5 Stocks With Heavy Downward Revisions Heading Into This Week’s Reports – Hertz, Stratasys, Ambarella, Valeant, Sunedison by Estimize
Monday, February 29
Jim Chanos At Invest For Kids: Short This Tech Company As Profits Slump
At this year's Invest For Kids conference, hedge fund manager Jim Chanos pitched a tech giant as his favorite short idea. Jim Chanos is a Wall Street legend. The president and founder of Kynikos Associates made his name shorting Enron in the 1990s. He has since identified some of the most profitable shorts in the Read More
Thursday, March 3
Friday, March 4
Hertz Global Holdings, Inc. (HTZ)
Industrials – Road & Rail | Reports February 29, after the close.
The Estimize community is looking for EPS of $0.06 and revenue of $2.51 billion, one cent Wall Street on the bottom-line, and around $9 million below on the top-line. However, our Select Consensus, which more heavily weights historically accurate analysts and recent estimates, is in-line Wall Street on earnings, and $28 million below on revenues. The Estimize community has been bearish on Hertz’s profitability this quarter, pushing EPS estimates down 17% in the past three months. The company has historically beaten Wall Street on the bottom line 60% of the time while only besting the Estimize EPS consensus 25% of the time.
What to Watch: Hertz Global has been struggling to perform for the past two years mostly due to competitive pressures. Just this week, Hertz’s stock took a beating following a lackluster fourth quarter earnings report from rival Avis Budget Group. Following the announcement, shares fell over 13%, having dropped a total of 45.9% since the start of 2016. Hertz has been unable to improve growth metrics as the car rental industry freefalls. Competition from ride sharing rivals like Lyft and Uber have adversely impacted Hertz’s revenue growth. Last quarter the company reported a 2% decline in U.S. car rental revenue, while international car rentals fell a resounding 14%, largely due to weak global economic conditions. High debt obligations and weaker operating cash flow also remains a top concern. Despite its misfortunes, activist investor Carl Icahn took an interest in Hertz, purchasing a 14.3% stake in the company with the hope of rectifying fleet management issues and cost inefficiencies. This year, the company also plans to spin off its equipment lease company into a separate publicly traded company.
Stratasys, Inc. (SSYS)
Information Technology – Computers & Peripherals | Reports March 3, before the open.
The Estimize community calls for EPS of -$0.08 and revenue of $168.9 million, 3 cents higher than the Street on the bottom line, and roughly $4 million greater on the top line. However our Select Consensus is showing a more modest beat of 2 cents. Since November 2015, the Estimize community has been bearish on Stratasys’ profitability, revising EPS estimates down 63%. Compared to the same period last year, current estimates predict a YoY decline in EPS and revenue of 113% and 21%, respectively.
What to Watch: Once expected to be the next big thing, Stratasys and all the other 3D printing companies had another disappointing year in 2015. After losing 38% of its value in 2014, Stratasys managed to out do itself in 2015, watching shares fall an additional 71%. Negative FX headwinds have been the main scapegoat for missed earnings expectations throughout the year. This in itself has effectively hampered capital investments, as well as performance of its MakerBot business. In Q3, Stratasys reported a 55% YoY revenue decline in its MakerBot business, pressuring margins as the overall popularity of 3D printing has waned. Additionally, higher operating costs from increased investments have led investors to question the company’s long term profitability. As of Q3 2015, the company has no debt, allowing Stratesys to focus on improving its products, specifically 3D printing.
Ambarella, Inc. (AMBA)
Information Technology – Semiconductors | Reports March 3, after the close.
The Estimize community is looking for EPS of $0.52 and revenue of $68.0 million, 5 cents higher than the Street on the bottom line, and roughly $3 million greater on the top line. The Select Consensus is slightly more bearish, with EPS of $0.50 and a sales consensus of $66.5 million. Compared to Q4 2014, this represents a project Yoy decline on the bottom line of 23% while sales are expected to rise 6%. The Estimize community has been bearish on Ambarella’s earnings, revising EPS estimates down 13% and revenues down 10% in the past 3 months.
