For Immediate Release
Chicago, IL - Jan 02, 2018 - Zacks Equity Research highlights Las Vegas SandsLVS as the Bull of the Day, Genesco Inc.GCO as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Goldman SachsGS and JPMorganJPM .
Here is a synopsis of all four stocks:
Las Vegas Sands , a Zacks Rank #2 (Buy) is a hotel, gaming, and retail mall company headquartered in Las Vegas, Nevada. The company owns The Venetian Resort Hotel Casino, the Sands Expo and Convention Center, Venetian Interactive, an internet based venture, and Venetian Macao Limited, a developer of multiple casino hotel resort properties in The People's Republic of China's Special Administrative Region of Macao.
Recent Earnings Results
In the company's most recent earnings report it beat both the top and bottom line expectations for the third consecutive quarter. Also, over the last four quarters the company has posted an average positive surprise of +9.1%. On a year over year basis, the company posted gains in the following; consolidated net revenues +7.7%, net income +13%, GAAP diluted EPS +10.8%, and consolidated adjusted property EBITDA +6.0%.
Drivers Going Forward
Management has been focused on several key drivers for the company which include, a three year $1.1 billion capital plan, strengthening its VIP business, and property remodeling. The capital plan will rebrand and renovate its resort in Macau from the Sands Cotai Central to The Londoner Macao. This plan also includes the renovation and the addition of hundreds of new suites at the St. Regis and Four Seasons Macau. The goal is to increase the company's share of high spending Chinese tourists at Asia's leading leisure tourism and business destination.
Management has also improved its position in the VIP area as volumes and margins continue to rise across the world, with better than expected traction in both Macau and Singapore. The remodeling plan has already begun to attract more customers who are flocking to the luxury accommodations, and expanded retail shopping within its malls. The addition of the new suites and retail offerings has already positively impacted the top line as both occupancy rates, and retail mall revenues have increased.
On the income side, last quarter management increased its quarterly dividend payment by 3% for an annual dividend yield of 4.16%. Further, LVS has a share repurchase program that has consistently purchased about $75 million of common stock each quarter as part of its $2 billion program started in 2013.
According to Sheldon Adelson, Chairman and CEO, " We are pleased to have delivered strong financial results again this quarter, led by growth in both Macao and Singapore. Our convention-based Integrated Resort business model remains the key driver of our financial results, with consolidated adjusted property EBITDA reaching $1.21 billion, while hold-normalized adjusted property EBITDA increased 10.4%. We also continued to return excess capital to shareholders through dividends and share repurchases during the quarter ."
Genesco Inc. , a Zacks Rank #5 (Strong Sell) a Nashville-based specialty retailer, sells footwear, headwear and accessories in retail stores in the United States and Canada. The Company sells its products principally under the names Journeys, Journeys Kidz, Shi by Journeys, Johnston & Murphy, Underground Station, Hatworld, Lids, Hat Shack, Hat Zone, Head Quarters and Cap Connection, and on internet websites. The Company also sells footwear at wholesale under its Johnston & Murphy brand and under the licensed Dockers brand.
Recent Earnings Report
In early December, the company posted Q3 17 earnings results were it missed the Zacks consensus earnings estimate for the third consecutive quarter, but beat the revenue estimate (the first revenue beat in 8 quarters). Due to its current negative trends at its Lids stores, management reduced its FY 17 EPS guidance to a range of $3.05-3.35 from $3.35-3.65. The Lids stores were feeling pressure from declining demand for NFL licensed merchandise, and a -2.0% decline it comparable same store sales at their brick and mortar stores. While the Journeys segment saw improvements, the Lids issues are outweighing its growth.
According to Robert J. Dennis, Chairman, President and CEO, " Our third quarter results are the tale of two businesses. Journeys built on its momentum following its emergence from the recent fashion shift in its markets and posted a solid comp gain. Meanwhile Lids, after a tough second quarter, faced additional challenges that pressured its performance.
"The dramatic shift in consumer shopping behavior away from stores to digital continued across all of our divisions, although we did see bright spots in both store traffic and store purchases during Back-to-School in more than one of our concepts. The combination of these factors with gross margin headwinds in many of our businesses, the deleverage resulting from negative store comps and higher expenses from our omnichannel initiatives led to earnings below last year's level but slightly ahead of our internal forecasts ."
