Monthly Archives: December 2014

Yandex: Zacks’ Bear of the Day Play

Yandex (YNDXSnapshot Report) is the primary Internet search provider in Russia. Shares have fallen sharply this year with the entire Russian stock market under pressure.

But the biggest catalyst for Yandex pessimism has been the earnings outlook. In the spirit of a picture often telling the story best, below is the Zacks proprietary Price & Consensus chart, which plots annual estimate changes over time against the stock price.

As you can, analysts have become increasingly negative in their earnings outlook over the past year.

There was some bright news in November, but it was quickly discounted as inconsequential in the near-term. Here was a note from JPMorgan analysts last month…

“After almost 3 years Mozilla is changing its strategy in Russia and will now pre-set Yandex as default search on its Firefox browser, replacing Google . We view the development as long-term positive for Yandex, but note that the incremental impact on Yandex traffic share is likely to be small, given the success of Yandex’s own browser and dominating positions of Chrome/Android on the Russian browser market.”

The company is profitable and hit a trailing 12-month peak in revenues of $1.393 billion in the most recent quarter. They are also expected to earn $0.95 this year, but that’s down 22.5% from last year.

Until the estimates for Yandex stabilize and start turning back up, it’s probably best to stand aside. Just watch the Zacks Rank. It will tell you when the time is right.

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

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Seattle Genetics: Zacks’ Bull of the Day Play

Seattle Genetics (SGENAnalyst Report) is a $4 billion biotechnology company focused on developing and commercializing innovative antibody-based therapies for the treatment of cancer. They are the industry leader in antibody-drug conjugates (ADCs), a technology designed to harness the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer cells.

First in a New Class of ADCs

ADCs are intended to spare non-targeted cells and thus reduce many of the toxic effects of traditional chemotherapy, while potentially enhancing antitumor activity.

Seattle Genetics’ first ADC product ADCETRIS (brentuximab vedotin) is commercially available for two indications in more than 45 countries, including the U.S., Canada, Japan and members of the European Union. The approval of ADCETRIS makes it the first in a new class of ADCs.

The company is also testing their two most advanced product candidates, SGN-15 and SGN-10, in patients with breast, colon, prostate or other cancers.

Big Brother Takeda

In the biotech world, young companies rely on larger pharmaceutical enterprises to assist with long R&D periods that require lots of funding before any FDA-approved and marketable drugs are generating net income.

Seattle Genetics is jointly developing ADCETRIS in collaboration with Takeda Pharmaceutical Company. Under the collaboration, Seattle Genetics has full commercialization rights to ADCETRIS in the United States and Canada. Takeda has exclusive rights to commercialize the product candidate in all other countries.

To expand on the ADCETRIS opportunity, the two companies are conducting a broad clinical development program to evaluate its therapeutic potential in earlier lines of its approved indications as well as in a range of other lymphoma and non-lymphoma settings.

Long-Term Survival

On December 8, Seattle Genetics and Takeda presented important research at the annual American Society of Hematology (ASH) conference in San Francisco. The partners announced four-year overall survival data from a pivotal phase II study evaluating the efficacy and safety of Adcetris for the treatment of relapsed or refractory systemic anaplastic large cell lymphoma (ALCL). Adcetris showed durable, long-term responses in this treatment setting.

At a median follow-up in the study at 46.3 months, the four-year survival rate was estimated to be 64%, with median overall survival (OS) of 55.1 months and progression-free survival (PFS) of 20 months. In other words, more than 60% of patients suffering from relapsed or refractory ALCL treated with Adcetris were alive at the fourth year of follow-up. One-third of all the patients treated in this study showed complete remission with no evidence of disease after a median follow-up of 46 months.

Analyst reactions to these presentations were overwhelmingly positive as most believe that Adcetris will have a significant market opportunity outside its current indications.

Action in the Pipeline

Seattle Genetics also announced detailed results from a randomized, double-blind, placebo-controlled phase III study (named AETHERA) on Adcetris for the treatment of Hodgkin lymphoma patients with the risk of disease progression following autologous stem cell transplantation (ASCT). PFS was higher in Adcetris-treated patients compared to placebo (43 months versus 24 months).

