Monthly Archives: January 2016

CSX: Zacks’ Bear of the Day Play

CSX Corporation (CSXAnalyst Report) recently warned about 2016 as the railroads struggle. This Zacks Rank #5 (Strong Sell) is expected to see earnings decline this year.

CSX connects nearly every major metropolitan area in the eastern United States by rail and links 240 short-line railroads and 70 ocean, river and lake ports in its network.

It customers are in diverse industries, including energy, industrials, construction, agriculture and consumer products.

Beat Again In the Fourth Quarter But…

On Jan 12, CSX beat the Zacks Consensus Estimate by 2 cents. Earnings were $0.48 compared to the Consensus of $0.46.

It was the 8th straight beat for the company.

However, fourth quarter revenue fell by 13% despite lower fuel costs as volumes declined 6%. It saw growth in intermodal, automotive and minerals but that couldn’t offset the significant declines in coal. The strong US dollar is also challenging the market.

2016 Guidance Was Weak

CSX sees the current negative market trends continuing in 2016. As a result, it guided 2016 earnings below 2015.

In response, the analysts cut their estimates for 2016.

10 estimates were lowered after the earnings report, pushing the 2016 Zacks Consensus Estimate down to $1.87 from $2.11 just 90 days before.

That is an earnings decline of 6.6% compared to 2015 where the company made $2.00 per share.

Shares Plunge as Commodities Continue to Decline

The railroad stocks seem to be moving in tandem with the price of oil. As it declines so do the stocks.

CSX shares are down 15% year to date, after being weak in 2015. Check out the 2-year chart. It isn’t pretty.

CSX now trades at a forward P/E of just 12.3, which is historically cheap.

With the stock sell off, the dividend yield has also risen to 3.2%.

But investors will likely have to hold awhile for this to turn around. Those estimate cuts are signaling a tough time in 2016.

If you really must by a transportation stock right now, and have a short time horizon, stay clear from the railroads. You might want to consider one of the airlines instead.

Delta Airlines, Inc. (DALAnalyst Report) is a Zacks Rank #1 (Strong Buy) which is also cheap. It has a forward P/E of 7.2 but its growth expectations are the opposite of the railroads. Earnings are expected to jump 41% this year.

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Morgan Stanley: Zacks’ Bear of the Day Play

Morgan Stanley (MSAnalyst Report) recently beat the Zacks Consensus Estimate by $0.08 for a 22% positive earnings surprise. Problem is, estimates has move lower and that has pushed the stock down to a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day today.Earnings Beat

On January 19, the company reported earnings of $0.43 per share, with the Zacks Consensus Estimate calling for $0.35. That $0.08 beat translates into a 22% positive earnings surprise. Despite the beat, estimates have moved lower – and future earnings estimates are the foundation of the Zacks Rank.

Description

Morgan Stanley is a financial holding company. The Company provides a variety of products and financial services to a group of clients and customers, including corporations, governments, financial institutions and individuals.

Earnings History

MS has a so-so earnings history, missing the Zacks Consensus Estimate in two of the last five quarters. The other reports were beats of the Zacks Consensus Estimate.

It should be noted that the stock has not had a positive move in the session following any of the last 5 earnings reports. The best result was following the March 2015 quarter when the company beat the number by 6 cents (7.6% positive earnings surprise) and the stock finished unchanged in the session following the release.

Earnings Estimates

The Zacks Consensus Estimate for 2016 has been falling for some time. It was $3.75 in August of last year and fell to $3.53 in November. The Zacks Consensus Estimate for 2016 currently stands at $3.42.

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 #5 (Strong Sell) 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 Stocks Under $10, an investor service , where he recommends the stocks in the portfolio.

Codexis: Zacks’ Bull of the Day Play

Codexis (CDXSSnapshot Report) is a micro cap with a platform that few investor have heard of. Biocatalysts might not be on the tip of your tongue, but analysts have recently been moving estimates higher for this company and those revisions have helped push the stock to a Zacks Rank #1 (Strong Buy). Today it is the Bull of the Day and worth a deeper look.Helping Big Brands

CDXS makes novel proteins and they may do it faster and better than anyone else. Some examples of what they have done with big partners include Atorvastatin (Lipitor) with a 4,000x improvement in enzyme performance. Another example would be Simcastatin or better known as Zocor. CDXS has helped reduce the cost of manufacturing these drugs through protein engineering.

