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Delta, Potbelly, Intel, Samsung and Advanced Micro highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research

For Immediate Release

Chicago, IL – July 23, 2019 – Zacks Equity Research Delta Air Lines DAL as the Bull of the Day, Potbelly PBPB asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Intel Corporation INTC, Samsung Electronics SSNLF and Advanced Micro Devices AMD.

Here is a synopsis of all five stocks:

Bull of the Day:

Delta Air Lines, the largest airline in the US by market cap and sales, has taken off over the 6 months with the stock surging over 30%, far outperforming the airline sector which has only seen 9% growth. DAL has beaten earnings estimates for the last 8 quarters in a row with its most recent report earlier this month illustrating not only Delta’s strongest sales but the most profitable quarter since the firm’s inception. Sell-side analysts have been increasingly bullish on DAL, raising their EPS estimates since the robust Q2 financial report earlier this month, pushing this stock into a Zacks Rank #1 (Strong Buy).

Delta Air Lines serves almost 200 million people in over 50 countries with more than 300 destinations that flyers can choose from.

The outlook for DAL is healthy, as the firm generates stronger year-over-year revenue per seat mile (RASM) for the past 9 quarters, propelling its revenues and profits to all-time highs. Q2 net income grew roughly 40% from the same quarter last year, and 2019’s total EPS is expected to appreciate over 24% compared to 2018.

The Boeing 737 MAX grounding was one the best things that could have happened to Delta this year with not a single Boeing MAX in their fleet. The capacity of the entire airline industry was reduced with Delta’s capacity being unchanged. The decreased airplane supply has driven up RASM with bullish expectations moving forward.

Delta hit its highest domestic load factor on record in Q2 with 89% of their total capacity being utilized. The MAX grounding played a role in this, allowing Delta to not only drive higher volume but do so at a larger marginal revenue. This capacity advantage is expected to improve Delta’s financials for the remainder of the year and should spill over to 2020.

Delta has been further investing in their premium products segment, which includes Delta Premium Select and Delta Comfort+, reflecting growth of 10% and 7% capacity expansion for this segment. The multi-year investment is expected to be a driving factor in Delta’s topline moving forward.

Valuation

DAL is trading at $61.54, right off of its all-time high of $63.27. The stock is being valued at an 8.44x forward P/E, right in the middle of its 5.20x - 11.7x 5-year range. DAL is currently valued below the airline sector’s average forward P/E of 9.1x. I believe that this is a reasonable valuation considering the growth factors I described above.

DAL’s 31.7x ROE is above top competitors like American, United and Southwest.

Delta Air Lines yields its shareholders the best dividend in the sector at 2.6%. This dividend is expected to grow more than 37% over the next 3 years. A dividend exceeding the 10-year US Treasury yield is a reassuring payout on a stock that has shown consistent top and bottom-line growth and is trading at a forward P/E discount to the industry.

Take Away

Delta Airlines is considered by many Americans to be not only the largest airline but the best airline to fly. They have one of the lowest cancelation rates/delays, with 92.6% of its planes arriving on time. Delta operates the most lounges and cities served with an emphasis on expanding their large city presence.

There are risks involved in DAL, which include volatile gas prices that have a significant impact on variable costs. DAL is also exposed to economic risk; less people will flying if the economic outlook is grim. Consider these risks before putting on a position.

I believe that this stock has the potential to blow past its old highs in the coming weeks considering its upward momentum in 2019 thus far. The hefty 2.64% dividend yield that DAL is boasting is a comforting for any risk-averse investor, especially as interest rates fall to their lowest level since 2016.

Bear of the Day:

Potbelly investors have lost their appetite, with the stock tumbling 45% since the beginning of the year. Sales have been slowing down as the firm’s profitability flips negative. A substantial miss on both the top and bottom-line has sell-side analysts feeling very bearish about the future of Potbelly, dropping 2019 EPS estimates to negative and pushing this stock down to a Zacks Rank #5 (Strong Sell).

PBPB Q1 revenues fell 5% year-over-year with total income losses of more than $18 million, almost 9x larger than what they were in Q1 last year.

