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Zacks #1 Stocks on the Move 09/22/2017

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Analyst Blog

Chatham Lodging (CLDT) Buys Hilton Garden Inn for $43.5M

Posted Fri Sep 22, 03:17 pm ET

by Zacks Equity Research

Chatham Lodging Trust CLDT announced the acquisition of Hilton Garden Inn Portsmouth Downtown in New Hampshire. The hotel, comprising 131 rooms, has been acquired for a price of $43.5 million or around $332,000 per room.

Chatham Lodging used cash and borrowings available under its revolving credit facility to fund this purchase. Island Hospitality Management will manage the property.

Centrally located in downtown Portsmouth, the hotel is situated quite near to the thriving Portsmouth Naval Shipyard and Pease International Tradeport — a premium office and industry hub. This highlights a solid demand for the property primarily from government and corporate sector. It has been recently renovated and will not require capital investment til 2022.

The above discussed buyout is likely to enhance Chatham Lodging’s portfolio in the upper Northeast corridor, where the company owns properties which have emerged as strong performers. Moreover, as the Portsmouth market is a high barrier-to-entry market, it considerably reduces the risk of new supply in the area.  

This premium asset is anticipated to improve the company’s portfolio age and enable it to capitalize on economy of scale. In addition, with several other properties in the area, the buyout increases its room-pricing power.

Chatham Lodging is under contract to sell two hotels over the next months. The revenue per available room (RevPAR) of these properties is lower than the Hilton Property’s RevPAR of $163. Hence, this is an opportune time for the company to reinvest the sale proceeds in such strategic acquisitions. The acquisition will likely contribute to Chatham Lodging’s portfolio RevPAR over the long run.

Although, prudent investments in strategic assets are likely to help the company fortify its position in the hotel space, the sale of non-core assets will result in dilution of earnings.

This Zacks Rank #3 (Hold) company has underperformed its industry year to date. Chatham Lodging’s shares have gained 2.8%, while the industry recorded growth of 4.9% during this time frame.



Key Picks

Better-ranked stocks in the REIT space include Getty Realty Corp. GTY, Seritage Growth Properties SRG and Communications Sales & Leasing, Inc. UNIT. While Getty Realty and Seritage flaunt a Zacks Rank #1 (Strong Buy), Communications Sales & Leasing carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Getty Realty’s funds from operation (FFO) per share estimates for the current year moved 3.1% upward to $2 in a month’s time.

Over the last 60 days, Seritage’s FFO per share estimates for full-year 2017 inched up 0.5% to $2.01.

Communications Sales & Leasing’s 2017 FFO per share estimates climbed 14.4% to $2.54 during the same time frame.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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.

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Gilead's (GILD) Epclusa Receives Label Expansion in Canada

Posted Fri Sep 22, 03:14 pm ET

by Zacks Equity Research

Gilead Sciences Inc. GILD announced that Health Canada has granted a Notice of Compliance (NOC) for updated label of hepatitis C virus drug, Epclusa.

The drug’s label has been expanded to extend the drug’s use for patients co-infected with HIV-1.

The drug was approved in Canada in July 2016 for the treatment of adults with genotype 1-6 chronic HCV infection without cirrhosis or with compensated cirrhosis, or with decompensated cirrhosis in combination with ribavirin.

We expect the drug’s sales to increase with this label expansion as HCV co-infection remains a major cause of morbidity in HIV-infected individuals.

Last month, Health Canada granted a NOC for single-tablet regimen, Vosevi (sofosbuvir 400 mg/velpatasvir 100 mg/voxilaprevir 100 mg), for chronic HCV infection.

Gilead is known for its presence in the HCV market, courtesy of its blockbuster HCV drugs, Sovaldi and Harvoni. The HCV portfolio received a huge a boost when Epclusa gained approval in both the United States (June 2016) and EU (July 2016) and became the first and only all-oral, pan-genotypic, STR consisting of Sovaldi and velpatasvir (an NS5A inhibitor), for the treatment of adults with genotype 1-6 chronic HCV infection. The approval of Vosevi is expected to boost Gilead’s strong HCV portfolio further.

However, the HCV franchise is under pressure due to competition and pricing issues. We note that Harvoni, Sovaldi and Epclusa, face competition from AbbVie Inc. ABBV Viekira Pak and Viekira XR among others. Competition as well as pricing pressure intensified further with the launch of Merck & Co., Inc.’s MRK Zepatier.

 

Gilead’s stock has gained 17.5% year to date against the industry’s 17.3%.

