brand loyalty.
Our Q3 consensus estimates forecast Under Armour to see a 28% drop in earnings to $0.18 per share while sales slip 2.43% to $1.41 billion. North American revenue is projected to come in at $1.04 billion for a 2.17% decline. Apparel sales are expected to grow 9.75% to $1.07 billion and footwear sales are estimated to fall 7.23% to $264.2 million. Fiscal 2019 figures estimate the firm’s bottom-line to see a 25.93% hike to $0.34 per share on the back of a 3.14% pop in net sales to $5.36 billion.
The company was in need of a rebuilding effort as it has seen its revenue growth decelerate dramatically over the past five years. Frisk is tasked with reshaping the company and fixing its current image problems.
Declining revenue in the North American market is a major headwind that Frisk must also address as well as sustaining the business’ international growth, which will be vital if the company truly wants to focus on its performance products. A new CEO at the helm is a step in the right direction, but Frisk will have his work cut out for him for years to come. Under Armour sits at a Zacks Rank #3 (Hold).
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