MasTec, Take Two Interactive Software and Tesla highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – June 7, 2018 – Zacks Equity Research highlights MasTec MTZ as the Bull of the Day, Take Two Interactive Software TTWO as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Tesla TSLA.

Here is a synopsis of all three stocks:

Bull of the Day:

I last wrote about MasTec as the Bull of the Day on March 2 after their strong December-quarter report delivered big top and bottom lines beats, plus a surprisingly robust backlog of orders.

But even as analysts raised estimates and price targets for the company to over $70, the stock floundered in the malaise of a potential trade war. MTZ shares followed the Industrial Sector below its 200-day moving average.

A Bottom for Patient Optimists

As worried as I was about the impacts of a trade war, I just couldn't sell my MasTec shares with the strong projected growth rates and attractive valuation. And on April 30 I was rewarded with the beginnings of a double dose of goodness.

First, MTZ delivered another strong March-quarter report with a 59% EPS beat, causing shares to bounce hard off of $44.

And three days later, the XLI bottomed and reversed higher by May 3. 

The $4 billion E&C services (engineering & construction) provider for telecom and energy companies delivered its 9th-consecutive earnings beat with Q1 2017 adjusted EPS of $0.35 vs the Zacks consensus of $0.22.

The company saw broad-based revenue growth of over 20% and the nearly $1.4 billion top line haul beat the Wall Street consensus by over 10%. With particularly strong margins in the Communications business, all segments posted year-over-year revenue and backlog growth during the quarter. 

Total backlog increased 33% y-o-y and 6.5% sequentially. The company also increased full year adjusted EPS guidance by $0.20, which many analysts saw as conservative in early May even before they just won a new $500 million contract on June 4 for power restoration and construction in Puerto Rico. More on that coming up.

Guidance Points Upward

For the full year 2018 MasTec gave the following guidance:

Revenues to a record $6.9 billion vs. $6.75 billion previously provided.

Adjusted EPS of $3.65 vs. $3.45 previously.

Analysts responded in the past month by moving the Zacks EPS consensus for 2018 from $3.48 to $3.67. And 2019 moved up from $4.01 to $4.21.

But some analysts appeared confused in early May as they lowered price targets on MTZ. Credit Suisse lowered their PT from $70 to $64 while Robert W. Baird analysts dropped theirs from $55 to $51.

Meanwhile, analysts at B. Riley/FBR addressed concerns in a research note titled "Valuation Suggests Doubts About 2H18 Earnings Power; 1Q Results and Backlog Strong; Reiterate Buy." And here was their summary view...

We are raising our estimates for 2018 and 2019 and reiterate our Buy rating and $71 price target for MasTec as we believe the shares, which are trading at 6.8x our estimated 2018 EV/EBITDA, fully discount any concerns about 2018 being back-half loaded.

Pipelines, Powerlines, and Hurricanes, Oh My!

While analysts may like to see consistent organic growth from the ever-lumpy telecom and oil/gas sectors, MTZ is also an "emergency responder" of sorts and should not be penalized for swings in sales and profits due to natural disasters. Here was the news on June 4 from the company press release...

MasTec, Inc. today announced that it has signed a master services agreement with the Puerto Rico Electric Power Authority ("PREPA") to complete the restoration of the critical electrical transmission and distribution system components damaged as a result of Hurricane Maria as well as to support the initial phase of reconstruction and modernization of the electrical power system in Puerto Rico. The master services agreement award has an estimated value of $500 million. Services under this contract are expected to be completed over the upcoming 12 months, once MasTec completes the process of remobilizing crew and equipment resources to Puerto Rico.

In the overall trends of lumpy telecom and energy projects and unpredictable disaster work, analysts at Stifel Nicolaus see strong growth. Here's what they had to say last month...

Results and management commentary remained supportive of our thesis that tailwinds behind each of the company's businesses are gaining force in 2018 and should drive strong 2H18 and 2019 results. We believe the company remains in a position to beat and raise through the year and see numerous sources of upside to our 2019 and 2020 forecasts. 

The i-bank views the company's guidance as conservative and thus raised estimates out to 2020, maintaining their Buy rating and $63 price target on the shares.

MTZ beats quarter after quarter and maintains its Zacks #1 Rank for a reason. And those are reasons enough to buy.

Disclosure: I own MTZ shares for the Zacks TAZR Trader portfolio.

Bear of the Day:

Take Two Interactive Software dropped to the cellar of the Zacks Rank after a disappointing Q4 fiscal 2018 report delivered in mid-May. The maker of video games such as Grand Theft Auto reported earnings of 77 cents per share which declined 13.5% from the year-ago quarter. 

The company's net revenues came in at $450.3 million, declining 21.2% from the year-ago period. Underperformance of NBA 2K was a dampener.

The EPS was a beat, but the top line was miss.

Headed into the report, analysts were already taking down estimates for the company with the current June quarter dropping from $0.54 to $0.49. And the full fiscal year 2019 (began in April) fell from $5.15 to $5.06.

But after the company's outlook, estimates have continued their slide for the company's key game franchises and this year's EPS projection is now $4.65. The trend is expected to persist into next year with analysts bringing down fiscal 2020 from $5.77 to $4.83 in the past 60 days.

