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Shoe Carnival, Diamondback Energy, HSBC, Northrup and Hitachi highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research
After today's close, we will hear from Apple Inc. (AAPL). This morning, here are a few of the big names reporting.

For Immediate Release

Chicago, IL – January 15, 2018 – Zacks Equity Research Shoe Carnival, Inc. SCVL as the Bull of the Day, Diamondback Energy FANG as the Bear of the Day. In addition, Zacks Equity Research provides analysis on HSBC Holdings HSBC, Northrup Grumman NOC and Hitachi HTHIY.

Here is a synopsis of all five stocks:

Bull of the Day:

Shoe Carnival, Inc.expects to have a strong end to fiscal 2018. This Zacks Rank #1 (Strong Buy) just raised full year comparables and EPS guidance for the second time in three months.

Shoe Carnival is one of the largest footwear retailers in America, with 402 stores in 35 states and Puerto Rico as well as online sales at shoecarnival.com. It's a small cap company with a market cap of just $588 million which sells men's, women's and children's moderately priced footwear.

Raised Full Year Fiscal 2018 Guidance Again

On Jan 14, ahead of its appearance at the ICR Conference on the same day, Shoe Carnival raised its full year fiscal comparable and earnings guidance for the second time in the last 3 months.

Comparable store sales are now expected to be 4% for the year, up from the Nov 15, 2018 guidance of just 3.5%.

Earnings are expected in the range of $2.41-$2.43, up from November's forecast of $2.36-$2.38.

That's earnings growth of 59.7% as the company made just $1.49 in fiscal 2017.

It doesn't report fourth quarter and fiscal 2018 results until Mar 28, 2019 so investors will have to wait until then to learn just how good the earnings season really was.

But it obviously was well received as the comparables jumped by 0.5% which is a big jump in retail.

In Q3, the company said all segments were strong but it saw strength in boot, casual and athletic categories. It was also effectively managing inventory.

Bullish Guidance for Fiscal 2019

Shoe Carnival also introduced its first fiscal 2019 earnings guidance.

It's forecasting $2.60-$2.70 which is in line with current analyst expectations.

The Zacks Consensus Estimate is looking for $2.63, but that's with just one estimate. It's still up from just 60 days ago when the Zacks Consensus was calling for $2.40.

New Share Repurchase Program

Shoe Carnival was already in the midst of a $50 million share repurchase program which was set to expire on Dec 31, 2018.

As of Dec 17, only $4 million still remained under that authorization. Shoe Carnival implied that it could be completed by the expiration date.

But the Board also reauthorized another $50 million beginning Jan 1, 2019 through Dec 31, 2019.

Shoe Carnival also pays a dividend, currently yielding 0.8%.

It's unusual for a small cap company to do both share buybacks and pay a dividend.

Shares Still Up Big

Despite the market sell off to end 2018, Shoe Carnival shares are still up 54.7% over the last year, including 13% to start 2019.

Shares are still attractively valued, however, with a forward P/E of just 15.9.

Bear of the Day:

Diamondback Energyhas been the darling of the energy stocks because of its big presence in the Permian.  This Zacks Rank #5 (Strong Sell), however, is playing it conservatively in 2019 after the oil price plunge of 2018.

Diamondback Energy is an oil and natural gas exploration and production ("E&P") company that drills in the Permian Basin of Texas. With a market cap of $17.1 billion, it's one of the larger energy companies in the Permian.

Production Outlook for 2019

On Dec 18, Diamondback released its 2019 capital and production guidance.

Given the decline in oil prices to levels seen in 2016, Diamondback reduced its production plan to levels where it could operate within cash flow.

It estimated 2019 annual production guidance of 275 - 290 MBoe/d (68%-70% oil) with the midpoint implying over 28% pro forma year over year production growth and over 30% pro forma year over year oil production growth within cash flow at current commodity prices.

It plans to operate between 18 and 22 drilling rigs versus the 24 it operated in December of 2018 and was reducing its rig count by 3 rigs immediately.