Gilead recently announced plans to acquire Kite Pharma, Inc. KITE to foray in the emerging field of cell therapy. Kite is a pioneer in cell therapy having developed engineered cell therapies that express either a chimeric antigen receptor (CAR) or an engineered T-cell receptor (TCR), depending on the type of cancer. The acquisition will diversify Gilead’s portfolio and poise the company in a dominant position in cellular therapy space. We note that investors were expecting Gilead to announce an acquisition in the near term given the decline in the once lucrative HCV market due to competitive pressure.

Zacks Rank

Gilead currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Juno Tenders $250M Follow-on Public Offering of Common Stock

Posted Fri Sep 22, 03:11 pm ET

by Zacks Equity Research

Juno Therapeutics, Inc.'s JUNO shares dropped more than 7% after the company announced that it has launched a proposed $250 million follow-on public offering of 6.1 million shares of common stock at $41 per share. The offering, subject to customary closing conditions, is expected to close on Sep 26, 2017.

The underwriters have been granted with an option to buy up to 0.9 million additional shares within 30 days to cover over-allotments. The completion or the actual size or terms of the offering were not made public by the company.

Notably, after the offering gets completed, Juno plans a private placement of 0.7 million shares to a subsidiary of Celgene Corp. CELG at $41 per share.

Juno’s shares have significantly outperformed the industry so far this year. The stock has soared 120.8%, while the industry has registered a rally of 15.7%. 

 

The company is expected to generate net proceeds of $277.1 million from the public offering before deducting underwriting discounts and commissions. However, including the underwriters’ option to purchase additional shares, the gross proceeds are estimated to be $318.7 million.

Juno plans to utilize the net proceeds of the offering for general corporate purposes including working capital requirement.

We remind the investors that the company has a 10-year agreement with Celgene for global development and commercialization of immunotherapies. In addition to making an upfront payment of about $150 million, Celgene bought 9.1 million shares of Juno’s common stock at $93 per share.

The collaboration will see the companies leveraging T cell therapeutic strategies to develop treatments for patients with cancer and autoimmune diseases. The initial focus will be on CAR-T and T-cell receptor technologies. The deal is a major positive for Juno, given a strong partner in the form of Celgene.

Also, Juno’s agreement with MedImmune, a subsidiary of AstraZeneca AZN, will give the company the much-needed experience in combining CAR T-cells with a checkpoint inhibitor — MedImmune’s PDL-1 antibody durvalumab.

Zacks Rank & Stock to Consider/Key Pick

Juno currently carries a Zacks Rank #4 (Sell). A better-ranked stock in the pharma sector is Aduro Biotech, Inc. ADRO, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Aduro Biotech’s loss per share estimates reduced from $1.46 to $1.32 for 2017 and from $1.41 to $1.24 for 2018 over the last 60 days. The company delivered positive surprises in two of the trailing four quarters with an average beat of 2.53%.

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What the Recent Fed Meeting Means for Mortgage REITs

Posted Fri Sep 22, 03:03 pm ET

by Zacks Equity Research

At the end of the two-day meeting on Wednesday, the Federal Reserve noted that it will commence its balance-sheet normalization program this October. However, the central bank refrained from raising the benchmark interest rates for now.

The central bank will downsize its $4.5 trillion bond portfolio by allowing maturity of up to $10 billion of mortgage-backed securities and Treasury bonds every month, without reinvesting the proceeds. The monthly cap will gradually increase until it reaches $50 million.    

Since an outright sale could cause major turbulence in the bond market, the Fed has resorted to the above-mentioned steady and gradual run-off process. This action is anticipated to put upward pressure on the long end of the yield curve.

Moreover, the Fed’s decision to keep the short-term interest rates unchanged will help steepen the yield curve.

This is a sign of relief for mortgage real estate investment trusts (mREITs), which typically borrow significant amount of short-term debt and invest in longer-term real estate debts, like mortgage backed securities (MBS) and mortgages. It will also enable these companies to earn higher yield spread.

Further, the prospects of a steepening yield curve will result in capital rotation from stocks to safe-haven bond markets. This is primarily because these markets will provide attractive returns at lower risks. This too can improve the performance of mREITs.

That being said, year to date, the Zacks Mortgage REIT industry has outperformed the broader Zacks Finance Sector. The industry rallied 11.6% versus the 9.6% growth of the broader sector.



Additionally, shares of Annaly Capital Management, Inc. NLY, AGNC Investment Corp. AGNC and ARMOUR Residential REIT, Inc ARR have substantially outperformed the broader finance sector, year to date.

While Annaly carries a Zacks Rank #3 (Hold), AGNC Investment and ARMOUR Residential carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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5 Mega-Cap Stocks to Buy with Impressive Growth Prospects

Posted Fri Sep 22, 02:57 pm ET

by Nilanjan Choudhury

It's been nine years since the U.S. central bank launched its quantitative easing program. Also, the U.S. stock market recently celebrated eight years of the bull run. That’s obviously not just a coincidence!

