For Immediate Release
Chicago, IL – December 31, 2019 – Zacks Equity Research Shares of The Rubicon Project as the Bull of the Day, Boeing BA asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Tesla, Inc. TSLA, Weichai Power Co. WEICY and SPX Corp. SPXC.
Here is a synopsis of all five stocks:
Bull of the Day:
The Rubicon Project, a leading advertising exchange, has driven its company back to growth after a couple of transitional years. RUBI experienced a substantial reversal since it bottomed out in 2018. These shares have rallied over 390%, following their $1.50 low in Q1 of 2018 (shown below compared to the S&P 500 in red). Analysts are now raising their EPS expectations for this cutting-edge ad exchange following an announced merger with Telaria. This strategic merger has given investors and analysts a renewed sense of enthusiasm for RUBI, propelling this stock into a Zacks Rank #1 (Strong Buy).
The world of advertising is evolving into an industry underlined by digitalization and consolidation. The era of traditional advertising is over, and data-driven, code backed ads are now controlling the space. This has created a significant opportunity for digitalized ad exchanges like The Rubicon Project to help media companies manage and fill their advertising space so that publishers can effectively monetize their content.
Rubicon Project hit a speed bump over the last few years with their late transition from the “waterfall” auction to the header bidding. This pivot in ad bidding evened the playing field for supply-side platforms (SSP), like Rubicon, who all previously competed fiercely for the top positioning in the “waterfall” chain of inventory access. Rubicon was a late adapter of this technology, causing the company and its investors to suffer from RUBI’s high of over $20 in 2016 to its low of $1.50 in 2018.
Today, The Rubicon Project is back on the road of redemption and is positioned to become the leading ad exchange. The change in management in 2017 completely shifted the focus of the company to a progressive model. Rubicon Project purchased nToggle, which streamlined buyers’ bids, and created a more effective platform for the company.
The Rubicon Project just announced it would be merging with Telaria on December 19th. Telaria is a leader in sell-side connected TV advertising and has most recently entered a deal to power Hulu’s (DIS) advertising content, which creates a substantial reliable revenue stream for the business. The combined firm will have excellent financials with no debt on its books and $150 million in cash. Together they brought in $217 million in sales over the last 12 months (through 2019 Q3), and I expect that the added synergies will progress that figure further than the standalone companies could.
Investors and analysts are enthusiastic about this merger with RUBI, rallying 12% since the announcement and TLRA share drove up even further with 16% gains. RUBI is trading at a discount to TLRA with a forward P/S of 2.5x and 5.6x, respectively. There should be more room for shares of The Rubicon Project to run, especially when considering its double-digit topline growth outlook and expected 2020 profitability (as a standalone company).
The Rubicon Project has a great management team headed by Michael Barrett (will maintain his position in the merger) with proven strategies that have brought this company back from the depths of investors’ concerns. Analysts are excited about the merger with Telaria, and so am I. The combined firm will have a diverse portfolio of sell-side ad services that will make it a one-stop-shop for all media platforms to monetize their offerings.
Rubicon + Telaria merger will position the combined company at the helm of the SSP market. The deal is expected to be completed in the first half of 2020.
Bear of the Day:
Boeing has had a rough year, and it seems that the company’s complications continue to progress. The firm has been dealing with the grounding of its best-selling plane following two devastating crashes, sending this once epitome of aerospace and defense into a frenzy. Adverse developments surrounding the 737 MAX calamity have progressively pushed this stock down, and pessimistic analysts have dropped EPS estimates forcing BA down to a Zacks Rank #5 (Strong Sell).
I do not see BA as a long term sell, but these shares have room for further decline due to recent developments. Boeing announced that it would be suspending production of the 737 MAX for January of 2020, pending the FAA’s re-evaluation of the aircraft in February. This aircraft was grounded since its second crash in March of 2019, and analysts are speculating that it has cost the company more than $10 billion. There are more than 5,000 orders of the 737 MAX, but its perpetual grounding makes the present value of these orders gradually fall.
