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Zacks #1 Stocks on the Move 08/24/2016

Company Name Symbol %Change
DIXIE GROUP DXYN
8.62%
HERITAGE CRY HCCI
4.93%
MATADOR RESO MTDR
2.85%
SPARK ENERGY SPKE
2.50%
QORVO INC QRVO
2.49%

Analyst Blog

Mexico's IFT Defers 2.5 GHz Band Wireless Spectrum Auction

Posted Wed Aug 24, 03:50 pm ET

by Nalak Das

Mexico’s telecom regulatory authority, the Federal Telecommunications Institute (IFT) recently deferred the planned auction of its 2.5 GHz band (2500MHz-2690MHz) wireless spectrum. It has been postponed from second half of 2016 to first quarter of 2017. Notably, wireless spectrums of 2.5 GHz band are very suitable for the deployment of 4G LTE networks.

The reason for the delay is to coincide it with a change in the bidding schedule for 4G LTE shared wireless network using 90 MHz of spectrum within the 700 MHz-band to cover nearly 98% of the population by 2018. In 2014, the Mexican government had undertaken this massive project of shared wireless network to instil competition in the highly monopolistic telecom industry.

Mexico's Secretariat of Communications and Transport (SCT) initially scheduled to declare the name of 700 MHz band tender winners on Aug 24, 2016.

However, SCT first delayed it to Sep 29 and then further to Nov 17. The SCT cited the number of tenders along with the complexity of queries and requests for clarification submitted by the bidders as the primary reason behind the delay. Final contracts will be signed on or before Jan 27, 2017.

In May 2015, the government of Mexico slashed its planned expenditure from $10 billion to $7 billion for the proposed deployment of the nationwide wholesale mobile network over a period of 10 years. The primary reason for the cut in the planned expenditure was the government’s belief that 12,000 mobile towers should suffice for the installation of this network as against 20,000 estimated previously.

Various leading telecom infrastructure equipment developers with global operational experience offered bids for the state-owned mobile network project. Notable among them were Ericsson AB ERIC, Nokia Corp. NOK, Cisco Systems Inc. CSCO, Motorola Solutions Inc. MSI, China Telecom Corp. Ltd. CHA, Alestra, and Huawei Technologies Co. Ltd. The SCT received 39 tenders from interested parties.

Mexico is the largest economy in the Latin American region with a growing middle class population eager to spend more on high-speed wireless networks to facilitate the use of smartphones and tablets. Additionally, the wireless penetration rate is relatively low in the country. Given the potential for growth, an investment in the nation may augur well for telecom network equipment manufacturers.

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Monster Beverage Gains from Strength in Energy Drinks Category

Posted Wed Aug 24, 03:40 pm ET

by Zacks Equity Research

On Aug 23, we issued an updated research report on Monster Beverage Corporation MNST.

On Aug 4, 2016, Monster Beverage reported second-quarter 2016 results. Adjusted earnings of 99 cents per share missed the Zacks Consensus Earnings Estimate by 4.8%. However, earnings per share increased 25.3% year over year owing to lower tax rate and strong revenues.

Net sales of $827.5 million beat the Zacks Consensus Estimate by 2.4% and increased 19.3% year over year. The net sales increase was driven by strong domestic and international demand for Monster Energy brand energy drinks.

MONSTER BEVERAG Price and EPS Surprise

MONSTER BEVERAG Price and EPS Surprise | MONSTER BEVERAG Quote

Monster Beverage’s long-term fundamentals remain impressive. The company reported strong gross margin expansion through 2015 and first half of 2016 on the back of price increase, strong sales of Monster Energy brand drinks and a favorable segment mix.

Moreover, with The Coca-Cola Company KO deal, Monster Beverage is aggressively expanding in international markets, supported by strong demand in the energy drink category.

The company has a number of new products in its pipeline for late 2016 and early 2017, which should drive the top line further. These new products benefits from a broader distribution network as a result of the Coca-Cola deal. Also, the acquisition of American Fruits and Flavors is encouraging as it stabilizes flavor supply for the company.  