The Federal Reserve’s quantitative easing programs, initiated in December 2008, has played a major role in stimulating the U.S. economy. Apart from rescuing it from the ravages of the 2007-09 financial crisis that was marked with stock market downturns, foreclosures and prolonged unemployment, the boost in cheap liquidity from the rather unconventional monetary policy drove up stock and property markets, while bringing down bond yields. Today, the stock market indices are pushing further into record-high territories almost daily.

As consumer spending continues to grow on a recovering jobs market, low interest rates, strong U.S. dollar and cheaper fuel, the world's largest economy may have more leg to run in 2017. However, even as we cheer the eighth birthday of the U.S. bull market, some investors are concerned that the conclusion of Fed's unprecedented program of liquidity infusion might unnerve the market.

Fed's Plans for Balance Sheet Normalization

With the Federal Reserve’s expansionary monetary policy providing the U.S. economy its much-needed impetus, the agency has now announced the beginning of the slow, long-drawn timetable to unwind its massive $4.5 trillion balance sheet. The Fed plans to commence the procedure in October with reductions of a modest $10 billion each month through December. The rate would then go up by $10 billion every quarter so as to reach a cap of $50 billion in October 2018. Also in the offing is another hike in the short-term interest rates, which could take place in December this year.

The tightening of the monetary policy usually preludes weak demand, contraction of corporate earnings and a possible stock market correction. While the potential negative drag from a strong dollar on overseas profits and geopolitical concerns regarding the North Korean regime remain key concerns, a rapid unwinding of Fed’s holdings is the last thing the U.S. economy needs.

Though the Fed intends to move slowly and cautiously toward shrinking its bloated balance sheet and higher interest rates, telegraphing their every move far in advance, the experience is still going to bring a lot of volatility to the markets. In particular, speculations surrounding the timing of the Fed’s interest rate rise may result in increased market volatility.

However, before you freak out and decide to steer clear of the stock market apprehending the 'taper tantrum' that lies ahead, you may want to reconsider.

Do Investors Need to Panic?

Even as Fed prepares to end its stimulus campaign, it will likely take quite some time to impact the economy. This means that the U.S. economy still has some time to benefit from cheap liquidity and low rates, which will continue to catalyze the bull run.

Fed officials have also made clear that they plan to decline balance sheet rates slowly and predictably enough to avoid hurting the expansion or killing the bull market. Thus, one can rule out the detrimental impact of a rapid unwinding on the financial markets.

And finally, withdrawing the quantitative easing stimulus is actually a by-product of rising economic growth and optimism. The expected 'policy normalization' simply indicates that the economy is ready for the tap to be turned off. Though higher interest rates raise the cost of debt capital, an expanding economy supersedes low-borrowing costs in the grand scheme of things.

And fortunately, economic strength would also buoy the overall stock market.

Play It Smart

Naturally, when the broader market sentiments have a predetermined positive direction, there is hardly any strategy as lucrative as growth investing. However, at a time when volatility may continue to unsettle the stock market, investors want to seek haven in safe income stocks.

When investors find themselves in such a tight spot, we believe that one of the smartest plays would be to go for mega-cap stocks (stocks with a market cap of around $100 billion or more) which still have high growth potential.

Mega-caps, usually the largest and most established companies in the stock market, have been around for a while. They tend to be stable, and many of them pay dividends based on their earnings. These companies enjoy leading market positions, have a global footprint, strong cash positions and are large enough to stay strong even in the face of unfavorable events.

Though mega-caps may not see the exponential returns that the small-caps sometimes achieve, they are equally less likely to see the big downturns frequently experienced by smaller companies. And with the current situation being unpredictable at best, you may not want to be lured by the expectant triple-digit returns (and end up losing money), but instead find a growth story in the relatively safer mega-cap stocks.

Our Choices

With the help of our new style score system, we have identified five mega-cap stocks with excellent growth potential. These stocks have a solid Zacks Rank as well.

Our Growth Style Score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth. Our research shows that stocks with Growth Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy), offer the best investment opportunities in the growth investing space. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

First on our list is HSBC Holdings plc HSBC. Headquartered in London, HSBC Holdings is a major global banking and financial services firm, with approximately $2.49 trillion in assets as of Jun 30, 2017. This Zacks Rank #1 stock, with a market cap of $193.7 billion, sports a Growth Score of A.

Toyota Motor Corp. TM, another #1 Ranked stock, is our next pick. One of the leading automakers in the world in terms of sales and production, Japan-based Toyota has a Growth Score of B and a current market cap of $175.9 billion.

