For Immediate Release
Chicago, IL – March 29, 2019 – Zacks Equity Research Ralph Lauren RL as the Bull of the Day, Dean Foods Company DF asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Cisco Systems, Inc. CSCO, Hewlett Packard Enterprise HPE and Facebook FB.
Here is a synopsis of all five stocks:
Bull of the Day:
Ralph Lauren shares have surged 25% this year to outpace the apparel market’s roughly 16% climb and the S&P 500’s 12% gains. The luxury fashion brand posted stronger-than-expected holiday quarter results and has seen analysts turn more bullish recently in terms of RL’s bottom-line expansion.
Overview & Growth Plans
Ralph Lauren has long been a powerhouse of more attainable high-end fashion, unlike say Gucci or Saint Laurent, which are owned by Kering SA. On top of Ralph Lauren’s namesake brands, the company owns Club Monaco. The brand competes against the likes of Walmart-owned Bonobos. Meanwhile, RL raised its marketing investment by 18% last quarter to help drive brand awareness and attract younger customers, who have been won over by the likes of Lululemon and Canada Goose.
Last summer, RL and chief executive Patrice Louvet—who took over in 2017—laid out plans to drive growth. Ralph Lauren aims to “lead with digital across all activities, energize core products and accelerate under-developed categories,” and more. The company also projected at the time that its revenue would grow at a compounded annual growth rate in the low to mid-single digits in constant currency between fiscal 2018 and 2023.
Part of Ralph Lauren’s push focuses on e-commerce, including social media. RL has boosted its following on quickly expanding Instagram, where brands are now built and people shop directly, to over 10 million on its core page alone. These efforts helped the company post 20% digital revenue growth last quarter. RL’s digital comps soared 62% in Asia and 21% in North America during Q3 fiscal 2019, which included the vital holiday shopping period. The New York-based fashion giant’s moves helped the company’s quarterly earnings pop over 14% to $2.32 per share and top our quarterly Zacks Consensus Estimate, on the back of 5% revenue growth.
It seems that consumers and investors have been drawn to Ralph Lauren’s longer-term plan to drive growth, especially recently. As we mentioned at the top, shares of RL have surged over 25% this year. Despite the climb, RL stock rests roughly 12% below its 52-week highs at $129.40 per share—which includes Thursday’s 3.76% jump.
With that said, the chart below puts Ralph Lauren’s current climb into historical context and helps investors see that shares of RL still have plenty of room to climb before they would reach their 2014 highs.
Outlook & Earnings Trends
Looking ahead, the firm’s current-quarter revenue is projected to slip 4.3% to hit $1.46 billion. Despite the projected top-line decline, Ralph Lauren is expected to see its adjusted Q4 fiscal 2019 earnings pop 2.2% to $0.92 per share. Clearly, RL’s short-term outlook does not appear that impressive, but it looks poised for longer-term expansion.
The company’s fiscal 2019 EPS figure is projected to jump nearly 17% on the back of 1.4% revenue growth. These positive full-year estimates are expected to be followed up in fiscal 2020. RL’s revenue is projected to jump 2.3% above our current year estimate to reach $6.42 billion. Meanwhile, at the bottom end of the income statement, Ralph Lauren’s adjusted full-year earnings are expected to climb roughly 8% higher than our 2019 estimate to hit $7.60 per share.
Along with the actual bottom-line projections, investors can see that analysts have become far more positive about the company’s earnings outlook. In particular, Ralph Lauren has earned a significant amount of upward earnings estimate revisions for fiscal 2019 and 2020, which helps highlight its longer-term positivity.
Plus, the company’s earnings are projected to climb by 10.3% over the next three to five years, on an annualized basis. And Ralph Lauren almost always beats quarterly earnings estimates, which includes an average positive earnings surprise of 6.9% in the trailing four periods.
Bear of the Day:
Dean Foods Company has seen its stock price tumble 18% since it reported its fourth quarter and fiscal 2018 financial results in late February. Shares of DF are down 16% on the year, compared to the Food Market’s 9% climb and the S&P 500’s 12% jump. Looking ahead, the company’s growth appears rough, with the overall dairy industry’s future seemingly headed in the wrong direction.
Dean Foods is one of the largest processors and direct-to-store distributors of fresh fluid milk and other dairy products, such as butter and ice cream. The company’s portfolio includes DairyPure, TruMoo, Land O’ Lakes, Country Fresh, Dean’s, and many others. Despite the diversity, the Dallas, Texas-headquartered firm faces a possible crossroads, as do other dairy producers, due to the rise of alternative “milk” offerings such as oat, nut, and soy, along with other non-dairy options for ice cream and more.
The Dairy Farmers of America released a report on March 20 that showed a $1.1 billion drop in net sales in 2018. The firm said that the 7.5% decline in sales was primarily due to lower milk prices. Aside from the price-based concerns, the global dairy alternatives market is projected to soar from $11.9 billion in 2017 to $34 billion by 2024.
Along with the overall industry headwinds and uncertainty, Dean Foods posted a full-year fiscal 2018 adjusted net loss of $0.47 per share. Worse yet, the firm suspended its quarterly dividend to “enhance financial flexibility.” This announcement alone is likely what sent shares of DF down huge following its Q4 earnings release because even lowering a dividend often means bad things are coming—suspension is a whole different animal.
The chart below shows DF’s freefall over the last roughly 15 years. Shares of DF have tumbled from $8.42 per share on March 28, 2018 to as low as $2.73 a share over the last 12 months. DF stock closed regular trading Thursday at $3.17 a share.
Dean Foods has sold off brands in recent years to become leaner. Yet, its core business might face more competition from store-branded options than ever before. The likes of Walmart and Kroger sell their own milk and other dairy products. Amazon even started to sell milk online under its Happy Belly brand.
