For Immediate Release
Chicago, IL – October 30, 2019 – Zacks Equity Research Shares of Burlington Stores BURL as the Bull of the Day, Caterpillar CAT asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Facebook FB, Twitter TWTR and Snapchat SNAP.
Here is a synopsis of all five stocks:
Bull of the Day:
Shares of Burlington Stores have surged over 12% since the company posted stronger-than-projected second-quarter results and raised its outlook. Now, with the holiday shopping season upon us, let’s dive into why this off-price retailer’s stock looks like a solid buy right now.
Burlington operates a straight forward business model. The New Jersey-headquarter firm runs nearly 700 stores, mostly in the U.S., and has worked to remodel and revamp many of these locations in recent years. Burlington has tried to roll out smaller stores as well, as part of an effort to improve the shopping experience and increase store productivity.
Investors should note that BURL went public for the second time in its history in 2013 at just $17 per share. The firm soon rebranded from Burlington Coat Factory to its current Burlington Stores in order to better communicate to shoppers that it sold far more than coats. Today, the company sells everything from home décor and toys to men’s shoes and women’s activewear and is one of the larger and more successful discount-style department stores in the country.
BURL stock has been on a tear since going public again in October 2013. Burlington stock is up over 615% since then, against the S&P 500’s 77% jump, and its industry’s 130%. The off-price retailer’s shares have also climbed 120% in the last two years.
With that said, BURL stock has cooled off a bit recently, up just 11% in the last 12 months, compared to its industry’s 24% jump and S&P’s 13% expansion. As we mentioned at the top, Burlington shares have popped over 12% since it posted its Q2 financial results at the end of August. Yet, BURL stock has dipped 2.5% in the last month.
The stock closed regular trading Tuesday at $193.93 per share, down more than 7% off its 52-week highs. Plus, for those who pay attention to more technical metrics, BURL stock just dipped slightly below its 50-day moving average, which it has rarely stayed below for long over the last three years.
Aside from Burlington’s individual strength, the Retail - Discount Stores industry currently rests in the top 11% of our 255 Zacks Industries. This is a good sign as consumers head into the holiday shopping period, with U.S. unemployment at 50-year lows. And the National Retail Federation expects U.S. holiday shopping sales to climb between 3.8% and 4.2% to reach roughly $730 billion.
This would compare favorably to the 3.7% average over the last five years and top 2018’s disappointing 2.1%. “Consumers are in good financial shape and willing to spend a little more on gifts for the special people in their lives this holiday season,” NRF President CEO Matthew Shay said in prepared remarks.
On top of that, we can see that BURL’s valuation picture has not grown too stretched despite its outsized growth. The stock is trading not that far above its own three-year median of 23.2X forward 12-months Zacks Consensus Estimates and its industry’s average at 24.5X.
Q3 Outlook & Beyond
Last quarter, Burlington’s revenue jumped 10.5%, with comparable sales up 3.8%. Our current Zacks Consensus Estimates call for the company’s third-quarter revenue to pop 9.8% to reach $1.79 billion, which would come on top of the year-ago period’s 13.6% sales growth.
Meanwhile, comp sales are expected to jump 2.9% in Q3 2019. This would mark the continuation of strong same-store sales growth after the vital retail metric surged 4.4% in the third quarter of 2018.
Looking further ahead, the company’s Q4 sales are projected jump to 10.6% to help lift full-year sales by 9.4% to hit $7.26 billion. The retailer’s fiscal 2020 revenues are then expected to climb 9% higher to reach $7.91 billion.
At the bottom end of the income statement, the company’s adjusted quarterly earnings are projected to climb 16.5% from the prior-year quarter to come in at $1.41 per share. This would nearly match last quarter’s 18% earnings growth, which easily topped our estimate.
Burlington’s full-year fiscal 2019 EPS figure is then projected to climb over 12%, with FY20 expected to come in 13.5% above our current-year estimate. The company also has a solid history of quarterly earnings beats and has seen its Q3 and longer-term earnings estimates move heavily upward over the last 90 days.
Burlington’s positive earnings revision activity helps it earn a Zacks Rank #1 (Strong Buy) at the moment. The company also sports an “A” grade for Growth in our Style Scores system.
Bear of the Day:
Caterpillar stock has been pretty volatile over the last year amid the U.S.-China trade war and growing economic uncertainty. Last week, the global construction and mining equipment giant fell short of both top and bottom-line estimates and lowered its forecast.
What’s Wrong with CAT?
Caterpillar’s Q3 fiscal 2019 revenue slipped 6% from the year-ago period and easily missed our quarterly projection, while adjusted earnings dipped 8% and also fell short estimates. The last time the firm’s sales fell against the prior-year quarter was the fourth quarter of 2016.
Worse still, CAT lowered its full-year profit outlook to between $10.90 and $11.40 per share, from its previous range that was at the low end of $12.06 to $13.06. The company’s updated forecast comes as its dealers pull back on purchases amid increasing uncertainty.
The Deerfield, Illinois-based company, which sells its industrial-level equipment in nearly 200 countries, is widely regarded as a global economic bellwether, alongside Boeing and others. And despite the fact that the S&P 500 hit new highs on Monday and the U.S. Federal Reserve is expected cut its benchmark interest rate on Wednesday afternoon, Caterpillar appears to be in a rough position at the moment.