Diamondback also was trying to get more shareholder friendly with an intention to increase the annual cash dividend by 50% to $0.75 per common share from $0.50 it is currently. That dividend is yielding 0.5%.

Crude prices have already risen substantially off their late 2018 lows. If these higher prices hold, or continue to rise, and Diamondback sees a significant increase to its cash flows, it will allocate that money to a mix of growth and an increasing return of capital to shareholders.

Being cash flow positive is going to be a big theme for the E&Ps in 2019.

Estimates Cut

Not surprisingly, given the more conservative production guidance and lower energy prices, the analysts have mostly been cutting for 2019.

12 have cut in the last 30 days for full year 2019 with just 1 raising in that time. The Zacks Consensus Estimate has plunged to $8.41 from $9.92 over the last month. Another 2 estimates were cut in just the last 7 days as well.

That's still earnings growth of 25% as Diamondback is expected to make $6.71 in 2018, but the 2018 estimates have been slashed too.

Shares Sank in 2018

All of the energy stocks sold off hard to end 2018 as crude prices plunged but most have rebounded off recent lows.

Nevertheless, Diamondback remains down 18% over the last 3 months.

It has a forward P/E of just 12.8 but that could be a value trap if those 2019 earnings are cut further.

Q4 Earnings Season Kicks Off: Global Week Ahead


The Q4 2018 earnings season kicks off.

Earnings reports dominate as a risk source for all global stock markets for the next several weeks.

Thirty-four S&P 500 firms release earnings over the coming week. Twenty-two of them will be financials, which is typical of the early stages of every season.

On Monday, Citigroup kicks it off.

Other big bank names:JP Morgan Chase, Wells Fargo, US Bancorp, BlackRock, BoNYMellon, BofA, PNC Financial, Goldman Sachs, Morgan Stanley, Amex and State Street.

Non-financial tech names start off slowly but include Micron and Netflix.

Next, I put up Reuters’ five big world market themes.

The four themes not related to earnings supplement Q4 S&P 500 earnings reports as major catalysts. They are not secondary, given Brexit headline strength this week.

These will contribute to the thinking of investors and traders outside the USA in the coming Global Week Ahead.

(1) On Tuesday, U.K. Lawmakers Vote on Brexit

With fewer than 80 days to go until Britain leaves the European Union, the path to Brexit winds to a critical crossroads on Tuesday when lawmakers vote on Prime Minister Theresa May’s withdrawal deal.

The agreement, which May and EU leaders say cannot be renegotiated and is the only one available, will almost certainly be rejected. If so, uncertainty, paralysis and the likelihood of a disorderly ‘no deal’ Brexit will rise.

Volatility is nothing new to sterling, Friday being a microcosm of how the FX market is playing Brexit. A media report that Britain’s departure could be delayed sent the pound shooting up nearly a cent to its highest since Nov. 29, then minutes later May’s spokeswoman ruled out any delay and the pound fell right back again.

One-month implied options volatility in sterling is much higher than euro volatility, and that’s unlikely to change any time soon. All eyes on the big vote in Parliament on Tuesday and for sterling, moves below $1.25 or above $1.30 are both on the table.

(2) Is There a Powell ‘Put’?

The Fed reckons the world’s biggest economy is continuing to motor ahead but markets seem to think otherwise, their fears for growth outlook knocking equity prices off record highs.

More recently, though, they have cheered Fed Chairman Jerome Powell’s comment that the U.S. central bank can be patient in approving any further rate increases. Powell said that “especially with inflation low and under control,” the Fed can “be patient and watch patiently” to figure out which of the two competing narratives unfolds in 2019.

So whose view is correct? It’s true labor markets are robust and wage inflation has been on the rise — average earnings rose in December by 3.2 percent on an annual basis, matching October’s rise, which was a 9 1/2-year high. But workers’ wage gains are also being eroded by inflation, with core CPI seen above the Fed’s 2 percent target in coming months.

