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Analyst Blog

Google Roundup: Regulatory Matters, Waymo, GM Deal, Employees

Posted Wed Sep 18, 02:27 pm ET

by Sejuti Banerjea

Alphabet’s GOOGL Google is up against a lot of scrutiny from U.S. regulators, which overshadows its legal win in Germany, self-driving prowess and strategic wins at traditional automakers. Here are the details-

U.S. States Against Google

Fifty state Attorneys General led by Texas along with the U.S. Department of Justice are behind the investigation into Google’s online advertising business to see if it resorted to anticompetitive behavior.

For too long, regulators have looked the other way and it seemed like technology companies could do no wrong. That’s how key acquisitions that solidified their market positions were approved, helping to build their dominance in the first place. In Google’s case, these acquisitions would be ad buying platforms DoubleClick and AdMob and video sharing site YouTube. In Facebook’s FB case, it would be WhatsApp and Instagram. Apple AAPL and Amazon AMZN have largely grown on the strength of their own products and business models.

Acquisitions aside, Google offers very attractive bundles of its ad tools that publishers just can’t afford to ignore, especially because of the way they connect up with its advertising marketplace.

Then again, as a result of its control over its ad buying platform for YouTube and search, rival platforms that target only limited audiences are less attractive to advertisers. This in turn increases its dominance.

As things stand now, it’s likely to be very messy for Google as regulators expand their investigation to other areas as well. But there doesn’t seem to be any immediate solution to the problem. Unlike Facebook, Google’s ad buying platform and marketplace are integral to its core business and splitting them could destroy the company altogether. Keeping them together would require constant regulatory oversight.

Google denies its dominance. "Ad tech is a very crowded field, and Google competes with hundreds of companies, including household names like Adobe ADBE, Amazon, AT&T T, Comcast, News Corp and Verizon," company spokesman Josh Zeitz said. "Publishers and advertisers mix and match technology partners to meet their different needs, creating both competition and innovation."     

Fined For Evading Taxes In France

Google settled its tax dispute with French authorities that have been investigating it since 2016, when they raided its French offices. A French court ordered it to pay a €500 million fine, in addition to the €465 million in back taxes it had already agreed to pay. That adds up to more than a billion dollars. The finance ministry was looking for 1.6 billion euros, so it was much better than what it could have been.

Legal Win Against German Publishers

In April, the EU changed its copyright rules, requiring Google to pay publishers for news snippets and other copyrighted material used and Facebook to filter out copyrighted content. The 28 member nations are required to implement the changes within two years.

Google’s legal dispute with VG Media, which is a consortium of about 200 publishers, was earlier referred to the European Court of Justice because the latter was looking for a billion euros in copyright fees based on violation of a German law that came into force in August 2013. The EC ruled that the law was not enforceable because it was made without prior notification to the EC.

VG Media, alleged that Google used text excerpts, images and videos produced by its members without paying them.

YouTube Fined for Kids’ Data Collection

Google’s YouTube is paying $170 million to settle with the Federal Trade Commission (FTC), of which $34 million will go to the New York attorney general's office.

The FTC found that Google collected information of viewers of children's channels using cookies, and then using them to target a million dollars’ worth of advertisements at them. What’s more, all this was done without parental consent.

The law banning the collection of children’s (under-13) data that came into force in 1998 was amended in 2013 to include cookies.

Apple Arcade Competitor

Google tweeted about a new subscription service called Google Play Pass that it has been testing with users willing to shell out $4.99 per month for unlimited access to games. Like Apple’s service, it may not require additional in-app purchases. It’s hard to say who’s following who in this, but it appears clear that the two tech giants are looking to go head to head.

Waymo Trucking

The Frankfurt motor show saw Waymo CEO John Krafcik talking about the application of its self-driving technology dubbed Waymo Driver to trucks. Germany and other aging populations are expected to see a sharp decline in truck drivers, so this could be a viable alternative, if it gets on the road.

"Our technology can also make trucking safer and stronger, and fill a pressing need for more drivers in many parts of the world,” he said. Road tests of the Waymo Driver in Class 8 trucks across the U.S have been conducted and the company is currently working with shippers, truck makers, and Tier One suppliers to ensure successful deployment.

Uber UBER is also in the race.

GM Deal

General Motors has signed up for Google’s embedded technology for navigation, voice activated controls and other vehicle infotainment functions starting in 2021 for all the cars that they sell outside China. So Google Assistant will take care of commands within the cars. The deal follows similar ones with Renault-Nissan and Volvo, and underscores the robustness of its technology that helped it move past Amazon.

The scope of the deal, according to media reports, is 3.6 million cars for the GM alliance and 10 million for the Renault-Nissan one. Google says that fears of snooping are overblown, as it won’t have access to driver information. And Apple’s CarPlay and AndroidAuto will continue to enable the projection of consumers’ smartphone screen onto the dashboard screen for GM cars.

Restricting Employee Communication

After Fox News aired the story last month and President Trump jumped in to claim that Google would try to influence the 2020 election against him, the company settled with the National Labor Relations Board (NLRB). So it will now post notices reminding employees of their federal rights, which include communicating with each other about workplace conditions and pushing for changes, such as pay raises and safety improvements.

