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Analyst Blog

Garmin's Pilot App to Integrate Jeppesen's Charts for iOS

Posted Fri Jul 22, 03:51 pm ET

by Zacks Equity Research

Garmin Ltd. (GRMN) owned Garmin International Inc. and The Boeing Company’s (BA) Jeppesen unit recently announced an agreement to integrate geo-referenced Jeppesen terminal charts within the Garmin Pilot app on iOS.

With the commencement of the partnership, the pilots can now view the Jeppesen charts within the Garmin Pilot app in split-screen mode along with a moving map.

While commenting on the partnership, Reggie Arsenault, director, Jeppesen General Aviation Client Management, said that though the company will keep supporting the Jeppesen Mobile FliteDeck, it will work along with Garmin so as to provide innovative flight data and charting capabilities.

Benefits

Improved Flying Experience: The partnership is expected to improve the flying experience for general aviation pilots and facilitate advancements in cockpit technology.

Glide Range Ring: The pilots now have an option to have a look at the glide range ring superimposed on a moving map displayed on Apple mobile devices in order to gauge the distance an aircraft can cover in a best glide range configuration.

Win-Win Situation for All: While the pilots flying behind the Garmin avionics with Jeppesen charts can now transition between the app and the installed displays in the cockpit seamlessly, Jeppesen customers can keep using their preferred chart source along with Garmin Pilot’s feature-rich options.

No Additional Charges: Customers who subscribe to Jeppesen data and Garmin Pilot IFR Premium both can have access to Jeppesen charts within the application at no additional charges.

Competition

We note that competition in the aviation apps segment is quite fierce with the presence of contenders like ForeFlight Mobile, Flight Guide iEFB and WingX Pro7.

Applications are available for both the iOS and Android platforms.

Zacks Rank

At present, Garmin has a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology space are Mistras Group, Inc. MG and VOXX International Corp. VOXX, both carrying a Zacks Rank #2 (Buy).

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Is UDR Inc. (UDR) Poised for a Beat This Earnings Season?

Posted Fri Jul 22, 03:50 pm ET

by Zacks Equity Research

Residential real estate investment trust (“REIT”) UDR, Inc. UDR is scheduled to report second-quarter 2016 results on Jul 26, after the market closes.

Last quarter, the Denver, CO-based REIT reported in-line results. UDR boasts an average beat of 0.61% for the trailing four quarters. For second-quarter 2016, the company expects funds from operations (“FFO”) per share in the range of 43–45 cents. The Zacks Consensus Estimate for first-quarter FFO per share is currently pegged at 44 cents.

Let’s see how things are shaping up for this announcement.

UDR INC Price and EPS Surprise

UDR INC Price and EPS Surprise | UDR INC Quote

Factors to Consider

UDR has a vast experience in the residential real estate market. The company is expected to benefit from the strengthening multifamily fundamentals and favorable demographic trends. In fact, there is a demand for rental apartments from both new millennial households and empty-nesters. Coupled with this, the improving job market is driving demand for apartments. As such, UDR is expected to experience growth in same-store net operating income in the second quarter.

But supply is increasing and the company has already started to feel its impact. In fact, significant rent growth in the past made New York and San Francisco markets the most preferred ones among developers and landlords. As a result, in recent times, new construction activity soared in these markets. However, this elevated supply of new units curtailed landlords’ capability to demand more rents. This could lead to a pressure on occupancy while rent escalations might be limited.

Earnings Whispers?

Our proven model does not conclusively show that UDR will beat earnings this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. However, that is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 44 cents. This leads to an Earnings ESP of 0.00% for UDR, which represents the percentage difference between the two.

Zacks Rank: UDR currently has a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s ESP of 0.00% makes our surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks That Warrant a Look

Here are a few stocks in the REIT sector you may want to consider, as our model shows that they have the right combination of elements to post a positive surprise this quarter:

American Campus Communities, Inc. ACC has an Earnings ESP of +1.89% and a Zacks Rank #2. The company will report results on Jul 25.

Taubman Centers, Inc. TCO has an Earnings ESP of +7.22% and a Zacks Rank #2. The company will release results on Jul 28.

Regency Centers Corp. REG has an Earnings ESP of +1.25% and a Zacks Rank #3. The company will release results on Aug 2.


Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. All earnings per share numbers presented in this write up represent FFO per share.

