For Immediate Release
Chicago, IL – May 15, 2019 – Zacks Equity Research Penumbra PEN as the Bull of the Day, Olympic Steel ZEUS as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Facebook FB, Alphabet GOOGL and Netflix NFLX.
Here is a synopsis of all five stocks:
Bull of the Day:
Penumbrais a $4.3 billion medical device company focused on minimally-invasive instruments for neurovascular and peripheral vascular diseases.
The company leverages its expertise in catheter-based technology to develop access devices for treating strokes, aneurysms, deep vein thrombosis, pulmonary embolism, and other patient events caused by blood clots.
The company takes its name from the shadow-like effect in pathology and anatomy where the area surrounding an ischemic event such as thrombotic or embolic stroke can become dark. Immediately following the event, blood flow and therefore oxygen transport is reduced locally, leading to hypoxia of the cells near the location of the original insult.
Penumbra technologies use proprietary aspiration catheters, tubes and other instruments to essentially vacuum blood clots out of the brain, in the case of stroke.
Based in Alameda, CA, Penumbra sells its products to hospitals and clinics primarily through its direct sales organization in the United States, most of Europe, Canada and Australia, and through distributors in select international markets.
Strong Q1 Results Affirm the Growth Story
On May 7, Penumbra delivered a 77% earnings beat for Q1 2019 with non-GAAP EPS of $0.23 per share vs. the Zacks Consensus Estimate of $0.13 per share. This compares to earnings of $0.06 per share a year ago.
The company also beat on the topline with Q1 revenue of $128.4 million vs. the consensus of $123 million. This represented a year-over-year increase of 25.1%, or 27.2% on a constant currency basis.
Revenues were split 64% for the US and 36% international for the quarter. Neuro products sales grew to $81.5 million, an increase of 14.1%, or 16.5% on a constant currency basis from the year ago quarter.
Vascular products sales grew to $47.0 million, an increase of 50.2%, or 51.8% on a constant currency basis.
Gross profit was $83.9 million, or 65.3% of total revenue, compared to $66.6 million, or 64.8% of total revenue, for Q1 2018.
Total operating expenses were $72.8 million, or 56.6% of total revenue. This compares to total operating expenses of $62.5 million, or 60.9% of total revenue, for Q1 2018.
PEN management also guided to the high end of their revenue range of $525 to $535 million for 2019.
Here's what I wrote about PEN last September after the stock came off of new highs near $160...
Growth Catches Up with the Valuation
The company made a strong swing to sustainable profitability this year on the back of projected 27.5% sales growth from last year's $333 million to over $425 million in revenue.
The profit surge -- from last year's loss of 1-cent to a current estimate of +$0.34 -- caught analysts way off guard. We know this because in the last two quarters, the company delivered consecutive 400% EPS beats.
And that's why the stock is a Zacks #1 Rank as analysts scrambled to raise full-year 2018 EPS estimates 70%, since the early August quarterly report, from $0.20 to $0.34.
Additionally, 2019 top-line estimates are currently looking for over 20% growth to a record $500 million, giving Penumbra a 10X price-to-sales ratio.
This sales advance is expected to translate to the bottom-line next year with 72% EPS growth to $0.59. At $150 per share, that would put the forward P/E multiple under 300X.
That's still rich, but characteristic of med-tech companies with key patents and strong sales growth.
Bear of the Day:
Olympic Steelis a $165 million US metals service center focused on the direct sale and distribution of large volumes of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel and aluminum products.
The Company's CTI subsidiary is a leading distributor of steel tubing, bar, pipe, valves and fittings, and fabricates pressure parts for the electric utility industry.
ZEUS was a Zacks #5 Rank Strong Sell for most of Q1 when it was trading above $18. It will remain in the cellar for some time now following the company's Q1 report on May 2.
Olympic Steel came out with quarterly earnings of $0.18 per share, missing the Zacks Consensus Estimate of $0.22 per share. This compares to earnings of $0.70 per share a year ago. These figures are adjusted for non-recurring items.
This quarterly report represents an earnings surprise of -18%. A quarter ago, it was expected that this steel maker would post earnings of $0.17 per share when it actually produced earnings of $0.14, delivering a surprise of -17.65%.
Olympic Steel, which belongs to the Zacks Steel Producers industry, posted revenues of $445.92 million for the quarter ended March 2019, surpassing the Zacks Consensus Estimate by 6.70%. This compares to year-ago revenues of $375.60 million. The company has topped consensus revenue estimates all four times over the last four quarters.
But sales are expected to decline for two consecutive years and earnings are forecasted to plunge 66% in 2019.
While the direct impacts of the trade war with China upon ZEUS are not known at this time, all we really need to know is the analyst consensus for this year's EPS has dropped over 40% from $1.70 to $1.00 in just the past few weeks.
There may be a time to add ZEUS to your portfolio as it tests 3-year lows under $14, but that time is not now. The Zacks Rank will let you know when it's safe again.
