Monthly Archives: April 2015

Horsehead Holding: Zacks’ Bear of the Day Play

Horsehead Holding Corp (ZINC) is the parent company of Horsehead Corporation, INMETCO and Zochem. They are a leading producer of zinc and zinc-based products and a leading recycler of electric arc furnace dust.

Headquartered in Pittsburgh, Pa., the company has production and recycling operations at seven facilities located in the U.S. and in Canada.

Lackluster Results

The company reported its Q4 2014 results on February 24. Net loss for the quarter was $4.1 million or $0.08 per share, compared with a net loss of $12.4 million or $0.26 per share for the same period in 2013. Net sales were up 2.9% to $106.6 million thanks to higher zinc and nickel prices, a favorable change in noncash hedge charges and shipments of zinc calcine which more than offset the decline in shipments of finished zinc products.

Update on Mooresboro Facility

On April 1, the company provided an update on production at its Mooresboro NC facility as a planned outage at the facility in February adversely impacted its production. The facility produced approximately 10,000 tons of zinc in Q1 2015, compared to 12,000 tons in the previous quarter. The company now expects to ramp up production to 75% of the capacity during the second quarter, versus by the end of first quarter indicated earlier.

Downward Revisions

Due to disappointing results and shutdown, quarterly and annual estimates have been revised sharply downwards in the past few weeks by analysts.

Zacks Consensus Estimates for the current and next year now stand at ($0.20) per share and $0.75 per share, down from $0.22 per share and $0.96 per share, 60 days ago.

Falling estimates sent ZINC to a Zacks Rank # 5 (Strong Sell) last week.

The Bottom Line

The stock has been witnessing negative earnings momentum for the past few weeks.  Further it scores quite poorly on Styles, with ‘F’ in Growth and Value and ‘D’ in Momentum. Zacks industry rank of 239 out of 265 also indicates underperformance in the short to medium term. Weak commodity prices have also made the outlook cloudy for the stock. As such investors may like to avoid this stock for the time being.

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Ruby Tuesday: Zacks’ Bull of the Day Play

Thanks to lower gas prices and a healing labor market, consumers are now much more willing to open their wallets for dining out. Improving restaurant industry trends and a turnaround in progress make this Zacks rank #1 (Strong Buy) restaurant chain stock worth a look.

About the Company

Headquartered in Maryville, Tennessee, Ruby Tuesday (RTSnapshot Report) was founded in 1972.  At the end of last fiscal quarter, they had 658 company owned and 79 franchised Ruby Tuesday restaurants in 44 states, 13 foreign countries, and Guam. These casual-dining restaurants are concentrated primarily in the Southeast, Northeast, Mid-Atlantic, and Midwest US.

Improved Quarterly Results

The company reported its Q3 fiscal year 2015 results on April 9. Revenue for the quarter decreased 3.3% to $285.9 million, primarily driven by restaurant closings and the same-store sales decline. Loss for the quarter was $769,000 or $0.01 per share compared with a loss of $7.3 million or $0.12 per share in the same quarter of the prior year.

Results were significantly better than the Zacks Consensus Estimate for a loss of $0.06 per share. Results reflected the improvement in the business model brought about mainly by the new turnaround effort implemented in late 2012.

These initiatives included repositioning the chain as a more energetic, broadly appealing, affordable, casual brand and introducing a broad range of new menu items.

Increasing Estimates

After better than expected results and updated guidance, analysts have raised their estimates for the company. Zacks Consensus Estimates for the current and the next fiscal year are ($0.12) per share and $0.01 per share respectively, versus ($0.17) per share and ($0.07) per share, 30 days ago. Rising estimates sent the stock to a Zacks Rank # 1 (Strong Buy).

During the last four quarters, the company delivered an average positive earnings surprise of 24.63%, though they missed in two out of four quarters. This situation is likely to improve going forward.

The Bottom Line

The stock is not only witnessing a positive earnings momentum, it also has ‘A’ Ranks for both its Growth and Momentum style scores. Further, the industry is currently ranked 60 out of 265 Zacks industries (top 23%).

With healing labor market and declining oil prices, consumers are now much more willing to spend on high-quality casual dining. Thanks to favorable industry trends and several steps taken recently to improve its business model, the company is moving in the right direction.