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TOTAL (TOT) to Supply LNG to Chugoku Electric for 17 Years

Posted Fri Jul 22, 03:43 pm ET

by Zacks Equity Research

Integrated oil & gas company TOTAL S.A. TOT announced that it has signed an agreement with Japan’s Chugoku Electric for the direct supply of liquefied natural gas (LNG) for a period of 17 years starting from 2019.

The Agreement

Per the agreement, Total will supply Chugoku Electric with up to 0.4 million tons of LNG per year sourced from its global portfolio. TOTAL has been operating in Japan for nearly the last four decades and the latest deal will further strengthen its position in the country.  

Japan Post-Fukushima
 
After the Fukushima nuclear accident, Japan has steered clear of nuclear energy, diverting its focus to fossil fuels and alternate sources to produce electricity. The decision to shut down all nuclear power plants post Fukushima tragedy enhanced the importance of fossil fuel as an energy source in Japan.

Incidentally, Japan is the largest importer of LNG in the world. TOTAL with a presence in the entire LNG value chain is well poised to benefit from the rising demand of LNG in Japan.


TOTAL’s 3rd LNG Agreement in Asia

The agreement with Chugoku Electric of Japan is the third long-term LNG agreement signed by TOTAL in Asia this year.  In February, TOTAL signed a long-term agreement with state-owned Indonesian company Pertamina to supply LNG volumes of 1 million tons per year over a period of 15 years beginning 2020.

TOTAL also entered into an agreement to supply 0.5 million tons of LNG per year to the largest Chinese natural gas distributor ENN for 10 years, starting 2018.

TOTAL’s LNG Capacity

In 2015, TOTAL’s LNG production was 10.2 million tons. Total’s objective is to double its liquefaction capacity to around 20 million tons per year and increase its LNG trading portfolio to 15 million tons per year by 2020.

The above mentioned three contracts signed by TOTAL with its Asian customers will boost its LNG trading portfolio by nearly 2 million tons per year. Without a doubt, TOTAL is on course to meet its trading objective.

The clean burning nature of natural gas and its increasing usage across the globe will drive LNG demand. We believe TOTAL with its operations spread out in more than 130 countries is one the largest integrated oil & gas companies to gain from the increasing demand for LNG.

Zacks Rank

TOTAL currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the integrated oil & gas space include BP plc BP, Chevron Corp. CVX and Exxon Mobil Corp. XOM, all carrying a Zacks Rank #2 (Buy).

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Match Group (MTCH) Q2 Earnings Preview: What to Expect?

Posted Fri Jul 22, 03:19 pm ET

by Zacks Equity Research

Match Group, Inc. MTCH is set to report second-quarter 2016 earnings results after the closing bell on Jul 26.

The company went public last November, and in its first earnings announcement as a publicly-traded company, Match Group missed earnings estimates by 5.3%. The succeeding quarter was better, with the company’s earnings beating estimates by 20%.

Let's see how things are shaping up for its third earnings report as a public company.

Key Factors Influencing Q2 Results

Match Group is the world’s foremost provider of dating products, and operates a portfolio of over 45 brands. Three of its biggest and best known brands are Match.com, OkCupid and Tinder. The company’s reputation, established user base and size should prove to be favorable in the upcoming earnings.

About 60% of the company’s revenues come directly from users of its dating services in North America, mostly in the form of membership subscriptions. Most of its users connect from mobile devices, where conversion to paid members is also higher. Last quarter, its dating revenues rose 24%, which drove a 21% increase in the top line. This momentum bodes well for the company’s top-line growth in the quarter under review.

Furthermore, a big part of Match Group's growth comes from its acquisitions. Over the past six years, Match Group bought 25 companies for an aggregate of about $1.3 billion. Recently, the company acquired the online dating service, Plenty of Fish, which will further add to its revenues in the quarter under review.

Match Group has been making profits over the past three years and has been seeing top-line growth as well. The company is currently enjoying strong growth, driven by robust growth momentum at Tinder, and solid performances from Meetic and Match and recently acquired PlentyOfFish.

However, the company is vulnerable to the cannibalization of users and revenues across its competing platforms. In fact, its average revenue per paying user fell sharply (down 10% year over year), reflecting the shift of its focus toward lower-paying brands such as Tinder and OkCupid. These factors might affect the company’s top line this quarter too.

The company is struggling with monetization of its services in the face of intensifying competition in the online dating space with apps like Bumble, Hinge and Coffee Meets Bagel. This might just prove detrimental to the company’s top line growth in coming quarters.

