Monthly Archives: April 2014

MSA: Zacks’ Bear of the Day Play

Estimates have been falling for MSA Safety Incorporated (MSASnapshot Report) after the company reported disappointing first quarter results on April 22. The negative revisions have been significant enough to drive shares of MSA to a Zacks Rank of 5 (Strong Sell). That puts the stock in the bottom 5% of all companies we rank here at Zacks.

And despite the weak earnings momentum, shares of MSA trade at a premium to their historical multiples on earnings and book value.

MSA Safety Incorporated develops, manufactures and supplies safety products for a variety of industries, including fire service, oil, gas and petrochemical, construction, mining and utilities, as well as the military. Its primary products include self-contained breathing apparatus, fixed gas and flame detection systems, handheld gas detection instruments, head protection products, fall protection devices and thermal imaging cameras.

First Quarter Results

MSA reported its first quarter results on April 22. Adjusted earnings per share came in at 39 cents, which was well below the Zacks Consensus Estimate of 59 cents.

Net sales fell 2% year-over-year to $265.0 million, missing the consensus of $287.0 million. Modest growth in North America and Europe were more than offset by an 11% decline in International (ex-Europe) sales.

Sales of self-contained breathing apparatus (SCBA) plunged 22% in North American due to ongoing delays in securing regulatory product approvals. However, sales of MSA core products were up 3% in local currency while margins in these product groups increased 130 basis points year-over-year.

Estimates Falling

Following the disappointing Q1 results, analysts revised their earnings estimates significantly lower for MSA for both 2014 and 2015. This drove the stock to a Zacks Rank #5 (Strong Sell).

The 2014 Zacks Consensus Estimate is now $2.31, down from $2.80 before the report. The 2015 consensus is currently $2.97, down from $3.28 over the same period. You can see this dramatic drop in the company’s “Price & Consensus” chart:

Valuation

Despite the big Q1 miss and subsequent negative estimate revisions, shares of MSA are only down about 6%. It doesn’t look cheap at this level either. The stock trades around 22x 12-month forward earnings, well above its 10-year median of 17x and the current industry median of 14x. And its price to book ratio of 3.6 is also above its historical median of 3.2.

The Bottom Line

With falling earnings estimates and premium valuation, investors should consider avoiding MSA until its outlook improves.

Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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Sanmina: Zacks’ Bull of the Day Play

Sanmina (SANMSnapshot Report) recently delivered its third straight earnings beat, driven by strength in its Industrial, Defense & Medical business. Management provided a bullish outlook for next quarter too, prompting analysts to revise their estimates significantly higher.

It is a Zacks Rank #1 (Strong Buy).

Although shares of Sanmina are up more than 10% since the latest beat, it has plenty of room to run higher with shares trading at just 12x forward earnings.

Sanmina Corporation provides end-to-end manufacturing solutions to OEMs in a variety of industries. Its operations are managed in two segments:

  • Integrated Manufacturing Solutions (IMS), and
  • Components, Products and Services (CPS).

The sales breakdown by end market for the first 6 months of fiscal 2014 were as follows:

  • Communications: 44%
  • Industrial, Defense & Medical: 33%
  • Computing & Storage: 13%
  • Multimedia: 10%

Second Quarter Results

Sanmina delivered better-than-expected results for the second quarter of its fiscal 2014 on April 22. Adjusted earnings per share came in at 39 cents, beating the Zacks Consensus Estimate of 35 cents. It was the company’s third consecutive positive earnings surprise.

Net sales rose 3% to $1.476 billion, ahead of the consensus of $1.446 billion. This was driven by a 28% surge in sales to industrial, defense and medical end markets, which offset declines in the other three end markets.

Meanwhile, interest expense declined 28% from the same quarter last year as the company continues to pay down debt.

Estimates Rising

Following solid Q2 results, management provided an encouraging outlook for Q3, prompting analysts to revise their estimates significantly higher for both 2014 and 2015.

This sent the stock to a Zacks Rank #1 (Strong Buy).

The 2014 Zacks Consensus Estimate is now $1.62, up from $1.52 before the Q2 report. The 2015 consensus has moved from $1.53 to $1.69 over the same period.