Then we have The Home Depot Inc. HD. Based on net sales, the company is the world’s largest home improvement specialty retailer with over 2,200 retail stores across the globe, offering a diverse range of branded and proprietary home improvement items, building materials, lawn and garden products, and related services. With a current market cap of roughly $186.7 billion, this #2 Ranked stock flaunts a Growth Score of A.

Our fourth choice is The Boeing Company BA -- premier jet aircraft manufacturer and one of the largest defense contractors in the U.S. With a current market cap of roughly $147.2 billion, this stock with a Zacks Rank of 2 sports a Growth Score of A.

Finally, there is Bayer AG BAYRY. Headquartered in Leverkusen, Germany, Bayer AG is a life science company with core competencies in the areas of health care and agriculture. This Zacks Rank #2 stock, with a market cap of $109 billion, sports a Growth Score of B.

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Is the Hold Strategy Apt for Church & Dwight (CHD) Stock?

Posted Fri Sep 22, 02:52 pm ET

by Zacks Equity Research

Church & Dwight Co., Inc. CHD, a leading consumer products giant, has been in troubled waters of late. The company posted mixed results in the second quarter of 2017, wherein while earnings beat the Zacks Consensus Estimate, revenues missed the same. Though acquisition gains aided sales in the quarter, earnings suffered due to higher promotional expenses.

Church & Dwight has also been witnessing pricing pressures, rising commodity costs, stiff competition and weak consumer demand in many markets. The company also remains exposed to unfavorable foreign currency translations, which have been hurting its sales and profits.

These headwinds have also weighed on the shares of Church & Dwight. If we look into the share price performance of Church & Dwight over the past three months, we note that the stock has underperformed the industry as well as the broader Consumer Staples sector. The stock has declined 8.6% in the last three months, while the industry grew about 2.6%. The broader sector on the other hand dipped 1.3% in the same time frame.

Nevertheless, the company is undertaking efforts to offset headwinds and boost profits. Looking into the earnings trend, we note that the company’s earnings have outpaced the Zacks Consensus Estimate in 11 out of the past 14 quarters and posted in-line results in two.

Here we discuss some of the measures that the company has been taking of late to drive growth. Let us also analyze whether the same would help to boost the stock in the near term.

Innovations

Church & Dwight develops, manufactures and markets a broad range of household, personal care and specialty products. On the back of a robust brand portfolio, Church & Dwight makes regular innovations and is well-positioned in the consumer product categories. The company recently announced plans to launch ARM & HAMMER CLUMP & SEAL SLIDE cat litter and ARM & HAMMER unit dose 3-in-1 POWER PAKS laundry detergent.

Church & Dwight is also introducing a new VITAFUSION energy variant that meets the everyday energy needs of people. TROJAN brand is also launching a new XOXO upscale condom targeting both men and women. The company also has plans to expand offerings and distribution of the BATISTE brand.

Strategic Acquisitions

Church & Dwight is on track to expand its market share through strategic acquisitions. The most recent is the acquisition of Water Pik (July 2017), which is a manufacturer of oral hygiene products and shower heads.

The acquisition of Water Pik will thus complement and expand Church & Dwight’s oral care portfolio and help it to secure a leading position in the growing oral care category. Other buyouts of Agro BioSciences, VIVISCAL business and ANUSOL and RECTINOL brands have also provided further strength to the Church & Dwight’s sturdy portfolio and improved business.

Prudent Cost Management

The company has a healthy cost management structure. Besides maintaining tight control on overhead costs, the company has been mitigating the impact of same through cost reduction programs. The company also has a set pricing and pre-buying arrangements with certain suppliers and hedge agreements for diesel fuel to combat higher costs.

Expanding Consumer Business Internationally

The company’s international consumer business has been doing well and has helped it to generate organic sales growth in the first half of 2017. The company is therefore opening new offices to boost export business. The company continues to invest in the international consumer business to sustain strong sales growth. The company now expects the business to grow 7% organically in 2017.

Church & Dwight Company, Inc. Price, Consensus and EPS Surprise

 

Church & Dwight Company, Inc. Price, Consensus and EPS Surprise | Church & Dwight Company, Inc. Quote

Bottom Line

Stable portfolio of value and premium products, tight management of overhead expenses along with robust sales and earnings growth are expected to aid the stock. However, with margin pressure due to rising costs and competition, we expect to wait and see how the stock will perform in the near term.

Zacks Rank & Key Picks

Church & Dwight currently carries a Zacks Rank #3 (Hold).

Some better-ranked food stocks in the industry are Nomad Foods Ltd. NOMD, Ingredion, Inc. INGR and The Chef’s Warehouse Inc. CHEF.

Nomad has a VGM Score of B and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ingredion and Chef’s Warehouse, both carry a Zacks Rank #2 (Buy). While Ingredion have VGM Score of B, Chef’s Warehouse carry a VGM Score of C.