Earlier, in Sep 2014, the company had already announced that the study met its primary endpoint with a 75% improvement in PFS. Seattle Genetics intends to submit a supplemental biologics license application to the FDA for Adcetris for the above-mentioned indication in the first half of 2015.

Additionally, Seattle Genetics reported data from two ongoing phase I studies on SGN-CD19A for the treatment of B-cell malignancies including non-Hodgkin lymphoma and acute lymphoblastic leukemia. SGN-CD19A showed multiple objective responses without significant myelosuppression or neuropathy. Based on this data, the company plans to initiate a randomized phase II study on SGN-CD19A for this indication in 2015.

William Blair analysts commented on several on-going research studies in a recent note. Here was one highlight…

“Pipeline candidate SGN-CD33A debuted with data in the acute myeloid leukemia (AML) setting. We are encouraged by the first data set in the AML setting. We believe that SGN-CD33A is an excellent validation of Seattle Genetics’ drug discovery capability, platform utility, and drug development expertise.”

A Streak of Upside Surprises

While Seattle Genetics is not yet profitable, it became a Zacks #2 Rank in November because analysts were rapidly raising earnings estimates. Full-year 2014 estimates were raised from a loss of $0.82 to a loss of $0.66.

And 2015 estimates went from a loss of $0.63 to a loss of $0.51. What’s been driving these revisions? Earnings surprises, as you can in this table for the past four quarters…

Equally impressive is the promising rise in revenues as you can see below…

SGEN is projected to produce nearly $400 million in revenues in 2015. These trends in top and bottom line progress, in addition to the pipeline “hopes and dreams” are inspiring analysts to either reaffirm or raise their price targets for the stock. Let’s hear from some of them now.

Analysts Who See Big Potential Upside

Several Wall Street analysts are positive on SGEN science and the shares, with the average price target north of $40. After the ASH conference, William Blair analysts reiterated their Outperform rating and noted…

“We reiterate our view that Seattle Genetics is well positioned, with a broad and growing pipeline, validated technology platform, and strong balance sheet ($340 million in cash). Therefore, we encourage investors to take advantage of recent share price weakness to build or add to positions.”

Jefferies analysts reiterated their $53 price target and had this to say about potential competition from Merck (MRKAnalyst Report) and Bristol-Myers (BMYAnalyst Report)…

“While investors have raised many concerns on competing PD-1 therapies in HL (MRK’s pembrolizumab and BMY’s nivolumab), which demonstrated robust response rates of 66% and 87%, respectively, we believe that the recent pressure on SGEN shares is unwarranted.”

But the most bullish investment house of all is H.C. Wainwright with a $65 price target. After reviewing the company’s ASH presentation, analyst Andrew Fein concluded “Continued quality and breadth of data should yield investor re-engagement.” They see good things ahead for SGEN in 2015.

As with most targets on emerging biotech companies, there is an element of “how much will the other guy pay for this science?” And this is especially true in the investing arena we call “biopharma” since the big pharma companies constantly face old drugs going off the “patent cliff” and having their revenue sources stolen by generics.

Their solution is to buy young companies with promising drugs in the pipeline. This doesn’t mean for certain that SGEN is on any big pharma shopping lists, but it’s definitely a probability that gets factored into the valuation models of big investors.

Baker Brothers Are Big Buyers

And finally, speaking of big investors, one of my favorite “indicators” is institutional buying. They may not be a household name yet, but the brothers Julian and Felix Baker manage $8 billion in a biopharma-focused fund for other institutional investors like the Tisch family, owners of the New York Giants football franchise.

Through their Baker Bros. Advisors fund, they bumped their stake in SGEN shares to over 20% in the days immediately following the ASH conference.

Then, in a 13D SEC filing on December 17, they revealed the purchase of another 2.88 million shares within the prior ten days. I should note that Felix Baker is on the Board of Directors of SGEN, so these are also considered “insider” purchases as well as part of their investment fund.

The Baker brothers have taken the activist investor role in many early, mid, and late-stage biotech companies, and it’s usually for a very compelling reason. You could say Felix is the Carl Icahn of biopharma.

Plus, these guys have used their science backgrounds to evaluate and invest in biotech companies successfully for over two decades. Some recent home runs include Pharmacyclics (PCYCAnalyst Report), Incyte (INCYAnalyst Report), and Agios Pharmaceuticals (AGIOSnapshot Report).