These positive estimate revisions have helped drive the stock up more than 10% since the earnings report. Despite this, the valuation picture still looks attractive.

Valuation

Shares of Sanmina trade at just 12x 12-month forward earnings, which is a discount to the overall market and the industry median of 13x. And its price to tangible book value ratio is a very reasonable 1.6.

Meanwhile, its free cash flow yield is solid at close to 8%.

The Bottom Line

Given its strong earnings momentum and attractive valuation, Sanmina are well positioned to run higher.

Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

Granite Construction: Zacks’ Bear of the Day Play

I came up with an interesting theory on how to find stocks I should probably avoid buying. I’ll take the screen that I use to find potentially high flying momentum stocks and flip it on its head, keeping one key part of the screen.

So rather than look for Zacks Rank #1 (Strong Buy) stocks that have recently surprised to the upside and are outperforming the market, I decided I’d look for Zacks Rank #5 (Strong Sell) stocks that have recently disappointed to the downside and are underperforming the market. The one similarity between the two is I kept the part about the stock trading close to its 52-week high. I figured this way I could find stocks with the most to lose, or stocks where traders aren’t looking at the earnings picture yet. With this as my logic, I ran the screen and found 5 stocks. But the stock with the chart I’d be most afraid to be long is Granite Construction  (GVASnapshot Report).

When looking for potential mines in the field, I look to the price and consensus as well. If I see a stock going up and to the right while earnings are going down to the right, that tells me there could be trouble on the horizon. The price and consensus for GVA shows just that. It makes sense given current year consensus has dropped from $2.09 to $1.84 and next year from $3.18 to $2.71.

I will say though, the growth for GVA over time has been impressive. Even with the revisions to the downside, a year ago GVA lost 17 cents per share. Going from a 17 cent loss to a $1.84 gain is still a great growth story. But the revisions coming down recently are a warning sign.

The technical picture leaves something to be desired. Since November the stock has been on a tear, rising from the $28 level to over $40 in just a few short months. It’s not until the last month that we have seen GVA begin to sell off. Now normally, on a stock with increasing earnings revisions, I’d see this as a fantastic buy on a pullback opportunity. So what gives?

Well we have the pullback to $36 where the stock found support below the 25 day moving average shifted by 5 days (25×5). It is the stocks inability to hurdle this average that is the red flag in my book. April saw GVA attempt to rally and break on through the 25×5 only to get slapped down. The beat down continued today with the stock trading below $37.

I think the stock should see a little bit of buying down here at this level. The $36 area was resistance for the stock in January so that level should provide a bit of support here. If there is a short term consolidation rather than a reversal back to the upside then I’d watch to see if the $39 level is breached. If it does then the technicals are telling a range bound market. If it fails shy of that level, then the next stop down is $32.

Myriad Genetics: Zacks’ Bull of the Day Play

Make no mistake about it, Biotech has been hot. More specifically, the Biomedical/Genetics industry is in the top 32% of our Zacks Industry Rank. The industry has 38 stocks that are Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy). Among the top ranked stocks in this highly ranked industry is our Bull of the Day, Myriad Genetics (MYGNAnalyst Report).

Myriad is a Zacks Rank #1 (Strong Buy) with earnings coming up after the close on May 6th. Myriad uses a gene-based medicine to develop therapeutic and molecular diagnostic products. Think medicine that is programmed specifically to your personal gene mix. That’s what the long term goal is of Myriad. MYGN hopes that gene-specific medication will lead to more effective treatment of illness and disease.

The more you think about potential of these drugs the more excited you get about the stock. But this company is much more than just the story. MYGN has the numbers behind it as well. Not only has the company surprised earnings to the upside four quarters in a row, it’s also had substantial upside revisions over the last 90 days. Current year consensus has risen from $1.98 to $2.21 and next year’s numbers have risen from $1.71 to $1.92.

So the fundamental story is there, the feel good story is there, now what about the technical picture? I’m just as confident. Since late last year, MYGN has been locked in an upward trajectory. The stock has had a few pullbacks to support which served as temporary rest along the lines of a longer term bull run. The first major resistance MYGN ran into was just above the $38 level in late February and early March. Following the resistance, MYGN pulled all the way back to $32, below its 25 day moving average shifted by 5 days (25×5).

