Monthly Archives: November 2014

Cimarex Energy: Zacks’ Bear of the Day Play

Cimarex Energy (XECSnapshot Report) is an independent oil and gas exploration and production (E&P) company with operations in Oklahoma, Texas and New Mexico. The majority of their activity is currently in the Permian Basin and the Cana–Woodford shale play in western Oklahoma.

As with most E&Ps in the past two months, EPS estimates have come down sharply while the price of crude oil searches for a floor. But analysts have generally been late and slow to lower estimates.

 

And a second wave of downward revisions hit Cimarex last week, knocking XEC down into the Zacks #5 Rank cellar. Here are the EPS tables which tell the tale of lowered growth projections…

E&P Stocks May Have Bottomed Even If Oil Has Not

In a recent research report, JPMorgan energy analysts suggested that some E&P stocks were becoming bargains now, even if crude had lower to go. Their thesis is that it’s time to be a stock-picker in the industry while the winners get sorted out from the losers. Here’s what they had to say…

“In a rangebound energy tape, many stocks still can do very well, as happened during the nine-month period from September 2012 to June 2013. During this period, the group was down 3% but eight E&Ps that we follow were up 10% or more, with the best performing stock (COG) up 55%.”

These analysts are probably very right about being very selective in the E&P space. One of the strongest clues you can use is the Zacks Rank. When it turns back up from the cellar, you’ll know the analysts went to far and bargains are being sought.

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

Skyworks Solutions: Zacks’ Bull of the Day Play

Looking for a great way to play the “Internet of Things” and the coming global tidal wave of mobile phone upgrades to 4G? Look no further than Skyworks Solutions (SWKSAnalyst Report).

 

Skyworks is an innovator of high performance analog semiconductors with customers across automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone and tablet applications. They are probably most recognized as the supplier of RF (radio frequency) chips in Apple (AAPLAnalyst Report) iPhones and other handset and device makers.

When I heard CEO Dave Aldrich speak earlier this year about his company’s products helping create the “Internet of Things” I became very interested in the company and its growth potential. The massive connectivity trend to link personal devices to cars, homes, computers, appliances, and networks is just beginning to take off and Skyworks intends to be at the center of it.

Strong Quarter, Great Outlook

Today I’ll talk about the core fundamentals of this $12.5 billion tech company and what made them become a Zacks #1 Rank this month. Then we’ll cover the big institutional buying that is driving this stock to new highs.

On November 6, SWKS reported a strong September quarter (their Q4 for FY14) and guided the current quarter well above consensus.

They beat an already-positive preannounce from mid-October with non-GAAP EPS of $1.12 and revenues of $718 million, up 51% year-over-year and beating top line estimates by roughly $35 million.

And that revenue surprise not only took full year 2014 top line growth to 28%, but inspired analysts to now project nearly 30% growth for next year too.

That optimism is due in part to the impressive company outlook for 1QFY15 sales/EPS expected at $770M/$1.18, well ahead of the consensus $728M/$1.08.

Much of this growth is due to Apple iPhone6 sales. But the company and analysts see encouraging growth in enough other segments and customers to justify significant estimate hikes for top and bottom lines. They raised the new FY15 consensus from $3.64 to $3.98 and FY16 from $4.19 to $4.72, over 12%.

 

Analysts Jump On Board

Following this great report, analysts were not only raising estimates but their price targets (PT) as well. Bank of America analysts raised their PT to $75 while Raymond James bumped theirs to $77.

And Oppenheimer analysts had this to say…

We believe the current RF “boom cycle” remains early innings as LTE devices proliferate, and we see SWKS as a top beneficiary. We are reiterating our Outperform and bumping our target from $65 to $80.

Stern Agee analysts noted many positives in their report where they were inspired to raise estimates and the stock PT to $72, including the company winning $20 worth of content sales in new car “infotainment” systems.

They see FY16 EPS estimates of $6 even without potential M&A activity, noting that “SWKS with its filter partnership noted it can drive incremental 52% GMs versus current ~46% GMs. We believe with strong topline growth, improving GM-OM, SWKS can drive F16E EPS of ~$6. Versus peers we believe the opportunity for investors in SWKS is that the company still has a substantial M&A opportunity and an ~$500-700M FCF (free cash flow) opens up opportunity for dividends-buybacks.”

