For Immediate Release
Chicago, IL – January 15, 2018 – Zacks Equity Research Lululemon (NASDAQ:LULU) as the Bull of the Day, Macy's (NYSE:M) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on The Meet Group Inc. (NASDAQ:MEET) , Ribbon Communications (NASDAQ:RBBN) and AudioEye, Inc. (NASDAQ:AEYE) .
Here is a synopsis of all five stocks:
Lululemon has seen its stock price surge over 24% since Christmas as part of the larger market resurgence. Shares of LULU also soared Monday after the yoga apparel firm raised its Q4 revenue and earnings guidance on the back of better-than-expected holiday-quarter comparable store sales. Overall, Lululemon looks strong as it expands into new growth areas and grabs more market share in the growing athleisure industry.
Updated Guidance
Lululemon announced on Monday that it raised its fourth-quarter revenue guidance up from $1.115 billion to $1.125 billion to between $1.140 billion and $1.150 billion. The Vancouver, Canada-headquartered firm based its new guidance on total comparable sales growth in the mid-to-high teens during the period that included the vital holiday shopping period. Lululemon had previously projected comps growth in the high-single to low-double digits.
Along with LULU’s new top-line guidance, the company raised its adjusted quarterly earnings guidance to between $1.72 and $1.74 a share, up from the $1.64 to $1.67 per share range. Investors should note that Lululemon’s earnings guidance “does not include certain discrete tax expenses related to U.S. tax reform” as well as repatriation, which it expects to recognize in Q4. With that said, Lululemon’s guidance also doesn’t include an expected tax benefit.
Price Movement
As we mentioned at the top, shares of LULU have soared over 24% since Christmas, along with giants such as Amazon (NASDAQ:AMZN) and Nike (NYSE:NKE). Despite Lululemon’s recent climb, its shares are still down roughly 4% over the last three months.
Overall, Lululemon stock closed regular trading Tuesday up 1% at $141.13 a share. This marked a roughly 15% downturn from LULU’s 52-week high and sets up a solid buying opportunity for those high on the yoga apparel retailer. We can also see that Lululemon stock has crushed its sportswear peers, Nike, Adidas (DE:ADSGN) and Under Armour over the last two years.
Overview
Moving on, let’s look at Lululemon’s current business and how it plans to expand. Lululemon transformed into an athletic apparel power, which helped LULU turn into a great stock, on the back of its yoga-inspired offerings that helped drive the growth of the massive, mainstream athleisure industry.
Today, the firm competes against historic sportswear firms like Nike, Adidas, and Puma. Plus, Lululemon’s success has inspired Gap to roll out its own athleisure brand, Athleta, and its new men’s focused Hill City. The rise of similar brands such as Outdoor Voices also helps show that the growing athleisure market isn’t expected to fade anytime soon.
Growth Opportunities
Lululemon has expanded its menswear division and rolled out more expensive offerings for both women and men such as shoes, which cost up to $200. The company also sees its outwear division as a comps driver going forward as it tries to compete with the likes of Canada Goose, The North Face, and other higher-end brands.
Lululemon also hopes to break into the self-care market where giants such as Walgreens have partnered with trendy, subscription-based services in order to boost sales and attract younger customers. On top of all of that, LULU announced last quarter that is has been testing a new loyalty program that charges members $128 a year for free shipping, curated experiences, and more.
Outlook & Earnings Trends
At the moment, our Zacks Consensus Estimate calls for Lululemon’s Q4 revenues to climb 21.8% to reach $1.13 billion. Meanwhile, the company’s full-year revenues are projected to surge 22.7% to touch $3.25 billion.
On the other end of the income statement, Lululemon is projected to see its Q4 earnings pop 27.8% to $1.70 a share. Plus, the athletic apparel company’s full-year earnings are expected to soar 43.2% to reach $3.71 a share. Keep in mind that Lululemon’s Q4 and fiscal 2018 estimates could climb as more analysts update their projections based on the firm’s recently-released holiday quarter guidance.
Maybe more important than Lululemon’s strong bottom-line growth projections, is the fact that the firm has earned a ton of positive earnings estimate revisions for Q4 as well as fiscal 2018 and 2019. We can see that a lot of this activity has occurred within the last seven days. Overall, positive bottom-line revisions are a good sign because earnings growth has been proven to be one of the best long-term indicators of positive stock price movement.
Bottom Line
Lululemon is currently a Zacks Rank #1 (Strong Buy) based, for the most part, on its impressive earnings estimate revision activity. LULU also boasts “A” grades for both Growth and Momentum in our Style Scores system.
The Canadian yoga and athleisure power also doesn’t currently hold any long-term debt. This means Lululemon should theoretically be able to spend money on new products, expansion, e-commerce platform improvements, and more. Lululemon executives also said on the company’s Q3 earnings call that the firm is “on course to achieve and even exceed” its goal of reaching $4 billion in revenue by 2020.
Macy's stock suffered its single worst trading day in history last week after it lowered its earnings guidance after lower-than-expected holiday sales. Worse yet, the company’s 2019 top and bottom-line projections don’t look as though they will help Macy’s stock climb back amid the quickly changing retail age.
Holiday Quarter Update
Macy's revised last Thursday its sales and earnings forecast for fiscal 2018 after it experienced slower than anticipated sales during the vital holiday shopping season. The company noted that the season started off strong during the Black Friday weekend, but then fell off until the week of Christmas.
