For Immediate Release
Chicago, IL - October 05, 2015 - Zacks Equity Research highlights TubeMogul ( TUBE ) as the Bull of the Day and Craft Brew Alliance ( BREW ) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Royal Dutch Shell plc ( RDS.A ), Halliburton Co. ( HAL ) and Schlumberger Ltd. ( SLB ).
Here is a synopsis of all five stocks:
TubeMogul ( TUBE ) is reporting earnings in a little more than a month and estimates have started to creep higher. Not only have the estimates improved for this quarter, but the following quarter is looking better as The increases in earnings estimates have helped push the stock to a Zacks Rank #1 (Strong Buy) and today it is the Bull of the Day.
Recent Analyst Action
One of the keys to understanding the Zacks Rank is to look at the recent changes in earnings estimates. This chart (pasted below) illustrates that estimates in each of the new two reporting quarters have seen improvements. Those improvements end up impacting the current year estimates as well.
TubeMogul operates as an enterprise software company for digital branding. It offers a cloud-based platform that enables advertisers to plan, buy, measure, and optimize video advertising spend from a single platform. TubeMogul, Inc. was founded in 2007 and is headquartered in Emeryville, California.
TUBE has a strong earnings history, beating the Zacks Consensus Estimate in four of the last five quarters. What is more than that, we have seen solid revenue growth of late as well.
The company posted positive revenue surprises in each of the last five quarters, but the big surprise came in the most recent report. The company posted revenue of $45M when the Zacks Consensus was calling for $39M, that $6M beat translated into a positive revenue surprise of 16.6%, the biggest surprise since the September 2014 quarter which saw a 30% topline surprise.
Craft Brew Alliance ( BREW ) has reported earnings below the Zacks Consensus Estimate in five of the last six quarters. As a result estimates are coming down making it a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day.
Craft Brew Alliance engages in brewing and selling craft beers and ciders under the Kona, Widmer Brothers, Redhook, Omission, and Square Mile brand names. Craft Brew Alliance, Inc. was founded in 1981 and is headquartered in Portland, Oregon.
The company recently posted a gain of $0.07 when the Zacks Consensus Estimate was calling for $0.12. The topline was also lower than expected and as a result the stock dropped 13.5% in the session following release.
Estimates have been falling all year. The Zacks Consensus Estimate for 2015 was $0.35 at the start of the year, but has since fallen to $0.14.
The 2016 Zacks Consensus Estimate, which analysts probably have limited visibility into, has also dropped from $0.50 to $0.30 over the same time period.
The valuation for BREW is bubbling up. A trailing PE multiple of 97x is more than four times the 22x industry average. In a previous bear of the day article it was noted that BREW traded at 100x trailing earnings, so in fairness, there has been some improvement. The forward multiple of 55x (up from 44x) is also more than double the 22x industry average for forward PE.
Can Big Mergers Brace Energy Players Amid Low Oil Prices?
The drop in oil price is now a continuing story. After roiling the equity market for over a year, the series of multi-year low crude is now forcing major energy players to think and rethink their production plan just to survive an unfavorable business scenario. Even defensive measures haven't helped, as these merely mean compromising on operations. In fact, most of the energy companies have a huge debt burden that they can't write off as cash flows from core operations aren't enough.
In such a situation, many energy players are merging with their rivals for synergies in the hope of broadening their scope of operations even though business is not in their favor. As per Dealogic, 2015 has seen $323 billion declared oil and gas company mergers so far. Most importantly, mergers between oil and gas companies have boosted the world-wide deal volume this year to $3.2 trillion, setting 2015 on the course of breaking the $4 trillion plus deals' record in 2007.
Are the energy companies doing the right thing at right time? If yes, then how?
Factors Driving Mergers
A synergy takes place when the combined value of two companies is more than the summation of the individual value of the firms. Almost every time the companies opt for a merger only when they see opportunities for synergy. Most importantly, the business environment is the main driver of mergers and acquisitions.
In this article, we will discuss the reasons behind the record energy company mergers that have taken place this year. Definitely, the primary driver is the plunging oil price. So let's first analyze the reasons for this oil carnage.
During 1990 and early 2000, the U.S. was more dependent on crude import as domestic demand was far above its conventional oil supply. But with the invention of new techniques like hydraulic fracturing and horizontal drilling, U.S. shale producers relentlessly ramped up oil production. Eventually, owing to its huge scale of crude output, the U.S. started relying less on oil import.
The shale boom turned the U.S. into an oil surplus economy from a crude deficit market. Along with the U.S., the Organization of the Petroleum Exporting Countries (OPEC) also pumped up more crude. All these events led to a global oversupply of the commodity and pushed oil to its multi-year low marks. West Texas Intermediate (WTI) crude closed at $44.74 per barrel yesterday, less than half the price of the commodity during the mid-2014 level, when oil was trading above $100 per barrel.
With the persistent decline in oil prices , upstream energy firms are in rough waters as they are not being able to sell crude at attractive prices. Moreover, the shale producers are laden with huge debt. In fact many such companies are paying dividend from borrowings and some has even stopped.
What Should These Energy Firms Do Now?
Perhaps a merger is the easiest way out of the woods for these beleaguered energy players. That's because cost synergies and a bigger market presence can do the trick.
Cost synergy will lead to the combined cost of the two companies to go down. This might happen if one of the merging firms has economies of scale, which implies that the higher will be the output, the lower will the fixed cost per unit be. The other catalyst - a bigger presence - generally means an increased market for the merged entity. Moreover, by merging, both parties can share their management skills and exploration techniques to counter the crude price weakness with joint forces.
The imminent agreement of integrated energy major, Royal Dutch Shell plc ( RDS.A ) to acquire BG Group plc, a leading upstream energy player in UK, for $70 billion is the biggest merger in the energy space in a decade.
Another big merger in the low oil price era is the one that is planned between oilfield service behemoth Halliburton Co. ( HAL ) and its smaller rival Baker Hughes Inc. The deal is valued as high as $35 billion .
Moreover, the world's largest oil-field service company Schlumberger Ltd. ( SLB ) announced this year that it has entered into an agreement to acquire Cameron International Corp. Per the deal, Schlumberger will acquire its smaller rival in a stock and cash transaction valued at $ 14.8 billion .
Most importantly, all the acquiring companies are expecting their respective deals to be earnings accretive.
About the Bull and Bear of the Day
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