Monthly Archives: May 2015

Resolute Forest: Zacks’ Bear of the Day Play

Resolute Forest (RFPSnapshot Report) reported Q1 15 earnings in early May, and missed the Zacks Earnings Estimate by a large margin.  The miss was attributed to the decline in global newsprint demand, lower than expected newspaper prices, higher than expected COGS, and FX currency headwinds.  Further, demand for the company’s paper grades is declining in North America. The combination of these negative factors has made Resolute Forest the Zacks Bear of the day.

This Zacks Rank #5 (Strong Sell) company manufactures a diverse range of forest products including newsprint, commercial printing papers, market pulp, and wood products.  The company owns and operates pulp and paper mills, wood product facilities located primarily in the United States, Canada, and South Korea. It also sells pulpwood, saw timber, wood chips, and recycles newspapers and magazines.

Both the Newspaper, and Specialty papers segments reported sequential declines in EBITDA revenue.  The Newspaper segment saw lower demand, and a decline in average realized prices (-6%).  Further, the segment saw increased expenses due to pensions and other benefit packages.  The Specialty papers segment saw shipments decline 14% because of lower demand and the closure of a mill.

Estimates Graph

The graph below shows Resolute’s historic price levels against the EPS consensus.  As you can see estimates have declined significantly.

Declining Estimates

Over the past 30 days earnings estimates have declined for Q2 15, Q3 15, FY 15, and FY 16; Q2 plummeted from $0.11 to -$0.09, Q3 15 fell from $0.28 to $0.19, FY 15 crashed from $0.75 to -$0.10, and FY 16 dropped from $1.11 to $0.97.

Bottom Line

Weak global newsprint demand, lower than expected newsprint prices, and increased expenses have this company in a very defensive position over the near term.

If you are inclined to invest in the Paper and Related Products segment, you would be best served by looking into Rexam Plc (REXMYSnapshot Report) which carries a Zacks Rank #1 (Strong Buy), or Fibria Celulose (FBRSnapshot Report) which carries a Zacks Rank #2 (Buy).

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comScore: Zacks’ Bull of the Day Play

comScore Inc. (SCORSnapshot Report) has seen its estimates rise due to solid subscription revenue growth, improving margins, the launch of their first syndicated Xmedia product, and a large stock repurchase program.  The combination of these factors has made comScore the Zacks Bull of the Day.

This Zacks Rank #1 (Strong Buy) stock is the global leader in measuring the digital world.  This capability is based on a massive global cross-section of more than two million consumers who have given comScore permission to confidentially capture their browsing and transaction behavior, including online and offline purchasing.  Through its proprietary technology, comScore measures what matters across a broad spectrum of behavior and attitudes.

In early May management announced financial results for Q1 15, and they beat both the Zacks Consensus Earnings and Revenue Estimates.  This is the eight consecutive quarter where comScore met or beat both the Zacks Earnings and Revenue estimates.

In the quarter, the company saw Revenues jump 15% y/y, Adjusted EBITDA rose 25% y/y, and margins increased 200 bps y/y.  Further, management closed the WPP transaction, where WPP’s Kantar and comScore joined for a strategic global alliance.  The two companies will combine their data, research, and technology everywhere outside of the U.S. market.  Also, management increased their stock buy-back program to $150 million.

Stock Response to Earnings

The graph below shows the historic price and EPS surprise for comScore Inc.  As you can see the stock has seen a nice boost in price appreciation after each strong earnings release.

Increasing Estimates

Over the past 30 days, earnings estimates for Q2 15, Q3 15, FY 15, and FY 16 have all increased; Q2 15 jumped from $0.04 to $0.13, Q3 15 rose from $0.06 to $0.12, FY 15 rocketed up from $0.01 to $0.42, and FY 16 increased from $0.44 to $0.81.

During their sustained run of earnings beats, the company has posted a 4 quarter average positive earnings surprise of 535.51%.  This indicates that not only does comScore beat expectations, they crush them.