So I follow the Baker brothers’ “money trail” often in biotech, and SGEN quickly moved to the top of my buy list this month. They see something extremely valuable in the company’s potential that the market is not currently recognizing. And they obviously believe the reward is greater than the risk at these levels.

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

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

Andersons: Zacks’ Bear of the Day Play

Andersons (ANDEAnalyst Report) has seen a recent wild swing of a huge miss, a big beat and another huge miss. This has caused earnings estimates to decrease and that has cause its Zacks Rank to fall to a #5 (Strong Sell) and today it is the Bear of the Day.Farming For Futures

This has been a difficult year for farmers. There are numerous reports that talk about how futures for corn, wheat and soybeans have fallen between 5% and 20% this year.

Low oil prices might allow for crops to get to market in a less expensive manner, but at the end of the day lower crop prices mean less “CapEx” out of the farm.

Company Description

The Andersons was founded in 1947 by Harold Anderson in Maumee, Ohio with a single grain elevator. It has grown into an agribusiness company with 6 business segments across North America, including in grain, ethanol, plant nutrient, turf and cob products and consumer retailing.

It also has rail equipment leasing interests in Canada and Mexico.

Revenue Drops In A Big Way

As I glanced over the numbers that ANDE has posted of late, I see that in each of the last four quarters the company has missed the Zacks Consensus Estimate for revenue, and its not by just a million or two. These are big misses, negative revenue surprises of 6%, 27%, 5% and 11%.

If you are not making it on top, then expenses have to be rushing towards zero if you are going to beat on bottom. Let’s take a look there.

Earnings History

ANDE has beat in four of the last seven quarters, but they also have missed in three of seven, and the misses were all negative earnings surprises of 21% or more.

The real issues here is the last three quarters. The March 2014 quarter was a miss of $0.22 or 21% and that was followed up by a big beat of $0.41 or 35%. The company slipped up on the most recent report with a miss of $0.17 for a 22% negative earnings surprise.

As noted earlier, each of the last four quarters has seen the company miss on the topline, but the most recent quarter saw revenue of $953M, down from $1.312B in the previous quarter and $1.181B in the year ago quarter. That is causing analysts to pull back on a lot of earnings expectations.

Earnings Estimates

Estimates popped back up after the June 2014 quarter was reported in August. The Zacks Consensus Estimate jumped from $3.47 to $4.36 as most thought this company was out of the danger zone. Estimate kicked higher in each of the next two months and peaked at $4.47. Following the recent miss, the Zacks Consensus Estimate tumbled down to $4.15.

With it being December, most investors are looking forward to next year, and the picture is actually worse in terms of earnings estimates. The Zacks Consensus Estimate for 2015 reached a high of $4.67 in October, but hit $4.27 in November on its crash down to $4.18 in December. With futures on crops still rather weak, analysts may continue to lower numbers into the new year.

Valuation

The valuation here looks interesting, but there are plenty of red flags too. The trailing and forward PE of 12x is well below the 19x and 17x multiples for the industry average. The price to book multiple of 1.8x looks like a value, but the industry average is only 3.4x… and the most stunning number is clearly the price to sales of 0.3x when the industry average is calling for a 2.5x multiple. That last one really hit me. Why so low?

Well this year the company is seeing a 16% contraction in revenue compared to a 2.6% contraction for the industry. Next year, the industry is expecting to bounce back and see growth of 4.5%, but ANDE is looking at a flat year for revenue growth. That also means they are looking at a flat year for earnings growth while the industry average is looking at 17.7% earnings growth. That will kill your multiple.

Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represents analyst estimates over a designated year. As estimates decrease, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases (decreases), beats (misses) and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #5 (Strong Sell) we see that estimates are moving lower.

This chart did look good for a long time, but now, it is telling me that the elevator ride is turning around.

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.

CoreLogic: Zacks’ Bull of the Day Play

Corelogic (CLGXSnapshot Report) getting it right has never been as important as it is right now. That sort of cliche always seems to make sense, but for the banks that are taking on big risks via substantial mortgage commitments, it has never been more dead on. CGLX Zacks Rank #1 (Strong Buy) and it helps banks and others involved in real estate get the information they need to make better decisions. It is the Bull of The Day.Housing In Peril

That headline might draw your ire, but the idea is that buyers and developers are going to be scrutinized harder than ever. Why is that? As oil has collapsed, the junk bond market has taken a big hit, and that could translate into significant losses for major financial institutions. That, in turn, will reduce the appetite for risk and cause banks to not back some of the more risky bets.

