For Immediate Release
Chicago, IL – May 31, 2019 – Zacks Equity Research Match Group MTCH as the Bull of the Day, Toll Brothers, Inc. TOL as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Chicago Mercantile Exchange CME, AngloGold Ashanti Limited AU and Pinnacle West Capital PNW.
Here is a synopsis of all five stocks:
Bull of the Day:
Match Groupcontinues to hum along as Millennials and GenZ embrace dating apps. This Zacks Rank #1 (Strong Buy) is expected to post double digit earnings growth this year and next.
Match Group provides dating products in over 40 languages all over the world. Its brands include Tinder, Match, PlentyofFish, Meetic, OkCupid, OurTime, Pairs and Hinge as well as others.
As of Mar 31, 2019, it had average subscribers of 8.6 million.
Match Beat Again in the First Quarter
On May 7, Match Group reported its first quarter results and blew by the Zacks Consensus Estimate by 48%. It reported earnings of $0.48 well above the Zacks Consensus of $0.33.
It was the fifth earnings beat in a row.
Revenue jumped 14% to $465 million from $407 million in the year ago quarter.
Average subscribers, a key metric for digital companies, rose 16% to 8.6 million, up from 7.4 million in the first quarter of 2018.
Of that number, Tinder average subscribers were 4.7 million, up 1.3 million year-over-year.
The company is looking for market opportunities, especially in Asia.
Match was spun off from IAC in 2015. IAC still owns a large interest in Match.
As of Mar 31, 2019, IAC had an economic ownership interest in Match which was 80.4% and a voting interest of 97.5%.
Analysts Bullish on 2019 and 2020
Given the big beat and stellar subscriber growth, the analysts have been bullish with their estimates.
7 estimates were revised higher, but one was lowered, in the last 30 days for 2019. That pushed the Zacks Consensus Estimate up to $1.91 from $1.62.
That's earnings growth of 25.7% compared to 2018 when the company made just $1.52.
They are bullish on 2020 as well.
5 estimates were revised higher, but 2 lower, over the last month for 2020. That pushed the Zacks Consensus Estimate up to $2.23 from $2.09, which is another 17.2% earnings growth.
Bear of the Day:
Toll Brothers, Inc. is feeling the strain as home buyers are balking at high housing prices. This Zacks Rank #5 (Strong Sell) has increased incentives which is going to hit gross margins this year.
Toll Brothers builds luxury homes for move-up, empty-nester, active-adult and second home buyers. It also builds urban and suburban rental properties.
The company operates in 22 states including Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Texas, Utah, Virginia and Washington, as well as in the District of Columbia.
Expanding Into Hot Markets
In May 2019, Toll announced it was entering the metro Atlanta market by acquiring Sharp Residential. Sharp was one of Atlanta's largest private home builders.
Atlanta was also the largest US housing market that Toll did not have a presence.
Sharp focused primarily on the area’s northern suburbs with homes ranging from first-time to luxury at price points from the $300,000s to the $900,000s. At the date of acquisition, the Company had approximately $65 million in backlog consisting of 125 homes with an average price of $520,000.
Toll also acquired approximately 900 lots owned and controlled in the Atlanta MSA in the deal.
Terms of the deal were not disclosed.
In the fiscal second quarter, Toll also expanded organically into two other hot markets: Salt Lake City and Portland, Oregon, with the opening of their first communities.
Toll said buyer interest had been "healthy."
Toll Beats Again in the Fiscal Second Quarter
On May 21, Toll Brothers reported its fiscal second quarter results and beat on the Zacks Consensus by 10 cents. Earnings were $0.87 versus the consensus of $0.77.
It was the 6th consecutive earnings beat.
Revenue was up 7% to $1.71 billion as deliveries rose 1% to 1,911.
But the problem was that net signed contract value fell 16% to $2 billion and contract units were down 9% to 2,424.
Also backlog value at the end of the quarter fell 11% to $5.66 billion.
The company struggled in California, a large luxury home market.
The level of incentives to get buyers to sign the contract jumped 13.3% from the first quarter and was 55% higher than the second quarter of last year. In 2018, it was giving average incentives of $22,000 but this year it had jumped to $34,000.
This increase hits gross margins directly.
Analysts Cut Estimates for F2019 and F2020
The high end of the housing market is feeling the pinch, even with mortgage rates dropping again.
Analysts are bearish about earnings due to the higher incentives and hit to gross margins. They've been cutting since the earnings announcement.
6 analysts cut their full year 2019 estimates in the last month, pushing the Zacks Consensus down to $3.91 from $4.38 during that time.
Toll made $4.71 in fiscal 2018 so that's an earnings decline of about 17%.
6 analysts also cut fiscal 2020 estimates pushing the consensus down to $4.29 from $4.51. But that's at least 9.5% earnings growth compared to 2019.
Is the Rally Over?
The home builder stocks got crushed in 2018 as Wall Street feared rising rates would mean slowing sales.
Toll Brothers stock bottomed out in October 2018 and then staged a furious rally.