Can JPMorgan and Goldman Retain Their Top Positions in 2018?
It has been a roller coaster ride for the finance sector in 2017. Though the year begun on an optimistic note with high expectations from President Trump's electoral promises, it lost some steam in the middle only to regain the bullish trend at the end.
Nonetheless, the sector showed resilience given the hawkish stance by the Fed (three rate hikes in 2017) and gradually improving U.S. economy. Further, the new tax act drove the finance stocks. Also, progress on the lesser banking regulation front cheered investors.
But these positive factors don't seem to be enough. Among the handful of finance stocks listed on the Dow Jones Industrial Average (DJIA) index, Goldman Sachs and JPMorgan are the worst performers of 2017 with the former rising 7.1% and the latter 24.9%. Moreover, both the stock underperformed the DJIA's year to date rally of 25.6%.
Further, this is in contrast to their 2016 performance. Goldman had surged nearly 33% and JPMorgan almost 31%. Also, these two had significantly outperformed the DJIA's growth of more than 15%.
What Ailed the Banks in 2017?
The most important factor that hurt both Goldman and JPMorgan was the slump in trading activities during the year. Lack of volatility and low client activity continued to wreak havoc on the banks' trading income. Though the lingering optimism from 2016 somewhat supported trading volumes in the beginning, as the year progressed it was not enough. Notably, executives of both Goldman and JPMorgan expect a similar trend to persist in the near term.
Additionally, overall demand for loans remained sluggish during the year. Specifically, mortgage loan demand was low amid a rise in interest rates as mortgage refinancing declined.
Further, there was a lesser scope to strengthen profitability-based cost saving efforts. Both JPMorgan and Goldman seem to have already slashed avoidable expenses. Therefore, the chance of cost reduction being a big supporting factor is less.
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Why the Situation May Improve in 2018?
Investment banking strength: For both JPMorgan and Goldman, 2018 is expected to be better as investment banking is expected to continue improving. With gradual stability in the capital markets, global investment banking activities are strengthening. Per the latest Thomson Reuters data, JPMorgan and Goldman hold the top two spots in the overall investment banking league table for 2017.
With continued stabilization of the global economy and lower corporate taxes under the Trump regime, M&As and bond as well as equity underwritings will witness further rise next year. So, these are expected to support Goldman and JPMorgan revenues in 2018.
Optimism surrounding higher interest rates: The Finance sector is one of the biggest beneficiaries of the rate hike. With three rate hikes this year and three more projected for 2018, both JPMorgan and Goldman are bound to gain. This also signals an improving U.S. economy.
A big change in the form of expected stimulus from implementation of the tax act may alter the Fed stance about the pace of rate increases. Also, anticipated higher inflation may lead the central bank to move the interest rate higher at a faster pace as economic growth improves further.
Traditionally, being an investment banking firm, Goldman is gradually diversifying its revenue base and undertaking efforts to boost the GS Bank's business. So, in the rising rate environment, interest income for both Goldman and JPMorgan (a traditional bank) will continue to improve.
Potentially lesser regulations: Increased regulations, since the 2008 crisis, substantially hampered growth prospects for finance stocks, with Goldman and JPMorgan not remaining untouched. But Trump's election promise of reduction in stringent regulations is 'work in progress.' Though no time frame has been outlined for execution, the announcement of a bipartisan agreement has helped investors regain confidence.
Rising earnings estimates: For Goldman, over the last 60 days, the Zacks Consensus Estimate rose nearly 1% to $20.64 for 2018. The company has long-term expected earnings per share (EPS) growth rate of 12.0%.
Also, the Zacks Consensus Estimate for JPMorgan has moved up marginally to $7.73 for 2018, over the last 60 days. Currently, the company has a long-term expected EPS growth rate of 6.7%.
Therefore, looking closely at the above-mentioned factors, shares of Goldman and JPMorgan are expected to rebound in 2018.
Currently, both JPMorgan and Goldman carry a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
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