That’s some nice Free Cash Flow at $500 to $700 million. But the annual revenue estimate raises from Stern Agee are stunning…

F15E from $2.6B to $3.1B

F16E from $2.9B to $3.8B

And since this flurry of optimism from the analysts, on November 12 Skyworks raised their share buy-back plan to $300 from $250 million (of which about $63 million was left).

Just Scratching The Surface In China, India Up Next

Analysts at Craig-Hallum made some interesting points about the global upgrade to 4G that Gartner believes will see 8 billion new smartphones sold in the next three years.

“We believe the China 4G smartphone market is still in early innings as less than 5% of Chinese consumers use a 4G smartphone. Every time a Chinese consumer replaces their 2G phone with a 4G phone, the total RF content goes up ~5-10x. We estimate the total RF content in a 2G phone is roughly $0.60 compared to roughly $4.00-$8.00 in a 4G smartphone, therefore providing SWKS, one of largest RF suppliers for smartphones, ample fuel for top line growth in the coming years. Additionally, we believe the same accelerated shift to 4G in China is beginning to unfold in India, which would further extend the company’s already growing TAM (total addressable market).”

Craig-Hallum analysts also addressed the perception that Skyworks is too dependent on Apple. The company’s revenue breakdown doesn’t argue for that and the analysts believe this is actually a good problem for SWKS to have…

“While we believe Apple’s record iPhone 6/6+ sales will be hard to beat (until perhaps next year), we believe Apple will remain an important customer for SWKS in years to come and look for SWKS to maintain and improve its dominant presence in Apple products with ~$5.50 in content in the iPhone 6/6+. Moreover, we look for more bands in Apple’s next phone leading to more dollar content for SWKS. As a result, we believe SWKS will continue to ride the coattails of any major product launch at the consumer electronics giant.”

Whales Aboard Skyworks

The list of big funds adding to SWKS in Q3 was impressive. Yes, some took profits in Q3 like Wellington Management selling 2/3 of their position. But they still hold 2.2 million shares. And take a look at who was happy to take those shares off their hands…

Top 15 Q3 Buyers

BANK OF AMERICA CORP 5,034,647 ADDED 1,343,539

BARCLAYS GLOBAL INVESTORS UK 6,954,707 ADDED 1,103,249

BANK OF MONTREAL 3,038,520 ADDED 933,548

BLACKROCK GROUP LTD 1,004,240 ADDED 683,938

SYSTEMATIC FINANCIAL MANAGEMENT 1,798,419 ADDED 627,595

OPPENHEIMER FUNDS INC 2,599,124 ADDED 588,150

ARROWSTREET CAPITAL 1,631,496 ADDED 574,797

PEAK6 INVESTMENTS 543,836 ADDED 540,536

VICTORY CAPITAL MANAGEMENT 527,772 NEW

STATE OF TENNESSEE 767,485 ADDED 484,746

GREYSTONE MANAGED INVESTMENTS 481,078 NEW

MANAGED ACCOUNT ADVISORS LLC 892,722 ADDED 485,983

ALLIANCEBERNSTEIN L.P. 568,619 ADDED 424,290

VANGUARD GROUP INC 11,247,446 ADDED 418,932

ALLIANZ ASSET MANAGEMENT 1,667,818 ADDED 394,720

The list above is just the biggest buyers in Q3. Notice that Vanguard at #14 (by size of Q3 buy) is actually the largest holder with 11.2 million shares and they still nibbled on 418k shares.

Investing for the Connected Future

Here are the other top holders, with amounts sold in Q3 in parentheses…

AMERIPRISE FINANCIAL INC 6,993,260 (526,276)

BLACKROCK FUND ADVISORS 5,832,173 ADDED 251,230

STATE STREET CORP 4,982,366 ADDED 104,327

FMR LLC 3,962,445 (16,299)

BANK OF NEW YORK MELLON 3,455,681 ADDED 187,088

MUNDER CAPITAL MANAGEMENT 3,412,088 (48,050)

PNC FINANCIAL SERVICES GROUP 1,945,845 ADDED 163,315

AQR CAPITAL MANAGEMENT 1,874,692 ADDED 261,365

And if the natural question comes to mind, “What if these guys start selling?” you would not be alone. But think about it this way: most institutional money managers buy a stock based on a fundamental thesis that extends well beyond a few quarters. They are adding shares here in the aggregate, knowing full well who else owns them, because they are looking forward to this company’s future at the heart of the connected world.