3 Stocks to Buy with Little Trade War Exposure
Markets had soared back in 2019, with S&P 500 and Dow riding high. Then, the U.S. and Chinese trade war, which some on Wall Street had already priced in as a done deal, took a turn for the worse. Clearly, a resolution to the ongoing trade dispute between the world’s two largest economies could be made soon. But what’s the harm in buying a few tech giants that have almost no exposure to the U.S./China trade war?
Facebook has essentially no presence in China due to government censorship laws. It also makes nearly 99% of its money from digital advertising and will hardly be impacted by the continuation of the trade war. Plus, the social media powerhouse was still able to grow both its daily and monthly active user bases by 8% last quarter despite not operating in the world’s most populated country. Facebook executives now estimate that over 2.7 monthly billion people use at least one of its “family” of services—which includes Facebook, Instagram, WhatsApp, and Messenger—every month on average, or roughly 35% of the global population.
Along with its ability to rake in ad dollars on a mass scale, even as Amazon grows its digital ad unit, CEO Mark Zuckerberg has tried to diversify. This expansion includes e-commerce, private encrypted messaging, peer-to-peer payments, and more. Peeking ahead, our Zacks Consensus Estimates call for FB’s full-year 2019 revenues to surge 24% to reach $69.22 billion. FB’s adjusted fiscal year EPS is projected to slip 6.3% as it spends heavily to improve security and diversify. Luckily, FB’s adjusted 2020 earnings are projected to soar over 31% above our current-year estimate and the company’s longer-term earnings estimate revision activity helps FB land a Zacks Rank #2 (Buy) at the moment.
Meanwhile, Facebook stock still rests below its 52-week high at $182 per share despite a 40% jump in 2019. Plus, FB is trading at 21.3X forward 12-month Zacks Consensus EPS estimates at the moment, which marks a discount compared to its industry’s 26.1X average and its own five-year high of 61.4X and 31.5X median. This means investors can say with some confidence that Facebook stock is relatively inexpensive at the moment.
Like its digital ad juggernaut peer, Google parent Alphabet’s main offerings such as its search engine, Gmail, and YouTube have been banned in China for years. The Chinese government’s censorship legs, sometimes referred to as the Great Firewall, have the power to control what companies have access to the massive Chinese consumer base. And despite some reports last year that Google planned to re-enter the country, the tech firm is still not there and likely won’t be anytime soon. Still, Google’s search engine is nearly ubiquitous throughout much of the rest of the world today and it captured more than 37% of total U.S. digital ad spending in 2018.
Google’s ad business looks poised to pull in more money as non-ad supported platforms such as Amazon Prime proliferate. Along with its web browser and search engine, Alphabet sells hardware such as its Pixel smartphones, Home smart speaker, and more. Looking ahead, Alphabet’s adjusted full-year earnings are projected to jump 4.3% on the back of 18.2% revenue growth. On top of that, GOOGL’s EPS figure is projected to climb 19.3% above our current year estimate on the back of 17% further top-line expansion next year.
Alphabet is currently a Zacks Rank #3 (Hold) based, in large part, on its mixed earnings estimate revision activity. Shares of Google also rest roughly 12.5% below their 52-week high at the moment. And the search engine giant’s stock is trading below its industry’s 26.1X average at 22.4X 12-month Zacks Consensus EPS estimates. This also represents a discount against its own 12-month high of 28.6X and one-year median of 24.3. Investors should also note that the company is well-positioned for future growth as it expands its cloud computing business and prepares for the self-driving car revolution with Waymo.
The Los Gatos, California-based firm has extended its streaming platform to nearly every country in the world expect China. Netflix has said that it “continues to explore options for providing the service” in China, but it will likely find it hard to penetrate the market given the country’s censorship concerns. Still, Netflix ended the first quarter with nearly 149 million paying memberships around the world, up 25% from the year-ago period’s 119 million. The streaming TV firm’s consumer base is larger than Amazon and Hulu, and it is spending billions on content to prepare for a more crowded streaming market that will soon include Disney, Apple and AT&T.
With that said, much of the company’s growth will be somewhat determined by its ability to continue to roll out compelling TV and movie offerings in local markets to help facilitate its overall international expansion. Looking ahead, the firm’s fiscal 2019 revenues are projected to jump nearly 28%, to help lift its adjusted earnings by 25%. Better yet, NFLX’s fiscal 2020 EPS figure is expected to skyrocket 77% above our current year estimate on over 24% revenue growth. Netflix is currently a Zacks Rank #3 (Hold).
Netflix saw its stock price roar back to start 2019, but shares of NFLX have cooled off recently. Overall, the company’s stock is up 30% this year and hovered at around $348 per share through morning trading Tuesday. This marked a roughly 18% downturn compared to its 52-week highs and could give the stock some more room to run as the broader streaming TV market continues to gain steam. Netflix’s valuation metrics remain sky high, but investors interested in NFLX should see it as a tech growth play in a booming industry, and not much more at the moment.
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