For Immediate Release
Chicago, IL – June 24, 2019 – Zacks Equity Research Malibu Boats MBUU as the Bull of the Day, 3D Systems DDD as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Disney DIS, Verizon VZ and Home Depot HD.
Here is a synopsis of all four stocks:
Bull of the Day:
Universal Display Corporation shares have skyrocketed roughly 90% so far this year and its top The first official day of summer was on Friday and everyone is headed to the water to get that base tan started. No better way to start the summer then pitching the world’s largest manufacturer of watersports boats, Malibu Boats. Analysts are excited about this small-cap growth opportunity and have been raising EPS estimates over the last 60 days, propelling MBUU into a Zacks Rank #1 (Strong Buy).
Malibu Boats isn’t just riding the wake of the recreational marine industry, they are driving the growth, with continued “innovations in performance, comfort and convenience” that watersports and recreational marine enthusiasts can’t pass up.
Malibu Boats has been making some rather large acquisitions in the marine transportation industry over the past 2 years. They acquired Cobalt for $130 million in mid-2017, expanding their product offering into the luxury recreational boat segment. “The combined business will achieve a run rate of approximately $7.5 million in cost and operational synergies”, according to Malibu Boat’s press release on the matter.
The last quarter of 2018 Malibu Boats acquired Pursuit for $100 million. Pursuit is a leader in the saltwater fishing boat market. “The saltwater outboard fishing market is one of the largest and fastest growing segments in the marine industry”, according to Malibu Boats. This diversifies their portfolio of marine transportation vessels, further boosting their market share in the marine sector.
Synergies from these acquisitions have not been fully materialized and full integration come closer to fruition every quarter. I do not believe that the anticipated growth opportunity has not been fully priced in this stock.
Performance and Valuation
Malibu Boats has shown robust double-digit top-line growth since it went public 5 years ago, with the last few years seeing some of the largest growth figures. MBUU has been profitable since it went public with healthy growth numbers that do not seem to add up to its current valuation.
Malibu Boats is trading at a forward P/E of 9.4x which is well below its median and leisure & recreation sector’s P/E of more than 14x. This is an unprecedented multiple for a firm that is expected to expand its sales by 36% this year and boost its EPS by 40%.
MBUU has seen almost 200% growth over the past 3 years but has traded sideways since the 2nd quarter of 2018.
Malibu Boats is a solid summer buy with its robust growth figures, discounted valuation and increasingly optimistic analysts. Cobalt and Pursuit are still being integrated into Malibu Boat’s business and as they do we should expect margins to gradually expand as synergies materialize.
That being said there is some substantial risk in the high beta MBUU, considering that we are nearing the end of our economic cycle. Malibu Boats have a hefty price tag and will not see the same sales in an economic downturn as discretionary spending dries up.
Analysts are predicting that MBUU has another 2 or 3 years of runway before they see any negative economic exposure, based on current economic indicators. I will be adding this to my summer portfolio but only a limited weight considering the risk.
Bear of the Day:
Today’s bear of the day may come as a surprise to some investors considering the sector’s enormous potential. 3D printing has become essential for many businesses, whether it is to design a prototype or to manufacture end-use parts.
Leading 3D printing firm, 3D Systems, was able to profit off the initial excitement in the sector but has recently been faced with harsh headwinds that have turned this once profitable company into a cash-hemorrhaging body. Analysts have been adjusted earnings down significantly over the last 60 days as more negative news comes to light, pushing this stock down to a Zacks Rank #5 (Strong Sell).
The 3D printing industry is an ever-changing sector and firms do everything they can to keep up with shifting business needs. 3D Systems seems to have fallen behind the curve, with the firm facing systemic issues that it may not have the runway to adjust. Their R&D budget may be stretched too thin to continue to meet changing customer requirements.
DDD has been burning a proliferating amount of free-cash-flow and has been borrowing at increasingly higher rates to keep its head above water. The firm has seen a flat to negative top-line growth over the past 4 years with deteriorating margins.
This past quarter 3D Systems reported an enormous miss on its top and bottom line. This miss was instigated by a technical issue with one of its printers which completely halted some of its distribution. This issue is expected to spill over and negatively affect this current quarter’s results as well.
