For Immediate Release
Chicago, IL – November 26, 2019 –
Zacks Equity Research NVIDIA ( NVDA Quick Quote NVDA - Free Report) as the Bull of the Day, Greenbrier Companies GBX as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Uber UBER, Amazon AMZN and Apple AAPL.
Here is a synopsis of all five stocks:
Bull of the Day : NVIDIAis back with a vengeance on all those analysts and investors who wrote off the gaming chip and crypto mining juggernaut.
As if recent upward estimate revisions and a 21% rally from October 1 through last week weren't enough, on Monday Morgan Stanley upgraded shares to Overweight from Equal Weight, as the bank sees the stock deserving to move even higher in 2020.
Analyst Joseph Moore raised his price target on NVDA from $217 to $259, citing a revival in both Gaming and Data Center segment performance after strong investments made in 2019.
Moore described his team's recent Cloud research that indicates the inflection in "conversational AI" is real and that new NVIDIA products in the data center arena are expected to fortify the elite chip-maker's competitive advantage.
Return to Growth
NVIDIA reported their Q3 FY 2020 (ended Oct 31) on November 14 and delivered top and bottom line beats of ~5% and 13%, respectively. Revenues of $3.01 billion declined 5.2% year over year but rose 16.9% sequentially.
Gross profit margin of 64% was 180 basis points above consensus while operating margin of 38.4% was 210bps above consensus.
My favorite semiconductor analyst, William Stein of SunTrust, commented in a November 15 research note that NVDA's improving Data Center outlook in Q4 only "hints" at what's to come in 2020...
"Management's commentary aligns with our proprietary industry contacts that reflect a significant re-acceleration in datacenter next year."
Stein maintains his long-term positive view on NVIDIA fundamentals, including its superior positioning in gaming, server acceleration/AI, and eventually autonomous driving opportunities. He believes that NVDA still deserves a structural growth multiple of 30X EPS, and this valuation is still a 10-point discount to its high-growth peers.
With next year's consensus EPS rising to $7.21, not including the Mellanox (acquisition), Stein raised his price target to $240 from $216.
Revenues at the GPU Business fell 7.1% year over year to $2.57 billion. However, on a sequential basis, segment revenues grew 21.9%.
Tegra Processor Business revenues were $449 million, up 10.3% on a year-over-year basis but down 5.5% sequentially.
On the basis of market platform, Gaming revenues were down 6% on a year-over-year basis to $1.66 billion due to decreased shipments of GeForce desktop GPUs. However, the same was up 26.4% sequentially, backed by strong growth in GeForce desktop and notebook GPUs.
Meanwhile, revenues from Data Center deteriorated 8.3% year over year to $726 million. The decline reflects lower enterprise revenues due to an unfavorable product mix and decreased DGX sales. This was partially offset by an increase in Hyperscale demand, which sequentially drove revenues by 10.8%.
Record Revenues on the Horizon
Before this report, it looked as though FY20 NVIDIA sales and profits would both see double-digit declines. With management guidance for Q4 (ends January) of $2.95 billion on the top line -- for 34% yoy growth -- the company is expected to hit just over $10.75 billion for the year, representing just an 8% drop.
And based on analyst optimism about NVIDIA's core markets, FY21 estimates are now eyeing record revenues of $12.86B for 19.4% growth.
The bottom line rise from $5.56, a 16% decline, to over $7 would represent a nearly 30% EPS advance.
The king of AI has indeed returned to strong growth. And the stock price has been racing ahead for all those chasing who missed their chance near $150.
So shares are back to trading over 10X next year's sales. This may not be the best spot to initiate new longs, but pullbacks to $200-210 will be bought aggressively by technology investors.
Bear of the Day: Greenbrier Companiesis back in the cellar of the Zacks Rank after reporting quarterly earnings last month of $1.31 per share, missing the Zacks Consensus Estimate of $1.38 per share. This compares to earnings of $0.80 per share a year ago.
Greenbrier, which belongs to the Zacks Transportation-Equipment and Leasing industry, posted revenues of $914.25 million for its Q4 FY19 (ended August), missing the Zacks Consensus Estimate by 5%. This compares to year-ago revenues of $689.21 million.
While GBX has struggled to meet EPS estimates in the past year, the company has topped consensus revenue estimates two times over the last four quarters.
In the prior quarter, it was expected that this maker of railroad freight car equipment would post earnings of $0.96 per share when it actually produced earnings of $0.89, delivering a surprise of -7.29%.
In July, my colleague Tracey Ryniec wrote about GBX as the Bear of the Day after that earnings miss. After the ensuing downward estimate revisions from analysts, GBX shares subsequently fell 21% from $28 to $22. Here's what Tracey observed at the time...
The Greenbrier Companies recently gave disappointing guidance as the railcar market remains in flux. This Zacks Rank #5 (Strong Sell) is expected to see a double digit earnings decline in fiscal 2019.
Greenbrier is a supplier to the global freight transportation markets. It designs, builds and markets freight railcars and marine barges in North America. In Europe, Greenbrier Europe operates as an end-to-end freight railcar manufacturer, engineer and repair business with operations in Poland, Romania and Turkey.
It's also the leading provider of freight railcar wheel services, parts, repair and refurbishment and retrofitting services in North America and owns a lease fleet of 8,900 railcars and performs management services for 374,000 railcars.
A Miss in the Fiscal Third Quarter
On July 2, Greenbrier reported its fiscal third quarter results and missed on the Zacks Consensus Estimate by 7 cents.
