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The Bull of the Day is an article that is supposed to highlight why a stock is a Zacks Rank #1 (Strong Buy) or maybe a Zacks Rank #2 (Buy). It isn’t really about the stock that went up the most or that is even expected to go up the most. Sometimes stocks that have strong earnings and excellent valuations trade lower… and that is what has happened in some of my recent articles.
This Bull of the Day article is going to focus on Ultra Clean Corp (NASDAQ:(UCTT - Free Report) – Free Report).
The key point then, as it is now, was valuation. The stock traded at just about 13x forward earnings which is far below the market multiple and almost half of the industry average multiple. Clearly, the market is discounting the earnings growth for UCTT and that could be due to the fact that a majority of its sales come from just a handful of customers.
The more recent report should have been a wake-up call to Wall Street, because UCTT is getting more customers with more orders. That will lead to more sales and of course, more earnings.
Recent Report
The most recent earnings report for UCTT came on July 27, when the company topped the Wall Street estimate by 11 cents in earning $0.62 per share. Revenue growth of 75% over the prior year was well ahead of the $213M estimate coming in at $228M.
The guidance was the heart of the report, and things look great for next quarter. The company guided EPS to a range of $0.62 to $0.68 when the consensus estimate was looking for just $0.39 – and that is for the next quarter. This means that estimates are likely to move higher by 50% for next quarter.
Revenue guidance of between $235M-$245M is also well ahead of the $193M consensus estimate.
Stock Trades Lower
I have been asked at least two dozen times (and one dozen of those is from my wonderful mother) why this stock is trading lower after posting such great results. The simple answer is that investors are selling this stock and that could have something to do with the elevated expectations on the stock even after a huge run.
Short Interest is only about 3.3% of the float, so it is not like the shorts are really influencing this stock (yet they have increased their position by about 8% since the last reading).
In the end, the weak hands that sell this stock now will likely be the same ones that buy the stock again after it has already moved another leg higher. That just seems to be the way of the markets, where a lot of investors sell low and then buy high.
Following the report, Needham put a $30 price target on UCTT.
The Bear of the Day is an article that is supposed to highlight why a stock is a Zacks Rank #5 (Strong Sell) or maybe a Zacks Rank #4 (Sell).
Eagle Materials(NYSE:(EXP - Free Report) – Free Report) recently reported an in-line quarter and was also upgraded from hold to buy at two brokerages, so why is it a Zacks Rank #5 (Strong Sell)?
Recent Report
The most recent earnings report for EXP came on July 31, when the company met the Wall Street estimate with earnings of $1.17 per share. Revenue growth of 21% over the prior was good, but the $366M number was below the $369M estimate.
As noted the stock received a few upgrades, one was from Citigroup and the other was from Standpoint Research
Over the last 7, 30 and 60 days, there have been multiple negative estimate revisions for EXP. In that same time horizon, there were no positive earnings estimate revisions.
7 days ago, the current quarter was looking at $1.62, but now that number has slipped to $1.56. The estimate for the following quarter has also slipped and both of those revisions lower have taken a toll on the current year estimate which is down to $5.32 from $5.43.
Next Year
While those few pennies here and there sting, the real pain is in the revision for next year. The analysts materially changed their outlook on this stock and we see estimates for Fiscal 2019 have fallen from $8.20 to $6.82. That is a huge move lower and easily the biggest reason for the stock to be a Zack Rank #5 (Strong Sell).
Additional content:
Tesla Shares Up 4% on Robust Q2 Revenues, Outlook
Shares of electric vehicle (EV) leader Tesla Inc. (NASDAQ:(TSLA - Free Report) – Free Report) is rising in late trading today after posting its Q2 earnings results after the bell today. A bottom-line loss of $2.04 per share (accounting for stock-based compensation and other potential BNRI) actually missed the -$2.00 per share in the Zacks consensus estimate. (Its headline number of $1.33 beat The Street's estimate of $1.88.) Sales revenue of $2.79 billion blew past the $2.55 billion expected, which itself represented a 63% increase year over year.
