For Immediate Release
Chicago, IL – July 1, 2019 – Zacks Equity Research Shares of The Trade Desk TTD as the Bull of the Day, Micron MU as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Conagra Brands CAG and Merrill Lynch BAC.
Here is a synopsis of all four stocks:
Bull of the Day:
I last profiled The Trade Desk on May 20 in our weekly Top Picks video after the company had reported a strong "beat and raise" first quarter and the stock fell back from all-time highs above $230 to an attractive consolidation zone between $195 and $205.
I was pounding the table then about the true disruption this $10 billion digital advertising David was creating amidst the Goliaths Facebook and Google.
Why? Not just because they are disrupting a $750 billion global advertising market. And not just because they just entered the largest single-language consumer market in the world, China, with over 500 million people using their mobile phones to search, shop, and engage content.
But precisely because The Trade Desk is a next generation advertising platform that allows marketers precision access to billions of consumers using hundreds of websites, apps, web-connected TV channels and other digital content providers like streaming music sites that slip ads into the experience.
In other words, while Google and Facebook are giant "walled gardens" for advertisers to experiment in, they are not the entire universe of possible locations where companies can find their potential consumers.
Plus, The Trade Desk has capitalized on the same type of data-driven technology that the giants use to target specific audiences and then give ad buyers detailed information on which customers made a purchase based on which of their ads. This attribution data is the lifeblood of the digital advertiser.
What's more, The Trade Desk technology gives advertisers all of this information and access in a real-time "mission control" platform that allows two important functions:
(1) consumer behavior data and research across digital media "channels" and verticals to obtain precision targeting; and
(2) complete automation of ad-buying programs that can participate in virtually unlimited auctions -- lasting just 1/10th of a second -- for omnichannel advertising "real estate" that suits their requirements and audiences.
Advertising Goes Algo
This "programmatic" ad-buying auction is why you now see static ads changing every 30 seconds on your favorite websites. And The Trade Desk says that "Even media that isn't digital will be transacted digitally, using the internet."
CEO Jeff Green even compares their platform to the modern stock exchange where automated algorithms are responsible for over 70% of the trading volume.
As you may know, the real-time, global, electronic auctions that have become our security exchanges are powered by lightning-fast fiber optics and high-powered servers -- and they are largely responsible for increased liquidity via tighter bid/ask spreads and depth, supported by the speed of computers which can control risk on bigger size.
This "price discovery" auction process is as old as the first futures exchanges in Chicago over 150 years ago and has always relied on a multitude of diverse participants coming together in one place and each voting for their own idea of value.
Thus, the modern programmatic ad auction becomes the centralized market place for the discovery of advertising value and thereby delivers the central answer being sought: what is an ad really worth?
The Linchpin: The Marketing Agency
"Ads are the currency of the internet. Ads are the currency of nearly all media." - Jeff Green, CEO of The Trade Desk
While advertisers can access The Trade Desk platform directly, the classic middle-man in the industry remains important. In fact, the modern ad agency is being transformed by this data-driven revolution as they no longer have to guess what will work and everything can be tested in real-time.
The days of "creative" departments pitching ideas that may or may not work with a broad audience, but can't be tracked and measured, are over. Today, there is a deluge of data about customer behavior and purchasing being recorded on the web and elsewhere and all this information is available to savvy marketers.
Through a self-service, cloud-based platform, ad buyers can create, manage and optimize data-driven digital advertising campaigns for their clients, including display, video, audio, native and social, and all on a multitude of devices.
And they can set up ad buying and placement programs to run automatically to "chase" target audiences across the omnichannel jungle of content providers, placing ads in front of the right people, in the right place, at the right time -- and all with attribution data that is tracked to let them know what worked and what didn't.
Bear of the Day:
Micron has fallen back into the cellar of the Zacks Rank, despite top and bottom line beats for the company's Q3 FY19 (ended May).
Micron reported non-GAAP earnings per share of $1.05, which surpassed the Zacks Consensus Estimate of 75-cents, yet were dramatically lower than the year-ago quarter’s figure of $3.15.
Micron’s revenues of $4.8 billion exceeded the Zacks Consensus Estimate of $4.66 billion but dropped around 33% on a year-over-year basis.
Industry oversupply and higher-than-expected decline in DRAM and NAND pricing remain concerns. Moreover, restriction on sales to Huawei negatively impacted its DRAM and NAND revenues.
Although the company is reporting a drastic year-over-year fall in revenues and earnings, its better-than-expected third-quarter fiscal 2019 results coupled with an improved outlook for DRAM were positives that vaulted shares last week 16% from under $33 up to $39.
Mixed Guidance in a Troubled Global Tech Sector
With progress in customer inventory adjustments in most of its end-markets, the company expects bit demand for DRAM to return to healthy year-over-year growth in the second half of 2019. Micron anticipates a strong uptick in DRAM bit shipments for the cloud, graphics and PC markets during the fiscal fourth quarter and thereafter.
And yet analysts took their full year FY2020 EPS estimates (starting in September) down 23% from $3.62 to $2.78. And this latest move followed a massive hair-cut from $4.81 in the past 90 days, which is what initially put MU into the Zacks #5 Rank cellar.