Earnings were $0.89 versus the consensus of $0.96.
It saw record quarterly revenue of $856.2 million.
During the quarter, it received orders for 6,500 diversified railcars, valued at $730 million.
The new railcar backlog as of May 31, 2019, was 26,100 units with an estimated value of $2.74 billion.
So what went wrong?
Fourth Quarter Guidance Below Consensus
While it expected the back half of the fiscal year to be robust, some of that was tempered by the weakness in the repair business and in some international markets as well as the costs of integrating the American Railcar Industries acquisition.
It expects some of the headwinds to become tailwinds, especially in Brazil and Europe, but it still gave a soft fourth quarter forecast.
Greenbrier expects fiscal fourth quarter earnings to be in the range of $1.30 to $1.50. This was well below the consensus so it's not surprising that analysts moved to cut.
Six estimates were cut since the earnings report for the fourth quarter which pushed the Zacks Consensus down to $1.37 from $1.89.
That meant the analysts also had to slash the full year estimates. 8 estimates were cut pushing the full year consensus down to $3.09 from $3.62.
That's a decline of 25.2% as the company made $4.13 in fiscal 2018.
Analysts were also bearish about fiscal 2020 as 6 estimates were cut in the last month.
(end of excerpt from Tracey Ryniec's July report)
Clearly, GBX missed the lowered guidance when it reported for Q4 last month.
And while the current fiscal year which began in September is expected to see revenues grow 12.25% to $3.4 billion, the EPS outlook is for another annual loss of about -3.5%.
Rail transport has surged in the last few years as the economy continues the expansion. But railcar supply and demand dynamics may have peaked in the cycle.
Whether or not we have the data to know that for certain, what we do have is company expected to see continuing decline in profits.
There may be fundamental value in buying GBX in the low $20's but not here, not now. The Zacks Rank will let you know when the real turnaround comes.
What Does It Mean for Uber to Lose Its London License?
Uber shares fell Monday as the ridesharing service lost its operating license in London. The announcement from Transport for London comes as the regulator cited 14,000 instances in late 2018 and early 2019 in which unauthorized drivers were able to use Uber’s software to meet and pick up riders.
The transportation regulator deemed the pattern of Uber’s security failures as a potential safety risk for London commuters and opted to not renew Uber’s license.
London Represents Key Market
London represents a key market that Uber aimed to expand in as it continued its international growth campaign. The ridesharing company reported that it has 3.5 million riders and 45,000 licensed drivers in London.
Uber quickly responded to the regulator’s announcement and stated that the firm plans to appeal the decision. Uber CEO Dara Khosrowshahi stated on his Twitter page that “Over the last 2 years we have fundamentally changed how we operate in London” and that the firm would continue in the appeals process to salvage its London Operations.
Uber will have the opportunity to publicly argue its case in front of a judge. The company will be able to continue its operations in London throughout the appeals process. London is Uber’s biggest European market and it’s a key growth driver outside of the US for the young company. However, Uber has faced increased competition in London from the likes of Estonian start-up Bolt and French rival Kapten.
This isn’t the first time Uber has lost its operating license in the UK capital. In 2017, TfL rejected Uber’s application for a long-term license because of issues including safety and its corporate culture and governance. The regulator pointed to Uber’s use of an app called Greyball, which allows users to evade surveillance by local authorities as one of the reasons for the rejection.
After Uber appealed the decision, a judge overturned TfL’s decision in June 2018 and the company was granted a 15-month license. Uber is the latest tech company to find itself as the subject of regulatory scrutiny as Amazon and Apple have found themselves under regulatory scrutiny in the US.
Uber CEO Attempts to Ease Worries
Uber has been hit with an onslaught of setbacks, from the scrutiny of its corporate governance under Travis Kalanick’s tenure to the recent regulatory restrictions. The company’s stock has struggled to gain any traction, with shares down over 29% since its May IPO. Shares of Uber currently hover about 14% above their all-time low of $25.58.
Perhaps more importantly, Uber’s lock up period following its IPO ended earlier this month and Kalanick sold about 20% of his stake in Uber shortly after. Kalanick sold 20.3 million shares worth about $547 million that were held in a trust, according to an SEC regulatory filing. Additionally, he sold another $164 million worth of stock between November 11 and November 13.
The founder’s large transactions pushed Uber’s stock to an all-time low as it further exacerbated Wall Street’s doubts about the company. However, in a vote of confidence, Dara Khosrowshahi announced that he bought 250,000 shares at a price of $26.75 per share.
Khosrowshahi has ramped up his efforts to improve Uber’s relationship with regulators and as Wall Street. Uber added a new safety tool to its platform that allows users to flag discrimination experienced on a trip, while another tool will send out push notifications in the event that GPS data indicates a car crash may have taken place.
In addition, the CEO’s insider investment comes a few weeks after Uber set a timeline to become profitable on an adjusted EBITDA basis. Uber forecasts that it can generate positive adjusted EBITDA for full-year 2021, as the company continues to better scale its operations and improve its unit economics.
Uber stock has been battered because of regulatory issues and its staggering losses. However, the ridesharing firm’s CEO has helped steer the firm in right direction as his safety efforts and personal investment in the company have helped quell some investor worries.
With the continued safety developments Uber has orchestrated, the company may be able to once again successfully navigate London’s regulations, which will extend its business’ growth runway.
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