Qihoo 360 Technology, lululemon athletica,Yahoo, Amazon, Baidu, Facebook, Goldman Sachs, Capstead Mortgage, Hannon Armstrong Sustainable Infrastructure Capital and Ryman Hospitality Properties highlighted as Zacks Bull and Bear of the Day
CHICAGO, June 24, 2014 /PRNewswire/ -- Zacks Equity Research highlights Qihoo 360 Technology (NYSE:QIHU-Free Report) as the Bull of the Day and lululemon athletica (Nasdaq:LULU-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis onYahoo (Nasdaq:YHOO-Free Report), Amazon (Nasdaq:AMZN-Free Report), Baidu (Nasdaq:BIDU-Free Report), Facebook (Nasdaq:FB-Free Report), Goldman Sachs (NYSE:GS-Free Report), Capstead Mortgage Corp. (NYSE:CMO-Free Report), Hannon Armstrong Sustainable Infrastructure Capital, Inc. (NYSE:HASI-Free Report) and Ryman Hospitality Properties, Inc. (NYSE:RHP-Free Report).
Here is a synopsis of all ten stocks:
With the coming IPO of China's largest e-commerce portal, Alibaba, investors are looking for more ways to play the massive growth of the world's largest common-language/culture Internet market. Alibaba, who is still owned 24% by Yahoo (Nasdaq:YHOO-Free Report), has astonished web-focused investors with its consistent profit growth and massive revenue haul.
Alibaba's fourth quarter saw a huge quarterly profit gain -- its fourth straight -- of $792 million on sales that surged 51% to $1.78 billion. Word is that Alibaba's transaction volume is greater than Amazon (Nasdaq:AMZN-Free Report) and eBay combined.
Until the IPO of the "Amazon of China," which is projected to be valued at as much as $200 billion, I am buying a young upstart in the Chinese web jungle: Qihoo 360 Technology (NYSE:QIHU-Free Report), the country's largest Internet security provider, with over 460 million monthly active users, representing a penetration rate of 96% in the biggest web market.
I first wrote about QIHU last September when I saw them taking the #2 spot in search next to the giant Baidu (Nasdaq:BIDU-Free Report)...
The Story is Out
Qihoo 360 Technology offers a broad spectrum of Internet and mobile security products. Its core Internet and mobile security products include 360 Safe Guard and 360 Anti-virus 360 Mobile Safe, 360 Safe Browser, 360 Personal Start-up Page, 360 Application Store and 360 Safebox.
In a brilliant strategy move, Qihoo 360 began offering its cloud-based Internet security products for free to users. And this has allowed them to monetize their significant audience through online advertising services, including paid links as well as Internet value-added services, such as offering access to third-party Web games and virtual items.
In 2013, the company's launch of a search engine so.com was the game-changer that leveraged its broad reach in China to capture lucrative search market share and advertising dollars. The "360" brand stands for Internet security to the company's users, and these users are a ripe audience for advertisers.
But the innovation didn't stop there. In September, the company launched 360 Yingshi Daquan, the mobile version of 360 Video, Qihoo's video vertical search engine. 360 Yingshi Daquan is a 360 mobile app that enables users to search for and view videos from Qihoo partners on Android based smartphones.
What else do Chinese PC and mobile users rely on Qihoo 360 for? Gaming! In an early June research report after meeting with QIHU management, Jefferies analysts noted...
Qihoo has "robust web game growth with strong mobile game player acquisition. Management continues to see a 40%+ organic revenue growth and stable ARPU trend on web games with the majority of the incremental paying gaming accounts attributed to mobile games. The small acquisition of several game companies in early 1Q14 was done to improve Qihoo's game platform monetization despite their low-margin business profile." Jefferies has a $150 price target on Qihoo shares.
Monetize This
As Facebook (Nasdaq:FB-Free Report) seems to be hitting its stride with mobile ad revenues, many analysts believe bigger success is around the corners for QIHU as well. Here's what Macquarie had to say in late January...
We believe Qihoo is seeing solid trends across all its major business lines – directory page ads, mobile app store, search and web gaming. Qihoo remains one of the few platform companies in China that control the bulk of the Internet and mobile Internet traffic, thus future monetization opportunities from the traffic.
Controlling "the bulk" of Internet and mobile traffic sounds like a pretty good position to be in.
According to Bloomberg, "Alibaba is competing with Tencent Holdings and Baidu for China's 618 million Internet users by making deals in its home market and the U.S. to extend its e-commerce reach to mobile games and messaging."