Though the U.S. dollar has softened against other currencies lately, the impact of unfavorable currency translations is still significant. Also the transitional impact of the Coca-Cola deal continues to hurt profits.

Monster Beverage has a Zacks Rank #3 (Hold).    

Stocks to Consider

Some better-ranked stocks in the consumer staples sector include Primo Water Corp. PRMW and Constellation Brands Inc. STZ. Both the three companies carry a Zacks Rank #2 (Buy).    

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Apollo Global (APO) to Pay $52.7M to Settle SEC Charges

Posted Wed Aug 24, 03:18 pm ET

by Zacks Equity Research

Apollo Global Management, LLC’s APO four private equity fund advisers have entered into a deal with the U.S. Securities and Exchange Commission (SEC) to pay $52.7 million to resolve the charges filed against the company.

Allegations

Apollo Global advisers failed to properly disclose the benefits they had received by accelerating the payment of future monitoring fees, owed by the funds' portfolio companies, when those companies were sold or became the subject of an IPO. This incident is anticipated by the SEC to have taken place between 2011 and 2015.

This act was detrimental to the interests of the fund investors as the lump sum payments received by the advisers reduced the value of the portfolio companies, leading to a decline in the amount available for distribution to the investors.

Further, the SEC also found that between 2008 and 2013, one of the Apollo Global advisers misled the investors by failing to disclose some information about the interest payments made by the company on a $19 million loan.

The purpose of the loan was to defer taxes on carried interest, which was due to the general partner. The general partner paid interest on the loan, which was disclosed in the fund’s financial statements as interest accrued on an asset of the fund. However, the interest was actually being allocated to the general partner, which in turn made the disclosure misleading.

Moreover, Apollo Global also failed to manage one of its former senior partners. Between 2010 and 2013, the partner charged personal items and services to the Apollo funds and its companies.

Earlier, Apollo Global verbally reprimanded the partner after he admitted to charging personal expenses and reimbursed the company for the same. Again in 2012, when more personal expenses resurfaced, the company verbally reprimanded the partner, but it did not impose further discipline or supervision.

However in 2013, a forensic review of the partner’s expenses reflected that he has charged even more personal expenses to the fund’s clients. Hence, Apollo Global and the partner entered into a separation agreement in 2014 and the company was once again reimbursed.

What’s Next?

Apollo Global’s failure to take a proper action when it first learned that a partner was improperly expensing personal items and services to the funds’ clients resulted in a repeated misconduct. Further, the company should be cautious about its accelerated fee receipt activities as the SEC conducts a multi-year investigation into fee disclosure at private equity firms, resulting in several enforcement actions against firms, which often involve accelerated monitoring fees.

Currently, Apollo Global carries a Zacks Rank #3 (Hold).

Some better-ranked investment management stocks include Eaton Vance Corp. EV, Federated Investors, Inc. FII and Principal Financial Group Inc. PFG, each holding a Zacks Rank #2 (Buy).

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Goldman to Cut More Investment Banking Jobs in New York

Posted Wed Aug 24, 02:44 pm ET

by Zacks Equity Research

Continuing its strategy to lower workforce in investment banking unit, The Goldman Sachs Group, Inc. GS has announced yet another round of job cuts in New York. This news was reported by Bloomberg.

As per the notice to the New York Labor Department, Goldman plans to eliminate 15 additional jobs by the end of 2016. While the affected employees were notified in July about the impending cuts, the company will begin the process on Oct 3.

Goldman has been retrenching workers across various lines of businesses since the beginning of this year. Notably, this can be termed as the fifth round of job cuts in New York this year, with prior announcements of 408 cuts (in batches). As of Jun 30, 2016, the company had around 34,800 employees.

Generally, Goldman dismisses nearly 5% of the annual workforce to make way for new recruits. However, this time the company has extended this to 10% of its workforce in the investment banking unit. The primary reasons for trimming workforce is persistent slump in trading and deal making.