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Nu Skin or Inter Parfums: Which Cosmetic Stock Looks Better?

Posted Fri Sep 22, 02:44 pm ET

by Zacks Equity Research

The cosmetic industry is in huge demand currently, particularly in the luxury arena and in makeup, buoyed by increased consumer spending. Apart from buying essential and non-durable goods, consumers have started spending on beauty and personal care products in addition to apparel and footwear as well as personal accessories.

The rise of e-commerce and social media has provided a further impetus to the fast-growing beauty channels. In fact, the U.S. beauty sector is reportedly expected to reach $90 billion by 2020 and the majority of the growth is expected to come from premium beauty products and services.

How Is the Cosmetics Industry Placed?

We note that the Zacks Cosmetics industry is currently placed at top 30% out of the 265 Zacks Industries. The industry has also been outperforming the S&P 500 market lately. In the last six months, the industry recorded around 8.8% growth, well above the S&P 500 index’s growth of 6.6%. Thus it may be a good idea to invest in cosmetics stocks at this juncture, as signs of surging consumer confidence and economic recovery is making the industry attractive.

Given this backdrop, let’s try to ascertain which of these two key cosmetics giants — Nu Skin Enterprises Inc. NUS and Inter Parfums, Inc. IPAR — presently make for a better investment option. Both Nu Skin and Inter Parfums carry a Zacks Rank #2 (Buy), highlighting the fact that they are likely to outperform in comparison to the broader market over the next one to three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Market Capitalization

Nu Skin’s market capitalization is around $3.3 billion, while that of Inter Parfums is $1.3 billion. Going by its business size, Nu Skin is undoubtedly has wider scale of operations and is better positioned in the long term.

Performance Trend

NY-based Inter Parfums has delivered positive earnings and sales surprises in the past four quarters. The fragrance maker has delivered strong sales in its three largest markets namely Western Europe, North America and Asia on a year-to-date basis.

The company expects sales to come from Jimmy Choo, Lanvin, Rochas and Coach brand products in the second half of 2017. In the recently concluded second quarter, the company managed to expand gross margin though reduction in sales of higher margin Abercrombie & Fitch and Hollister prestige products by U.S.-based operations. Advertising and promotion expenses also increased in the quarter.

Provo, UT-based Nu Skin posted upbeat second-quarter fiscal 2017 results, wherein both earnings and sales surpassed the Zacks Consensus Estimate. In fact, the company’s earnings have surpassed estimates in three out of the trailing five quarters. Revenues on the other hand declined 2% due to foreign currency fluctuations.

Dismal performance from Mainland China, South Asia/Pacific, Hong Kong/Taiwan, Japan and South Korea regions lowered revenues of Nu Skin. Nevertheless, the company, which develops and distributes anti-aging personal care products and nutritional supplements, remains focused on boosting its customers and sales leaders going forward. Nu Skin also plans to launch its ageLOC LumiSpa product in the fourth quarter this year, which is expected to generate roughly $100 million revenues.

For 2017, management continues to expect revenues of $2.26-$2.30 billion with an unfavorable currency impact of roughly 2-3%. Nevertheless, it raised its guidance for full-year earnings. Earnings per share are now projected in the band of $3.20-$3.30.

VGM Score

With the help of Zacks Style Score system, it is easy to pick stocks that have excellent prospects. Our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential. Such a score allows you to eliminate the negative aspects of stocks and select winners. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics.

Nu Skin seems to outpace Inter Parfums on VGM Score as well. Nu Skin’s VGM Score of A, combined with a Zacks Rank #2 is favorable than Inter Parfums’ VGM Score of D, despite having the same rank. Hence, we consider it a favorable investing option.

Price Performance

The performance of the companies is well reflected in their share price movement. If we look into the past six months performance of both the stocks, we note that while the industry grew 8.8%, shares of Inter Parfums increased only 7.6%. On the contrary, shares of Nu Skin surged 12.8%. The broader Consumer Staples sector increased only 1.3% in the said time frame.

Estimate Revisions

Upward estimate revisions are indicative of positive investor sentiment about a stock. The Zacks Consensus Estimate for Nu Skin has increased 4.2% for 2017 and 2.1% for 2018 over the last 60 days. It has gone up 1.6% for 2017 and 2.1% for 2018 over the same time frame for Inter Parfums. Both companies have shown positive growth trends, but Inter Parfums is expected to grow at a much slower rate than Nu Skin in the upcoming years.

Valuation Multiples

Notably, Nu Skin has a trailing P/E ratio (price relative to past year’s earnings) of 19.5, which is below the industry’s average of 27.5 and S&P 500 average of 20.3. On the other hand, Inter Parfums is over valued on the basis of trailing P/E multiple ratio of 29.9.