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Petroleo Brasileiro: Zacks’ Bear of the Day Play

Petroleo Brasileiro (PBRAnalyst Report) has been in a rough spot of late, highlighted by the recent release of their audited financials from the Lava Jato accounting scandal.  To compound the difficulty, the company currently carries a massive debt of +$130 billion.  Further, PBR has to deal with persistently low oil prices, and a balance sheet with a 53% debt to capital ratio.  Due to all these negative issues, Petroleo Brasileiro is the Zacks Bear of the Day.

This Zacks Rank #5 (Strong Sell) is an integrated company operating in exploration, production, refining, retailing, and transportation of petroleum and its byproducts at home and abroad.

After the accounting scandal, a new management team was put in place, but they have been immediately confronted with the massive +$130 billion debt, and deep-water drilling projects that have been put on delay over the past 6-8 months.  Even though management has significantly decreased their capital budget (2015 decreased by $32 billion), they still have a ways to go.  Moreover, due to these negative issues, management has stated that they will suspend their dividend altogether, making PBR the first oil and gas company to do so since the oil price freefall.

Estimates Graph

The graph below shows PBR’s historic price levels against the EPS consensus.  As you can see the estimates have been declining for quite some time.

Declining Estimates

Over the past 7 days, earnings estimates have declined for Q1 15, Q2 15, FY 15, and FY 16; Q1 15 estimates fell from $0.24 to $0.15, Q2 15 dropped from $0.36 to $0.21, FY 15 declined from $1.12 to $0.91, and FY 16 fell from $1.42 to $1.30.

Bottom Line

Petroleo Brasileiro’s new management team has a huge hole to dig themselves out of, and it is not going to be easy.  With a terrible debt to equity ratio, a massive debt, and persistently low oil prices, it will be a while before this company can return to its previous solid performances.

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HealthStream: Zacks’ Bull of the Day Play

HealthStream (HSTMSnapshot Report) has seen its estimates increase due to a solid Q1 earnings report where subscriber growth for the Workforce Development Solutions segment was the main driver.  Further, revenues grew +23% year over year, while contracted subscribers increased +15% year over year.  These combined factors has made HealthStream the Zacks Bull of the Day.

This Zacks Rank #1 (Strong Buy) stock is known for pioneering Web-based solutions to meet the training and education needs of the healthcare industry utilizing a proprietary system.  Through strategic relationships with medical institutions and commercial organizations the company has amassed hours of training and educations courses.  The company distributes hours of these courses online to allied healthcare professionals, nurses, doctors, and other healthcare workers.

For all intended purposes, HealthStream has a solid grip on the healthcare education market, and is considered the industry leader.  The company boasts of having their customer base represented by over half the nation’s hospitals, and about 4.1 million healthcare professionals, who have all chosen HealthStream’s platform of products and solutions.

Their Workforce Development Solutions segment is the main driver for the company where each sub-segment saw growth above or in line with management’s expectations.  Also, the Patient Experience Solutions segment, second largest segment, saw +8% year over year growth, and has recently contracted two large health systems for just over $1 million in services.

Price and EPS Surprise

The graph below shows the Price and +EPS Surprise for HealthStream.

Increasing Estimates

Over the past 7 days, estimates have increased for Q2 15, Q3 15, FY 15, and FY 16; Q2 15 rose from $0.04 to $0.06, Q3 15 increased from $0.06 to $0.08, FY 15 jumped from $0.22 to $0.32, and FY 16 rose from $0.39 to $0.43.

Company Data

HealthStream’s dominate position in healthcare education and training has produced 10 consecutive quarters with revenue growth, while containing COGS and SG&A to reasonable levels.  During the same 10 quarters, the company has also increased Total Assets each quarter.  These are all indications of a solid growth company.

Bottom Line

After their fifth consecutive earnings beat and solid client pipeline HealthStream has earned its spot as the Zacks Bull of the Day.  Further, with high expectations, and increasing estimates, it is expected that this company will continue to grow over the next few quarters.

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Advanced Micro Devices: Zacks’ Bear of the Day Play

The semiconductor sector has been extremely hit or miss lately. Some companies, which are focused on higher growth areas like chips for automobiles or ‘internet of things’ devices have been able to see solid growth on both the top and bottom line, though firms zeroed in on the personal computer market haven’t been as lucky.

Take Advanced Micro Devices (AMDAnalyst Report) as a great example of this trend. This PC-focused chipmaker has faced trouble in the past as it has been second fiddle to Intel (INTCAnalyst Report), but it has really begun to feel the heat lately as the PC market continues to decline.