Earnings Whispers

Our proven model does not conclusively show that Match Group will beat earnings in the second quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the stock currently stands at 0.00%. This is because both the Zacks Consensus Estimate and the Most Accurate estimate are pegged at 13 cents.

Zacks Rank: Although Match Group's Zacks Rank #2 increases the predictive power of ESP, its 0.00% ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

MATCH GROUP INC Price and EPS Surprise

MATCH GROUP INC Price and EPS Surprise | MATCH GROUP INC Quote

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

The Earnings ESP for Potlatch Corp. PCH is +42.86% and it carries a Zacks Rank #2. The company is expected to release its quarterly results on Jul 26.

AK Steel Holding Corp. AKS has an Earnings ESP of +100.00% and a Zacks Rank #2. The company will report results on Jul 26.

Landec Corp. LNDC has an Earnings ESP of +6.67% and a Zacks Rank #3. The company is expected to release earnings results on Jul 26.

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Freeport-McMoRan (FCX) Q2 Earnings: Will It Beat Estimates?

Posted Fri Jul 22, 03:13 pm ET

by Zacks Equity Research

Freeport-McMoRan, Inc. FCX is set to release second-quarter 2016 results ahead of the bell on Jul 26.

Last quarter, the mining company delivered a positive earnings surprise of 20.00%. Freeport has beaten the Zacks Consensus Estimate in three of the trailing four quarters, while missing in one, with an average positive surprise of 11.37%.

Let’s see how things are shaping up for this announcement.

Factors to Watch For

Freeport reported a loss of $3.35 per share for first-quarter 2016, compared with a loss of $2.38 per share a year ago. The results include net charges of $4 billion or $3.19 per share, mainly related to the reduction of the carrying value of oil and gas properties. Barring that impact, adjusted net loss was $0.16 a share in the first quarter, narrower than the Zacks Consensus Estimate of a loss of $0.20.

Revenues declined 15.1% year over year to $3,527 million in the reported quarter and missed the Zacks Consensus Estimate of $3,667 million.
For 2016, Freeport expects consolidated sales to be around 5 billion pounds of copper, 1.85 million ounces of gold, 71 million pounds of molybdenum and 54.4 MMBOE. For second-quarter 2016, the company expects 1.15 billion pounds of copper, 195,000 ounces of gold, 19 million pounds of molybdenum and 13.5 MMBOE.

Freeport is conducting exploration activities near its existing mines with a focus on opportunities to expand reserves that will support the development of additional future production capacity in the large minerals districts, where it currently operates. Favorable exploration results indicate opportunities for significant future potential reserve additions in North and South America as well as in the Tenke Fungurume minerals district. Freeport also continues to progress with its expansion initiatives in Latin America.

Freeport is also taking aggressive actions including assets sales and deferral of capital spending amid a challenging operating environment. The company is taking actions to manage costs and capital expenditures amidst a difficult pricing backdrop, in a bid to strengthen its balance sheet.

Moreover, Freeport’s board is currently undertaking a strategic review of its oil and gas business to assess alternatives (including a potential sale of a part of its oil and gas assets) designed to increase value to the company’s shareholders. Freeport continues to evaluate potential transactions for the sale of certain assets of FM O&G, in an effort to cope with the still challenging commodity pricing environment. The company also continues to assess its portfolio for potential future actions and aims to maintain a strong financial position, with focus on reducing debt.

Freeport, in May 2016, wrapped up the sale of a 13% interest in its Morenci unincorporated joint venture to its Japan-based partner, Sumitomo Metal Mining Co., Ltd. (“SMM”) for $1 billion in cash. The move is part of the company’s efforts to pare debt.

However, Freeport’s copper business remains affected by the sluggish global economy and supply related issues. The depressed oil and copper pricing environment also remains a headwind for the company. Sluggishness in China (a major market for copper) is affecting markets, thereby hurting Freeport’s core copper mining business.

 

FREEPT MC COP-B Price and EPS Surprise

FREEPT MC COP-B Price and EPS Surprise | FREEPT MC COP-B Quote

Earnings Whispers

Our proven model shows that Freeport is likely to beat estimates this quarter because it has the right combination of two key ingredients.  

Zacks ESP: Earnings ESP for Freeport is +166.67% as the Most Accurate Estimate is currently at 2 cents, while the Zacks Consensus Estimate is pegged at a loss of 3 cents.

Zacks Rank: Freeport holds a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.  

