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Electro Scientific, Ciena, Exxon Mobil, BP and PetroChina as Zacks Bull and Bear of the Day

Zacks Equity Research
In the latest trading session, Gilead Sciences (GILD) closed at $73.59, marking a +1.5% move from the previous day.

For Immediate Release

Chicago, IL – November 27, 2017 – Zacks Equity Research highlights Electro Scientific Industries ESIO as the Bull of the Day and Ciena Corp CIEN as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Exxon Mobil Corp. XOM, BP plc BP and PetroChina Company Ltd. PTR.

Here is a synopsis of all five stocks:

Bull of the Day:

Electro Scientific Industries is a Zacks Rank #2 (Buy) which is a little head scratching to me because I believe it should be a Zacks Rank #1 (Strong Buy).  Let's take a look at the most recent quarters and how estimates moved since then and try to reconcile how this stock isn't the best Rank.

Most Recent Earnings Report

I have to admit this most recent earnings report was among the strongest reports I have seen in the last few years.  As strong as the beat was, the guidance was so strong that I had to check a few sources when I first saw it because I thought it had to be an error. I mean when was the last time you saw a company project sales that were double what Wall Street was looking for?

Let's get to the numbers so you can see why I am so excited about this stock. The company reported EPS of $0.39 when $0.28 was where the Zacks Consensus Estimate was at.  Revenues were just about $71M when $65.5M were expected.

Guidance is the real story here.  Maybe the analysts covering the stock should have been a bit more aggressive with their models, but hindsight is always 20/20.  

The company sees EPS of $0.48 to $0.60 and that is basically lightyears ahead of the $0.02 that was expected.  Maybe a lightyear is exactly 24x at the low end and 30x at the high end, but in terms of EPS growth, it kind of is.  

Revenues are expected to be $80M to $90M and at the top end that is more than double the $44.5M expectation. 

Estimate Revisions

In some ways, this article should end right here, but let's look at what has happened to earnings estimates. The revisions to earnings estimates are the basis of the Zacks Rank, and the moves here are impressive. 

This quarter has moved from $0.00 to $0.55 in the last 30 days.  Next quarter has moved from $0.14 to $0.50 over the same time period.

This year has increased by $1.02 from $0.80 and is now $1.82.  Next year is a little foggy still and estimates are at $1.25, up from $0.95.

Shameless Self-Promotion

I am going to conclude this article with some shameless self-promotion.  I was watching this stock for some time and I pulled the trigger on it prior to the earnings report for Home Run Investor.  I manage Home Run Investor which looks for small and mid cap stocks that have solid increases in earnings estimates (a high Zacks Rank) and great potential.  So, yes, subscribers were buying this stock below $17 and they are looking at a stock that is up $10 per share in just a month or so.

https://twitter.com/bbolan1/status/925869286811488256

The link above is to my twitter feed, in which I try to promote the Home Run Investor service.  I have told subscribers that I thought the stock is worth more than $30 -- and there is still plenty of meat on that bone.

Bear of the Day:

Ciena Corprecently beat the Zacks Consensus Estimate on the top and bottom lines, but guidance for the next quarter was below expectations and the stock saw estimates fall.  That helped push the stock to a Zacks Rank #5 (Strong Sell) but a deeper look at the report may give us some valuable insights.

Earnings Report

The company earned $0.51 when $0.49 was expected and posted revenues of $728M when $726M was expected.  Those numbers are good, but the stock market cares more about what you will do as opposed to what you have done.

The company guided next quarter to revenues of $720M -$750M and that is below the $770M consensus at the time fo the report.

Stocks in this market are "priced for perfection" and when you disappoint in anyway, your stock can get hit hard.  CIEN found that out as the stock immediately fell 5% in the premarket and continued lower by more than 11% in the session following the report.

Earnings Ahead

The company is set to report earnings again soon, December 7 to be exact.  The Zacks Consensus Estimate is calling for $739M on top and $0.51 on the bottom line. 

Other stocks in the same sector have been seen some weakness with AAOI in particular having some issues.  

There have also been a lot of put buyers on CIEN of late.  At least two times in the last 3 weeks this stock was highlighted as one that had notable action in the options market.

Options Market

In looking at the at the market straddle, I see a potential move of more than 9% being priced in for CIEN.  Three of the last four quarters the stock has moved more than what the options market has priced in.  Seeing as we are near the highs, the best bet would be to wait and see what happens in this sector over the next week or so.  A straddle placed just an hour or so before the close prior to the report is one potential given what I am seeing.

Additional content:

Which Is the Best Oil Supermajor Post-Q3 Earnings?

Following the supply glut and lackluster global demand, oil prices remained low for more than three years. From 2014, crude oil went from over $100 a barrel to under $30. However, the market has recovered from these historic lows with prices finally rebounding to more than $50 a barrel.

