For Immediate Release
Chicago, IL – February 26, 2019 – Zacks Equity Research Starbucks Corp. SBUX as the Bull of the Day, Goodyear Tire & Rubber Company GT asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Amazon AMZN, Apple AAPL and Microsoft MSFT.
Here is a synopsis of all five stocks:
Bull of the Day:
Headquartered in Seattle, Starbucks Corp. is the largest coffee chain and brand in the world, with a global footprint that is continually expanding. Along with Italian-style espresso beverages, Starbucks offers customers a wide variety of pastries, breakfast sandwiches, and lunch options. In addition to sales through its company-operated retail stores, the company sells whole bean coffees through a specialty sales group and supermarkets.
A Strong Start To 2019
Back in January, Starbucks reported results for its fiscal 2019 first quarter, and overall, the numbers were better-than-expected and told analysts that momentum is heating up once again.
Adjusted earnings of 75 cents per share beat the Zacks Consensus of 65 cents per share and grew 15.4% year-over-year. Total revenues hit $6.6 billion, also beating our consensus estimate and increasing 9% from the year-ago period.
Global comparable store sales rose 4% in Q1, which extended the metric’s accelerating growth streak over the past few quarters. U.S. comps growth increased 4% year-over-year, which helped boost global comps.
In Starbucks’ earnings release, CEO Kevin Johnson said "We are particularly pleased with the sequential improvement in quarterly comparable store transactions in the U.S…underpinned by our digital initiatives and improved execution of our in-store experience.”
Management continues to expect solid comps growth of 3% to 4% for fiscal 2019.
Another thing to note is that the company’s active Starbucks Rewards members grew 14% year-over-year, which came almost in line with the 15% year-over-year active rewards members growth seen in Q4 2018.
SBUX is On the Rise
Year-to-date, shares of Starbucks are up almost 12.4%. And in the past year, the stock has gained 27%.
Estimates have been rising lately too, pushing the stocks towards a Zacks Rank #1 (Strong Buy).
For the current fiscal year, the coffee giant’s earnings are expected to grow over 12% year-over-year. 14 analysts have revised their estimates upwards in the past 60 days, and the Zacks Consensus Estimate has moved eight cents higher from $2.64 to $2.72 during the same time frame.
2020 looks pretty strong too, and earnings are expected to grow around 11.5%; next year’s consensus estimate sits at $3.03 per share, with seven upward revisions in the last 60 days.
Johnson also said in the earnings release that Starbucks is “on track to deliver on [its] full-year commitments,” which is key; the company has been known in the past to reduce its outlook for important metrics.
Along with a bullish view on China going forward—China’s store count jumped 18% year-over-year in Q1—Starbucks is expected to open 2,100 new stores globally during fiscal 2019.
If you’re an investor looking for a food or beverage stock to add to your portfolio, make sure to keep SBUX on your shortlist.
Bear of the Day:
Goodyear Tire & Rubber Company is one of the world’s leading tire companies and is one of the most recognized names in the business. It operates through three segments—the Americas; Europe, the Middle East, and Africa; and Asia Pacific—developing, manufacturing, marketing, and distributing tires for most applications.
Q4 Earnings Miss Estimates, Down YoY
Recently, Goodyear reported disappointing results in its fiscal 2018 fourth quarter.
Adjusted earnings of 51 cents missed the Zacks Consensus of 60 cents and fell considerably from the 99 cents per share reported in the year-ago quarter.
Revenues of $3.88 billion missed our consensus estimate and fell 5% compared to Q4 2017.
Tire unit volume hit 40.7 million, down 3% year-over-year. Replacement tire shipments were basically flat while original equipment unit volume fell 10% from the prior-year period.
Analysts have since turned bearish on Goodyear, with five cutting estimates in the last 60 days for the current fiscal year. The Zacks Consensus Estimate has dropped 70 cents during that same time period from $2.91 to $2.21 per share.