Bottom Line

After achieving record first quarter revenue, Serge Matta, CEO, stated, “As a company, we continue to pursue our mission of making audiences and advertising more valuable, and are doing so during a time of rapid change in the digital media, television and advertising ecosystems.” With solid subscription revenue, the WPP/Kantar transaction, and a stock repurchase program, comScore is well positioned for further growth.
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Kansas City Southern: Zacks’ Bear of the Day Play

Kansas City Southern (KSUAnalyst Report) recently withdrew its 2015 revenue and volume guidance as it struggles with the duel impact of an energy slowdown and the stronger dollar. This Zacks Rank #5 (Strong Sell) is now expected to grow earnings by just the low single digits in 2015.

Kansas City Southern, which is headquartered in Missouri, operates a north-south railroad system from the United States down into Mexico.

Internationally, its holdings include Kansas City Southern de Mexico, which serves the northeastern and central parts of Mexico, including the important port cities of Tampico and Veracruz. It also has a 50% interest in Panama Canal Railway Company.

Withdrew 2015 Guidance

On May 14, Kansas City Southern surprised Wall Street by withdrawing its 2015 revenue and volume guidance due to uncertainties surrounding the energy industry, US fuel prices and currency translation impacts.

The company has big hubs and business in Mexico where the pesos has been weak.

In the first quarter, while revenue grew 4%, energy revenue fell 15% due to reduced utility coal shipments and lower natural gas prices.

Agriculture and Mineral revenue also declined by 7% compared to 2014 due to a decline in grain shipments compared to a strong first quarter a year ago.

Analysts Cut Estimates

As a result of the withdrawal of guidance, the analysts have slashed 2015 estimates.

9 estimates have been cut in the last 60 days, pushing the 2015 Zacks Consensus Estimate down to $4.92 from $5.41.

That is earnings growth of just 2.1%.

2016 estimates have also been cut but earnings are expected to rebound by 15%.

Kansas City Southern is expected to report second quarter earnings on July 17.

Shares Sink

Shares sunk to a new 52-week low after the company withdrew full year guidance.

They’re down 22.6% year to date.

But if you’re thinking you’re getting a screaming deal, think again. Kansas City Southern still trades with a forward P/E of 19.1 which is above that of the S&P 500 which is averaging just 18x.

All of the railroads are having similar difficulties. Estimates are being cut on the entire group. It ranks in the bottom 7% of the Zacks Rank Industries.

But if you must buy a railroad right now, you might want to think Canadian. Canadian National Railway (CNIAnalyst Report) and Canadian Pacific Railway (CPAnalyst Report) are both Zacks Rank #3 (Holds).

[In full disclosure, the author of this article owns shares of KSU.]

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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.

Nutrisystem: Zacks’ Bull of the Day Play

Nutrisystem, Inc. (NTRISnapshot Report) continues to cash in on the obsession with weight loss and health. This Zacks Rank #1 (Strong Buy) is expected to generate double digit earnings growth this year and next year.

Nutrisystem is famous for weight loss programs including Nutrisystem My Way, its 28-day food delivery program. Feeding on the healthy food frenzy sweeping the nation, the company’s meal choices including 100 foods which do not contain artifical preservatives or flavors.

Plans can also be customized for specialized diets, including those with Type 2 diabetes or pre-diabetes.

Another Beat in the First Quarter

On Apr 30, Nutrisystem reported first quarter results and easily beat the Zacks Consensus Estimate by 5 cents. Earnings were $0.10 compared to the Zacks Consensus of $0.05.

It extended the company’s streak of earnings beats to 10 quarters. It last missed all the way back in 2012.

Revenue jumped 12% to $137.2 million from $122.2 million.

The first quarter is considered “diet season” due to New Years resolutions. It is the big season for the company.

It was the second year in a row the company saw double digit revenue growth during diet season.

Gross profit margin also improved by 310 basis points to 52%.

Raised Full Year Guidance

The company said it saw momentum build during the quarter.