The controversy was sparked by a former employee, Kevin Cernekee, whose complaint said that Google had violated his rights to engage with other employees about workplace issues. Before that, he said that he was fired for expressing a conservative view on company chat forums. Google disagreed, saying it was for downloading confidential company documents onto a personal device.

Recommendation

Google shares carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.

See 7 breakthrough stocks now>>

General Motors (GM) Workers Strike: What You Need to Know

Posted Wed Sep 18, 12:10 pm ET

by Zacks Equity Research

The United Auto Workers’ (UAW) nationwide strike against General Motors GM since Sunday midnight has been making headlines. With around 48,000 workers picketing at General Motors’ factories, this marks the first major stoppage at the company in the last 12 years. Reportedly, the strike has led to the shutdown of 33 manufacturing plants in nine states across the United States and 22 parts-distribution warehouses.

The UAW called a strike against the U.S. auto giant after the country’s labor contract negotiations hit an impasse. While the UAW union signed indefinite contract extensions with Ford F and Fiat Chrysler FCAU, General Motors’ four-year contract with workers expired on Sep 15 without any agreement on replacement.

UAW Demand for Overdue Reward From General Motors

When General Motors had filed for bankruptcy in 2009, the company’s unionized workers bore the brunt of the downturn to help revive the firm’s financial health. The workers had agreed to give up pay increases and made other concessions to help the company stay afloat during the trying times. During that period, the UAW permitted General Motors to employ a new workforce at roughly half the hourly wage and lower retirement benefits. Also, the company was allowed to hire temporary workers with even less pay package and benefits.

While the workers had given up several concessions during General Motors’ hard times, it bounced back and delivered strong profits over the past few years. The UAW strongly feels that it is high time for General Motors to share part of its profits and that the workers deserve a higher pay to recover from their past concessions.

The labor union wants the company to boost workers’ pay and profit-sharing bonuses. In addition to fair wages, the UAW is also asking for affordable and quality health care benefits as well as job security for the workers. Job protection and the reopening of some idled factories in North America have also been part of the contract negotiations.

The company caused quite the uproar last year when it revealed plans of shuttering five factories in the United States and Canada, as well as slashing 14,000 jobs over the next two years. General Motors’ decision received a backlash, as many were of the opinion that the company had failed to use millions of dollars received from corporate tax cuts to invest properly in workers.

General Motors’ Take on the Scenario

While the labor union is of the opinion that General Motors has been largely unresponsive to its demands, the U.S. auto giant claims that it has presented a solid offer to improve workers’ wages and benefits. The company intends to make $7 billion worth of factory investments in the United States and create more than 5,400 additional jobs. General Motors has pledged to build an all-new electric pickup truck at the Detroit Assembly Plant. The company also plans to open a battery-cell manufacturing facility in Lordstown, OH.

The firm also cited that the said offer includes wage increases, higher profit sharing, additional health benefits and a payment of $8,000 to each worker upon ratification. However, the UAW is not of the opinion that General Motors’ offer addresses key demands to its satisfaction.

Final Thoughts

Notably, General Motors’ last major strike was in 2007 when 73,000 workers at more than 89 facilities walked off the job for two days. Although negotiations between General Motors and the UAW is underway, there’s no guarantee of a quick resolution. While a few days’ strike may hamper the firm’s third-quarter earnings a bit, it would not cost the company much. However, if the strike lasts for weeks or longer, it may likely lead to a shutdown of General Motors’ factories in Canada and Mexico, as well as adversely impact the firm’s revenues and earnings. With dealers missing out on sales due to lack of inventory, it will become difficult for General Motors to recoup the lost volumes and revenues. A prolonged strike will destabilize the company and may hurt the broader U.S. economy as well.

As of now, both warring sides - the management and the labor union - are waiting for the other side to blink first.

Zacks Rank and A Key Pick

General Motors currently carries a Zacks Rank #2 (Buy). Another top-ranked player in the same industry is IAA, Inc. IAA, holding a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.

See 7 breakthrough stocks now>>

Here's Why You Should Retain Globus Medical (GMED) Stock Now

Posted Wed Sep 18, 11:16 am ET

by Zacks Equity Research

Globus Medical, Inc. GMED has an impressive growth trajectory, courtesy of robust expansion of its product portfolio.

In a month’s time, the stock has gained 2% against the industry’s 1.3% decline.

This renowned global developer of healthcare solutions for muscular disorders has a market cap of $5.06 billion. Also, it has an expected earnings growth rate of 12% for the next three to five years.

Banking on solid prospects, this Zacks Rank #3 (Hold) stock is worth retaining for now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 Key Catalysts

Steady Pace of Product Development: Following a robust first-quarter 2019, in terms of product launch, Globus Medical launched four additional systems in spine during the second quarter. Furthermore, the recently obtained FDA clearance for the company’s interbody module buoys  optimism. Globus Medical is currently on track to commercially market this product and launch its spine deformity solution in early fourth-quarter 2019.

Strong International Foothold: In the last reported quarter, Globus Medical’s international business grew 26.7% on a constant-currency basis. Growth was particularly strong in Japan, Spain, Italy and the United Kingdom. The company acquired the global operations and the distribution channel of Alphatec Holdings (Alphatec International) to amplify its worldwide base.