Bottom line: SWKS has lots of solid institutional buying and continued support in an industry — chips — where valuations rarely get out of hand. But as we’ve learned recently with Avago (AVGOAnalyst Report) and Ambarella (AMBASnapshot Report), your specialty semiconductor providers can command higher valuations because they are not commodity plays.

And that’s why investors will continue to pay 12-15X for Skyworks growth giving us a run for $70+ soon.

Disclosure: I own shares of Skyworks Solutions for the Zacks FTM Trader.

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

Container Store: Zacks’ Bear of the Day Play

Container Store Group (TCSSnapshot Report) is down about 50% YTD, but stock performance is not a factor of the Zacks Rank. Earnings estimates are a big factor so let’s take a look at why it is a Zacks Rank #5 (Strong Sell), and it is the Bear of the Day.

Company Description

 

The Container Store Group is engaged in the retailing of storage and organization products in the United States. As of March 1, 2014, it operated 63 stores with an average size of approximately 19,000 selling square feet in 22 states and the District of Columbia. The company was founded in 1978 and is headquartered in Coppell, Texas.

Estimates Slide

The Zacks Rank is based on the revisions of earnings estimates. The stock price has nothing to do with the Zacks Rank. When estimates fall, the Zacks Rank will usually fall as well.

TCS has had a poor earnings history as the company has missed in three of the last four quarters.

The Zacks Consensus Estimate has fallen from $0.64 in April to $0.57 in June and down to $0.50 before the most recent earnings release in October. Seeing as it was the third time in the last six months that the company lowered guidance, the estimates were slashed down to their current level of $0.42.

The Zacks Consensus Estimate for 2015 has seen a similar decrease, moving from a high of $0.82 to a low of $0.60 but recently kicked higher by a penny.

Valuation

 

TCS still has some decent growth prospects, despite the company lowering guidance three times in the last six months. The company is expecting 7.5% revenue growth for fiscal 2015 and 11% for fiscal 2016, while the industry average is expected to contract in 2015 by 5.7% and then grow by 4.7% in 2016. That said the 247x trailing PE for TCS show an almost absurd premium to the 20x trailing PE for the industry average. The forward PE, which is more important for a stock like this, shows a healthy premium at 52x compared to 20x for the industry average. Price to book comes in at 5.5x compared to the industry average of 3.3x while price to sales of just 1.4x is below that of the industry average of 2.6x.

The Chart

The price and consensus chart is a very helpful tool developed by Zacks. It shows how the earnings estimates help guide the stock, so as estimates move higher, the stock price generally follows along. TCS as a Zacks Rank #5 (Strong Sell) is no exception to that idea. Investors would be wise to wait for estimates to turn around and start moving higher before they think about investing in this stock.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

AngioDynamics: Zacks’ Bull of the Day Play

AngioDynamics (ANGOAnalyst Report) recently posted a solid earnings report making it a good fundamental play as well as a stock with a good technical chart. ANGO has become a Zacks Rank #1 (Strong Buy). Today it is the Bull of the Day.

Recent Earnings Report

 

ANGO posted a huge beat at the start of October, with sales coming in at $87M, $2M ahead of the Zacks Consensus Estimate. That marked the sixth straight quarter that the company was able to beat the Zacks Revenue Consensus Estimate.

The bottom line was even better, with the company reporting earnings of $0.16 when the Zacks Consensus Estimate was calling for $0.04. That $0.12 beat translates into a positive earnings surprise of 300%. The quarter prior to his one was also a big beat with the company posting a 50% positive earnings surprise.

Company Description

AngioDynamics makes medical, surgical, and diagnostic devices. As the name implies, the products and devices that they make and sell are centered around the heart and blood flow. AngioDynamics was founded in 1988 and is headquartered in Latham, New York.

