For Immediate Release
Chicago, IL – March 28, 2014– Zacks Equity Research highlights Helmerich & Payne Inc (HP-Free Report) as the Bull of the Day and Forex Capital Markets (FXCM-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Facebook (FB-Free Report), Google (GOOG-Free Report) and Twitter (TWTR-Free Report).
Here is a synopsis of all five stocks:
Bull of the Day:
This HP doesn’t make computers. Helmerich & Payne Inc (HP-Free Report) is in the oil and natural gas business. Business has been good for the sector as a whole. The oil and gas drillers industry ranks in the top 27% of our Zacks Industry Rank. A big reason for this is all that activity going on in the Permian basin. There has been a recent jump in horizontal drilling in this section of the country. Currently this region has 63 of HPs rigs, with another 6 rigs contracted for this year.
The Permian Basin isn’t the only area of expansion for HP. Recently HP announced it is moving 10 existing rigs to Argentina under 5 year contracts in the Vaca Muerta. That’s right, Argentine oil production comes from a region named “Dead Cow.” There is so much potential in this region, some estimates have Argentina becoming a net exporter of fossil fuels in the near future. Currently Argentina imports half of its natural gas demand.
As for earnings, a whopping ten analysts have revised earnings estimates to the upside for next year driving up consensus from $5.91 a share to $6.75 a share. Consistent earnings growth over the last several years has helped take the stock from the mid-$40s in July 2012 to over $100 today.
Bear of the Day:
A few short years ago, a new “get rich quick” trading opportunity once reserved for big banks began to trickle into living rooms everywhere. Although its volumes far surpass that of stock markets worldwide, this brand of trading had been dwelling in relative obscurity for quite some time. Among heightened regulation and tighter standards for traditional online brokerage accounts a new, exciting opportunity for the retail trader popped up. Welcome to the exciting world of foreign exchange.
I’m not pointing the finger at any of the retail trading world. I’m a trading junky myself. You can ask anyone that knows me and they’ll tell you I probably check my phone 137 times a days to look at what the euro, yen, pound and now my latest fascination, the Turkish Lira, are doing against their US Dollar counterpart. I can’t get enough of this stuff. And it’s open 24 hours a day. It’s my dream come true. I don’t have to wait for the US market to open to follow our stocks.
Looking past the appeal of the trading arcade, there were a few companies in this space that were making some serious money. Among them is our Bear of the Day, Forex Capital Markets (FXCM-Free Report). It sort of pains me to put them in such a bad light but I didn’t make the numbers up. In the last 30 days, two analysts have revised earnings estimates to the downside, dropping the consensus estimates for the current year from 94 down to 86 cents per share and next year’s numbers down to $1.09 from $1.18. These revisions have helped slap a Zacks Rank #5 (Strong Sell) on the stock.
Investors Sideline Facebook on Oculus Deal
Facebook’s (FB-Free Report) Oculus acquisition did not receive a warm welcome from investors. Shares of the social network declined approximately 7.0% ($4.51) to $60.38 on Mar 26. The sell off showed that most of the investors did not share Facebook’s enthusiasm over the long-term prospect of the virtual reality computing market.
Oculus VR develops virtual reality headset, the Oculus Rift, and provides software development kit for building applications for which it has already received more than 75K orders. Although Facebook plans to extend it to new industries such as communications, media and entertainment and education, the technology is currently limited to gaming.
Hence, lack of positive response from popular game developers such as King Digital and Ubisoft is a major concern, which possibly alienated investors. Game makers are questioning the feasibility of the technology before moving their resources from mobile and console gaming development to virtual reality.
We also believe Facebook’s frantic pace of big acquisitions is turning into a major concern for investors. The company paid approximately $1.0 billion for Instagram and $19.0 billion for WhatsApp. Although Instagram’s success is a major achievement for Facebook, WhatsApp is expected to take some time to be profitable.
In such a scenario, Facebook is paying $2.0 billion for Oculus, of which $400.0 million will be in cash and 23.1 million shares of Facebook stock. However, for a technology that is yet to sell a single unit and needs huge long-term investments to gain mainstream adoption, $2 billion is a pretty big bet, in our view.
The purchase price also includes $300.0 million as earn-out in cash and stock based on the achievement of certain milestones. However, Facebook did not specify what milestones Oculus needs to achieve (and the time limit) in order to get this additional reward. This lack of transparency also did not go down well with investors, which initiated the sell-off.
Facebook’s recent initiatives — Internet.org and the two acquisitions (WhatsApp and Oculus) — are not expected to be significant contributors to its financials for some time. We believe these investments will put additional pressure on the social networking company to maintain its ad revenue growth momentum in the near term.
However, this may become difficult as Facebook continues to face intensifying competition from Google (GOOG-Free Report) and Twitter (TWTR-Free Report) in the ad market.
Nevertheless, Facebook’s growing mobile user base (more than 1 billion) and Instagram’s increasing popularity (200 million users) will help it to grow in 2014. Moreover, the company’s strategy of acquiring next-generation technology strengthens its software developer talent base, which is also a major positive.
Currently, Facebook has a Zacks Rank #2 (Buy).
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