Stocks That Warrant a Look

Here are some companies in the basic materials sector you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

B2Gold Corp. BTG has an Earnings ESP of +50% and a Zacks Rank #1.

Agnico Eagle Mines Ltd. AEM has an Earnings ESP of +9.09% and a Zacks Rank #2.

Alamos Gold, Inc. AGI has an Earnings ESP of +100% and a Zacks Rank #3.

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Rockwell Automation (ROK) Q3 Earnings: What's in Store?

Posted Fri Jul 22, 03:12 pm ET

by Zacks Equity Research

Rockwell Automation, Inc. ROK is geared up to report third-quarter fiscal 2016 results on Jul 27, before the market opens. The Zacks Consensus Estimate for the quarter is pegged at $1.46, reflecting 8.37% year over year dip.

Earnings Whispers

Our proven model does not conclusively show that Rockwell Automation will be able to pull a surprise this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for an earnings beat. That is not the case here as you will see below.

Zacks ESP: Rockwell Automation’s Earnings ESP stands at -1.37%. This is because the company’s Most Accurate estimate is $1.44, whereas the Zacks Consensus Estimate is pegged at $1.46.

Zacks Rank: Rockwell Automation currently has a Zacks Rank #3 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of Rockwell Automation’s Zacks Rank #3 combined with a negative earnings ESP makes surprise prediction difficult.

Surprise History

In the last reported quarter, the company posted a positive earnings surprise of 3.79%. Notably, Rockwell Automation has delivered a positive earnings surprise of 1.61% on an average over the last four quarters.
 

ROCKWELL AUTOMT Price and EPS Surprise

ROCKWELL AUTOMT Price and EPS Surprise | ROCKWELL AUTOMT Quote

Factors at Play

The company cautioned that the recent industrial production forecast underscored lower-than-estimated economic growth in 2016, but continues to expect modest improvement in the second half of the year. It stated that its performance in the rest of the year will improve sequentially, though a year-over-year growth is not anticipated.

Globally, heavy industries will remain weak, with sporadic growth in the consumer and automotive verticals. The U.S. and China will continue to be the weakest geographies.

Spending in the architecture and software segment has been increased as the company focuses on new product development. Given that the company expects sequential growth in the second half of the year in the segment, it anticipates fiscal third-quarter 2016 to witness the lowest margin this year at the segment.

Despite the weakening oil and gas, mining markets, Rockwell Automation remains optimistic about the consumer, life sciences and auto verticals. These will continue to grow which bodes well for the company. Moreover, its perked up restructuring activities should begin to pay off during this quarter as well as the next.

Stocks to Consider

Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Allegion Plc ALLE has an Earnings ESP of +2.25% and a Zacks Rank #2.

Ball Corp. BLL has an Earnings ESP of +1.01% and a Zacks Rank #3.

Ingersoll-Rand Plc IR has an Earnings ESP of +0.77% and a Zacks Rank #2.

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Texas Instruments (TXN) Q2 Earnings: What's in Store?

Posted Fri Jul 22, 03:06 pm ET

by Zacks Equity Research

Texas Instruments Inc. TXN is set to report second-quarter 2016 results on Jul 25. Last quarter, the company posted a 4.84% positive earnings surprise.

Let’s see how things are shaping up for this announcement.

TEXAS INSTRS Price and EPS Surprise

TEXAS INSTRS Price and EPS Surprise | TEXAS INSTRS Quote

Factors at Play

Texas Instruments or TI reported mixed first quarter results with earnings beating the Zacks Consensus Estimate but revenues missing the same. Though the communications, personal electronics and other markets were weak, the recovering auto and industrial markets helped the company to deliver good results.

Texas Instruments continues to prudently invest its R&D dollars in several high-margin, high-growth areas of the analog and embedded processing markets. This is gradually increasing its exposure to the industrial and automotive markets as well as dollar content at customers, while reducing its exposure to the volatile consumer/computing markets.

The company along with chipmaker Intel remains one of the few semiconductor companies that depend on internal capacity for manufacturing the bulk of its devices. However, since it has the policy of building out capacity ahead of demand, it can make opportunistic purchases. As a result, the company has been able to contain capex at up to 4% of sales even while expanding.

TI provided strong revenue guidance for the second quarter. The company expects revenues between $3.07 billion and $3.33 billion (up 5.9% sequentially at the mid-point). The outlook includes acquisition charges of $80 million per quarter continuing till the third quarter of 2019, which will then decline to $50 million per quarter for the next two years. The annual effective tax rate and the rate to be applied for the second quarter will be around 30%.