Further in Jun 2016, Goldman retrenched employees in the investment banking division in London, New York and Hong Kong in the wake of reduced deals and a slump in profits. The positions included managing directors, executive directors and vice presidents in the mergers and debt and equity capital markets units.

Meanwhile, Goldman is not the only one retrenching its workforce owing the trading slump. Morgan Stanley MS is also slashing staff at its fixed income division. Additionally, many other major foreign companies including Credit Suisse Group AG CS and Deutsche Bank AG DB are eliminating employees.

Goldman currently carries a Zacks Rank #3 (Hold).

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Airline Stock Roundup: UAL Management Changes; DAL, LUV in Focus

Posted Wed Aug 24, 02:13 pm ET

by Zacks Equity Research

The past week saw Chicago-based United Continental Holdings UAL shaking up its management team by appointing a new chief financial officer and chief commercial officer. A couple of updates emanated from Southwest Airlines Co. LUV over the past week.

Apart from announcing the retirement of its Labor Relations Chief, the low-cost carrier also revealed its intention to operate flights connecting Los Angeles and three Mexican destinations. Delta Air Lines DAL also featured in the news as it attempts to reach a pay-related agreement with its pilots.

Meanwhile, according to the employment data for passenger airlines, there was a substantial year-over-year increase in full-time equivalent (FTE) employment this June.

TRANSPORTATION-AIRLINE Industry Price Index

 

TRANSPORTATION-AIRLINE Industry Price Index

(Read the last Airline Stock Roundup for Aug 17, 2016).

Recap of the Past Week’s Most Important Stories

1. According to data released by the Bureau of Transportation Statistics, there was a 3.9% increase in the number of workers employed by U.S. scheduled passenger airlines in June. This marked the 32nd consecutive month of year-over-year increase. The report also stated that the number of FTEs (412,333) for June 2016 was the highest since June 2008.

According to the update, the most number of FTEs in the month were employed by the American Airlines Group AAL, among the network airlines. Southwest Airlines and SkyWest SKYW took the honors in the low-cost and regional carrier categories respectively.

2. Delta Air Lines has been facing tough time with an ongoing dispute related to the salary of its pilots. Delta has offered a 27% hike in salary to the pilots, over a period of four years. Contrary to Delta’s offer, the pilots are demanding a raise of around 37% over three years (read more: Delta Air Lines, Pilots Struggle to Reach Salary Agreement).

3. In an attempt to expand further, Southwest Airlines announced that it plans to launch new flights to Mexico later this year. The flights will operate between Los Angeles and three Mexican destinations – Cancun, San Jose del Cabo and Puerto Vallarta. The flights are expected to start from Dec 4, subject to approval from the government of Mexico (read more: Southwest Airlines Announces New Flights to Mexico).

On a separate note, Southwest Airlines declared that Randy Babbitt, Senior Vice President of Labor Relations will be retiring this fall. Babbitt is a veteran in the field of aviation with 50 years of experience. Babbitt had joined the Dallas-based low-cost carrier in 2012. Babbitt will be leaving at a time when Southwest Airlines is embroiled in a labor-related dispute, with some of its labor groups demanding the removal of the carrier’s top executives

4. United Continental Holdings announced changes to its managerial team. The company appointed Andrew Levy as Executive Vice President and Chief Financial Officer. Levy, who has had leadership experience of more than 13 years at Allegiant Travel Company ALGT, will replace the acting CFO Gerry Laderman. Laderman will go back to his position as the senior vice president, finance, procurement and treasurer.

Meanwhile, Julia Haywood has been appointed as executive vice president and chief commercial officer. The chief revenue officer and vice chairman of the company, Jim Compton, is expected to retire after the transition by the end of 2016.

The new appointments are one of the several major decisions undertaken by Oscar Munoz, as he strives to bring about a turnaround at United Continental.

5. According to an Associated Press report, air travel between the US and Mexico will become more accessible with majority of the restrictions being removed. A liberalized aviation treaty between the two countries was inked last year. This will allow freedom to the carriers to operate on any route (with limitless frequency) of their choice between the neighboring countries. With competition likely to intensify across the cross-border routes, once operational, the deal should help make airfares across the routes more pocket friendly.

