Monthly Archives: August 2014

Yahoo: Zacks’ Bear of the Day Play

Yahoo! Inc. (YHOO – Analyst Report) has seen its shares lag in 2014 as investors await the Alibaba IPO. This Zacks #5 Rank (Strong Sell), however, is struggling to grow earnings with negative growth expected this year and next.

Yahoo is a leading Internet content provider and one of the top destinations on the web. It also owns about a 23% stake in the Chinese company Alibaba which is scheduled to go public in September in what will likely be the largest IPO ever.

And while Yahoo will reap the rewards from that investment, and will share that with shareholders, analysts aren’t too excited about the rest of Yahoo’s business right now.

Second Quarter Results Brushed Off

On July 15, Yahoo reported second quarter results and met the Zacks Consensus Estimate of $0.30.

Analysts didn’t like what they saw as display advertising price per ad declined year-over-year for the sixth consecutive quarter.

Yahoo also guided lower on revenue for the third quarter.

But don’t worry, there’s Alibaba. Its revenue in the second quarter jumped 46% year-over-year, soothing the worry warts who were concerned with the 39% revenue growth in the first quarter which seemed “light” compared to prior quarters.

Earnings Estimates Cut for 2014 and 2015

The analysts love the Alibaba part of Yahoo. But in the meantime, they have been slashing Yahoo’s earnings estimates for both 2014 and 2015.

4 estimates have been cut for 2014 in the last 2 months, pushing the 2014 Zacks Consensus Estimate down to $1.06 from $1.30.

The cuts to 2015 have been even more extreme as the Zacks Consensus has almost been cut in half to just $0.87 from $1.51.

That is negative earnings growth of 18% for both years.

It’s not moving in the right direction on earnings.

Shares On Hold in 2014

Shares of Yahoo rallied in 2013 on hope that the latest CEO, Marissa Mayer, would turn the company around.

But in 2014, shares have gone nowhere.

Yahoo isn’t exactly cheap either. It trades with a forward P/E of 35.

Certainly, Internet companies tend to be on the more expensive side but usually investors are paying for the earnings growth. Right now, that’s nowhere to be found at Yahoo.

If you really want to own an Internet content provider, you should consider Baidu Inc. (BIDU – Snapshot Report) instead. The Chinese company is expected to grow earnings by 22% this year and another 41% next year.

Want More of Our Best Recommendations?

Zacks’ Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential.

Learn More>>

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

Get the full Analyst Report on YHOO – FREE

Get the full Snapshot Report on BIDU – FREE

Advertisements

Greenbrier: Zacks’ Bull of the Day Play

The Greenbrier Companies, Inc. (GBX – Snapshot Report) isn’t a household name but this Zacks Rank #1 (Strong Buy) is in one of the hottest industries: railcars. Earnings are expected to rise double digits this year and next as the backlog expands.

Greenbrier builds railroad cars in 4 facilities in the U.S. and Mexico and also builds marine barges at its U.S. manufacturing facility. Internationally, it builds and refurbishes freight cars for the European market through its Polish operations.

It also reconditions, manufactures and sells railcar parts at 4 U.S. sites.

Big Beat in the Fiscal Third Quarter

On July 2, it was another solid quarter for Greenbrier as it easily crushed the Zacks Consensus Estimate by 39%. Earnings were $1.03 versus the Zacks Consensus of $0.74. This was more than double the second quarter earnings of $0.50.

Third quarter gross margin jumped to 16.3% from 11.5%, well outpacing the company’s guidance of a minimum of 13.5%.

It delivered 4,300 units in the quarter and received orders for another 15,600 railcars with a value of $1.65 billion.

Its backlog grew to 26,400 railcars valued at $2.75 billion. It also had a Marine backlog of $110 million.

It was also optimistic about its joint venture with Watco Companies to form GBW Railcar Services which will allow the companies to repair and refurbish tank cars at 38 sites across North America. Tank car regulations are driving the industry right now as the federal government is set to issue new regulations about the cars shortly.

