For Immediate Release
Chicago, IL – July 2, 2018 – Zacks Equity Research highlights Dropbox DBX as the Bull of the Day and Goodyear Tire GT as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Starbucks SBUX and Dunkin’ Donuts DNKN.
Here is a synopsis of all four stocks:
Bull of the Day:
Dropboxis a more recent IPO but has a solid Zacks Rank #2 (Buy) which tells me the estimates are moving higher. We saw this stock spike not to long ago, so with the recent pull back, now is the perfect time to look at why this stock is a Zacks Rank #2 (Buy) and how it became the Bull Of The Day.
Dropbox, Inc. is a service company. It offers a platform which enables users to store and share files, photos, videos, songs and spreadsheets. Dropbox, Inc. is headquartered in San Francisco, California.
DBX made is debut on the public markets on March 19 of this year. The deal was a hot one as the investment bankers moved the indicated range from $16-$18 to $18-$20 - a signal of strong institutional demand. The deal priced at $21 - above the upwardly revised indicated range and then opened for trading at $29.
What a ride that day way... but more recently there was an even bigger swing higher.
On May 10 the company reported its first quarter as a public entity and beat the estimate. The company had 8 cents per share in earnings when the consensus was calling for 5 cents. Revenues of $316M were ahead of the $309M estimate as well.
On the conference call, the company then guided higher for next quarter and the full year for revenues.
That made the first quarter a beat and raise. Just what you want to see out of the gate.
With the report and call in the rearview mirror, Canaccord Genuity raised their target to $36 for the stock and told clients to "buy aggressively" noting that they had "zero hesitation" to recommend the purchase of shares.
The Zacks Rank is based on the movement of earnings estimates. When analysts move estimates higher, the Rank moves up. If estimates are cut then the Rank moves lower.
Following the earnings release and the guide higher, estimates moved higher.
In fact, the estimate for the current quarter DOUBLED from $0.03 to $0.06.
We also saw the estimate the next quarter move from $0.05 to $0.07.
Importantly, the Zacks Rank puts more weight on the annual numbers as quarterly estimates tend to move around a lot more.
The 2018 Zacks Consensus Estimate moved from $0.19 to $0.28 - a huge move. What is more that idea carried forward to next year as well.
The 2019 Zacks Consensus Estimate moved from $0.30 to $0.40.
These big moves higher in earnings estimates are what drove the stock to surge up in recent weeks.
Bear of the Day:
Goodyear Tire (GT) has seen estimates fall of late and that pushed it down to a Zacks Rank #5 (Strong Sell). The estimates from a wide range of brokerages come in to Zacks and we feed them into an algo that shows which stocks have the best postiive estimate revisions and which ones have the worst revisions. Among those with the more negative revisions is GT and that is why it is the Bear of the Day.
Not all car companies are seeing slowing demand; Tesla has huge demand for its Model 3 car but that is another story.(https://www.zacks.com/commentary/168627/why-tesla-shorts-are-doomed and this piece come to mind: https://www.zacks.com/commentary/166108/bull-of-the-day-tesla-tsla)
GT makes tires, and new car demand is falling. Analysts see that and have moved their earnings estimates lower.
I see the Zacks Consensus Estimate has moved lower for the current quarter over the last 60 days. The number moved from $0.74 to $0.59. That same type of move is present in the next quarter as well.
The Zacks Rank focuses on the annual number a little more so let's look there.
I see a move from $3.65 to $3.46 over the last 60 days. The 2019 number has moved from $4.38 to $4.15 over that same time period.
So while estimates are moving lower, there is still earnings growth ahead for GT.
We get auto sales data later this week, that might be the data points we need to see if you believe that it is time to buy the dip. If sales disappoint, then GT is likely to continue to move lower.
With CFO Retiring, What’s Next for Starbucks (SBUX)?