Profits and margins are expected to continue to fall over the next couple of years as this firm attempts to keep from drowning. 3D printers are a costly business expense, and in the case of an economic decline, there would undoubtedly be softer demand. The economic cycle is coming to an end, according to key economic indicators, which could drive this firm into bankruptcy if both the credit markets and demand for 3D printers regress.
Over the last 5 years, DDD has lost over 85% of its value and analysts are saying that this stock remains overvalued. The negative rhetoric radiating from 3D Systems seems to have no end. Since the beginning of this year, DDD is down over 19% while the S&P 500 reaches new highs.
3D Systems may still have life if it is able to overcome its current headwinds. As of now, DDD looks to be going nowhere but down with systemic issues that are likely to be mended in the near term. Its excessively high beta of 2 is doing 3D Systems no favors in this volatile market. This firm needs to focus on maintaining margins and turn cash flow positive if they want to stay afloat.
3 Stocks to Consider When the Fed Cuts Rates
Investors are almost unanimously convinced that there will be a federal funds interest rate cut in July. The Federal Reserve opted to keep the benchmark rate in a target range of 2.25%-2.5%, with a vote of 9-1. Comments made by Fed Chairman Jerome Powell and a tweak made to the central bank’s statement made traders increase bets on an upcoming rate cut. Powell stated during Wednesday’s address that the case for a more accommodative policy has strengthened, furthering the notion that policy makers are concerned about recent economic developments. The fed funds futures market is now signaling a 100% chance of a monetary easing policy next month.
The yield on the 10-year Treasury note, which is a benchmark for mortgage rates and corporate borrowing, fell below 2% in response to the Fed’s statements on Wednesday. According to a CNBC analysis, stocks in the energy and materials sector tend to increase in a declining rate environment, mostly due to the weakening dollar that results from the falling rates. The analysis also found that Disney, Verizon and Home Depot have all historically performed well in low rate conditions.
According to the analysis, Disney is historically the best performing Dow stock under a low rate environment. The media giant rose 2.42% while the Dow only rose about 1% when the 10-year yield was between 2%-1.5%. The media conglomerate is currently listed as a Zacks Rank #3 (Hold). Disney has an earnings yield of 4.67% that can attract investors looking for a stock with solid returns relative to its price. Shares of DIS have been on a strong run lately; the stock’s 12-week price change is +22.26% relative to the S&P 500. Disney looks to maintain its recent 12-week success relative to its industry with the looming hope of a rate cut.
The analysis defined stocks in the communications sector as big winners as well because of their high dividend yields that become more attractive when fixed income yields fall. It also identified Verizon as the second-best performing stock in the Dow when interest rates decline. Verizon is currently sitting at a Zacks Rank #3 (Hold) with a high dividend yield of 4.2%.
Verizon also has a Style Score of B in Value, and shares are currently trading at 12X its forward earnings. It also has an earnings yield of 8.28%, assuring investors they are paying for a stock that can produce positive returns. The company has seen some recent success; earnings last quarter increased over 7% compared to the previous quarter, while Verizon’s bottom line beat the Zacks Consensus Estimate by 2.56%. With its appealing dividend and positive recent earnings growth, demand could rise for VZ if a rate cut does happen soon.
When yields drop, mortgage rates follow suit, meaning more consumers are inclined to refinance. Just last week, refinancing jumped an astounding 47% week to week and 97% annually. When homeowners have lower monthly mortgage payments, it gives them more disposable income. Homeowners often choose to use this extra money to invest in their home in other ways. For instance, customer traffic in home improvement stores like Home Depot could see an increase, helping to boost the stock.
The Home Depot is a Zacks Rank #3 (Hold) with a Style Score of B in Growth. The home improvement company has recently seen a double-digit price increase within the last 12 weeks to go along with their year-to-date price increase of 22.95%. Zacks Consensus Estimates are currently projecting positive growth in earnings and revenues all the way through fiscal 2021 for the company. Home Depot has been able to consistently surpass our growth estimates and with a looming rate cut, it seems like the company may be able to keep that trend.
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3D Systems Corporation (DDD) : Free Stock Analysis Report
The Walt Disney Company (DIS) : Free Stock Analysis Report
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The Home Depot, Inc. (HD) : Free Stock Analysis Report
Malibu Boats, Inc. (MBUU) : Free Stock Analysis Report
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