In fact, worldwide shipments of PCs continues to decline with this year’s Q1 coming in at 68.5 million units, a 6.7% decline year-over-year.  And with the continued rise of tablets, smartphones and so-called phablets, many analysts have little hope for the PC space in the near term.

Thanks to these trends, AMD saw a very weak earnings report for Q1. The company saw revenue from CPUs and GPUs crumble by nearly 40%, while its enterprise, embedded, and semi-custom segment, saw revenues fall by 7% suggesting severe sluggishness for the company in a few key areas.

Shares are down about 12% for AMD in the past month, but this really just continues the long slow decline for AMD over the past several years. The stock is now down over 40% in the past year, and nearly 75% in the past half decade as well.

No Turnaround Coming

With this extreme bearishness, some investors might think that a turnaround is long overdue for AMD. However, analysts don’t seem to agree with this assessment as their recent earnings estimates have almost universally been lower, meaning that more pain could be ahead.

Six estimates have gone lower in the past seven days compared to zero higher for the current year time frame, while we have seen similar trends for the current quarter and next year periods as well. The estimates have crashed so far that the current full year consensus estimate is -0.19/share, compared to a one cent loss projection 90 days ago. This means that year-over-year EPS levels are expected to contract 420% for AMD this year!

And if you think that these predictions are simply just too bearish you should note that AMD has had significant trouble in meeting even lowly analyst expectations. The firm has missed each of the last four consensus estimates by at least 25%, including a four quarter average of 60% misses for AMD.

Given these factors, it shouldn’t be too surprising to note that Advanced Micro Devices has earned itself a Zacks Rank #5 (Strong Sell) and that we are looking for more underperformance from the company in the near term.

Other Choices

Fortunately for investors interested in the semiconductor space, there are a number of better ranked choices out there. One such company that might be worth a closer look is Avago Technologies (AVGOAnalyst Report) as this stock was recently upgraded from a Zacks Rank #3 to a #1.

This company surprised estimates by over 11% last quarter, while it also has a Growth Style Score of ‘A’. So if you are looking to stay in this corner of the semiconductor world, make sure to give AVGO a chance and avoid AMD for the time being.

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Groupon: Zacks’ Bull of the Day Play

Chicago-based Groupon (GRPNAnalyst Report) was a hot commodity when shares of the company hit the market several years ago. Investors flocked to this coupon company which was one of the quickest growing firms of all time, at least when you look at time to reach $1 billion in revenues. In fact, Groupon accomplished this impressive feat in just 2.25 years, beating out titans like Priceline.com, or even Amazon.

But as the company went public, competition increased and demand for groupons began to fade. Shares of GRPN are actually down more than 70% since their IPO and founder Andrew Mason was forced out as CEO to boot.

Promise on the Horizon?

Yet despite these setbacks, GRPN is finally starting to look like a decent pick at these levels. The company is riding an earnings winning streak of four straight quarters, including an average surprise over this time frame of 91%.

Analysts also seem to be a bit more bullish on the company’s prospects, both in the near term and the longer term. For this quarter, four estimates have moved higher in the past week compared to zero lower, while we have not seen any downward revisions for either the current year or next year time frames.

These recent estimates are actually looking for GRPN to get out of its money losing phase and to turn a profit this year. This is pretty incredible as 90 days ago the consensus called for full year EPS of -0.09 though the most accurate estimate is now looking for three cents per share in profit instead.

Thanks to these factors, GRPN has earned itself a Zacks Rank #1 (Strong Buy) and we are looking for good things out of this company when it reports earnings on May 5th. But beyond earnings estimates, GRPN actually has a few other promising points to focus in on as well.

Other Factors

If the earnings estimates weren’t enough for you, consider that GRPN also has ‘A’ Ranks for both its Growth and Momentum style scores. This puts the stock in pretty rare company, and it is especially hard to find when combined with the coveted Zacks #1 Rank.

GRPN has these high ranks thanks to a couple of factors. For growth, GRPN’s expected EPS growth easily crushes the industry average of 12.6%, while its low debt/capital level (zero) suggests great flexibility for the company. Meanwhile, for momentum, EPS estimates are surging across all time periods when compared to the industry, and this is what is driving GRPN’s top rank on this front too.

Bottom Line

Although Groupon has faced significant trouble in the past, there is reason to believe that those issues are staying behind the company. GRPN is now riding an earnings hot streak, and analysts are starting to bump up their estimates as well.

