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American Eagle Outfitters, Regis, McDonald's and Yum! Brands as Zacks Bull and Bear of the Day
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For Immediate Release
Chicago, IL – December 26, 2017 – Zacks Equity Research highlights American Eagle Outfitters (AEO - Free Report) as the Bull of the Day and Regis Corporation (RGS - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on McDonald's Corp. (MCD - Free Report) and Yum! Brands, Inc. (YUM - Free Report) .
The struggles of traditional retailers have been well-documented, and basically no mall-based chains have been immune to the industry-shifting changes in consumer shopping habits. Nevertheless, some companies have adapted better than others. American Eagle Outfitters is one of those companies.
American Eagle Outfitters is a specialty retailer of casual apparel, accessories, and footwear for men and women between the ages of 16 and 34. The company sources, designs, and markets a line of clothing classics like jeans, khakis, and T-shirts under its American Eagle Outfitters and AE brand names for exclusive sale in its stores and e-commerce marketplaces.
Two weeks ago, American Eagle reported quarterly earnings that missed our consensus estimate. However, the report included several encouraging results and solid guidance. Shares have surged about 13% since the earnings announcement. This report also ushered in a number of positive estimate revisions, helping the stock earn a Zacks Rank #1 (Strong Buy).
Latest Earnings Results
American Eagle reported its third-quarter earnings results on December 6. The company posted earnings of 37 cents per share, which missed our consensus estimate of 39 cents and slumped about 9.8% year-over-year.
However, total net revenues increased about 2.1% and marked record quarterly sales for the company. Consolidated comps increased 3%—an improvement to the 2% comps growth witnessed in the year-ago period. These Q3 results represented the company’s 11th consecutive quarter of positive comps.
Even more importantly, American Eagle’s e-commerce business exhibited impressive expansion. Online sales exhibited growth in the high teens and represented about 25% of the company’s total revenues.
But American Eagle did mention some positive trends at its brick-and-mortar locations. In fact, management said that traffic and transactions improved in the quarter. Brand wise, comps rose 19% at the company's aerie stores and inched up 1% at AE brand outlets.
The company also noted that its positive momentum continued into the fourth quarter, with sales of Black Friday and Cyber Monday exceeding expectations. American Eagle anticipates Q4 comps to increase in the mid-single digits. Earnings are expected to fall in the range of $0.42 to $0.44 per share.
While personal service companies like salons and barbershops are technically lumped into the broader retail sector, these operations have the benefit of being “un-Amazon-able.” However, an improved economy has sparked a trend toward higher-quality brands in this space, leaving low-budget options like Regis Corporation in the dust.
Regis Corporation owns, franchises and operates beauty salons. Regis' corporate and franchised locations operate under concepts such as Supercuts, SmartStyle, MasterCuts, Regis Salons, Sassoon Salon, Cost Cutters and First Choice Haircutters.
This company has a lackluster earnings performance history and has witnessed declining earnings estimates. The stock is currently a Zacks Rank #5 (Strong Sell) and should probably be avoided as we head towards the New Year.
Latest Results and Outlook
In early November, Regis posted its latest quarterly results. The company reported earnings of 10 cents per share, missing our consensus estimate of 13 cents. Regis also posted revenues of $310 million, missing our consensus estimate of $334 million and declining from the $431 million reported in the year-ago period. The company has now missed estimates twice this year.
Since this lackluster report, estimates for the company’s upcoming fiscal periods have moved lower. In fact, the Zacks Consensus Estimate for its current quarter is now nine cents lower than it was just 60 days ago. We now expect Regis to witness just breakeven earnings in the current quarter.
Key Stats
What may be more concerning than the company’s shaky earnings picture is its worrying balance sheet. Regis’ cash flow is retreating at a rate of 3.74% right now, and its total liabilities at the end of the most recent quarter were $528 million, up from $505 million at the end of year-ago period.