 Performance

The following table shows the price movement of the major airline players over the past week and during the last 6 months. 

Company

Past Week

Last 6 months

HA

2.32%

6.43%

UAL

-0.69%

-15.59%

GOL

0.65%

310.82%

DAL

-0.89%

-25.03%

JBLU

-4.30%

-31.71%

AAL

-1.14%

-10.48%

SAVE

-0.28%

-15.16%

LUV

1.07%

-11.29%

VA

0.27%

81.49%

ALK

2.80%

-8.49%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows that airline stocks exhibited a mixed trend over the past week. Consequently, the NYSE ARCA Airline index declined marginally to $88.41 over the past 5 trading days. 

Over the course of six months, the NYSE ARCA Airline index depreciated marginally despite huge gains at GOL Linhas and Virgin America . Shares of JetBlue Airways Corp. JBLU depreciated the most (31.71%) over the period.

What's Next in the Airline Space?

We anticipate further updates on Delta’s ongoing pay-related dispute with its pilots. Moreover, stay tuned for usual news updates in the space.

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Biotech Stock Roundup: Medivation to Pfizer, Clovis Priority Review

Posted Wed Aug 24, 02:09 pm ET

by Arpita Dutt

The big news this week in the biotech sector was Pfizer’s announcement that it will acquire cancer-focused Medivation MDVN for $14 billion. This announcement has revived acquisition chatter in the sector with much speculation regarding which biotech company may be the next acquisition target.

Recap of the Week’s Most Important Stories

1. Medivation finally agreed to be acquired with Pfizer shelling out $14 billion for the company. Medivation was a part of acquisition talks for quite a while with the company first receiving an offer from French drugmaker Sanofi. Last month, Medivation announced that it is open to acquisition talks and entered into confidentiality agreements with several firms that had expressed an interest in exploring a potential transaction. Since then, quite a few companies were rumored to be interested in acquiring Medivation.

2. Clovis CLVS, another cancer-focused company, got some good news with the FDA granting its lead pipeline candidate, rucaparib, priority review. With Clovis submitting its regulatory application for the experimental ovarian cancer treatment in June, a response from the FDA is expected by Feb 23, 2017. Investors cheered the development with shares increasing more than 27% on the news (Read more: Clovis Stock Up on FDA Priority Review for Rucaparib).

3. Regeneron REGN is teaming up with the Biomedical Advanced Research and Development Authority (BARDA) of the U.S. Department of Health and Human Services (HHS) to manufacture and study two antibody therapies for the prevention and treatment of Middle East Respiratory Syndrome (MERS). At present, no medicines or vaccines are approved for the treatment or prevention of MERS, which causes severe respiratory tract infections and is associated with high death rates (Read more: Regeneron Stock Up on BARDA Deal for MERS Antibodies).

4. The European Commission expanded the label of Gilead’s GILD HIV drug, Truvada (once-daily) making it the first antiretroviral medicine to be licensed in Europe for pre-exposure prophylaxis, in combination with safer-sex practices, to reduce the risk of sexually acquired HIV-1 in uninfected adults at high risk (Read more: Gilead Truvada Gets EU Approval for Label Expansion)

5. Portola’s PTLA shares were down on news that the company got a Complete Response Letter (CRL) from the FDA for AndexXa (andexanet alfa), an antidote for Factor Xa inhibitors when reversal of anticoagulation is needed due to life-threatening or uncontrolled bleeding. The agency has asked for more information related to manufacturing as well as additional data to support inclusion of edoxaban and enoxaparin in the label (Read more: Portola Stock Down on CRL for AndexXa BLA in U.S.).

Performance

MEDICAL-BIOMED/GENETICS Industry Price Index

The NASDAQ Biotechnology Index gained 1.9% over the last five trading days. While all major biotech stocks were up, Alexion ALXN was up 3.3%. Over the last six months, Biogen BIIB was up 23.7% while Gilead (GILD) lost 8.8% (See the last biotech stock roundup here: Vertex Slips on Study Halt, Aurinia Plunges on Lupus Data).