Globus Medical, Inc. Price

U.S. Spine Arm Expands Domestically: Globus Medical’s U.S. Spine business accelerated considerably in the second quarter, up 13% over the year-ago period. This reflects a steady growth trend over the past four quarters. Implant pull-through from ExcelsiusGPS placements and contributions from competitive recruiting were the primary growth drivers.

Concerns

Pricing Pressure Persists: The musculoskeletal devices industry is characterized by intensifying competitive pricing pressure. Hence, pricing continues to remain a major headwind for Globus Medical. In 2019, full-year pricing pressure is expected in the range of zero to negative 2%.

Escalating Expenses: In the second quarter of 2019, Globus Medical faced serious costs and expense pressure. Research and development expenses were up 12.5% due to increased investments in the INR platform. This has been putting pressure on the company's bottom line.

Which Way Are Estimates Treading?

For the third quarter of 2019, the Zacks Consensus Estimate for earnings is pegged at 43 cents. The figure indicates 9.7% rise from the year-ago quarter’s reported figure. The same for revenues stands at $186.6 million, calling for year-over-year growth of 10.3%.

For 2019, the Zacks Consensus Estimate for earnings is pegged at $1.71 that suggests 2.6% year-over-year growth. The same for revenues is pinned at $774.2 billion, which indicates an 8.6% rise from the prior-year quarter’s reported figure.

Key Picks

Some better-ranked stocks in the broader medical space are Medtronic MDT, Baxter BAX and Haemonetics HAE, each carrying a Zacks Rank #2 (Buy).

Medtronic’s long-term earnings growth rate is expected to be 7.13%.

Baxter’s long-term earnings growth rate is projected at 12.8%.

Haemonetics’ long-term earnings growth rate is expected to be 13.5%

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.

See 7 breakthrough stocks now>>

Delta (DAL) Stock Gains 19% Year to Date: More Upside Left?

Posted Wed Sep 18, 11:10 am ET

by Zacks Equity Research

Delta Air Lines DAL has had an impressive run on the bourses so far this year on the back of the tailwinds like healthy demand for air travel and its shareholder-friendly approach. Evidently, shares of this Atlanta, GA-based airline behemoth have gained 19%, outperforming its industry’s 7.3% growth on a year-to-date basis.



Let's delve deep to unearth the reasons behind the company's impressive price performance and find out if there is room for further appreciation:

Delta is benefiting from upbeat passenger revenues on account of robust demand for air travel. In the first half of 2019, passenger revenues, which account for the bulk of the company's top line, increased 7%. In fact, strong passenger revenues have helped the company outperform on the bottom-line front in the first two quarters of 2019.

Anticipating demand to remain strong, Delta raised the current-year earnings projection in July. The carrier now expects 2019 earnings per share between $6.75 and $7.25 (earlier view: $6-$7 per share). For the current year, earnings per share are expected to increase 25% year over year.

We are also impressed by the company’s efforts to reward its shareholders through dividends and buybacks. In the first six months of 2019, Delta returned more than $2 billion to its shareholders through dividends ($462 million) and share buybacks ($1,568 million). In fact, the carrier has returned $14 billion to its shareholders via dividends and share buybacks since 2013.

Moreover, the company’s board cleared a dividend hike of 15% in July. As a result of the hike, the current quarterly dividend is 40.25 cents per share.

Delta’s employee-friendly approach is an added positive. Its efforts to reduce debt levels are also commendable. Furthermore, the carrier is taking initiatives to strengthen its foothold in the lucrative Asian aviation market.

In a bid to meet the surge in demand during summer, Delta has decided to boost its UK capacity to the tune of 15% next year.

A Broker Favorite

Delta’s earnings estimates reflect a healthy uptrend. Evidently, the Zacks Consensus Estimate for current-quarter and year earnings has been revised 10.8% and 5.5% upward, respectively, over the last 30 days.

Given the wealth of information at the disposal of brokers, it is in the best interests of investors to be guided by broker advice and the direction of their estimate revisions. This is because the direction of estimate revisions serves as an important pointer when it comes to the price of a stock.

Solid Projections

The Zacks Consensus Estimate for Delta’ 2019 earnings is currently pegged at $7.07, indicating 25.1% growth from the year-ago reported figure. The same for 2020 stands at $7.40, mirroring a year-over-year improvement of 4.6%.

In addition, Delta has an impressive EPS growth rate (three to five years) of 18%, higher than its industry’s 17.1%.

The projection with respect to the top line is also impressive. The Zacks Consensus Estimate for Delta’ 2019 sales is currently pegged at $46.82 billion, suggesting a 5.4% improvement from the figure reported a year ago. The same for 2020 is pinned at $48.95 billion, reflecting a year-over-year improvement of 4.6%.

Zacks Rank & Other Key Picks

Delta carries a Zacks Rank #2 (Buy). Investors interested in the airline space may also consider Allegiant Travel Company ALGT, SkyWest SKYW and GOL Linhas GOL carrying the same rank as Delta. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Allegiant, SkyWest and GOL Linhas have appreciated more than 51%, 33% and 21%, respectively, so far this year.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.