People have started to shy away from Potbelly sandwiches as the millennial generation shifts their consumer focus to healthier options. They have had to push deeper and deeper promotions to get people in the door, further pinching the already negative margins.

Potbelly has been using technology as well as menu innovations in an attempt to drive foot traffic, but this hasn’t seemed to work. Foot traffic has fallen 7% year-over-year.

For a firm of over 40 years to see slowing revenue and negative income this is a signal to investors that there are systemic issues within the company. Potbelly is attempting to adapt to the shifting consumer, but it is difficult to rebrand something that has been associated with fast food for as long as Potbelly’s has.

Profits have fallen consistently since the end of 2016, and the company was forced to shut down a net total of 14 shops (3%). Sales have fallen 8 out of the last 11 quarters year-over-year. I expect this to continue as demand falls for this archaic sandwich shop.

Short positions on PBPB have been mounting with close to 10% of shares outstanding at the end of June.

Take Away

I wouldn’t put a short position on this stomped on equity quite yet considering how far it has fallen already. Valuations are at an all-time low with investor’s swift evacuation out of PBPB. This does not mean that this stock is trading at a discount considering its negative growth. I would limit my exposure to Potbelly if you haven’t already liquidated your positions.

What to Expect from Intel’s (INTC) Q2 Earnings?

Intel Corporation is expected to report its Q2 earnings results after market close Thursday. YTD, INTC stock is up 8.4%, significantly underperforming the S&P 500's 17.1% climb.

Overview

Based in Santa Clara, California, Intel is the second-largest semiconductor chip manufacturer in the world. Intel is also the second-highest valued chip maker, based on revenue, only trailing Samsung Electronics in both categories.

Intel is credited with the invention of the x86 series of microprocessors, which is the processor most PCs use. Intel holds the majority of market share for these chips, significantly ahead of its nearest competitor, Advanced Micro Devices.

Currently, INTC is trading around $51 per share, that price represents a P/E of 11.56. Intel’s P/E is well below its industry’s average of 15.79. Intel has traded at a discount historically, but its P/E has decreased relative to its industry’s recently making it seem relatively undervalued.

Q2 Outlook & Earnings Trends

Intel is expected to report $15.60 billion in revenue for Q2, according to our Zacks Consensus Estimates. This estimate would mark an 8% decrease from Q2 2018, as well as a 3% decline from Q1. Last quarter was the first quarter that Intel failed to post year-over-year growth since Q3 2015. and after revenue last quarter remained flat year-over-year, it is now expected to decrease which is not a good sign for Intel.

Over 80% of Intel’s Q1 revenue came from two areas: its data center group, which accounted for $4.9 billion, and its client computing group, which accounted for $8.6 billion. Both areas are expected to see a decline in Q2, according to our Zacks Non-Financial Metrics. The client computing group’s revenue is expected to fall 7.7%, while the data center group’s revenue is predicted to fall 11.5%. The data center group revenue is expected to be flat quarter-over-quarter, remaining around $4.9 billion, while client computing is expected to decline to around $8 billion from $8.6 billion.

Meanwhile, second-quarter earnings are expected to fall over 15%, bringing quarterly EPS to $0.88.  This quarterly decline is projected to contribute to the predicted yearly EPS decrease of 7.86% against 2018. 

Bottom Line

These estimates are very close to Intel’s own guidance it provided during its Q1 earnings, so investors have been prepared to see revenue and earnings decrease amid the broader chip decline. With that said, stocks can be highly volatile after an earnings report and INTC is no exception.

Over the past eight earnings reports, Intel stock has moved an average of 6.5% immediately following the release. Although it may seem like an opportunity to make quick profit, it could also be a chance to lose money, so investors should be careful when investing this close to an earnings report.

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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report
 
Samsung Electronics Co. (SSNLF) : Free Stock Analysis Report
 
Potbelly Corporation (PBPB) : Free Stock Analysis Report
 
Intel Corporation (INTC) : Free Stock Analysis Report
 
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