Take this into account with some of the impressive growth and momentum factors, and it is hard not to like GRPN right now. So though the stock is trading at a discount, earnings are right around the corner and the sale price for GRPN shares might be ending very soon.

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Louisiana Pacific: Zacks’ Bear of the Day Play

Louisiana Pacific (LPXSnapshot Report) has been struggling to meet earnings expectations for the past several quarters, due to persistently low OSB (Orientated Strand Board) prices, and the lack of logs in their Great Lakes operations.  These factors negatively impacted margins, and have made Louisiana Pacific the Zacks Bear of the Day.

This Zacks Rank #5 (Strong Sell) company manufactures building materials and engineered wood products in the United States, Canada, Chile, and Brazil.  The company’s products are used by homebuilders and light commercial builders.  Louisiana Pacific’s products include oriented strand board sheathing, flooring, radiant barrier panels, siding and trim, I-joists, laminated veneer lumber, laminated strand lumber and interior decorative molding.

Recent News

On April 23 the U.S. Commerce Department announced that sales of new single family homes dropped 11.4% to 481,000 in March, marking the slowest pace since November.  This is a big drop from 543,000 homes in February.  Further, the U.S. government announced that March’s jobs gain was the weakest in over a year.  Traditionally, the job market is highly correlated to the housing market because when the jobs market is better, more people have money to purchase new homes.

Estimates Graph

The graph below shows the Price and EPS consensus for Louisiana Pacific.  As you can see the EPS estimates have declined significantly, and are not showing any signs of a rebound in the near term.


Declining Estimates

Over the past 30 days earnings estimates for Louisiana Pacific have declined for Q1 15, Q2 15, FY 15, and FY 16; Q1 15 dropped from -$0.13 to -$0.15, Q2 15 fell from $0.04 to -$0.01, FY 15 was slashed from -$0.01 to -$0.13, and FY 16 tumbled from $0.74 to $0.55.

Bottom Line

With new housing starts declining, and the employment market weakening it appears to be a rough road ahead for building materials companies.  Further, even when housing starts were peaking, Louisiana Pacific was posting negative earnings, making the housing news a huge hurdle for Louisiana Pacific going forward.

If you are inclined to invest in the Building Products-Wood segment, you would be best served to look into Universal Forest Products Inc. (UFPIAnalyst Report), which carries a Zacks Rank #2 (Buy).

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Infinera: Zacks’ Bull of the Day Play

Infinera Corp (INFNSnapshot Report) recently crushed the Zacks Consensus Earnings Estimate for the seventh consecutive quarter, and beat the Zacks Consensus Revenue Estimate for the third consecutive quarter as well.  The beats were attributed to gross margins, operating margins, broad-based customer strength and their CloudXpress products.   Therefore, Infinera has become the Zacks Bull of the Day.

This Zacks Rank #1 (Strong Buy) provides Digital Optical Networking systems to telecommunications carriers, cable operators, and other service providers worldwide.  Infinera’s large-scale photonic integrated circuit incorporates hundred Gigabits per second of transmit and receive capacity and the functionality of more than sixty discrete optical components into a pair of indium phosphate chips.

The innovative CloudXpress currently has 7 customers, including 3 new clients, and it is expected that these customers will generate revenues between $35-$60 million in 2015.  Further, the company has seen customer strength in several other segments which has improved overall gross margins (+47.8%), and operating margins (+12.2%).

Increasing Estimates

The table below shows the historic and future EPS estimates for Infinera.

Over the past 30 days, estimates for Q2 15, Q3 15, FY 15 and FY 16 have all increased; Q2 15 rose from $0.04 to $0.05, Q3 15 increased from $0.07 to $0.08, FY 15 went from $0.25 to $0.27, and FY 16 rose from $0.44 to $0.55.

Positive Earnings Surprise and Guidance

Historically, Infinera has crushed the Zacks Consensus Earnings Estimates.  Over the past 4 quarters, Infinera has posted and average positive earnings surprise of +195%, with a huge +120% earnings beat last quarter.  For Q2 the company issued revenue guidance of between $195-205 million, which would indicate 21% year over year growth (midpoint).

Bottom Line

Infinera’s CloudXpress, solid margins, and a growing customer base has the company poised for long term earnings and revenue growth.  Further, the company continues to innovate and produce new products for their diverse customer base.  The company announces Q2 earnings data on 7-22-15.

