For Immediate Release
Chicago, IL – November 2, 2018 – Zacks Equity Research highlights Sony Corporation SNE as the Bull of the Day, Bank OZK OZK as the Bear of the Day. In addition, Zacks Equity Research provides analysis onK12 Inc. LRN, Bridgepoint Education, Inc. BPI and Grand Canyon Education, Inc. LOPE.
Here is a synopsis of all five stocks:
Bull of the Day:
Sony Corporation is crushing it as its Playstation division cashes in on the gaming craze. This Zacks Rank #1 (Strong Buy) recently raised full year guidance.
Sony is a global technology, entertainment and gaming company headquartered in Japan.
Big Beat in Fiscal Q2
On Oct 30, Sony reported its fiscal second quarter 2019 results and blew by the Zacks consensus by $0.29. Earnings were $1.20 versus the consensus of $0.91. for a beat of 31%.
It was the 6th consecutive earnings beat.
Total revenue was up 6% to $19.6 billion.
The Gaming division led the results, with gaming revenue, fueled by Playstation, jumping 27% year-over-year to $5 billion. On those sales it made $803 million in profit.
75.1 million games were purchased. Playstation Plus, its subscription gaming service, also had record subscribers for a second quarter at 34.3 million, up from 33.9 million a year ago.
The Pictures segment has also recovered thanks to Hotel Transylvania 3 and the television licensing rights to Jumanji and Peter Rabbit. Pictures revenue actually fell 1% in the quarter, but at least it wasn't the drag it used to be.
Music revenue also declined 1% year-over-year but the company hasn't yet closed on its deal to purchase the rest of EMI Publishing, which will make it one of the biggest music publishers in the world.
Surprising areas of growth included its smaller Semiconductor segment, which saw revenue jump 11%, and the Financial Services segment which saw revenue climb 27% thanks to gains in Sony Life Insurance.
It's mobile division, which is the smartphones, was a disaster however. It continues to take losses there as sales fell 32%. This was offset by the phenomenal gaming revenue, but it's not something that's a positive for the company right now.
Estimates Moving Higher
Zacks only has 2 full year estimates as not many analysts cover Sony, despite its size and reputation.
1 has already been raised since the earnings report, however, as the company raised full year operating income guidance to 870b yen from 670b yen.
However, the analysts believed that the prior guidance was really conservative, so the increase didn't come as any surprise. Through the first half of the fiscal year, the company has already made 451b yen and the second half of the year, thanks to the holidays, is always bigger.
The Zacks Consensus Estimate for fiscal 2019 is now $4.18 up from $4.11 just 3 months ago. That's earnings growth of 27% as the company earned $3.29 in fiscal 2018.
Analysts expect earnings to grow another 10.7% in fiscal 2020 as well. The Zacks Consensus Estimate has jumped to $4.63 from $4.36 in the prior 90 days.
Bear of the Day:
Bank OZK shocked Wall Street by taking a large charge for real estate loans gone bad. This Zacks Rank #5 (Strong Sell) has seemingly been infallible to real estate losses, until now.
Investors are left wondering, what will be next?
Bank OZK is headquartered in Arkansas and has $22 billion in assets. For years, it was considered a growth story, and not a value-banking story, as it aggressively expanded its real estate portfolio after the Great Recession when many other banks stayed on the sidelines.
Big Miss in Q3
On Oct 18, Bank OZK reported third quarter results and shocked the Street by missing on the Zacks Consensus Estimate by $0.32. Earnings came in at just $0.58 versus the Zacks Consensus of $0.90.
Why the big miss?
It took a $45.5 million charge on 2 loans in its Real Estate Specialties Group ("RESG"), one in South Carolina and one in North Carolina. The two loans were not related.
One was for a regional shopping mall property which was anchored by struggling retailers JCPenney and Sears, and the other was for a housing and land single family home development.
The loans were from 2007 and 2008, respectively.
On the conference call, OZK tried to reassure the analysts that these were isolated incidents. They don't have much exposure to the retail problems at shopping malls, outside of this property.
