For Immediate Release
Chicago, IL – December 4, 2018 – Zacks Equity Research Manchester United MANU as the Bull of the Day, Big Five Sporting Goods BGFV as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Caterpillar CAT, Terex TEX and Deere DE.
Here is a synopsis of all five stocks:
Bull of the Day:
In the United States, sports broadcasting is dominated by the “Big 4” – NFL football, MLB baseball, NBA basketball and NHL hockey. Head to your neighborhood sports bar and you’re likely to find fans enjoying hot wings and beer while one or more of those sports is displayed on multiple TVs. If it happens to be Saturday or Sunday afternoon, you might also find a professional golf tournament on a screen or two.
In the rest of the world, it’s a somewhat different story. In Europe, Mexico and South America especially, the professional sport most fans are most interested in is Soccer – commonly referred to simply as “football” outside the US.
International soccer enthusiasts are rabid for their favorite teams, anxiously watching every pass, shot and save with a level of enthusiasm that’s every bit the equal of American NFL fans. To a greater degree than is typical with the big 4 American sports, individual players often exhibit larger-than-life personalities on and off the field and soccer fans often have not only favorite players to root for, but also foils on other teams that they love to root against. It’s a winning formula for retaining fan interest and support.
Among international soccer clubs, there is perhaps no more recognizable name than England’s Manchester United which has 659 million global followers and has been in existence for 140 years. “Man U” or “United” – as hardcore fans refer to it - is both the highest-earning and most valuable soccer club in the world with revenues for the 2016-2017 season of €676 million and a total value of over €3 billion.
It’s also a publicly traded company since its 2012 listing on the New York Stock Exchange.
Just like the most popular US professional sports franchises, MANU enjoys a diverse stream of revenues that includes not only ticket sales and broadcast rights, but also licensed merchandise, concessions and strategic partnerships with companies outside the sports world.
In fact, MANU - which breaks down revenues for investors into three categories, Commercial, Broadcasting and Matchday – takes in more from the Commercial segment, which includes sponsorships as well as licensed merchandise and apparel, than from the other two segments combined. In the most recent quarter, Commercial accounted for £76B in revenue, Broadcasting was £43B and Matchday was £16B.
Positive earnings estimate revisions earn MANU a Zacks Rank #1 (Strong Buy).
Company guidance for fiscal year 2019 predicts revenues of £615-630B and EBITDA of £175-190M. The report also highlighted new partnerships with Kohler and True Religion apparel as well as the renewal of sponsorships from Canon Medical Systems and Deezer.
Bear of the Day:
Rumors of the demise of traditional retail turn out to have been greatly exaggerated. Despite stiff competition from Amazon and Big Box stores like Wal Mart, some retailers have survived and even thrived by adopting innovative internet marketing and selling campaigns and providing attractive, well-stocked brick-and-mortar locations that appeal to customers who prefer to see and feel merchandise before they buy.
Retail companies that operate clean, well-lit locations have been able to carve out a niche for themselves despite internet competition and are still able to sell goods at reasonable margins because the entire value proposition makes sense to consumers even if the prices of items are a bit higher.
Unfortunately, Big Five Sporting Goods is not one of those success stories.
In an era when customers have a wide range of choices about where to purchase sporting equipment, Dick’s Sporting Goods has succeeded by leasing premium real estate in high-profile mall locations that are stocked with a wide variety of brand name equipment and apparel that generally sells at or near full MSRP.
Big Five instead relies on smaller stores in less expensive locations and consequently relies more on sales promotions, discounts and lower priced brands favored by more budget conscious customers. Their most recent quarterly report illustrates the difficulties of utilizing that model.
BGFV reported declines in revenues, net earnings, and same-store sales and cut the quarterly dividend by 66% from $0.15 to $0.05. Net earnings of $0.15/share missed the Zacks Consensus Estimate of $0.19/share and represented a represented a 46% decline from the same period in 2017.
