For Immediate Release
Chicago, IL – October 24, 2018 – Zacks Equity Research CF Industries Holdings, Inc. CF as the Bull of the Day, Cracker Barrel Old Country Store Inc. CBRL as the Bear of the Day. In addition, Zacks Equity Research provides analysis on McDonald’s MCD, Verizon VZ and United Technologies UTX.
Here is a synopsis of all five stocks:
Bull of the Day:
CF Industries Holdings, Inc. is riding the wave of tight supply and higher urea prices. This Zacks Rank #1 (Strong Buy) is expected to see explosive earnings growth this year and next.
CF Industries is one of the largest nitrogen fertilizer manufacturers and distributors in the world with a market cap of $11 billion.
Riding Rising Prices
Much like the energy companies, CF Industries fortunes depend on commodity prices, in this case, the cost of the fertilizers and natural gas.
For the last several years, prices have been depressed in the fertilizer industry which meant declining earnings for everyone. But companies have hung on and weathered the storm.
Now, prices are rising.
Urea has jumped to 2-year highs in the last 6 months. By October, Urea prices were up 30% year-over-year and were clearly breaking out.
The higher demand, lower supply dynamic is expected to persist into 2019 and possibly beyond which is setting up the fertilizer companies to be cash generating machines.
Big Beat in the Second Quarter
On Aug 1, CF Industries reported its second quarter results and blew by the Zacks Consensus Estimate by 21 cents. Earnings were $0.63 versus the consensus of just $0.42.
The company shipped a record 5.5 million product tons in the quarter.
The company saw lower North American gas costs and higher nitrogen prices which drove a 33% increase in adjusted EBITDA in the first half compared to 2017.
Net sales rose to $1.3 billion from $1.1 billion in the second quarter of 2017. Average selling prices for the second quarter were higher year-over-year in all segments
In the first six months the average selling prices compared to 2017 were the following:
Ammonia: $333 per ton v. $324 per ton
Urea: $258 v. $228
UAN: $178 v. $173
Demand is expected to remain strong globally heading into the back half of 2018.
CF Industries reports third quarter results on Oct 31, 2018 so there will be more information on the outlook for 2019.
Estimates Move Higher
Analysts have been raising estimates in the last month as the urea price continues to rise, trading over $275 per ton in recent weeks.
One estimate was revised higher in the last month for 2018 and one for 2019.
The 2018 Zacks Consensus Estimate has jumped to $1.43 from $1.00 over the past 3 months. That's an earnings increase of 672% as the company lost $0.25 a share in 2017.
For 2019, the Zacks Consensus Estimate has risen to $2.12 from $1.69 over the last 90 days. That's earnings growth of 48.7%.
Bear of the Day:
Cracker Barrel Old Country Store Inc. is struggling to get customers through the door. This Zacks Rank #5 (Strong Sell) saw declining restaurant traffic in its fiscal 2018 fourth quarter. Can it turn it around?
Cracker Barrel Old Country Store operates a dining and shopping experience through its 655 company-owned Cracker Barrel Old Country Store locations in 45 states and its fast-casual Holler and Dash restaurants.
Big Miss in the Fiscal Fourth Quarter
On Sep 18, the company reported its fiscal fourth quarter results and missed on the Zacks Consensus by 17.7%.
Earnings were $2.19 versus the Zacks Consensus of $2.66, for a 47 cent miss.
Comparable restaurant sales declined 0.4% as the store retail stales rose 1.3% compared to the year ago period. A 3.1% increase in average check was partially offset by a 3.5% decrease in restaurant traffic.
The company also saw average menu price increase 2.7%.
A slowdown in comparable sales in May extended throughout the quarter, which spooked Wall Street. It was especially concerned by the drop in traffic, which came at a time of a strong employment market and high consumer confidence.
The company attributed the traffic decline in part to its menu and marketing promotion not delivering.
Cracker Barrel supplied earnings guidance for fiscal 2019 which was below consensus. The result was that analysts had to cut.
The guidance called for $8.95 to $9.10, under the Zacks Consensus of $9.51. 2 estimates were cut since the report, pushing the Zacks Consensus down to $8.86, which is under the guidance range.
The company made $8.87 in fiscal 2018 so it's an earnings decline of 0.1%.
Shares Aren't On Sale
Cracker Barrel shares are holding up amidst the recent selling. They're actually up about 6% over the prior month and are down just 2% year-to-date.
They're not on sale, at the moment. They still trade with a forward P/E of 18.
Stocks Rally from Session Lows: 3 Earnings Reports to Thank
After witnessing sharp losses in morning trading, U.S. stocks rallied into the afternoon hours to finish nearly 2% higher than session lows. Initial selling seemed inspired by pressure carried over from foreign markets, but as the day went on, investors were willing to reward a handful of positive earnings reports with renewed bullishness.
In morning trading, U.S investors were worried about fresh selling in China, which defied a brief two-day rebound and reignited volatility in a market that has been punished throughout the year. The promise of new tax cuts and other economic stimuli initially looked to inspire a bottom for Chinese stocks, but now some are questioning if that low point has come just yet.
Uncertainty also lingers in Europe, where EU regulators today rejected Italy’s proposed 2019, sending the country’s new populist back to the drawing board. Italian officials have said increased spending is necessary to support its most impoverished citizens, but now the Southern European nation’s next move is unclear.
International headwinds were exacerbated before U.S. markets opened, with the latest earnings report from Caterpillarsparking yet another conversation about ongoing tariff battles. Caterpillar was able to surpass earnings and revenue estimates and maintain its full-year guidance, but management issued cautious words about the rise of material costs due to ongoing trade disputes, and that was enough to send the stock tumbling.
But throughout the day, sentiment shifted and began to focus more on the strong reports that were released before the bell Tuesday.
One such report was that of fast-food giant McDonald’s. The burger behemoth posted earnings of $2.10 per share and revenue of $5.37 billion, outpacing estimates on both ends. McDonald’s also reported its 13th consecutive quarter of positive same-store sales growth, thanks in part to a revamped Dollar Menu and larger average tickets.
McDonald’s and its franchise owners are spending plenty of cash to revitalize restaurants, and while we are still waiting to see broader uptrends from those efforts, the company has been buoyed by initial results of those initiatives in foreign markets.
Another strong report posted this morning came from Verizon.The telecom giant saw adjusted earnings of $1.22 per share in the most recent quarter. This beat our consensus estimate of $1.19 and compares favorably to the $0.98 seen in the year-ago period. Consolidated GAAP revenue was up 2.8% in the period, with wireless revenue notching growth of 6.5%.
Verizon witnessed healthy growth in its wireless equipment and services segments, and the company is well positioned to benefit from the deployment of 5G networks. For full-year 2018, Verizon reiterated its earlier guidance and continues to expect both GAAP revenues and adjusted earnings per share to increase by low single-digit percentage rates.
United Technologies also joined the fun this morning with its own Q3 report. The conglomerate notched adjusted earnings of $1.93 per share, surpassing the Zacks Consensus Estimate by 6.6%. The reported figure also improved from last year’s total of $1.73 per share. Revenues in the quarter were up 9.6% year over year.
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Verizon Communications Inc. (VZ) : Free Stock Analysis Report
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Cracker Barrel Old Country Store, Inc. (CBRL) : Free Stock Analysis Report
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