In July of of 2014 it was GlaxoSmithKline (GSKAnalyst Report) signing a deal for use the CodeEvolver platform and in August of 2015 it was Merck. This are not up and coming drug companies, these are the big players in the industry.

Description

Codexis develops biocatalysts for the pharmaceutical and fine chemicals markets. The company offers Codex biocatalyst panels and kits to pharmaceutical companies that are engaged in drug development and the marketing of approved drugs to allow them to screen and identify possible enzymatic manufacturing processes for their drug candidates and their marketed products. Codexis was founded in 2002 and is headquartered in Redwood City, California.

Earnings History

There was a lapse in coverage of CDXS over 2013 and 2014 in which the Zacks Research System (ZRS) does not have estimate data. That said, we do have data on the three most recent reports and I see two beats and one meet of the Zacks Consensus Estimate.

The March 2015 quarter saw a surprise of 1 cent or 7.7% above the Zacks Consensus Estimate. Revenue was inline with expectations for that quarter.

The June 2015 release was a meet of the Zacks Consensus Estimate on the bottom line, but there was miss on the topline.

The most recent quarter, the September 2015 quarter was huge. The company posted earnings per share of $0.13 when the Zacks Consensus Estimate was looking for a loss of $0.11. That means CDXS posted a beat of 24 cents for a positive earnings surprise of 218%.

The beat was driven by a huge out-performance on the topline with the company reporting $17M in revenues when the Zacks Consensus Estimate was calling for $8M. That $9M difference is a 117% positive revenue surprise.

Estimates

Earnings estimate movements are the foundation of the Zacks Rank. CDXS has seen some recent increases in estimates for 2015.

The Zacks Consensus Estimate for 2015 was calling for a loss of 27 cents in October of last year, but moved to a loss of 20 cents in November and has since improved to a loss of 19 cents as of January of 2016.

More importantly is the move in earning estimates for the current year 2016. The best way to look at this move is from a chart:

In case that image doesn’t make it to the webpage or email you are reading this off of, let me give you the numbers. The Zacks Consensus Estimate for 2016 has moved from a loss of $0.17 in October to a loss of $0.13 in November to a loss of $0.10 in December and is currently looking at a loss of $0.08.

The idea here is that while there is an expected loss, it keeps shrinking. It is shrinking every month… not every quarter, so the potential for a profitable year (in terms of the Zacks number which adds back stock based compensation) in 2016 is increasing.

Valuation

Normally I point to earnings multiples, but with a company that has been posting losses and is expected to continue to post losses, the PE metric is not meaningful. Instead I like to look at revenue and earnings growth compared to the industry average. I like what I see here, so I thought another screen shot is in order.

To summarize what the above table shows us, revenue growth slowed in 2015 from 2014, but will increase again in 2016 to 13.5%. Earnings growth, which is much more important, has been impressive to say the least. The 31% growth in EPS in 2014 was nice, but it is expected increased to 55% in 2015. More growth in earnings for 2016 could bring growth to 75%, and needless to say that sort of earnings growth dwarfs the industry average in each year.

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 Stocks Under $10, an investor service , where he recommends the stocks in the portfolio.

Brian also runs the brand new Zacks Game Changers where he looks for stocks that are disrupting their industries and reaping big gains.

Rio Tinto: Zacks’ Bear of the Day Play

Falling commodity prices and weak global economic trends have created a very challenging environment for commodity producers. Many metals and mining stocks have been punished by investors in recent months in view of the weak outlook.

About the Company

Rio Tinto (RIO) is a global industrial metal & mineral mining conglomerate headquartered in London. They employ more than 60,000 people in more than 40 countries across six continents.

They have strong presence in Australia and North America, and also have significant businesses in Asia, Europe, Africa and South America. They have five product groups – Aluminum, Copper, Diamonds & Minerals, and Energy and Iron Ore.

Q3 2015 Operational Results

Rio reported operational results for its third-quarter on Oct 16, 2015. Iron ore production was at 86.1 million tons, up 12% year over year. The quarterly aggregate bauxite output increased 4% year over year to 11,287 kilotons while aluminum output was up about 1% to 830 kilotons.