That lack of liquidity to the system should have an impact on real estate buyers over the coming months. That

Company Description

CoreLogic provides property, financial and consumer information, analytics, and services. The company operates through two segments, Technology and Processing Solutions and Data & Analytics. CoreLogic was incorporated in 1894 and is headquartered in Irvine, California.

Earnings History

The last several quarters were not the model of consistency that investors would want to see. The company beat the Zacks Consensus Estimate in four of the last seven quarters, but also missed in two quarters. Math majors would have already come to the conclusion that there was one quarter that saw the company meet the Zacks Consensus Estimate.

The most recent quarter was a solid one, with the company reporting EPS of $0.42, $0.07 ahead of the Zacks Consensus Estimate of $0.35. That translates into a positive earnings surprise of 20%, but as much as the beat was nice, I prefer to look at the topline.

CLGX reported revenue of $367M, $15M ahead of the Zacks Consensus of $352M. That 4.3% positive revenue surprise is the largest beat since teh June 2013 quarter that also saw a $15M beat of the Zacks Consensus Estimate for revenue.

When the company reported these earnings in late October, they also gave guidance. The expects to see revenue of $1.39B -$1.41B, which is higher than the Wall Street consensus Of $1.35B.

Earnings Estimates

Analysts liked what they heard and moved FY14 estimates higher to $1.18 from the $1.07 level they were at in September. For the majority of the year the estimate had been within a penny or two of $1.25.

The 2015 Zacks Consensus Estimate moved higher as well, running up from $1.51 to $1.60. That is still shy of the $1.64 level that the estimate held for much of the year. When estimates for 2015 were released, some over zealous analysts put the number as high as $1.88-$1.91. Time will tell if a few solid quarters will result in the company achieving that level of earnings.

Valuation

The valuation for CLGX is mostly in line with the industry average, but there is a slight bias to this stock trading at a slight discount to the industry average. The trailing PE of 29x is higher than the 24x industry average, and the forward PE of 26x is also above the 22x industry average… but that is the only metric that carries any sort of premium. The price to book multiple of 2.6x is well below the 4.4x industry average and the price to sales multiple of 2.8x is also show the stock trading at a discount to the industry average.

Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represents analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #1 (Strong Buy) we see that estimates are moving higher.

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.

Midcoast Energy: Zacks’ Bear of the Day Play

Midcoast Energy Partners (MEPSnapshot Report) has seen significant estimate downgrades over the past ninety days.  This Zacks Rank #5 (Strong Sell) has had its stock estimates significantly trimmed for the next two quarters and for Fiscal 2014 & 2015.

The table below shows the estimate revisions for Midcoast Energy from the past 90 days for the next two quarters and FY 2014 & 2015.

Midcoast Energy Partners is a growth oriented limited partnership formed by Enbridge Energy Partners (EEPAnalyst Report) which engages in providing natural gas services.  It focuses on gathering, processing, treating, transporting, and marketing natural gas and natural gas liquids to intrastate and interstate pipelines for transportation.  The company operates in two segments; gathering, processing and transportation, and logistics and marketing.

The main drivers behind the downgrades are the following:  lower volumes, declining commodity price, and operational headwinds.  Further, Enbridge Energy, which owns 52% equity ownership interest in Midcoast Energy, will have to help Midcoast in order for the company to meet its funding needs.  Another headwind facing the company as it battles declining volumes and commodity prices.

Earnings History

Midcoast Energy does not have a good earnings history with four consecutive earnings misses and two consecutive revenue misses.  The company has posted a four quarter average negative earnings surprise of -128.08%.

Price & EPS Surprise

The table below shows the significant decline in price after each poor earnings announcement.  The last decline is reflective of their Q3 earning report where Midcoast Energy missed the EPS estimate by -188%.