See 7 breakthrough stocks now>>

Choice Hotels (CHH) Expands Brand Presence in South Carolina

Posted Wed Sep 18, 11:02 am ET

by Zacks Equity Research

Choice Hotels International, Inc. CHH continues to expand through franchise agreements. To this end, the company recently announced the opening of Cambria Hotel Fort Mill — an upscale brand under its Cambria brand.

Notably, this four-story, 127-roomed property is the company’s third hotel under the Cambria brand in South Carolina. It is situated just a few miles from the state line of Charlotte, NC. The hotel was developed by Weinstein Development Company and FHF Hotel, LLC.

Choice Hotels is confident about the success of this new property as it offers easy access to the nearby business corridors of Charlotte, NC and Rock Hill, SC. Additionally, it is in close proximity to the city’s attractions like Cedar Fair's Carowinds amusement park, antique shops and restaurants.

Several well-known corporations like LPL Financial, AmerisourceBergen, Shutterfly, Schaeffler Group are also located at a distance of few mins from Cambria Hotel Fort Mill.

Strategic Expansion to Drive Growth

Alongside domestic growth, the company continues to expand its international footprint in new countries. Key international operating markets include Spain, Colombia, Panama, the Caribbean and Canada.

Recently, Choice Hotels also announced the opening of Cambria Hotel Milwaukee Downtown, under its Cambria brand. Notably, the four-story, 132-roomed hotel is the third location in Wisconsin and the first in the city. Notably, the hotel will be managed by Concord Hospitality.

Moreover, Choice Hotels strengthened its presence with the launch of Clarion Pointe. Expansion of the brand is expected through 21 Clarion Pointe franchise agreements.

Last year, the company announced an alliance with Sercotel — a leading hotel operator and franchisor based in Spain. This alliance will enable the extension of Choice Hotels’ global footprint in Spain and other markets as well as the creation of opportunities for additional hotel development across Europe and Latin America.

Notably, the Cambria brand has been doing solid business. In second-quarter 2019, Cambria's RevPAR increased 2.2%, which outpaced the industry and the upscale chain scale by 110 and 260 basis points, respectively. Also, Cambria’s pipeline expanded to 82 hotels in the same period. The addition of these hotels will increase its upscale room count by 11,000.

The year 2019 is turning out to be an exceptional one for Cambria and the brand has already opened six hotels. It intends to open seven more hotels, with over 1,100 rooms in top-tier markets before the year-end. Choice Hotels will be soon opening its new properties in Anaheim and South Boston.

Backed by solid expansion strategies and a strong brand presence, shares of Choice Hotels have gained 30% so far this year, comparing favorably with the industry’s 20.5% rally. That said, the hotel opening will drive revenues. The company’s revenues have improved over the past few quarters. In second-quarter 2019, total revenues came in at $317.7 million, up 8% from the year-ago quarter and outpaced the Zacks Consensus Estimate of $303 million by 4.8%.

 

Zacks Rank

Choice Hotels, which shares space with Hyatt Hotels Corporation H, Huazhu Group Limited HTHT and Hilton Worldwide Holdings Inc. HLT in the Zacks Hotels and Motels industry, carries a Zacks Rank #3 (Hold). You can the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

 A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.

See 7 breakthrough stocks now>>

5 Best Growth Stocks to Invest in Right Away

Posted Wed Sep 18, 11:02 am ET

by Tirthankar Chakraborty

Investors usually look out for a strategy to earn above-market returns. But, if the company is growing on par with the broader market’s expected growth rate, the stock’s performance will be in line with market returns.

Therefore, in order to get better returns than the market, investors should consider stocks that have the potential to post solid earnings growth in the near term.

Over the last month, the S&P 500 and the Nasdaq Composite Index have gained more than 2% each, buoyed by the following underlying factors.

Encouraging Economic Data

Industrial output rebounded in August and registered its largest increase in a year. The Federal Reserve recently said that industrial production, a measure of factory, mining and utility output increased at a seasonally adjusted rate of 0.6% in August compared to the prior month. The reading was well above analysts’ expectation of a 0.2% increase.

Buoyed by a resilient labor market and solid income gains, consumers remain the primary source of firepower for economic growth. According to the Commerce Department, sales at U.S. retailers rose 0.4% last month, mostly led by motor vehicle and online purchases. Retail sales climbed north after an upwardly revised 0.8% increase in July. By the way, the measure that excludes car dealers, food services, building materials, stores and gasoline stations rose 0.3%, on par with projections. Needless to say, this core retail sales measure is predominantly viewed as a more reliable gauge of underlying consumer demand.

What’s more, U.S. consumer sentiment rebounded modestly this month. Per the University of Michigan, its consumer sentiment index came in at 92 in September, up from 89.8 in late August. Analysts had expected sentiment to rebound to 91.4. To top it, the current conditions index rose to 106.9 in September from 105.3 in the prior month. The index of expectations too rose to 82.4 from 79.9 in August.

Fed Rate Cut Optimism

The ECB has launched fresh stimulus packages in an attempt to prevent a sluggish Eurozone economy from grinding to a halt. The ECB confirmed that it would trim its deposit rate (the interest paid to commercial banks when they place funds with the central bank) by 0.1 percentage points to an all-time low of -0.5%.

