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Broadcom, DineEquity, Amazon, Nvidia and Apple as Zacks Bull and Bear of the Day

Zacks Equity Research
Honeywell's (HON) impressive performance in each of the four segments drives first-quarter 2018 results.

For Immediate Release

Chicago, IL – December 14, 2017 – Zacks Equity Research highlights Broadcom Limited AVGO as the Bull of the Day and DineEquity DIN as the Bear of the Day. In addition, Zacks Equity Research provides analysis onAmazon AMZN, Nvidia NVDA and Apple AAPL.

Here is a synopsis of all five stocks:

Bull of the Day:

The recent dominance of the tech sector—and more specifically, the semiconductor industry—cannot be understated. As we head into 2018, investors will want to be focusing on the strongest tech stocks possible. Luckily, semiconductor giant Broadcom Limited has emerged as a strong candidate for a New Year surge.

Broadcom Limited is one of the largest semiconductor manufacturing firms in the world. The company is co-headquartered in San Jose and Singapore and was formed through the merger of Avago and Broadcom Corporation last year. The chipmaker specializes in wired infrastructure, wireless communications, enterprise storage, and industrial solutions.

After reporting another impressive quarter, Broadcom has witnessed several positive earnings estimate revisions and is now sporting a Zacks Rank #1 (Strong Buy).

Latest Earnings Report

Broadcom reported its fourth-quarter fiscal 2017 results on December 6. The company posted earnings of $4.59 per share, beating the Zacks Consensus Estimate of nine cents and improving 32.2% year-over-year. Non-GAAP revenues from continuing operations of $4.85 billion were also above our consensus estimate and 16.9% higher than the year-ago quarter.

Revenues from the company’s Wired Infrastructure unit, which accounts for 44.3% of total revenues, improved about 3.5% year-over-year. Sales in the company’s Wireless Communications unit (37% of total revenues) gained 33.4%, while revenues in the Enterprise Storage segment (13% of total revenues) increased 15%.

The company was also able to improve efficiency. Gross margin expanded 250 basis points from the year-ago period, while operating expenses declined roughly 3.5%. Broadcom also approved a quarterly dividend of $1.75 per share, which was up 72% year-over-year.

Based on these strong results, management improved its long-term target operating model. The company is still looking for annual revenue growth of 5%, but non-GAAP gross margin is now expected at 65%, up from the previously-announced outlook of 60%.

Earnings Estimates and Key Stats

Earnings estimates are moving higher in the wake of Broadcom’s strong report. In fact, the Zacks Consensus Estimate for the company’s current quarter has gained 20 cents over the past week, while our consensus estimate for its full-year earnings as improved by 43 cents in that time.

Looking further ahead, the Zacks Consensus Estimate for Broadcom’s next fiscal year has gained a staggering 59 cents over the past seven days.

Broadcom currently has an “A” in the Growth category of our Style Scores system. We expect to see the company report earnings growth of 19% and sales growth of 17% in the current fiscal year. The firm is also growing its cash flow at a rate of 57%, so it is clearly improving its financial position.

The stock is also displaying impressive valuation metrics, including a P/E ratio of 13.59, which is significantly lower than the “Semiconductor” industry’s average of 20.42. AVGO also has a PEG ratio of just 0.99, so investors are getting a solid price for the firm’s earnings growth right now.

It is obvious that Broadcom’s latest quarterly performance, as well as its short-term outlook and overall fundamental stability, makes it stick out right now.

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

Bear of the Day:

The perils of the budget retail restaurant industry have been well-documented. Some brands have been able to adapt, but shifting consumer habits and rising food and labor costs have hurt nation-wide casual chains. Unfortunately, DineEquity has emerged as one of the weakest of the bunch right now.

DineEquity franchises IHOP and Applebee’s restaurants. The company as it stands today was formed after a merger in 2007. DineEquity operates through a 100% franchised structure and currently has about 3,700 restaurants in 19 countries.

The company was able to exceed earnings expectations in its most recent quarter, but its post-earnings run has been overextended, and its current share price does not align with analyst sentiment. DIN is currently a Zacks Rank #5 (Strong Sell) and looks like one to avoid as we approach the New Year.

Latest Earnings Results

DineEquity reported its third-quarter fiscal 2017 earnings on November 9. The company posted earnings of 91 cents per share, which beat the Zacks Consensus Estimate of 88 cents but fell 37.8% year-over-year. Revenues of $144.7 million were below our consensus estimate and down 7.3% from the year-ago period.