Given the strong start to the beginning of the year, it felt confident enough to raise revenue and EPS guidance for the full year.

Earnings are now expected in the range of $0.81 to $0.91 per share up from its previous guidance of $0.73 to $0.83.

Analysts also liked what they heard. 2 estimates were raised in the last month, pushing the Zacks Consensus up to $0.87 which is on the high end of the company’s guidance range.

That is also earnings growth of 31.3%.

Analysts expect the good times to continue with another 15% earnings growth in 2016.

Shares at 2-Year Highs

With all this good news, it shouldn’t be surprising that the shares have jumped to a 2-year high.

The stock is no longer cheap. It trades with a forward P/E of 26. But with double digit earnings expected, investors are buying the growth.

For investors who are looking for a way to play the health and wellness craze, then Nutrisystem should be on your short list.

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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.

EVINE Live: Zacks’ Bear of the Day Play

Earnings estimates have been falling for EVINE Live (EVLVSnapshot Report) after the company reported disappointing first quarter results on May 20. The drop in consensus has been significant enough to send the stock to a Zacks Rank #5 (Strong Sell), putting it in the bottom 5% of all companies we rank based on earnings momentum.

And while shares of EVINE Live sold off heavily after the report, the stock still doesn’t look like a value at 37x forward earnings.

EVINE Live is a digital commerce company that sells products to customers through TV, online, mobile and social media. The company operates a 24-hour shopping network, EVINE Live, which is distributed primarily on cable and satellite television.

In November of last year, the company changed its name from ValueVision Media, Inc. to EVINE Live Inc. It is headquartered in Eden Prairie, Minnesota and has a market of $206 million.

First Quarter Results

EVINE Live reported its first quarter results on May 20. Adjusted earnings per share came in at -$0.04, well below the consensus of +$0.02. It was also down from adjusted EPS of +$0.03 in the same quarter last year.

Net sales declined 1% to $158.5 million, which was also below the consensus of $165 million. This was driven in large part by a 14% decrease in the average selling price, particularly in Watches.

The gross profit margin also declined from 37.6% of net sales to 36.2%. This was due in part to discounting excess textiles inventory on-air.

Estimates Falling

Following the Q1 miss, analysts unanimously revised their estimates lower for both 2015 and 2016. This sent EVINE Live to a Zacks Rank #5 (Strong Sell).

The 2015 Zacks Consensus Estimate is now just $0.02, down from $0.24 before the report. The 2016 consensus has fallen from $0.46 to $0.27 over the same period.

Lofty Valuation

Shares of EVLV have fallen sharply since the Q1 report, but it doesn’t look like a value here. The stock trades at a lofty 37x 12-month forward estimates. Additionally, the company generated negative operating cash flow in fiscal 2014.

The Zacks Value Style Score for EVINE Live is a ‘D’.

The Bottom Line

With falling estimates and premium valuation, investors should consider avoiding EVINE Live for now.

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

American Eagle: Zacks’ Bull of the Day Play

Teenagers are notoriously fickle when it comes to fashion. But American Eagle Outfitters (AEOAnalyst Report) has been executing well to the current fashion trends. Its “trend-right product” has allowed the company to avoid heavy discounting despite the highly promotional retail environment and is helping to take market share from competitors like Abercrombie & Fitch (ANF) and Aeropostale (ARO).

Following strong first quarter results, management provided bullish guidance for Q2. This prompted analysts to revise their estimates significantly higher for both this year and next, sending the stock to a Zacks Rank #1 (Strong Buy). While the stock popped on the Q1 report, shares still look attractively priced with a Zacks Value Style Score of ‘A’.

American Eagle Outfitters is a clothing retailer that operates more than 1,000 stores in the United States, Canada, Mexico, China, Hong Kong and the United Kingdom under the ‘American Eagle Outfitters’ and ‘Aerie’ brands.