At the same time, the ECB has announced a massive new-bond buying program. The central bank’s quantitative easing (QE) program will involve 20 billion euros ($21.9 billion) per month of net asset purchases for as long as required.

And as the ECB adds more stimuli, the pressure is mounting on the Fed to do the same. President Trump has already called for the Fed to cut rates to boost the U.S. economy.

Trade War Fears Ebb

Beijing has lifted tariffs on some U.S. products amid trade tensions. As a show of goodwill, Trump too delayed tariff hikes against China. Per South China Morning Post citing the Customs Tariff Commission of the State Council, the exemptions on U.S. goods will take effect on Sep 17. The products don’t include big ticket items like agricultural products, but it does include items such as alfalfa pellets, fish feed and medical linear accelerators, to name a few.

Trump reciprocated by announcing a delay in implementation of higher tariffs on $250 billion of Chinese goods. Trump tweeted that tariff hikes from 25% to 30% will now go into effect on Oct 15, rather than the previously scheduled Oct 1.

5 Growth Stocks to Buy

Hence, we believe that such strong domestic economic data, expectations of a Fed rate cut and trade optimism will continue to act as strong catalysts for the U.S. stock market. Thus, to outdo market returns as well as take advantage of the aforesaid factors, we have used the Zacks Stock Screener to narrow down on stocks with solid prospects, sporting a Zacks Rank #1 (Strong Buy) along with Growth Score and VGM Score of A.

Crocs, Inc. CROX designs, develops, manufactures, markets, and distributes casual lifestyle footwear and accessories for men, women, and children worldwide.

Analysts have become increasingly bullish on the company over the past month, leading to an increase of 1.4% and 1.3% in the Zacks Consensus Estimate for 2019 and 2020 earnings, respectively. Additionally, for 2019, EPS is likely to jump 65.1%, further underlining the stock’s potential.  

Kinross Gold Corporation KGC engages in the acquisition, exploration and development of gold properties in the United States.

Over the past 30 days, the Zacks Consensus Estimate for its earnings has increased 4% and 3.1%, respectively, for 2019 and 2020. Meanwhile, for 2019, EPS is likely to grow 160%.

MasTec, Inc. MTZ, an infrastructure construction company, provides engineering, building, installation, maintenance, and upgrade services for communications, energy, utility, and other infrastructure, primarily in the United States.

The company has been witnessing an upward trend in earnings estimate revision. Notably, over the past 30 days, the Zacks Consensus Estimate for 2019 and 2020 earnings has increased 1.4% and 0.2%, respectively. Further, for 2019, earnings are likely to improve 34.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Quanex Building Products Corporation NX, which provides components for the fenestration industry, flaunts an earnings growth projection of 46.2% for the current year.

Moreover, analysts are quite bullish on the stock, leading to an 11.8% and 8.1% increase in the Zacks Consensus Estimate for 2019 and 2020 earnings over the past 30 days.

Rent-A-Center, Inc. RCII leases household durable goods to customers on a rent-to-own basis. The company operates through four segments: Core U.S., Acceptance Now, Mexico, and Franchising.

The Zacks Consensus Estimate for 2019 earnings has advanced 2.7% over the last 30 days. Moreover, 2019 EPS growth projection is pegged at 113.2%.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.

See 7 breakthrough stocks now>>

Cracker Barrel (CBRL) Q4 Earnings & Revenues Top Estimates

Posted Wed Sep 18, 11:01 am ET

by Zacks Equity Research

Cracker Barrel Old Country Store, Inc. CBRL reported better-than-expected fourth-quarter fiscal 2019 results. With this, the company’s earnings surpassed the Zacks Consensus Estimate for the fourth straight quarter.

Adjusted earnings came in at $2.70 per share, which outpaced the Zacks Consensus Estimate of $2.43. The bottom line also increased 23.3% year over year on high expenses.

Revenues of $787.1 million surpassed the consensus mark of $774 million but declined 3% from the prior-year quarter. The downside was primality due to the inclusion of the 53rd week in the prior-year quarter.

Comps Details

Comparable store restaurant sales increased 3.8% in the reported quarter, courtesy of a 3.6% uptick in average check and a 0.2% increase in comparable store restaurant traffic. Also, the average menu price rose about 2.3%. Moreover, comps compared favorably with the third quarter’s 1.3% rise.

Comparable store retail sales in the fiscal fourth quarter rose 0.4% compared with a 2.6% decline in the third quarter.

Operating Highlights

Operating income in the fiscal fourth quarter totaled $79.4 million, down 4% year over year. Operating margin was 10.1%, down 10 basis points from the prior-year quarter.

As a percentage of total revenues, rise in other operating expenses, and general and administrative expenses were overshadowed by a decline in cost of goods sold and labor and other related expenses.

Cracker Barrel Old Country Store, Inc. Price, Consensus and EPS Surprise

Balance Sheet

As of Aug 2, 2019, cash and cash equivalents were $36.9 million, down from $114.7 million as of Aug 3, 2018. Long-term debt remained at $400 million in the reported quarter, in line with the prior-year quarter.

Inventory at the end of the quarter under review amounted to $155 million, down from fourth-quarter fiscal 2018 value of $156.3 million.