"The growth rates sound like they're pretty positive for the entire sector, for e-commerce. They have a large base, they have the lion's share of e-commerce in China," said Stephen Yang, a Hong Kong-based analyst at Sun Hung Kai Financial Ltd. "For Alibaba itself, how many large cap companies this size are going to get 51 percent growth?"
App-etizing Growth
That is impressive. And it should come as no surprise that the smaller, more nimble Qihoo is growing at high double digits as well, with projected 140% EPS growth in 2014 and 70% growth for next year. So the question becomes "Can Qihoo keep it up and compete for market share in these areas against the giants?"
Macquarie analysts believe the Qihoo App Store is currently the biggest story at Qihoo with its app store having 30% market share in terms of time spent, according to iResearch.
They note, "with the proliferation of apps and mobile games in China and ongoing consolidation of the app distribution channel (e.g. app stores), the balance of power is shifting to the app store side from the developers. We don't believe the recent announcement by Alibaba to take only 20-30% of revenue share compared to the industry norm of 40-50% today will change the industry dynamics as Alibaba does not have critical mass yet in terms of the app store traffic."
The Search Question
With a forward P/E multiple now below 30X due to strong quarter-after-quarter of growth, QIHU shares have seen quite a bit of volatility in the past few months as investors and analysts weigh how much of the search market they have. The drop from $120 to $90 has made the risk/reward much more attractive, trading 25% above Baidu's valuation but with double the growth rate.
The company claims over 20% market share of search, but some critics say it's probably lower and so not likely on a path to achieving expectations of 30% share that the company projects is possible by the end of this year.
But the Macquarie analysts don't see that as the big issue right now. They figure it's a wide, yet growing, range of 15-25% search share right now and leave it at that. Why so sanguine about this key metric?
Because they see Qihoo growing revenue share splits on search from the current 2% to as high as 10%, "especially when it is launching a new keyword bidding system in mid 2014." And this month brought the launch of Qihoo's new mobile search engine.
All in all, the pace of innovation to serve more web users is keeping Qihoo revenues growing at quite a clip. Jefferies analysts project 2014's top line to hit $1.3 billion, 2015 to threaten the $2 billion level, and 2016 to reach $2.7 billion. Here's a look at that top-line growth trajectory which is growing faster than Baidu's current $5.8 billion haul...
Bottom line: Qihoo has quickly become a major player in the Chinese web ecosystem because they entrenched themselves as the reliable must-have security provider. Now they just have to keep the bad guys down, the traffic humming, and the innovations rolling to keep growing at high double digits.
Disclosure: I own Qihoo 360 (QIHU) shares for the Zacks Follow the Money portfolio.
Many investors must be wondering when a turnaround will surface for lululemon athletica (Nasdaq:LULU-Free Report). It's one thing to look at a competitive market like women's sportswear and gauge the proper valuation for unique growth companies.
But it's quite another mystery to figure out what's going on inside of a company that may be contributing to its own downfall. Luckily, followers of the Zacks Rank have not needed such insight when they could just look at the earnings estimate data which told the story of a business in troubling decline.
LULU shares earned the Zacks #4 Rank (Sell) last August when they were trading over $70. Throughout out the rest of 2013, the stock consistently remained a #4. Then in late January after another quarterly report that sent analysts scrambling to lower their earnings estimates, LULU became a Zacks #5 Rank (Strong Sell).
Here's what my colleague Tracey Ryniec wrote in her Bear of the Day starring LULU in April, where she described the challenges for new CEO Laurent Potdevin in igniting a turnaround...
In the fourth quarter earnings press release, he described 2014 as an "investment year" but pledged continued global expansion.
The company provided earnings per share guidance in the range of $1.80 to $1.90. That was well below the Zacks Consensus of $2.19.
Not surprisingly, analysts moved to cut their estimates. 18 estimates have been lowered for fiscal 2014 pushing the Zacks Consensus down to $1.87.
That is negative 2% earnings growth as lululemon made $1.91 in fiscal 2013. Analysts are also bearish on 2015 as 12 estimates were also lowered in the last week for that year.
What's Changed A Quarter Later?
Two weeks ago, LULU reported for its first quarter of fiscal year 2014. Even though they offered an earnings beat, the guidance was not a good fit for Wall Street.
The troubles for the leading yoga-inspired athletic apparel and accessories retailer seem to be multiplying as even the better-than-expected earnings results and a $450 million share repurchase plan failed to impress investors over the company's lowered fiscal 2014 outlook.
