For Immediate Release
Chicago, IL – August 27, 2018 – Zacks Equity Research highlights Garmin Ltd. GRMN as the Bull of the Day, Cinemark Holdings CNK as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Netflix NFLX, Apple AAPL and Amazon AMZN.
Here is a synopsis of all five stocks:
Bull of the Day:
It has, at times, been difficult to put one’s finger on the exact investing strategy which has had the most success this year, but in hindsight, it seems a combination of growth, income, and momentum has been successful. One stock that sports all three of these things—and makes quality consumer electronics—is Garmin Ltd.
Garmin is a pioneer of personal GPS navigation products, and it now also provides high-quality, fitness-forward wearable technology devices. The company serves five primary businesses: automotive, aviation, fitness, marine, and outdoor recreation. This means Garmin has exposure to exciting growth opportunities and legacy tech markets, and it stands as a leader in both.
This Zacks Rank #1 (Strong Buy) stock pays a dividend, has generated strong momentum over the past several months, and is poised for near-term and long-term earnings growth.
Earnings and Outlook
In its most recent quarter, Garmin reported earnings of 68 cents per share, beating the Zacks Consensus Estimate by a healthy 12 cents and improving 31% year over year. The firm also posted better-than-expected revenue of $710.9 million, which was up nearly 11% from the year-ago quarter.
More importantly, Garmin once again displayed a healthy balance sheet. The company generated cash flow from operating activities in excess of $214 million. It has no long-term debt, and its cash and equivalents now total $1.07 billion.
Garmin’s positive results and upbeat outlook have since inspired a number of positive earnings estimate revisions. The Zacks Rank is fundamentally based on these estimates and revisions, so this positive trend explains Garmin’s #1 (Strong Buy) designation. However, there are other reasons to be optimistic about this stock right now.
Bear of the Day:
A healthy consumer economy should breed plenty of great opportunities to invest in companies which serve consumers, especially in the discretionary and leisure markets. That has been the case over the past few years, but we have had some underperforming stragglers, too. One such example is Cinemark Holdings.
Cinemark is a major movie theater owner and operator, sporting a portfolio of more than 500 locations and nearly 6,000 screens. It is one of the largest movie theater companies in the world and holds a strong share of the U.S. and Latin American markets.
We are nearing the end of summer blockbuster season, and all in all, it has been a decent stretch for Hollywood. After summer revenue hit its lowest level in two decades last year, movies bounced back with year-over-year sales box office growth of nearly 13%.
A nice mix of superhero movies, the resurgence of documentaries, and films which featured unprecedented on-screen representation resonated with audiences, and the industry comfortably recovered from what has a horrible last year.
And that’s what makes Cinemark’s recent performance concerning. Just a few weeks ago, the company posted quarterly earnings of 70 cents per share, missing the Zacks Consensus Estimate of 75 cents. That figure was still a noticeable improvement from the year-ago period, but with revenue also coming in below expectations, we were left to wonder why Cinemark was unable to capitalize on improve box office numbers.
The summer movie season crosses into two fiscal periods for most movie theater companies, but if recent earnings estimates and revisions are any indication, Cinemark could be ready to disappoint in its next earnings release as well.
The Zacks Rank is fundamentally based on these estimates and revisions, so this negative trend explains Cinemark’s Zacks Rank #5 (Strong Sell) designation.
On top of that, there is not a particularly great earnings growth outlook for Cinemark right now. The company is expected to see its earnings contract nearly 12% on a year-over-year basis in the current fiscal year, and although the bottom-line is projected to rebound with growth of 11.5%, Cinemark would just be right back to where it was last year—a historically bad year for movies.
Buy Netflix (NFLX) Stock After International Expansion Upgrade?
Shares of Netflix surged over 4% Friday on the back of an analyst upgrade, which helped cap off a strong week for the streaming TV titan amid what had been a dismal post-earnings stretch. So let’s take a look at the reasoning for the upgrade, along with some other Netflix news, before we see if it might be time to buy Netflix stock.
SunTrust analysts raised their rating for Netflix stock from “hold” to “buy,” citing the potential for impressive subscriber growth in the third quarter. “The stock pullback post the 2Q subs miss (which we attribute to ’13 Reasons Why’ and World Cup, as previewed) leaves us with ~20% potential upside from current levels,” analyst Matthew Thornton wrote in a note to clients Thursday.
“More important, our India study shows NFLX initial original series resonating quite well with interest in NFLX rising (including relative to competitors) into more originals coming.”
The SunTrust analysts said that their firm’s analysis of web search trends pointed to the possibility that Netflix can add 5 million international subscribers during Q3, which comes in well above Netflix’s projection of 4.35 million. Thornton did lower his price target for Netflix from $415 per share to $410 per share. The slightly lower price target still represented about a 21% upside from NFLX’s closing price of $339.17 on Thursday.
On top of the SunTrust upgrade, investors might be pleased to note that Netflix is hoping to move away from paying Apple’s app store tax. The streaming firm is currently testing a workaround that directs potential users to its mobile website when they try to sign up for Netflix in Apple’s app store. The trial run is reportedly live in 33 countries, according to TechCrunch.
Apple takes a 30% cut of all subscription purchases made in its app right off the top every month. Meanwhile, Netflix is able to keep the whole monthly subscription fee if users sign up for its streaming service through its own website and log-in through the application later. Therefore, Netflix would be able to make a lot more money if it were able to bypass Apple’s fees.
Netflix also began to test short ads for other NFLX content during the countdown period before the next episode of a show automatically starts to play. The idea for Netflix is to keep users engaged, and promoting new content seems like a logical step. “We are testing whether surfacing recommendations between episodes helps members discover stories they will enjoy faster,” Netflix wrote in a statement. “It is important to note that a member is able to skip a video preview at any time if they are not interested.”
Netflix must walk a thin line in its experiments with ads even for its own content since many users joined to avoid unsolicited ads altogether. And one of the last things that Netflix should do is alienate some consumers even in the slightest way since the firm faces heightened competition.
Amazon is actively spending billions to improve its offerings on Amazon Prime, which includes not only big-budget action series but also indie films with A-list Hollywood stars—and sports content.
Time to Buy?
Shares of Netflix were cruising along until the company reported its second-quarter financial results, which on their face were strong. Revenues jumped 43% to hit $3.91 billion last quarter and earnings soared. But NFLX added 1 million fewer subscribers than it expected, which looked even worse since the firm had surpassed its own subscriber forecasts in seven out of the last nine periods, including massive beats in the trailing two quarters.
Reed Hastings’ firm had seen its stock price sink roughly 12% since it reported its earnings in mid-July. Yet, Netflix’s recent dip is a reason to consider buying shares of NFLX because it seems hard to think that the firm won’t see its stock price climb back up as its growth story isn’t over just yet—even if it looks a bit more uncertain these days.
Netflix closed the quarter with 130 million subscribers worldwide, which marked roughly 25% growth from the year-ago period’s 104 million. Looking ahead, the company expects to add 5 million new subscribers during the third quarter, with 650,000 projected in the U.S. and 4.35 million internationally.
Plus, Netflix is projected to see its Q3 revenues surge by roughly 34% to reach $3.99 billion, based on our current Zacks Consensus Estimate. Meanwhile, its adjusted quarterly earnings are projected to skyrocket over 134% to $0.68 per share.
However, Netflix has received 15 downward earnings estimate revisions for its current fiscal year, against only two positive changes, within the last 60 days. Therefore, some investors will want to remain a bit more cautious about NFLX, while others might want to buy in on the dip.
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