For a few days it looked as if Myriad had run out of gas. But in late March we caught a bid on confirmed strength out an oversold stochastic coupled with a bullish cross. The last run of strength took us all the way up to $42 before a recent sell-off put us on the North side of $38.

It’s this $38 level that is most important for MYGN and the reason why I’m bullish on it today. You have a few very positive technical developments. First, $38 had been resistance in the past prior to being broken by the gap up in early April. What was once a ceiling now becomes a floor to support the stock. So you have a stock that has been higher, pulled back, is still above support and above its 25×5.

One worry I have from a technical aspect is that the slope of the 25×5 is essential zero right now which lends itself to a range bound stock. Settling into a range wouldn’t be the worst thing in the world as the top of the range looks to be $42 for a stock in the $38 handle. Ten percent upside potential without a breakout versus a downside at about $36 gives a good risk versus reward scenario. Earnings around the corner are a wildcard and I’d avoid having unidirectional exposure ahead of the report. Those looking to roll the dice on a breakout can use options as MYGN is optionable.

 

Intuitive Surgical: Zacks’ Bear of the Day Play

In the health care sector, investors have been laser focused on the biotech space. This corner of the market has faced severe pressure over the past few months as concerns over hot momentum stocks have reached a new level.

And yet while many have been focused on biotechnology, we have also seen some weakness in a few names in the medical device space. This is interesting because, by and large, many names in the segment have held up quite well despite the slump that many of their peers in the drug space were seeing.

However, unlike in the drug space, many companies in the medical device segment have been driven by fundamentals lately, instead of just sluggish momentum. This has been particularly the case for Intuitive Surgical (ISRGAnalyst Report) which has been under severe pressure and may have significant trouble in keeping the sales up for its key da Vinci surgical system in the near future.

Recent Earnings & Outlook

This weakness in the da Vinci system sales was made abundantly clear in ISRG’s most recent quarterly earnings report. In the release, ISRG put up a huge miss, posting earnings of just $2.67/share compared to estimates of $3.34/share. The firm cited the Affordable Care Act and uncertainty as the reasons for the big miss, and it also said that it may continue to have trouble selling in this environment for the future.

Thanks to this weakness, analysts have been slashing their estimates left and right on the shares of ISRG. Estimates have almost universally moved lower in the past week, including three estimates lower in the past seven days for the current year, and 10 lower for the next year time frame.

The magnitude of these revisions lower has also been intense for pretty much all time periods that we studied. For the current year in particular though, earnings estimates have moved from $16.70/share 90 days ago to just $14.01/share today, while next year figures have slumped by about 14% too.

Clearly, analysts are taking Intuitive Surgical’s warnings to heart, and given the ever changing requirements and politics of the health care industry, many are betting that ISRG won’t be able to turn things around any time soon. Instead, it looks as if ISRG’s near term weakness will continue and that the pressure that has been building in this stock will lead to more underperformance.

That is why we have assigned ISRG our lowest ranking with a Zacks Rank #5 (Strong Sell), and are looking for more underperformance from this stock until estimates on the sales of their innovative da Vinci surgical system improve.

Better Picks

For investors seeking better selections in the medical instruments industry, a few such options do exist. Currently, both Delcath Systems (DCTHSnapshot Report) and Globus Medical (GMEDSnapshot Report) have top ranks and may be better picks at this time.

Plus, both of these companies have beaten estimates in the most recent quarter, while they have moved to a top rank within the past week as well. So, now might be the time to let ISRG go and to look to the better positioned DCTH or GMED for now.

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Facebook: Zacks’ Bull of the Day Play

Shares of social media giant Facebook (FBAnalyst Report) have been in focus over the last few weeks as worries over a hot stock bubble have dominated the market. In fact, during an especially rough stretch from mid-March to mid-April, FB tumbled by nearly 20%, putting extra pressure on the firm to give investors some good news at earnings season.

FB did not disappoint with its first quarter results though, as the firm easily beat the Zacks Consensus Estimate of 18 cents a share on Wednesday, posting EPS of 25 cents. Revenues were also impressive, as FB posted $2.51 billion in revenues, a 72.2% increase from the year ago quarter.