IHOP’s domestic comps fell 3.2%, adding to the prior-year quarter’s decline of 0.1%. Comps at domestic Applebee’s restaurants were down 7.7%, which compares unfavorably to a slump of 5.2% in the prior-year quarter.

Despite weak comps across the board, DineEquity management believes that the IHOP brand remains solid. However, Applebee’s is struggling to compete with fast-food and fast-casual competition, as well as a shift to at-home cooking and eating.

Earnings Estimates and Key Stats

DineEquity’s sluggish results have ushered in several negative earnings estimate revisions. The Zacks Consensus Estimate for its current quarter earnings has slipped by 30 cents over the past 60 days, while our consensus estimate for its upcoming fiscal year has lost 67 cents over that same time period.

The company also has some balance sheet concerns. Its Debt/Capital ratio is at about 85%, which is significantly higher than the “Retail – Restaurants” industry average of 36%. What’s worse, its cash flow is retreating at a rate of 6.34%, and its Sales/Assets ratio sits at a measly 0.29.

DineEquity shares have been moving higher recently, and it looks like the stock is benefitting from some end-of-year portfolio rebalancing. Companies in its industry also stand to benefit from the GOP tax plan, as restaurants typically pay higher effective tax rates.

However, the fundamental picture for DIN appears wobbly at best. Analysts know about the tax cut too, and yet estimates have been moving significantly lower.

Additional content:

3 Reasons Apple Will Reach $1 Trillion in 2018

Some of the world’s most recognizable tech companies — including Amazon and Nvidia — have dominated Wall Street throughout 2017. But as we approach the New Year, investors are focused on the biggest tech behemoth of them all, Apple, as the iPhone maker nears the $1 trillion market cap milestone.

Shares of Apple have gained more than 48% year-to-date, giving the Cupertino, California-based company a valuation of about $881 billion ahead of the market’s open on Wednesday. This exceptionally bullish year means that Apple is less than another 14% surge away from becoming the first $1 trillion company in the world.

At the stock’s current pace, Apple will reach this milestone in no time. However, a new year brings new challenges, and we have already seen some hints that the tech rally will slow in 2018.

Profit taking throughout the sector, as well as political uncertainty—both at home and abroad, especially as tensions with North Korea continue to rise—could threaten the bull run of what is still considered to be a volatile segment of the stock market.

But Apple is hardly a trendy, high-growth tech stock. The company has become a widely-held stalwart of portfolios of all sizes, and its dominance of the consumer electronics market protects investors from some of the risks inherent to the tech sector.

With that said, let’s take a look at three catalysts that should lift Apple to the $1 trillion mark in 2018:

1.       iPhone X Sales

In its fiscal fourth quarter, Apple reported iPhone sales of 46.677 million, beating our consensus estimate of 46.423 million. However, those results only included some of the initial sales of the iPhone 8 and 8 Plus and none of the sales of the highly-anticipated iPhone X.

Apple has not yet announced the report date for its first quarter results, but we expect that it will be sometime in late January. Of course, a strong iPhone sales cycle is priced into Apple's stock right now. Nevertheless, another sales surprise could inspire some post-earnings momentum, so investors might see Apple at $1 trillion as early as February.

2.       Tax Plan

Another thing that has inspired some of Apple’s bullish run this year has been the looming Republican tax reform plan. While some details still need to be ironed out, the final bill will almost certainly include some sort of repatriation clause, which is great news for Apple and its massive overseas cash pile.

If the government cuts Apple a deal to bring some of that cash back home, it could inspire growth-oriented investments and further expansion. And the tax bill is also supposed to inspire more consumer spending, so Apple could see a boost to its top line throughout 2018 if the reform works as intended.

3.       Apple Music and Original Content

In its most recent quarter, Apple said that its Services unit —which includes iTunes, Apple Music, Apple Pay, and Apple Care, among other things—witnessed record-high revenues of $8.5 billion, a 34.4% climb from the year-ago quarter.

Apple Music should continue to grow in 2018, and the company’s investments in this segment should start paying off soon. We know that Apple gave its top Apple Music executives about $1 billion to spend on content, including both music and new video initiatives. Investors already love Apple’s current revenue streams, so if the firm finds another money generator in its original content department, Wall Street will likely reward it.

Interestingly, Apple is not the only massive company that has invested in original content. To hear more about how media could be one piece that helps Amazon surge to the $1 trillion threshold, listen to the latest episode of our exclusive Shopping for Stocks podcast.

Want more stock 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.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

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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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
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Broadcom Limited (AVGO) : Free Stock Analysis Report
 
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