For Immediate Release
Chicago, IL – September 4, 2018 – Zacks Equity Research highlights First Cash, Inc FCFS as the Bull of the Day, Tyson Foods TSN as the Bear of the Day. In addition, Zacks Equity Research provides analysis onAmazon AMZN, Alphabet GOOGL and Apple AAPL.
Here is a synopsis of all five stocks:
Bull of the Day:
We’ll start with the elephant in the room. First Cash, Inc is, at its core, an operator of pawn shops. Pawn shops often carry a negative connotation as seedy enterprises in a rough part of town that most consumers would actively seek to avoid.
It’s exactly that thinking that might cause some investors to overlook the entire industry, even though this growing collection of very well-managed and professional loan outlets combines very attractive rates on outstanding loans with retail outlets that sell goods at high margins. Pawn stores allow credit-constrained customers valuable access to needed cash, while providing the operators with an opportunity to make securely collateralized loans at much higher-than-average interest rates.
With almost 2,300 locations in the U.S., Mexico, Guatemala, El Salvador and Columbia, First Cash Inc. is a leading operator of retail stores that offer short term loans as well as the sales of pre-owned jewelry, consumer electronics, power tools and musical instruments.
Approximately 75% of First Cash customers who take a loan secured with a personal asset pay back the loan in full and recover their collateral. The average service fee for these loans is 12-13% per month. Yes, that’s per month. Compare that to the average rate on a home equity loan – 5.75%annually – according to the latest data at Bankrate.com, or to the average auto loan at 4.74% - 5.34%, depending on the term and the age of the auto.
The other 25% of customers (who do not repay the loan) forfeit their collateral, which is then sold in the retail stores at an average margin of 35-40%.
Bear of the Day:
Tyson Foods, the once mighty powerhouse in chicken, beef and pork has hit a rough patch lately. Slowing volume in the market for protein combined with a reduced market for exports due to tariffs and rising costs have hurt margins and earnings.
Late in July, Tyson warned that full year net earnings would likely be $5.70 - $6.00/share, down from previous guidance of $6.55 - $6.70/share. In the announcement, CEO Tom Hayes explained, “The combination of changing global trade policies here and abroad, and the uncertainty of any resolution have created a challenging market environment of increased volatility, lower prices and an oversupply of protein.” The Zacks Consensus Estimate subsequently fell from $6.57/share to $6.03/share and have been reduced ever further since then.
Tyson shares have fallen sharply recently and the stock is currently a Zacks Rank #5 (Strong Sell).
Increased feed costs and reduced demand for exports have hurt the firm just as the cost of transportation has increased.
When Tyson reported Q2 earnings on August 6th, net earnings were $1.50/share, beating lowered estimates by $0.17/share, but 7% behind the second quarter of 2017.
Full year expectations are lower as well, with the Zacks Consensus Estimate for 2018 earnings currently at $5.89/share, down from $6.55/share just 60 days ago. Estimates for 2019 have been similarly reduced and now stand at $6.00/share, having been as high as $6.90 recently.
Tyson has also has several issues in the recent past involving air and water pollution, the immigration status of employees, price manipulation and the unethical treatment of animals.
Will Stocks Tumble in September?
Even though the Nasdaq and the S&P 500 are reaching all-time highs as Amazon, Alphabet and Apple rally, it doesn’t mean stocks will continue to climb in September. Historically, stocks suffer in September during a bull market period. This year, with issues such as interest rate hikes, trade disputes and Iranian sanctions, stocks might be impacted even more.
The Fed is expected to raise interest rates for the third time this year in September, to help prevent inflation and the overheating of the economy. Two side effects of the Fed’s rate hikes are a rising dollar and flattening of the yield curve.
The U.S. dollar has been very strong recently. A rising dollar can be a side effect of the Federal Reserve’s interest rate hikes. A strong dollar can have negative impacts internationally. It contributed to the emerging markets’ slowdown that was already aggravated by U.S. tariffs. China has been suffering through a bear market with the Chinese yuen extremely weak against the U.S. dollar. Similarly, the Turkish lira and a weakening Argentinean peso are also very weak against the dollar.
Another worry, alongside the increase in the short-term rate, is the possibility of inversion of the yield curve. Ideally, the long-term rate is higher than the short-term rate. However, if the long-term rate doesn’t move higher when the short-term rate increases, then eventually, the difference will become so meager that the yield curve will flatten or even get inverted. The inversion of the yield curve is an important indicator of a looming recession.
Despite the bull market and a robust U.S. economy, trade wars and tariffs have remained big uncertainties. Ever since the trade threats began earlier this year, investors and companies could never be sure when another round of tariffs would be imposed and how companies and markets might be impacted.
Although President Donald Trump has been making efforts to amend trade disputes with the European Union, Mexico and others, threat still remain, especially with China. On Thursday, Mr. Trump said he would impose additional tariffs on $200 billion worth of Chinese imports. China has said it would possibly retaliate on another $60 billion of U.S. goods.
As of now, the trade war hasn’t affected the entire economy or markets. Instead, the specific industries that the tariffs are aimed at have been negatively impacted. However, if the U.S. and China continue their dispute, the impact of the trade war could spill over a wider range of industries.
Although the “new” NAFTA with Mexico and U.S. is well underway, with a possibility that Canada might join, there is still a risk for 25 percent tariffs on European autos threatened by Mr. Trump.
U.S. Sanctions On Iran Oil Exports
The price of oil has been high this year due to many geopolitical factors. The biggest one is the U.S. sanctions on oil exports from Iran, which is the fifth biggest oil producer in the world. Due to undersupply issues, the price of oil has been soaring. The White House has twice enforced the sanction this year, the most recent one being the U.S. prohibiting other nations from doing business with Iran. And some companies have already announced that they will stop dealing with Iran. This sanction will not only continue to affect the global supply and price of oil, but also intensify tensions between the U.S. and the five countries that remain in the Iran nuclear deal.
With so many major geopolitical and economic factors at play, traditionally rocky September might be even worse for stocks.
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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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Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
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