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Royal Gold, Mosaic, Tesla, Ford and PACCAR highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research

For Immediate Release

Chicago, IL – July 8, 2019 – Zacks Equity Research Royal Gold, Inc. RGLD as the Bull of the Day, The Mosaic Company MOS as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Tesla TSLA, Ford F and PACCAR PCAR.

Here is a synopsis of all five stocks:

Bull of the Day:

Royal Gold, Inc. is a way to capitalize on the rising gold and silver prices without actually owning mining stocks. This Zacks Rank #1 (Strong Buy) is expected to see double digit sales growth in Fiscal 2020.

Royal Gold is not a miner. It is a precious metals stream and royalty company which owns interests, as of Mar 31, 2019, on 191 properties on five continents. That includes interests on 43 producing mines and 17 development stage projects.

What's a metals stream?

From Royal Gold:

"Precious metal streams are purchase agreements with mine operators that provide, in exchange for a lump sum advance payment, the right to purchase all or a portion of one or more metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement."

What's a royalty?

From Royal Gold:

"A royalty is the right to receive a percentage of the metal produced from a mineral property. Existing royalties can be acquired outright from either a mineral resource company or a private party; new royalties can be created by providing capital to an operator or explorer in exchange for a royalty."

Missed Estimates in the Third Quarter

On May 2, Royal Gold reported fiscal third quarter 2019 results and missed on the Zacks Consensus by 3 cents. Earnings were $0.42 versus the Zacks Consensus of $0.45.

The average price of gold of $1,304 per gold ounce, actually decreased 1.9% year-over-year while revenue fell 5.3% to $109.8 million.

The company paid dividends of $17.4 million, an increase of 6.1%.

The current dividend is yielding 1%.

However, gold has hit a 6-year high in the fiscal fourth quarter, which is bullish.

Analysts Raise Estimates

Analysts are liking what they see with rising gold prices as 1 estimate was raised for fiscal 2019 in the last week, even though the company is about to report its fourth quarter results.

That has pushed up the 2019 Zacks Consensus Estimate to $1.55 from $1.52.

It's looking even stronger for fiscal 2020 though. 2 estimates have been revised higher in the last 7 days pushing the Zacks Consensus up to $2.08 from $2.04. That's an earnings increase of 34.5%.

At the end of the third quarter, the company had $216 million in cash and $1.2 billion in available liquidity.

Shares Hit New 52-Week Highs

Gold is back!

And so is interest in investing in it.

Shares of Royal Gold are up 21.5% year-to-date and recently hit a new 52-week high.

The P/E has spiked to 49 but you're not buying it for that. You're in to get the dividend and to get aboard the gold rally.

For investors looking for a way to play the return of gold, Royal Gold is one to keep on your short list.

Bear of the Day:

The Mosaic Companygot hit hard by the extreme weather conditions in North America and rising costs in the first quarter. This Zacks Rank #5 (Strong Sell) is now expected to see a double digit earnings decline in 2019.

Mosaic makes concentrated phosphate and potash crop nutrients. It is a single source provider of phosphate and potash fertilizers and feed ingredients for the global agriculture industry.

How Bad Was the Spring?

On May 5, Mosaic reported its first quarter results and beat the Zacks Consensus Estimate by 4 cents. Earnings were $0.25 versus the consensus of $0.21.

It was the fourth earnings surprise in a row.

But investors were concerned with the outlook, given that by May, the record rainfall, and flooding, was impacting the spring planting and application season in the Midwest.

In the quarter, Mosaic said that higher costs impacted all of its businesses, including costs associated with impacts of weather in North America and regulatory changes in Brazil. Earnings were negatively impacts by $0.13 per share.

In early May the company said that it was assuming a normal North  American spring application season despite the slow start. But the late start to the spring had impacted potash operating rates into the second quarter.

Lowered EPS Guidance

Given the higher costs, regulatory changes in Brazil, an increase in Canadian resource taxes and delayed recovery in phosphate margins, the company cut full year guidance to a range of $1.50 to $2.00.

That's a really wide range. It indicates that there may continue to be a large amount of uncertainty.

Not surprisingly, the analysts responded by cutting estimates. 6 estimates were cut for 2019 within the last 2 months, pushing the Zacks Consensus Estimate down to $1.72 from $2.17.

That's an earnings decline of 19% as the company made $2.12 in 2018.

The analysts didn't stop there, however. They also cut 2020 estimates as well. That pushed the 2020 Zacks Consensus Estimate down to $2.39 from $2.56.

Shares Sink in 2019

Unlike most stocks which have rebounded off 2018 lows, Mosaic has done the opposite on fears about the planting season.

Shares are down 15.2% year-to-date.

They now trade with a forward P/E of just 14.3, which is cheaper than the S&P 500, which trades around 18x.

Mosaic is also shareholder friendly, with a dividend yielding 0.8%.

Do Tesla’s (TSLA) Record Deliveries Make it a Buy?

Tesla said it delivered 95,200 cars in the quarter. Since there were around 10,600 cars in transit at the beginning and more than 7,400 in transit at the end (it won’t be providing these numbers going forward), actual deliveries were likely closer to 92,000, still above the Factset estimate of 91,000 for the June quarter.

Its second-quarter production of 87,048 was also better than the 77,100 produced in the first quarter as well as the fourth-quarter 2018 production of 86,555 vehicles.

The Model 3 remains the primary driver of sales, constituting 83.3% of production and 81.5% of deliveries this quarter.

The thing is that despite the strong numbers, deliveries through the first half of the year are around 158,200. The guidance of 380,000 to 400,000 for the year implies that deliveries through the first half should have been somewhere around 195,000 at the midpoint. It’s significant that Tesla hasn’t reiterated its 2019 guidance, despite posting strong numbers this quarter.

What management has said however that the streamlining of its global logistics framework is positively impacting numbers, which is a good thing, given the growing demand from international markets. Moreover, the resultant positive impact on cost and working capital will also help profitability, and therefore, the cash position.

Tesla also said that orders exceeded deliveries in the last quarter, which means that not all of the improvement is coming from pent-up demand, as some feared.

Given the upbeat management commentary, one does wonder though whether this growth will be sustainable going forward. In this context, executive turnover is the biggest concern. Whether Tesla comes out on top of all its challenges, whether it is able to maintain this level of momentum despite the high-level departures remains an open question. But going by the numbers, including the fact that it grew backlog, it’s probably okay to give it the benefit of the doubt.

Also keep in mind that the stock is heavily shorted, and if the positive news flow continues, especially following the earnings results, short sellers will be moving to close out their positions. So some upward movement in the share price would be inevitable.

Safer bets in the sector however are Ford and PACCAR. You can also see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Ford Motor Company (F) : Free Stock Analysis Report
 
PACCAR Inc. (PCAR) : Free Stock Analysis Report
 
Tesla, Inc. (TSLA) : Free Stock Analysis Report
 
The Mosaic Company (MOS) : Free Stock Analysis Report
 
Royal Gold, Inc. (RGLD) : Free Stock Analysis Report
 
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