Here were the revenue trends that analysts were likely focused on...
DRAM revenues of $3 billion, accounting for 64% of total revenues in the quarter, plunged 45% year over year and 19%, sequentially. Sequentially, average selling price (ASP) of DRAM approached 20% while shipment quantities were flat. Bit shipments in DRAM were adversely impacted by the Huawei ban.
NAND revenues of $1.5 billion, representing 31% of the total top line, were down 25% on a year-over-year basis and 18% quarter over quarter. While NAND ASP decreased in the mid-teen’s percentage band, shipment quantities contracted in the mid-single digit range sequentially.
The timing of demand from a large customer benefited NAND bit shipments. When adjusted for Huawei, bit shipments came in better than the company’s prediction owing to solid component sales. High-value solutions contribute to more than two-thirds of NAND revenues.
Unit-wise, revenues of the computing and networking business (CNBU) unit deteriorated 48% from the year-ago quarter and 13% sequentially to $2.1 billion. Weak pricing across major market segments remained a headwind. However, normalized customer inventory levels — particularly in graphics and client — expanded shipment volume in the quarter.
Revenues from the Mobile Business Unit (MBU) of $1.2 billion declined 33% on a year-over-year basis and 27% sequentially due to lower shipments to Huawei. Adverse pricing and DRAM volume were dampeners. Nonetheless, sturdy growth in managed NAND products led to a skyrocketing 200% increase in bit shipments.
The Embedded Business Unit revenues logged $700 million, down 22% from the year-ago quarter and 11% from the previous quarter due to softer pricing, inventory adjustments in the consumer segment and macroeconomic downturns.
Revenues from the Storage Business Unit (SBU) comprising SSD NAND components and 3D XPoint totaled $813 million, down 29% on a year-over-year basis and 20% sequentially due to competitive pricing. Moreover, large one-time sale that the company undertook in the year-ago quarter induced a tough year-over-year comparison on component volumes.
Micron as Barometer of Global Tech
How fitting is it for this precision chip maker to be such a bellwether for the global Semiconductor apparatus.
The question on every Tech/Semi investor's mind is "How close are we to the bottom of this pessimism?"
Micron shares recently put on a clinic for bears in why you don't get paid to short this stalwart of the modern technology super cycle that powers everything from simple memory hardware functions to the most advanced AI applications in deep learning and autonomous driving.
But Wall Street i-bank analysts still lowered estimates drastically for next year as if they picture a major global recession on the horizon due to China trade war and Huawei issues.
Bottom line: While the short-sellers got a rude lesson in selling the number one memory maker at such value levels, we don't yet know if we've seen the bottom in the Tech Super Cycle. That means lower projections from analysts could be in store. Until we have more estimates, it's time to stand aside. The Zacks Rank will let you know.
Conagra (CAG) Rallies After Earnings Miss: What’s Next?
Conagra Brands jumped over 3.5% through Friday morning trading, after posting lower-than-projected Q4 fiscal 2019 earnings Thursday. The packaged foods giant reported quarterly EPS of $0.36, which came in $0.06, or -14.29% lower than our Zacks Consensus Estimate. Friday’s rally came after Conagra stock fell 12% Thursday, which signals that some investors think the selloff might have been overdone.
The Chicago, Illinois-headquarter company owns a variety of popular brands including Chef Boyardee, Reddi-wip, Mrs. Butterworth’s, and Orville Redenbacher’s.
The earnings miss came two months after the company forecasted a strong end to fiscal 2019 at its Investor Day. At Investor Day, Conagra also provided fiscal 2020 EPS guidance between $2.10 and $2.20. Conagra executives then lowered their guidance by $0.02 Thursday, to account for the sale of its Gelit business, an Italian frozen pasta maker, in May.
Conagra did post year over year revenue growth, reaching $9.54 billion for fiscal 2019, compared to $7.94 billion the year before. That’s a difference of $1.6 billion from fiscal 2018, however Pinnacle generated $1.7 billion in revenue in fiscal 2019, which accounts for the year over year growth. The $1.6 billion increase represented 20.2% total revenue growth, despite declining sales in three out of five segments, those being Grocery and Snacks, International sales, and Foodservice. More specifically, Grocery and Snack sales slipped 7.1%, Refrigerated and Frozen good sales fell 0.6%, International sales fell 7.4%, and Foodservice sales tumbled 12.6%.
Conagra’s Refrigerated & Frozen segment increased sales by 1.9%.
Conagra is expected to report significant earnings and revenue growth for fiscal 2020. Zacks Consensus Estimates call for fiscal 2020 (Conagra begins its fiscal years in June) earnings to grow 7.96% on the back of 13.96% revenue growth. Looking further ahead, fiscal 2021 is expected to bring 9.5% earnings growth and 0.36% revenue growth on top of their respective fiscal 2020 numbers.
After falling all the way to $25.15 Thursday, the stock has climbed back up. Analysts are still bullish on the stock. Bank of America Merrill Lynch reiterated a “Buy” rating on the stock following the earnings. Conagra also currently holds a Zacks Rank #2 (Buy), but this could change as more analysts update their estimates over the next serval days. Even after the stock had a poor day Thursday, it is still up 24% YTD, significantly outperforming the S&P 500.
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