Bottom Line

With reduced volumes, and oil prices falling almost daily Midcoast Energy is facing a difficult fourth quarter, and New Year. Estimates indicate a negative trend over the next 1-2 months, and potentially throughout 2015, and therefore Midcoast Energy is our Bear of the Day.

Other Stocks to Consider

If you are inclined to invest in the Oil Refining & Marketing segment, Murphy USA (MUSASnapshot Report), PBF Energy (PBFSnapshot Report), or Tesoro Corp (TSOAnalyst Report), are all a Zacks Rank #2 (Buy).

Ambarella Inc: Zacks’ Bull of the Day Play

Ambarella Inc. (AMBASnapshot Report) has seen its estimates increase due to higher than expected new product sales, specifically the GoPro Hero4 sports camera.  Further, new opportunities in drones and wearable cameras along with a solid foothold in professional IP cameras in China are the short and long term growth drivers for this company.  Therefore Ambarella is our Zacks Bull of the Day.

This Zacks Rank #1 (Strong Buy) develops video compression and image processing semiconductors.  The company’s products are used in digital still cameras, digital camcorders, and video-enabled mobile phones.  Ambarella sells its solutions to original design manufacturers and original equipment manufacturers.

Ambarella recently reported their Q3 2015 earnings in early December, and posted their seventh consecutive positive Earnings and Revenue surprise.  The company beat the Zacks Consensus Earnings and Revenue estimates by 29.55%, and 5.4% respectively.  Over the past four quarters Ambarella has posted an average positive earnings surprise of 44.15%.

Increasing Estimates

The table below shows Price and EPS estimates and for Ambarella.

Over the past 30 days estimates have increased for Q4 15, FY 15, Q1 16, and FY 16; Q4 15 has increased from $0.26 to $0.39, FY 15 rose from $1.16 to $1.41, Q1 16 climbed from $0.28 to $0.36, and FY 16 increased from $1.49 to $1.62.  These numbers reflect the positive traction of Ambarella’s new product sales, and IP camera sales.

Post Positive Earnings Surprises

The table below shows the impact each positive earnings surprise had on the overall price level.

With the strong earnings numbers and increased guidance, Ambarella has a proven track record of price appreciation after earnings.

Company Data

Management recently increased their guidance from Zacks previous revenue guidance of $52 million to a range of $57-$60 million for Q4 15.  Also, Ambarella has been able to control infrastructure costs, trimming it from 13% of total revenue a year ago to 4% currently.  Further, Non-GAAP gross margins of 63.4% was above expectations of 61%.  This was due to their strong product mix.

Bottom Line

Ambarella has positioned itself as a premier developer of video compression and image processing semiconductors.  Further, the company has a proven track record of solid earnings and revenue growth over the past two years.  Their new product mix, and the success of the GoPro Hero 4 have Ambarella poised for solid growth over the next month.

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Yum Brands: Zacks’ Bear of the Day Play

Yum! Brands, Inc. (YUMAnalyst Report) has a China problem. This Zacks Rank #5 (Strong Sell) recently cut its full year guidance as Chinese sales are struggling to recover after a July incident with a supplier.

Yum operates over 40,000 KFC, Pizza Huts and Taco Bells in 125 countries and territories. It is the largest fast food operator in China.

Supplier Scare Impacts Sales

On Oct 7, when Yum reported its third quarter results, it cited soft China sales as a reason for cutting full year guidance.

In July, an undercover report aired on Chinese television showing improper food handling. The supplier was fired, but the damage was done. Third quarter China Division same store sales fell 14%.

But Yum has dealt with Chinese food scares in the past. It knows how long it takes for sales to rebound.

In its third quarter press release, it said that sales were “rebounding” although they continued to be negative.

Sales Not Recovering Quickly Enough

But on Dec 9, the company issued another full year warning saying that while sales continue to recover, they were doing so at a pace that was slower than expected.

It estimated that the China Division full-year same-store sales would be negative mid-single digits.

On Dec 11, the company also reported that November China same-store sales fell 15% but that it was seeing a recovery in December.

While earnings growth would be dampened in 2014, the company said it was committed to returning double digit earnings growth of at least 10% in 2015.

Earnings Estimates Slashed

Not surprisingly, the analysts moved to cut full year earnings estimates for both this year and next.