Bullish Guidance

With the big backlog and the large beat in Q3, it’s not surprising that Greenbrier provided a very bullish forecast for the fiscal fourth quarter.

Revenue is expected to increase 4-6% with fiscal 2014 deliveries between 15,700 units and 16,000 units.

Earnings are expected to be in the range of $2.98 to $3.08 which was well below the Zacks Consensus which was $2.62.

The analysts immediately moved their estimates higher to the upper end of the guidance range, with 7 estimates being raised for fiscal 2014 and 8 increasing for fiscal 2015.

Earnings are expected to rise 53% in fiscal 2014 and another 30% in fiscal 2015.

Shares Have Been on a Tear

Investors have been piling into the railcar stocks. Greenbrier’s shares have more than tripled over the last year.

Does that mean it’s too late to get in?

Greenbrier trades with a forward P/E of 23.5 which isn’t cheap but you’re paying for that double digit earnings growth.

Greenbrier is also in a hot industry. The Transportation- Equipment & Leasing industry is ranked in the top 7% of all Zacks industries.

If you’re looking for a transportation stock that is a fast-growing name, Greenbrier is one you should keep on your short list.

Want More of Our Best Recommendations?

Zacks’ Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential.

Learn More>>

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

Get the full Snapshot Report on GBX – FREE

OM Group: Zacks’ Bear of the Day Play

OM Group (OMG – Snapshot Report) recently delivered disappointing second quarter results, and management lowered its full year EBITDA forecast. This prompted analysts to revise their earnings estimates significantly lower for the company, sending the stock to a Zacks Rank #5 (Strong Sell).

While shares have sold off year-to-date, they still do not look like a value at 22x forward earnings and 2.5x tangible book value, both of which are above their historical multiples.

OM Group calls itself a “technology-driven diversified industrial company serving attractive global markets.” The company reports its results in four segments:

Magnetic Technologies (46% of net sales year-to-date)
Specialty Chemicals (28%)
Battery Technologies (15%)
Advanced Materials (11%)

The Magnetic Technologies segment makes industrial-use magnetic materials used in several different end markets. The Specialty Chemicals segment produces chemicals for electronic applications, industrial applications and photomasks. And the Battery Technologies segment provides advanced batteries, battery management systems, and energetic devices for defense, space and medical markets.

OM Group recently divested of its Advanced Materials business.

Second Quarter Results

OM Group delivered disappointing second quarter results on August 1. The company reported adjusted EPS of 28 cents, well below the Zacks Consensus Estimate of 41 cents.

Net sales for Q2 were $297.5 million. Excluding the divested Advanced Materials business, net sales increased slightly to $253.8 million. Sales growth in the Magnetic and Battery Technologies segments were somewhat offset by a decline in Specialty Chemicals.

CEO Joe Scaminace stated in the press release that “European business conditions are not developing as expected, our growth initiatives are taking longer than expected to contribute to our results, and global electronics markets have been slower to recover than planned.”

Estimates Falling

Following the disappointing Q2 results, management lowered its full year EBITDA forecast from a range of $130-$140 million to $120 million. This prompted analysts to unanimously revise their EPS estimates significantly lower, sending the stock to a Zacks Rank #5 (Strong Sell).

The Zacks Consensus Estimate for 2014 is now $1.01, down from $1.35 before the report. The 2015 has fallen from $1.70 to $1.28 over the same period.

Fundamentals

Although shares of OM Group are down more than -25% year-to-date, the valuation picture still does not look attractive. The stock trades at 22x 12-month forward earnings, well above its 10-year median of 12x. Its price to tangible book ratio of 2.5 is also above its historical median of 2.0.

And while OM Group doesn’t carry any long-term debt, it does have a $228 million pension liability. That’s more than 3.5x the company’s total operating cash flow in 2013.

The Bottom Line

With weak end market demand, falling earnings estimates, and lofty valuations, the near-term outlook for OM Group does not look very compelling.