Estimate History

Estimates for ANGO had been moving the wrong way for most of this year. Starting out at $0.48, analysts lowered numbers every month over a period of April through July sending the Zacks Consensus lower by ten cent. But with the recent beat, analysts have pushed estimates up to $0.69 – that is a huge move higher.

The 2015 Zacks Consensus Estimate also launched higher, moving from $0.53 to $0.86 following the most recent earnings release.

Valuation

The valuation for ANGO is very attractive. Of the metrics that investors normally look at, ANGO trades at a slight premium in terms of PE, but at a big discount in terms of price to book and inline in term of price to sales. The 30x trailing PE multiple is just higher than the 24x industry average. The forward PE of 25x shows less of a premium, with the industry average showing 23.5x. The price to book of 1.1x is well below the 3.9x industry average, and that alone could attract the value crowd to this name. Finally, the price to sales multiple of 1.7x is in line with the industry average.

Election Play

 

The recent elections might just give this stock a tailwind. With the Republicans getting more control of Washington DC, there is a lot of talk about a re-work of ObamaCare. There has also been even more talk of a removal of the medical device tax, a move that could boost the value of all medical device stocks. This is an idea to look to in 2015 when the new lawmakers take office.

The Chart

The price and consensus chart is a very helpful tool developed by Zacks. It shows how the earnings estimates help guide the stock, so as estimates move higher, the stock price generally follows along. ANGO as a Zacks Rank #1 (Strong Buy) is no exception to that idea. With estimates moving higher, the stock is likely to head back to recent highs and could test $20 in the near term.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

Invacare Corp: Zacks’ Bear of the Day Play

Invacare Corp (IVC) announced Q3 earnings late October, and for the third consecutive quarter they missed the Zacks Consensus Earnings Estimate, and they missed the Zacks Consensus Revenue Estimate for the second time in the last three quarters.

 

Invacare Corp, which currently carries a Zacks Rank #5 (Strong Sell), is the world’s leading manufacturer and distributer of non-acute health care products based upon its distribution channels, and the breadth of its product lines and sales.  The company designs, manufactures and distributes an extensive line of health care products for the non-acute care environment including home health care, retail and extended care markets.

Missing Estimates (Expected, but not this bad)

For Q3 2014, the Zacks Consensus Earnings Estimate was missed by $0.30, or -113%, and the Zacks Consensus Revenue Estimate was missed by $7 million dollars, or -2.13%.  The earnings miss is a continuation of previous quarters misses, in Q1 Invacare missed by -75%, and Q2 they missed by 28.57%.

The big issue facing Invacare Corp is a Consent Decree, an agreement between the FDA and IVC in which design and manufacturing activities were suspended, with various conditions, at IVC’s Taylor Street complex (power wheelchair and corporate facilities).  This agreement has been a significant headwind for the company for the past several years.  Further, during the Q3 earnings call, management did not give any guidance around the completion of the Consent Decree (therefore, it is still negatively impacting the company).  It appears as though this Decree will continue into 2015.

Guidance

Due to the continued earnings misses, the Zacks Consensus Earnings Estimates for Q4 2014, FY 2014, and FY 2015 have all declined in the past 30 days.  Q4 2014 dropped from -$0.13 to -$0.23, FY 2014 decreased from -$1.23 to -$1.62, and FY 2015 fell from -$0.01 to -$0.38.  Further, this company has been consistent in producing negative earnings surprises, the average negative earnings surprise is -72.98% over the past four quarters.

As you can see in the Price and Consensus chart below, estimates are coming down sharply.

More Negative News

 

On November 14, the company announced that company founder and Executive Chairman of the Board will retire as of December 21, 2014.  Further, the President of Invacare Technologies Division and SVP of Electronic and Design Engineering, J.B. Richey, is also retiring, but as of November 30 of this year.

This is a major loss for the company because both of these original investors have been involved with the company for 35 years, and were considered the major force behind the start-up of the company.

Bottom Line

With the Consent Decree hindering the company until at least early 2015, the company should then continue to face strong headwinds for the remainder of 2014.  Couple this with the fact that two original investors, and key management figures are leaving at basically the same time.  This puts a large grey cloud of uncertainty over the company for the next 1-3 months.  Therefore it is the Zacks Bull of the Day.

