For Immediate Release
Chicago, IL – December 20, 2016 – Zacks Equity Research highlights Finisar Corp (NASDAQ:FNSR – Free Report) as the Bull of the Day and Abercrombie & Fitch (NYSE:ANF – Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Mastec (NYSE:MTZ –Free Report),Ocwen Financial (NYSE:OCN –Free Report) and Tailored Brands (NYSE:TLRD – Free Report).
Here is a synopsis of all five stocks:
Bull of the Day:
Market cycles typically cause significant ebbs and flows in a company’s balance sheet, and tends to increase the stocks volatility. But when a company is able to time several long-term market cycles to their advantage, the balance sheet can post all-time revenue records. The Zacks Bull of the day,Finisar Corp (NASDAQ:FNSR – Free Report) is experiencing the latter of the two situations.
This Zacks Rank #1 (Strong Buy) company is a provider of fiber optic subsystems and network test and monitoring systems which enable high-speed data communications over local area networks, or LANs, storage area networks, or SANs, and metropolitan access networks, or MANs. They are focused on the application of digital fiber optics to provide a line of high-performance, reliable, value-added optical subsystems for data networking and storage equipment manufacturers.
Recent Earnings Data
Finisar recently reported Q2 17 earnings where they easily beat the Zacks consensus earnings and revenue estimates for the third consecutive quarter. The company posted quarter over quarter gains in Revenues +8.4%, Sales of telecom products +9.9%, Sales of Datacom products +7.7%, GAAP gross margins improved from 31.7% to 36.1%, and Non-GAAP gross margins rose from 33.1% to 37.2%, GAAP operating margins improved from 8.3% to 14.3%, and GAAP earnings per fully diluted per share +95.5%. Also, due to the impressive margin gains, management increased Q3 17 revenue guidance from the consensus of $378 million to a range of $378-398 million.
According to Jerry Rawls, CEO, “ I am pleased to announce that Finisar achieved all-time quarterly records for revenues and profits in our second quarter. Revenues were $369.9 million, an increase of $28.5 million, or 8.4% over the first quarter. This growth was primarily driven by strong demand for 100G transceivers. In addition, customer demand for wavelength selective switch and ROADM line card products was strong. Our gross margins improved significantly due to a favorable product mix and leverage achieved from our vertical integration with larger volumes. The combination of revenues being at the higher end of our guidance range with higher gross margins resulted in earnings per fully diluted share above our guidance range .”
Bear of the Day :
The traditional brick and mortar retail apparel environment continues to face significant headwinds from online companies like Amazon. These online companies are taking a larger portion of the total market share each quarter and forcing the traditional stores to make drastic cuts to store counts, inventory, and headcounts. Further, if the traditional company misses a hot style, a new trend, or a seasonal category, they can see their top lines go into free fall. These are some of the issues facing our Zacks Bear of the Day, Abercrombie & Fitch (NYSE:ANF – Free Report).
This Zacks Rank #5 (Strong Sell) company is principally engaged in the purchase, distribution and sale of men's, women's and kids' casual apparel. The company's retail activities are conducted under the Abercrombie & Fitch and Abercrombie trade names through retail stores, a catalogue, a magazine/catalogue and a website, all bearing some form of the company name. Merchandise is targeted to appeal to customers in specialty markets who have distinctive consumer characteristics.
Recent Earnings Performance
The company posted year over year losses in net sales -6% with declines in net sales for Abercrombie -13% and Hollister -1%, domestic net sales -7%, international net sales -5%, and operating income -52.2%. On the positive, management did declare a quarterly dividend of $0.20 per share during the quarter.
According to Arthur Martinez, CEO, “ For A&F, flagship and tourist locations continued to be a major headwind. In addition, chain store traffic patterns remained negative. Weakness in A&F was compounded by underperformance of seasonal categories, which ultimately led to pressure on gross margin. While we anticipate the A&F business will remain challenging through the balance of the fiscal year, we continue to move aggressively to evolve the brand across all channels through significant changes in product, customer experience and marketing. A comprehensive set of strategic and operational actions is being taken by an experienced team under new leadership, and we expect to see benefits as our efforts gain traction .”
Fly on Bravely and Blindly, Mr Market!