What's Next in the Biotech World?

Watch out for the usual pipeline and regulatory updates from biotech companies.

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Dycom Industries (DY) Q4 Earnings, Revenues Beat Estimates

Posted Wed Aug 24, 01:39 pm ET

by Zacks Equity Research

After an incredible beat last quarter, Dycom Industries Inc. DY followed up with another impressive beat in its fourth-quarter fiscal 2016 results. The specialty contracting services provider reported adjusted earnings per share of $1.64 in the quarter, surpassing the Zacks Consensus Estimate of $1.56 by 5.1%.

The bottom-line figure was even more remarkable on a year-over-year basis, surging a whopping 69% compared with the year-ago tally of 97 cents per share.

Robust top-line growth drove earnings, while diligent operational initiatives undertaken by the company supported the bottom line.

For fiscal 2016, the posted adjusted earnings of $148.4 million ($4.48 per share), up a massive 76% from the previous-year figure of $84.3 million ($2.41 per share).

Inside the Headlines

Dycom’s fiscal fourth-quarter contract revenues continued their strong momentum, and came in at $789.2 million, up 36.4% year over year. Also, the top line beat the Zacks Consensus Estimate of $773 million. Contract revenues grew 20% on an organic basis. Acquisitions too, added $44.8 million in revenues, significantly supplementing the revenue stream.

Extensive deployment of 1-Gigabyte wireline networks by major customers and increasing rollout of fiber by cable operators in small and medium businesses boosted top-line growth. Solid performance across the majority of business lines including engineering & design and aerial and underground construction services, and healthy inorganic growth also augmented revenues.

For the full year, Dycom reported contract revenues of $2.7 billion, up over 32% year over year, on the back of sturdy organic growth.

The company reported non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $126 million for the quarter, compared with $88.5 million recorded a year ago.

The Goodman Networks Acquisition

During the reported quarter, Dycom acquired certain telecom-related assets of Goodman Networks Incorporated for about $107.5 million in cash. It purchased certain assets and associated liabilities in Goodman's current wireline and wireless network deployment businesses.

Initially, Dycom projected the buyout to generate about $150–$165 million in revenues over the next 12 months, by providing services like wireless network construction in Texas, Georgia, Southern California and other markets. This specialty contracting services provider also expected the EBITDA (earnings before interest, taxes, depreciation and amortization) of the acquired business, as a percentage of revenue, to be roughly in line with its own ratio in fiscal 2018.

However, concurrent with the earnings release, Dycom announced that the recently-acquired operations of Goodman Networks are now forecast to generate lower revenue in fiscal 2017 than initially projected. However, they are likely to produce higher EBITDA margins sooner, than anticipated earlier.

Liquidity

Dycom exited the quarter with cash and cash equivalents of $33.8 million compared with $21.3 million as of Jul 25, 2015. The company’s long-term debt was $706.2 million as of Jul 30, 2016, compared with $516.9 million as of Jul 25, 2015.

Guidance

Dycom issued guidance for first-quarter fiscal 2017, wherein adjusted earnings per share are projected in the range of $1.55-$1.70 on revenues within a range of $780–$810 million.

The Zacks Consensus Estimate for first-quarter fiscal 2017 earnings is currently pegged at $1.62 per share, within the company’s guided range.

DYCOM INDS Price and Consensus

 

DYCOM INDS Price and Consensus | DYCOM INDS Quote

Our Take

We believe Dycom’s top line has benefited significantly from favorable industry trends over the past few quarters, which are driving client spending. Deployment of fiber-to-the-home and fiber-to-the-node technologies by major telecom operators to enable video offerings and 1-gigabit high-speed connections are opening up considerable growth opportunities for the company.

Going forward, we believe that the significant investments in wireline networks, cable capacity projects and the ongoing Connect America Fund II project will help Dycom maintain its growth momentum.

