For Immediate Release
Chicago, IL - November 15, 2016 - Zacks Equity Research highlights Forestar Group (NYSE: FOR - Free Report ) as the Bull of the Day and Hertz Global Holdings (NYSE: HTZ - Free Report ) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on POSCO (NYSE: PKX - Free Report ) , Western Digital (NASDAQ: WDC - Free Report ) and Sabre Corp. (NASDAQ: SABR - Free Report ).
Here is a synopsis of all five stocks:
Many times management talks a good game by saying that they will reduce debt while increasing revenues, but that rarely happens in the real world. Yet, once in a great while, it does happen. The Zacks Bull of the Day, Forestar Group (NYSE: FOR - Free Report ) had $293.3 million in net debt at the end of 2015, and was able to end Q3 16 with $9.8 million in net cash.
This Zacks Rank #1 (Strong Buy) company formerly known as Forestar Real Estate Group Inc. operates in three business segments: real estate, mineral resources, and other. The real estate segment owns directly or through ventures real estate. The mineral resources segment manages acres of oil and gas mineral interests. The other segment primarily sells wood fiber from its land primarily located in Georgia, and leases land for recreational uses.
According to management, " At third quarter-end 2016, we own directly or through ventures interests in 55 residential and mixed-use projects comprised of approximately 7,000 acres of real estate located in 11 states and 15 markets. The company also owns approximately 590,000 net acres of oil and gas fee minerals located in Texas, Louisiana, Georgia and Alabama. The company has water interests in 1.5 million acres which include a 45 percent nonparticipating royalty interest in groundwater produced or withdrawn for commercial purposes or sold from 1.4 million acres in Texas, Louisiana, Georgia and Alabama, and 20,000 acres of groundwater leases in central Texas. The company's non-core assets include about 75,000 acres of timberland and undeveloped land, and commercial and income producing properties which consist of three multifamily projects and two multifamily sites ."
Recent Earnings Results
Last Wednesday, management posted Q3 16 results where they crushed both the Zacks consensus earnings and revenue estimates. Specifically, FOR posted a +700% positive earnings surprise, and a +94.7% positive revenue surprise. The company saw year over year gains in Total revenues +46.7%, Total segment earnings +210.5%, and Cash and cash equivalents +29.3%. Management also saw General and administrative expenses decline by -46% compared to Q3 2015.
According to Phil Weber, CEO, " In one year, we have made significant progress transforming Forestar through the execution of our key initiatives to divest non-core assets, reduce outstanding debt, reduce SG&A costs and focus on maximizing shareholder value. Key highlights include selling $425 million in non-core assets, reducing outstanding debt by over $320 million, and reducing annual interest expense by approximately $23 million going forward. Once non-core asset sales are fully executed, projected annual SG&A costs are expected to decrease by over $50 million compared with 2015 actuals. In addition, we have transformed our capital structure by significantly reducing leverage, which has strengthened our balance sheet and created flexibility ."
Decreased volumes, and higher net operating and administrative expenses are big drags on a balance sheet, and these are just some of the issues facing the Zacks Bear of the Day, Hertz Global Holdings (NYSE: HTZ - Free Report ).
This Zacks Rank #5 (Strong Sell) company operates car rental business. The company's product and services consists of Hertz Gold Plus Rewards, NeverLost(R), Carfirmations, Mobile Wi-Fi and unique vehicles offered through the Adrenaline, Dream, Green and Prestige Collections. It operates primarily in North America, Europe, Latin America, Asia, Australia, Africa, the Middle East and New Zealand.
Recent Earnings Data
Last Tuesday, management posted Q3 16 financial results and they missed both the Zacks consensus earnings and revenue estimates. Specifically, the company reported earnings of $1.58 per share, which was below Zacks consensus earnings estimate of $2.81. On a year over year basis, the company saw U.S. Rental Car declines in Total revenues -2.0%, Income from continuing operations before income taxes -42%, Adjusted pre-tax income -30%, Adjusted corporate EBITDA -30%, Adjusted corporate EBITDA margins -470 bps, and Revenue per available car day -4%.
On the International Rental Car side, the company saw year over year losses in Total revenues -1.0%, Adjusted pre-tax income -6%, Adjusted corporate EBITDA -7%, and Revenue per available car day -2.0%.
According to John Tague, President and CEO, " We are making progress in foundational aspects of our long-term business improvement plan, implementing new systems, improving customer service levels and launching new products. However, our near-term financial performance continues to be uneven. A customary vehicle depreciation rate review near the close of the third quarter resulted in a substantial depreciation adjustment, particularly on compact and mid-sized vehicles, that together with rental volume at the low end of our expectations as well as higher net operating and administrative expenses impacted our performance.
