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SodaStream, GameStop, Alibaba, Baidu and NetEaseas Zacks Bull and Bear of the Day

Zacks Equity Research
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For Immediate Release         

Chicago, IL – April 11, 2018 – Zacks Equity Research highlights SodaStream International Limited SODA as the Bull of the Day and GameStop Corp. GME as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Alibaba BABA, Baidu, Inc. BIDU and NetEase, Inc. NTES.

Here is a synopsis of all five stocks:

Bull of the Day:                                              

SodaStream International Limitedhas found its niche as health and wellness trends have boosted sales of its sparkling water system. This Zacks Rank #1 (Strong Buy) is expected to grow revenue by the double digits in 2018.

SodaStream makes and distributes home beverage carbonation systems called Sparkling Water Makers. These allow consumers to turn tap water into sparkling water and flavored sparkling water. Products are available at more than 80,000 retail stores in 45 countries.

Another Big Beat in the Fourth Quarter

On Feb 14, SodaStream reported fourth quarter results and crushed the Zacks Consensus Estimate by 45%. The company reported $1.13 versus the consensus of $0.78.

It was the 10th earnings beat in a row as the company has turned around the business.

The holiday quarter was strong with revenue jumping 19.6% to $157.7 million from $131.8 million a year ago.

The hottest markets were Germany, Canada, Australia and the US.

Operating income rose 36% to $25.7 million, an all-time record.

For the year, revenue rose 14.1% to $543.4 million from $476.1 million in 2016.

It's plan to expand household penetration and increase usage of the home carbonation system has been working.  

SodaStream has been generating a nice cash flow. As of Dec 31, 2017, the company had cash and investments of $155.2 million, up from $57.3 million at the end of December 2016.

Bullish Guidance for 2018

SodaStream gave bullish guidance for 2018 with revenue expected to rise another 12%.

Earnings guidance is forecast to be 5% higher than 2017 or $3.29.

However, the analysts estimates are already above the company's guidance.

2 estimates have risen in the last 60 days to $3.42 from $3.24.

2019 estimates have also been on the move higher with two rising in the last 2 months. That pushed up the 2019 Zacks Consensus Estimate to $3.93 from $3.44.

Fizzi One Touch Coming This Summer

On Mar 12, SodaStream announced it would release its newest automatic sparkling water maker, the Fizzi One Touch, in the United States this summer.

The system will be available as of June 2018 on sodastreamusa.com in either piano black or pure white.

It will be available in retail locations in September 2018.

Bear of the Day:

GameStop Corp. continues to see shrinking earnings due to changes in the video game industry. This Zacks Rank #5 (Strong Sell) is expected to see an 8% decline in earnings in fiscal 2018.

GameStop operates over 7,200 stores in 14 countries. It operates in digital sales including Game Informer magazine and ThinkGeek. It also has a Technology Brands segment which includes 1,400 Spring Mobile AT&T and Simply Mac stores.

Spring Mobile sells AT&T products including DIRECTV and Simply Mac sells the full line of Apple products including laptops, tablets and smartphones.

Another Beat in the Fourth Quarter

On Mar 28, GameStop reported its fiscal fourth quarter 2017 results and beat the Zacks Consensus reporting $2.02 versus the consensus of $1.96.

It has beaten 8 out of the last 9 quarters, so the earnings beats aren't a problem.

The fourth quarter was driven by Black Friday and holiday promotions as well as growth in the hardware business, especially with the Nintendo Switch.

Total global sales rose 15% to $3.5 billion with comparable store sales up 12.2%. The US saw 14.2% while international comparables were 8.3%.

New hardware sales was the driver, rising 44.8% thanks to demand for Nintendo Switch, while new software sales rose 12.4%.

Collectibles sales was another bright spot, as those rose 22.8%, driven by continued expansion of licensed merchandise offerings and targeted promotions during the holidays.

Pre-owned sales, however, slumped, falling 2.6%.

Fiscal 2018 Guidance Is Light

Given the tough year-over-year comparable comps of the Nintendo Switch, which launched in the first half of 2017, the company expects earnings to be substantially  back half weighted.

It's looking for a range of $3.00 to $3.35.

Comparable store sales, which don't include the technology brands, are expected to be flat to down 5%.

