GrubHub, Wynn Resorts, Starbucks, BJ's Restaurants and Burger King Worldwide highlighted as Zacks Bull and Bear of the Day
CHICAGO, Oct. 30, 2014 /PRNewswire/ -- Zacks Equity Research highlights GrubHub (NYSE:GRUB-Free Report) as the Bull of the Day and Wynn Resorts (Nasdaq:WYNN-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Starbucks Corporation (Nasdaq:SBUX-Free Report), BJ's Restaurants, Inc. (Nasdaq:BJRI-Free Report) and Burger King Worldwide, Inc. (NYSE:BKW-Free Report).
Here is a synopsis of all five stocks:
Although most stocks have rebounded in recent sessions, many social media and so-called 'web 2.0' companies have still seen sluggish trading as of late. Earnings have come in weak for many of the top players in this corner of the market, while the outlooks have been disappointing for the most part as well.
Yet, depressed prices could mean a buying opportunity for some stocks here, at least if you are willing to go beyond the seemingly always in-focus giants like Twitter or Facebook. One such company that is a very intriguing buy in this environment is the often-overlooked but extremely practical internet company of GrubHub (NYSE:GRUB-Free Report).
If you aren't familiar with GRUB, perhaps you do not order takeout or food delivery that often. The company has become a lifesaver for many consumers looking for food options, as GRUB consolidates the industry's many options into one spot and lets you know which restaurants are open, what their menus are, and if they deliver to your location.
This service is free to users of their site, but GRUB takes a cut of the orders you place on the site, with some estimates suggesting that this percentage averages over 10%. And as more restaurants jump on board the platform, the 'network effect' of this business continues to grow, making it a top destination for hungry people everywhere.
Although we are seeing strong consumer numbers in the U.S., the global picture in this sector isn't too favorable. This is especially true in several key emerging markets where growth levels are slowing down and worries are starting to build over economic outlooks.
These trends are impacting a number of multinational companies, but they are hitting the casino and gaming industry very hard in particular. That is because companies in this space are seeing strong numbers from their Las Vegas segments, but are facing weakness in their international operations, and especially in the vital market of Macau.
Macau is a huge gambling center, and with the rise of China over the last few decades, its importance to the overall market has skyrocketed. In fact, the region is now easily the most important for casino companies as total gaming revenue in the territory for 2013 was close to $45 billion, or roughly seven times the figure that Las Vegas generated.
Given this reality, many casino stocks have become plays on this region of the world much more so than the Vegas Strip. And when China is facing sluggish conditions, much like it is today, this can turn into poor trading for casino stocks until Macau turns around.
A great example of this trend is Wynn Resorts (Nasdaq:WYNN-Free Report), a stock that has underperformed the broad markets as of late, and could see more pain ahead if Macau stays weak. After all, if we look to recent earnings estimate revisions, analysts aren't too optimistic on the company's near term future and are ratcheting down their expectations for the stock heading into 2015.
WYNN reported a year-over-year revenue decline of 5.6% in its Macau segment, while the VIP corner of this market is down over 17% when compared to last year. And given that many do not expect this trend to reverse in the near term, we have seen some sharp declines in earnings estimates lately.
Additional content:
Will Starbucks Surprise Earnings This Season?
Starbucks Corporation (Nasdaq:SBUX-Free Report) is set to report the fourth-quarter and fiscal 2014 results on Oct 30, after the market closes. Last quarter, the company delivered a positive earnings surprise of 1.52%. Let's see how things are shaping up for this announcement.
Factors to Consider
Despite difficult consumer spending environment, Starbucks' 18 consecutive quarters of 5%-or-higher global comp growth is commendable. Successful beverage and food innovations, better-than-expected U.S. comps and robust performance in the Channel Development segment were the primarily drove comps and revenues in the last two quarters. Europe and Asia/Pacific also did quite well in all the three quart ers reported so far this year.
In the fourth quarter, earnings are expected to range between 73 cents and 75 cents, representing a year-over-year growth of 22% to 25%. We believe the recently launched breakfast/lunch sandwiches, Fizzio sodas and core beverage innovation should drive continued strong performance in the fourth quarter.
Fiscal 2014 adjusted earnings per share are expected in a range of $2.65–$2.67, representing a 21–22% growth over the fiscal 2013 levels. Revenues are expected to grow 10% or higher in fiscal 2014. Comps are expected to grow in the mid-single-digit range. Operating margin is expected to expand approximately 200 basis points (bps) year over year. Higher revenues and lower coffee costs are expected to drive margins.
Lower coffee costs are expected to benefit earnings by approximately 10 cents per share in the year as 100% of Starbucks' coffee needs for 2014 are hedged.
However, commodity costs are not expected to be a tailwind in fiscal 2015 like the previous two years. With coffee prices rising sharply this year, management expects commodity cost to be roughly neutral or have a slightly unfavorable impact in fiscal 2015. With approximately 60% of its coffee needs for FY15 locked at favorable prices, we believe management lacks visibility on coffee costs.
In fact, management expects fiscal 2015 adjusted earnings growth to be at the lower end of the long-term target of 15–20%. Rising coffee costs and incremental costs associated with digital initiatives are expected to pressure profits next year.
Earnings Whispers?
Our proven model does not conclusively show that Starbucks is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is 0.00%.
Zacks Rank: Starbucks' Zacks Rank #2 (Buy) when combined with a 0.00% ESP, makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some companies in the restaurant sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
BJ's Restaurants, Inc. (Nasdaq:BJRI-Free Report), with an Earnings ESP of +5.56% and a Zacks Rank #1 (Strong Buy).
Burger King Worldwide, Inc. (NYSE:BKW-Free Report), with an Earnings ESP of +3.70% and a Zacks Rank #2 (Buy).
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