But the earnings report put a damper on the party. While Toll is still up 7.7% year-to-date, it's well off its recent highs.
Could it retest those October lows again this year?
Shares look cheap with a forward P/E of just 9. Toll also pays a dividend yielding 1.2%.
But with incentives rising on weaker demand, it might be too early to jump back in.
Low Beta Stocks to Buy as Market Volatility Increases
May has seen some of the most volatile equity markets since January. The VIX, also known as the market’s “fear index”, hit its highest levels since the first week of 2019 this month.
Investors have a renewed concern over the US-China trade dispute as both parties add to the already hefty tariff schedule. With both sides playing hardball, investors are worried that this prolonged dispute will continue to give US companies grief. Global economic slowdowns are also a concern weighing on the markets and causing investors to contemplate whether the US is next.
In this article I will discuss some low to negative beta options to hedge anyone’s portfolio in these volatile times.
Chicago Mercantile Exchange
The CME Group is the largest commodity & derivatives exchange in the world. Based out of downtown Chicago, it offers firms a wide variety of derivatives and futures to hedge their business. The exchange is also used by speculative traders who believe they can beat the market.
As the markets have become increasingly volatile over the past month and the CME has shown investors an almost 10% gain while the S&P 500 is down roughly 5% since the beginning of May.
CME has a beta very close to zero making it a safer bet in rough market waters.
Most of the volume that is traded on the CME are interest rate derivatives, which are used to help businesses hedge floating interest rates, expected future borrowing as well as expected future lending. They also offer futures and options in equities, foreign exchange, agriculture, and commodities.
When the market breaks down companies tend to hedge more of their business due to the perceived future risk associated with a market downturn. Speculative traders on the CME exchange are also trading larger volumes because of the increased volatility, something every day trader is waiting for.
The CME Group’s revenue is driven almost entirely by volume and as the markets break volumes increase for the reasons mentioned above.
Volume has consistently increased over the past 5 years by an average annual rate of 9%. CME Globex has primarily driven this growth. This is CME’s online platform that makes it easier for any business to hedge, no matter the size. The past 5 years have been relatively low volatility, so when the markets hit the fan expect CME to reap the benefits
CME is currently trading just off its 10-year forward P/E high. I would wait to put a long position on CME until the valuation comes down a bit. Look to buy once CME drops below the $180 level. This low beta exchange is expanding and will make not only a good hedge but also an excellent long-term investment at the right price.
AngloGold Ashanti Limited
Gold prices have an inverse relationship with the equity market because of its flight-to-quality characteristics. As you might guess, gold miners and gold move together.
AU has a beta of -1, implying that it will show investors returns when the broader equity market isn’t. You can see this inverse relationship play out in this past month, as AU attains 8% returns and the S&P 500 slides almost 5%.
AU is trading at favorable multiples, with its forward P/E of 11.2x below its 10-year median and far below the gold mining industry average (north of 30x). If you factor expected growth into its P/E multiple the investment looks even more attractive, trading at a PEG of 0.6x, significantly below the industry average of 5x.
AngloGold Ashanti is expected to grow its EPS by 90% this year and 21% in 2020. Analysts have raised these estimates considerably over the past 2 months thrusting AU to a Zacks Rank #1 (Strong Buy).
Pinnacle West Capital
Investors often use utility companies as investment safe-havens because of their consistent cash flows and large dividend payouts. Falling interest rates, which we have been seeing, are also good for utility companies because of the capital-intensive nature of their business causing them to carry a lot of debt on their balance sheet. Historically during market downturns, utility stocks have outperformed the broader equity market.
Pinnacle West Capital is a utility holding company whose subsidiaries provide Arizona with electricity. PNW is responsible for generating and distributing electricity to 1.2 million customers around the Phoenix area.
PNW is focusing on expanding its customer base and updating its infrastructure with renewable energy being a focal point. They are planning on investing roughly $4 billion over the next 3 years in order to make this happen.
Over the past decade, PNW has consistently grown its top and bottom lines as well as expand its margins, something most utility companies can’t boast. PNW has performed exceptionally well over past 52-week, returning investors over 20%, and outperforming both the industry average and the S&P 500.
Analysts are have raised long term EPS outlook for PNW over the last 60 days propelling this stock into a Zacks Rank #2 (Buy).
An expanding utility company that still pays out a dividend north of 3% is hard to come by. PNW is about 5% off its all-time high, which it hit last week, and I believe now is the perfect time to add this low beta utility company to your portfolio.
Market volatility is inevitable and the best way to protect your portfolio from exacerbated losses is to hedge it with low to negative beta options. You could use a growing exchange like CME for long term portfolio returns combined with a low beta hedge (at the right price). AU and other gold mining stocks with a negative correlation to the market will allow your portfolio to have some profitability even in the worst downturns. A utility company like PNW will give your portfolio sustainable yields and even some long-term growth without adding to your market exposure.
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Pinnacle West Capital Corporation (PNW) : Free Stock Analysis Report
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CME Group Inc. (CME) : Free Stock Analysis Report
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