E-Trade Financial, QAD, Amazon, General Motors and Facebook as Zacks Bull and Bear of the Day

For Immediate Release         

Chicago, IL – April 25, 2018 – Zacks Equity Research highlights E-Trade Financial ETFC as the Bull of the Day and QAD Inc. QADA as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Amazon AMZN, General Motors GM and Facebook FB.

Here is a synopsis of all five stocks:

Bull of the Day:                                              

After years of steady gains and low volatility, the stock market finally hit some turbulence in early February 2018 on the back of interest rate uncertainty and political question marks, and those woes continued in the months to come thanks to trade woes and rising Treasury yields. This has caused market-wide uncertainty at times, but investors should note that increased buying and selling actually benefits brokers, many of which are publicly traded.

One such company is E-Trade Financial, a leader in the online brokerage industry since the 1990s. As seen in the company’s recent earnings report, increased trading activity created a blowout quarter for E-Trade, and now the stock is sticking out as one of the strongest in the entire financial services sector.

Now, after strong results and positive forward-looking comments inspired several positive analyst estimate revisions, ETFC is sporting a Zacks Rank #1 (Strong Buy).

Latest Earnings Report

Last week, E-Trade posted earnings of $0.80 per share, beating the Zacks Consensus Estimate of $0.79 and improving significantly from the $0.48 per share recorded in the prior-year quarter. Total revenue for the quarter came in at $708 million, outpacing the Zacks Consensus Estimate of $690 million. Revenues were up 28% from the year-ago quarter.

The key contributor to this success was the company’s daily average revenue trades (DARTs) results. Total DARTs increased 26% year over year to 309,000, including 32% growth in derivatives. At the end of the quarter, E-Trade had 5.5 million customer accounts, up 4% from the year-ago quarter.

E-Trade’s positive report ushered in a plethora of positive estimate revisions for the remainder of the company’s fiscal year. In less than a week since its report, we have seen five revisions to its 2018 EPS estimates, with 100% agreement to the upside among revising analysts. That same ratio is also present in terms of fiscal 2019 revisions.

The Zacks Consensus Estimate for E-Trade’s fiscal 2018 earnings has gained 17 cents in a week. Our consensus projection for its fiscal 2019 earnings has gained 15 cents in that time.

Valuation

For many investors, improving analyst sentiment is just part of the picture, and it is still important to make sure we are not overpaying for this revision activity. Luckily, E-Trade is not outside the range a value investor would look for.

In fact, the stock is trading at a respectable 16.5x forward 12-month earnings. That is a premium to its industry’s average of 11.5x, but it is certainly not outrageous. The stock is actually trading at a discount to its industry when we factor in earnings growth.

Bear of the Day:

Investors are rightfully willing to pay premiums for stocks with explosive earnings growth, but in uncertainty market conditions, it is best to avoid growth stocks with sluggish analyst revision activity and inflated valuations. One such company is QAD Inc.

QAD Inc. is a global provider of enterprise software applications. The company's core product, QAD Enterprise Applications, is an integrated suite of software applications deployable in computer infrastructures, on demand and on premise deployment as well underlying databases, hardware platforms and operating systems.

QAD promises dramatic improvements to its bottom line this fiscal year, but analysts have begun to sour on its prospects, and negative revision activity has earned the stock a Zacks Rank #5 (Strong Sell).

Estimate Revision Activity

Over the past 60 days, the Zacks Consensus Estimates for QAD’s current fiscal year and next year have slumped considerably, thanks—at least in part—to negative estimate revisions. These consensus projections are now 10 cents and 13 cents lower, respectively, than they were just two months ago.

The Zacks Rank is a proven model that places a significant emphasis on estimates and estimate revisions, and we have found that negative revision activity often foreshadows volatility for a stock. But the concerns do not stop there for QADA.

Stretched Valuation

Even with its lowered expectations, QAD is projected to report EPS growth of a staggering 536.4% in the current fiscal year. That type of earnings improvement typically allows for stretched valuations, with growth investors piling in on the back of bottom-line expansion more so than anything else.

However, growth investors will be cognizant of the company’s volatile earnings outlook, leading us to once again question the QADA’s stretched valuation.

Shares of the enterprise software stock are currently trading at more than 94x forward 12-month earnings. This is more than triple the industry average of about 31x. Meanwhile, the stock also has a P/S ratio of 2.9, so investors are not getting an awfully good deal for the company’s revenue picture either.

The company also does not have a great cash situation right now. Cash flow is sitting at -$0.17 per share, with cash flow growth coming in at -143.5%. This should cause us to question whether the company can sustain any positive momentum that might be caused by earnings growth in the long term.

Finally, investors should note that shares have already surged more than 50% over the past year, implying that its EPS improvement is probably priced in. This does not look like a stock that will challenge its 52-week high soon.

Why Did Amazon (AMZN) Sink Tuesday?

Shares of Amazon fell on Tuesday, just a couple of days before the e-commerce powerhouse is expected to report its first quarter financial results. Let’s take a look to see what might have caused Amazon’s stock to slip as Q1 earnings season heats up.

Amazon announced last week that its Prime program currently boasts 100 million paying members worldwide. This was the first time that Jeff Bezos’ company publicly revealed how many people pay for its highly-visible Prime memberships. Since then, Amazon investors have had a lot of other information to digest as they assess what to do with Amazon stock ahead of the release of its first quarter earnings results, after market close on Thursday, April 26.

Protests

An estimated 450 members of a German trade union took to the streets to protest Bezos and Amazon before the CEO was presented an award on Tuesday. The organization has reportedly led numerous strikes at Amazon in Germany over the last few years, calling for the company to raise pay for warehouse workers.   

Some protestors held signs that read "Make Amazon pay," and even a few German government officials spoke out against Amazon’s tax practices. Amazon has rejected the union’s demands multiple times. But Amazon investors should note that Germany is the company’s second-biggest market behind the U.S.

With that said, if the current pay issues continue, while Amazon faces more tax-related backlash, investors might want Amazon to take some action in Germany.

Car Delivery

Amazon just announced that it partnered with Volvo Cars and General Motors to allow the company to deliver packages to customers’ vehicles. The move marks a continued push from Amazon to become more intimate with its customers as it looks to gain access to their homes, and now cars.

Some investors might welcome Amazon’s latest delivery offering, while others will likely become more concerned about how much they are willing to let a company enter their lives. Either way, it underlines a wave of package thefts that have occurred as Amazon items pile up on porches and lobbies.

Q1 Estimates

Amazon posted a strong fourth quarter, with revenue and adjusted earnings both topping our Zacks Consensus Estimates. Looking ahead, the company is expected to see its Q1 revenues soar by 40.4% to reach $50.16 billion. Meanwhile, Amazon’s adjusted quarterly earnings are projected to sink by 17.6% to hit $1.22 per share.

Some investors might not be concerned with Amazon’s quarterly earnings, considering that the company is still in its growth stage and seems to care very little about its bottom line as it expands into new industries.

With that said, analysts at Piper Jaffray noted recently that Amazon might have to blow investors away for the company’s stock price to continue to climb. "A lot of things are going to have to really come through well for Amazon to keep the stock moving higher here," analyst Craig Johnson said in an interview with CNBC on Monday.

Johnson also noted that a lot of positive news is already priced into Amazon stock, which is up nearly 30% since the start of the year.

Amazon is scheduled to report Q1 results on Thursday, one day after fellow tech power Facebook.

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