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

Get the full Snapshot Report on OMG – FREE
Featured Articles

AmTrust: Zacks’ Bull of the Day Play

AmTrust Financial Services (AFSI – Snapshot Report) delivered a strong second quarter beat on August 7, prompting analysts to revise their estimates significantly higher for both 2014 and 2015. This sent the stock to a Zacks Rank #1 (Strong Buy).

Although shares have already enjoyed nice gains so far this year, the stock trades at just 9x forward earnings. Given the strong earnings momentum and growth projections – along with relatively low interest rate risk – AmTrust still offers investors plenty of upside from here.

AmTrust is a property and casualty insurer that specializes in coverage for small businesses. The company provides insurance coverage for products with high volumes of insureds and loss profiles that it believes are predictable. It offers workers’ compensation insurance, extended warranty coverage, specialty middle-market property and casualty insurance and several related products and services.

Second Quarter Results

AmTrust delivered better-than-expected second quarter results on August 7. Adjusted earnings per share came in at $1.34, crushing the Zacks Consensus Estimate of $1.01. It was a 79% increase over the same quarter last year.

Gross written premium jumped 39% year-over-year to $1.44 billion due in large part to a reinsurance agreement with Tower International Group.

Investment income, excluding net realized gains and losses, soared 44% year-over-year to $32.6 million.

Meanwhile, the company’s combined ratio improved from 92.1% to 90.9%. This was driven by improvement in both the company’s loss ratio and expense ratio.

Estimates Soaring

Analysts have increased their earnings estimates significantly following the strong Q2 results. The 2014 Zacks Consensus Estimate is now $4.84, up from $4.48 before the report. The 2015 consensus is currently $5.31, up from $4.96 over the same period

As you can see in the company’s “Price & Consensus” chart, consensus estimates have been moving significantly higher over the last several months.

Based on current consensus estimates, analysts are projecting 43% EPS growth this year and 10% growth next year.

Reasonable Valuation

While shares of AFSI have soared more than +36% year-to-date, the valuation picture still looks reasonable. The stock trades at just 9x 12-month forward earnings, below the industry median of 13.8x.

While its price to tangible book value ratio of 3.4 is well above the industry median of 1.9, this seems justified given AmTrust’s superior returns on equity. Over the last 12 months, the company has generated 23% ROE compared to 7% for the industry.

Interest Rate Risk

One of the fears that has hung over insurance stocks is the threat of rising interest rates. Since insurers hold a lot of fixed income investments in their portfolios, rising rates would decrease the value of these securities.

However, AmTrust’s interest rate risk is relatively low. The company has a $4.3 billion investment portfolio, with more than $4.0 billion in fixed income investments like corporate bonds, mortgage-backed securities and municipal bonds. But the weighted average duration of its fixed income securities was a relatively short 5.3 years. So unless interest rates spike significantly higher, AmTrust investment portfolio should be able to weather rising interest rates rather well.

The Bottom Line

With strong earnings momentum, solid growth projections and reasonable valuation, AmTrust still offers investors attractive upside potential.

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

Get the full Snapshot Report on AFSI – FREE

hhgregg: Zacks’ Bear of the Day Play

The electronics retail business is a tough one. If you don’t believe me, go ask Best Buy (BBY). They’ve been struggling to become more than Amazon’s show room for quite some time. With the ease of access to products via the internet, investing tons of money in a brick and mortar location is becoming less and less profitable. You could look back and find plenty of examples of these types of locations going under and ultimately going broke.

That’s why I can’t help but think of today’s Bear of the Day, hhgregg (HGG – Analyst Report), as the next Circuit City. Remember that old electronics store that lost out to Best Buy and went under? I’ve set foot in an hhgregg location that was in the same building that used to house Circuit City. And there they were, selling electronics just like Circuit City did before going under.

I actually enjoyed my shopping experience at HGG. The people working there were very friendly and helped me pick out a computer for my Mom’s Christmas present. I got a great deal and thought to myself, “How can this place stay in business selling things this cheap?”