This sentiment has stretched into 2020, and our consensus estimate has dropped 69 cents in the past two months.
GT is now a Zacks Rank #5 (Strong Sell).
For some time now, Goodyear has struggled with slowing demand in Asia, specifically in China. Revenues in its Asia-Pacific segment declined 11% year-over-year to $552 million in Q4.
The tire giant has also been impacted by commodity prices, as well as tariffs, which have raised its material costs. As some signs point to weakening global economic growth, Goodyear will likely continue to be impacted by these macroeconomic headwinds,
But, GT is only trading at 8.7X its forward fiscal 2019 earnings, and has a dividend yield of 3.3%. Goodyear could be a pretty good value pick, particularly with that dividend, but you’ll have to be ready to ride out those macroeconomic headwinds.
Amazon (AMZN) 20% Off Its Highs: Time to Buy?
Shares of Amazon rest roughly 20% below their 52-week high, despite the broader market and tech resurgence to start the year. The question is should investors buy Amazon stock now with so much room to run?
Amazon’s revenues climbed nearly 20% during the holiday quarter to top our Zacks Consensus Estimate. But Q4 represented a significant slowdown compared to Q3’s 29% climb, Q2’s 39% surge, Q1’s 43% jump, and Q4 2017’s 38% growth. In fact, last quarter marked Amazon’s smallest top-line expansion since 2015.
Jeff Bezos’ firm has perhaps come to the point where the law of large numbers makes it difficult to post huge year over year growth on a percentage basis. This means Amazon might have reached a place in its public history that fellow tech giants like Apple and Microsoft have faced already. Yet, like its peers, Amazon is still a powerful company that looks poised for growth in new industries, as it remains a cloud computing, retail, and streaming power.
AMZN stock hovered at around $1,633 a share through morning trading Monday. This marked an approximately 20% downturn from its 52-week high of $2,050.50 and sets up a solid buying opportunity for those high on Amazon.
Amazon is still the undisputed champion of the cloud computing market. The company’s AWS business boasts roughly 32% market share to blow away second place Microsoft’s 14%. Going forward, the company’s higher-margin cloud computing business will likely boost Amazon’s top and bottom-line as the industry becomes increasingly important to businesses big and small.
Looking ahead, Amazon Web Services revenue is projected to surge 40.5% in Q1 to reach $7.65 billion, based on our current NFM estimates. This would come up short of last quarter’s 45% expansion and the trailing six quarter’s roughly 45.5% average growth. On top of that, Amazon, which is currently the third largest digital advertiser in the U.S., is expected to continue to expand its digital ad business as more consumers start their product searches on Amazon platforms.
Another potentially encouraging sign is Amazon’s Prime-driven subscription business. The unit is expected to climb over 47% from $3.10 billion in the year-ago period to reach $4.57 billion in the first quarter, which would crush last quarter’s 25% jump.
Overall, our current Zacks Consensus Estimate calls for Amazon’s Q1 revenues to climb 16.6% to reach $59.54 billion, with full-year revenues projected to pop 18.5% to touch $275.96 billion. This would clearly mark a significant slowdown compared to fiscal 2018’s 31% top-line growth. Amazon is still, however, expected to make $44 billion more in 2019 than it did last year. Peeking further ahead, Amazon’s 2020 revenues are projected to come in $50 billion above our current-year estimate to reach $325 billion.
At the bottom end of the income statement, Amazon’s adjusted earnings are projected to soar roughly 49% in Q1 and 33% for the full year. Plus, AMZN’s 2020 EPS figure is expected to come in 50% above our 2019 estimate, which helps show that the firm is becoming more profitable.
Amazon is currently a Zacks Rank #3 (Hold) based on its mixed earnings estimate revision activity. Yet now could be time to think about buying AMZN stock as it rests 20% below its 52-week high because it seems hard to imagine shares of Amazon not at least returning to their previous heights at some point.
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