Recently, crude prices reached a more than two-year high of above $57. The commodity-pricing environment has been improving, courtesy of tightening supplies, rising demand and OPEC-deal extension talks. (Read More)

Steady increase in oil prices and strong earnings performance has shifted focus to the energy sector. In this quarter, of the 15 oil companies that make up the broader Zacks industry, 10 have already reported earnings, with seven beating their Zacks Consensus Estimate.

The three oil behemoths, Exxon Mobil Corp., BP plc  and PetroChina Company Ltd.  might be different from one another fundamentally, but all of them reported encouraging third-quarter earnings results. In this respect, we have performed a comparative analysis of the key players in the Oil International Integrated industry to pick the best investment option based on their earnings scorecard.

While, both Exxon Mobil and PetroChina have a Zacks Rank #2 (Buy), BP has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Third-Quarter Earnings

Exxon Mobil posted strong third-quarter 2017 results, courtesy of increased price realizations from liquids and gas and improved margins at the refinery business. Exxon Mobil reported earnings of 93 cents per share, surpassing the Zacks Consensus Estimate of 89 cents. Also, the bottom line improved from the year-ago quarter level of 63 cents.

Total revenues in the quarter increased to $66,165 million from $58,677 million in the year-ago quarter. Moreover, the top line surpassed the Zacks Consensus Estimate of $63,508 million. (Read More)

BP reported strong third-quarter 2017 earnings, courtesy of higher realized prices of liquid and natural gas. Contribution from key upstream projects also supported the upside.

The British energy giant reported third-quarter adjusted earnings of 57 cents per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The bottom line surpassed the Zacks Consensus Estimate of 50 cents and the year-ago earnings of 30 cents. Total revenues were $60,808 million, up from $48,043 million in the year-ago quarter. (Read More)

PetroChina announced third-quarter 2017 earnings of RMB 4,690 million or RMB 0.03 per diluted share compared with RMB 1,200 million or RMB 0.01 per diluted share a year earlier.

The positive comparisons of this Chinese oil giant can be primarily attributable to higher oil prices and strict cost control, which helped its biggest unit — exploration and production — to swing to profitability. Moreover, China’s dominant oil and gas producer’s total revenues for the three months under consideration rose 17.1% from the year-ago period to RMB 481,795 million.

Despite a year-over-year increase in earnings per diluted share, PetroChina’s earnings per ADR of 45 cents missed the Zacks Consensus Estimate by a cent on deteriorating results at its refining unit. (Read More)

Price Performance

In a year, Exxon Mobil and PetroChina have underperformed the industry, which has an average gain of 10.3%. Both Exxon Mobil and PetroChina have registered a decline of 6.9% and 0.1%, respectively. In contrast, BP rose 16.1%, handily beating both ExxonMobil and PetroChina, and the industry. On the price front, BP emerges a clear winner.

Earnings History and Estimate Revisions

All the three oil and energy giants delivered average positive earnings surprises. Exxon Mobil, BP and PetroChina beat by 8.8%, 26.8% and 27.4%, respectively.

In the last 30 days, Exxon Mobil’s current-quarter estimates increased by a cent to 99 cents per share, while that for the current year advanced from $3.56 to $3.62. NVIDIA’s current-quarter estimates remained unchanged at 94 cents per share, while current-year estimates increased from $2.39 to $2.48 per share.

BP’s current-year estimates climbed from $1.58 to $1.80 per share. It witnessed better current-year estimate revisions than the other two. BP also holds an edge over the other two with respect to the quarter-over-quarter earnings growth.

Valuation

EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization) is often used to value oil and gas stocks. This is because of the significant debt levels and high depreciation and amortization expenses of these companies.

Coming to the three stocks under consideration, Exxon Mobil and BP are overvalued than the industry, which has an EV/EBITDA ratio of 6.46. However, Exxon Mobil is also pricier than the other two stocks, since it has an EV/EBITDA ratio of 8.88, higher than BP and PetroChina’s readings of 6.89 and 4.39, respectively. Clearly, PetroChina is undervalued than Exxon Mobil and BP, as well as the industry.

Conclusion

In our comparative analysis, Exxon Mobil and BP are more expensive than PetroChina. However, when considering theprice performance, BP holds an edge over Exxon Mobil and PetroChina. Moreover, BP has witnessed quarter-over-quarter earnings growth of more than 100%, which is considerably better than both Exxon Mobil and PetroChina.

Additionally, when we take a more comprehensive look at the companies’ previous earnings performance and estimate revisions, BP is clearly the best among the three oil giants. Moreover, BP became the first European oil major to resume share repurchase since the 2014 oil slump. Further, BP holds better Zacks Rank than the other two. This is why we can conclude that BP is a better investment proposition than Exxon Mobil and PetroChina.

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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.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

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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Ciena Corporation (CIEN) : Free Stock Analysis Report
 
Electro Scientific Industries, Inc. (ESIO) : Free Stock Analysis Report
 
BP p.l.c. (BP) : Free Stock Analysis Report
 
PetroChina Company Limited (PTR) : Free Stock Analysis Report
 
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
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