For Immediate Release
Chicago, IL – December 17, 2019 – Zacks Equity Research Insight Enterprises NSIT as the Bull of the Day, Designer Brands Inc. DBI as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Advantest Corp. ATEYY, Fair Isaac Corp. FICO and Jones Lang LaSalle JLL.
Here is a synopsis of all five stocks:
Bull of the Day:
Insight Enterprises is based in Arizona, and is a global direct marketer of brand name computers, hardware and software. The company markets to small- and medium-sized businesses, through a combination of a strong outbound telemarketing sales force, electronic commerce, electronic marketing and direct mail catalogs.
Better-Than-Expected Q3 Earnings
Net sales grew 9% to $1.91 billion, and this increase is largely attributed to Insight’s acquisition of PCM back in August.
Adjusted diluted EPS rose 10% over the prior year to $1.10 per share, beating the Zacks Consensus Estimate. Gross profit increased 18% to $276.2 million, while gross margin saw a 100 basis point jump 10 14.4%.
North America sales also saw healthy growth in Q3, up 10% year-over-year to $1.52 billion. EMEA sales rose 3% year-over-year to $355.7 million, while APAC sales surged 34%.
Looking ahead, Insight now expects net sales to grow between 9% and 11% for full year 2019 (reflecting the PCM deal for the last four months of the year). Adjusted diluted EPS should fall in the range of $5.45 and $5.50 per share.
“Our differentiated solutions and disciplined operating model combined with PCM’s reach into the middle market will position us well to drive growth and deliver on our financial commitments as we head into 2020,” said CEO and president Ken Lamneck.
NSIT Is Jumping
Shares of NSIT are up 70% since January compared to the S&P 500’s return of 32%. Earnings estimates have been rising too, and Insight is a Zacks Rank #1 (Strong Buy) right now.
For the current fiscal year, four analysts have revised their bottom line estimate upwards in the last 60 days, and the Zacks Consensus Estimate has moved up 50 cents from $4.96 to $5.46; earnings could see about 18% growth compared to the prior year period. 2020 looks pretty strong too, with earnings and revenue expected to continue positive year-over-year growth.
NSIT currently trades around 12.6X its forward full-year earnings estimates, lower than the broader Retail and Wholesale Market (17.3X).
If you’re an investor searching for a growing retail stock to add to your portfolio, make sure to keep NSIT on your shortlist.
Bear of the Day:
Formerly known as Designer Shoe Warehouse (DSW), Designer Brands Inc. is a retailer that offers brand-name and designer shoes and accessories for men and women; customers can find dress, casual, and athletic footwear, as well as handbags and luggage. DBI is headquartered in Columbus, Ohio.
Shares Slump After Disappointing Earnings
The DSW parent reported adjusted earnings of $0.67, missing consensus estimates of $0.74, but total revenue managed to increase over 12% to $936.3 million.
Comparable sales, however, rose only 0.3%, or 7.6% on a two-year basis. Based on these numbers, same-store sales growth has slowed significantly compared to the year-ago period.
And, gross margin fell 370 basis points to 28.9% due to heavy markdowns and promotions in the quarter.
"We continued to make progress on our strategic initiatives and the integration of our acquisitions. At the same time, we faced several meaningful headwinds during the third quarter that impacted our results and will likely continue for the upcoming quarters,” said CEO Roger Rawlins.
Management also blamed warm weather for the challenges the company faced.
DBI is now a Zacks Rank #5 (Strong Sell).
Shares of the footwear retailer are down almost 37% since January, and slumped over 17% the day of its earnings release. The S&P 500, on the other hand, has been on a tear this year, and is up 32% this year
Designer Brands cut its earnings guidance for the full year, and now expects EPS of 1.50 to $1.55, down from a previous range of $1.87 to $1.97. Comparable sales are expected to be flat (previous forecasts called for comps in the low single digits).
Margins will likely be an issue for DBI in the short term, and its recent acquisition of Camuto Group has been weighing on the company. While management is still bullish on Camuto, it’s been dealing with internal operational dysfunction at the division, and DBI expects a 10-cent impact on profitability in Q4.
Say Goodbye to 2019: Global Week Ahead
This is the last Global Week Ahead update for 2019.
The stock trading week includes a short Tuesday Christmas Eve session (the NYSE and Nasdaq are closing at 1 pm EST), and a full day Wednesday Xmas holiday, for both bond and stock markets.
If you plan on doing any tax-loss selling of any stock market losers from 2019 trading, this week will offer a final chance to do so.
In terms of global events, here is the Canadian Scotiabank FX teams’ latest line on U.S.-China trade talks:
Progress — or lack thereof — toward the formal text of a U.S.-China phase one trade deal may be further informed over the next two weeks.
Nothing formal is scheduled, but watch for tweets, China’s daily press briefings and media reports.
- U.S. Trade Representative Robert Lighthizer has guided. The text of a full ‘Phase One’ agreement is complete. It will be released in early January and is simply being translated. But no date has been established for its signing.
- Spokespersons for China’s Ministry of Commerce and Foreign Ministry have generally dodged questions about the terms of the deal and ongoing negotiations with ‘nothing to update’ references.
Key questions remain unanswered such as enforcement mechanisms and milestones toward full implementation.
Past alleged deals have fallen apart at the text and translation stage, with the U.S. accusing China of reneging on its verbal agreements and China demanding tariff reductions that appear to be rather modest in the sketched outline of the current proposals.