Expenses, measured as a percentage of sales, grew from the year ago period and the outfit only opened one new location during the quarter, bringing the total to 436. In the full year, they expect to open a total of four new stores, but also close two existing locations.
In its guidance for the fourth quarter, Big Five expects same store sales to be in a range from “negative low single digits to positive low single digits” and predicts a net loss of between ($0.25) and ($0.15)/share.
Currently a Zacks rank #5 thanks to recent downward earnings estimate revisions, Big Five has seen share prices decline by over 50% in 2018 even as the retail sector as a whole has outperformed the S&P 500 by a wide margin.
Is It Time to Buy Caterpillar (CAT) Upon the Trade War Cease-Fire?
Caterpillar saw its stock price surge as high as 4% Monday after the U.S. and China agreed over the weekend not to raise tariffs at the start of the new year. Now, with a strong Q4 outlook and a new Bank of America Merrill Lynch upgrade, is it time to buy Caterpillar stock?
Tariffs & Upgrade
President Donald Trump and Chinese President Xi Jinping agreed Saturday in Argentina to hold off on additional tariffs on each other’s goods and products, which were tentatively scheduled to begin January 1. The ceasefire agreement will see the world’s two largest economies continue talks for 90 days in order to try to possibly put an end to the on-going trade war.
The announcement helped send stocks up big on Monday, with firms that were expected to be impacted by steeper tariffs able to breathe a sigh of relief, for now. Plus, Bank of America Merrill Lynch upgraded CAT stock on the back of the U.S. and China trade news.
The firm upgraded Caterpillar from “neutral” to “buy” on Monday. The banking power also lifted its 12-month price target from $140 per share to $163 per share. This represented a nearly 21% upside to CAT’s closing price on Friday of $135.67 a share.
Moving on, shares of CAT are down roughly 12% on the year based on trade war worries and rising costs. This fall places Caterpillar well below the S&P 500’s 3.3% climb in 2018, but ahead of its industry’s 15% decline—which includes the likes of Terex, Deere and others. Investors can, however, see that Caterpillar stock has surged over the last three years.
Meanwhile, Caterpillar stock is currently trading at 10.7X forward 12-month Zacks Consensus EPS estimates, which marked a discount compared to its industry’s 14.7X average and falls well below the S&P’s 16.6X. CAT has traded as high as 24.7X over the last year, with a one-year median of 13.6X. More importantly, CAT is trading near its five-year low, which means we can say with some confidence that Caterpillar stock appears rather inexpensive at the moment.
The Illinois-based company has for much of the last year worked to offset the impact of tariffs through price increases and cost-cutting measures. Looking ahead, our current Zacks Consensus Estimate is calling for Caterpillar’s Q4 revenues to climb by 10.6% to hit $14.26 billion. At the same time, CAT’s full-year revenues are projected to surge 19.7% to reach $54.42 billion.
At the bottom end of the income statement, Caterpillar’s adjusted Q4 earnings are projected to soar by nearly 38% to hit $2.98 per share. Better still, the construction and mining equipment powerhouse’s adjusted full-year earnings are expected to skyrocket by 69.2%.
Caterpillar is currently a Zacks Rank #3 (Hold) based on its recent mixed earnings estimate revision trends. CAT also sports an “A” grade for Value and a “B” for Growth in our Style Scores system.
Therefore, Caterpillar stock seems like it might be worth considering based on the recent trade news, along with its current relatively “cheap” valuation picture and growth prospects. And let’s not forget that CAT is a dividend payer, which always comes in handy.
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Manchester United Ltd. (MANU) : Free Stock Analysis Report
Terex Corporation (TEX) : Free Stock Analysis Report
Caterpillar Inc. (CAT) : Free Stock Analysis Report
Deere & Company (DE) : Free Stock Analysis Report
Big 5 Sporting Goods Corporation (BGFV) : Free Stock Analysis Report
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