The company continues to cut its investment in the tough environment and has announced that its essential spending for this year is $2.5 billion, compared with overall investment plans of $5 billion, down from about $6 billion, forecast earlier.

Commodity Price Slump Continues          

China is the largest consumer of commodities in the world and thus, slowing economic growth in the country does not bode well for commodities. Prices for commodities like iron ore and copper have fallen sharply of late, thanks to a rising supplies and falling demand. Ongoing rout in Chinese stocks has further hurt investor confidence.

Iron ore prices slumped almost 45% last year while copper prices plunged to a six-year low this week.

Downward Revisions

Due to weak outlook, analysts have revised their estimates for the company downwards. Zacks Consensus Estimates for the current and the next fiscal year are $2.58 per share and $1.85 per share, respectively, down from $2.60 per share and $1.93 per share, before the results.

Better Plays in the Industry?

Mining industry is currently ranked 137 out of 265 (bottom 48%) Zacks industries. Investors seeking to play this space could look at BHP Billiton (BHP), which currently holds a Zacks Rank #2 (Buy).

The Bottom Line

While the company has taken a number of steps recently to cut costs and improve efficiency, rising supplies and weak demand for commodities will continue to weigh on the results in the near-term. It is safer to avoid this stock till the outlook improves.

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Delta Air Lines: Zacks’ Bull of the Day Play

Headquartered in Atlanta, GA, Delta Air Lines (DAL) is the second-largest US airline by passenger traffic, serving about 180 million customers each year. The airline employs about 80,000 employees worldwide and operates a mainline fleet of more than 800 aircraft.  They offer service to 328 destinations in 57 countries on six continents.

Solid Third Quarter Results

The company reported its Q3 results on October 14. Profit for the quarter was $1.32 billion up from $357 million a year earlier. Earnings per share surged to $1.65 from $0.42 for the same quarter a year ago, thanks mainly to low fuel prices. Revenues decreased 0.6% year over year mainly due to adverse foreign currency movements.

The company plans to expand its domestic capacity this year but continue shrinking its international capacity in response to falling demand and currency headwinds in Europe and Asia. Overall capacity growth is expected to be modest in 2016.

Rising Estimates

Analysts have raised their estimates for the company in the past few weeks after strong results. Zacks Consensus Estimates for the next year has jumped to $6.27 per share, from 5.72 per share, before the results. The company, which reports Q4 earnings next week, has an excellent history of beating estimates as can be seen from the following chart:

Delta Beats United to Become Number 2 Airline by Traffic

Earlier this week, the airline reported 209.6 billion miles flown by paying passengers during 2015, up 3.3% year-over-year, and surpassed United to become the #2 airline in the nation by traffic. American Airlines remains at the top spot and Southwest at the fourth. These top four airlines account for 80% of the domestic traffic in the US.

Ranked #3 in 2015 Airline Scorecard

Delta scored an overall rank of 3 in the annual ranking of major airlines in operational areas by Middle Seat Scorecard. Smaller airlines—Alaska and Virgin America—occupied the top spots, while Delta’s larger peers–United and American–were at #7 and #9 respectively.

Excellent Growth Potential with Attractive Valuation

In addition to a top Zacks rank, the stock has a Style Score of “A” for both Value and Momentum and “B” for Growth. It is currently trading at an attractive multiple of 7.5 times forward earnings.

Additionally the Airline industry is currently ranked 11 out of 265 Zacks industries (top 4%), reflecting solid fundamentals for the industry.

The Bottom Line

Delta is undoubtedly one of the best run airlines in the country. The airline will continue to benefit from improving economy and growing demand for air travel, in addition to tailwinds from low fuel prices. While many of its international markets are not doing well as of now, its international presence and partnerships enhances longer-term growth potential.

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Fossil: Zacks’ Bear of the Day Play

Fossil Group, Inc. (FOSLAnalyst Report) has struggled as consumers have turned away from traditional watches towards wearables. This Zacks Rank #5 (Strong Sell) is expected to see sliding earnings in both 2015 and 2016.

Fossil makes watches and fashion accessories, including jewelry and handbags, under its own brand as well as licensed brands.

Its products are sold to department stores, specialty retail stores and watch and jewelry stores in the US and 150 other countries worldwide.