Net cash provided by operating activities was $362.8 million as of Aug 2, 2019, compared with $330.6 million as of Aug 3, 2018.

Fiscal 2019 Guidance

Cracker Barrel expects total revenues in the range of $3.15-$3.2 billion. Comparable store restaurant sales and retail sales are expected to grow 2-3%. The company also aims to open six Cracker Barrel stores in fiscal 2019.

Management continues to project earnings per diluted share of $8.8-$8.95 (including the impact of investment in Punch Bowl Social) for fiscal 2020 compared with $9.27 in fiscal 2019.

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

Peer Releases

Darden DRI reported fourth-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Adjusted earnings of $1.76 per share outpaced the Zacks Consensus Estimate of $1.73. The bottom line also increased 26.6% year over year on higher revenues.

Domino’s DPZ reported mixed second-quarter 2019 financial numbers, wherein earnings exceeded the Zacks Consensus Estimate but revenues missed the same. Adjusted earnings of $2.19 per share outpaced the Zacks Consensus Estimate of $2.00. The metric also increased 19% on a year-over-year basis. The bottom-line improvement was driven by higher net income and lower diluted share count as a result of share repurchases.

Chipotle CMG reported better-than-expected results in the second quarter of 2019. Its adjusted earnings of $3.99 per share surpassed the Zacks Consensus Estimate of $3.69 by 8.1%. The bottom line also grew 39% from the year-ago quarter number backed by solid revenues and strong operating margins.

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4 Value Picks From the Undervalued P&C Insurance Industry

Posted Wed Sep 18, 10:57 am ET

by Tanuka De

The Zacks Property and Casualty Insurance industry is currently undervalued compared with the Zacks S&P 500 composite as well as the Zacks Finance sector. The price-to-book (P/B) ratio, the best multiple for valuing insurers because of their unpredictable financial results, is 1.4, less than the Zacks S&P 500 composite’s P/B of 4.05 and the sector’s P/B of 2.69. Such below-market positioning hints at room for upside in the coming quarters.

 

Before their valuation increases, it is wise to add some undervalued stocks with growth potential to one’s portfolio.

Driving Forces

Underwriting results, a P&C insurer’s profitability measure, are favored by a benign catastrophe environment. During the first half of 2019, preliminary economic loss totaled $73 billion while preliminary insured loss was $20 billion, stemming from 163 catastrophe events across the globe, per reports from Aon. However, the economic loss and preliminary insured loss were 40% and 45%, lower than respective 10-year average, the report stated.

Also, the hurricane season that typically starts in June and lasts through November during a year gathers strength in August and September. Colorado State University (CSU) estimates ‘near average Atlantic hurricane season in 2019’. There will be 14 named storms, including six hurricanes and two major hurricanes per CSU. In September, Hurricane Dorian made landfall, battering the Bahamas. Frequent occurrences of natural disasters should accelerate the policy renewal rate.

Per media reports, analysts at UBS Group AG estimate Hurricane Dorian to cause about $25 billion in losses in Bahamas. AccuWeather estimates the total damage and economic loss stemming from Hurricane Dorian to be in the range of $8-10 billion. Risk modeling and analytics firm RMS expects insured losses to range between $3.5 billion and $6.5 billion per a media release.

Though catastrophes are a concern for insurers, due to the high degree of losses incurred, they implement price hikes to ensure uninterrupted claims payment. After witnessing 19 back-to-back quarters of soft pricing market, insurers started increasing prices from the fourth quarter of 2018, which continued through the first half of 2019. Per Willis Towers Watson plc’s Commercial Lines Insurance Pricing Survey in 2019, most of the commercial insurance lines should witness rate increase.

Property and casualty insurers are also increasingly taking reinsurance covers to shield their profits. These have been inducing increase in reinsurance renewal rates. Per a report in Insurance Journal, S&P Global expects rates to rise about 5%, Moody’s 0-5% and Fitch 1%-2%. Per the report, “analysts at UBS estimated that the reinsurance industry is in an excess capital position of around $30 billion, but that an estimated $70 billion of natural catastrophe losses in 2019 could erode this excess capital.”

Though P&C insurers’ financials are less sensitive to interest rates than life insurers’, as the large financial portfolios managed by these carriers are designed to be fairly conservative, the improving interest rate environment will cushion investment income.  However, there remains a high chance of Fed cutting rates for the second time this year in its ongoing two-day FOMC meeting, given slowdown in growth, trade war with China and geopolitical tension like attacks on Saudi Arabia's oil facilities. The Fed had already made a 25 basis point rate cut in July.

Nonetheless, increasing adoption of technologies like artificial intelligence, robotic process automation, cognitive intelligence or blockchain and cloud computing should help insurers control costs.

Also, the insurance industry is well capitalized, enabling players to pursue mergers and acquisitions, thus curbing competition in the process. Also, sturdy capital levels help in boosting shareholder value through pay out of regular dividend and special dividend, and share buyback.

Zacks Rank

The Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid prospects in the near term. The industry currently carries a Zacks Industry Rank #30, which places it in the top 12% of 255 Zacks industries.

