For Immediate Release
Chicago, IL – Dec 4, 2017 – Zacks Equity Research highlights Deere & Company DE as the Bull of the Day and CenturyLink, Inc. CTL as the Bear of the Day. In addition, Zacks Equity Research provides analysis on the Mosaic Company MOS, Sociedad Quimica y Minera de Chile S.A. SQM and Intrepid Potash, Inc. IPI.
Here is a synopsis of all five stocks:
Bull of the Day:
Last week’s tech selloff underscored the fact that some investors are starting to focus on other areas after the sector’s years-long rally. Luckily, there is plenty of strength in other core areas of the economy, including agriculture and industrials, and investors searching for a great pick in these segments should look no further than Deere & Company.
Through its John Deere brand, Deere & Company is a leading manufacturer of agricultural, construction, and forestry machinery. The company was founded in 1837 and is one of the most historic American corporations around, but management’s commitment to investment and innovation has kept it on the cutting edge through the years.
Deere & Company has outperformed its industry peers over the past year, and another strong quarter has sent the stock soaring to a new 52-week high. Positive estimate revisions have been pouring in, and DE is currently sporting a Zacks Rank #1 (Strong Buy).
Latest Earnings Report
Deere reported its fourth-quarter fiscal 2017 results on Nov. 22. The company posted earnings of $1.57 per share, beating the Zacks Consensus Estimate of $1.46 and surging about 74% year-over-year. Total equipment revenues of $7.09 billion were up 26% from the year-ago period and ahead of our consensus estimate of $6.91 billion.
Including financial services, total net sales came in at $8.02 billion, which marked year-over-year growth of 23%. Geographically speaking, Deere witnessed sales growth of 23% in the United States and Canada, while sales in the rest of the world climbed 30%. Looking ahead, this international growth should continue to be aided by a recovery in the dairy and livestock markets throughout Europe.
Segment wise, revenues in the Agriculture & Turf unit were up 22% to $5.44 billion. Operating profit at this segment climbed 57% year-over-year to reach $584 million. Construction & Forestry sales were up about 37% to $1.66 billion. This unit contributed about $85 million to Deere’s total operating profit, an improvement from the $17 million loss reported in the year-ago period.
Perhaps most impressively, Deere reported cash and cash equivalents of $9.33 billion at the end of fiscal 2017, up about 115% from the $4.34 billion held at the end of fiscal 2016. The company will spend about $5 billion in cash to acquire Wirten Group in a deal that is expected to close this month.
Wirtgen is expected to add about 12% to Deere's sales for fiscal 2018 and about 6% for the fiscal first quarter. After accounting for acquisition costs, Wirtgen is expected to contribute about $75 million in operating profit and $25 million in net income in fiscal 2018.
Bear of the Day:
As new competition and changing consumer trends continue to mess with the status quo, the telecommunications industry has been forced to adapt. Investment and consolidation are high, and shifting business models are aplenty. Unfortunately, some legacy names—such as CenturyLink, Inc. — have struggled to compete.
CenturyLink operates as a local phone carrier and internet service provider throughout the United States. The company’s services are currently available in 22 states. In November, CenturyLink completed its merger with Level 3 Communications, underscoring its attempt to focus on business customers.
CenturyLink has attempted to shift with the times, but its success has been limited. Management has now missed earnings estimates in four consecutive quarters, and the stock is down about 40% on the year. CenturyLink is currently sporting a Zacks Rank #5 (Strong Sell).
Latest Earnings Report
CenturyLink reported its third-quarter fiscal 2017 results on Nov. 8. The company posted adjusted earnings of $0.42 per share, missing the Zacks Consensus Estimate of $0.45. Net income for the quarter was $92 million, down from the $152 posted in the year-ago period. Total revenues of $4.034 billion were down about 8% year-over-year and below our consensus estimate of $4.061 billion.
