For Immediate Release
Chicago, IL – August 8, 2013 – Zacks Equity Research highlights Gentex (GNTX-Free Report) as the Bull of the Day and Crocs (CROX-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on the NRG Energy Inc. (NRG-Free Report), PG&E Corporation (PCG-Free Report) and Edison International (EIX-Free Report).
Here is a synopsis of all five stocks:
If you are looking to play for strength in the auto market, Gentex (GNTX-Free Report), Zacks Rank #1 (Strong Buy) may be your ride. R.L. Polk recently reported that the average age of a vehicle on U.S. roads is a record 11.4 years. The average age has increased eleven consecutive years. Although auto manufactures have improved the quality and longevity of vehicles and fuel prices are historically high, replacement needs should be a supportive factor for auto parts manufactures. The need to replace an aging vehicle fleet played out in July vehicle sales which rose 10.9% year over year to a 16.1 mlu rate. Before the Great Recession, U.S. vehicle sales were able to touch an 18.0 mlu rate.
Simply put, Gentex manufactures rear view and side view mirrors which enhance the safety of driving. Furthermore, it recently purchased Homelink to enable drivers to communicate with their home security systems, lightening, door locks, and other radio frequency products. Gentex also has operations which manufacture dimming windows for the aerospace industry and fire protection products. These operations are very small sources of revenue at 2%, but they have shown extremely fast growth over the last year.
Analyst earnings estimate revisions are trending upward. Analysts have revised earnings estimates higher for 2013 and 2014 seven times over the past 30 days, and no analyst has cut an estimate.
The Zacks Consensus Earnings per Share Estimate for 2013 and 2014 have risen 9 cents to $1.34 and $0.10 cents to $1.45 respectively over the past 30 days. Additionally, the most accurate forecaster is looking for a positive surprise with projections for 2013 and 2014 EPS of $1.36 and $1.55 respectively.
Valuation looks reasonable with the 12 month forward PE ratio of 16.5 compared to a 10 year median of 21.3.
Gentex has a dividend yield of 2.46% and a history of solid free cash flow to support the payment. The yield is very competitive to cash and most of the treasury yield curve.
Crocs (CROX-Free Report), Zacks Rank #5 (Strong Sell), manufactures and markets footwear products. The company recently disappointed investors reporting June quarterly profits of 48 cents per share against a Zacks Consensus Earnings Estimate of 64 cents. The 25% negative earnings surprise contributed to a sharp price decline, and has left the stock struggling near a six month low.
Earnings estimates for Crocs have declined sharply over the past thirty days and paint a negative picture. The Zacks Consensus EPS Forecast for 2013 has declined 37 cents to $1.02, while Zacks Consensus EPS Forecast for 2014 has dropped 39 cents to $1.22. The graphic displays the downward trend in analyst revisions.
There have been no estimate increases for either 2013 or 2014 over the past 30 days and seven estimate decreases over the same period.
Gross margin has been eroding in recent quarters. It has declined from 54.6% in the quarter ending September 2012 to 53.7% in the quarter ending June 2013. Gross margins were the lowest since 2010.
A decline in the order book of 6.7% and a weak consumer environment in the U.S. and Europe look to be generating headwinds to the outlook for sales and gross margin.
Will NRG Energy Beat Earnings?
We expect utility company NRG Energy Inc. (NRG-Free Report) to beat expectations when it reports second-quarter 2013 results before the market opens on Aug 9, 2013.
Why a Likely Positive Surprise?
Our proven model shows that NRG Energy is likely to beat earnings because it has the right combination of key factors.
Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +3.33%. This is meaningful and a leading indicator of a likely positive earnings surprise for this company.
Zacks #3 Rank (Hold): The stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of NRG Energy’s Zacks Rank #3 (Hold) and +3.33% ESP make us confident of a positive earnings beat on Aug 9.
What is Driving Better-than-Expected Earnings?
We believe that the positive impact from the GenOn-acquisition, in terms of enhancement in operational efficiencies and cost synergies, will play a vital role in improving NRG Energy’s performance. In 2013, the company expects to realize $150 million of cost and operational synergies from this transaction.
Recently, NRG Energy entered into a contract-extension agreement with two clients - Houston Technology Center and St. Tammany Electric and Claiborne Electric co-operatives, to provide power services. The company also signed two new long-term power supply commitments with Comcast and the city of Houston. We believe these initiatives will help to provide a secured earnings flow in the near future.
In addition, NRG Energy’s two solar photovoltaic (:PV) facilities - Kansas South and TA-High Desert projects – have started commercial operation. These two projects have power generation capacity of 20 megawatts (MW) each. NRG Energy will sell the output to PG&E Corporation’s (PCG-Free Report) subsidiary Pacific Gas and Electric Company and Edison International’s (EIX-Free Report) unit Southern California Edison.
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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