U.S. Trade Deficit with China Puts These Stocks in Focus
U.S.-China trade war has been a major damaging factor for financial markets since its commencement in July 2018. In fact, the constant tariff impositions affected the businesses of most industries in the two nations.
Chinese indexes have been heavily affected by the ongoing trade dispute, with Hang Seng Index (HSI) and Shanghai Composite Index (SCI) losing 11.4% and 5.4%, respectively, since Jul 6. The Dow Jones Industrial Average gained 2.6% and Nasdaq Composite lost 5.2%, respectively, in the same timeframe.
According to the U.S. Census Bureau, United States’ trade deficit with China increased 9.2% year over year to reach $38.6 billion in August 2018. Some of the country’s major imports from the Asian nation include consumer electronics, machinery and apparel.
President Donald Trump’s protectionist measures in trade with China were aimed at narrowing United State’s trade deficit that has been highest globally since 1975, but the broadening deficit indicates that a different approach would perhaps have been apt.
While most U.S. industries are experiencing a widening trade deficit with China, a few industries, such as education, have been barred from the trade war effect. Therefore, it would be prudent to focus on a few stocks from the U.S. education services industry at present.
U.S. Trade Surplus With China in Education
Although U.S.-China trade dispute is dominating global economic tensions, United States enjoys a trade surplus with China and rest of the world in the field of education. The Chinese education industry has been largely unaffected by the ongoing trade war as well.
As of 2016, U.S. education exports amounted to $39.4 billion while its imports were only $7.5 billion. Foreign students attending American higher education institutions were responsible for the trade surplus in education and remain a major driver for the continuing growth in the domestic education industry. The figure is indicative of only the tuition fee foreign students pay in the United States.
"A lot of Chinese students study in the US and pay large amounts of tuition fees and living expenses. This is a huge sum of money that flows from China to the US," China's central bank governor Yi Gang said at the G30 International Banking Seminar 2018 earlier in October.
Chinese students account for nearly 30% of foreign nationals enrolled in America’s educational institutions. The students not only contribute to the U.S. economy, but are also responsible for creation of jobs. According to NAFSA, during the 2016-2017 academic year, 1,078,822 foreign students studying in the United States were responsible for adding $36.9 billion to the U.S. economy and supported 450,000 jobs in the country.
According to Zion Market Research, U.S. education market is estimated to reach $2,040 billion by 2026. The industry is set to witness a compound annual rate of more than 4.5% in the2018-2026 period. The rising number of Chinese students enrolling for U.S. higher education could be a contributor to this growth.
Some of the leading players in U.S. education industry include Adobe Systems, McGraw-Hill Education, Blackboard Inc. and Wall Family Enterprise.
Stocks in Focus
Here we present a few stocks from the U.S. education industry for your consideration.
K12 Inc. provides proprietary curriculum and educational services created for online delivery to students in kindergarten through 12th grade in United States. It is a technology-based education company. The company carries a Zacks Rank #1 (Strong Buy). K12’s earnings are expected to grow 11.7% this year and its year-to-date price performance is 34.6%.
Bridgepoint Education, Inc. provides postsecondary education services. It offers associate's, bachelor's, master's, and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences. Bridgepoint Education bears a Zacks Rank #2 (Buy) and its earnings could grow 8.4% in 2018. The company’s shares have gained 15.7% since January.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Grand Canyon Education, Inc. is a regionally accredited provider of online postsecondary education services focused on offering graduate and undergraduate degree programs in its core disciplines of education, business, and healthcare. The company carries a Zacks Rank #3 (Hold) and its year-to-date price performance is 39.3%. Its earnings are estimated to grow 23.5% for the current year.
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About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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Sony Corporation (SNE) : Free Stock Analysis Report
Bridgepoint Education, Inc. (BPI) : Free Stock Analysis Report
K12 Inc (LRN) : Free Stock Analysis Report
Grand Canyon Education, Inc. (LOPE) : Free Stock Analysis Report
Bank OZK (OZK) : Free Stock Analysis Report
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