The really impressive part of the earnings report was Facebook’s continued surge in the increasingly-important mobile sphere. Mobile ad revenues were $1.3 billion, and were close to 60% of the total ad revenues, showcasing just how far FB has come in mobile in a very short time frame.

Outlook

Clearly, Facebook has figured out mobile in a big way which is huge for their near term outlook as mobile monthly active users soared 34% year-over-year to just over one billion. And since Facebook already has users’ likes, dislikes, and preferences, there is hope that Facebook can be a key stop for mobile advertisers seeking targeted audiences.

Thanks to this, some investors are starting to feel a bit better about FB stock in the near term, especially as the price continues to tumble, making FB an intriguing choice at these levels and especially so considering its growth rate projections. In fact, current figures have FB earnings growth at over 67% year-over-year for this year, and nearly 41% for next year.

Estimates have also been trending higher as of late, as readings for the current year have grown from 88 cents a share 90 days ago to $1.01/share today. Meanwhile, for the next year time frame, estimates have moved from $1.22/share 90 days ago to their current level at $1.42/share.

These rising estimates, coupled with Facebook’s sheer dominance of mobile, suggest that bright days are still ahead for FB and that incredible growth is definitely possible over the long haul for this social giant.

Given this, it shouldn’t be too much of a surprise that Facebook currently has a Zacks Rank #1 (Strong Buy) and that we are looking for some outperformance from this company over the next few months. The stock remains a best in class pick in its industry too, and it is actually one of just three stocks in the internet services industry that clocks in with a Zacks Rank #1 at this time, suggesting it is probably one of your top bets in the rocky internet market right now.

Bottom Line

Facebook has certainly dealt with a rough patch lately as its shares, much like the broader social media industry, have been in a bit of a downward spiral thanks to concerns over high growth names. However, FB continues to trounce estimates and impress with its mobile revenues, while it scoops up the competition leaving it well positioned for the future as well.

So investors who are willing to wade through some significant near term volatility might want to consider making a play on FB stock at these levels. Earnings estimates are moving in the right direction, and Facebook is clearly building a ‘wide moat’ business that looks to stave off competition for years to come, suggesting that there is plenty of earnings growth left for investors in this in-focus stock.

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Author is long FB

Guess: Zacks’ Bear of the Day Play

A difficult consumer spending environment in all major markets is keeping retailers under pressure.

About the Company

Started in 1981 as a family businesss Guess? Inc. designs, markets, distributes and licenses fashion apparel and accessories.  Its products are sold through retail, wholesale, e-Commerce and licensing distribution channels.

GES directly operates 494 retail stores in the US and Canada and 346 retail stores in EuropeAsia and Latin America.

Additionally, 868 retail stores outside of the US and Canada are operated by company’s licensees and distributors. 

Disappointing Results and Guidance

On March 19th, GES reported its Q4 2014 results. Adjusted earnings for the quarter were $71.1 million or $0.83 per share, ahead of the Zacks Consensus Estimate of $0.80 per share and were on the higher end of management’s expected range of $0.74 to $0.84 per share.

Earnings were however down 12.6% year over year due to a weak top line during the quarter.

Revenues declined 6.0% to $768.4 million mainly due to lower traffic resulting from bad weather conditions and shortened holiday season. Revenues also missed the Zacks Consensus Estimate of $773 million and were near the lower end of management’s expectation of $750 million to $777 million.

According to the management, the traffic into the stores as well as the overall promotional environment remains challenging in North America and the European wholesale business is still under pressure in Southern Europe.

For fiscal 2015, the company expects net revenues in the range of $2.53 billion to $2.58 billion, operating margin between 7.0% to 8.0% and adjusted earnings in the range of $1.40 to $1.60 per share. Earnings guidance was below the Zacks Consensus Estimate of $1.89 per share.

According to the management, “for fiscal year 2015, we still expect sales in our more developed businesses to be under pressure, especially in our own stores in North America and our European wholesale channel”.

Downwards Revisions

Due to weak results and uninspiring guidance, quarterly and annual estimates have been revised downwards in the past few weeks. Zacks consensus estimates for the current quarter and year are now ($0.06) per share and $1.57 per share respectively down from $0.15 per share and $2.01 per share, 60 days ago.

