For Immediate Release
Chicago, IL – October 20, 2020 – Zacks Equity Research highlights eGain Corp EGAN as the Bull of the Day and Fly Leasing FLY as the Bear of the Day. In addition, Zacks Equity Research provides analysis on IBM IBM.
Here is a synopsis of all three stocks:
Bull of the Day:
eGain Corp is a Zacks Rank #1 (Strong Buy) that has the growth divergence that I love to see. There is an A for Growth and an F for Value and when I see that sort of difference I know right away that I am on the right path. Growth investors and value investors are inherently looking for different things so the bigger the difference in the style scores the better.
eGain Corporation operates as a software-as-a service provider of customer engagement solutions in the United States, the United Kingdom, India, and internationally. It provides eGain solution, a unified cloud software solution to automate, augment, and orchestrate customer engagement, including digital-first, omnichannel desktop, artificial intelligence (AI) and knowledge, and analytics and machine learning applications, as well as platform APIs and pre-built third-party connectors.
The company's suite includes various applications for digital interaction, knowledge management, and AI-based process guidance. It also provides integrated analytics for contact centers and digital properties to measure, manage, and optimize resources. In addition, the company offers subscription services and customer support services; and consulting, implementation, and training services. It serves customers in various industry sectors, including the financial services, telecommunications, retail, government, healthcare, and utilities. The company was founded in 1997 and is headquartered in Sunnyvale, California.
I see a good earnings history here with 3 of the last 4 quarters coming in ahead of expectations. The only time there wasn’t a beat is when there was an earnings meet. One of the beats was very large, with a 700% positive earnings surprise. That helps the average over the four quarters to come in at 288%, which is still very high.
Following the most recent beat, I see the current quarter lifted from $0.01 to $0.06. There was also a one cent move in next quarter as well. The full year numbers saw a big jump with this fiscal year moving from $0.07 to $0.20, and next fiscal year going from $0.07 to $0.22. This is the biggest reason the stock moved to a Zacks Rank #1 (Strong Buy) as the Rank is impacted the most from changes in the annual estimates.
The valuation is a little stiff here, but we see that from a lot of software names. I see a 61x trailing earnings multiple and an 86x forward earnings multiple. The topline grew at a 13% clip last quarter and given the pandemic any growth is good growth. The 15x price to book is a little high, but software names are historically asset slim businesses so the book value is going to be rather low. The price to sales multiple of 7x is also somewhat high, but again, this is due to the software space.
I see margins moving much higher in the last two quarters, going from 7.8% to 10.3% on an operating basis and that is something that will push all the multiples much higher. If there are continued improvements in margins then the multiple will continue to move higher, as will the stock.
Bear of the Day:
Fly Leasing is a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day today. We will go over why it is the Bear in the article, but more than that I want to see if this type of stock is just the baby being thrown out with the bath water. Just because things are bad now doesn't mean that they will stay that way and if you look past the current status, is this a name that could recover down the road?
Fly Leasing Limited, through its subsidiaries, purchases and leases commercial aircraft under multi-year contracts to various airlines worldwide. As of December 31, 2018, it had a portfolio of 101 aircraft, including 90 narrow-body passenger aircraft and 11 wide-body passenger aircraft, as well as 7 engines. The company was founded in 2007 and is headquartered in Dun Laoghaire, Ireland.
I see a so-so- earnings history. It is not good, but it's not all bad either. There were two beats and two misses in the last four quarters. The bad news is the two most recent reports were the misses.
The good news was that there was a big beat at the end of 2019 before the pandemic really disrupted the aviation space. That beat helped keep the average earnings surprise on the positive side over the last four quarters.
I see some up and down movement in estimates.
The current quarter has seen a decrease of a penny.
The next quarter has seen an increase of two cents.
THe full year 2020 numbers are actually higher by 4 cents, which is a really good thing.
The full year 2021 numbers show a decrease of 4 cents over the last 60 days and a much bigger decrease over the last 90 days.
The Zacks Rank is focused more on the move in annual numbers and the decrease in next year and the current quarter is enough to push this stock to a Zacks Rank #5 (Strong Sell).
If you have the ability to buy and hold a stock for a year or more, this might be a good spot to build a position. I say that as the stock is showing a forward PE of 4x and trailing PE if 1x. That is very, very low. Yes, revenues dropped some 45%.... but if you believe that things go back to normal down the road then this stock could easily trade at 10x earnings and that would suggest a stock in the $20 range comes next year.
That said, we don't know when the pandemic will end and beyond that when the demand to fly will increase. All of these ideas should be given careful consideration before you make an investment decision. I know that FLY will be on my radar going forward.
Markets Sell Off on 33rd Anniversary of Black Monday
Market indexes dropped again Monday — on what was the 33rd anniversary of Black Monday, which saw the Dow crash more than 22% in a single day — on what was tepid optimism to the start of the day. Although indexes are riding three-week winning streaks (four weeks on the Nasdaq), the streak-inside-the-streak shows the Dow and S&P 500 down for the fourth session in the past five, and the Nasdaq down five straight days. This is the longest losing streak for the Nasdaq since August… of 2019.
The Dow finished off its session low of -463 points, coming in at -410, or -1.44%. The S&P 500 dropped nearly 57 points, -1.63%. This was the worst single-day performance for both indexes since September 23rd. The Nasdaq fared even slightly worse, -1.65%, or down almost 193 points. All 11 sectors on the S&P 500 finished the session lower, led by Energy and Communication Services, both -2% on the day.
Kicking off an eventful week for Tech earnings is IBM, which typically brought in a modest bottom-line beat of 3 cents to $2.58 per share on in-line revenues around $17.6 billion for the quarter. IBM is one of those rare companies that has not posted an earnings miss since Q3 2014, though the trailing 4-quarter average beat was by 1.8%. The stock had a Zacks Rank #3 (Hold) and Value - Growth - Momentum grade of C ahead of the earnings release.
No guidance was reinstated for its next quarter and full year in the earnings statement, and investors are very interested in hearing more about IBM’s split next year into two companies — taking its Red Hat acquisition from the summer of 2019 and building a cloud-based services firm. IBM’s Cloud & Cognitive business in Q3 came in slightly ahead of expectations, $5.55 billion versus $5.48 billion. The new company will be headed by the executive who steered the Red Hat deal, Arvind Krishna.
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