On the basis of forward P/E ratio (price relative to this year’s earnings), Nu Skin stands at 18.9, which compares favorably with industry’s average of 27.2 and S&P 500 average of 19.8. Inter Parfums, on the other hand, has a higher forward P/E of 31.1. So it is fair to say that a slightly more value-oriented path may be ahead for Nu Skin stock in the near term, too, as you can see in the chart below:

Valuation Multiple

NUS

IPAR

Industry

S&P 500

P/E (TTM)

19.5

29.9

27.5

20.3

P/E F1

18.9

31.1

27.2

19.8

P/S

1.5

2.2

2.4

3.2

EV/EBITDA

9.9

13.3

21.7

11.1

 

If we look into another key metric Price/Sales ratio, we note that right now, Nu Skin has a P/S ratio of about 1.5. This is significantly lower than the industry average of 2.4 and S&P 500 average, which comes in at 3.2 right now. On the contrary, Inter Parfums has a P/S ratio of 2.2.

Similarly, on the basis of EV/EBITDA, Nu Skin has a lower EV/EBITDA than the industry and S&P 500 average, making it for favorable investing option.

The above arguments clearly states that Nu Skin is a better pick for investors.

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Buy These 4 Momentum Stocks to Profit from the Oil Surge

Posted Fri Sep 22, 02:39 pm ET

by Zacks Equity Research

Over the last few days the oil market has started to gain momentum with prices finally rebounding to the $50 a barrel threshold mark. Oil prices, which have been under pressure over the last few months, eventually closed the day at $50.41 a barrel on Sep 20, the highest in four months. The upside can be attributed to the improving demand outlook and OPEC deal extension talks.

Both International Energy Agency and OPEC forecasted robust demand which led to an increase in oil prices. OPEC boosted oil forecasts for 2018 by 400,000 barrels of oil per day, courtesy of higher demand in China and Europe.

According to the oil cartel’s latest monthly report, OPEC production fell by 79,000 barrels a day in August as output dropped in Libya, Gabon, Venezuela and Iraq. This hints at the success of the output-curb initiatives and rising compliance levels, raising further optimism in the industry. Compliance levels rose to 94% in August as against 85% in July.

Adding to the positive momentum, OPEC and fellow exporters also announced plans to remain open to extend their production cut agreement beyond March. Some cartel members including less compliant nations like Iraq, have also signaled another around of supply cuts.

The latest weekly release of Baker Hughes also shows positive signs for the oversupplied oil market, wherein it reported a fall in oil and natural gas rig count in the United States. The total U.S. rig count fell by 8 to 936, for the week ended Sep 15.

Investors have also pinned hopes of recovery over the recent U.S. Energy Department's inventory releases that show multiple weeks of strong inventory draws in the domestic crude stockpiles – pointing to a slowdown in shale output. The nation's oil stockpiles have shrunk in nine of the last 12 weeks and are down more than 60 million barrels since March. 

All these factors point toward the growing stability of the oil industry for the remainder of 2017, along with growth prospects in 2018.

Here’s What We Believe

We believe that investors can earn profits by extrapolating the current bullish trends of the market. Henceforth, seeking refuge on momentum investment strategy is a meaningful investment bet at this moment.

However, picking the right momentum stocks may baffle even seasoned investors, who are planning to enter the uncharted world of jam-packed trades.

With the Zacks Style Score system investors can single out stocks which will grant favorable returns and are not affected by market conditions. 

The Momentum Style Score indicates the best time to buy a stock and take advantage of its momentum with a highest probability of success. At the core, momentum investing is buying high, selling higher. It is based on the idea that once a stock establishes a trend, it is more likely to continue in that direction than move against the drift. Thus, this strategy calls for hitching a ride on an already fast-moving train, without fretting about valuations or growth prospects.

That said, we pair the Momentum Style Score of A with a Zacks Rank of #1 (Strong Buy) or 2 (Buy), which as you know indicates stocks with high chances of outperforming the market over the next one to three months. You can see the complete list of today’s Zacks #1 Rank stocks here.

One of the main factors driving the Zacks Rank is estimate revisions, so stocks with high ranks as well as high momentum scores have even greater chances of short-term appreciation.

Here, we’ve picked out five energy stocks for momentum investors based primarily on these two factors:

4 Key Picks

Par Pacific Holdings, Inc. PARR: This Texas-based upstream company operates in three segments namely refining, retail and logistics. The company currently carries a Zacks Rank #2 with a Momentum Score of A. The company delivered an average positive earnings surprise of 196.26% in the trailing four quarters.