First Quarter Results

American Eagle delivered strong first quarter results before the bell on May 20. Earnings per share came in at $0.15, well above the Zacks Consensus Estimate of $0.11. It was also significantly higher than EPS of $0.02 in the same quarter last year.

Total net revenue rose 8% to $700 million, beating the consensus of $689 million. This was driven by a 7% increase in same-store sales.

Also note that American Eagle didn’t just succeed in boosting sales, it boosted its profit margins too. The gross profit margin expanded 260 basis points to 37.5% of net revenue. This tells me that they’re not discounting heavily despite the heavily promotional retail environment because demand for their product is that strong.

Estimates Soared

Management also provided bullish guidance for Q2. The company expects EPS between $0.11-$0.14 compared to the Zacks Consensus Estimate of $0.11 (and note that their guidance for Q1 EPS was conservative at $0.09-$0.12 versus a print of $0.15). This prompted analysts to revise their estimates significantly higher, sending the stock to a Zacks Rank #1 (Strong Buy).

The 2015 Zacks Consensus Estimate has jumped from $0.86 to $0.95 over the last 30 days while the 2016 consensus has climbed from $0.95 to $1.05 over the same period.

Several analysts noted that the company beat Q1 expectations on all metrics – sales, comps, gross margin, SG&A, and EPS were all better than consensus. That is a home run.

Reasonable Valuation

Shares of American Eagle popped on the Q1 report, but the valuation picture still looks reasonable. The stock trades at 16.8x 12-month forward earnings and sport an enterprise value to cash flow ratio of 11.6.

The Zacks Value Style Score for AEO is an ‘A’.

The Bottom Line

With its “trend-right product”, American Eagle has been taking market share from competitors and avoiding heavy discounting, which has boosted profit margins as well as earnings estimates. Given these factors and its reasonable valuation, American Eagle looks well-positioned to soar.

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

Perceptron: Zacks’ Bear of the Day Play

The new Zacks Style Scores make it easy to uncover trading ideas to fit your particular investing style. All you need to do is look for Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy) stocks that have a style score of “A” or “B” in the style of your choice. Whether you’re investing for growth, value or momentum we’ve got you covered.

You also know which stocks to avoid. Already you’ve found the proven power of the Zacks Rank so you know to stay away from the Zacks Rank #5 (Strong Sell) stocks. Until their earnings picture turns around there are better opportunities to be had elsewhere. You can also incorporate the style scores here in order to find stocks you should avoid because they have style scores of “F.” In the case of today’s Bear of the Day, I’ve found a Zacks Rank #5 (Strong Sell) that has style scores of “F” across the board.

A part of the electric measuring instrument industry, Perceptron, Inc (PRCPSnapshot Report) designs, manufactures and markets information based process measurement and guidance solutions which help customers improve performance. Perceptron’s product offerings are designed to improve quality,increase productivity and decrease costs in the automotive and forest products workplace. Perceptron’s design philosophy is to create systems which incorporate sophisticated proprietary software and hardware to minimize the need for customer application engineering.

Analysts have painted a grim picture of the current year for Perceptron. They have dropped their current year earnings estimates down from 26 cents to 2 cents. Last quarter’s earnings came in at a 17 cents per share loss versus expectations of an 18 per share loss, beating by a penny.

The revisions helped to derail a rally that took shares from $9 in December 2014 to over $14 in April. The bearish sentiment came in and devastated the stock. By late April, the CCI had turned from 200 to below -200 and the stocked dipped below the 21 day moving average. The stock hasn’t been able to turn around and get back on the bullish side of the average since then. Now it’s locked firmly in a bearish trend and closed out trading on Friday down at $11.02.

Investors looking to invest in stocks within the same industry have two other viable options. You can look at Zacks Rank #1 (Strong Buy) Orbotech (ORBKSnapshot Report) as well as Zacks Rank #2 (Buy) stock Cascade Micro (CSCDSnapshot Report).

