VMware, Rent-A-Center and Honda Motor highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – April 2, 2018 – Zacks Equity Research highlights VMware Inc. VMW as the Bull of the Day, Rent-A-Center RCII as the Bear of the Day. In addition, Zacks Equity Research provides analysis onHonda Motor Company, Ltd. HMC.
Here is a synopsis of all three stocks:
Bull of the Day:
Headquartered in Palo Alto, CA, VMware Inc. is a tech company that provides virtualization solutions from desktops to data centers.Their solutions enable organizations to aggregate multiple servers, storage infrastructure and networks together into shared pools of capacity that can be allocated dynamically, securely and reliably to applications as needed, which increases hardware utilization and reducing spending.
Notably, VMware sees a huge portion of their revenues from its indirect sales channel that includes distributors, resellers, x86 system vendors, and systems integrators.
Strong Q4 Results
The Zacks #1 (Strong Buy) stock reported impressive fourth quarter fiscal 2018 results last month.
Both the top and bottom line topped the Zacks Consensus Estimate. Revenues of $2.31 billion and non-GAAP earnings of $1.68 grew 13.6% and 17.5% year-over-year, respectively. In particular, top line growth was driven by robust performance from the company’s NSX and vSAN product lines.
Breaking sales down by region, U.S. revenues increased 10.9%, while International revenues jumped over 16%; EMEA delivered strong growth in Q4 as well.
Taking a look at VMware’s different segments, Services revenues grew 8.4% to $1.24 billion and License revenues surged more than 20% to $1.06 billion. Services represent 53.7% of total revenues, and License make up 46.3% of total revenues.
Bookings were looking solid too, with NSX license bookings increasing 24% ad vSAN bookings soaring 100% year-over-year.
Guidance is Promising
Looking ahead, fiscal 2019 revenues are projected to jump nearly 11%, with License revenues increasing about 11.3% year-over-year.
Non-GAAP earnings for the year are expected to be $6.02 per share, and non-GAAP operating margin is anticipated to be 33.3%.
Additionally, VMware projects cash flow from operations to grow about 11% to $3.55 billion. Capital expenditures are also expected to be $280 million, with free cash flow of approximately $3.27 billion.
Earnings Outlook
For VMW, its bottom line is trending upward for the foreseeable future.
Earnings are expected to grow over 15% for the current quarter. Eight analysts have revised their estimates upwards in the last 60 days, and none have cut their outlook in the same time period.
Fiscal 2018 figures are also looking pretty great, with 13 estimates moving higher in the past two months. The Zacks consensus estimate trend has jumped from $5.56 per share to $5.95 per share.
Earnings estimates for fiscal 2020 are on the rise as well, jumping from $6.15 per share to $6.64 per share in the last 60 days.
Bear of the Day:
Headquartered in Plano, TX, Rent-A-Center is a company that provides consumers the opportunity to own high-quality, durable, name-brand furniture, electronics, appliances, computers, and accessories under flexible rental purchase agreements, with no long-term obligation.
The company offers same-day delivery, 90 days same as cash, and an early purchase option for customers. Rent-A-Center owns and operates over 3,000 stores across the U.S., Canada, and Puerto Rico.
RCII currently sits at a #5 (Strong Sell) on the Zacks Rank after a disappointing fourth quarter. Lack of progress on a deal to sell the company has also hurt shares. Is there hope for a turnaround for RCII?
Q4 Results
Both the top and bottom line fell short of analyst expectations.
RCII posted an adjusted loss of 41 cents per share (which marks a loss per share for the third straight quarter). Total revenues were $639 million, tumbling 6.6% year-over-year due to a decline in the Core U.S. and Acceptance Now segments.
Management did note that hurricane-related disruptions and soft comparable store sales also hurt results.
Total comps dropped 2% in Q4, reflecting declines of 3.6% and 2.3% in the Core U.S. and Mexico segments, respectively, partly mitigated by 6.7% increase noted at the Acceptance Now segment.
Deal to Sell?
For a while now, investors have become deeply concerned about the rent-to-own company’s business model, as well as its top and bottom line performance. Many were hoping that the retailer would end up being acquired.
At the end of January, news broke that a potential buyout deal with Vintage Capital Management would not be moving forward sent shares on a downward slide that continued well into February.
However, under pressure from its largest shareholder, Engaged Capital, to sell, is now back in active talks with multiple parties.
RCII is currently valued at around $557 million.
Earnings Outlook
For the current quarter, five analysts slashed their outlook in the last 60 days, and the consensus has dipped from $0.22 to $0.06 per share. But, earnings are expected to grow about 50% for this time period.
Seven analysts have revised their estimates downward for the current fiscal year, and the consensus has also fallen, declining 46 cents in the last 60 days.
Looking at the next fiscal year, the current earnings consensus has dipped from $2.08 to 0.78 per share in the last 60 days.
Additional content:
Is Honda (HMC) a Great Value Stock Right Now?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Honda Motor Company, Ltd. stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Honda Motor has a trailing twelve months PE ratio of 9.9. This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.1. If we focus on the long-term PE trend, its current PE level puts it below its midpoint over the past five years.
However, the stock’s PE also compares slightly unfavorably with the industy’s trailing twelve months PE ratio, which stands at 9.2. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that Honda Motor has a forward PE ratio (price relative to this year’s earnings) of just 6.3, so it is fair to say that a slightly more value-oriented path may be ahead for the stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Honda Motor has a P/S ratio of about 0.5. This is significantly lower than the S&P 500 average, which comes in at 3.2 right now.
If anything, HMC is in the lower-end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Honda Motor currently has a Zacks Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Honda Motor a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Honda Motor is 1.2, lower than the industry average of 1.4. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though Honda Motor might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of D and a Momentum score of A. This gives HMC a Zacks VGM score—or its overarching fundamental grade—of B. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current year and next has seen two estimates going higher in the past 30 days compared to none lower.
As a result, the current year consensus estimate has declined by 27% in the past two months, while the next year estimate has inched up by 4.1%.
This bullish trend is why the stock boasts a Zacks Rank #1 (Strong Buy) and why we are expecting outperformance from the company in the near term.
Bottom Line
Honda Motor is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (among the Top 9%) and strong Zacks Rank, Honda Motor looks like a strong value contender. In fact, over the past year, its industry has outperformed the broader market.
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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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.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
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