Other Stocks to Consider

If you are inclined to invest in the Medical/Dental Supply Sector, you may want to consider BioReference Laboratories (BRLISnapshot Report) which carries a Zacks Rank #2 (Buy), Merit Medical (MMSISnapshot Report) a Zacks Rank #2 (Buy), or Steris Corp (STESnapshot Report) a Zacks Rank #2 (Buy).

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Black Diamond: Zacks’ Bull of the Day Play

Black Diamond (BDESnapshot Report) recently reported Q3 earnings data which topped both the Zacks Consensus Earnings and Revenue Estimates.  The reasons behind the beats were solid reorders for the Black Diamond spring/summer product, the POC and Black Diamond brands, and the POC Road line.  The strength of these lines helped propel Black Diamond’s revenues up 24% year over year.

 

This Zacks Rank #1 (Strong Buy) company was formerly known as Clarus Corporation, operates as a manufacturer and distributer of outdoor recreation and equipment and active lifestyle products.  Black Diamond’s products range from rock-climbing equipment, technical and high end backpacks, headlights and lanterns, gloves and mittens, tents, skis, ski products, and avalanche safety equipment.

Earnings Results and Forward Expectations

Black Diamond posted solid Q3 earnings data, beating the Zacks Consensus Earnings Estimate by a whopping 1200%, and beat the Zacks Consensus Revenue Estimate by $1 million dollars.  Further, the company has beaten the Zacks Earnings Estimates in three out of the four previous quarters with an average positive earnings surprise of 553.13%.

These solid consistent numbers has caused the Zacks Earnings Estimates for Q4, FY 2014, Q1 2015, and FY 2015 to all increase over the past 30 days.  Estimates have risen:  Q4 from $0.04 to $0.10, FY 2014 from -$0.18 to -$0.01, Q1 2015 from -$0.05 to -$0.01, and FY 2015 from -$0.01 to $0.26.

As you can see from the Price and EPS Surprise graph, when Black Diamond beats they see a strong uptick post earnings.

Company Data

During the quarter, Black Diamond saw growth in many categories; Revenue up 24% y/y, Adjusted gross margin up 290 bp y/y, and SG&A was up 6% y/y.  Further, current second half guidance is looking for sales between $113-$118 million, up 15%-20% y/y, and a nice increase in gross margins between 160-260 bp.  This would indicate a consistent growth trajectory for the company going forward.

On a quarterly basis, Black Diamond was able to increase net margins by 9.9%, while decreasing Total debt to total capital by 7.5%, Total debt to total equity by 9.9%, and Total asset to Common equity by 8.2%.

Bottom Line

As the House Stark family motto states, ‘Winter is Coming’, and with another polar vortex, which is expected to be just as bad or even worse than last year, now slamming many parts of the U.S., winter has come.  And it is time to bundle up!

A company that sells avalanche gear, skis, gloves, and other outside items would be greatly benefited by a cold snowy winter. So bundle up for a strong winter with Black Diamond Inc!

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Movado: Zacks’ Bear of the Day Play

Are watch sales really that bad? In a surprise move, Movado Group Inc. (MOVSnapshot Report) recently guided lower for the full year as it blamed softening in the watch category. It has fallen to a Zacks Rank #5 (Strong Sell) as analysts moved to cut estimates.

Movado Group makes watches in its Switzerland manufacturing facilities under the brands Movado, Ebel, Concord, ESQ Movado, Coach, Tommy Hilfiger, Hugo Boss, Juicy Couture, Lacoste and Scuderia Ferrari. It also operates Movado company stores in the United States.

Movado focuses on the upscale watch market, which has been holding up well in the face of economic weakness in Europe and now in Asia.

Disappointing Sales and Lowered Guidance

However, on Nov 14, Movado shocked the Street by announcing preliminary third quarter sales which were below analyst forecasts.

Net sales for the third quarter are expected to fall to $188.6 million from $189.7 million a year ago. For the full fiscal year, net sales are only now expected to increase by 1% to 2%.

The company blamed it on slower growth in the overall watch category and that retailers are “focusing on driving improved productivity.”

Additionally, some of its brands didn’t perform as well as planned, including the flagship brand, Movado, in the international markets.

