The Zacks Analyst Blog Highlights: Intel, Yahoo, CSX, Global X Social Media Index ETF and iShares Nasdaq Biotechnology ETF
CHICAGO, July 16, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Intel Corp. (Nasdaq: INTC-Free Report), Yahoo, Inc. (Nasdaq: YHOO-Free Report), CSX Corp (NYSE: CSX-Free Report), Global X Social Media Index ETF (Nasdaq: SOCL-Free Report) and iShares Nasdaq Biotechnology ETF (Nasdaq: IBB-Free Report).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
Here are highlights from Tuesday's Analyst Blog:
Intel Touches 'Em All, BABA Bails Out Yahoo
Our first "two-fer" Tuesday in Q2 earnings season brings back computer solutions giant Intel Corp. (Nasdaq: INTC-Free Report) and Internet services major Yahoo, Inc. (Nasdaq: YHOO-Free Report) reporting after the bell, and what we've got is A Tale of Two Techs: Intel easily topped earnings and revenue estimates and also guided higher for Q3 and fiscal 2014, whereas Yahoo just met earnings estimates on lower-than-expected revenues, but was once again buoyed by Alibaba news.
Intel a Winner Across the Board
Intel's transition to mobile-based solutions has obviously been a successful one. And aside from its Data Center, Software/Services and Internet of Things segments, Intel's PC Client business improved to $18.7 billion in the quarter, higher than expectations. This good news followed upwardly revised guidance earlier in the quarter on both sales and gross margins -- both of which also guided higher in this afternoon's earnings report:
Earnings per share of 55 cents beat the 52 cents expected. Revenues of $13.83 billion surpassed the $13.72 billion our consensus had expected. Gross margins for Q2, which had guided up to 64% (from 61% at the end of Q1) hit 64.5%. Gross margins and revenues for Q3 are now expected to hit 66% and $14.4 billion, respectively -- also more than earlier anticipated.
While business PC demand has improved, Intel's focus on mobile devices is clearly paying off. The company has recently agreed to form a strategic partnership with Rockchip to provide solutions for tablets. Speaking of paying off, Intel also announced a $4 billion share buyback program in Q3.
In other words, the company is hitting on all cylinders. Intel has a Zacks Rank #1 (Strong Buy), and has since raising guidance earlier in the quarter when 19 upward estimate revisions were logged for Q2 and 22 for fiscal 2014. Now with further upgrades in guidance, we expect to see more analyst revisions going forward. Shares on INTC are up 3.9% in the after-market.
Yahoo: Who's Your BABA?
Unfortunately for Yahoo, their sluggish earnings performance of the past couple quarters remains: Earnings per share of 30 cents (including 4-cents per share in charges and accounting for stock-based compensation) were in-line with the Zacks consensus, but sales of $1.04 billion was lower than the $1.09 billion we had expected. Front and center was the opening comment from CEO Marissa Mayer, which reads, "Our top priority is revenue growth and by that measure, we are not satisfied with our Q2 results."
Revenue excluding traffic acquisition costs (ex-TAC) fell 3% year over year, and display ad revenues ex-TAC is down 7% from Q2 2013. Ex-TAC guidance was lowered to a range of $1.02-1.06 billion, down from the $1.1 billion expected. Price per ad fell 24% from a year ago. In fact, nearly every metric we looked at was down from the June 2013 quarter.
That said, YHOO shares are trading less than a percentage point lower in the late trading session. This can be attributed to the announcement that Chinese search giant Alibaba has lowered the amount Yahoo will be required to sell upon the company's IPO, scheduled for August, from 208 million to 140 million shares. This is good news for Yahoo, as the IPO for Alibaba (BABA) is expected to be the biggest of the entire year.
Once the windfall of cash hits Yahoo's coffers, it is widely expected acquisitions will help grow the company in ways organic methods have proven lackluster at best. But in the earnings report, CFO Ken Goldman said, "...[W]e are committed to return at least half of the after-tax IPO proceeds to shareholders..." We expect Yahoo's fortunes will change once this major event takes place; until then, Yahoo has a Zacks Rank #4 (Sell).
CSX Shipping Positive Earnings News
U.S. railroad transporter CSX Corp (NYSE: CSX-Free Report), reported earnings after the bell, posting an EPS of $0.53, and revenues of $3.24 billion. EPS was ahead of the Zacks Consensus Earnings Estimate of $0.52, and revenues came in just below the Zacks Consensus Revenue Estimate of $3.248 billion.
Traditionally, the transports are supposed to be a leading economic indicator; strength in transports and even the broader market are pricing in a strong recovery after the weather hampered growth in Q1. Railroad carload data seems to confirm that is the case. Moreover, the stock price has stabilized (just below all-time highs) at the $31/share level for the last month.
One of the major concerns going into the earnings announcement was the impact of sluggish volume trends, mainly in coal, that would negatively impact revenues. But those worries were soon brushed aside, when on June 5th, CFO Fredrik Eliasson stated the company now expects Q2 EPS to be flat to slightly up from the previous year (which was $0.51). A change from a guidance of "flattish" growth for Q2 during their Q1 earnings call. The upgraded guidance was due to a significant increase in quarter-to date-volume, which is now +9% vs. +3% in Q1. More importantly, coal inventories were normalizing (volume up 18%), but the export coal market remains a challenge.
Another positive for the company is the recent Intermodal (think shipping containers) expansion. The reason for the growth is the transition from using trucks to ship materials to the more cost efficient mode of railways. With the economy growing (albeit slowly), more and more items are being shipped via rail. A potential long term growth driver for the company.
Fed: These 2 Stocks Look Overvalued
The Federal Reserve released its semi-annual Monetary Policy Report on Tuesday morning ahead of Fed Chair Janet Yellen's two-day meeting with Congress.
In the report, the Fed discussed the recent all-time highs in the stock market but stated that "valuation measures for the overall market... were generally at levels not far above their historical averages."
However, the central bank did make special mention of two particular industries.
"[V]aluation metrics in some sectors do appear substantially stretched - particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year."
Later in the report, the Fed went on to say that "[e]quity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched, with ratios of prices to forward earnings remaining high relative to historical norms."
Shares of Global X Social Media Index ETF (Nasdaq: SOCL-Free Report) and iShares Nasdaq Biotechnology ETF (Nasdaq: IBB-Free Report) were both down more than -2% after the report was released, but both ETFs have rebounded a bit since then.
These comments are reminiscent of Alan Greenspan's famous "irrational exuberance" speech in late 1996 (of course, the bubble inflated even higher as the bull market ran for more than three years after this speech).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
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