The following chart shows the trend of declining estimates for GES:

Negative estimates revisions send GES back to Zacks Rank # 5 (Strong Sell) last month.

The Bottom Line

The company has globally diversified business operations but currently it appears to be struggling in all of its major markets. North America sales continue to be very challenging despite very promotional retail environment. Further softness in the South Europe economies and slowdown in China continues to impact results.

GES is currently Zacks Rank # 5 (Strong Sell) stock.  Further, Zacks Industry Rank of 223 out of 265 (Bottom 16%) also indicates some weakness in the short- to mid- term. As such investors would like to avoid this stock for the time being.

Better Play?

There is no Zacks Rank # 1 (Strong Buy) stock in the Apparel industry. Investors looking for a better play could consider HanesBrands, a Zacks Rank # 2 (Buy) stock.

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Rite Aid: Zacks’ Bull of the Day Play

Rite Aid reported excellent quarterly results supported by strong pharmacy sales growth and expanding margins. Earnings estimates have thus surged, sending this drugstore chain to Zacks rank #1 (Strong Buy).

About the Company

Rite Aid Corporation (RAD), headquartered in Camp Hill, Pennsylvania, is the third largest retail drugstore in the U.S., based on revenues. The company has 4,592 stores currently in 31 states across the country and in the District of Columbia.

Excellent Quarterly Results

Rite Aid reported its Q4 earnings on April 10, 2014. Revenues for the quarter came in at $6.6 billion; up from $6.5 billion in the same quarter of prior fiscal year, thanks mainly to a 3.5% increase in pharmacy same store sales.

Adjusted net income for the quarter was $44.1 million or $0.10 per share, handily beating the Zacks Consensus Estimate of $0.04 per share.

The company recently acquired Health Dialog—a provider of in-store care coaches and RediClinic—a leading operator of retail clinics. These will further support RAD’s growth initiatives. The management however does not expect a material impact from the acquisitions on the current fiscal result.

RAD also continues to expand its partnership with drug wholesaler MsKesson and expects a working capital benefit of $150 million as a result of the agreement, to be fully realized in the latter half of the year.

Rite Aid completed its 1,200th wellness store remodel during the quarter as they continue to see positive results for these stores compared to the rest of the chain.

Management Raises Guidance

Following solid quarterly performance, Rite Aid management now expects sales for fiscal 2015 to be between $26.0 billion and $26.5 billion, with same store sales growth in the range of 2.5% to 4.5%.

Adjusted EBITDA for fiscal 2015 is expected to be in the range of $1.325–$1.4 billion and net income is expected to be between $313.0 million and $423.0 million or of $0.31 per share to $0.42 per share.

Per management “improved guidance is based upon the anticipated benefits of our wellness remodel program, customer loyalty program, and other initiatives to grow sales and drive operational efficiencies”.

Estimates Revisions

As a result of a strong quarterly report and updated guidance, analysts have raised their estimates for RAD. Zacks Consensus Estimate for the current fiscal year now stands at $0.36 per share up from $0.32 per share, 30 days ago. The consensus estimate for the next fiscal year is also up to $0.48 per share from $0.43 per share earlier.

RAD beat estimates in all the quarters last year, with an average quarterly surprise of 225%. Rising estimates sent RAD back to a Zacks Rank#1 (Strong Buy) earlier this month.

The following chart shows RAD’s excellent record of beating or meeting estimates in the last few quarters:

The Bottom Line

With its strong national footprint and recent strategic initiatives like expanding the health care offering, growing Wellness+ and investing in its stores, the company should be able to expand its customer base and continue its strong performance in the coming quarters. Ageing US population and Affordable Care Act will further support the stock.

RAD is a Zacks Rank#1 (Strong Buy) stock. It also has a Zacks recommendation of “Outperform”. Further the industry rank of 69 out of 265 (top 26%) indicated a likelihood of outperformance in the short- to medium- term.