The stock has a Forward P/E of 83.00, meaning that its share are trading at a significant premium compared its earnings outlook. RGS has earned an “A” grade in our Growth category, but that is mostly due to softer year-over-year earnings comparisons. And the stock is sporting a PEG of 11.86, so investors are not getting a great price for that earnings expansion.
Additional content:
McDonald's vs. Yum! Brands: Which Is the Tastier Stock?
The restaurant industry has been lacking zing over the past few quarters. Negative comps resulting from sluggish traffic, along with rising costs, continue to take the shine out of restaurant stocks.
Nevertheless, some of the big names like McDonald's Corp. and Yum! Brands, Inc. have done well on the back of strong fundamentals and innovative offerings.
In fact, McDonald's and Yum! Brands are two companies that have adopted a de-risking strategy, dropping their ownership of restaurants through refranchising. This reduces capital requirements, boosts earnings per share growth and makes them less vulnerable to food inflation.
In addition, growing free cash flow allows both the companies to make investments for increasing brand recognition and shareholder returns.
With both carrying a Zacks Rank #3 (Hold), let’s find out which company is placed better with respect to some key parameters.
Year to date, McDonald's has had a more impressive run on the bourse with a return of 41.2% while Yum! Brands has gained 30.3% in the last year. Notably, both have outperformed the industry that has rallied 14.4% in the same time frame.
Projected Earnings Growth
Arguably nothing is more important than earnings growth as surging profit levels is what most investors are after. Earnings growth is definitely necessary and it along with stock price gains is often an indication of a company’s strong prospects.
Both McDonald's and Yum! brands have their own initiatives in place to boost earnings. While McDonald's is keen on operational excellence, product innovation, offering a value menu and rolling out more limited-time offerings, Yum! Brands is working on a strategic transformation plan to drive growth at KFC, Pizza Hut and Taco Bell brands. It is also shifting toward a single point-of-sale system in the United States.
Yum! Brands is expected to see higher earnings growth than McDonald's in 2018. Its EPS is projected to grow 13.1% while that of McDonald's is expected to increase 6.8%. So, Yum! Brands has an edge over McDonald's in this respect.
Net Margin
Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and manufacturing efficiency. Hence, a strong net profit margin is preferred by all classes of investors.
Both McDonald's and Yum! Brands have outperformed the industry year to date, which has a net margin TTM of 15.8%. However, McDonald's has a lead since its TTM net margin is higher at 22.4%, compared with Yum! Brands 16.1.
Valuation
The EV/EBITDA ratio offers a clear picture of a company’s valuation and its earnings potential. Typically, the lower the EV/EBITDA ratio, the more appealing it is. This signals that a stock is undervalued.
Both McDonald's and Yum! Brands are overvalued relative to their broader industry that has an EV/EBIDA value of 13.8. However, McDonald's holds the edge here with a lower EV/EBITDA value of 16.1, compared to Yum! Brands’ 19.8.
Earnings History, ESP and Estimates
Both McDonald's and Yum! Brands have delivered positive earnings surprises in each of the prior four quarters. While McDonald's has an average earnings surprise of 5.2%, Yum! stands out with an average earnings surprise of 7.8%.
However, McDonald's Earnings ESPof +0.54% lends it an edge over Yum! Brands, which has an Earnings ESP of -7.04%.
While the Zacks Consensus Estimate for McDonald's full year has increased 0.15% over the last 30 days, it has remained unchanged in case of Yum! Brands over the same time frame.
To Conclude
Our comparative analysis reveals that McDonald's has an edge over Yum! Brands in terms of share price movement, net margin, EV/EBITA ratio, Earnings ESP and estimate revisions. Yum! Brands, on the other hand, is better poised than McDonald's in terms of projected EPS and boasts a solid earnings surprise track record.