13 estimates were cut in the last week for 2014 pushing the fiscal 2014 Zacks Consensus down to $3.14 from $3.38 just 90 days ago. This is earnings growth of just 5.2%.

Analysts still see earnings growth of 13.5% for next year although 14 estimates were also lowered.

Shares Sank

Investors bailed out of the shares after guidance was cut.

But shares still aren’t cheap. They trade with a forward P/E of 23.

For investors interested in fast food chicken, they might want to consider El Pollo Loco (LOCOSnapshot Report) which is a Zacks Rank #2 (Buy). It is expected to grow earnings by 153% this year and 18.7% next 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.

PacSun: Zacks’ Bull of the Day Play

Pacific Sunwear of California, Inc. (PSUNSnapshot Report) is still expected to lose money this year and next year but is the worst over? It is a Zacks Rank #1 (Strong Buy) thanks to rising earnings estimates.

Pacific Sunwear (“PacSun”) operates 620 stores across the United States which carries clothes, accessories and footwear focusing on the California lifestyle. It also operates a web site.

It operates in the dreaded teen and young adult category, however, which has extremely fickle customers and is also found mostly in shopping malls, which have been struggling.

PacSun Beat in the Fiscal Third Quarter

On Dec 3, PacSun reported fiscal third quarter 2014 results and beat the Zacks Consensus by 2 cents. Earnings were a loss of 3 cents compared to the Consensus of a loss of 5 cents.

Revenue, however, rose to $212.3 million from $202.8 million in the year ago quarter.

The company believes it is starting to see the fruits of its turnaround plan as comparable store sales growth and inventory remain solid.

Comparable store sales rose 4%. It was the 11th straight quarter of comparable store sales growth.

Earnings Headed in the Right Direction

PacSun hasn’t been profitable since 2008. But after losing $0.92 in 2011, it has slowly been chipping away at the losses.

After the third quarter results, the analysts moved to raise fiscal 2014 and fiscal 2015 estimates, with 5 analysts raising for 2014 and 4 for 2015.

While the company is still expected to see a loss in fiscal 2015, it is heading in the right direction with earnings expected to jump 42% in fiscal 2015.

F2012: loss of 48 cents
F2013: loss of 34 cents
F2014 expected: loss of 29 cents
F2015 expected: loss of 17 cents

Shares Still Near 5-Year Lows

Not surprising, given that it’s in the difficult teen segment and it hasn’t made money in years, shares of PacSun haven’t participated much in the retail rally.

But if you’re looking for a retail turnaround play, then PacSun 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.

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.

Statoil: Zacks’ Bear of the Day Play

Norway has been very fortunate when it comes to natural resources. The country exploited vast North Sea oil deposits and has funded a number of programs in the country, while also establishing the Government Pension Fund which has grown into a massive investment vehicle with close to $1 trillion under management.

At the heart of this development is Statoil (STOAnalyst Report), a partially state-owned owned Norwegian oil company which has roughly one-third of its total shares public, and the rest owned by the Norwegian Government. This company has grown into a juggernaut in the European oil market, and is now one of the largest oil firms in the world.

However, despite its size, STO has been hard hit by the recent oil crash too, as shares for the company have collapsed in the past few months. In fact, STO has fallen by 40% in the time frame, crashing far below what the broad energy sector (as represented by XLE) did in the same time frame as the sector fell about 20% overall.

It also doesn’t help that as oil priced crashed, the Norwegian currency took a big hit too. The currency has crumbled over 15% in the past three months, making it that much harder for U.S. investors to see gains in Norwegian stocks like Statoil.

But anytime an otherwise solid company collapses in a very short time frame such as what we have seen in Statoil, investors might think that a bargain opportunity is presenting itself to investors. After all, the forward PE is below nine and the company is still profitable. However, if investors look to recent earnings estimate revisions by analysts tracking the company, you can definitely come to the conclusion that we aren’t out of the woods just yet with STO.

Earnings Estimate Revisions

Recent earnings estimate revisions to STO’s stock have been universally negative, as not a single analyst for any of the time periods we study has moved their estimate higher in the past three months. Meanwhile, the revisions to the current year and next year time frames have been massive, pushing the consensus estimate sharply lower in the process.

