For Immediate Release
Chicago, IL – September 25, 2017 – Zacks Equity Research highlights Edwards Lifesciences (NYSE:EW – Free Report)as the Bull of the Day, Bed Bath & Beyond (Nasdaq:BBBY – Free Report)as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Annaly Capital Management, Inc. (NYSE:NLY – Free Report), AGNC Investment Corp. (Nasdaq:AGNC – Free Report) and ARMOUR Residential REIT, Inc. (NYSE:ARR – Free Report).
Here is a synopsis of all five stocks:
Bull of the Day:
Edwards Lifesciences (NYSE:EW – Free Report), the $24 billion global leader in structural heart disease innovations, is still a Zacks #1 Rank Strong Buy after reporting strong Q2 results and improved guidance for Q3 that prompted analysts to raise EPS estimates.
The solid jump in estimates for this year and next is what has kept EW a Zacks #1 for over 7 weeks.
Edwards Lifesciences’ second-quarter sales grew 10.9% to $841.8 million, beating the consensus. Underlying sales increased 15.3%, including the impact of German customers stocking shelves for additional inventory of the SAPIEN 3 valve in anticipation of a potential supply interruption resulting from recent intellectual property litigation.
Revenues were driven by considerable growth in the company's primary solution, the transcatheter aortic valve replacement (TAVR) device, which, as the name implies, is a specialized collapsible valve that can be inserted into a patients heart via a catheter, thus eliminating the need for major invasive surgery.
This innovation is especially welcome for older or at-risk heart patients whose doctors are concerned about the dangers of surgery.
In 2011, the FDA approved the Sapien valve invented by Edwards as the first approved transcatheter aortic valve prosthesis.
By the end of 2015, nearly 55,000 procedures had been performed.
Hydraulic Pump Engineer Creates First Successful Heart Valve
Edwards Lifesciences’ roots date to 1958, when Miles “Lowell” Edwards set out to build the first artificial heart.
Edwards was a 60-year-old, recently retired engineer holding 63 patents in an array of industries, with an entrepreneurial spirit and a dream of helping patients with heart disease. His fascination with healing the heart was sparked in his teens, when he suffered two bouts of rheumatic fever, which can scar heart valves and eventually cause the heart to fail.
With a background in hydraulics and fuel pump operations, Edwards believed the human heart could be mechanized. He presented the concept to Dr. Albert Starr, a young surgeon at the University of Oregon Medical School, who thought the idea was too complex. Instead, Starr encouraged Edwards to focus first on developing an artificial heart valve, for which there was an immediate need.
After just two years, the first Starr-Edwards mitral valve was designed, developed, tested, and successfully placed in a patient. Newspapers around the world reported on what they termed a “miraculous” heart surgery.
This innovation spawned a company, Edwards Laboratories, which set up shop in Santa Ana, California – not far from where Edwards Lifesciences’ corporate headquarters is located today.
It also spawned decades more of further innovation in heart valve replacement technology, with the non-surgical catheter procedures being the most remarkable, as they give new hope to older or other at-risk patients who may not be able to withstand surgery.
Bear of the Day:
Bed Bath & Beyond (Nasdaq:BBBY – Free Report) reported a second straight quarter of lower-than-expected results in its Q2 fiscal 2017 report last week. Not only did the company miss consensus expectations on both the top and bottom lines, but these results fell on a year-over-year basis as well.
Results continued to be hurt by sluggish store traffic and escalated costs, somewhat compensated by continued strength witnessed across the company’s customer-facing-digital network. Moreover, Hurricane Harvey also had an unfavorable impact on the results this quarter.
My colleague Neena Mishra wrote about BBBY as Bear of the Day in late June after their Q1 report when the stock was still trading above $30 and she concluded then...
"In addition to disappointing foot traffic in malls, the retail space is going through a shift toward online shopping, particularly from Amazon. With tightening labor markets, wage pressure has also started hurting retailers. BBBY stock is down about 25% year-to-date but a rebound any time soon does not appear likely."