Quarter Details

Take-Two Interactive is a leading developer, publisher and marketer of interactive entertainment for consumers around the globe. The company develops and publishes products principally through its two wholly-owned labels Rockstar Games and 2K.

Net bookings of $411.4 million increased 1% on a year-over-year basis. Digitally delivered net bookings (81% of total net bookings) grew 11.6% to $380 million, driven by Grand Theft Auto Online, Grand Theft Auto V, NBA 2K18, Sid Meier’s Civilization VI, WWE 2K18 and WWE SuperCard.

Bookings from Physical retail and other segments plunged 28% to $78.2 million. Recurrent consumer spending net bookings increased 42% and represented 44% of total net bookings.

In the free-to-play games space, Social Point's mobile games Dragon City and Monster Legends contributed meaningfully to net bookings. Social Point is also expected to provide a long-term growth opportunity to the company.

Per the company, digital revenues (67% of total revenue) increased 8.1% to $301.4 million while revenues from Physical retailer and other segments (33% of total revenue) were down 49.2% to $148.9 million.

Region-wise, revenues from the United States (57% of total revenue) were down 13.6% to $255.7 million. International markets revenues (43%) declined 29.4% to $194.6 million.

On the basis of platform, revenues from console (81%) dropped 29.4% to $194.6 million. Revenues from PC and other (19%) declined 5.2% to $86.8 million.

Company Outlook

For the first quarter, the company expects net bookings to be in the band of $215–$265 million, driven by Grand Theft Auto Online, Grand Theft Auto V and NBA 2K18 as well as the acquisition of Social Point.  GAAP net revenues are projected in the band of $345–$395 million.

The company projects operating expenses to be in the range of $190 million to $200 million, up 12% at mid-point due to higher expenses for R&D and stock compensation. The company projects GAAP income per share in the range of 53–63 cents.

For fiscal 2019, net bookings are projected in the band of $2.67–$2.77 billion. The company expects Red Dead Redemption 2 (to launch on Oct 26) and NBA 2K to drive growth. Launch of NBA 2K19 and WWE 2K19 in fall 2018 is expected to boost the top line in the fiscal year.  

However, lower net booking from Grand Theft Auto V and Grand Theft Auto Online will remain a drag.

Net bookings from current consumer spending are expected to witness modest increase while digitally-delivered net bookings are projected to increase 15%. The company expects Rockstar Games to contribute 55% of net bookings, followed by 2K with 40% and the rest from Social Point and others.

GAAP net revenues are likely to be in the band of $2.50–$2.60 billion. The company now projects earnings per share in the range $1.53-$1.80.

The company projects operating expenses to be in the range of $885-$925 million, which reflects an increase of 19% at mid-point, owing to higher marketing, personnel and software development costs. Operating cash flow is expected to be around $710 million.

The revenue outlook of $2.72 billion (mid-point) compares to the Street at $2.87 billion and EPS of $4.12 vs. the Street at $4.81.

From what I read from Wall Street analysts, the primary motivations for reducing estimates has been the weaker-than-expected bookings projections.

Additional content:

Why Did Tesla (TSLA) Stock Gain Wednesday?

Shares of Tesla surged about 5% in early morning trading Wednesday after shareholders at the company’s annual meeting backed Elon Musk as chairman and CEO, and Musk responded by revealing that Tesla is nearing its weekly Model 3 production goal.

Musk told shareholders it is “extremely likely” the electric car giant will hit a weekly production rate of 5,000 Model 3 cars by the end of the current month. The polarizing CEO also said Tesla will soon be producing more batteries at its Nevada-based Gigafactory than all other electric car companies combined.

His comments followed two separate votes to strike down proposals intended to split the CEO and chairman roles and disrupt Tesla’s board of directors.

Tesla’s struggle to reach its target Model 3 production rate has created financial headaches and cast doubt on Musk’s leadership. Nevertheless, this week’s voting suggests that Tesla shareholders are willing to give the tech pioneer more time—at least for now.

Meanwhile, Tesla’s head of worldwide sales, Robin Ren, revealed that the automaker is slated to open a factory in Shanghai, which would be its first production facility outside of the United States. Chinese regulators recently policies that would allow foreign electric vehicle makers to fully own their factories there. Building a plant in Shanghai will allow Tesla to avoid certain tariffs.

Tesla will hope the near-term bullishness coming out of the investor conference makes its way to analysts, who have been largely skeptical about the company’s performance this year. In fact, production issues and caution-inducing comments from Musk have led to a number of negative revisions to the company’s fiscal 2018 earnings estimates in recent weeks.

Tesla has witnessed nine downward revisions to its EPS estimates for the current fiscal year within the last 60 days. This activity has moved the Zacks Consensus Estimate for the year nearly 40 cents lower in that time. The automaker is now expected to see an adjusted loss of $8.29 per share in 2018.

But looking further ahead, that analyst picture looks a lot better. Current estimates suggest Tesla will surge into profitability in 2019, with full-year consensus projections calling for $1.86 per share in adjusted profits. That would represent growth of about 122% from this year’s projected totals.

This upbeat earnings outlook has helped TSLA earn a Zacks Rank #2 (Buy). Shares also seem to be recovering from recent stretches of prolonged volatility, and the stock is now up more than 15% from its 52-week low reach on April 2.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

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