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Taiwan Semiconductor Manufacturer, AMC Theatres, Boeing, American Airlines and Lockheed Martin highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research

For Immediate Release

Chicago, IL – October 22, 2019 – Zacks Equity Research Shares of Taiwan Semiconductor Manufacturer Company TSM as the Bull of the Day, AMC Theatres AMC asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on The Boeing Company BA, American Airlines AAL and Lockheed Martin Corporation LMT.

Here is a synopsis of all five stocks:

Bull of the Day:

Taiwan Semiconductor Manufacturer Company is leading the fourth revolution from behind the scenes. TSMC is the largest semiconductor manufacturer in the world (54% share) with a market positioning that is multiples ahead of its competitors.

TSMC just released its Q3 earnings last week, illustrating another strong quarter with double-digit top and bottom-line growth. The company is making significant investments in the next wave of wireless networks, 5G. They are working closely with there key customer, Apple, to build out this technology for the anticipated demand surge in 2020.

This stock has consistently driven returns for investors, and I would consider them one of the safest tech growth investments in the industry. Analysts have become increasingly optimistic about these shares as the semiconductor space is resurged back to life, raising estimates and pushing TSM into a Zacks Rank #1 (Strong Buy).

Building for The Future

At the forefront of this firm’s product offering is innovation and the aptitude to be the backbone of the 4th industrial revolution. TSMC creates 85% of the world’s semiconductor prototypes. Its Open Innovation Platform supports start-ups and enterprises alike by reducing design barriers are improving first-time integrated circuit (IC) success.

TSMC has seen more semiconductors than any other company in the world. They are not only working at the largest scale but also with the most state-of-the-art technology to improve a firm’s “design time, time-to-volume, time-to-market, and ultimately, time-to-revenue,” according to TSMC IR site.

TSMC’s customers include the most influential semiconductor innovators and tech firms in the world. Companies like Intel, Nvidia, Broadcom, Qualcomm and even Apple. The most trusted tech names in the world turn to the most trusted semiconductor foundry on the globe for their manufacturing and innovative needs.

More and more tech companies are turning to foundries for their IC production needs as the technology required to compete becomes impossible to produce in-house. TSMC provides the greatest technology and scale that would improve a business’s IC cost and capabilities. Samsung and TSMC have recently teamed up in the development of 5-nanometer transistors, which would give it the ability to put 30 billion transistors onto a chip the size of your fingernail.

This company has an enormous amount of growth ahead of it. Its realized economies of scale have rippled through the company’s financials, positioning it to reap the benefits from the next wave of hyperscaling, AI development as well as the implementation of 5G technology.

Financial Profile

TSMC has one of the most robust balance sheets in the industry, with almost no debt in the books and strong free-cash-flows to keep the business churning with internal capital. This firm is sporting the highest credit rating in the industry (S&P AA-, Moody’s: Aa3), according to TSMC’s IR page.

TSMC’s growth has slowed down with the cyclical deceleration of the semiconductor industry, but the company is expected to achieve strong single-digit long-term growth. This enterprise has an exceptional margin profile with net margins exceeding 30%, demonstrating operational excellence.

This stock has traded up over 35% so far this year and is yielding investors 3.2%, which is unusually high for a tech firm with a healthy growth outlook. Despite TSM trading right off of all-time highs, I would be comfortable with a position in this company as a long-term investment, especially considering its cushy dividend.

Take Away

TSMC reflects the semiconductor space and will be the foundation of the next wave of technological innovation. Integrated circuits are a part of every piece of technology today, from a simple electronic toothbrush to an electric vehicle. TSMC is a driving force in the 4th industrial revolution, and it might be time to take ownership of the future.

Short-term volatility may affect short-term gains, but as long-term play, TSM is a solid investment.

Bear of the Day:

Movie theaters are treading water in the video streaming economy today that is hitting the media segment like a tidal wave. Analysts are scared for the fighting movie chains, as they pivot their business models. AMC Theatres just announced that it would be launching its own streaming service to compete in the increasingly saturated space. Analysts don't know if the investment in a streaming service would ever yield positive returns and have pushed their EPS estimates down, dropping AMC to a Zacks Rank #5 (Strong Sell).

AMC Theatres has been fighting the streaming trend with new subscription-based offers and premium pricing. The first half of 2019 saw a 3% decline in theater attendance internationally, and more than a 3% fall in domestic attendance. Q2 was able to offset the significant declines in Q1 marginally, but movie attendance figures have been falling since Blockbuster in the late 90s, and the streaming services only give consumers less of a reason to leave their couch and go to the theater.

AMC launched Stubs A-list in June of 2018 following the business model of the failed MoviePass. MoviePass came up with the genius idea of a subscription-based movie theater pass that allowed users to watch ostensibly an unlimited number of movies a month for $10 a month. This seemed too good to be true, and without joining its efforts with the big movie chains, it was.

The movie chains like AMC just waited for MoviePass to bleed out so they could start their own chain related movie pass called Stubs A-list. AMC's subscription movie pass costs between $20-30 a month and allows users to see up to 3 free movies a week as well as discounted concessions. Currently, this platform has over 900,000 subscribers, but it must continue to raise prices for this venture to be profitable.

