Ryanair Holdings, Francesca's Holdings and Deckers Outdoor highlighted as Zacks Bull and Bear of the Day

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Dec 29, 2014, 09:30 ET

CHICAGO, Dec. 29, 2014 /PRNewswire/ -- Zacks Equity Research highlights Ryanair Holdings (Nasdaq:RYAAY-Free Report) as the Bull of the Day and Francesca's Holdings Corporation (Nasdaq:FRAN-Free Report)as the Bear of the Day. In addition, Zacks Equity Research provides analysis onDeckers Outdoor Corp. (NYSE:DECK-Free Report).

Here is a synopsis of all three stocks:

Bull of the Day:

Ryanair Holdings (Nasdaq:RYAAY-Free Report) is the king of low cost airlines in Europe. These are the best of times for airlines as fuel costs plummet. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by the double digits in both fiscal 2015 and 2016.

Ryanair is a low cost airlines that operates 1,600 daily flights from 72 bases. It connects 189 destinations in 30 countries using a fleet of over 300 Boeing 737-800 aircraft.

Expansion is continuing at a quick pace. In September 2014, it announced that it had ordered another 280 Boeing 737 aircraft and has the option of another 100 more at a list price of $22 billion, basically doubling its fleet. It sees traffic growing from 90 million to 150 million passengers in 2024.

On Dec 23, Ryanair launched a new United States specific web site in order to make it easier for American travelers to book European travel directly. The fares are in US dollars.

Ryanair has long been known for its cost-cutting ways. Several years ago, there was talk of the airline trying to fly with standing passengers as a way to cram even more passengers onto each flight to maximize profits.

However, the airline has softened its nickel-and-dime stance in 2014 and has seen an increase in traffic as a result.

It loosened cabin bag restrictions and relaxed booking requirements, which previously were some of the tightest in the airline industry. This has lessened many of the prior grievances against the airlines that it was too rigid.

Full Year Guidance Raised

On Dec 4, Ryanair announced that is November traffic rose 22% to 6.35 million passengers. Its November load factor also rose by 7 percentage points to 88% from 81% a year ago despite increasing seat capacity by 13% and opening up a bunch of new city pair routes expected to appeal to business traffic.

It had opened up those new city pairs in highly competitive routes against more established business airlines so it expected lower load factors. Instead, the load factors were over 80% in each of those routes, with a load factor of 90% on the Lisbon to London flights.

With the better-than-expected results of November, it raised its full year traffic guidance to 90 million from 89 million passengers.

It also raised its full year profit after-tax forecast to a range of $810 million to $830 million from its previous guidance of $750 million to $770 million.

Ryanair cautioned, however, that it had no visibility on the crucial fourth quarter, which runs from January until March.

Analysts Raising Full Year Estimates

The analysts are just as bullish as Ryanair about the future. 1 estimate has even been revised higher for both fiscal 2015 and fiscal 2016 in just the last week.

The Zacks Consensus Estimate for fiscal 2015 has jumped to $3.61 from $3.32 in the last 90 days. That is earnings growth of 43% over fiscal 2014.

It's more of the same for fiscal 2016 as the Zacks Consensus Estimate has risen to $4.15 from $3.64 in the last 3 months. That is further earnings growth of 15%.

Shares At New All Time Highs

Shares spiked to new record highs after the company raised full year guidance and fuel prices continued to fall as crude sold off.

While shares are no longer cheap, they're not outrageously priced for the earnings growth either. Ryanair has a forward P/E of 18.9, which is just above the average of the S&P 500 at 18x.

For investors looking for a way to play the European, and global, economic recovery, over the next 10 years, Ryanair is a stock they should keep on their short lists.

Bear of the Day

Francesca's Holdings Corporation (Nasdaq:FRAN-Free Report) has a new CEO but comparable-store-sales continue to slide. Can this Zacks Rank #5 (Strong Sell) retailer turn it around?

Francesca's Holdings is a specialty woman's retailer, operating 538 boutiques in 47 states and the District of Columbia carrying apparel, shoes, jewelry and accessories. It also operates an ecommerce site on francescas.com.

Retail Veteran Announced as New CEO

On Dec 5, Francesca's announced that Michael Barnes, the former CEO of Signet Jewelers, would become CEO of Francesca's. He was also one of the original employees at Fossil and spent more than 25 years there growing the brand.

Francesca's has also been on a growth spurt, with dozens of store openings and a newly revamped web site.

Comparable Store Sales Fell Again

On Dec 10, Francesca's announced its fiscal 2014 third quarter results. While it met the Zacks Consensus Estimate of $0.17, same-store sales continued to slide.

In prior quarters, the company had blamed it on the poor weather and high inventories. But the weather wasn't a factor in the third quarter of this year.

Comparable-store-sales fell 6% but one bright spot was the direct-to-consumer sales, which jumped 53% from the year ago quarter. Through the third quarter, direct-to-consumer sales were up 76% over 2013.

However, as many retailers have been reporting, the environment remains increasingly promotional. Gross profit decreased to 47.3% from 50.7% in the third quarter of the prior year due to increased markdowns and continuing promotions.

The company also continued to open new stores, opening 12 boutiques in the quarter. It has added 87 new boutiques through the third quarter.

It's also been opening outlets and has opened 13 of those this year for a total of 16 stores.

Outlook for the Fourth Quarter is Still Grim

Citing the highly promotional holiday retail environment, Francesca's warned about the fourth quarter. It said its apparel business remained "challenged" and expected aggressive markdowns in order to clear inventory.

It saw a 475 to 525 basis points decrease in gross profit margin in the fourth quarter compared to a year ago.

Comparable-store-sales were expected to fall between 5% and 10% for the quarter. For the full year, comparable-store-sales were expected to fall 2% compared to the prior year.

It was expected to open just one new boutique in the fourth quarter.

Earnings Expected to Slide

The reason Francesca's is a Zacks Rank #5 (Strong Sell) is because analysts have been cutting estimates.

8 estimates were lowered for fiscal 2014 in the last 30 days. The 2014 Zacks Consensus Estimate has fallen to $0.79 from $0.92 in the last month. That's an earnings decline of 24% from fiscal 2013 as the company earned $1.05 last year.

Fiscal 2015 isn't looking much better. 9 estimates have been cut in the last 30 days.

The new CEO has only been on the job just a few weeks so it will take some time to institute changes. But Francesca's is clearly going the wrong direction.

Shares Jump on Hopes of a Turn Around

With news of the new CEO, Francesca's shares have actually rallied off of 2-year lows.

But if you think all of its problems means its a hidden gem, you'd be wrong.

You're not going to get a bargain. Francesca's is trading with a forward P/E of 20.5 which is well above the average of the S&P 500 which is 18x.

Specialty retail is tough right now. If you must buy a company in that industry, you might want to consider Deckers Outdoor Corp. (NYSE:DECK-Free Report) which makes UGGs. It is a Zacks Rank #2 (Strong Buy) and analysts expect earnings growth of 14% this year and another 18.8% next year.

It's even trading with a cheaper valuation than Francesca's, with a forward P/E of just 19.3.

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