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Groupon : Zacks’ Bear of the Day Play

Groupon (GRPNSnapshot Report) became a Zacks #5 Rank in February after another disappointing quarterly report. Since then, the stock has fought to stay above $8 but cannot seem to regain investor confidence as it tests $7. And the only estimate revisions since they were slashed 2 months ago have been slight notches downward.

I thought it was a good time to revisit the piece I wrote back then to recall why Wall Street analysts and investors were so underwhelmed and why the stock remains a #5 Rank. Here was how I approached a business I am not even sure I understood well enough to invest in…

“In the fluid world where e-commerce and social media waters merge, it’s sometimes hard for investors to figure out what’s going on with the business models and the growth strategy. That was no where more evident in February when Groupon crushed investor hopes again with another disastrous quarterly report.” What follows is the bulk of the analysis from my February report…

The Q4 news wasn’t all terrible as revenues jumped 20.4% year over year to $768.4 million, which beat the Zacks Consensus Estimate of $719.0 million. The year-over-year growth was primarily driven by a 63.0% jump in direct revenues, which offset a 2.8% decline in third party and other revenues in the last quarter.

And region-wise, revenues from North America and EMEA surged 18.2% and 42.5% year over year, respectively. This more than offset a 15.3% decline in revenues from Rest of the World (Asia-Pacific and Latin America).

But guidance was weak and signs of the turnaround got pushed further out as the decline in North American business is not what Wall Street wanted to hear. For this, shares were pummeled 22% to $8 on massive volume of nearly 140 million shares (more than 7X the average).

Clear Sailing in Platform and Mobile Growth

Groupon reported that active customers increased 9.0% year over year to 44.9 million, comprising 20.8 million in North America, 14.2 million in EMEA and 9.9 million in Rest of the World.

Approximately 50.0% of the worldwide transactions were through mobile devices. Moreover, more than 9.0 million people downloaded Groupon’s mobile app during the quarter, which led to a robust mobile business.

Murky Waters in NA Comps and Biz Dev

Earnings outlook for Q1 and FY 2014 were significantly below consensus estimates with an implied FY EBITDA guide of $300mn vs. consensus of nearly $400mn. North America Local billings grew only 1.5% year-over-year over a tough comp a year ago when the company lowered take rates (rev share) to drive billings. But the deceleration from +13% y-o-y growth in Q3 remains a concern.

Gross margin plunged 660 basis points (bps) to 49.2% in the quarter due to unfavorable business mix. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $29.7 million compared with $71.9 million in the year-ago quarter.

Analysts at Stifel Nicolaus noted that “Groupon appears to be fixing its merchant-facing platform, but consumers have not yet responded in a compelling fashion. That is forcing some higher spending on marketing in 1Q/2014. Investments in two recent acquisitions (Ticket Monster and Ideeli, which both closed in January 2014) are also pressuring margins. Our billings estimate for 2014 falls slightly (ex acquisitions), while our EBITDA falls materially.”

Groupon’s net loss (including stock-based compensation but excluding acquisition-related expenses and impairment charges) was $1.7 million, which was slightly better than a loss of $25.8 million reported in the year-ago quarter. But a good chunk of this only came from lower expenses which is not really what Wall Street cares about right now with this company.

The Q1 guidance is probably what made investors shoot first last week. Adjusted EBITDA are expected to be between $20 million and $40 million, below the prior consensus estimate of $93 million, in part because of negative contributions from its recent acquisitions and additional marketing investments.

Dead Calm Before the Storm?

I met a former employee of Groupon last week (before their Feb earnings report) and asked him what he thought about the growth of their businesses going forward. I couldn’t get an answer I was satisfied with as I watched the stock trade above $10. I knew a lot of major Wall Street houses were recently bullish with price targets near $15 so I was mildly interested in the opportunity.

But when I read the research reports following the company’s quarterly blow-up, I wasn’t any more sure what to make of this business — except that earnings estimates, growth projections, and price targets were coming down.

Many analysts believe Groupon is well positioned to gain from the rising e-Commerce spending on mobile devices, a profitable domestic market and an under-penetrated international market. These opportunities can continue to drive top-line growth, especially with increased traction in mobile.

However, others believe that while the negative impact of increasing investments on profitability is a temporary factor, the company’s decision to reduce focus on China is a long-term negative.