The main focus in the company's letter to investors was on the ramp-up of the coming Model 3, deliveries of which will begin (to non-employees) in Q4. Tesla averages 1800 new reservations PER DAY for the Model 3, which is impressive for a company that has produced 25,708 vehicles in Q2 2017 (up 40% year over year). The company expects positive gross margins from the Model 3 beginning in Q4 2017. Gross margins for the just-concluded quarter reached 27.9% overall, better than analysts had expected.
Of course, it's whether Tesla is physically able to deliver on these reservations in a timely manner that has been the company's biggest bugaboo -- and when that's the worst problem your firm faces, no wonder you're up 50% year to date and another 4% in the after-market. An already announced shortage of 100 kWh batteries back in June held up production a bit, but nowhere near what the company was faced with in the early days of its public existence.
The company also announced it now has $3 billion in cash (partly supported by cash from energy from its solar power systems improving), meaning the company will likely not need to raise additional cash in 2017. By then, one may suppose, Model 3 sales will be off to the races, as they say, and auto revenues, which grew 93% since this time a year ago, may be in another dimension.
Payments processing firm Square, Inc. (NYSE:(SQ - Free Report) – Free Report) spiked up 5% in post-market trading (before slipping a bit since) following its meet on bottom line on higher quarterly revenues. The San Francisco-based firm reported a loss of 4 cents per share, a gain of 50% year over year, on $552 million in sales, easily outpacing the $537 million expected. Square also upped guidance for the full year, looking for both higher revenues and lower losses on the bottom line.
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.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year. See these high-potential stocks free >>.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Ultra Clean, Eagle Materials, Tesla and Square highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – August 03, 2017 – Zacks Equity Research Ultra Clean Corp (NASDAQ:(UCTT - Free Report) – Free Report) as the Bull of the Day, Eagle Materials (NYSE:(EXP - Free Report) – Free Report)as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Tesla Inc. (NASDAQ:(TSLA - Free Report) – Free Report) and Square, Inc. (NYSE:(SQ - Free Report) – Free Report).
Here is a synopsis of all four stocks:
Bull of the Day:
The Bull of the Day is an article that is supposed to highlight why a stock is a Zacks Rank #1 (Strong Buy) or maybe a Zacks Rank #2 (Buy). It isn’t really about the stock that went up the most or that is even expected to go up the most. Sometimes stocks that have strong earnings and excellent valuations trade lower… and that is what has happened in some of my recent articles.
This Bull of the Day article is going to focus on Ultra Clean Corp (NASDAQ:(UCTT - Free Report) – Free Report).
The previous Bull of the Day for this article came out on May 12 (https://www.zacks.com/commentary/113606/bull-of-the-day-ultra-clean-holdings-uctt) and it more or less reviewed why it was the Bull of the Day 3 times already this year.
The key point then, as it is now, was valuation. The stock traded at just about 13x forward earnings which is far below the market multiple and almost half of the industry average multiple. Clearly, the market is discounting the earnings growth for UCTT and that could be due to the fact that a majority of its sales come from just a handful of customers.
The more recent report should have been a wake-up call to Wall Street, because UCTT is getting more customers with more orders. That will lead to more sales and of course, more earnings.
Recent Report
The most recent earnings report for UCTT came on July 27, when the company topped the Wall Street estimate by 11 cents in earning $0.62 per share. Revenue growth of 75% over the prior year was well ahead of the $213M estimate coming in at $228M.
The guidance was the heart of the report, and things look great for next quarter. The company guided EPS to a range of $0.62 to $0.68 when the consensus estimate was looking for just $0.39 – and that is for the next quarter. This means that estimates are likely to move higher by 50% for next quarter.
Revenue guidance of between $235M-$245M is also well ahead of the $193M consensus estimate.
Stock Trades Lower
I have been asked at least two dozen times (and one dozen of those is from my wonderful mother) why this stock is trading lower after posting such great results. The simple answer is that investors are selling this stock and that could have something to do with the elevated expectations on the stock even after a huge run.
Short Interest is only about 3.3% of the float, so it is not like the shorts are really influencing this stock (yet they have increased their position by about 8% since the last reading).
In the end, the weak hands that sell this stock now will likely be the same ones that buy the stock again after it has already moved another leg higher. That just seems to be the way of the markets, where a lot of investors sell low and then buy high.
