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NVIDIA, iRobot, Facebook and Twitter as Zacks Bull and Bear of the Day

Zacks Equity Research
Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

For Immediate Release         

Chicago, IL – February 20, 2018 – Zacks Equity Research highlights NVIDIA NVDA as the Bull of the Day and iRobot IRBT as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Facebook FB and Twitter TWTR.

Here is a synopsis of all three stocks:

Bull of the Day:

I last wrote about NVIDIA as the Bull of the Day on January 2 as I gave Zacks Ultimate members an update on my fundamental case for "Why You Buy NVDA Between 40 and 50 Times Forward Earnings."

With analysts raising NVDA's EPS estimates for the coming year from a consensus $3.95 to $4.67 after their November quarterly report -- and several high end projections near $5.00 -- NVDA shares around $200 were trading about 40 times the most optimistic forward estimates.

So we saw every dip as an excuse to add more NVDA shares in my TAZR Trader portfolio. Here's what I told my members on December 27 about a potentially fading opportunity to still buy NVDA near $190...

As I've written numerous times, this is the one to own for AI engines and advanced HPC (high-performance computing) applications. NVIDIA builds systems-on-a-chip (SoC) that are fueling so many different bleeding edge industries from autonomous driving, robotics and big-data mining to cancer/genomic research, medical diagnosis and cyber-security that all require massively parallel architecture (MPA).

To explain the long tail of NVIDIA's growth and dominance within and connected to several technology industries, let's review what I wrote in mid-November...

Is NVDA Too Expensive at 50X?

Many investors wonder if the stock is still a buy as it now trades over 50 times trailing 12-month earnings.

As an NVDA investor, I have a bias that says "Yes, I would still be a buyer up to 50X forward EPS."

And, after this most recent quarterly report, as I go over the growth profile in all its different business segments and customers, I find multiple reasons to reinforce this view.

In sum, as long as the leading provider of gaming processors, High Performance Computing in data centers, and emerging AI technologies keeps delivering solid double-digit sales and earnings growth, along with upside surprises each quarter, then paying 48 times the current projection for next year's profits isn't a bad proposition.

So, two important questions follow...

1) Will the market demand for HPC/AI solutions in data center, gaming, and automotive segments continue to grow at high double-digits?

2) Can NVIDIA maintain their dominant position, even as Intel buys Mobileye for a foothold in driverless cars and forges a renewed alliance with old arch enemy Advanced Micro Devices to establish a front in GPU processor markets?

The Q4 Report Answered "YES!" to Both Questions

Headed into February's volatility, we sold some NVDA shares up near $245. And I couldn't resist buying them back near $220.

That conviction paid off during the market's "flash correction" as NVDA reported its fourth-quarter of fiscal year 2018 (ended January 31) on February 8.

With another round of top and bottom line beats and raised guidance -- the coveted "earnings trifecta" -- NVDA bounced back hard.

Bear of the Day:

Consumer technology company iRobot, the $2 billion maker of the Roomba vacuum, reported strong fourth-quarter 2017 results that beat the Zacks profit estimate by over 100%.

But the 2018 outlook was equally shocking in the other direction and shares plummeted over 30% when the company reported ten days ago. More on the outlook coming up.

Quarter Details

Adjusted earnings during the quarter came in at 54 cents per share, beating the Zacks Consensus Estimate of 26 cents. The bottom line also surpassed the year-ago tally of 49 cents per share.

Quarterly revenues came in at $326.9 million, outpacing the Zacks Consensus Estimate of $317 million. The top line also came in 53.8% higher than the year-earlier tally. The upside stemmed from robust sales in all global regions.

For the full year, the company generated $883.9 million in revenues for 2017, higher than $660.6 million recorded in 2016 and representing strong annual sales growth of 34%.

More Than Vacuums

iRobot's product line, including the Roomba and the Braava family of mopping robots, feature proprietary technologies and advanced concepts in cleaning, mapping and navigation. iRobot's engineers are building an ecosystem of robots and data to enable the smart home.

The company has developed some of the world's most important robots, and has a rich history steeped in innovation. Its robots have revealed mysteries of the Great Pyramid of Giza, found harmful subsea oil in the Gulf of Mexico, and saved thousands of lives in areas of conflict and crisis around the globe.

Company Outlook

iRobot believes improving global economic conditions and upbeat consumer sentiments will drive demand for its premium home-robotic products in the quarters ahead. In addition, the company’s marketing programs and the Robopolis buyout (October 2017) will assist in boosting its top and bottom-line growth trajectory.

Based on the existing market conditions, iRobot anticipates to generate revenues in the range of $1.05-$1.08 billion and earnings in the band of $2.10-$2.35 per share in 2018.

By 2020, iRobot intends to secure revenue growth of roughly 20%, gross margin growth of 50-51% and operating margin growth of nearly 10%.

But this slow-down in growth estimates is clearly not what investors were expecting.

Analyst Reaction

Since the company's report, analysts have lowered their profit projections for the full-year 2018 from $2.77 to the new Zacks Consensus of $2.32, a 16% drop.

And even next year's EPS forecast took a bit hit, falling 17.5% from $3.48 to $2.87.

These moves pushed the stock into the cellar of the Zacks Rank.

Granted, this year's EPS growth is still expected to be above 30% and the top line comes in above 20%.

So it's very possible that investor expectations for growth had gotten ahead of themselves after a strong 2017.

Whatever the disconnect, it's time to stand aside in IRBT until the estimates start heading back up. The Zacks Rank will let you know.

Additional content:

Mueller Indicts 13 Russians Linked to Facebook, Twitter Ads

 

Special counsel Robert Mueller has indicted 13 Russian nationals and three Russian groups for interfering with the 2016 U.S. elections, the Justice Department announced on Friday. These parties are all associated with a Russia-based troll farm that advertised on Facebook and infiltrated Twitter with fake accounts.

Mueller’s charges allege that the indicted Russians stole the identities of American citizens, posed as American citizens, and create false U.S. personas. The indictment also alleges that the goal of indicted parties was to support now-President Trump and hurt Democratic nominee Hillary Clinton.

“Defendants' operations included supporting the presidential campaign of then-candidate Donald J. Trump ("Trump campaign") and disparaging Hillary Clinton,” the indictment says. “Defendants made various expenditures to carry out those activities, including buying political advertisements on social media in the names of U.S. persons and entities.”

The indicted parties are linked to the St. Petersburg-based Internet Research Agency, a troll farm that purchased $100,000 in political advertisements on Facebook during the 2016 campaign cycle. Facebook representatives testified in Congress that ads were designed to sow division among U.S. citizens and reached up to 126 million American users.

Meanwhile, Twitter said that is uncovered about 3,800 fake accounts and 50,000 bots associated with the Internet Research Agency.

Shares of Twitter and Facebook were down through morning trading Friday and slipped further into the red as reports of the indictment emerged in the early afternoon.

In a late-2017 earnings release, Facebook acknowledged that its platform was being used to spread manipulative content and pledged to spend more money to curb this trend.

“We're doing a lot here with investments both in people and technology. Some of this is focused on finding bad actors and bad behavior. Some is focused on removing false news, hate speech, bullying, and other problematic content that we don't want in our community,” Zuckerberg said. “We already have about 10,000 people working on safety and security, and we're planning to double that to 20,000 in the next year to better enforce our Community Standards and review ads.”

Want more analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

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