"While we remain on pace to deliver $350 million of cost reduction in 2016, we fell short from a timing perspective on our internal stretch target for cost reduction. Considering this and the potential for an additional depreciation rate adjustment in the fourth quarter, we are updating our 2016 outlook and taking incremental actions to reduce costs and drive revenue ."
The First 100 Days: Global Week Ahead
In the Global Week Ahead, markets likely trade on guidance President-elect Trump supplies about his 100-Day Plan priorities -- and on his initial cabinet choices.
First-term U.S. Presidents are often judged by their First 100 Days. The term was coined in a July 24th, 1933, radio address by U.S. President Franklin D. Roosevelt.
Mr. Trump begins his presidency on Jan. 20th, 2017. What he wants to get done is a lengthy 2-page sheet.
100-day Action Plan to Make America Great Again
Trump cannot achieve everything in his 100-Day platform.
After promising so much to so many -- in populist fashion -- will Trump get caught up in the same broken promises he railed against, and tagged as the pattern of DC's ineffective establishment? Or will he overestimate support for his policies, and attempt more than the electorate is comfortable with?
Perhaps Trump strikes a balance. It is premature for markets to judge his policy choices well. But judge they do.
Last week, Trump stock market losers were companies doing business in Mexico, those heavily exposed to global trade, or those that rely upon U.S. regulation. The Mexican peso got killed too.
Winners were found in Pharma & Biotech, Oil & Gas and Defense sectors, and the Banks -- with an expectation for higher interest rates and inflation coming from the new Federal spending and tax cuts he could implement.
Talk is cheaper than action. We all know that. Successfully running for U.S. President is vastly different than governing the country well for 4 years.
Top Zacks #1 Rank (STRONG BUY) stocks
POSCO (NYSE: PKX - Free Report ) : This is an $18 billion market cap stock with a Zacks VGM score of A. POSCO is a multinational steel-making company headquartered in Pohang, South Korea. It had an output of 42 million tons of crude steel in 2015, making it the world's 4th-largest steelmaker by this measure.
Western Digital (NASDAQ: WDC - Free Report ) : This is a $16 billion market cap stock with a Zacks VGM score of B. Western Digital Corp. designs, develops, manufactures and markets a broad line of hard drives featuring leading-edge technology. The company's hard drives are designed for the desktop PC market and the high-end hard drive market and, recently, for the emerging market for hard drives specially designed for audio-visual applications, such as new video recording devices.
Sabre Corp. (NASDAQ: SABR - Free Report ) : This is a $7 billion market cap stock with a Zacks VGM score of B. Sabre Corp. engages in providing technology solutions to the global travel and tourism industry. The company operates 4 brands/businesses: Sabre Airline Solutions (R), Sabre Hospitality Solutions (R), Sabre Travel Network (R) and Travelocity (R).
Key Global Macro Events This Week-
Trump is scheduled to meet with Japanese Prime Minister Shinzo Abe in NYC on Thursday -- at Mr. Abe's request. During his campaign, he criticized Japan and other allies, for not paying their fair share to support American military bases.
Also on Thursday, keep an eye on Fed chair Janet Yellen's testimony to the Senate's Joint Economic Committee. Yellen is not expected to confirm a 25 basis point rate hike next month. However, she is expected to imply recent events -- aka the election results -- have not derailed the Fed. Ten other Fed officials also speak out this week.
Only 21 S&P 500 firms announce quarterly results this week.
On Tuesday , preliminary GDP in Germany looks to be +1.8% y/y.
Preliminary GDP in the Eurozone looks to be +1.6% y/y.
The HICP inflation rate in Spain is still too low at +0.5% y/y.
The South African unemployment rate is 26.6%, higher than Greece!
The German ZEW surveys come out. Current conditions should get to 60.4 from 59.4 and economic sentiment to 12.6 from 12.3.
On Wednesday , the Fed's Bullard speaks in London.
The ILO unemployment rate in the UK is 4.9%.
The NAHB Builders survey index should be flat at 62.
On Thursday , The Fed's Dudley and Brainerd speak in NYC.
The ILO unemployment rate in France is 9.9%.
Retail sales ex-auto & fuel looks to be 4.9% y/y.
Brazil's proxy GDP looks poor at -4% y/y, worse than the prior -2.72%.
U.S. building permits should be 1.19 million, down from 1.225 million. However, U.S. housing starts should be 1.21 million, up from 1.047 million.
U.S. initial claims should be super low at 257K.
The Bank of Mexico holds an important monetary policy meeting.
On Friday , Russia's unemployment rate should be 5.2%.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.