Earnings per share for the fiscal fourth quarter are expected in the range of $0.86 and $0.87. That is well below the Zacks Consensus of $1.14.

Fiscal full year guidance has been reduced to a range of $1.80 to $1.85.

That is well under the Zacks Consensus Estimate of $2.41.

Analysts moved to immediately cut estimates. The full year Zacks Consensus was cut to $1.81 which is at the low end of the company’s new range. That’s also an earnings decline of 12% from fiscal 2014.

Shares Fall to New 52-Week Low

Not surprisingly, the shares got crushed on the lowered guidance. They’re now trading at new 52-week lows.

Movado is now trading with a forward P/E of just 13.9.

But that doesn’t mean it’s a deal. Slashing your outlook as you head into the critical holiday shopping season is never a confidence booster.

If you are really interested in the watch space, you might want to consider Fossil Group Inc. (FOSLAnalyst Report) instead. While it makes watches on the lower end of the spectrum, it didn’t mention any problems with watch demand slowing in its last earnings report. Fossil is also expected to see 13% earnings growth this year.

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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.

Ethan Allen: Zacks’ Bull of the Day Play

It’s been 2 years since Ethan Allen Interiors Inc. (ETHSnapshot Report) was a Zacks Rank #1 (Strong Buy). The furniture retailer recently easily beat the Zacks Consensus in the fiscal first quarter and analysts have been raising full year estimates.

Furniture is back!

Ethan Allen is an upscale home furnishing retailer. It operates 300 design centers in the United States and overseas. It also owns 8 manufacturing facilities, including 5 in the United States, along with a sawmill, and one each in Mexico and Honduras.

Second Big Beat in a Row

On Oct 21, Ethan Allen reported its fiscal first quarter results and blew by the Zacks Consensus Estimate for the second quarter in a row. Earnings were $0.44 versus the consensus of $0.35.

Sales rose 5% to $190.7 million compared to the first quarter last year. Retail net sales rose 2.3% while wholesale saw even better numbers, with sales rising 10.1%.

Gross margin rose 60 basis points to 55% year over year.

It’s shipped 80% of its fall collection which will have over 600 new items.

A lot of time and energy has gone into the company’s new web site. It finally launched on Oct 15. Internet shopping is now the norm. While it may seem counter intuitive that shoppers would buy furniture online, Williams-Sonoma now sees 51% of its total revenue from online purchases.

The company had tightened advertising spending but will now ramp it up into the second half of fiscal 2015, which is the beginning of next calendar year.

The company said it remains “cautiously optimistic.”

Double Digit Earnings Growth Expected

Analysts are also optimistic that the recovery in housing, and the consumer’s wallet, is continuing. 5 estimates were raised for both fiscal 2015 and fiscal 2016 in the last 30 days.

Earnings are expected to jump 17.6% in fiscal 2015 and another 19.2% in 2016.

That gives Ethan Allen a forward P/E of 16.3. That’s cheaper than the average of the S&P 500, which is trading at 17.8x.

Shares Jump

Shares had been stagnant for most of the year but got a boost from this solid earnings report.

Ethan Allen has some attractive fundamentals including a price-to-book ratio of just 2.2.

For investors looking at the furniture retailers as a way to play the housing recovery and the return of the consumer, Ethan Allen is one to 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.

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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.

Chemtura: Zacks’ Bear of the Day Play

Earnings estimates have fallen sharply for Chemtura Corporation (CHMTSnapshot Report) after the company delivered disappointing third quarter results on October 28. This drove the stock to a Zacks Rank #5 (Strong Sell).

Although shares of Chemtura have taken it on the chin so far this year, it still does not look like a value with a forward P/E of 20x and an EV/EBITDA multiple of 11.

Chemtura Corporation manufactures and markets specialty chemicals that serve various industries, including transportation, building & construction, and energy & electronics. The majority of its chemical products are sold to industrial manufacturers for use as additives, ingredients or intermediates that add value to their end products.

Third Quarter Results

Chemtura reported disappointing Q3 results on October 28. Adjusted earnings per share came in at 20 cents, missing the Zacks Consensus Estimate of 29 cents.