Following the report, Needham put a $30 price target on UCTT.
Bear of the Day:
The Bear of the Day is an article that is supposed to highlight why a stock is a Zacks Rank #5 (Strong Sell) or maybe a Zacks Rank #4 (Sell).
Eagle Materials(NYSE:(EXP - Free Report) – Free Report) recently reported an in-line quarter and was also upgraded from hold to buy at two brokerages, so why is it a Zacks Rank #5 (Strong Sell)?
Recent Report
The most recent earnings report for EXP came on July 31, when the company met the Wall Street estimate with earnings of $1.17 per share. Revenue growth of 21% over the prior was good, but the $366M number was below the $369M estimate.
As noted the stock received a few upgrades, one was from Citigroup and the other was from Standpoint Research
So Why Zacks Rank #5 (Strong Sell)?
The Zacks Rank focuses on earnings estimates and the best place to look at the recent history of earnings estimates this page (https://www.zacks.com/stock/quote/EXP/detailed-estimates) the detailed estimates page.
Over the last 7, 30 and 60 days, there have been multiple negative estimate revisions for EXP. In that same time horizon, there were no positive earnings estimate revisions.
7 days ago, the current quarter was looking at $1.62, but now that number has slipped to $1.56. The estimate for the following quarter has also slipped and both of those revisions lower have taken a toll on the current year estimate which is down to $5.32 from $5.43.
Next Year
While those few pennies here and there sting, the real pain is in the revision for next year. The analysts materially changed their outlook on this stock and we see estimates for Fiscal 2019 have fallen from $8.20 to $6.82. That is a huge move lower and easily the biggest reason for the stock to be a Zack Rank #5 (Strong Sell).
Additional content:
Tesla Shares Up 4% on Robust Q2 Revenues, Outlook
Shares of electric vehicle (EV) leader Tesla Inc. (NASDAQ:(TSLA - Free Report) – Free Report) is rising in late trading today after posting its Q2 earnings results after the bell today. A bottom-line loss of $2.04 per share (accounting for stock-based compensation and other potential BNRI) actually missed the -$2.00 per share in the Zacks consensus estimate. (Its headline number of $1.33 beat The Street's estimate of $1.88.) Sales revenue of $2.79 billion blew past the $2.55 billion expected, which itself represented a 63% increase year over year.
The main focus in the company's letter to investors was on the ramp-up of the coming Model 3, deliveries of which will begin (to non-employees) in Q4. Tesla averages 1800 new reservations PER DAY for the Model 3, which is impressive for a company that has produced 25,708 vehicles in Q2 2017 (up 40% year over year). The company expects positive gross margins from the Model 3 beginning in Q4 2017. Gross margins for the just-concluded quarter reached 27.9% overall, better than analysts had expected.
Of course, it's whether Tesla is physically able to deliver on these reservations in a timely manner that has been the company's biggest bugaboo -- and when that's the worst problem your firm faces, no wonder you're up 50% year to date and another 4% in the after-market. An already announced shortage of 100 kWh batteries back in June held up production a bit, but nowhere near what the company was faced with in the early days of its public existence.
The company also announced it now has $3 billion in cash (partly supported by cash from energy from its solar power systems improving), meaning the company will likely not need to raise additional cash in 2017. By then, one may suppose, Model 3 sales will be off to the races, as they say, and auto revenues, which grew 93% since this time a year ago, may be in another dimension.
For more on Tesla's earnings, click here.
Jack Dorsey's "Other" Company Reports
Payments processing firm Square, Inc. (NYSE:(SQ - Free Report) – Free Report) spiked up 5% in post-market trading (before slipping a bit since) following its meet on bottom line on higher quarterly revenues. The San Francisco-based firm reported a loss of 4 cents per share, a gain of 50% year over year, on $552 million in sales, easily outpacing the $537 million expected. Square also upped guidance for the full year, looking for both higher revenues and lower losses on the bottom line.
For more on Square Inc.'s earnings, click here.
Get today’s Zacks #1 Stock of the Day with your free subscription to Profit from the Pros newsletter:
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.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year. See these high-potential stocks free >>.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.