The department store now expects to report flat sales for fiscal 2018, down from November’s guidance that called for growth between 0.3% to 0.7%. The company also lowed its comparable store sales outlook for the year to approximately 2%, down from between 2.3% to 2.5%. Meanwhile, Macy’s is now calling for diluted earnings per share in the range of $3.95 to $4, compared with its prior range of $4.10 to $4.30.
Macy’s also expects its fiscal 2018 gross margin to be down slightly compared to the prior year, instead of up slightly. The retailer’s newly lowered guidance sent M stock down nearly 18%, which marked its worst single trading day in company history. Macy’s performance also helped send fellow retailers Kohl's, JC Penney and Victoria's Secret owner L Brands (NYSE:LB) down as well. Even Target (NYSE:TGT), which reported strong holiday period sales results last week, saw its stock price fall last Thursday.
Price Movement
With that said, Macy’s stock had been trending in the wrong direction for months prior to last week’s historic tumble. Overall, shares of M have sunk over 32% in the last six months, which is far worse than the S&P 500’s roughly 8% decline.
If we jump back over the last 25 years, we can see that owning Macy’s stock has been a somewhat wild ride, especially over the past five years, which has seen the company’s shares tumble 55%. Macy’s is of course not alone, with the department store industry down an average of 37% during this stretch as shoppers and investors move on to new offerings in the Amazon age.
Outlook & Earnings Trends
Looking ahead, our current Zacks Consensus Estimate calls for Macy’s Q4 revenues to sink 2.4% to reach $8.46 billion. The department store’s full-year revenues are projected to pop roughly 0.5% to $24.97 billion. Peeking even further ahead, investors should note that the company’s fiscal 2019 revenues are projected to slip 0.4% below our current-year projection.
Moving on, Macy’s adjusted fourth-quarter earnings are expected to sink 6% to hit $2.65 per share. The company’s adjusted full-year earnings are still projected to climb 7.43%. However, the firm’s fiscal 2019 earnings are projected to come in nearly 18% below our 2018 estimate.
Maybe worse still, Macy’s earnings estimate revision picture has turned completely negative throughout the quarter. And we can see that this negativity has continued over the last seven days.
Bottom Line
Macy’s is currently a Zacks Rank #5 (Strong Sell) based mostly on the firm’s negative earnings revision trends we just discussed. On top of the company’s current projections and earnings trends, the entire department store industry has remained influx despite attempts to revamp their e-commerce platforms and further adapt with the times.
3 Tech Stocks Under $10 to Buy Now
Here at Zacks, we don’t generally classify stocks as “cheap” or “expensive,” and rather than looking at the stock’s face value, we have a system that puts an emphasis on earnings estimate revisions to find stocks that will hopefully be winners for investors.
That being said, low-priced stocks can be attractive to smaller investors that can’t necessarily afford large stakes in companies with higher priced stocks.
When looking at these low-priced stocks, we can look at the same trends in growth, value, and momentum and apply the Zacks Rank to properly analyze the potential that these companies have. We are also keenly aware of the latest sector trends and make sure to cover all of the hottest industries.
Today we’ve highlighted three stocks that fall into the broad “technology” sector. Each of these three stocks is currently trading for less than $10 per share and holds a Zacks Rank #2 (Buy) or better. Take a look at the strong estimate revision activity and other factors that make these tech companies stick out right now:
1. The Meet Group Inc.
Prior Close: $5.39
The Meet Group is a social media company offering several different social entertainment apps, including MeetMe, Skout, and Lovoo. These apps are primarily focused on streaming video, mobile chat, gifting, and photo sharing. MEET has put together an impressive year in terms of earnings beats, and shares are starting to behave like one would expect from a hot growth and momentum pick.
That said, MEET still looks relatively cheap right now. The firm is profitable and trading at just 12.7x earnings. It also has a P/S of 2.4, which marks a steep discount to the industry’s average of 4.1. We often prefer the P/S ratio as a metric of value for smaller tech firms, so it is interesting to see that investors are undervaluing MEET’s revenue stream right now.
2. Ribbon Communications
Prior Close: $5.34
Created last year through a merger of GENBAND and Sonus Networks, Ribbon Communications makes software and security solutions for cable providers and enterprises. The company has worked with some impressive partners, including Verizon (NYSE:VZ) and Microsoft (NASDAQ:MSFT). Shares currently sport a Zacks Rank #2 (Buy).
The merger means this year is one of revenue growth, but looking to 2019, earnings are expected to improve to the tune of 16% from 2018's expected totals. Plus, the stock trades with a PEG of just 0.7, so investors are getting a great price for that growth potential. Other solid valuation metrics, including a P/E of 8.3 and a P/S of 1.0, have earned the stock a grade of “B” in our Value category.
3. AudioEye, Inc.
Prior Close: $8.18
AudioEye is a cloud-based digital accessibility company. In short, it works with other firms that are looking to make their own websites and online platforms easier to use for those in need. For instance, AudioEye can help make a website controllable through voice commands, so that people who might not be able to use a keyboard and mouse can have the complete experience of that web-page.
AudioEye issued a reverse stock split and began trading on a Nasdaq exchange earlier this year, so investors are still getting used to its new look. The stock now has a Zacks Rank #1 (Strong Buy) and sports incredible growth prospects. Sales are starting to heat up, with revenue growth expected to reach 99% in fiscal 2019. EPS growth is projected to total 57% for fiscal 2018 and 33% for fiscal 2019.
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