Powell’s newly dovish-sounding rhetoric has prompted money markets to price out Fed rate rises in 2019, but the Producer Price Index (PPI) due Jan 15th could be key. If it shows inflationary pressures cooling, there could be a further reprieve from markets’ rate-hike concerns.

(3) Quarterly Earnings Reports Start Up: Banks First

Global stock markets have suffered in recent weeks on fears that economic growth — and company earnings — are on the decline.

Upcoming U.S. company earnings will test this view.

Big U.S. hitters due to issue Q4 results next week include Micron Technology,Netflix and major Wall Street banks Citi, JPMorgan and Wells Fargo.

Money has started trickling back into equity funds lately thanks to Powell’s dovish comments.

But earnings expectations remain low nevertheless: I/B/E/S Refinitive data indicates S&P 500 earnings will have grown 14.5 percent in the fourth quarter of 2018, the slowest since Q3 2017, sharply lower than the 28.4 percent rise in Q3 2018 and almost flat year-on-year.

And confidence in Europe is even lower — earnings-per-share (EPS) for STOXX 600 companies is expected to have grown 7.1 percent in Q4, half the levels seen in Q3 and Q4 2017. Forecasts as recently as November were for 14 percent growth, but a spate of nasty macro-economic surprises has caused analysts to downgrade their view.

Some strategists do reckon markets have got ahead of themselves by pricing in a growth slowdown or recession. Company results could show who’s getting it right.

(4) China’s Export Growth Data in Focus

China and the United States have held their first face-to-face talks since the two world powers agreed a 90-day trade war truce. Described as “extensive,” the talks have helped cheer up global equity investors.

But risk aversion could rear its head again should hard data from China show what damage has been done to the economy by the initial tariff rounds.

In particular, focus will be on Chinese export growth. Analysts expect that to have cooled for a second month in December, as front-loading of U.S.-bound cargoes faded. This was indeed the case on Monday.

Poor data is another incentive for Beijing to be more accommodative with fiscal and monetary policies. It has already engaged a reserve ratio cut for banks which should pump the equivalent of $115 billion into the economy.

What remains to be seen is how accommodative it might be with U.S. demands on trade.

(5) Turkey and South Africa in the Tank Already

Having just suffered its worst year in the best part of two decades, the Turkish lira has had a tumultuous start to 2019.

It’s weakened more than 2 percent year-to-date, and worse still, it experienced a flash crash on Jan. 3, which was a reminder of all its vulnerabilities: from geopolitics to upcoming elections and haphazard monetary policy.

On the positive side, the lira’s near-30 percent tumble in 2018 had got rebalancing off to a fast start; Turkey is now posting large current account surpluses and inflation, albeit high, is on the decline. But many worry that these very factors could tempt the central bank back onto the interest rate-cutting path.

On Wednesday, at its first meeting of 2019, the central bank is expected to stand pat, with 17 out of 19 economists seeing key rates steady at 24 percent. But two predicted a cut and the bank’s own survey finds that Turkish interest rates are seen falling almost 500 basis points in the coming year.

The picture is less dramatic in South Africa, which is seen leaving interest rates unchanged at 6.75 percent on Thursday, with rising inflation likely prompting a rate hike in May.

Top Zacks Stocks—

Surprisingly,HSBC Holdings is on our #1 list this week. This is a huge $165B market cap global banking stock, with deep U.K. connections, and large exposure to China via Hong Kong.

However, the stock is off its $55 a share high seen in early January 2018 and is now pricing just above a late 2018 low under $40 a share. When addressing the sell-off in this stock, realize this: the VGM score is still poor at D, too.

Northrup Grumman is also on our #1 Zacks Rank list. The VGM score here is much more attractive at A, as the $45B market cap stock has sold off in the latest correction.

The Aerospace and Defense industry overall still looks attractive to covering analysts. It came in at #74 out of 265 on our latest Zacks Industry Rank list.

Hitachi climbed back onto our #1 Zacks Rank list. The VGM score for the Japan based multinational is A, too.

This $30B market cap stock is tied to a major diversified firm. The managers have just made a major acquisition.


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