Changyou: Zacks’ Bull of the Day Play

We’ve all got our little personality quirks and secrets that not everyone knows about us. Me, I’m an unapologetic gear head and video gamer. I also listen to Mexican Ranchero music sometimes when I write articles. One of the guilty pleasures I enjoy isn’t watching “The Bachelor” or drinking wine coolers, it’s massive multi-player online role playing games (MMORPGs). Think Dungeon’s & Dragons mixed with Facebook.

There’s one thing about these MMORPGs that appeals to the business side of me; their business models. Unlike a traditional game where you make a one-time purchase or the pay-to-win style casual games like Clash of Clans, most MMORPGs charge a monthly fee. These fees are typically between $8 and $15 a month. It’s a smart, nifty little way for companies to build a very sticky, consistent revenue stream and helps even out EPS versus traditional game developers.

Today’s Bull of the Day is a Chinese company that makes RPGs. Zacks Rank #1 (Strong Buy) Changyou.com (CYOUSnapshot Report) is a developer and operator of online games in China. It engages in the development, operation, and licensing of massively multi-player online role-playing games, which are interactive online games that are played simultaneously by various game players. The company currently operates two multi-player online role-playing games (MMORPGs), including the in-house developed Tian Long Ba Bu and the licensed Blade Online. Changyou.com has three MMORPGs in the pipeline, which include the Duke of Mount Deer, Immortal Faith, and the Legend of the Ancient World.

The steady income stream has caused analysts to up their estimates on CYOU for the current year and next year. Over the last 30 days, analysts have increased their earnings estimates and pushed up the Zacks Consensus Estimate for the current year from $2.51 to $3.17 while next year’s numbers have jumped from $2.91 to $3.13.

The recent bullish sentiment on the street is evident in the stock chart for CYOU. When the domestic market troughed in mid-October 2014, CYOU shares were trading around $17. Since then, a series of bullish moves have taken the price all the way up to a fresh 52-week high of $35.27 in trading earlier this week.

The stock pulled back from just below $35 to start May to the 21 day moving average. The Commodity Channel Index came down from overbought levels and crossed below the zero line ahead of the retrace to the 21 day. From there, buyers came in, pushing the CCI back through the zero line as shares began to rally again. With a positively sloped 21 day moving average down at $32.05 the stocks looks like it has a chance to breakout to highs again next week.

Keurig Green Mountain: Zacks’ Bear of the Day Play

The rise of Keurig Green Mountain (GMCRAnalyst Report) over the last few years has been nothing short of incredible. From a fledgling coffee maker to an industry leader, investors have seen a very impressive nearly 300% return over the past five years, easily beating out the S&P 500 in the same time period.

However, headwinds are starting to really drag on GMCR’s outlook as of late and the allure of investing in this consumer product company has faded. If anything, we are seeing similar trading here to what we saw in some of the consumer product darlings of years past such as Krispy Kreme or Sodastream  as a solid—or even incredible run—eventually led to big losses for those who got in too late on the growth story.

Shares of GMCR are actually down more than 30% YTD, including a 20% slump in the past month alone. And with rising competition levels as well as concerns for some of the company’s new products there is plenty of reason to believe that this might not be the end of the pain for GMCR by a long shot.

GMCR in Focus

Sales for GMCR have been pretty weak to start the year and cost concerns are piling up thanks to some new products. Chief among these are the Keurig 2.0 as well as the KOLD brewing system as we are starting to see some issues with the 2.0 system while the KOLD brewer costs $300, a price that some might balk at to start off.

These concerns are causing many analysts to reconsider their opinion of the stock, as well as GMCR’s near term outlook. After all, GMCR called 2015-2016 an ‘investment year’ which is often code for lower profits and margin concerns.

GMCR Estimates

Over the past 30 days, six estimates have gone lower for GMCR in the current quarter while eight have gone lower for the current year. The magnitude of these estimates has also been worth noting as the consensus for the current quarter has fallen from $1.10/share 30 days ago to just $0.79/share today, while the current year has plunged from $4.11/share to $3.69 over the last month as well.

