For Immediate Release
Chicago, IL – June 19, 2014– Zacks Equity Research highlights Delta Air Lines (DAL-Free Report) as the Bull of the Day and ViaSat (VSAT-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Tesla Motors, Inc. (TSLA-Free Report), Fox Factory Holding Corp (FOXF-Free Report), Gentherm Incorporated (THRM-Free Report) and Tower International, Inc. (TOWR-Free Report).
Here is a synopsis of all six stocks:
Bull of the Day:
Earnings estimates have been soaring for Delta Air Lines (DAL-Free Report). The company delivered better-than-expected Q1 results in April and has reported solid traffic numbers for both May and June.
The stock has pulled back a bit as oil prices have risen due to turmoil in Iraq. But the valuation picture looks reasonable with shares now trading at less than 12x forward earnings.
Delta Air Lines offers service to 333 destinations in 64 countries on six continents. It operates a mainline fleet of more than 700 aircraft and serves nearly 165 million customers each year. The company is headquartered in Atlanta.
First Quarter Results
Delta Airlines reported better-than-expected first quarter results on April 23. Adjusted EPS came in at 33 cents, beating the Zacks Consensus Estimate by 4 cents. This was in spite terrible weather in the quarter.
Operating revenue rose 5% year-over-year to $8.916 billion, ahead of the consensus of $8.895 billion. This was driven by a 9% increase in domestic passenger revenue and an 18% increase in Latin American revenue.
Meanwhile, total operating expenses were flat year-over-year as adjusted total fuel expense declined 6%.
Delta Air Lines also generated $390 million in free cash flow in the quarter. The solid cash flow allowed the company to increase its dividend by 50% and announce a new $2 billion share repurchase authorization in May.
Second Quarter Shaping Up Well
The positive momentum from Q1 appears to be continuing into Q2. Delta Air Lines has reported solid passenger unit revenue for both May and June, with increases of 6% and 7%, respectively. The company also expects Q2 adjusted fuel price per gallon of $2.93-$2.98. It was $3.03 in Q1.
Given the strong Q1 results and encouraging May and June statistics, analysts have revised their estimates significantly higher for Delta Air Lines. This has sent the stock to a Zacks Rank #1 (Strong Buy).
The Zacks Consensus Estimate for 2014 is now $3.11, up from $2.58 ninety days ago. The 2015 consensus has increased from $3.03 to $3.62 over the same period.
Delta Air Lines is not the only airline seeing positive earnings estimate revisions. In fact, the "Transportation - Airline" industry ranks in the top 11% of all industries by Zacks based on earnings momentum.
Shares of Delta Air Lines have soared more than 40% year-to-date, but the stock has pulled back a bit over the last week or so. This is most likely due to rising oil prices thanks to turmoil in Iraq.
But if oil prices don't skyrocket from here, the valuation picture looks reasonable for Delta Air Lines. The stock currently trades at less than 12x 12-month forward earnings and less than 3x book value.
The Bottom Line
With strong earnings momentum and reasonable valuation, Delta Air Lines has a lot of potential to fly even higher this year, provided that oil prices don't fly higher themselves.
Bear of the Day:
Analysts revised their earnings estimates considerably lower for ViaSat (VSAT-Free Report) following the company's earnings miss on May 20. This sent the stock to a Zacks Rank #5 (Strong Sell).
While shares have fallen significantly since late March, the stock still does not look like a bargain at more than 100x fiscal 2015 consensus estimates.
ViaSat provides high-speed fixed and mobile broadband services, advanced satellite and other wireless networks and secure networking systems, products and services. The company operates through three segments:
- Government Systems (42%), which develops and produces network-centric internet protocol (IP)-based fixed and mobile secure government communications systems. Revenues from the U.S. government as a customer comprised approximately 21% in FY2014.
- Satellite Services (29% of total revenue), which provides retail and wholesale satellite-based broadband services for consumer, enterprise and mobile broadband customers primarily in the United States. And
- Commercial Networks (29%), which develops and produces a variety of advanced end-to-end satellite and other wireless communication systems and ground networking equipment and products that address five key market segments: consumer, enterprise, in-flight, maritime and ground mobile applications.
Fourth Quarter Results
ViaSat reported results for the fourth quarter of its fiscal 2014 on May 20. Adjusted earnings per share (but including stock-based compensation) came in at a loss of 3 cents, well below the Zacks Consensus Estimate of 10 cents.
Revenue rose 11% to $343.9 million, missing the consensus of $350.0 million. It was the company's weakest top-line performance in two years. Revenue increased 35% in the Satellite Services segment but declined 3% in its largest segment - Government Systems.
The EBITDA margin did improve, however, from 10.7% to 14.0% of total revenues. This was driven in part by an improvement in its gross profit margin (revenue - cost of product and service revenue / revenue) from 24.7% to 27.1%.
Following the Q1 earnings miss, analysts revised their estimates significantly lower for both fiscal 2015 and 2016. This sent the stock to a Zacks Rank #5 (Strong Sell).
The 2015 Zacks Consensus Estimate is now $0.54, down from $1.09 before the Q4 report. The 2016 consensus is currently $1.29, down from $2.12 over the same period.
Shares of ViaSat are down more than 20% from their late March highs. But the stock doesn't look like much of a value here.
VSAT trades at 106x the current 2015 Zacks Consensus Estimate. That is well above its 10-year median of 23x. The stock also trades at a lofty 44x the 2016 consensus. Its EV/EBITDA ratio is more reasonable at 17x, but this is still above its 10-year median of 13x.
The Bottom Line
Given the significant negative estimate revisions from analysts and lofty valuation multiples, investors should consider avoiding ViaSat at least until its earnings momentum improves.
Tesla May be Allowed to Directly Sell in New Jersey
Tesla Motors, Inc. (TSLA-Free Report) may soon be permitted to directly sell its cars in New Jersey. The New Jersey Assembly unanimously voted in favor of a bill that allows direct selling by zero-emission vehicle manufacturers that were licensed by the State Motor Vehicle Commission before Jan 1, 2014, provided they run a service center in the state.
However, the bill still needs to be approved by the New Jersey Senate before it becomes a law. Zero-emission vehicles include electric and fuel cell cars.
In March, new regulations approved by the state Assembly banned the direct sale of vehicles by any automaker and necessitated the use of middlemen. Tesla, which was forced to close its two stores in the state, had filed an appeal against the regulation. If the new bill is approved, Tesla will not only be able to sell cars in the state, but might also increase the number of stores to four.
The automaker is facing opposition to its direct-selling model in numerous U.S. states. While many states have allowed the automaker to directly sell its vehicles, some have banned the direct sale of vehicles by any automaker. Apart from New Jersey, Texas and Arizona have also prohibited direct selling of vehicles. This restricts Tesla’s ability to sell cars, as it has to rely solely on online sale in such states.
Even in New York, the company is not allowed to open new stores, although the five existing stores have been permitted to sell cars. Tesla will have to use the dealership model for new stores in the state.
Tesla believes that direct sale reduces the price and encourages buyers to opt for electric vehicles. Use of a dealer network not only reduces the profit margin of Tesla but also affects its sale as car dealers may not spend the time required to inform consumers about the benefits of electric cars.
Tesla currently carries a Zacks Rank #4 (Sell). Some better-ranked automobile stocks worth considering include Fox Factory Holding Corp (FOXF-Free Report), Gentherm Incorporated (THRM-Free Report) and Tower International, Inc. (TOWR-Free Report). All these stocks sport a Zacks Rank #1 (Strong Buy).
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