Next, I have London-based Reuters’ five world market themes, reordered for equity traders—
(1) The Fed is pumping billions into overnight lending markets (repos)
As end-December approaches, money market players’ thoughts may be turning to a September scare, when rates in the $2.2 trillion U.S. repurchase or repo market spiked to 10%, boosting the premium to borrow dollars.
The fear is a bigger crunch may erupt in the $2.2 trillion U.S. repo market towards year-end, a period when banks lend less and trading volumes fall.
Recent government bond sales and quarterly tax payments may have already sucked up to $100 billion out of the banking system. And coming days may see big lenders scaling back repo lending and reducing deposits at the Fed to comply with rules requiring them to show sufficient cash buffers.
Sure, the Fed is pumping tens of billions of dollars into overnight lending markets and buying $60 billion in Treasury bills every month to increase banking sector reserves.
But worries remain — the Fed’s repo operations, aimed at helping companies shore up cash levels, have seen heavy demand. A possible sign dealers are snapping up whatever cash they can to avoid year-end shortages.
(2) There is peace between the U.S. and China on trade, for now
Not peace maybe, but it looks like ‘detente,’ at least on the Sino-U.S. trade war front.
That’s driven Wall Street sprinting to record highs again; barring a shakeout in the last few trading days of the year, the U.S. benchmark S&P 500 index should end with a gain of 30%. In China too, equity returns are neck-and-neck with U.S. markets, around 33% in yuan terms.
But few — in Shenzen or New York — expect such gains in 2020. For one, high-pitched recriminations may resume in 2020, with Chinese tech firms such as Huawei and video-sharing app TikTok seen coming into the U.S. crosshairs.
In both countries, monetary authorities show no enthusiasm for further policy easing — Beijing’s tacit acceptance of slower economic growth should warn investors to curb the exuberance.
As for the S&P 500 rally, many credit interest rate cuts by the Federal Reserve — and it has pressed pause on those. And analysts at Bespoke Investments point out the index has returned an average +6.6% in years following a 20%-plus rally.
But all that’s next year. For now, let seasonal cheer prevail!
(3) A serving of Brexit at Christmas?
A Christmas break from Brexit? Don’t bank on it.
Britain’s newly-emboldened Prime Minister Boris Johnson will be busy readying the legislation required to ratify his Brexit deal through the UK parliament by Jan. 9.
That will finalize Britain’s EU leave date as Jan. 31 and start an 11-month countdown to strike a new trade deal that avoids the UK toppling over a Brexit cliff-edge at the end of 2020.
What other dates should you put in your shiny new 2020 Brexit calendar? Well, here’s a few.
February or March — UK budget that sets out the government’s spending and tax plans.
March — Talks with the EU on a free trade agreement expected to begin and the March 26/27 European Council meeting should be a good point to gauge the mood music.
June - Britain and the EU plan to hold “high level” talks to take stock of progress in the negotiations. Although Johnson is committed not to extend the transition period, if he changes his mind the extension has to be requested by the end of June.
(4) Can Europe’s economies stabilize and move ahead next year?
After putting up a dismal show for three consecutive quarters, Europe Inc. looks poised to come out of earnings recession as the continent’s economy stabilizes, a Brexit outcome seems within reach and trade war worries diminish.
The pan-European STOXX 600 benchmark posted its worst earnings performance in 3-1/2 years during the July-September quarter with a decline of -4.4%. But the October-December quarter is expected to show earnings growth of +3.7%, outshining U.S. earnings for the first time in two years.
So far, despite the earnings slump, European share prices have held up fairly well. That’s led to some stretched valuations, and investors reckon that any further upside would need to be driven primarily by earnings growth.
(5) Little holiday cheer this year in Lebanon and Argentina
Not much Christmas cheer this year for Lebanon and Argentina, the twin trouble spots of emerging markets.
Lebanon’s shopping malls are devoid of their usual December bustle as hard currency shortages make it tricky for consumers to access cash. Mired in economic recession, the country has also endured months of political turmoil as the main parties feuded over forming a government.
A sliver of hope has finally emerged with the appointment of new prime minister Hassan Diab who has vowed to quickly form a government to pass reforms and stave off debt default.
Fellow sufferer Argentina at least has a government — Alberto Fernandez was sworn in as president this month but recession is biting, inflation is above 50% and poverty rates are approaching 40%. Fernandez now faces tough talks with the IMF and creditors on restructuring about $100 billion in sovereign debt.
Zacks #1 Rank (STRONG BUY) Stocks
Heading into 2020, the Info Tech space is where valuations are stretched the most. There are two good stock pick examples — on our Zacks #1 Rank list this week.
(A) Advantest Corp.: This is a $11.3B electronics measuring instruments company. It’s a $57 stock now. This business is closely tied to semi chip production.
I have a Zacks Value score of D, a Zacks Growth score of C and a Zacks Momentum score of B.
The big question is this: When does this tech stock’s share price momentum cool off, given the poor Value and Growth scores?
(B) Fair Isaac Corp.: This is a $10.8B market cap stock in Computers-IT Services. Shares are priced at a cool $373 each.
I have a Zacks Value score of F (No surprise there!), a Zacks Growth score of B, and a Zacks Momentum score of D.
Once again, trees (Even Info Tech sector driven ones) do not grow into the sky.
(C) Jones Lang LaSalle: This is a $8.9B market cap stock in the Real Estate Operations space. I see a $172 share price tag.
I have a Zacks Value score of B, a Zacks Growth score of C and a Zacks Momentum score of A.
Note the much better long-term Zacks Value score in the Real Estate space.
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Fair Isaac Corporation (FICO) : Free Stock Analysis Report
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Advantest Corp. (ATEYY) : Free Stock Analysis Report
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