What to Watch: Video and imaging chipmaker, Ambarella, has a year it would soon like to forget. After reaching highs of $126.70 in June 2015, shares of Ambarella have plummeted 65.5% in the past 8 months. The company’s weak outlook has been closely tied to the disappointing growth of its biggest customer, GoPro. Ambarella produces the chips inside all GoPro devices, accounting for a third of the company’s sales. GoPro’s dismal Q4 earnings report foreshadows equally disappointing results for Ambarella come Friday. GoPro severely missed on the bottom line, reporting a loss per share of -$0.08 and a 16% decline in the number of units sold YoY. Ambarella’s relationship with GoPro, which was once a blessing, has become quite the burden. Last quarter, the company warned investors that Q4 sales were only expected to rise 0.5% to 4.3%, compared with to its 62% growth in the March 2015 quarter. Fortunately, Ambarella is attempting to diversify its top line away from action cameras and drones and into less volatile products.
Valeant Pharmaceuticals (VRX)
Healthcare – Pharmaceuticals | Reports March 3, after the close.
The Estimize Select Consensus calls for EPS of $2.77, 9% higher than Wall Street, while revenue expectations of $2.77 billion are roughly $27 million greater than the Street’s consensus. The Estimize community has been bearish on Valeant’s profitability in the past three months, revising EPS estimates down 22% and sales down 11%. That said, the company has consistently delivered positive earnings surprises, beating Wall Street’s EPS estimates 88% of the time.
What to Watch: In the past year, Valeant has been in the limelight for all the wrong reasons. Shares have taken a steep dive, falling 58.4% in the past 12 months following claims that the company was raising prices without discretion but also booking phantom sales under a separate company, Philidor. After vehemently denying this, Valeant announced an earnings restatement ahead of its fourth quarter earnings to reclaim $58 million worth of wrongly booked sales. Investors responded positively to the news, giving shares a 4.4% boost. The restatement is expected to be minimal, increasing FY2015 EPS by $0.09. In focus during the upcoming earnings release will be updates on Valeant’s distribution partnership with Walgreens, product performance, and any ramifications following recent accounting missteps. Valeant’s ability to continue consolidating with competitors and grow are largely contingent on how the company addresses its high debt level. Last quarter Valeant reported a leverage ratio of 4.87, reflecting its relatively low financial leverage. The company’s recent partnership with Walgreens should help offset losses incurred after parting ways with speciality pharmacy Philidor. Through key partnerships and cost reducing strategies, Valeant is expected to cut $2.25 billion in debt by the end of 2016.
SunEdison, Inc. (SUNE)
Information Technology – Semiconductors | Reports March 4, before the open.
The Estimize consensus calls for EPS of -$0.85, 14 cents higher than Wall Street, with revenue expectations of $800 million around $100 million less than the Street. The Select Consensus on the other hand, is showing a greater loss on the bottom line, with EPS of -$0.90. The Estimize community has maintained a pessimistic stance on SunEdison, revising EPS estimates down 20% since the company last reported. Compared to the same period last year, current estimates predict a resounding profit decline of 412%. On average, the company has consistently missed on the bottom line, reporting negative earnings surprises in each of the past 3 quarters.
What to Watch: This past year has not been kind to SunEdison. The company missed profit estimates for each quarter of 2015, leading to a 92.9% decline in stock price for the year. Earnings per share losses were primarily incurred from significant increases in marketing costs and interest expenses from a high debt burden. However, top line performance and volume growth were better than expected.
The solar industry has experienced a significant downturn in recent years, as new laws and regulations have reduced the favorable subsidies these companies receive. In the third quarter, the company’s G&A expenses rose 135%, with interest expenses nearly doubling as they work to repay a $11.7 billion debt load. As a result, SunEdison has reported a net loss of $1.16 billion in the past 12 months.
In an effort to bolster its financials, SunEdison has insisted it will refocus its solar material operations and cut costs to reach cash flow breakeven by the end of 2016. The company’s sustained focus on expanding through acquisitions and strategic partnerships is an encouraging first step to reaching this goal. This past year, SunEdison entered the energy storage market with the acquisition of Solar Grid Storage and has planned to form second publicly traded company in YieldCo. Ahead of the company’s fourth quarter earnings, investors will be looking for more information on acquisitions and growth initiatives to restore their confidence.
Be sure to get your estimates in for this week’s reports!