Some litigation concerns are surrounding the 737 MAX’s grounding and production suspension. The grounding is sizably reducing the current and future capacity of airlines that have ordered thousands of these planes. This opens potential litigation concerns that could impact Boeing’s profitability.
Boeing’s coveted CEO Dennis Muilenburg is resigning after 4.5 robust years in his position, driving 170% returns for investors at the helm of the company (more than doubling the S&P 500’s returns). The move to change the company’s image naturally follows the firm’s MAX issues. Muilenburg defended the MAX’s safety following its two fatal crashes, which claimed 346 lives. His initial defense of the MAX after the second crash was the beginning of the end for him. The company stripped Muilenberg of his executive chair position in October and now his CEO position.
This mix up in leadership and foggy future lead me to believe that this stock may have some short-term slippage. Muilenburg is being replaced by David L. Calhoun, who had been appointed executive chair of Boeing’s board back in October.
Despite the firm’s near-term shortfalls, I am still confident that BA is a solid long-term investment once all the negative implications of the 737 MAX calamities are priced in.
Calhoun is a very reputable executive with a resume that warrants his newly appointed position at the helm of Boeing. He was previously the CEO of GE Infrastructure, followed by 8 years as CEO and chairman of Nielsen. He took Nielsen public and was able to produce 80% returns for investors in the roughly 3 years that it was traded with him in leadership.
I am confident than Calhoun’s expertise will bring Boeing out the darkness in the long-term, but its short-term plights leaves downward potential on the table for BA, especially considering the rich multiple it’s trading at.
Tesla (TSLA) Starts Delivery of Model 3 from Gigafactory3 in China
Tesla, Inc.will start delivering Model 3 vehicles built at its Gigafactory3 in Shanghai from today, per Reuters.
Notably, Gigafactory3 is China’s first completely foreign-owned car plant. Tesla started construction of the plant in January and began production in October. The company intends to produce 250,000 vehicles a year after Model Y production is added in the initial phase.
Today the plant will start delivering to customers just 357 days after construction of the factory started, thereby establishing a new record for global automakers in China.
The first 15 customers, who are slated to get their Model 3 cars, are employees of Tesla. Notably, the company wants to start delivering the cars, priced at $50,000 before subsidies, to the public before the start of the China New Year on January 25. The deliveries are not likely to affect Tesla’s financials for the fourth quarter.
The Gigafactory3 in Shanghai has been built as part of Tesla’s plan to boost presence in the world’s largest auto market, China, and reduce the impacts of the U.S.-China trade war.
Tesla treats China differently than anywhere else, with offerings such as showroom parties and racing events. Notably, it is also building service centers and charging stations throughout China to ensure reliable after-sales service to customers.
The Ministry of Industry and Information Technology recently stated it added China-made Model 3 of Tesla to a list of new energy vehicles that are excluded from purchase tax.
Shares of Tesla have outperformed the industry it belongs to over the past year. Its shares have appreciated 29.3% compared with the industry’s growth of 24.3%.
The company is making efforts to improve vehicle deliveries, sequentially and annually, with some expected fluctuations due to seasonality. It is confident that it will exceed 360,000 vehicle deliveries in 2019. The company expects positive free cash flow as well as net income in the upcoming period, with possible temporary exceptions, particularly around the launch and ramp-up of newer products.
Zacks Rank & Other Stocks to Consider
Currently, Tesla has a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the Auto-Tires-Trucks sector are Weichai Power Co. and SPX Corp. While Weichai Power flaunts a Zacks Rank #1 (Strong Buy) at present, SPX carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Weichai Power has a projected earnings growth rate of 6.1% for the current year. Its shares have gained 80.4% over the past year.
Spartan Motors has an estimated earnings growth rate of 85.4% for the ongoing year. The company’s shares have surged 154.9% in a year.
SPX has an expected earnings growth rate of 23.6% for 2019. The company’s shares have surged 80.7% in the past year.
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