Net sales declined 2% year-over-year to $558 million, below the consensus of $574 million. Management stated that it experienced weak demand and excess capacity in some of its segments.

Meanwhile, adjusted operating income fell 3% to $32 million.

Estimates Plummeting

In the Q3 press release, management stated that in order to meet its expected performance improvement in 2015, it is looking to cut manufacturing costs by approximately $50 million. The company also announced on November 3 that it had sold its agrochemicals business, Chemtura AgroSolutions, for approximately $1 billion as it seeks to become a pure-play industrial specialty chemicals business.

Nonetheless, analysts have revised their earnings estimates significantly lower for both this year and next year. The negative revisions were strong enough to send Chemtura to a Zacks Rank #5 (Strong Sell), placing in the bottom 5% of all companies that Zacks ranks based on earnings momentum.

The 2014 Zacks Consensus Estimate is now $0.83, down from $1.01 before the report. The 2015 consensus is currently $1.18, down from $1.36 over the same period.

Premium Valuation

Although shares of Chemtura are down significantly so far this year, the valuation picture does not look attractive. The stock trades at more than 20x 12-month forward earnings, well above its 10-year historical median of 13x. And its enterprise value to EBITDA (earnings before interest, taxes, depreciation and amortization) multiple of 11 is also well above its historical median of 6x.

The Bottom Line

With challenging industry fundamentals, declining earnings estimates, and premium valuation, investors should consider avoiding Chemtura for now.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.

Hawaiian Holdings: Zacks’ Bull of the Day Play

Hawaiian Holdings (HASnapshot Report) recently delivered its 4th consecutive positive earnings surprise, prompting analysts to revise their estimates higher for both 2014 and 2015. This sent the stock to a Zacks Rank #1 (Strong Buy).

Like many airlines this year, shares of Hawaiian Holdings have soared this year. But given favorable industry tailwinds, strong growth projections, solid earnings momentum and reasonable valuation, the stock can continue flying even higher.

Hawaiian Holdings is the parent of Hawaiian Airlines, which offers non-stop service to Hawaii from 11 U.S. gateway cities, along with service from Japan, South Korea, China, Australia, New Zealand, American Samoa and Tahiti. Hawaiian also provides approximately 160 jet flights daily between the Hawaiian Islands.

Third Quarter Results

Hawaiian Holdings posted better-than-expected Q3 results on October 21. Adjusted earnings per share came in at $0.79, beating the Zacks Consensus Estimate by 5 cents. It was a 14% increase over the same quarter last year.

Total revenue rose 7% to $639.5 million, ahead of the consensus of $636.0 million. Operating revenue per available seat mile (RASM) rose 4.6% while operating cost per ASM (CASM) declined slightly.

The load factor improved from 83.2% to 84.0% as the number of revenue passenger miles grew faster than the number of available seat miles.

Estimates Soaring

Following strong Q3 results, analysts unanimously raised their estimates for both 2014 and 2015. This sent the stock to a Zacks Rank #1 (Strong Buy).

The 2014 Zacks Consensus Estimate is now $1.52, up from $1.37 before the report. The 2015 consensus is currently $1.83, up from $1.56 over the same period. Based on these estimates, analysts are projecting 72% EPS growth for Hawaiian this year and 20% growth next year.

You can see that consensus estimates have steadily marched higher all year for the company as it has delivered 4 consecutive positive earnings surprises:

And Hawaiian Holdings isn’t the only airline with strong earnings momentum. The ‘Transportation – Airline’ industry currently ranks in the top 11% of all industries based on positive estimate revisions. This is due in part to strong demand for air travel amid an improving U.S. economy, as well as lower fuel costs due to falling oil prices.

Hawaiian does hedge some of its fuel needs, primarily through heating oil puts and swaps. But it should still benefit overall from falling oil prices.

Reasonable Valuation

Like many airlines, shares of Hawaiian Holdings have soared this year. But due to rising earnings estimates, shares trade at just 10x 12-month forward earnings, which is in-line with industry median. Its price to sales ratio is just 0.5 and well below the industry median of 0.9.

The Bottom Line

With favorable industry tailwinds, strong growth projections, rising earnings estimates and reasonable valuation, Hawaiian Holdings can continue flying higher.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.