Starbucks announced on Thursday that CFO Scott Maw would retire, effective November 30th of this year, and serve in a senior consultant role through March of 2019. Maw, who has been in the CFO role for the last four years, did not offer any explanation as to the timing of the announcement. Considering Maw’s relatively young age and short tenure at the firm, analysts were caught off-guard by the news.
During Maw’s first two years as CFO Starbucks performed very well, with its stock value seeing nearly 73% in growth compared to an industry average of 14.3%. But since then things have slowed down, with the stock seeing a 20.7% decrease in value in from February of 2016 to the present.
The news comes just weeks after Executive Chairman Howard Schultz, who oversaw the global expansion of the firm, said that he would step down from his position later this month.
This slump is largely due to recent sluggishness in comparable store sales numbers. The firm’s Americas segment (accounting for 70% of total revenues) posted 3% comps growth in fiscal 2017, representing a notable decrease from the 6% growth of the previous year. Another concern stems from the company’s announcement earlier this month that it would close 150 poorly performing company-operated stores next year, about three more than its typical annual numbers.
In its Q2 FY18 earnings report, Starbucks reported in-line earnings and exceeded revenue estimates, posting $0.53 in earnings per share on $6.03 billion in revenues. These numbers represent 17.8% and 13.9% year-over-year growth, respectively.
Still, the company’s 490 basis point decrease to 12.8% in GAAP operating margin is a source of concern, as this is not the first decrease in recent memory. However, according to the report, the decrease is part of the firm’s larger “restructuring and impairment charges.” The company is developing a product mix shift largely toward food as well as spending on efforts to streamline business operations.
Plenty of Reason for Optimism
While investor weariness is justified, there are still some shining points for Starbucks. Specifically, the firm is seeing large payoff on its investments in Asia. It continues to see benefits from its $1.4 billion purchase of East China JV at the end of last year. Starbucks initially operated in Eastern China, its most urban and populous region, through a 50-50 joint venture with local franchiser Uni-President group. By the deal’s close, this brought its total number of stores in China to 3,100 (in late December).
As of FY17, the China-Asia-Pacific segment of SBUX’s operations account for only 14% of its total revenues. In its earnings report, it also highlighted a 54% revenue increase in China to nearly $1.2 billion in revenue and the construction of 216 new stores. Being that China’s middle class is set to double from 300 million to 600 million by 2030, there is a significant amount of earnings potential in the region. Starbucks currently operates nearly 3,300 stores in 141 cities in China (compared to over 13,000 in the US). The firm plans to build 600 net new stores per year over the next five years in the region.
Another significant initiative is its global coffee licensing deal with Nestle, under which it will receive $7.15 billion in return for giving it the exclusive rights to sell Starbucks packaged coffee and teas around the world. SBUX currently reaches consumers in about 28 countries, and through Nestle will reach consumers in nearly 190 nations.
Starbucks is one of the most recognized coffee brands in the world. For the 12th consecutive year, it was named one of the world’s most ethical companies by the Ethisphere Institute. The ability to get consumers to quickly recognize the brand has already proven quite useful as the firm continues to expand its reach globally. Furthermore, it is a brand that inspires loyalty. Last quarter, it announced an 11% year-over-year increase in membership of its loyalty program to 14.2 million active members in the US.
It will face numerous challenges moving forward, including the need to replace its CFO and competition from other large coffee brands such as Dunkin’ Donuts. Yet, while it has recently fallen on hard times with sluggish growth in the US, Starbucks is positioning itself well to capture the trends of an ever-changing global consumer climate. Because of its resources and brand recognition, it is uniquely tooled to continue its rapid expansion abroad, which given recent trends, serves as a positive indicator.
Starbucks currently sits at a Zacks Rank #3 (Hold) and will be an interesting stock for investors to keep an eye on moving forward.
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Starbucks Corporation (SBUX) : Free Stock Analysis Report
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Dropbox, Inc. (DBX) : Free Stock Analysis Report
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