Also, in a year’s time, the industry’s earnings estimate for the current year has gone up 3.9% while that for 2020 has increased 0.6%, rightly positioning it in the top 50% of the Zacks-ranked industries.

Price Performance

The industry has underperformed the Zacks S&P 500 composite as well as the Finance sector year to date. While the Zacks S&P 500 composite and the sector have rallied 18.2% and 12.5%, respectively the industry has risen 6.7% in the said time frame.



Nonetheless, strategic initiatives to build a competitive and diversified portfolio, and mergers and consolidation for ramping up growth and extending global presence position insurers well for a healthy performance ahead.

Picking the Stocks

With the help of our Zacks Stock Screener, we have selected four P&C insurance stocks with an impressive Value Score of A or B and a Zacks Rank #2 (Buy). Back-tested results have shown that stocks with a favorable Value Score coupled with a solid Zacks Rank are the best investment options. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

These stocks have also witnessed positive estimate revisions, reflecting analysts’ confidence in the companies’ operational efficiency. Shares of these companies have outperformed the industry as well as the broader market year to date

Allstate ALL provides property and casualty, and other insurance products in the United States and Canada. Shares have rallied 30.6% year to date. The stock currently has a P/B ratio of 1.58. The Zacks Consensus Estimate for current-year earnings has moved up 7.9% and while that for 2020 has moved north by 3% over the past 60 days.



RenaissanceRe Holdings RNR provides reinsurance and insurance products in the United States and internationally. Its shares have rallied 42.1% year to date. It currently has a P/B ratio of 1.59. The Zacks Consensus Estimate for current-year earnings has moved up 9.1% while that for 2020 has risen 7.3% over the past 60 days.



American Financial Group AFG provides property and casualty insurance products in the United States. Shares have risen 19.7% year to date. It currently has a P/B ratio of 1.6. The Zacks Consensus Estimate for current-year earnings has moved up by 0.6% while that for 2020 has increased 0.9% over the past 60 days.



Selective Insurance Group SIGI provides insurance products and services in the United States. Its shares have returned 24.4% year to date. It currently has a  P/B ratio of 2.18. The Zacks Consensus Estimate for current-year earnings has moved up 4.5% while that for 2020 is up 0.7% over the past 60 days.



Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.

See 7 breakthrough stocks now>>

Take Two Interactive to Launch NBA 2K20 Global Championship

Posted Wed Sep 18, 10:56 am ET

by Zacks Equity Research

Take Two Interactive Software TTWO is expanding its footprint in the burgeoning esports space through the recently announced NBA 2K20 Global Championship.

The video-game giant’s publishing label 2K has partnered with the National Basketball Association (NBA), National Basketball Players Association (NBPA) and ESL to launch the competitive tournament that offers more than $100K in prizes.

From October 2019 to February 2020, players will compete in local online qualifiers in the Americas, Europe and Asia-Pacific regions. The qualifiers will lead to online playoffs and then to the regional finals.

Regional finals are set to be held as live events at the ESL studios in Los Angeles, Paris and Sydney. Each winner will receive $15,000 and other prizes from the NBA and 2K.

The final battle for the championship will be fought between eight finalists. The ESL studio in Los Angeles will host the final on Feb 22, 2020.
 

 

Esports’ Space Growing Rapidly

Per Newzoo, global esports revenues are expected to increase 26.7% to $1.1 billion in 2019. By 2022, the esports market will be worth $1.8 billion. Moreover, average revenue per fan is expected to grow to $6.02 by 2022.

According to emarketer, which cited a Goldman Sachs report, total esports revenues are expected to reach $2.96 billion by 2022 from $869 million in 2018.

Moreover, emarketer projects esports viewer-base to see a CAGR of 52.5% to 46.2 million by 2023 from 2019.

The strong prospects open up significant growth opportunities for video-game developers like Take Two, Activision Blizzard ATVI and Electronic Arts EA.

Notably, Activision currently enjoys a dominant position in this field, owing to its massively successful Overwatch league. The company’s upcoming Call of Duty esports league is expected to further strengthen its footprint in this space.

Chinese video game giant, Tencent TCEHY, is another well-established name in the esports space, courtesy of its League of Legends.

However, Take Two has been cautious in its approach in the esports space. Notably, the company has been conducting NBA 2K League esports tournament for the last two years. Per CNBC, the league saw 21 teams competing in 2019, up from the original 17 NBA franchise-owned teams in the inaugural session.

Take Two’s Solid Content Portfolio to Boost Top Line

The upcoming NBA 2K20 Global Championship will surely boost Take Two’s competitive prowess in the esports space.

Moreover, the company’s strong slate of releases, which includes Borderlands 3, Ancestors: The Humankind Odyssey and The Outer Worlds, is a key catalyst.

The company recently launched Borderlands 3 on PlayStation 4, Xbox One and PC via Epic Games Store. Additionally, Ancestors: The Humankind Odyssey launched for PC through Epic Games Store will be available on PlayStation 4 and across Xbox One devices in December 2019.

Moreover, The Outer Worlds, scheduled for launch on Oct 25, is expected to be one of the largest contributors to the company’s second-quarter fiscal 2020 net bookings, projected between $860 million and $910 million. Take Two expects GAAP net revenues between $855 million and $905 million for the said quarter.