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Guess: Zacks’ Bear of the Day Play

Guess?, Inc. (GESAnalyst Report), with its large global footprint, is feeling the pain of currency headwinds. This Zacks Rank #5 (Strong Sell), which has a large European and Asian business, is expected to see earnings decline in fiscal 2016.

Guess operates 481 retail stores in the United States and Canada and 356 retail stores in Europe, Asia and Latin America. It also distributes its products, which include apparel, denim, handbags, watches and footwear, to specialty and department stores worldwide.

Licensees and distributors also operate another 831 retail stores outside of the United States and Canada.

Sales Fell in Q4

On Mar 18, Guess reported fiscal fourth quarter 2015 results and beat the Zacks Consensus by 8.6%. Earnings were $0.63 versus the consensus of $0.58.

However, that was an earnings decline of 24.1% from the year ago quarter.

North American comparable store sales fell 5% in dollars and 3% in constant currency. Its North American wholesale revenue also fell 10% in dollars and 7% in constant currency.

It wasn’t much better internationally.

European revenue fell 16% in dollars and 5% in constant currency.

Asian revenue fell 9% in dollars and 7% in constant currency.

For the full year, global revenues fell 6% to $2.4 billion in US dollars and decreased 5% in constant currency.

Two areas of hope were e-commerce sales, which jumped 37% in the fourth quarter and gained momentum throughout the year. Its Marciano line also posted double digit positive comps in the fourth quarter and is performing well with customers.

Currency Headwinds Hit Hard in Fiscal 2016

For the full year, net revenues are expected to range between a decline of 1% and an increase of 1% in constant currency. But currency headwinds are also expected to negatively impact consolidated revenue growth by about 8 percentage points. The net decline is between 9% and 7%.

Earnings per share are projected between $0.75 and $0.95 with the impact from currency translation of about $0.50.

It’s no wonder that analysts have cut fiscal 2016 estimates to just $0.86 from $1.31 in the last 90 days.

That is an earnings decline of 22.8% versus fiscal 2015.

Shares Near 2-Year Lows

Guess shares have been sinking long before the US dollar started to strengthen. They recently hit 2-year lows.

They’re not cheap either.

Guess trades with a forward P/E of 21, which is still above that of the S&P 500 which is hovering around 18x.

Retail is a difficult industry in 2015 with currency headwinds, tough winter weather and the West Coast port slowdown. But if you must buy a retailer, you should consider Oxford Industries Inc. (OXMSnapshot Report).

It operates hot brands Lilly Pulitzer and Tommy Bahama. It’s a Zacks Rank #1 (Strong Buy). Earnings are expected to grow by 19% 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.

Skullcandy: Zacks’ Bull of the Day Play

Skullcandy, Inc. (SKULSnapshot Report) is cashing in on the fast growing headphone market. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by the double digits in both 2015 and 2016.

Skullcandy makes audio and gaming headphones and other accessories under the Skullcandy, Astro Gaming and 2XL brands.

If you’re seen someone walking down the street with earbuds in their ears, it’s likely that they may be using a Skullcandy product.

The brand is popular with youth culture and it markets Skullcandy as a lifestyle. It sells in about 80 countries worldwide through a variety of channels like Target and specialty retailers.

Another Beat in Q4

On Mar 5, Skullcandy reported fourth quarter and full year results.

Sales jumped 34% to $96.8 million from $72.2 million in the fourth quarter with domestic net sales rising 37% to $70.6 million. International sales were also strong, rising 27% to #26.3 million year over year.

It was another earnings beat for the company which hasn’t missed since its 2011 IPO.

For the full year, sales rose 18% to $247.8 million from $210.1 million in 2013.

Bullish on 2015

Skullcandy is seeing positive trends for 2015.

“2014 marked an important inflection point in the evolution of our company,” said Hoby Darling, President and Chief Executive Officer.

“The business is becoming more diversified, our teams are aligned and hungry for success, and we have a clearly defined roadmap for the future that is working. The foundations have been set for 2015 and we are on full attack,” he added.

The analysts are bullish too.

They expect big earnings growth in 2015 of 47%. They see the strength continuing into 2016 with further earnings growth of 32%.

What’s the Catch?

Shares aren’t exactly cheap. Skullcandy trades with a forward P/E of 28 versus the average of the S&P 500 of 18.

But it has an attractive price-to-book ratio of 2.0 and a price-to-sales ratio of just 1.3 so not all of its valuation fundamentals are outrageous.

For investors looking for a way to play the growing headphone market, Skullcandy should be on the 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.