CenturyLink faced challenges in all of its revenue streams. Strategic revenues were down about 7%, while Legacy revenues slipped 10%. Its Other Services revenues were flat on the year, while Data Integration revenues plummeted 18%—making this the company’s worst performing unit.
Unfortunately, the company’s financial positioned has simply worsened. Operating margin in the quarter was 12.1%, down from 13.5% in the prior-year quarter. Adjusted free cash flow in the quarter was $109 million, down from $186 million last year. The company now has just $160 million in cash and cash equivalents, and its debt pile has grown to nearly $25 billion.
Total access lines at the end of the quarter were down 6.5%, while high-speed broadband customer count slipped about 3.1% year-over-year.
What’s worse, Enterprise segment revenues were down 11.2% in the quarter. CenturyLink intends for the Level 3 acquisition to help it establish dominance in the enterprise telecom field, but it is already starting from a weak position on that end.
Fertilizer Industry Gains Stability: 3 Stocks to Buy
The fertilizer industry is showing signs of stability of late, taking succor from improved pricing and demand dynamics for certain major crop nutrients and a firming farm economy.
While still-weak agricultural commodity prices remain a roadblock, strong usage in major consumer markets is driving demand for primary crop nutrients. Needless to say, the ever-growing world population and the concomitant need to beef up food supply to feed more mouths remains a prime catalyst for fertilizer demand growth.
The Zacks Fertilizers industry has outperformed the broader market over the past three months. While the industry has gained roughly 12.1%, the S&P 500 has returned around 6.3%.
Let’s do a quick health check of the fertilizer industry by delving deeper into certain key factors.
Potash Market Showing Strength
The potash market has stabilized this year from the 2016 lows. Potash prices have recovered this year after feeling gravity’s pull in 2016, supported by improving demand and tighter supply conditions. Most producers of this major nutrient, including Potash Corp. of Saskatchewan and Agrium witnessed a spike in prices in the third quarter that drove their potash margins.
Demand for potash also has been strong in key markets. Potash Corp., a major producer of the nutrient, saw healthy demand for potash in the third quarter and expects consistent customer engagement through the balance of 2017, supported by healthy consumption trends with contracts with both China and India in place. The company envisions 2017 to be a record year for potash demand and expects global demand in the band of 62 million to 65 million tons.
Potash Corp. sees strong consumption in China driven by a shift to more potassium-intensive crops like vegetables and fruits. The demand environment also remains healthy in Brazil, another important market, driven by higher crop acreage and application rates. Strong affordability and the need to replenish nutrients are also expected to support fertilizer demand in North America.
Moreover, the government of India’s move to cut the Goods and Services Tax (GST) rate on fertilizers from 12% to 5% is a welcome news for famers in that country. It also augurs well for potash demand in India, one of the world’s top buyers of the nutrient.
According to Agrium, potash market is expected to remain tight through the rest of 2017. As such, higher demand from major consumers coupled with tight supply should further drive up potash prices.
A Rebound in Nitrogen
Another positive is the recent rebound in the nitrogen space. The nitrogen market is seeing improving demand and pricing fundamentals. According to CF Industries, a major producer, the third quarter witnessed a rapid increase in the global price of urea from second quarter, which was driven by considerably lower Chinese exports and strong global demand (especially in India and Brazil). The company expects consistent global nitrogen demand growth moving ahead.
Moreover, Agrium, in its third-quarter call, said that nitrogen prices have witnessed sharp increase (of more than 50%) since the lows seen in July, buoyed by low level of Chinese urea production and solid import demand from India. Higher domestic coal prices coupled with increased focus on reducing pollution has led to a reduction in Chinese urea production.
Agrium also sees positive supply-demand fundamentals for nitrogen in the medium term. Continued strong demand and tighter market conditions augur well for nitrogen prices in the fourth quarter.