It also sells in over 600 company-owned retail stores and through its own website, fossil.com.

Push Into the Wearables Market

With traditional watch sales falling, Fossil has been quickly trying to expand into the hot wearables market.

On Dec 29, it completed the acquisition of Misfit, Inc. for $236 million. Misfit makes wearable products sold at various retailers.

It already has the cloud and app platforms in place so Fossil can step right into this space with an experienced engineering team in place.

On Jan 5, at the Consumer Electronics Show in Las Vegas, Fossil announced that it would launch more than 100 styles of wearables in 2016 for a variety of its brands.

It expects to launch them under both the Misfit and Fossil brands throughout the year. The wearables will range from activity trackers to smart watches.

Will It Be Enough?

Will the push into wearables boost analyst sentiment?

So far, the answer is “no.” 6 estimates for next year have moved lower in just the last 60 days.

Earnings are expected to fall 38.7% this year but there’s no recovery forecast for 2016. Earnings are projected to fall another 19% to $3.52 from $4.35 in 2015.

The 2016 estimates have sharply declined in just the last 90 days.

Shares at 5-Year Lows

Shares plunged in 2015 and, so far, in 2016, haven’t shown any signs of stabilizing.

Fossil is now trading with a forward P/E of 9.3. While that seems cheap, investors should be careful. It’s unclear whether the push into wearables will be successful.

If you really want to invest in the wearables space, you should consider Apple (AAPLAnalyst Report) instead. It’s also cheap, with a forward P/E of 10.3, but is expected to have earnings growth this year and next.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Traderand Value Investor services. You can follow her on twitter at @TraceyRyniec and she also hosts theZacks Market Edge Podcast on iTunes.

 

Lannett: Zacks’ Bull of the Day Play

Lannett Company, Inc. (LCISnapshot Report) just completed a key acquisition that should boost growth for several years to come. This Zacks Rank #1 (Strong Buy) is forecast to grow earnings by the double digits in fiscal 2017.

Lannett, with a $1.3 billion market cap, makes thyroid, cardiovascular and pain management generic drugs.

Closes on Kremers Urban Pharmaceuticals Deal

On Nov 27, Lannett completed its acquisition of Kremers Urban Pharmaceuticals Inc. for $1.23 billion.

This is a game changing acquisition for the company as it basically boosts its market cap by 50% in a single deal. It also diversifies its product line.

Kremers drugs treat a bunch of different conditions including ADHD, gastroesophageal reflux disease, hypertension and respiratory disease. This will give Lannett a whole new template from which to operate.

On Dec 21, Lannett said that it expects to see cost savings of $40 million in just the first 12 months with more to come in the following years.

There was one snafu in the purchase however as Lannett disclosed that a key customer of KU recently stopped purchasing certain product lines to the tune of about $87 million in revenue.

However, after discussions with other customers, Lannett was able to recover a portion of the revenue.

Analysts Still Bullish on Fiscal 2017

Analysts still really like the deal.

The Zacks Consensus Estimate has risen to $4.82 from $4.65 in the last 30 days. That is earnings growth of 21.4% versus fiscal 2016 earnings forecast of $3.97.

It also has a solid earnings surprise track record. It has beaten the Zacks Consensus every quarter since 2012.

Value and Growth

Shares have fallen from their 2015 highs and are now dirt cheap.

Lannett has a forward P/E of just 9.6.

But you also get double digit earnings growth. That gives Lannett a PEG ratio of just 0.6. A PEG under 1.0 usually indicates a company is undervalued.

Lannett is a rare value stock that also has strong growth. That’s a rare combination.

For investors looking for a mid-cap drug company that is expanding, Lannett is one to keep 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 Traderand Value Investor services. You can follow her on twitter at @TraceyRyniec and she also hosts theZacks Market Edge Podcast on iTunes.

 

Avon Products: Zacks’Bear of the Day Play

Avon Products (AVPAnalyst Report) is global beauty company, with about $9 billion in annual revenue. The company is the world’s largest direct seller (door-to-door) with more than 6 million active independent sales representatives.

Avon products, which are available in over 100 countries, include color cosmetics, skincare, fragrance, fashion and home products.