Clearly, there do not seem to be many obvious positives for the company in the near-term. With that said, one possible silver lining for DF investors could be an acquisition. The likelihood of another company coming in and buying Dean Foods could become more likely if its stock price continues to dive.
The hope then would be that a firm commits to buying Dean Foods at a slight premium. And a sale is not purely speculation after DF’s chief executive said the magic “strategic alternatives” phrase. “As we seek to accelerate our business transformation and enhance shareholder value, the Board has initiated a review of a range of potential strategic alternatives to best position the Company for the future,” Dean CEO Ralph Scozzafava said in prepared remarks last quarter.
Speculation aside, the company is projected to see its Q1 fiscal 2019 revenue fall 4.15% to $1.90 billion. The company’s full-year revenue is expected to pop 0.42%. But Dean Foods’ 2020 sales are expected to fall 1.40% below our current year estimate to hit $7.68 billion. This also would mark a downturn from fiscal 2018’s $7.76 billion full-year revenue.
3 Blue Chip Stocks to Buy Right Now
The S&P 500 has continued to hum along in 2019, up roughly 12%, as it tries to erase the fourth quarter downturn that was driven, in part, by large-cap tech stocks like Apple and Amazon. As the rebound pushes forward, it seems likely that money will continue to flow into strong, consistent companies with businesses that can withstand near-term headwinds.
Therefore, some of the world’s leaders in technology, which have dominated Wall Street in recent years, are back on the menu. Tech has been at the helm of our historic bull market, and in our increasingly interconnected and digital world, it is likely that the industry remains a long-term growth driver.
Clearly, some of the volatility has made some investors more skeptical, with bearish traders quick to draw similarities between this latest tech rally and the infamous dot-com bubble of the late 90s and early 2000s. Yet, unlike the dot-com bubble, sustainable revenue and earnings expansion has fueled tech.
There are, of course, concerns about a global economic slowdown. This might mean that investors interested in tech search for companies that have proven their strength for years and look poised for solid expansion. With that said, let’s check out three blue-chip tech stocks to consider buying right now.
1. Cisco Systems, Inc.
Cisco is a historic networking and tech firm that has expanded into the internet of things and more in recent years, offering clients the chance to connect everything from transportation fleets to assembly lines. Shares of CSCO have surged 23% this year to crush the market and its industry’s 17% average climb to help them rest just below their 52-week high of $54.23 per share.
Looking ahead, our current Zacks Consensus Estimates call for Cisco’s current quarter earnings to surge 16.7% on the back of 3.4% revenue growth. The company’s full-year fiscal 2019 revenue and earnings are projected to jump 4.7% and 17.7%, respectively, with an additional 10% bottom-line expansion expected in 2020.
CSCO has also experienced a ton of positive earnings estimate revisions activity for both 2019 and 2020 recently, against almost zero downward changes. This recent positivity helps Cisco sport a Zacks Rank #2 (Buy) at the moment. Cisco is also a dividend payer that lifted its quarterly payout to $0.35 per share, up 6% from the year-ago period and 20% on a two-year stack. Ciscohas a dividend yield of 2.5% and its trading just below its industry’s average forward P/E at 18.2X forward 12-month Zacks Consensus EPS estimates.
2. Hewlett Packard Enterprise
Hewlett-Packard spun off Hewlett Packard Enterprise in the fall of 2015. HPE offers its business clients everything from management software to hybrid cloud solutions and has also expanded into IoT related hardware, software, and security solutions. Shares of Hewlett Packard Enterprise have surged roughly 17% to start the year to outpace the S&P’s 12% climb. Despite the climb, HPE stock still rests 14% below its 52-week high at $15.40 per share.
Investors should also note that HPE currently sports “B” grades Value and Momentum in our Styles System and is trading at 9.1X forward 12-month Zacks Consensus EPS estimates right now. This represents a discount compared to its industry’s 14.9X average and its own three-year median of 11.1X. Meanwhile, the firm’s positive earnings estimate revision activity helps it earn a Zacks Rank #2 (Buy).
HPE also pays an annualized dividend of $0.45 per share, with an approximately 3% yield. Meanwhile, HPE is expected to see its adjusted Q2 fiscal 2019 earnings jump 5.9%. Peeking further ahead, the firm’s current full-year earnings are projected to pop 4.5%, with its 2020 EPS figure expected to climb 7.7% above our 2019 estimate.
Facebook’s 2018 setbacks have been well documented and now the firm faces charges of discrimination from the U.S. Department of Housing and Urban Development due to its ad-targeting system. Despite the setbacks, Facebook’s global monthly active user total climbed 9% in Q4 to reach 2.32 billion. Mark Zuckerberg’s firm has also seen its Instagram platform become more popular and the CEO recently detailed plans about how Facebook could start to focus on private encrypted messaging, payments, and other services in a move that would see it transition toward Tencent’s WeChat model. Facebook’s longer-term earnings estimate revision activity has also trended up in a big way recently to help FB earn Zacks Rank #2 (Buy).
Facebook’s first quarter revenues are projected to jump 25% to reach $14.96 billion, with fiscal 2019’s top-line expected to expand by over 23%. Peeking even further ahead, FB’s adjusted 2020 earnings are projected to climb 17% on the back of 20.6% revenue growth.
Overall, the company’s share of total U.S. digital ad spending is expected to pop slightly this year to 22.1%, according to eMarketer—Google controls roughly 40%. Facebook’s position as the second largest digital advertiser could become even more lucrative as non-ad supported platforms like Netflix and Amazon Prime, make consumers more difficult to reach. FB is also trading at 21.2X 12-month Zacks Consensus EPS estimates, which falls far below its three-year high of 44.3X and its three-year median of 27.7X.
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