Despite the better-than-expected first quarter performance, the company came up with a disappointing forecast for the second quarter and slashed its fiscal 2014 guidance as it focuses on transitioning from the demerits of last year's product recall as well as growing international presence.
During the June 12 trading session, the stock crashed nearly 16% to around $37, its lowest levels in over 3 years. And that's because investors knew what was coming next: downgrades and razing of forward earnings estimates.
Over 20 covering analysts took the Zacks consensus EPS for this year down from $1.87 to $1.74. And next year was taken down from $2.22 to $2.01.
Goldman Sachs to the Rescue?
According to a Wall Street Journal story on Sunday, the founder of lululemon, Dennis "Chip" Wilson, has turned to Goldman Sachs (NYSE:GS-Free Report) as he seeks a shake-up of the yoga retailer's board of directors and may consider options including a proxy fight or joining a private equity firm in a buyout.
At this point, any shake-up at LULU will probably be a good one. But how will we know if it leads to the much-anticipated turnaround?
We won't know, until it's under way. But one of first and best clues will be when the analysts take notice of progress and start revising their earnings estimates back upward. And that will show up first in the Zacks Rank. Stay tuned.
Additional content:
3 REITs Scoring High, World Cup Not in Play
The 2014 FIFA World Cup frenzy has spread to the equity markets, with investors targeting fans via the sponsors of this mega event. The stocks of these companies are easily getting the striker's position while the non-linked ones, such as real estate investment trusts (REITs), are clearly not being able to go beyond midfield. But just like the result of a football match cannot be predicted, REITs too can surprise with that extra penny in your wallet.
REITs! Why?
This special hybrid asset class saw a cautious start to 2014 due to heightened speculations about the rise in interest rates following the Federal Reserve's tapering. But encouraging economic data opened up opportunities for the real estate dealers to get closer to the goal line. Even the cold snap in the first quarter couldn't restrict appreciation and a number of REITs either maintained or raised their full-year guidance.
More importantly, REITs are performing better than the S&P 500 Index. In May 2014, the FTSE NAREIT All REITs Index registered a total return of 2.8% against the S&P 500's return of 2.4%.
The rise in consumer spending – which accounts for over two-third of the U.S. economic activity – and improvement in the labor market make this an opportune moment for the REIT stocks to win. The industrial, apartment and lodging owners are in particular playing for championship. With demand-supply dynamics in their favor and consumer confidence building up, these REITs are poised to stand out (read:REITs: Something to Build On).
Add to this is the appetizing dividend yield that has helped the REIT industry gain a huge fan following over the last 15–20 years. As of May 30, the dividend yield of the FTSE NAREIT All REITs Index was 3.97%, making it a clear winner against the 2.01% dividend yield by the S&P 500 as of that date. Here are three REIT stocks that hold a lot of promise.
3 REITs to Consider
Capstead Mortgage Corp. (NYSE:CMO-Free Report): Based in Dallas, TX, it is a REIT for federal income tax purposes and manages a leveraged portfolio of residential mortgage pass-through securities. These securities, which entirely comprises of adjustable-rate mortgage (ARM), are issued and guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
Zacks Rank: #1 (Strong Buy)
Dividend Yield: 10.19%
Long-Term Growth Consensus Estimate: 10.0%
Hannon Armstrong Sustainable Infrastructure Capital, Inc. (NYSE:HASI-Free Report): This Annapolis, MD-based REIT specializes in providing debt and equity financing for sustainable infrastructure projects such as Clean Energy Projects and Energy Efficiency Projects. It mainly serves commercial, utility, and industrial markets and; federal, state and local governments.
Zacks Rank: #2 (Buy)
Dividend Yield: 6.06%
Long-Term Growth Consensus Estimate: 10.0%
Ryman Hospitality Properties, Inc. (NYSE:RHP-Free Report): Headquartered in Nashville, TN, this REIT deals in group-oriented, destination hotel properties positioned in urban and resort markets of the U.S. Alongside, it also manages several media and entertainment assets such as the Ryman Auditorium, WSM-AM and Grand Ole Opry.
Zacks Rank: #2 (Buy)
Dividend Yield: 4.64%
Long-Term Growth Consensus Estimate: 9.8%
In a Nutshell
REITs have, no doubt, endeavored to re-gain investors' confidence in the past 5 months with their better-than-expected performance. Most of the sector participants lead on the back of strong fundamentals amid improving economic conditions that promise a rise in occupancy levels, asking rent, total income and dividend rate. And as economic growth shows the REITs the path to prosperity, these deserve a round of applause from investors seeking value appreciation.
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