Phosphate Market a Mixed Bag
Excess capacity continues to hurt prices of phosphate as witnessed in the first three quarters of 2017. Phosphate markets are expected to remain oversupplied through this year (with new capacity reportedly coming from Morocco and Saudi Arabia), thereby putting pressure on prices.
However, demand environment for the nutrient remains favorable. The Mosaic Company, one of the biggest producers of phosphate, noted in its September quarter earnings call that demand remains strong as farmers are looking to replace nutrients from the soil in most of the major regions globally. The company also envisions demand growth to absorb new supply additions.
A Stabilizing Farm Economy
U.S. farm income is expected to tick up this year after three straight years of decline due to low commodity prices. Per the U.S. Department of Agriculture’s (USDA) recently released November 2017 forecast, net U.S. farm income is expected to go up 2.7% to $63.2 billion in 2017.
The upturn in profits is likely be driven by higher cash receipts from the sale of crop inventories. The USDA expects cash receipts to go up 2.4% to $365.1 billion in 2017.
While the USDA’s profit forecast for this year is still a far cry from the record $123.8 billion achieved in 2013, it gives signs of stability in the farm economy and suggests that the sector may have finally hit the bottom. Higher anticipated farm income is expected to positively influence farmers’ nutrient-purchasing decisions.
Crop Pricing Remains a Concern
The prevailing softness in agricultural commodity pricing remains a concern for fertilizer and agricultural chemicals companies. Prices of major crops (such as corn and soybeans) remain at their multi-year lows as markets remain awash with grains. An expected bumper corn and soybean harvest is likely to put a cap on crop prices in 2017.
The USDA’s harvest outlook indicates another bumper year of production. The USDA, in its November report, raised its corn harvest forecast for the 2017/18 crop year. It now sees corn production to be 14.578 billion bushels, up 298 million from its October forecast, on record yield. The USDA also predicts record soybean production of 4.425 billion bushels. This is expected to aggravate the grain glut and restrict crop prices.
3 Fertilizer Stocks to Bear Fruit
Despite a few lingering headwinds, the overall fundamentals for the fertilizer industry are improving on the back of improved demand scenario for nutrients and an upswing in the farm economy. Moreover, the constant need of farmers to nourish their crops, replenish nutrients in the soil following a harvest and boost yields to feed a growing world support the bullish case for fertilizers.
Below we highlight three fertilizer stocks, armed with a solid Zacks Rank, that are worth considering for investment in the prevailing operating environment.
The Mosaic Company
Headquartered in Plymouth, MN, Mosaic is a solid choice armed with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The company has an expected earnings growth of 14.4% for 2017. It also has a long-term expected earnings per share growth rate of 9.5%.
The Zacks Consensus Estimate for 2017 and 2018 for the company’s earnings has also increased by around 27.8% and 11.1%, respectively, over the past month. Mosaic also delivered positive earnings surprise of 72% in the last reported quarter.
Sociedad Quimica y Minera de Chile S.A.
Santiago, Chile-based Sociedad Quimica is another attractive pick with a Zacks Rank #2 (Buy). The company has an expected earnings growth of 56.9% for 2017. It also has a long-term expected earnings per share growth rate of 32.5%. The stock has also gained 89.6% year to date, significantly outperforming the Zacks Fertilizers industry’s gain of 11% over the same period.
Annual estimates for Sociedad Quimica have also moved north over the past 30 days, reflecting analysts’ confidence in the stock. Over this period, the Zacks Consensus Estimate for 2017 and 2018 for the company’s earnings has increased by around 3.1% and 6.5%, respectively.
Intrepid Potash, Inc.
Our next pick in the space is Denver, CO-based Intrepid Potash, carrying a Zacks Rank #2. The company has an expected earnings growth of 78.7% for 2017. It also delivered positive earnings surprise of 50% in the last reported quarter. Moreover, the stock has gained a solid 83.6% year to date, significantly outperforming the Zacks Fertilizers industry’s gain of 11%.
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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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