Disappointing Results 

The company reported its Q3 results on November 1. Adjusted loss for the quarter was $0.11 per share compared to earnings of $0.23 per share reported a year ago. The Zacks Consensus Estimate was of earnings of $0.07 per share. The company has missed estimates in three out of last four quarters, with an average negative quarterly surprise of 66%.

Total revenue for the quarter plunged 22% year over year and dropped 2% on constant currency basis, with a significant fall in North American revenue offset by strength in Europe, Middle East & Africa and Latin America.

Partnership with Cerberus Capital Management

Last month, Avon announced a strategic partnership with Cerberus Capital Management. According to the deal, Cerberus will make a $435 million investment in Avon. This investment will be in the form of convertible perpetual preferred stock. Further, Avon North America operations will be separated from Avon Products into a privately-held company majority-owned and managed by Cerberus. The transaction is expected to be completed in the spring of 2016.

Falling Estimates

After disappointing results, analysts have been revising their estimates lower for the company. Zacks Consensus Estimates for the current and the next year are now $0.11 and $0.32 per share, down from $0.34 and $0.45 per share, before the results. Declining estimates sent the stock back to a Zacks Rank # 5 last week.

Better Play in the Industry?

The Cosmetics industry is currently ranked 154 out of 265 Zacks industries (bottom 42%). Investors looking for exposure to this industry could consider Estee Lauder (EL), which currently enjoys a Zacks Rank of 2 (Buy).

The Bottom Line

Avon’s turnaround efforts have not been working so far. It remains to be seen whether the deal with Cerberus will be able to increase shareholder value. The company has been suffering over the past few years due to poor execution strategy and underinvestment. Investors should therefore avoid this stock till there is improvement in the outlook.

In addition to the Zacks Stock Rank of 5, the stock has a Zacks Style Score of “F” for Momentum and “D” for both Growth and Value.

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JetBlue Airways: Zacks’ Bull of the Day Play

The decline in fuel prices continues to provide a significant boost to airlines’ earnings and the recent pull-back provides an excellent opportunity to investors to get exposure to some of these stocks with solid growth potential.

Based in Long Island City, NY, JetBlue Airways Corporation (JBLU) is a low cost passenger airline that operates primarily on point-to-point routes. It operates an average of 800 daily flights and carries more than 30 million customers a year to 82 destinations in the U.S., Caribbean, and Latin America.

At the end of 2014, they had 130 A320s, 60 E190s, and13 A321s aircrafts. The airline is well known for their high-quality customer service and excellent flying experience. Rising estimates sent the stock to Zacks Rank # 1 (Strong Buy).

Strong Third Second Quarter Results

JetBlue Airways reported its third-quarter results on October 27. Net income of $198 million or $0.58 per share was, more than double from $79 million or $0.24 in the same quarter a year-ago. Adjusted earnings of $0.58 per share were ahead the Zacks Consensus Estimate by a cent.  Total operating revenue climbed 10.4% year over year to $1,687 million, beating the Zacks Consensus Estimate.

According to the management their strong relative revenue performance continues to be the result of the maturation of the network and their limited exposure to the softer global markets and unfavorable currency exchange rates, among others.

The company continues to benefit from lower fuel prices. Including the impact of fuel hedging and taxes, their fuel price was $1.85, down 39% from last year. They had hedges in place for about 15% of expected Q4 fuel consumption and no hedges for 2016 and beyond.

Rising Estimates

Analysts have raised their estimates for JetBlue in the past few weeks after strong results. Zacks Consensus Estimates for the current and next year are now $1.92 per share and $2.27 per share, up from 1.87 per share and $2.13 per share, before the results.

Zacks Industry Rank for “Airlines” is currently 21 out of 265 (top 8%) reflecting solid fundamentals for the industry.

Excellent Growth Potential with Attractive Valuation

In addition to a top Zacks rank, the stock has Style Score of “A” for both Value and Growth and “B” for Momentum. It is currently trading at an attractive multiple of 11.8 times forward earnings. Further, earnings are expected to grow in double digits next year as well, after spectacular growth this year. Being small in size as of now, this airline has a lot of room for growth.

The Bottom Line

With its continuous route expansion, differentiated culture, and high value geography, the airline looks well positioned to continue to grow and reward its shareholders. Further, the industry will continue to benefit from improving economy and growing demand for air travel, in addition to tailwinds from low fuel prices.

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