For Immediate Release
Chicago, IL – March 27, 2019 – Zacks Equity Research Decker Brands DECK as the Bull of the Day, Halliburton Company HAL asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Netflix NFLX, Amazon AMZN and Apple AAPL.
Here is a synopsis of all five stocks:
Bull of the Day:
Decker Brands is hitting on all cylinders as shoes remain a hot fashion item. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by the double digits in fiscal 2019.
Deckers Brands designs, manufactures and distributes footwear, apparel and accessories. It's most prominent brand is UGG, but it also owns Koolaburra, HOKA ONE ONE, Teva and Sanuk.
It's products are sold around the world in department and specialty stores as well as company-owned and operated retail stores. Deckers also operates an online store at deckers.com.
Huge Beat in the Fiscal Third Quarter
On Jan 31, Deckers reported its fiscal third quarter 2019 results and blew by the Zacks Consensus by 24%. Earnings were $6.59 versus the consensus of $5.31.
It was the 8th consecutive earnings beat for the company.
Net sales jumped 7.8% to a record $873.8 million up from $810.5 million in the year ago quarter. Sales were propelled by its flagship brand, UGG, which rose 3.6% to $761 million in the quarter.
The business had momentum over the winter holidays.
HOKA ONE ONE also had a great quarter as sales rose 79.2% to $56.9 million from $31.8 million a year ago.
Teva continues to grow its market as sales jumped 17.5% to $22.9 million from $19.5 million in the prior year. Teva has apparently become a favorite of instagrammers and those in fashion per this recent article in the Daily Mail.
Deckers has to love publicity like this about one of its smaller brands.
Even the smallest brand, Sanuk, saw sales gains of 7% to $12.9 million.
Gross margin rose to 53.8% from 52.2% in the third quarter of the prior year.
Raised Full Year Guidance Again
After another strong quarter, and for the second quarter in a row, Deckers raised its fiscal 2019 full year guidance.
It gave a guidance range of $7.85 to $7.95 which is up from its prior guidance range of $6.65 to $6.85.
With such a big increase, it's not surprising that the analysts moved to raise their estimates and get within the guidance range now.
The fiscal 2019 Zacks Consensus Estimate jumped to $7.93 from $6.91 over the past 2 months as 4 estimates were revised higher.
That's earnings growth of 38.2% as the company only made $5.74 last year.
But what about fiscal 2020 that is starting in the middle of this calendar year?
Analysts are still bullish that the good times will continue. 4 estimates were revised higher for fiscal 2020 over the past 2 months as well, which pushed the Zacks Consensus up to $8.32 from $7.36 over the last 60 days.
That's another 5% earnings growth.
Shares Up Big Since 2017
If you bought into the company's turnaround plan, you would have bought in sometime in 2017.
Shares are up 140% over the last 2 years and 12% year-to-date.
Bear of the Day:
Halliburton Company is facing a turbulent 2019. This Zacks Rank #5 (Strong Sell) is seeing uncertainty in the energy market which is leading to earnings estimate cuts.
Halliburton is one of the world's largest energy service companies, with business in more than 80 countries. It's involved in drilling, well construction and completion and optimizing energy assets.
North America Weak in Q4
On Jan 22, Halliburton reported its fourth quarter results and beat the Zacks Consensus by 4 cents. Earnings were $0.41 versus the consensus of $0.37.
Revenue fell 4% to $5.9 billion, with it falling 11% sequentially in North America to $3.3 billion just as the international business picked up, rising 7% sequentially to $2.6 billion.
CEO Jeff Miller commented, "The trajectory of this cycle has been far from smooth."
Analysts Bearish About 2019
The analysts have cut estimates since the fourth quarter results.
Earnings for 2019 are now expected to be just $1.39, down from $2.00 just 90 days ago.
That's an earnings decline of 26.9% from 2018 where the company made $1.90.
Halliburton will report first quarter 2019 results on Apr 22.
Shares Try to Recover
The energy stocks got hammered in 2018 and Halliburton was no exception. Shares fell 39.7% over the last year but have recovered off their lows in 2019, gaining 7.1% year-to-date.
They're not cheap either, with a forward P/E of 20.3. However, shareholders do get a dividend currently yielding 2.5%.
Netflix Competition Steepens in Broader Streaming Space
Netflix is one of those stocks that you look at now and say to yourself if only I would have bought 2 years ago, “I knew this stock would do well” with that 20/20 hindsight all investors suffer from (NFLX vs. S&P 500 2 year performance below). Currently trading at $360, we now need to reevaluate our positions (or lack of) in NFLX and assess if this seemingly exponential growth is going to continue. This behemoth in the subscription streaming services space is going to be facing some fierce competition for market share. Amazon Prime Video has really upped its game in original content, Hulu has been able to gain exclusive content that makes it a must-have for some, and Apple just announced yesterday that it’s releasing its own subscription streaming service.
Netflix has just announced it will be raising the prices of its subscriptions 13%-18%. This increases makes the premium HD subscription a $192 a year expense. A survey done by The Diffusion Group asked current subscribers about how they would react to a $1, $3 and $5 increase in subscription price. From just a $1 increase in price, the survey showed that 16% of customers would either downgrade or cancel. A $3 increase would cause 38% of subscribers to downgrade or cancel, and a $5 increase would cause even more devastation to Netflix. These stats should only be taken with a grain of salt because what subscribers say and what they do are two different things. But none the less this consumer sentiment is very interesting considering that Amazon Prime costs consumers only $120 annually and consists of a lot more than just video streaming. I’m not saying that Amazon Prime Video holds a candle to the content on Netflix but consumers want value and for the value, Amazon Prime offers more.
Netflix has recently relied heavily on original content to bring in customers, and it has worked. This original content is critically recognized, with 14 Oscar nominations winning in 4 categories just this year. This original content is burning up a ton of free-cash-flow though. The question we need to ask is when credit market aren’t as flexible and cash isn’t as readily available will this strategy still be successful?
Netflix is stockpiling as much original content as possible right now when the credit markets are good. It seems that they have a new series and/or movie ever week and viewers don’t have close to enough time to watch all the trendiest content. When credit markets begin to deteriorate Netflix will still have all the original content that subscribers hadn’t got to yet. Netflix knows that the return on investment is substantially higher on original content. Being able to push out as much quality content as possible when cash is easy to come by is a very profitable strategy in the long run.
Netflix is currently trading at 80 times earnings which means there is a considerable amount of growth priced into this stock. Amazon is only trading at 60 times earnings and Apple trading at only 16 times earnings. Is the growth priced into NFLX attainable in the near term? The answer is probably not. It will take years for this valuation to come to fruition. Top and bottom line growth have been relatively stable. The real story comes from the number of added subscribers which has been substantial over the past 3 years from 78 million in the beginning of 2016 to about 140 million by the end of 2018 (according to NFLX investor relations).
This consistently sizeable growth in Netflix’s subscriber base is what’s really driving the expensive valuation combined with their high margin original content. I still believe that the valuation is a little too high to be confident in the trade, but would look to buy this stock sub $300 if the opportunity arises - NFLX current Zacks Rank #3 (Hold).
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Netflix, Inc. (NFLX) : Free Stock Analysis Report
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