CAT continues to try to navigate rising tariff-relate costs. On the positive side, President Trump seems more optimistic that the U.S. and China will be able to reach a more substantial trade deal. Nonetheless, the global economy appears to be slowing down and manufacturing PMIs continue to slip.
Meanwhile, the International Monetary Fund recently said it expects the global economy to grow at its slowest pace since 2009. “In the fourth quarter, we now expect end-user demand to be flat and dealers to make further inventory reductions due to global economic uncertainty,” CEO Jim Umpleby said in prepared remarks.
“Caterpillar’s improved lead times, along with these dealer inventory reductions, will enable us to respond quickly to positive or negative developments in the global economy in 2020.”
Despite Caterpillar’s disappointing Q3 and the larger macroeconomic factors at play, CAT stock is up 12% in the last month to crush the S&P 500’s 2.2% movement. In fact, the company’s shares have jumped nearly 6% since it posted its quarterly results on October 23.
Shares of CAT closed regular trading Tuesday up 0.91%, at $141.33 per share, not too far off its 52-week highs. The company’s stock price is now up 20.5% in the last 12 months, against the S&P’s 13% and its peer group’s 4% average.
CAT stock is also up well above both its 50 and 200-day moving averages, for those who pay attention to technicals, thanks to its recent climb. But we can see how up and down Caterpillar stock has been, which means a pullback could possibly be on the horizon.
Q4 Outlook & Beyond
Moving on, our current Zacks Consensus Estimates call for the company’s fourth quarter sales to slip 4.6% to hit $13.69 billion. This projected downturn, coupled with its recent Q3 performance is expected to push its full-year fiscal 2019 sales down by 0.82%.
Peeking further ahead, Caterpillar’s Q1 fiscal 2020 sales are expected to fall 6.4%, with fiscal 2020’s revenues expected to come in 3.5% below our current-year projection.
At the bottom end of the income statement, CAT’s adjusted quarterly earnings are projected to fall by 3.5% to $2.46 per share, with FY19’s EPS figure expected to dip 1.4%. The firm’s Q1 2020 earnings are then expected to slip 11.2%.
Caterpillar has also missed our quarterly earnings estimates in three out of the last four quarters and has seen its consensus earnings estimates sink heavily. CAT is a Zacks Rank #5 (Strong Sell) stock right now that holds “D” grades for Value, Growth, and Momentum in our Styles Scores system.
CAT does pay a dividend and boasts a solid yield of 2.94% at the moment. And clearly the firm is likely poised to return to growth, but the global economic picture is out of its hands.
Can Facebook’s (FB) Lofty Expectations Be Met After Wednesday’s Bell?
The world’s largest social media site is gearing up for Q3 earnings. Facebook is releasing its Q3 earnings report Wednesday, October 20th, after the bell and growth expectations are substantial.
FB is typically a big mover on earnings releases with an average move of 7.4% over the past 8 quarterly reports (5 up, 3 down). Zacks Consensus estimates display an EPS of $1.91 on revenues of $17.32 billion, representing year-over-year growth of 8.5% and 26.2%, respectively.
FB has been trading in a state of limbo since its last earnings release marginally slid the share price at the end of July when the firm illustrated a deceleration in user growth. Since the beginning of August, FB has been trading in a $15 range between $175 and $190.
FB is trading on the higher end of this range going into earnings, and investors are hoping the stock can bust back into the $200s.
Twitter released its 3rd quarter results last Wednesday after the bell missing both top and bottom-line estimates, which has plummeted the stock over 23% since. Snapchat beat both metrics and is up almost 5% since its earnings last week. As it stands, social media stocks have had mixed results.
2.1 billion people around the world use one of Facebook’s family of services daily, while 2.7 billion utilize one of these at least once a month, whether it be Instagram, WhatsApp, Messenger, or Facebook.
Facebook’s daily active user (DAU) and monthly active user (MAU) expansion have been slowing down in recent quarters with only 8% year-over-year growth in Q2 compared to 11% in Q2 last year and the 14% in 2017.
This slowdown in user growth was inevitable, with roughly 63% of the internet accessing world using at least one of Facebook’s services at a minimum of once a month. User growth will soon be a product of world population growth.
Facebook has been able to partially offset this slowing user growth trend with the appreciation of average revenue per user (ARPU), although policy headwinds could negatively impact this growth with regulatory changes focused on targeted advertising.
The FTC slapped Facebook with a $5 billion civil penalty earlier this year (impacting Q1 and Q2 results), the largest fine in the history of the agency. The fine was related to negligence with handling user data as well as ‘deceptive’ communication to consumers pertaining to user data utilization. Along with the massive fine, the FTC required Facebook to implement new privacy processes to ensure that this misstep doesn’t occur again.
Regulatory overhang remains a concern for Facebook moving forward. The company’s growth is decelerating, and the reliance on ARPU for topline appreciation increases. If regulatory bodies inhibit Facebook’s ability to produce targeted advertisements, the company’s growth could be significantly hampered.
Facebook is a social media staple that is not going to fall through the cracks anytime soon. FB controls the world’s largest social media platform, the two most used messaging apps on the globe, and the fastest growing social media site.
This company undoubtedly has a bright future, with over 20% topline growth expected for the next 3 years. The question now is whether or not FB can meet its lofty forecasts. Earnings after the bell on Wednesday will provide further color on its ability to meet ambitious expectations.
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