That’s exactly what hhgregg does. They are a specialty retailer of premium video products, appliances, audio products, computers and accessories with seventy nine stores in Alabama, Georgia, Indiana, Kentucky, North Carolina, Ohio, South Carolina and Tennessee. If you ever go to one I’m sure you’ll see it the same way that I did, like a Circuit City.

Analysts are equally unimpressed with this Zacks Rank #5 (Strong Sell). Over the last 30 days, ten analysts have lowered their earnings estimates for the current quarter, next quarter, and the current year. Next year isn’t looking much better as eight analysts lowered their bar. The revisions have pushed the consensus estimate for the current year down from a 12 cent gain to a 31 cent loss per share. Next year’s numbers have fallen from a 12 cent gain to a 21 cent loss.

Usually when looking for a company to invest your hard earned dollars in, you want to see a company that has earnings growth or at the very least stability. In the case of HGG, you get neither. You’re getting a company with shrinking profits in an industry that is shrinking. In fact, this industry ranks in the Bottom 6% of our Zacks Industry Rank.

If that wasn’t enough to warn you about this stock, the chart will be the icing on the cake. After a stellar run for three-quarters of 2013 took the stock from $7 all the way to $12 the stock began to fall apart. In October 2013 HGG broke below its 25 day moving average shifted by 5 days where it would remain until the stock shed half its value, finally popping back above in late January 2014. This year has been no cakewalk either. HGG has run out of gas, gapping down on earnings once again and now trades all the way down at $7.68.

Get the full Analyst Report on HGG – FREE

Get the full Analyst Report on BBY – FREE

RCS Capital: Zacks’ Bull of the Day Play

In the Zero Interest Rate Policy world, many investors have struggled to find reasonable yields. You either have to increase your maturities on your bonds and buy them further out or you have to make concessions on the credit quality. Either way you are essentially increasing your risk in order to increase your income. While that may be perfectly acceptable for some, it’s not acceptable for seniors who are looking for income to fund their retirement lifestyle.

The options have become increasingly limited. Investment grade corporate bonds have yields near twenty year lows right now and sovereign debt is paying virtually nothing. As a result, people have looked in other areas or alternative investments in order to find yield.

One company has entered this space and helped baby boomers find income from real estate investment trusts that hold some of the highest quality real estate money can buy. RCS Capital (RCAP – Snapshot Report) is a wholesale broker-dealer and an industry leading multi-product distributor of sector-specific direct investment programs. The distributed investment programs are designed to provide “Durable Income” and capital preservation.

Basically this company wants you to diversify your current investment portfolio into one of their REITs or other alternative investments. Right now only about 3% of the $7.5 trillion of investable assets the Mass Affluent of America have is invested in alternative and direct investments. RCS sees this as a huge opportunity for them to grab market share.

RCS Capital plays an essential role in the architecture, distribution and value monetization of yield-focused direct investment programs. RCS, as the wholesale broker-dealer, distributes REIT, BDC, and other direct investment programs, as well as liquid funds, through independent broker-dealers. Through 2013 RCS had 16 total direct investment programs for a total value of $21.4 billion raised.

Here at Zacks we like it because it’s a Zacks Rank #1 (Strong Buy) for good reason. In the last month, two analysts have raised their earnings estimates for the next year. This helped pushed consensus up from $1.95 to $2.26. Analysts are equally as bullish on this year as well. Current year consensus has jumped from $1.47 to $2.15.

The stock has seen its share of volatility this year so far. In January RCAP was trading down near $17 per share. From there, in a matter of only three months the stock more than doubled, rocketing up to a high of $39.98. After failing to vault $40 the stock came down to test the $30 handle. For a few months there was quite a bit of back and forth until a precipitous drop in late May.

Since then the stock has been bouncing along the bottom near $20. In the last few weeks RCAP has popped above its 25 day moving average shifted by 5 days and is beginning to show some signs of momentum. Currently, stochastics are neutral coming off a buy signal in early August. With relatively light volume as of late, the stock could catch fire if institutions start paying attention again.

