Carrizo Oil & Gas, Abercrombie & Fitch, Ubiquiti Networks, Syntel and NetQin Mobilehighlighted as Zacks Bull and Bear of the Day
CHICAGO, Aug. 27, 2013 /PRNewswire/ -- Zacks Equity Research highlights Carrizo Oil & Gas (Nasdaq:CRZO-Free Report) as the Bull of the Day and Abercrombie & Fitch (NYSE:ANF-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis ontheUbiquiti Networks (Nasdaq:UBNT-Free Report), Syntel (Nasdaq:SYNT-Free Report) and NetQin Mobile (NYSE:NQ-Free Report).
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Here is a synopsis of all five stocks:If you are looking for a small and inexpensive domestic energy play as crude oil prices hold their own above $100 per barrel, it's time to consider a $1.4 billion fracking company that has been shifting its focus from natural gas to crude liquids. And the shift has been showing up in the profits as you will see.
Carrizo Oil & Gas (Nasdaq:CRZO-Free Report) is a Houston-based energy company actively engaged in the exploration and production (E&P) of oil and natural gas primarily in proven trends in the Eagle Ford Shale in South Texas, the Niobrara Formation in Colorado, the Marcellus Shale in Pennsylvania, the Barnett Shale in North Texas, and the Utica Shale in Ohio.
Carrizo has grown production and reserves over the last 8 years by focusing on 3-D seismic controlled horizontal drilling -- aka hydraulic fracturing, or "fracking." They are an industry leader in horizontal technologies having drilled and completed hundreds of extended reach wells in a number of different oil and gas shale formations.
On August 7, Carrizo beat profit estimates by $0.06, with Q2 earnings of $0.61 per share, excluding non-recurring items. The company also beat top line estimates and raised oil production guidance. Including special items, CRZO still beat the Zacks consensus estimate of 55 cents by a penny.
Revenues rose 60% year-over-year to $134.2 million vs. the $130.08 million consensus. Besides rising oil prices this year, the main culprit in this revenue burst was increased production. The company even surpassed the revised guidance it gave on June 17, less than two weeks before the quarter ended.
Last Tuesday was not a fun surprise for investors in Abercrombie & Fitch (NYSE:ANF-Free Report) shares. The company's 43% earnings miss vs. analyst profit estimates sent the shares down nearly $10 (over 20%) at one point in after hours trading and the damage was solidified on the open Wednesday.
Many institutional investors must have been caught way off-guard and then threw in the towel as 18 million shares traded that day, over 9 times the 90-day average of 1.9 million. And many questions have been circling between analysts, big investors, and the company about how they could all be so surprised by this wipe-out.
Lower-than-expected results were due to poor performance of the business catering to women's and teen's fashion needs and overall reduced traffic volume. Brand-wise, Abercrombie's comparable sales including direct-to-consumer sales at its Abercrombie & Fitch, abercrombie kids and Hollister stores declined 6%, 3% and 13%, respectively.
Should much, if any, of this be a surprise? In an era where fashion brands and fortunes are built on the fickle wishes of teenagers (and their parent's credit cards), all it takes is the next hot brand like Michael Kors, or a revival in tastes for budget-friendly alternatives like The Gap, to quiet the registers of an ANF or Aeropostale.
Below are the EPS tables that tell you what's been happening to estimates since the big miss. With only about a third of covering analysts lowering their targets so far in the past 7 days, there are probably more downward revisions to come...
Additional content:
Christmas Gifts in August
Going into the end of the year, the technology sector may benefit from year end budget flushing and holiday spending on the consumer side. Company spending on productivity enhancing and cost savings measures will likely be in fashion, while electronics may be a strong pick the holiday season given the availability of interesting smart phones and table products.
The technology sector does not have a strong correlation to interest rates and is actually positively correlated to interest rates – it tends to rise if rates rise. The ten year correlation between the 10 year treasury yield and the price of the XLK is +0.258. As a result, the impact of Fed taper on the sector could be limited.
Screening process:
In order to look for opportunities in the technology sector, a screen was set up to find fast growing technology companies at a reasonable price. The screen consisted of three factors: 1) A PEG ratio between 0.80 and 1.20. The PEG ratio measures the price to earnings ratio relative to the growth rate in earnings. A value of 1.0 suggests the PE ratio is equal to the growth rate, while a value below 1.0 indicates that the PE ratio is below the growth rate. Stocks with low PEG ratios are usually seen as possessing value. 2) Earnings per share growth of 10% or more over the past three years. 3) Revenue growth of 10% or more over the past three years.
The picks:
Twelve stocks past the screen, but the screen was further trimmed to include only Zacks Rank #1 (Strong Buy) stocks. Two stocks emerged - Ubiquiti Networks (Nasdaq:UBNT-Free Report) and Syntel (Nasdaq:SYNT-Free Report). Zacks Rank #1 stocks are companies that have strong upward revisions to earnings estimates.
UBNT designs and produces wireless solutions. It is a play on the need for wireless internet access globally. It has a market cap of about $2.8 bln and a PEG ratio of 0.83, which is near the ten year median value of 0.84. It is expected to see EPS growth of 68.5% in FY 2014 (June) and 24% in FY 2015. Sales are expected to grow 50.7% and 21.7% in FY 2014 and FY 2015 respectively.
SYNT is a provider of e-business services. It is involved in customer relations management, data warehousing, business intelligence, and enterprise application outsourcing. It has a market cap of $3.1 bln. Its PEG ratio is 0.91 and it is expected to see EPS growth of 6.7%in 2013 and 5.2% 2014. EPS growth is expected to moderate from the historic pace in the next near before accelerating to 16.6% in 2015. Additionally, the PEG ratio is slightly below the longer term median of 0.93. Sales are projected to rise 12.2% and 11.7% in 2013 and 2014 respectively.
A third possibility:
Another stock to look at is NetQin Mobile (NYSE:NQ-Free Report), Zacks Rank #2 (Buy), which is a mobile security and productivity company that is also a cloud play. The company has duel corporate headquarters in Dallas Texas and Beijing, and operates in the small cap space with a market cap of just below $560 mln. Mobile security is finding more attention as the use of smart phones rises and displaces the PC.
NQ is priced with a PEG ratio of 0.64. The company is expected to see rapid growth in EPS in the coming two years. EPS are projected to rise 138% in 2013 and 102% in 2014. Likewise, sales are projected to be robust. Sales are estimated to rise 101% in 2013 and 35% in 2014.
Final thoughts:
If you are looking for a recovery in a lagging market sector, a market sector which is not overly sensitive to interest rates, and stocks with strong growth at a reasonable price, UBNT, SYNT, and NQ may be your plays. Take a look at these names and see if you want to buy yourself a Christmas gift in August.
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