For Immediate Release
Chicago, IL – June 5, 2019 – Zacks Equity Research Shares of The Container Store TCS as the Bull of the Day, ArcBest Corp ARCB as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Alphabet Inc. GOOGL, Amazon.com Inc. AMZN and Facebook FB.
Here is a synopsis of all five stocks:
Bull of the Day:
The Container Storeis a Zacks Rank #2 (Buy) with a set of A's for the Zacks Style Score. As the aggrssive growth stock strategist here at Zacks Invesment Research, I prefer to see a divergence in growth and value. That will tell me that I am on the right track as a low value score and a high growth score means growth is favored in a particular name. In the case of TCS, there are A's for both, so let's take a deeper look in this Bull of the Day article.
The Container Store Group, Inc. engages in the retailing of storage and organization products and solutions in the United States. The company operates in two segments, The Container Store and Elfa. Its retail stores provide various lifestyle products, including closets, collections, and hooks, as well as bath, kitchen, laundry, gift packaging, long-term storage, office, shelving, storage, trash, travel and elfa branded products.
The company also designs, manufactures and sells component-based shelving and drawer systems that are customizable for any area of the home, such as closets, kitchens, offices, and garages, as well as made-to-measure sliding doors. As of March 31, 2018, it operated 90 stores. The company also offers its products directly to customers through its Website and call center, as well as sells to various retailers and distributors, and on a wholesale basis. The Container Store Group, Inc. was founded in 1978 and is headquartered in Coppell, Texas.
I see an OK earnings history with two beat and two misses over the last four quarters. In the end, the beats were not as big as the misses… but on the whole, the company is profitable.
The recent revision have been positive, with the FY 2020 now looking at $0.49 which is up from $0.44. The next year’s number is at $0.51, which is also up five cents over the last 30 days.
I really like the valuation here, with the 14x forward PE and 16x trailing number. The topline growth is just around double digits. The price to book multiple of 1.3x is very low, but so is the 0.4x price to sales multiple. I see margins are improving so the valuation is a good one.
Bear of the Day:
May was a tough month for stocks across the board. It was even worse to stocks that missed earnings in that month and that is just what happened to ArcBest Corp. Following the earnings miss, the stock has fallen to a Zacks Rank #5 (Strong Sell) and is now the Bear of the Day.
ArcBest Corporation provides freight transportation services and solutions. The company's Freight Transportation segment offers transportation of general commodities; motor carrier freight transportation services; business-to-business air transportation services; ocean transport services; global customizable supply chain solutions and integrated warehousing services.
Its Premium Logistics & Expedited Freight Services segment provides expedited freight transportation services to commercial and government customers; premium logistics services; and domestic and international freight transportation with air, ocean, and ground service. ArcBest Corporation, formerly known as Arkansas Best Corporation, is headquartered in Fort Smith, Arkansas.
Back on May 2, the company reported earnings that were below expectations. The total sales of $711.8M was still an increase of 1.7% on an annual basis, but still below the $724M consensus estimate.
It is important to note that while the muiss of 13 cents was a 43% negative earnings surprise, it was the first miss over the last four quarters.
Following the miss, the estimates for 2019 dropped. The Zacks Consensus Estimate moved from $3.69 to $3.38 over the last 60 days. Similarly, the Zacks Consensus Estimate for next year slipped from $3.84 to $3.57 over the same time horizon.
A couple of weeks ago I saw a research note come out suggested that there would not be a freight recession. That same note highlighted ARCB among others as a solid investment oppotunity as most of the names in the group were trading below historic multiples.
A call like that takes some guts as the broader market continues to worry about what a trade war might do to transportation names.
Antitrust Investigations Hit Silicon Valley – Again
Alphabet Inc. and Amazon.com Inc. stocks opened Monday down big, with Amazon down 3% and Google down over 6%. Both companies are facing speculation of an antitrust investigation. The U.S. Department of Justice is reportedly going after Google, while the Federal Trade Commission is trying to tackle Amazon and Facebook. Amazon closed the day down around 5% while Alphabet closed around -6.5%.
Meanwhile, Facebook is just now nearing the end of the Cambridge Analytica scandal and will be paying $3-5 billion for its privacy violations based on reports. Facebook opened Monday down 3% amid the concerns around other tech giants and closed the day down around 7% as the FTC will reportedly be including Facebook in their antitrust investigation.
Alphabet’s subsidiary Google is under pressure as the DOJ looks to open an investigation into "Google’s business practices related to its search and other businesses," as first reported by the Wall Street Journal. With Alphabet being the tech power that it is, it’s hard to know exactly what the DOJ is set to look into.
Many of the worries seem to be focused on Google’s collection of search data and control of the digital advertising market. Google’s search engine currently claims about 75% of the worldwide search engine market share for desktops and that number is even higher for mobile and tablet devices. Google also made up 38% of the digital advertising market in 2018, 17% more than its closest competitor, Facebook.
Google has faced many investigations in the past, paying out billions to the European Commission over the past few years. The FTC has also previously investigated Google, which ended with Google agreeing to pay a $22.5 million fine after denying any guilt.
The Federal Trade Commission has started the first steps of an investigation into Amazon. There is no clear sign of what the FTC will be specifically looking into, but Amazon’s control in the online retail sector has always been an area of concern for politicians. This, coupled with its growing influence in multiple markets, make it a prime target.
Amazon is also currently under investigation by the European Union who believe Amazon may be stifling competition due to its size. As seen with the previous Google investigation, the European Union is not afraid to fine these big tech companies in the name of consumer protection. The EU also tends to be significantly stricter than the US when it comes to regulation of these large companies.
Facebook was added to the investigation after initial reports were focused on just Amazon and Google. The investigation into Facebook will focus on whether or not it stifles competition and has acted in an unlawful and monopolistic nature. This comes on the back of an FTC investigation regarding privacy issues and Facebook’s user data collection.
These investigations come after the companies and tech giants as a whole have come under bipartisan pressure from government officials. President Trump, backed by other Republicans, has accused Google of having biased search results and has had something of a personal feud with Amazon CEO Jeff Bezos.
Meanwhile, Democrats have concentrated on whether or not these tech-giants cut off competition. Antitrust regulation has become a main focus of Democratic Sen. Elizabeth Warren’s 2020 presidential campaign and her thoughts have been echoed by Sen. Amy Klobuchar and Sen. Bernie Sanders. With this much support behind the investigations, it could prove troublesome for the companies.
This investigation is just in the very early days and although the government pressure is large, all these companies have large legal teams and resources at their disposal so it is nothing to be overly worried about at the moment, but should be watched as it continues to progress.
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