Get the full Snapshot Report on RCAP – FREE

SeaWorld Entertainment: Zacks’ Bear of the Day Play

Despite a rebound in the U.S. economy, many leisure companies have seen their share prices stay flat on a YTD basis, as higher gas prices and cold weather have prevented many from spending on discretionary items or vacations. Those in the theme park industry have been especially impacted by this trend, as companies like Cedar Fair (FUN) and Six Flags (SIX) are flat to lower in 2014, and are well below the market’s gains this year.

Yet while these companies are flat, SeaWorld Entertainment (SEAS – Snapshot Report) is truly having a year to forget, largely thanks to its most recent earnings report, and the impact of an ongoing public relations issue. In fact, the stock is down over 30% YTD, largely thanks to a recent earnings miss which sent shares of SEAS plunging to new depths in August trading.

SEAS in Focus

SeaWorld Entertainment is an operator of theme parks across the country, with its SeaWorld branded parks located in Orlando, San Antonito, and San Diego. The company also owns a variety of other parks as well though, including water parks and both of the Busch Gardens theme parks too.

However, the real focus of the company as of late has been on its struggling SeaWorld brand due to public relation problems stemming from its treatment of Orca (Killer) Whales. Many believe that the current habitats are insufficient for animals of the Orca Whales’ size and that even SeaWorld’s expansion plans for their areas will not make much of a difference.

This issue really came to light thanks to a recent documentary, Blackfish, which painted SEAS’ treatment of Killer Whales in an extremely poor light. The backlash from this film caused many businesses and musical acts to end their agreements with SeaWorld, while possible government action could be taken against SeaWorld due to the documentary as well.

If this issue had hit a minor exhibit, it is possible SEAS would have just removed or discontinued it before more controversy could arise. However, since the Killer Whales are arguably SeaWorld’s flagship attraction, the company is in a bit of a quandary to say the least.

Recent Earnings

This problem came out in force in the company’s most recent earnings report as the company missed earnings by 28%, posting EPS of just 43 cents compared to an estimate of 60 cents per share. This is actually the second straight miss for the stock, and given the ongoing woes, we could easily see three misses in a row.

This is especially true given how far analyst estimates have gone down in recent weeks, showing how little those who are focused on the stock believe in SEAS near term outlook. For example, in the past 30 days for the current quarter consensus, estimates have fallen from $1.45/share to just $1.13/share, while the current year estimate has fallen from $1.41/share to just $0.83/share today.

Clearly, it could be a very rough time for SEAS, and especially if more Killer Whale troubles hit their bottom line. Current estimates have earnings contracting by 27.7% year-over-year so more pain could definitely be ahead for this embattled company, which is why, unsurprisingly, we have assigned a Zacks Rank #5 (Strong Sell) to this troubled stock.

Other Picks

If you are looking to stay in the leisure industry, there are few solid picks thanks to the weak industry rank of the leisure and recreational services sector. There is one top ranked company in the space though, Royal Caribbean Cruises (RCL).

This company is just coming off a strong earnings beat, while rising earnings estimates are pushing growth rate projections to 45% this full fiscal year. So if you are worried about SEAS, consider switching from that theme park operator over to the cruise line world, as Royal Caribbean could be poised to outperform SEAS in the near term.

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

Get the full Snapshot Report on SEAS – FREE

Stratasys: Zacks’ Bull of the Day Play

One industry that many investors are growing increasingly aware of is 3-D Printing. This high growth segment of the manufacturing and technology world has become a popular destination for those seeking to get in on the ground floor of a sector that many believe could have a very important role in the future.

From a stock perspective though, returns have been extremely rocky for most companies, despite this long term potential. Stocks in the 3-D printing space saw great gains in 2013 for the most part, though many have floundered this year.

A great example of this trend is one of the market leaders, Stratasys (SSYS – Analyst Report). This company saw gains of over 50% in 2013, but so far this year, the stock is down over 13%, easily underperforming the market YTD.

However, SSYS in particular could be an interesting buy at this subdued 2014 price, thanks in part to the long term outlook, but also due to recent earnings estimate revisions which suggest that a turnaround could be at hand, and that now might be a great time to pick up shares in this company.

