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Crocs, Trinity, Netflix, HBO and Goldman Sachs highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research
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For Immediate Release

Chicago, IL – December 20, 2018 – Zacks Equity Research Crocs, Inc. CROX as the Bull of the Day, Trinity Industries, Inc. TRN asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Netflix NFLX, HBO T and Goldman Sachs GS.

Here is a synopsis of all five stocks:

Bull of the Day:

Crocs, Inc.has turned around its earnings picture in 2018. This Zacks Rank #1 (Strong Buy) is expected to see another bullish year next year, with analysts projecting triple digit earnings growth.

Crocs makes footwear for women, men and children. Their signature is the Croslite material, a proprietary, molded footwear technology that is included in every pair of Crocs' shoes.

Another Beat in the Third Quarter

On Nov 8, Crocs reported its third quarter results and beat the Zacks Consensus Estimate for the third quarter in a row. Earnings were $0.07 versus the consensus of a loss of $0.02.

Revenue rose 7.3%, or 9.3% on a constant currency basis, to $261.1 million despite operating fewer stores and other business model changes which wiped away $15 million in sales.

E-commerce was up 23.2%, wholesale grew 9.3% and retail comparable store sales jumped 15%.

Gross margin also rose by 250 basis points year-over-year to 53.3%.

Thanks to expense discipline and higher margins, cash and cash equivalents rose 13.9% to $203 million from $178.2 million as of Sep 30, 2017.

The company has also tackled its inventory issues, as inventory declined 16.1% to $117.7 million from $140.3 million at the end of the third quarter of 2017.

Estimates Move Higher for 2019

The analysts liked what they heard about the quarter and the forward guidance.

2 estimates were raised in the last 60 days for 2018 pushing the Zacks Consensus Estimate up to $0.45 from $0.25.

That's earnings growth of 2,350% as the company lost $0.02 per share in 2017.

What an amazing turnaround.

It's expected to continue in 2019 as the company continues with its strategy to reduce store count but grow revenue from e-commerce and wholesale growth.

It forecasts its 2019 revenue to rise mid-single digits over 2018.

The analysts have raised 2019 estimates as a result with 3 revising their estimates higher over the last month. That has pushed the Zacks Consensus Estimate up to $1.05 from $0.81 during that time.

That's another earnings gain of 135.2%.

Bear of the Day:

Trinity Industries, Inc.recently spun off its infrastructure business. This Zacks Rank #5 (Strong Sell) is navigating life as a stand alone railcar company heading into 2019.

Trinity Industries operates in the rail transportation business. It manufactures railcars, operates maintenance and modification businesses and also has a railcar leasing and management business.

It also has maintained ownership of its highway products and logistics businesses.

It Spun Off Its Infrastructure Business in 2018

On Nov 1, 2018, Trinity completed its spin-off of Arcosa, the company's infrastructure business which includes barges, storage tanks, wind towers, construction site support and road materials.

Trinity shareholders got stock in Arcosa.

Accelerated Share Buyback Impacts Earnings

On Nov 16, the company announced it would accelerate its repurchase program with a $350 million purchase bringing the total repurchase to $500 million.

On the same day, Trinity also updated its full year 2019 earnings per share guidance to a range of $1.15 to $1.35 from prior guidance of $0.90 to $1.10.

The ASR is expected to benefit 2019 earnings per share by $0.13, based on the closing stock price as of Nov 15, 2018.

Additionally, it also received new railcar orders which changed the company's guidance calculation as well.

As of the third quarter earnings and guidance update on Oct 24, 2018, Trinity had received orders for 7,725 railcars in the third quarter, up from 3,045 railcar orders in the third quarter of 2017.

The backlog had risen during the third quarter to 28,315 railcars, representing $3.2 billion from 24,580 railcars with a $2.7 billion valuation as of the end of the second quarter.

CFO to Leave

On Dec 17, Trinity announced its CFO would leave the company as of December 31, 2018. He had joined Trinity in 2016.

The company announced Melendy Lovett, the current SVP and Chief Administrative Officer, with oversight of the railcar leasing business, would become CFO.

Estimates Adjusted

The analysts have adjusted for the spin-off and the updated guidance.