And Macquarie analysts talked about facets of the business that seemed important but which eluded my understanding…

“GRPN said the slowdown was due to a tough take-rate comp, delayed consumer purchases related to shift from a ‘push’ to a ‘pull’ model, and more email space dedicated to Goods.”

Finally, the company continues to face significant competition not only from the stalwarts like eBay (EBAYAnalyst Report) and Amazon (AMZNAnalyst Report) but also from small companies like LiveDeal.

Bottom line: While the turn-around seemed promising, there are enough headwinds and uncertainties here to stay away. The Zacks Rank will tell you when it’s safe to go back into Groupon. And the soonest we might get encouraging direction on that front is on May 6 when they report for Q1.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.

Dangdang: Zacks’ Bull of the Day Play

E-Commerce China Dangdang (DANGSnapshot Report) is a $1 billion Chinese online retailer offering various consumer products through its website dangdang.com, including books and entertainment, beauty and personal care products, home and lifestyle items, and baby, children and maternity products.

Headquartered in Beijing, the company is best known as the country’s largest online seller of books in both Chinese and foreign languages. If Alibaba is considered the Amazon (AMZNAnalyst Report) and eBay (EBAYAnalyst Report) of China (Alibaba outpaced their combined transaction volume in 2013 by over 30%), DANG might be the early Amazon of the late 1990s.

In late February, DANG surprised investors and delivered its first profitable quarter since 1Q11, earlier than the market had expected. The company made solid progress in 4Q, especially in inventory management and operation efficiencies. The number of active/new customers and orders all reached record highs, and mobile now contributed ~13% of total orders in 4Q.

Analysts at Oppenheimer & Co. said this after the company’s quarterly report…

“The healthy product mix shift to margin-rich categories and continuous scalability & efficiency enhancement drove margins up, and we expect this upward trend to continue in 2014 and beyond. We are also appreciative of DANG’s strategic partnership with rivals, including Alibaba’s Tmall and No. 1 Shop, which strengthens its sales network. We increase our PT to $15 from $11, based on 0.7x 2015 EV/sales.”

The analysts also noted the strong 25% revenue growth and 1Q14 revenue guidance pointing to 30% year-over-year growth, the fastest pace in five quarters, including benefits from VAT (value-added tax) exemption in books.

Here’s how the earnings estimate picture looks with seven Wall Street firms contributing their projections, including Macquarie analysts who raised their price target to $16.50 from $12.50 after the quarter…

Alibaba IPO On Deck

There is much skepticism about Chinese companies because verifying accounting numbers and practices is such a challenge for US investors. But the reception on Wall Street from investment banks and analysts has obviously been kind to the majority of NYSE-listed companies.

And nowhere will this be tested more than in the upcoming IPO of Alibaba which reported Q4 revenues that vaulted 66% year-over-year to $3.06 billion, while net income more than doubled to $1.35 billion. The company is slated to raise about $15 billion in a 10% offering that would logically value the company at $150 billion.

If Wall Street makes the Alibaba IPO a success, it will be a big validation for lots of Chinese companies. And for DANG investors specifically, it could be a real boost. A cash-rich Alibaba may look to expand its e-commerce empire with further partnerships and acquisitions.

Chinese Consumer as an Emerging Force

My last two Bulls of the Day were also Chinese consumer-focused companies, VIPshop (VIPSSnapshot Report) and BitAuto (BITASnapshot Report). I don’t pretend to be an expert on the Chinese economy or these companies. I analyze their business growth because I am deeply curious about the Chinese economy and its giant, emerging middle class.

And studying the investable trends of the world’s second largest economy, that is now making a major transition from production for exports to sustainable internal demand, will pay off greatly I believe. I’ll give the last word to the analysts from Oppenheimer again…

“Secular tailwinds, such as increasing Internet penetration in China, rising domestic consumption, mobile penetration and growing confidence/trust in China’s online payment systems, provide further momentum for DANG’s B2C (business-to-consumer) growth. While competition is rising rapidly, DANG continues to hold a solid position to benefit from China’s high-growth B2C sector.”

Disclosure: I own BitAuto (BITASnapshot Report) shares for the Zacks Follow The Money portfolio.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.