SSYS in focus

First though, let’s briefly highlight what sets SSYS apart from the rest of the names in the 3-D printing world, and why this company might be the one to choose in the space:

Stratasys is a market leader in 3-D printing, and it actually has the biggest market share, by installed base, in the industry. This market share lead is largely thanks to its large position in the ‘home’ market of the industry, due to its MakerBot division which specializes in this type of 3-D printing.

However, SSYS isn’t only focused on the home, as the company has industrial/high-end professional geared printers as well. And with recent expansion in and a larger focus on international markets, there is plenty of reason to believe that SSYS can continue to grow at an impressive clip and keep its title as one of the most well-rounded (and profitable) 3-D Printing companies out there.

Recent Earnings

This profitability and strong market position are best exemplified by SSYS’ most recent earnings report. In the release, Stratasys easily crushed estimates, posting EPS of 46 cents a share compared to estimates of 32 cents a share.

While this does mark the first beat for SSYS in the past four quarters, the real focus should be on analysts’ perceptions of the stock now. It appears as though many really liked SSYS’ plan for the near term, and have thus been raising their estimates for the 3-D printing stock’s earnings as of late.

Earnings Outlook

While recent changes to earnings estimates have been flat for this quarter, we are seeing some big changes for both this full year and next full year. In both of these periods, analysts have made big revisions to the upside while not a single estimate has moved lower for either of these full year time periods.

The magnitude of these revisions has been pretty solid too, as the current year consensus has moved from $1.75/share 30 days ago, to $1.87/share today. Meanwhile, for next year, the consensus estimate has gone from $2.58/share in EPS to a level of $2.79/share right now. Plus, both of these earnings figures represent growth rates in excess of 48% (when compared to the prior year), suggesting strong earnings growth is projected well into the future.

For these reasons, we currently have SSYS as a Zacks Rank #1 (Strong Buy) and are looking for outperformance from this company in the near future.

Bottom Line

SSYS is in a very strong industry, and in fact, its Zacks Industry Rank puts it in the top 7% of all industries we cover. And given the strong growth prospects of the 3-D printing industry and SSYS’ enviable position in the space, we could see gains out of this company to close out the year.

So if you are looking for a company that is looking great from an earnings perspective, is in a high growth industry and is one of the few that isn’t at a 52-week high right now, consider SSYS. The company may still have plenty of room to run, and looks poised to make fresh highs to close out the year, should this quickly growing company see recent trends continue.

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

Author is long SSYS

Get the full Analyst Report on SSYS – FREE

Ann: Zacks’ Bear of the Day Play

Ann’s shares slumped on Friday after weak results and guidance. Analysts have started cutting their estimates further for this Zacks Rank # 5 (Strong Sell) stock.

About the Company

ANN Inc (ANN), the parent Company of the Ann Taylor and LOFT brands, is a specialty retailer for women’s clothing. They serve clients through 1,040 stores in the U.S. and Canada, and online in more than 100 countries worldwide.

Disappointing Results and Guidance

On August 22, the company reported its results for the fiscal second quarter of 2014. Earnings for the quarter were $0.70 per share, down from $0.76 earned in the same quarter last year but they met the Zacks Consensus Estimate.

Total net sales were $648.7 million, compared with $638.2 million in Q2 of 2013 while gross margin declined to 52.4% from 54.7% a result of higher-than-expected promotions.

Results were slightly better than the lowered guidance provided earlier this month. According to the company, “while the quarter had started on a positive note with solid momentum through mid-June, the second half of the period proved challenging, as softer traffic levels and a highly promotional environment pressured sales and margin”.

Earlier on August 7, the company had revised down its guidance for the quarter, based on preliminary results.

Along with results release, the management also lowered their guidance for the third quarter and FY 2014. Total net sales for the year are expected to be $2.56 billion, reflecting flat total comparable sales. Gross margin rate is expected to be 52.0%.