Also, the company’s diligent capital expenditure strategy has supplemented organic revenue improvement over the past 12 months. We also believe that investments made in assets will bolster operating efficiency, accelerating the delivery of backlogs, which in turn bodes well for long-term growth.

This apart, Dycom has a highly concentrated client base, among which the biggest ones – i.e. AT&T, Inc. T, Comcast Corp. CMCSA, Verizon Communications Inc. VZ and Centurylink – contributed about 56% of revenues in fiscal 2015.

However, uncertainties in the macroeconomic environment, especially fluctuations in oil prices and unfavorable weather conditions, remain headwinds for the company.As a matter of fact, pronounced seasonal impact from businesses acquired by the company in 2015 has hampered earnings significantly in the past, and could affect operations in the future as well.

Dycom presently carries a Zacks Rank #3 (Hold).

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4 Top Oil Stocks with Winning Streaks at Earnings Season

Posted Wed Aug 24, 01:24 pm ET

by Nilanjan Choudhury

So far, 2016 has not been smooth sailing for the U.S. oil futures. The commodity has been very volatile this year with prices recovering from a 12-year low of $26.21 a barrel in February to $50/barrel mark in early June, slipping again to under $40 only to rally toward $50 once more.

Factors at Play

While factors like Canadian wildfires, Nigerian outages/disruptions, production issues in Venezuela and a strike by Kuwaiti oil workers contributed to jump in prices earlier this year that saw the benchmark recover significantly, these issues have largely vanished from the market. As of now, overproduction of crude and a glut of refined products keep the commodity under pressure.

At over 520 million barrels, current crude supplies are up 14% from the year-ago period and are at the highest level during this time of the year. As it is, improvement in oil fundamentals remain fragile with the existing stocks of refined product inventories – gasoline and distillate – remaining at their maximum seasonal levels in at least 20 years despite healthy demand. Piling on the misery is the Baker Hughes report revealing a steady rise in the U.S. oil rig count and pointing to the resurgence in shale drilling activities.

A number of major industry players, including Exxon Mobil Corp. XOM, Royal Dutch Shell plc RDS.A and BP plc BP have reported sub-standard second-quarter numbers as lower energy prices take a toll.

Q2 Flashback

A look back at Q2 earnings season reflects that the overall results of the Oil/Energy sector were again very weak, dragging down the aggregate growth picture for the S&P 500 index.

Despite an impressive recovery, crude prices stayed under $50 – about half the level of two years ago – and far below the breakeven price for many energy companies. Moreover, most oil producers have been churning out ‘black gold’ at full throttle, thereby letting the commodity slip.

Earnings fell by a whopping 78.9% year over year, following a 108.6% drop witnessed in the previous quarter. Things have been bad on the revenue front too, which was down 24.4% in the June quarter after declining 29.3% in the previous three-month period.

Beating the Odds

However, like always, there were some companies that trumped these challenges and stood out with great earnings surprises. While not every company that posts positive earnings surprises witnesses a gain in stock price, studies show that on an average, earnings beats drive strong returns in share prices for several weeks following the report. Picking out and investing in such stocks can boost your portfolio returns.

Earnings Surprise History Is Important

With a few energy firms outperforming Q2 estimates, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver attractive returns.

However, a history of positive earnings surprise generally works as a catalyst in sending a stock higher. It indicates the company’s ability to surpass the estimates. So, investors take it in their consideration while betting on the stock with the expectation that the company will do the same trick to outpace the estimates in the upcoming release.

The Zacks Rank, which justifies a company’s strong fundamentals, can also come in really handy.

Finally, the chosen ones have VGM Score less than or equal to B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.

Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential.

4 Stocks to Invest In

Independence Contract Drilling Inc. ICD: Houston, TX-based Independence Contract drilling offers land drilling services for oil and natural gas producers primarily in the U.S.