TransCanada Corp. TRP: Headquartered in Alberta, TransCanada mainly focuses on natural gas transmission and power services. The company presently sports a Zacks Rank #1 with a Momentum Score of B. The company delivered an average positive earnings surprise of 4.06% in the trailing four quarters.

Galp Energia SGPS SA GLPEY: Headquartered in Lisbon, Galp Energia SGPS SA is engaged in production, refining and marketing of oil and gas. The company currently carries a Zacks Rank #2 with a Momentum Score of B. Over the last 60 days, the Zacks Consensus Estimate has increased 3% for 2017 earnings.

Rex Energy Corp. REXX: Rex Energy is an independent oil and gas company operating in the Illinois Basin, the Appalachian Basin and the Southwest region of the United States. The company presently carries a Zacks Rank #2 with a Momentum Score of B. The company posted positive earnings surprise in three of the four trailing quarters, the average being 6.65%.

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Turbulent Q3 Awaits Airlines? 4 Stocks to Sell Pre-Earnings

Posted Fri Sep 22, 02:21 pm ET

by Zacks Equity Research

Stocks in the airline space have been going through tough times of late. Major airline companies are severely hurt from the consecutive impacts of Harvey and Irma. Consequently airline stocks have lowered their guidance for the upcoming quarter.

The airline companies are expected to reveal third-quarter 2017 earnings numbers next month. With the tropical storms bearing heavily on the airline companies, the scenario for future looks very grim.

Bleak Third-Quarter Forecasts

Several airline companies have trimmed their third-quarter outlook, primarily due to natural disasters.

United Continental Holdings UAL, the parent company of United Airlines, the worst hit from Harvey has reduced views with respect to pre-tax margin and passenger revenue per available seat mile (PRASM: a key measure of unit revenue) for the current quarter. The carrier now expects PRASM to decline between 3% and 5% year over year (the earlier guidance provided in July had called for the metric to be in the range of +1% to -1%).

The carrier currently expects pre-tax margin between 8% and 10% (previous outlook had called for the metric to be in the range of 12.5-14.5%). Higher fuel prices are also estimated to hamper the bottom line in the third quarter. Fuel price per gallon is now projected in the band of $1.72-$1.77 (earlier view: $1.56-$1.61). Cost per available seat miles, excluding fuel, profit-sharing, third-party business expenses and other special items are now projected to increase between 2.5% and 3.5% (earlier outlook had called for a rise in the 2-3% range).

The Chicago-based company now expects capacity to grow between 3% and 3.5% compared with the approximate 4% expansion projected earlier.

Spirit Airlines SAVE with significant exposure to Houston expects the top line to shrink to the tune of approximately $8.5 million in the third quarter due to natural calamity. Currently, Spirit Airlines anticipates total revenue per available seat mile (TRASM: a key measure of unit revenue) in the current quarter to fall between 7% and 8.5% (the earlier guidance had called for a drop in the band of 2-4%). Aggressive competitive pricing in key markets also contributed to this bleak forecast.

Delta Air Lines DAL also trimmed outlook for the third quarter due to stiffer competition and higher fuel costs. The carrier now estimates passenger unit revenue for the said quarter to improve in the range of 2-3%. Past view had called for growth in the 2.5-4.5% band. The airline also raised outlook for fuel prices to $1.68-$1.73 from the earlier $1.55-$1.60 bracket on the back of upsurge in market price, which began in late July.

Apart from the above carriers, the likes of JetBlue Airways Corp. JBLU and Southwest Airlines Co. LUV also cut their respective unit revenue views for the third quarter. American Airlines Group AAL expects TRASM to grow at a slower pace in the third quarter due to difficult year-over-year comparisons.

High Labor Costs

Steep labor costs have been hitting the airline stocks for quite some time now. In fact, the future scenario also seems dull and the metric is expected to affect the third-quarter results as well.

Zacks Industry Rank Highlights the Drab Scenario

The Zacks Industry Rank of 202 (out of 250 plus groups) carried by the Zacks Airline industry further highlights the plight of the airlines. This unfavorable rank places the companies in the bottom 21% of the Zacks industries.

We classify our entire 250-plus industries into two groups: the top half (i.e. industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).

Over the past decade, using a week’s rebalance, the top half beat the bottom half by a factor of more than 2 to 1.

Click here to know more: About Zacks Industry Rank

Price Performance

The dim outlook of the airlines is evident from the fact that the Zacks Airline Industry has underperformed the broader market in the last three months. While the S&P 500 index has gained 2.4%, the industry has declined 4.2%.

 

4 Airline Stocks to Dump Now

Keeping the above-mentioned headwinds in view, we have zeroed in on four stocks for investors to offload from their respective portfolios.