In the Global Week Ahead, the ‘Trump trade’ should march ahead, heedless to current conditions. Some observers say the incoming Trump administration over-promised what it can do for the U.S. economy and could under-deliver.
But who cares about that right now?
As this self-confessed climate softy prepares to board a plane from LA to Chicago, I can see I am headed into an early Polar Vortex. Here’s the National Weather Service--
BLOWING AND DRIFTING SNOW IS EXPECTED TONIGHT. WIND CHILLS OF 20 TO POSSIBLY BRIEFLY LOWER THAN 30 BELOW ARE EXPECTED LATE TONIGHT THROUGH MONDAY MORNING.
Something eerily similar can be written about stock markets right now. Financial market conditions are rougher out there than most traders realize.
Momentum trading has pushed S&P 500 valuations to the upper end of a range, when compared to anything previously seen in this bullish cycle. The forward 12-month P/E ratio for the S&P 500 is 17.1. This is based on a 2262 S&P 500 index price and operating EPS of $132. That last number ($132) is also super bullish.
Here’s the rest of the crummy weather few equity traders are looking at…
The U.S. economy has undergone a significant tightening of financial conditions. This takes 3 forms: a simultaneous shock of a much higher U.S. dollar, higher WTI oil prices and rising long-term bond rates.
Note: The broad trade-weighted U.S. dollar marks a 14-year high. This value is on a par with heights reached at the peak of the dot-com bubble.
Note: The 10-year U.S. Treasury yield has almost doubled since July. This is the highest level in a couple years. Acceleration is also an issue.
That is the current financial market reality. Brrrrrr.
What bullish trader momentum and a dovish Fed have done has become evident long before President-elect Trump’s fiscal and regulatory changes arrive.
As one Canadian strategist put it -- a strategist that knows a thing or two about winter conditions, by the way -- “this tightening of financial conditions has come well before any [Trump] tax cut gets inked, let alone spent, well ahead of any Trump budget being passed to show how it will all be financed in the context of raising the debt ceiling, long before any Trump shovels go in the ground, and longer yet before it begins to impact data on growth, jobs and wages.”
The battle then turns to just braving the current crummy financial conditions in the hopes of clearer market skies ahead.
Fly on bravely and blindly, Mr. Market!
I don’t want to challenge this blind optimism. Maybe I should pack suntan lotion for Chicago in December?
Top Zacks #1 Rank (STRONG BUY) Stocks—
(1) Mastec (NYSE:MTZ – Free Report) : This building products/heavy construction industry stock also carries a Zacks VGM score of A. It is a $3.3 billion market cap stock.
Mastec is one of the largest providers of construction services to the telco industry in the U.S.
The Company's principal business consists of the installation and maintenance of aerial, underground and buried copper and fiber optic cable, underground conduit, manhole systems and related construction for local telephone companies, including Regional Bell Operating Companies (RBOCs).
(2) Ocwen Financial (NYSE:OCN – Free Report) : This financial-mortgage & related services industry stock also carries a Zacks VGM score of A. It is a $641 million market cap stock.
Ocwen Financial is a financial services holding company. It is engaged in asset acquisition and resolution, residential finance, commercial finance, investment management and hotel operations.
The Company primarily specializes in the acquisition and resolution of non-performing or underperforming loans.
(3) Tailored Brands (NYSE:TLRD – Free Report) : This textile-apparel industry stock also holds a Zacks VGM score of A. It is a $1.3 billion market cap stock.
Tailored Brands is a specialty retailer of men's suits and provider of tuxedo rental product primarily in the U.S. and Canada. The Company provides suit separates, port coats, slacks, sportswear, outerwear, dress shirts, shoes and accessories.
Tailored Brands, formerly known as The Men’s Wearhouse, is based in Houston, TX.
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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.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year. See these high-potential stocks free >>.
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FINISAR CORP (FNSR): Free Stock Analysis Report
ABERCROMBIE (ANF): Free Stock Analysis Report
MASTEC INC (MTZ): Free Stock Analysis Report
OCWEN FINL CORP (OCN): Free Stock Analysis Report
TAILORED BRANDS (TLRD): Free Stock Analysis Report
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