Now Stubs A-list subscription will include its streaming service as of last week. This streaming service is only going to be provided to AMC's subscribers and will not provide any free content. There is absolutely nothing special about this platform and see no reason that a user would switch from buying movies on their Amazon Video account or any of the other basket of services that consumers are already using.

Financials

AMC is fighting to stay above water, with its bottom-line teetering from losses to profitability then back. They need to spend an increasing amount on maintaining their current sales level, and margins have suffered. Rent has been pulling the company down with double-digit year-over-year increases in rent through the first half of the year, while the firm's total screen count has decreased.

Since the beginning of 2017, this stock has lost over 70% of its total market value, with a 30% drop off just this year. AMC is struggling with liquidity with a dwindling amount of cash on hand. AMC is currently trading as a junk bond, and I would put this stock on the same level.

Additional content:

Will Lockheed Steal Boeing’s Thunder in Q3 Earnings?

 

The Boeing Company is set to report earnings on Oct 23, before market opens. But, investors are keeping an eye on the stock since Boeing’s board of directors ousted CEO Dennis Muilenburg from the Chairman position at the beginning of this month.

Muilenburg, however, remains the CEO. But, the current issues surrounding the seven-month grounding of the 737 MAX and how Boeing will deal with the situation do cast uncertainty over the upcoming earnings release.

Though the fourth quarter has begun, the company has failed to act on its claims to get the 737 Max back on the runway. Meanwhile, American Airlines confirmed that software updates to the 737 MAX will help the plane takeoff by the end of this year. But, the U.S. Federal Aviation Administration believes that the company will face issues with the proposed software fixes to the aircraft’s flight control systems.

So, the fate of the 737 MAX hangs in the balance. Boeing’s overall commercial aircraft shipments, by the way, have declined 67% in the third quarter on a year-over-year basis to 63 jets, thanks to the 737 MAX aircraft issue. This also doesn’t bode well for this Zacks Rank #3 (Hold) company’s third-quarter earnings release. Lest we forget, Boeing’s revenues had dropped nearly 35% in the second quarter on a year-over-year basis, thanks to a 54% drop in shipments.

For the third quarter, the Zacks Consensus Estimate for revenues is pegged at $19.34 billion. A year ago, sales were $25.14 billion. Commercial airplane supply has also declined sharply in recent times, since delivery of 737 MAX has been stopped. The Zacks Consensus Estimate for the company’s third-quarter commercial revenues is pegged at $8.57 billion, suggesting a 43.9% decline from the prior-year number.

But, not all segments are expected to perform badly. After all, Boeing’s Defense, Space & Security segment delivered 77 military aircraft in the third quarter, up 114% from the second-quarter level. Such positive developments should get reflected in the third-quarter revenue numbers.

Looking beyond the 737 MAX, Boeing’s third-quarter earnings results might also show the impact of an after-tax charge. In the second quarter, the company had reported an after-tax charge of $4.9 billion, which reduced its income by $5.6 billion.

What’s more, higher material cost might also affect its earnings results for the third quarter. U.S. tariffs on steel and aluminum from China are cited to be the reasons driving material costs. When Boeing reports results, it’s expected to post adjusted earnings per share of $2.04, down from $3.58 in the prior-year quarter.

In fact, Boeing has an Earnings ESP of -0.31%. This is Zacks’ proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Amid such controversies, one of Boeing’s major competitors Lockheed Martin Corporation has seen its shares climb on optimism surrounding defense spending and technological developments. On a year-to-date basis, Lockheed’s shares climbed 42.3%, way more than Boeing’s rally of 6.7%.

But, Lockheed has also been dealing with tariffs and other related problems. What’s more, its F-35 fighter jets, which constitute almost 30% of the company’s sales, were banned by the U.S. government in Turkey this July.

To top it, more or less a stronger dollar during the third quarter might affect Lockheed’s earnings results when it reports on Oct 22, before market opens. Needless to say, a stronger dollar makes its products pricey for foreigners. The Zacks Consensus Estimate for the defense giant’s third-quarter earnings per share is pegged at $5.03, suggesting a decline of 2% from the prior-year number.

However, the company’s constant focus on innovation, operational efficiency and strong bonding with customers worldwide will most likely show on the third-quarter sales results.

Lately, the company’s space business segment has witnessed an uptick in sales volumes for programs such as Next Generation Overhead Persistent Infrared (Next Gen OPIR), Global Positioning System (GPS) III and Advanced Extremely High Frequency (AEHF), to name a few. All these might get reflected on the company’s top-line results. The Zacks Consensus Estimate for the company’s third-quarter revenues stands at $14.98 billion, indicating a 4.7% increase from the year-earlier figure.

Thanks to such strong revenue expectations and sturdy business, Lockheed clearly has an edge over Boeing this earnings season. Lockheed, currently, flaunts a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
 
The Boeing Company (BA) : Free Stock Analysis Report
 
AMC Entertainment Holdings, Inc. (AMC) : Free Stock Analysis Report
 
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
 
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