So, with a lead in most of the evaluated metrics, McDonald's, appears to take precedence at the moment.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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 more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% 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 http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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American Eagle Outfitters, Regis, McDonald's and Yum! Brands as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – December 26, 2017 – Zacks Equity Research highlights American Eagle Outfitters (AEO - Free Report) as the Bull of the Day and Regis Corporation (RGS - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on McDonald's Corp. (MCD - Free Report) and Yum! Brands, Inc. (YUM - Free Report) .
Here is a synopsis of all four stocks:
Bull of the Day:
The struggles of traditional retailers have been well-documented, and basically no mall-based chains have been immune to the industry-shifting changes in consumer shopping habits. Nevertheless, some companies have adapted better than others. American Eagle Outfitters is one of those companies.
American Eagle Outfitters is a specialty retailer of casual apparel, accessories, and footwear for men and women between the ages of 16 and 34. The company sources, designs, and markets a line of clothing classics like jeans, khakis, and T-shirts under its American Eagle Outfitters and AE brand names for exclusive sale in its stores and e-commerce marketplaces.
Two weeks ago, American Eagle reported quarterly earnings that missed our consensus estimate. However, the report included several encouraging results and solid guidance. Shares have surged about 13% since the earnings announcement. This report also ushered in a number of positive estimate revisions, helping the stock earn a Zacks Rank #1 (Strong Buy).
Latest Earnings Results
American Eagle reported its third-quarter earnings results on December 6. The company posted earnings of 37 cents per share, which missed our consensus estimate of 39 cents and slumped about 9.8% year-over-year.
However, total net revenues increased about 2.1% and marked record quarterly sales for the company. Consolidated comps increased 3%—an improvement to the 2% comps growth witnessed in the year-ago period. These Q3 results represented the company’s 11th consecutive quarter of positive comps.
Even more importantly, American Eagle’s e-commerce business exhibited impressive expansion. Online sales exhibited growth in the high teens and represented about 25% of the company’s total revenues.
But American Eagle did mention some positive trends at its brick-and-mortar locations. In fact, management said that traffic and transactions improved in the quarter. Brand wise, comps rose 19% at the company's aerie stores and inched up 1% at AE brand outlets.
The company also noted that its positive momentum continued into the fourth quarter, with sales of Black Friday and Cyber Monday exceeding expectations. American Eagle anticipates Q4 comps to increase in the mid-single digits. Earnings are expected to fall in the range of $0.42 to $0.44 per share.
Bear of the Day:
While personal service companies like salons and barbershops are technically lumped into the broader retail sector, these operations have the benefit of being “un-Amazon-able.” However, an improved economy has sparked a trend toward higher-quality brands in this space, leaving low-budget options like Regis Corporation in the dust.
Regis Corporation owns, franchises and operates beauty salons. Regis' corporate and franchised locations operate under concepts such as Supercuts, SmartStyle, MasterCuts, Regis Salons, Sassoon Salon, Cost Cutters and First Choice Haircutters.
This company has a lackluster earnings performance history and has witnessed declining earnings estimates. The stock is currently a Zacks Rank #5 (Strong Sell) and should probably be avoided as we head towards the New Year.
Latest Results and Outlook
In early November, Regis posted its latest quarterly results. The company reported earnings of 10 cents per share, missing our consensus estimate of 13 cents. Regis also posted revenues of $310 million, missing our consensus estimate of $334 million and declining from the $431 million reported in the year-ago period. The company has now missed estimates twice this year.
Since this lackluster report, estimates for the company’s upcoming fiscal periods have moved lower. In fact, the Zacks Consensus Estimate for its current quarter is now nine cents lower than it was just 60 days ago. We now expect Regis to witness just breakeven earnings in the current quarter.
Key Stats
What may be more concerning than the company’s shaky earnings picture is its worrying balance sheet. Regis’ cash flow is retreating at a rate of 3.74% right now, and its total liabilities at the end of the most recent quarter were $528 million, up from $505 million at the end of year-ago period.