Q2 in Detail
The company’s quarterly adjusted earnings of 75 cents per share declined 32.4% year over year, coming well below the Zacks Consensus Estimate of 95 cents. Results were hurt by about 2 cents from expenses related to Hurricane Harvey and 1 cent from the adoption of new accounting standards. The bottom line was also hit by costs related to investments in improved customer experience.
Management recently revealed plans to speed up the process of realigning its store management organization as part of its efforts to enhance omni-channel operations and focus on customers. On including the 8 cents impact from restructuring costs related to the aforementioned plans, earnings plunged 39.6% to 67 cents per share.
Further, the home-furnishing retailer’s net sales dipped 1.7% to $2,936.4 million, which fell short of the Zacks Consensus Estimate of $3,006.1 million. Sales were primarily hurt by soft comparable store sales (comps), somewhat compensated by gains from a 0.9% rise in non-comp sales including PMall, One Kings Lane and new stores.
Comps in the quarter under review dropped 2.6%, resulting from lower transactions in stores, somewhat offset by greater average transaction amount. While comps from customer-facing digital networks improved over 20% for the 13th time in a row, comps at stores fell at a mid-single digit rate.
Bed, Bath & Beyond’s gross profit declined 4.3% to $1,068.6 million in the quarter with gross profit margin contracting 100 basis points (bps) to 36.4%. The fall in gross margin stemmed from higher direct-to-customer shipping expenses, lower merchandise margin and a rise in coupon expense on account of increased redemptions. This could be only partly offset by lower average coupon amount.
The decline in gross profit, along with a rise in SG&A expenses led the operating profit to deteriorate nearly 40% to $168.8 million. Likewise, the operating profit margin contracted about 360 bps from the prior-year quarter to 5.8%.
Bottom line: The death of brick-and-mortar retail may be premature and overexaggerated, but until the EPS estimates for BBBY stop going down and start going back up, I'd shop for retail investments elsewhere.
What the Recent Fed Meeting Means for Mortgage REITs
At the end of the two-day meeting on Wednesday, the Federal Reserve noted that it will commence its balance-sheet normalization program this October. However, the central bank refrained from raising the benchmark interest rates for now.
The central bank will downsize its $4.5 trillion bond portfolio by allowing maturity of up to $10 billion of mortgage-backed securities and Treasury bonds every month, without reinvesting the proceeds. The monthly cap will gradually increase until it reaches $50 million.
Since an outright sale could cause major turbulence in the bond market, the Fed has resorted to the above-mentioned steady and gradual run-off process. This action is anticipated to put upward pressure on the long end of the yield curve.
Moreover, the Fed’s decision to keep the short-term interest rates unchanged will help steepen the yield curve.
This is a sign of relief for mortgage real estate investment trusts (mREITs), which typically borrow significant amount of short-term debt and invest in longer-term real estate debts, like mortgage backed securities (MBS) and mortgages. It will also enable these companies to earn higher yield spread.
Further, the prospects of a steepening yield curve will result in capital rotation from stocks to safe-haven bond markets. This is primarily because these markets will provide attractive returns at lower risks. This too can improve the performance of mREITs.
That being said, year to date, the Zacks Mortgage REIT industry has outperformed the broader Zacks Finance Sector. The industry rallied 11.6% versus the 9.6% growth of the broader sector.
Additionally, shares of Annaly Capital Management, Inc. (NYSE:NLY – Free Report), AGNC Investment Corp. (Nasdaq:AGNC – Free Report) and ARMOUR Residential REIT, Inc. (NYSE:ARR – Free Report) have substantially outperformed the broader finance sector, year to date.
While Annaly carries a Zacks Rank #3 (Hold), AGNC Investment and ARMOUR Residential carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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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.
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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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Edwards Lifesciences Corporation (EW) : Free Stock Analysis Report
American Capital Agency Corp. (AGNC) : Free Stock Analysis Report
ARMOUR Residential REIT, Inc. (ARR) : Free Stock Analysis Report
Annaly Capital Management Inc (NLY) : Free Stock Analysis Report
Bed Bath & Beyond Inc. (BBBY) : Free Stock Analysis Report
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