This revenue guidance reflects lackluster demand for personal electronics, particularly PCs, and communications equipment.

Earnings per share in the quarter are expected to be in a range of 67 cents to 77 cents.

Earnings Whispers

Our proven model does not conclusively show that Texas Instruments is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 72 cents. Therefore, its Earnings ESP is 0.00%.

Zacks Rank: Texas Instruments has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

You may consider the following stocks, with a positive Earnings ESP and a favorable Zacks Rank:

Open Text Corp. OTEX with an Earnings ESP of +1.10% and Zacks Rank #1.

Silicon Motion Technology Corp. SIMO with an Earnings ESP of +15.15% and Zacks Rank #1.

Black Knight Financial Services, Inc. BKFS, with an Earnings ESP of +3.45% and a Zacks Rank #2.

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Cheesecake Factory (CAKE) Q2 Earnings: Will It Disappoint?

Posted Fri Jul 22, 02:10 pm ET

by Zacks Equity Research

The Cheesecake Factory Incorporated CAKE is scheduled to report second-quarter 2016 results on Jul 27, after the closing bell.

Last quarter, Cheesecake Factory posted a 13.33% positive earnings surprise. The company surpassed earnings estimates in all the last four quarters with an average surprise of 8.46%.

Let’s see how things are shaping up prior to this announcement.

CHEESECAKE FACT Price and EPS Surprise

CHEESECAKE FACT Price and EPS Surprise | CHEESECAKE FACT Quote

Factors at Play

Cheesecake Factory’s profits have been under strain owing to a rising wage rates scenario. Moreover, the company’s unit expansion plans, pre-opening costs of outlets and costs related to sales initiatives are hurting margins.

For the second quarter, Cheesecake Factory expects earnings per share between 69 cents and 72 cents.

Nonetheless, various initiatives to improve sales and traffic volumes coupled with innovation in menu should boost comps. With a solid start to 2016 and a moderate increase in prices, the company expects comps to remain flat or grow up to 1% in the second quarter.

In the second quarter, the company has rolled out several top line boosting initiatives which include an enhanced server training program and mobile payment app, CakePay. It has also increased its focus on home and office delivery through the induction of a pilot program of partnerships with third-party providers in select locations.

Earnings Whispers

Our proven model does not conclusively show that Cheesecake Factory is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.That is not the case here as you will see below.

Zacks ESP:  The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at -1.41%. This is because the Most Accurate estimate is 70 cents, while the Zacks Consensus Estimate is pegged higher at 71 cents.   

Zacks Rank: The Cheesecake Factory has a Zacks Rank #4 (Sell).We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some restaurant companies to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Jack in the Box Inc. JACK has an Earnings ESP of +1.15% and a Zacks Rank #2.

Shake Shack Inc. SHAK has an Earnings ESP of +7.69% and a Zacks Rank #2.

Bloomin' Brands, Inc. BLMN has an Earnings ESP of +3.33% and a Zacks Rank #3.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

T. Rowe Price (TROW) Q2 Earnings: What's in Store?

Posted Fri Jul 22, 01:43 pm ET

by Zacks Equity Research

T. Rowe Price Group, Inc. TROW is scheduled to report second-quarter 2016 results, before the opening bell on Jul 26.

In the last quarter, this investment manager delivered a 12.75% positive earnings surprise, beating the Zacks Consensus Estimate. The figure also recorded 1.8% year-over-year growth. Improved assets under management were a major positive. However, a decline in revenues and elevated operating expenses raised concern.

However, T. Rowe Price posted positive earnings surprise in three of the preceding four quarters. The average being a positive earnings surprise of 3.64% for the trailing four quarters as depicted in the chart below:

T ROWE PRICE Price and EPS Surprise

T ROWE PRICE Price and EPS Surprise | T ROWE PRICE Quote

Factors to Influence Q2 Results

T. Rowe Price’s efforts to improve operating efficiency resulted in year-over-year growth in the top line over the past few years. Though revenue was down in the past quarter, we believe the company is well poised to sustain the uptrend going forward on the back of strong inflow and growing fixed income. Moreover, penetration into the advisory market will increase the company’s growth prospects.

The company is also making efforts to expand internationally as well. Though its time consuming, the company is expected to revive long-term asset growth prospects.