The stock has a Forward P/E of 83.00, meaning that its share are trading at a significant premium compared its earnings outlook. RGS has earned an “A” grade in our Growth category, but that is mostly due to softer year-over-year earnings comparisons. And the stock is sporting a PEG of 11.86, so investors are not getting a great price for that earnings expansion.
Additional content:
McDonald's vs. Yum! Brands: Which Is the Tastier Stock?
The restaurant industry has been lacking zing over the past few quarters. Negative comps resulting from sluggish traffic, along with rising costs, continue to take the shine out of restaurant stocks.
Nevertheless, some of the big names like McDonald's Corp. and Yum! Brands, Inc. have done well on the back of strong fundamentals and innovative offerings.
In fact, McDonald's and Yum! Brands are two companies that have adopted a de-risking strategy, dropping their ownership of restaurants through refranchising. This reduces capital requirements, boosts earnings per share growth and makes them less vulnerable to food inflation.
In addition, growing free cash flow allows both the companies to make investments for increasing brand recognition and shareholder returns.
With both carrying a Zacks Rank #3 (Hold), let’s find out which company is placed better with respect to some key parameters.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Share Price Movement
Year to date, McDonald's has had a more impressive run on the bourse with a return of 41.2% while Yum! Brands has gained 30.3% in the last year. Notably, both have outperformed the industry that has rallied 14.4% in the same time frame.
Projected Earnings Growth
Arguably nothing is more important than earnings growth as surging profit levels is what most investors are after. Earnings growth is definitely necessary and it along with stock price gains is often an indication of a company’s strong prospects.
Both McDonald's and Yum! brands have their own initiatives in place to boost earnings. While McDonald's is keen on operational excellence, product innovation, offering a value menu and rolling out more limited-time offerings, Yum! Brands is working on a strategic transformation plan to drive growth at KFC, Pizza Hut and Taco Bell brands. It is also shifting toward a single point-of-sale system in the United States.
Yum! Brands is expected to see higher earnings growth than McDonald's in 2018. Its EPS is projected to grow 13.1% while that of McDonald's is expected to increase 6.8%. So, Yum! Brands has an edge over McDonald's in this respect.
Net Margin
Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and manufacturing efficiency. Hence, a strong net profit margin is preferred by all classes of investors.
Both McDonald's and Yum! Brands have outperformed the industry year to date, which has a net margin TTM of 15.8%. However, McDonald's has a lead since its TTM net margin is higher at 22.4%, compared with Yum! Brands 16.1.
Valuation
The EV/EBITDA ratio offers a clear picture of a company’s valuation and its earnings potential. Typically, the lower the EV/EBITDA ratio, the more appealing it is. This signals that a stock is undervalued.
Both McDonald's and Yum! Brands are overvalued relative to their broader industry that has an EV/EBIDA value of 13.8. However, McDonald's holds the edge here with a lower EV/EBITDA value of 16.1, compared to Yum! Brands’ 19.8.
Earnings History, ESP and Estimates
Both McDonald's and Yum! Brands have delivered positive earnings surprises in each of the prior four quarters. While McDonald's has an average earnings surprise of 5.2%, Yum! stands out with an average earnings surprise of 7.8%.
However, McDonald's Earnings ESPof +0.54% lends it an edge over Yum! Brands, which has an Earnings ESP of -7.04%.
While the Zacks Consensus Estimate for McDonald's full year has increased 0.15% over the last 30 days, it has remained unchanged in case of Yum! Brands over the same time frame.
To Conclude
Our comparative analysis reveals that McDonald's has an edge over Yum! Brands in terms of share price movement, net margin, EV/EBITA ratio, Earnings ESP and estimate revisions. Yum! Brands, on the other hand, is better poised than McDonald's in terms of projected EPS and boasts a solid earnings surprise track record.
So, with a lead in most of the evaluated metrics, McDonald's, appears to take precedence at the moment.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
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 more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% 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 http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.