The current year consensus has fallen from $2.45/share sixty days ago to just $2.05/share today. The cut for the next year figure has also been dramatic, moving from $2.54/share to $1.85/share in the same time frame. And if that wasn’t enough, the next year consensus of only the most recent estimates comes in at a shockingly low $1.21/share, less than half of what the consensus was just two months ago.

Bottom Line

Clearly, analysts aren’t too optimistic about Statoil’s near term future, and you can’t really blame them given the trend in oil prices, as well as the weakness in the krone. It appears as though oil prices will be in the doldrums for a bit, and thus so might Statoil shares as well.

For these reasons, it shouldn’t be too surprising to note that STO has received a Zacks Rank #5 (Strong Sell) and that we are looking for more underperformance from this company in the near term. Furthermore, the sector, international oil integrated, is ranked in the bottom 10% overall so there is little hope in this space right now, suggesting that investors should look elsewhere for exposure, at least until the oil crisis blows over .

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Alaska Air Group: Zacks’ Bull of the Day Play

2014 has been a stellar year for the airline industry to say the least. Consolidation has reduced competition, an improving economy is allowing people to fly more, while the oil plunge is slashing the costs for jet fuel.

This confluence of factors has led to amazing performances for the industry. Many stocks have seen gains in excess of 50% YTD, while several names are approaching or are at multi-year, if not all-time, highs.

One stock that definitely fits in with this trend, though it has still been overlooked by many, is undoubtedly Alaska Airlines Group (ALKSnapshot Report). This company has seen its shares surge by 50 percent so far in 2014, and if you look at some of the trends underpinning this company, there is plenty of reason to believe that more strength is ahead for this airline.

ALK in Focus

For those of you that are unfamiliar with Alaska Airlines, it is important to note that the company is actually based in Seattle, Washington, though it does have a huge operation in Alaska. In fact, ALK makes up about 60% of total passengers carried at Anchorage’s main airport (Ted Stevens), while it also has a big presence at Seattle-Tacoma (51%) as well.

While the company is facing stiff competition from Delta (DALAnalyst Report) in Seattle, the company still has plenty of opportunities for expansion by striking into new markets, while also defending its hub in Washington State. In particular, ALK has hit back at Delta at their Salt Lake City hub, so don’t think that Alaska isn’t stealing share from its larger counterpart too.

Beyond that, there is always the possibility of a merger for Alaska, which could also help the company to stretch into even more markets. Both Hawaiian Airlines (HA) and JetBlue (JBLU) would arguably make sense for an ALK merger, and it would strengthen their position against the so-called ‘legacy carriers’ as well.

Yet even if a merger doesn’t happen, ALK appears well-positioned for growth in the near term thanks to expansion from its Northwest U.S. hub, and low oil prices which should boost profits. Analysts seem to agree (and do not appear too fazed by Delta’s move into Seattle), as earnings estimates have been soaring as of late for ALK stock.

ALK Earnings Estimates

For the current quarter consensus estimate, earnings have moved from $0.68/share 60 days ago to an impressive $0.83/share today, while we have seen a similar trend for next quarter’s numbers too. The full year figures are really the impressive part, as we have seen strong earnings estimate revision activity in these time frames.

Current year consensus estimates have moved from $3.84/share 60 days ago to $4.06/share today, while for next year figures, we have seen a move from $4.11/share to $4.77/share now. Clearly, analysts are ratcheting up their expectations for ALK and believe that they have strong growth prospects that extend well into the future.

And if you are worried about ALK meeting these lofty expectations, consider that ALK has beaten estimates in all of the last four quarters, with an average beat of 5.1%. ALK is actually riding a streak of five straight beats overall, so don’t worry too much about the company meeting these increased expectations.

Bottom Line

Thanks to these factors, investors shouldn’t be too surprised to note that ALK has earned itself a Zacks Rank #1 (Strong Buy) and that we expect this company’s solid run to continue into 2015.

It is also worth pointing out that the airline industry overall is very well-ranked too, and that there are few bad choices in this space anyway. In fact, the transportation-airline segment currently has a Zacks Industry Rank in the top 10% overall.

So if you are looking for an impressive airline stock in today’s market that still has room to run, consider Alaska Airlines Group. The company has great expansion opportunities, and with a huge market for air travel, this seems like a probably winner for growth investors in this corner of the market.

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