Zacks Rank: #2

VGM Score: ‘B’

Average EPS Surprise in the Last 4 Quarters: 48.77%

McDermott International Inc. MDR: Incorporated in 1959, Houston, TX-based McDermott International is an engineering and construction company, solely focused on the offshore oil and gas business.

Zacks Rank: #2

VGM Score: ‘A’

Average EPS Surprise in the Last 4 Quarters: 481.54%

NGL Energy Partners L.P. NGL: It is a limited partnership operating a vertically integrated propane business with three operating segments: retail propane; wholesale supply and marketing; and midstream.

Zacks Rank: #1

VGM Score: ‘B’

Average EPS Surprise in the Last 4 Quarters: 228.54%

Subsea 7 S.A. SUBCY: London-based Subsea 7 is a leading oilfield contractor engaged in the designing, procurement, building, installation, and servicing of a range of offshore surface and sub-surface equipment for the oil and gas industry.

Zacks Rank: #2

VGM Score: ‘A’

Average EPS Surprise in the Last 4 Quarters: 71.63%

Bottom Line

Historical earnings surprise can be viewed as a key metric for share price outperformance and can greatly increase your odds of grabbing big winners.

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Raven Industries (RAVN) Q2 Earnings Up Y/Y, Shares Soar

Posted Wed Aug 24, 01:20 pm ET

by Zacks Equity Research

Shares of Raven Industries Inc. RAVN surged around 11.6% to close at $24.00 yesterday, after it reported second-quarter fiscal 2017 (ended Jul 31, 2016) results. Earnings per share increased around 9% to 12 cents per share from 11 cents earned in the year-ago quarter. The bottom line improved as the repurchase actions taken over the past 12 months resulted in lower outstanding shares.

Operational Update

Sales increased around 0.8% year over year to $68 million in the quarter. Sales growth in the segments of Applied Technology and of Engineered Films, were offset by declining sales in the Aerostar segment.

RAVEN INDS INC Price, Consensus and EPS Surprise

 

RAVEN INDS INC Price, Consensus and EPS Surprise | RAVEN INDS INC Quote

Cost of sales decreased 0.5% to $49.4 million. Gross profit increased 4.3% to $18.6 million from $17.9 million in the year-ago quarter. Gross margin expanded 100 basis points (bps) year over year to 27.4%.

In the quarter, selling, general and administrative expenses went up 1.1% to $8.3 million from $8.2 million in the year-ago quarter. Operating income declined 0.5% to $6.4 million with operating margin contracting 10 bps to 9.4%.

Segment Performance

Applied Technology: Sales grew 13% year over year to $23 million. Sales to the aftermarket and OEM channels grew 13.5% and 12.9%, respectively, versus that in the prior year. Geographically, domestic sales were up 14% year-over-year, and international sales were up 11.1% year-over-year.

As against the prior year quarter, the operating income improved 27.8% to $5.2 million driven primarily by higher sales volume and lower manufacturing costs. Operating margin expanded 250 bps to 22.3% led by lower manufacturing expenses.

Engineered Films: The segment reported sales of $36.7 million, up 2.4% year over year. The increase in sales was driven mainly by higher sales into the Construction and the Industrial markets, partly offset by volume declines in the remaining markets.

Operating income rose 24% to $6.7 million due to higher sales volumes and lower operating expenses. Segment operating margin expanded 320 bps to 18.2% driven by raw material efficiencies and improved capacity utilization.

Aerostar: Sales in the segment were $8.4 million, reflecting a 25.7% decline from $11.3 million in the prior-year quarter, impacted by the timing of aerostat contracts with the U.S. government.

The segment reported an operating loss of $0.5 million, as against a profit of $1.3 million in the year-ago quarter. This decline in operating income was due to a significant reduction in aerostat sales year-over-year as well as the deferral of $1.4 million of pre-contract costs in the second quarter of last year that were related to certain international Vista Research pursuits.

Financial Update

Raven ended the quarter with cash and cash equivalents of $40 million, compared with $47.6 million at the end of the prior year quarter. The company generated cash flow from operations of $25.6 million for the six-month period ended Jul 31, 2016 compared with $23.7 million in the comparable year-ago period.