Estimates Cut

Given the guidance, which was more bullish than the Zacks Consensus, it's not surprising that the analysts have cut their estimates.

5 estimates were cut in the last 30 days pushing the Zacks Consensus down to $3.07 from $3.33. Apparently, the analysts are not optimistic that earnings will be on the high end of the company's range, hence the earnings revisions.

That's a decline of 8% as GameStop made $3.34 in 2017.

Estimates were also cut for fiscal 2019, pushing down the consensus to $2.76. That's another decline of 10%.

Is That Dividend Safe?

GameStop is paying a dividend currently yielding 11.2%.

It's among the highest on the Street.

The company has said that the dividend is safe, for now.

It expects to do $300 million in free cash flow in fiscal 2018 which can easily pay for the dividend given the share count.

Additional content:

These Chinese Internet Stocks Are Cheaper than Alibaba (BABA)

Chinese ADRs are extremely popular investment options for U.S. investors, with no company attracting more attention than Alibaba. The e-commerce behemoth is, of course, one of the largest publicly-traded tech companies in the word, but the popularity of the stock also comes from its use as method to gauge the health of China’s economy and invest in its consumer marketplace.

Alibaba is a dominant force in global retail and an exciting growth pick in industries like financial services, smart vehicles, artificial intelligence, and digital media. Considering the company’s expansion opportunities and rising popularity among investors, it makes sense that the stock has soared a remarkable 57% over the past year—making it one of Wall Street’s hottest options.

But this strong momentum has also stretched Alibaba’s valuation, adding some of the risk that typically comes alongside high-growth investing. The stock is trading with a Forward P/E of about 25, which is a noticeable premium to the broader market average. What’s worse, BABA’s P/S of 12.8 and P/B of 6.6 are in runaway territory.

To traditional value investors, these ratios make BABA look like an expensive stock—one that the market is overvaluing compared to the company’s actual earnings, revenue, and book value.

In contrast, these investors consider “cheap” stocks to be those that offer better bang for their buck in terms of these financial metrics. After all, buying a stock makes one a partial owner of that company, so investors are inherently interested in these measurable fundamentals.

There are plenty of investors willing to pay a premium for the unique exposure that Alibaba offers, but there are a few traditionally “cheaper” options that compete with the company in certain markets. Here’s a closer look at two of those stocks.

Baidu, Inc.

Baidu is also of China’s largest internet companies, owning a more than 75% share of the country’s search engine market. Here’s a look at its forward 12-month earnings multiple versus that of Alibaba over the past year:

BIDU and BABA have traded with a similar earnings multiple for the better part of a year, but we can see that Baidu is offering a slight discount compared to Alibaba right now. Alibaba bulls would argue that the company deserves its premium, but Baidu is working to break into new growth markets as well.

For instance, Baidu is reportedly in the process of recruiting investors for its wholly-owned finance unit, Baidu Financial Services Group. This unit operates Baidu Wallet, a digital wealth management platform and online credit service. An expansion of this unit would be a direct blow to Alibaba affiliate Ant Financial, which operates the Alipay mobile payments service and offers wealth management and insurance products.

Alipay is frequently cited as one of Alibaba’s key growth opportunities, so the fact that investors can get exposure to a comparable catalyst at a lower valuation might pique the interest of those concerned about maximizing value.

NetEase, Inc.

NetEase is smaller company with a tighter focus on gaming and digital content, and as we can see, the stock has consistently traded at a significant discount to Alibaba recently:

Alibaba clearly presents a more diversified exposure to the Chinese economy than NetEase, but there is likely another reason that investors would be willing to pay more BABA right now: analyst sentiment.

The Zacks Consensus Estimate for NetEase’s full-year EPS estimates has shed $2.32 within the past 90 days, with 100% agreement to the downside among revising analysts. Overall, analysts now expect the company to witness EPS growth of just 1.2% this year. This negative revision activity has earned NTES a Zacks Rank #4 (Sell).

Bottom Line

Each individual investor has their preferred strategies for valuing stocks, and the Chinese internet space is one that sees a number of these theories take precedent. Alibaba’s valuation might be stretched right now, but those that believe in the company’s growth initiatives will say that premium is justified. Either way, investors should note that there is more to the story than the P/E ratio.

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

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