GMCR also is on a bit of a losing streak when it comes to earnings season as well. The company has now missed estimates in both of the past two quarters, albeit pretty small misses overall. Still, these factors have pushed GMCR down to a Zacks Rank #5 (Strong Sell) meaning that we are looking for more under performance from this company in the near term.

Other Choices

If that wasn’t enough, we should also note that GMCR has a Value Style Score rating of ‘F’ putting it in the bottom 20% from a valuation perspective as well.  And the beverages-soft drinks category is struggling overall as this is also in the bottom quintile from an Industry Rank perspective.

There are a few gems hiding in this space though and one that really stands out is Dr. Pepper Snapple (DPS). This stock has risen from a Zacks Rank #3 to a Zacks Rank #2 (Buy) in just the past week while it is seeing rising earnings estimates as well.

So if you are looking for a good stock in this category in might be best to avoid GMCR for the time being and focus on other names in the space. DPS is one such stock, and with its far better earnings picture it seems likely to outperform the struggling Keurig Green Mountain, at least in the near term.

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Anthem: Zacks’ Bull of the Day Play

When it comes to the health care sector, most investors immediately focus in on the biotech and pharma segments. Not only are these ‘sexier’ corners of the market but they have been very strong performers over the past few years as well.

However, there is one corner of the space that is often overlooked and may actually be the best way to target the market right now, the HMO/health care provider industry. This corner of the space might not be as flashy as other areas of the health care world but it could actually be primed for a run this summer.

Why Healthcare Providers?

The impact of the Affordable Care Act (also known as ‘Obamacare’) is finally being felt by the HMO space as consumers must sign up for at least some coverage. This is adding to the rolls for all the companies in this space, and with a number of healthy people being forced to enroll, it could be a profitable addition. While there are still some challenges on the legal front and next year’s presidential election could always insert some volatility as well, these worries shouldn’t be too high right now.

Additionally, as interest rates eventually rise, it should bode well for companies in this space. That is because providers invest premiums in a variety of instruments and better rates will create more income (eventually) for these portfolios down the line.

Top Pick in the Space…

We actually have the Medical-HMO sector rated near the top as not a single company in the space currently has a strong sell rank. In fact, it is actually in the top 5% by our estimation meaning that there are several great choices in the segment. One company that really stands out though is Anthem (ANTMAnalyst Report) as this stock was just upgraded from a #2 rank (Buy) to a Zacks Rank #1 (Strong Buy) in just the past week.

Why Anthem? Well the company recently posted a very strong first quarter earnings while the company also raised its outlook for the full year as well. And with the solid trends underpinning the industry, it isn’t hard to see why analysts have been raising their estimates for ANTM as of late.

ANTM Estimates & Metrics

Full year estimates for ANTM are universally moving higher for both the current year and next year time frames. 14 estimates have moved higher over the past 30 days for the current year, while we have seen 10 move higher for the next year period as well.

This has also produced a decent move in the consensus estimate, as this has risen by over 20 cents a share (to $10.05/share) this year, and about 15 cents per share in the following year. This keeps Anthem’s EPS growth rate in double digit territory for both years, pretty impressive considering the mature nature of its industry.

Investors should also consider some of the growth and value metrics for Anthem as the company actually has an ‘A’ score for both of these important looks. On the growth side, Anthem’s ROE, debt/capital, and current ratio are all better than the industry average, while its value metrics—such as PE, P/B, and P/S– all beat out the industry average as well. Put all these factors together and it is easy to see why ANTM is an impressive choice.

Bottom Line

There are a number of solid picks in the HMO space and this industry looks to perform well as we head into the summer. And for those looking for health exposure beyond the drug sector, this could be a top choice.

One pick in particular that looks promising is Anthem thanks to its solid earnings outlook and recent beat. The value and growth metrics are also impressive for ANTM suggesting that this is a well-rounded company that is definitely worthy of closer inspection by health care-focused investors.

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