Spirit Airlines, Inc. operates an airline based in Fort Lauderdale, providing travel opportunity principally to and from South Florida, the Caribbean as well as Latin America. The company based in Miramar, FL currently carries a Zacks Rank #5 (Strong Sell) and has a Momentum Score of F, highlighting its short-term lack of appeal. The earnings per share growth rate of the company for the next five years is 8%, which compares unfavorably with the industry’s 9.1%.

The stock has seen the Zacks Consensus Estimate for current-quarter earnings being revised 17.6% downward in the last 30 days.

Alaska Air Group, Inc. ALK is a holding company of primarily Alaska Airlines, Virgin America and Horizon Air Industries. The company based in SeaTac, WA carries a Zacks Rank #5 and a Momentum Score of D. The earnings per share growth rate of the company for the next five years is 6.3% and the reading is much below the industry’s 9.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for current-quarter earnings has been revised 2.4% downward over the last 30 days.

United Continental Holdings, Inc. is the holding company for United Airlines and Continental Airlines. The company based in Chicago, IL carries a Zacks Rank #5 and a Momentum Score of F. The coming five years’ earnings per share growth rate of the company is 6.1%, lagging the industry’s reading of 9.1%.

The Zacks Consensus Estimate for current-quarter earnings has been revised 32.4% downward in the last 30 days.

Delta Air Lines, Inc. is a leading international carrier in America. The company headquartered in Atlanta, GA carries a Zacks Rank #5 and a Momentum Score of F. The company’s earnings per share growth rate for the next five years is 7.6%, falling short of the industry’s 9.1% figure.

The Zacks Consensus Estimate for current-quarter earnings has been revised 11.1% downward in the past 30 days.

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Argo Group and Units' Credit Ratings Retained by A.M. Best

Posted Fri Sep 22, 02:10 pm ET

by Zacks Equity Research

Argo Group International Holdings, Ltd’s AGII Long-Term Issue Credit Rating (ICR) of “bbb” has recently been reiterated by A.M. Best. The credit rating agency has also retained the Financial Strength Rating of “A” (Excellent) and the Long-Term Issue Credit Ratings of “a” for Argo Re Ltd. and its subsidiaries.

At the same time, the rating agency has also retained the Long-Term Issue Credit Rating of “bbb” and the Long-Term IR of “bbb” on 6.5% $143.75 million senior unsecured notes, scheduled to mature by 2042. The outlook remains stable.

The rating affirmations of Argo Re came on the back of solid capitalization, sturdy operating performance and an effective enterprise risk program. The ratings also reflect Argo Re’s wide range of insurance and reinsurance programs, financial flexibility of its parent company, losses from Hurricanes Harvey and Irma remaining within the company’s risk tolerance level, plus the buyout of Maybrooke Holdings Limited, this February.

A.M. Best noted Argo Re’s noteworthy expertise in niche markets and solid underwriting results across varied lines of business to poise it well. The company boasts a solid business profile with huge global presence, complementing its U.S. presence in the excess and surplus lines sector and specialty admitted markets.

However, these positives are weighed down by potential earnings volatility in the group’s underwriting operations, heightened competitive as well as slow economic recovery worldwide.

A.M. Best stated that the ratings could be upgraded if the underwriting as well as the operating results of the company could be enhanced along with an increase in risk-adjusted capital.

Similarly, the ratings would be subject to downgrade, provided there is a decline in the company’s underwriting performance due to a material adverse loss reserve development or if the company has to incur huge losses in comparison to peers, possibly leading to a reduction in risk-adjusted capital.

Rating affirmations or upgrades have always played a significant role in retaining investors’ confidence as well as exhibiting a stock’s credit worthiness. Whereas, rating downgrades reflect companies’ deteriorating finances, thereby escalating the cost of further debt issuances. We believe that these ratings will not only help Argo Group retain investors’ faith but also enable it to write more business going forward. 

Zacks Rank and Share Price Movement

Argo Group carries a Zacks Rank #3 (Hold). Shares of the company have underperformed the industry in a year’s time. While the stock has gained 6.4%, the industry has registered a 24.1% increase. Strategic acquisitions and solid underwriting results are expected to drive the stock higher in the future.

 

 

Stocks to Consider

Some better-ranked stocks from the insurance industry are Atlas Financial Holdings, Inc AFH, Markel Corp. MKL and Mercury General Corp. MCY, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Atlas Financial Holdings engages in underwriting commercial automobile insurance policies in the United States. The company delivered positive surprises in two of the last four quarters with an average beat of 57.94%

Markel markets and underwrites specialty insurance products in the United States and internationally. The company delivered positive surprises in two of the last four quarters with an average beat of 21.06%

Mercury General engages in writing personal automobile insurance in the United States. The company delivered positive surprises in three of the last four quarters with the average beat being 1.06%.

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