During the quarter, global concerns including oil price volatility, timing of the Federal Reserve’s rate hike, Brexit results and slowdown in domestic growth dominated the investors’ sentiments which in all probability are expected to impact T. Rowe Price as well.

T. Rowe Price’s bottom-line is plagued with challenges like escalating operating expenses. Also, the asset management business is under cyclical pressure and margins are also under strain in the current low rate scenario. Further, the past few quarters witnessed rising expenses and we do not expect this trend to reverse anytime soon.

Though the company did not point out anything related to its cost-control initiatives during the quarter, total advertising and promotion costs for 2016 are anticipated to be on par with 2015 levels. Notably, T. Rowe Price is anticipating capital expenditures in 2016 to be approximately $180 million for property and equipment additions along with technology development.

Most importantly, this investment manager succeeded in impressing the analysts with its level of activities during the quarter. The Zacks Consensus Estimate has moved up around 1% to $1.13 per share over the last 7 days.

Earnings Whispers

However, our proven model does not conclusively show that T. Rowe Price is likely to beat the Zacks Consensus Estimate in the second quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below. We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Zacks ESP: The Earnings ESP for T. Rowe Price is -0.89%. This is because the Most Accurate estimate of $1.12 is below the Zacks Consensus Estimate of $1.13.

Zacks Rank: Though T. Rowe Price’s Zacks Rank #3 increases the predictive power of ESP, we also need to have a positive ESP to be confident of an earnings beat.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter:

The Earnings ESP for LPL Financial Holdings Inc. LPLA is +2.33% and it carries a Zacks Rank #3. The company is expected to release second-quarter results on Jul 28.

Cullen/Frost Bankers, Inc. CFR has an Earnings ESP of +0.96% and a Zacks Rank #3. It is expected to report second-quarter results on Jul 27.

The Earnings ESP for Federated Investors, Inc. FII is +2.13% and it carries a Zacks Rank #3. The company is slated to release second-quarter results on Jul 28.

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Can Southern Co. (SO) Keep the Earnings Streak Alive in Q2?

Posted Fri Jul 22, 01:42 pm ET

by Nilanjan Choudhury

We expect electric utility firm Southern Company SO to beat expectations when it reports second-quarter 2016 results before the opening bell on Wednesday, July 27.

In the preceding three-month period, the Atlanta-based service provider delivered a positive earnings surprise of 9.43% on lower costs. In fact, Southern Company has outpaced the Zacks Consensus Estimate in all of the past four quarters with an average beat of 4.49%.

Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Southern Company is likely to beat earnings in the to-be-reported quarter because it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP for this company stands at +2.94%. This is because the Most Accurate estimate stands at 70 cents, whereas the Zacks Consensus Estimate is pegged lower at 68 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Southern Company carries a Zacks Rank #3 (Hold) which, when combined with a positive ESP, makes us confident of an earnings beat.

Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. On the other hand, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

SOUTHERN CO Price and EPS Surprise

SOUTHERN CO Price and EPS Surprise | SOUTHERN CO Quote

What is Driving the Better-Than-Expected Earnings?

A leading utility holding entity in the U.S., Southern Company dominates the power business across the Southeast. With a strong rate base growth and constructive regulation, the firm generates steady earnings.

In particular, Southern Company’s commercial sales has been strong over the past five quarters, culminating in a 0.8% growth (weather adjusted) in the first quarter. The momentum is expected to continue in the Apr-Jun period too.

We are also encouraged by the improving ISM Manufacturing Index, which rose for the second straight month in June to its highest level since Feb last year. Signaling an expanding industrial production outlook, this bodes well for Southern Company with approximately a third of the utility’s total retail sales coming from industrial customers.

Finally, we appreciate Southern Company’s cost reduction initiatives as seen in the previous quarter when its total operating expenses decreased around 6% year over year. We expect a similar trend in the to-be-reported quarter, leading to earnings outperformance.

Other Stocks to Consider

Southern Company is not the only utility looking up this earnings season. Here are some companies from the space which, according to our model, also have the right combination of elements to post an earnings beat this quarter.

American Water Works Company Inc. AWK has an Earnings ESP of +5.56% and a Zacks Rank #2. The utility is expected to release earnings results on Aug 3.

DTE Energy Co. DTE has an Earnings ESP of +2.20% and a Zacks Rank #2. The utility is anticipated to release earnings on Jul 26.

UGI Corp. UGI has an Earnings ESP of +50.00% and a Zacks Rank #2. The utility is likely to release earnings on Aug 1.

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