Currently, Take Two Interactive has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.

See 7 breakthrough stocks now>>

Here is How Wall Street Reacts to Fed's Easing Cycle

Posted Wed Sep 18, 10:50 am ET

by Tirthankar Chakraborty

The Fed is widely expected to trim interest rates when it issues its policy statement on Sep 18 at the end of the two-day meeting. If the speculation materializes, it will mark the central bank second rate cut this year, and many are of the opinion that it will be an “insurance cut.” Here is a rundown on how the stock market reacts to Fed rate-cutting cycles.

Why the Fed is Expected to Cut Rates This September?

The ECB has launched fresh stimulus packages in an attempt to prevent further slowing down of Eurozone economy. The ECB confirmed that it would trim its deposit rate (the interest paid to commercial banks when they place funds with the central bank) by 0.1 percentage points to an all-time low of -0.5%. At the same time, the ECB has announced a massive new-bond buying program. The central bank’s quantitative easing (QE) program will involve 20 billion euros ($21.9 billion) per month of net asset purchases for as long as required.

However, with the ECB ramping up its efforts to stimulate the Eurozone economy, the pressure is mounting on the Fed to do the same. President Trump has already called for the Fed to cut rates to boost the U.S. economy. In fact, an overwhelming majority of observers are anticipating a rate cut on August’s soft employment report.

Slowdown in the U.S. private sector job scenario in August will no doubt keep the Fed on under pressure to lower its benchmark rate by at least a quarter-percentage again later this month. The U.S. economy added just 130,000 jobs this month, almost 28,000 less than analysts’ expectations and 29,000 lower than July levels. By the way, August’s job addition was the lowest in three months giving enough indications of the toll that the intensifying U.S.-China trade dispute has had on the nation’s economic expansion.

The trade war has seriously affected the manufacturing sector. Only 3,000 factory jobs were added in August, less than expectations of 8,000 job additions and down from July’s job increase of 4,000. Jobs at transportations and warehousing jobs were the worst hit witnessing a decline of 0.5%.

Retail jobs also bore the brunt, declining for the seventh straight month, indicating more trouble ahead. Some may argue that Federal jobs increased by 34,000, propelled mostly by 25,000 new temporary jobs related to the U.S. 2020 Census. Then again it’s a temporary boost.

The Goldman Sachs Group, Inc. GS also acknowledged that many analysts have started to price in “insurance cuts,” which means it is expecting the Fed to cut rates right before a downturn in order to save the economy. According to CME FedWatch tool, the Fed funds futures market now points to a 90% chance of at least a quarter-point rate cut at the Fed’s September meeting.

How the Stock Market Reacts to Rate-Cutting Cycles?

Since we are expecting “insurance cuts”, where problems of a slowdown are imminent but the economy isn’t in a recession, the benchmark S&P 500 is poised to come up with healthy gains in the near term. As pointed out by Allianz Global Investors, the S&P 500 on average tends to jump 20.4% after a year following “insurance cuts.”

What’s more, small-caps generally tend to outperform large caps during such easing cycles, according to Jefferies research. The firm added that small-caps tend to surge 28% in the 12 months, following a rate cut as compared to 15% for large caps.

If we dig into sectors, then healthcare stocks generally outperform after a rate cut. Barclays has compiled data that shows that healthcare stocks generally rise nearly 7% in the nine months following a rate cut. And what makes this set of stocks stand out is that they tend to rise consistently.

We all know that rate cuts mainly take place when the economy goes through a rough patch or is in recession. And healthcare stocks have time and again thrived in such scenarios. This is because they are mostly defensive in nature as their products are not directly related to the developments in the stock market.

Moreover, healthcare stocks are known for paying hefty dividends, which makes them more alluring when rates decline in uneasy economic conditions. Needless to say, lower interest rates mostly tend to raise prices of high-yielding stocks.

One top healthcare stock one may consider now is Molina Healthcare, Inc. MOH. The Zacks Rank #2 (Buy) company has consistently provided solid dividend yield over the past five-year period.

Rate-sensitive utilities also gain. This is because utilities are capital-intensive businesses and the funds generated from internal sources are not always sufficient to meet their requirements. Consequently, these companies have high levels of debt. Consequently, low interest rates will help them pay off debts and book profits.

However, higher interest rates and an increase in the debt level, for that matter a steep debt/equity ratio, impacts the credit ratings of these utility operators. If the credit ratings go down, a company will find it difficult to borrow funds from the markets at reasonable rates, leading to a rise in cost of operations.

Given the buoyancy among rate-sensitive stocks, investors can bet on NRG Energy, Inc. NRG. The stock currently carries a Zacks Rank 2.

Thanks to the dovish expectations, gold prices are also expected to rise. This is because lower interest rates generally tend to make bonds and other fixed-income investments less attractive. Money will flow out of bonds and money market funds as they can’t provide higher yields, and in turn may flow into gold. It’s worth pointing out though that the yellow metal offers no yield at all.

With gold prices set to rise, investing in Kinross Gold Corporation KGC and AngloGold Ashanti Limited AU seems a prudent decision at the moment. After all, these stocks boast a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.

See 7 breakthrough stocks now>>

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