Downward Revisions

Analysts have been cutting their estimates for the company after preliminary results and lowered guidance. Zacks Consensus Estimates for current and the next fiscal year as of now are $2.11 per share and $2.56 per share respectively, down from $2.39 per share and $2.77 per share, 30 days ago. Declining estimates had sent the stock back to Zacks Rank # 5 yesterday.

We should see more negative revisions in estimates in the coming days as analysts update their reports after today’s results and guidance.

The Bottom Line

Declining store traffic and highly promotional environment continue to pose challenges for apparel retailers. Fierce competition in the industry and stagnant consumer wages will continue to pose headwinds for Ann in the third quarter as well.

Better Play?

Investors seeking exposure to “Retail—Apparel/Shoes” industry could consider Citi Trends (CTRN), which currently enjoys a Zacks Rank # 1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download7 Best Stocks for the Next 30 Days.Click to get this free report >>

Get the full Snapshot Report on ANN – FREE

Visteon: Zacks’ Bull of the Day Play

Visteon Corporation (VC) delivered strong results and provided bullish guidance for 2014 and 2015, leading analysts to revise their estimates upwards. Positive earnings momentum sent the stock back to Zacks rank #1 (Strong Buy) earlier this month.

About the Company

Visteon is a leading global automotive supplier of climate, electronics and interiors products for vehicle manufacturers. It serves original equipment vehicle manufacturers with its technical, manufacturing, sales and service facilities located in 29 countries.

It has corporate offices in Van Buren Township, Michigan; Shanghai, China; and Chelmsford, UK and employs about 24,000 people worldwide.

The company has been transforming from a US centric company with only one major customer to a predominantly Asia-based, multi-customer global enterprise.

Excellent Results and Guidance

On August 6, Visteon reported its Q2 2014 results. Sales for the quarter totaled $1.78 billion, up 11% from the same quarter last year. Adjusted EPS of $1.76 per share was much better than consensus.

Adjusted EBITDA excluding discontinued operations was $175 million, compared with $149 million for the same period a year earlier. The balance sheet position continued to be strong with global cash balances totaling $1.4 billion at the end of the quarter.

Hyundai-Kia accounted for approximately 39% of Q2 sales and Ford accounted for 30%.
Among regions, Asia accounted for 51% of sales, Europe 27%, and Americas 22%.

The company now expects 2014 sales of $7.6 billion and adjusted earnings in the range of $2.98 to $3.62 per share. The company also provided preliminary guidance for 2015, which was better than expectations.

Visteon completed the acquisition of the electronics business of Johnson Controls (JCI) in July. The business acquired provides automakers with advanced driver information, infotainment, connectivity and body electronics products and makes Visteon one of the world’s three largest suppliers of vehicle cockpit electronics. The company expects that future synergies from JCI integration will drive sales growth and margin expansion.

Business Transformation to be completed soon

The company is nearing the completion of its multi-year restructuring/transformation. After exiting its Interiors business, the company will be comprised of two high-growth / margin businesses—Automotive Climate and Cockpit Electronics

Solid Industry Outlook

Per Zacks Auto Industry Outlook, a strong pent-up demand due to aging vehicles on the U.S. roads along with falling unemployment rate and easier financing have been the key factors in driving the auto sales in the US..

Asian countries, especially China and India, are expected to account for a large portion of growth in the auto industry over the next five to seven years due to their rapidly growing economies. With its strong presence in Asia, VC will definitely benefit from the surging demand for automobiles in that region.

Further recent innovations in consumer electronics technologies will provide significant opportunities for automotive electronics suppliers.

Estimates Moving Upwards

After strong results and updated guidance, analysts have increased their earnings estimates for VC. Zacks consensus estimates for the current and next year are now $3.52 per share and $5.26 per share respectively, up from $3.18 per share and $4.55 per share, 30 days ago.

The Bottom Line

Highly diversified sales footprint (by products, regions as well as customers), offerings across all major cockpit electronics products and continued investments will help VC gain market share in its space and coninue its outperformance.

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

Get the full Snapshot Report on VC – FREE