The 2019 Zacks Consensus Estimate is looking for $1.33, which is at the high end of the company's guidance range.

While the Zacks Rank is a Strong Sell, the estimates were cut due to the spin-off. In this case, investors should be cautious on the Rank.

Future earnings reports as a stand alone company are now key and will give a better indicator of the earnings picture.

Time to Buy Netflix (NFLX) on the Dip?

 

Shares of Netflix have plummeted 34% in the last six months. Now, the question for investors is should they consider buying NFLX stock heading into 2019 with the streaming power set to compete against strong competition ?

Company Overview

Netflix helped create and revolutionize the on-demand streaming video model that has sent the traditional TV market into a nosedive and forced giants like Disney to recalibrate. Netflix has also grown from aggregator into an original content juggernaut in roughly five years. In fact, the firm ended HBO’s 17-year run on the top of the Emmy nomination list this year.

The Los Gatos, California-headquartered firm’s ability to create much-watch TV and movie content will become vital as the streaming space becomes more crowded. Plus, Amazon, Disney, and Apple all have much more money to pour into content.

Netflix has committed to roll out everything from international and indie-style offerings to big-budget projects featuring A-list Hollywood stars. With that said, Netflix is poised to spend $13.4 billion on TV shows and movies in 2018, according to Goldman Sachs.

The streaming firm’s stock took a big hit when it fell well short of its own Q2 subscriber growth estimates. But Netflix bounced back in Q3 when it ended the quarter with a total of 137.1 million subscribers worldwide. This topped Netflix’s 135.14 million estimate and marked a roughly 25% jump from the third-quarter of 2017.

Price

Moving on, Netflix stock popped 2.70% to touch $278.25 per share through mid-morning trading Wednesday. Despite this jump, NFLX stock sits roughly 34% below its 52-week high of $423.21 per share. With that said, we can see that Netflix stock is still up huge over the last five years.

Outlook

Looking ahead, Netflix’s fourth-quarter revenues are projected to jump 28% to reach $4.21 billion, based on our current Zacks Consensus Estimate. Meanwhile, the company’s fiscal 2018 revenues are expected to reach $15.81 billion, which would mark a 35.2% jump from 2017. Jumping even further ahead, Netflix’s fiscal 2019 revenues are projected to climb 25.7% above our current 2018 estimate.

At the bottom end of the income statement, the company’s adjusted Q4 earnings are projected to sink 39% from the year-ago period to touch $0.25 a share. Despite this projected year over year decline, the firm’s adjusted full-year earnings are projected to skyrocket over 110%. Plus, the company’s fiscal 2019 EPS figure is expected to come in 55% higher than our current-year estimate.

Clearly, Netflix looks poised to continue to become a more profitable company, which should be good news for investors since earnings growth is one of the best indicators of positive stock price moment over the long haul.

Bottom Line

Netflix expects to add a total 9.4 million subscribers in Q4 that would help bring its total to 146.5 million worldwide. However, the streaming company said in October that it is set to issue $2 billion in new debt. This will see Netflix reach roughly $10 billion in long-term debt, which might scare investors as it is forced to spend billions to compete against foes with much larger pocketbooks.

With that said, we are headed to what looks almost certain to be an entertainment future dominated entirely by streaming, and Netflix currently boasts pole position in the race. Plus, NFLX is currently trading right near its year-long low at 67.1X 12-month Zacks Consensus EPS estimates. This comes in well above the S&P 500’s 15.3X, but marks a massive discount compared to its 12-month high of 162X and its 94X median.

In the end, Netflix stock rests 34% below its 52-week high and its valuation picture has improved. Coupled with its impressive top and bottom-line growth projections, NFLX stock looks like it might be worth buying in anticipation of a possible 2019 comeback.

But with Amazon, Disney, Apple, and others to compete against, Netflix is in for a major streaming battle for years to come. And let’s not forget that unlike Disney and Amazon, Netflix doesn’t have any plans to entice subscribers with other offerings such as live sports.

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Trinity Industries, Inc. (TRN) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
AT&T Inc. (T) : Free Stock Analysis Report
 
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
 
Crocs, Inc. (CROX) : Free Stock Analysis Report
 
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