During the second quarter of fiscal 2017, Raven repurchased around 100,000 shares at an average price of $19.57 per share, worth $2 million. The remaining authorization at the end of the second quarter was $13 million.

Outlook

Raven expects to exceed prior year sales and adjusted operating income in fiscal year 2017. In applied technology, the company is increasing market share through technological advancements. Through sustained funding of key R&D projects over the last few years, it introduced two significant new products, Hawkeye nozzle control system and next-generation rate control system. These products are receiving very favorable customer feedback and generating strong demand. This is expected to continue in the second half of the year and into fiscal 2018.

In engineered films, Raven witnessed stabilization in the energy and geomembrane markets, albeit at a much lower level than the prior year. In the second half of the year, the company expects improvement in the overall sales performance for the division.

Raven is also focused on turning the Aerostar segment back to profitability. The company remains attached to its focus on building opportunities and converting these opportunities to backlog.

However, with U.S. corn prices persistently low and given the forecast for lower agricultural equipment sales volume through the rest of the year, the company believes the U.S. agricultural market will be a challenge.

South Dakota-based Raven is an industrial manufacturer offering a variety of products for agricultural, industrial, construction and aerospace markets. The company operates through three business segments – Engineered Films, Applied Technology and Aerostar.

Zacks Rank

Raven currently carries a Zacks Rank #3 (Hold).

Some better ranked stocks in the same sector are Barloworld Ltd. BRRAY, Crane Co. CR and ACCO Brands Corp. ACCO. All these stocks carry a Zacks Rank #2 (Buy).

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Reinsurance Group Hits 52-Week High on Solid Q2 Earnings

Posted Wed Aug 24, 10:53 am ET

by Zacks Equity Research

On Aug 23, 2016, shares of Reinsurance Group of America Inc. RGA hit a 52-week high of $103.60, driven by strong second-quarter 2016 results. About 0.2 million shares exchanged hands in the last trading session and the stock finally closed at $103.30, up 1.08%. Year to date, the stock has returned 20.75%, which is better than 6.99% returned by the S&P 500.

Reinsurance Group’s operating income of $2.80 per share outperformed the Zacks Consensus Estimate by 22.7%. The bottom line also improved 44% from the prior-year quarter. Better results in the Canada segment owing to favorable mortality, consistent momentum in the U.S. Asset-Intensive business and robust performance in the Asia Pacific drove the upside. This Zacks Rank #3 (Hold) life insurer delivered positive surprises in two of the last four quarters, with an average beat of 3.6%.

Total revenue of the company improved, primarily due to higher premiums. Further, rise in the life insurer’s net premium came on the back of organic growth and in-force transactions.

Reinsurance Group continues to benefit from a mix of organic and transactional opportunities. In addition, the company is poised to benefit from an improving life reinsurance pricing environment.

The company has been displaying a well-balanced execution of its capital management strategy through share buybacks and some small in-force transactions. In keeping with this, the company bought back 11 million shares in the second quarter and currently has $280 million remaining under its share repurchase authorization. With excess capital of around $1 billion, the company has been able to maintain its financial flexibility, which will allow it to continue healthy capital management, thereby boosting profitability.

Notably, the life insurer increased quarterly dividend by 11% to 41 cents in the reported quarter.

Based on the robust second-quarter earnings performance, the Zacks Consensus Estimate also moved north as most of the estimates were revised higher over the last 30 days. The same increased 5.8% to $9.45 for 2016 and inched up 0.2% to $9.82 for 2017.

REINSURANCE GRP Price and Consensus

 

REINSURANCE GRP Price and Consensus | REINSURANCE GRP Quote

Stocks to Consider

Some better-ranked stocks from the same space include Health Insurance Innovations, Inc. HIIQ, Genworth Financial, Inc. GNW and Primerica, Inc. PRI. While Health Insurance Innovations sports a Zacks Rank #1 (Strong Buy), both Genworth Financial and Primerica hold a Zacks Rank #2 (Buy).

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