For Immediate Release
Chicago, IL – April 03, 2017 –Zacks Equity Research highlights Huntington Ingalls Industries (NYSE: HII – Free Report ) as the Bull of the Day, Red Rock Resorts (NYSE: RRR – Free Report ) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Adidas (OTCMKTS:ADDYY – Free Report ) , Nike Inc. (NYSE:NKE – Free Report ) and Under Armour (NYSE:UAA – Free Report ) .
Here is a synopsis of all five stocks:
While the Trump Trade has faced a rough patch as of late, investors still appear pretty bullish on the prospects for the defense industry. It doesn’t hurt that this area is a favorite spot for Republicans, and that Trump has already come out with plans to spend an additional $54 billion on the defense budget this year alone.
And though there are numerous companies that could benefit from a burst (and elevated amount) of spending in the defense world, it might be best to focus in on a company like Huntington Ingalls Industries (NYSE: HII – Free Report ) for long-term profit potential in this type of environment.
HII in Focus
Huntington Ingalls was formed as a spin-off of Northrop Grumman back in 2011, and is focused on the building of ships primarily for the U.S. Navy. Its most famous divisions focus on the building of nuclear submarines (it is one of two builders of U.S. Navy nuclear subs), and nuclear-powered aircraft carriers. In fact, Huntington Ingalls is actually the sole designer and builder of these aircraft carriers for the U.S. Navy.
This could be a great spot to be in if Donald Trump, or the U.S. Navy, get their expansion plans fulfilled. Trump recently called for a 350 vessel Navy, and the U.S. Navy has recently called for a similar (355) amount of ships for its total fleet as well (up from today’s 272). The Navy cited rising threats from emerging powers—and resurgent ones too—as the primary reason for the needed buildup, with the potential for $16.3 billion in new ship construction a year according to the Congressional Research Service, via this Bloomberg article .
As such, HII looks to be a prime beneficiary of this plan, assuming it is enacted of course. The Navy is looking for an additional aircraft carrier, and more than a dozen subs too, giving the people at Huntington Ingalls plenty to fill their product pipeline.
Estimates and Fundamentals
No wonder analysts have been slowly raising estimates in this environment for the long-term picture in HII stock. We haven’t seen any estimate cuts in the past two months for either the full year or next year consensus estimates, suggesting the long-term future is bright. And after all, even if the plans do take a while to come to pass, it is at least a pretty safe bet now that we won’t see cuts to defense spending, which is definitely allowing investors to sleep soundly in this name and others in the industry too.
Things appear to be looking up for Las Vegas lately.
The city recently scored an NHL franchise, and it now looks to take the Raiders from Oakland as well. And with a massive new stadium for the Raiders, there is hope that several high profile events—and plenty of new tourists—will be hitting Sin City in the coming years.
However, while this has acted as a nice boost to companies in the Vegas market, investors can’t simply buy up any company with big operations in the city. Take Red Rock Resorts (NYSE: RRR – Free Report ) for example. The company operates casinos and resorts through its holding company (Stations Casinos) and includes brands such as Palms, Red Rock, Green Valley Ranch, and Palace Station to name a few, giving it a Vegas-centric profile. And while it definitely has a Vegas focus, the company is actually seeing sliding earnings estimates as of late and investors may actually want to consider avoiding this name in the near future.
Sliding Estimates
While RRR beat estimates in its most recent report, it wasn’t all good news. The company reported sluggish results on the sports revenue front, while food and beverage costs were a bit elevated too. Additionally, RRR saw margins drop over 500 basis points while some key properties—such as the Palms—reported EBITDA figures well off of the peaks. Clearly, there was more to the story for Red Rock than a simple earnings beat, suggesting that some near term sluggishness might be in the company, no matter what is slated down the line for the area.
In the wake of this report, investors have actually seen all of the new estimates for RRR stock go lower in the past two months, as not a single analyst has raised their expectations for RRR in our consensus over the past 60 days. Instead, we have seen six estimates go lower for the full year, and another three go lower for the following year.
The magnitude of these estimate cuts has also been troubling, as the consensus estimate has fallen from $1.55/share to $1.37/share in just the past thirty days, while we have seen a 16% cut for the current quarter estimate as well. But worst of all, we have seen the most recent estimates—and thus those with the most up-to-date information—plunge as of late, so now the most accurate estimate is lower than the consensus for both the current quarter and the current year as well.
Additional content:
Reebok Plans to Open 500 Stores in China by 2020
Reebok, a subsidiary of Adidas (OTCMKTS:ADDYY – Free Report ) , plans to open 500 stores in China by 2020, with 50 stores opening this year alone.
The sportswear company is in collaboration with a local footwear retailer, Belle International Holding, with seven stores already opened in several Chinese cities this year.
China’s sports market has been expanding faster than ever. Chinese consumers start to look for activities in sports and cultures as they gain more spare time and income at their disposal.
“In China, consumers want to do fitness activities to be more healthy and more successful,” said Chad Wittman, General Manager of Reebok Greater China. “There are a lot of opportunities to offer Chinese consumers a better life through fitness activities.”
Adidas’ 2016 annual report showed Reebok with slow growth in sales. Reebok’s sales only grew 6% from a year-ago, but Adidas saw at least 16% sales increase in every region except Russia/CIS.
Adidas looks to deliver $2 billion in profits by 2020, and Reebok’s performance will be a key factor for Adidas to reach that goal.
Strategy
Slightly different than Adidas, Reebok has positioned itself to focus on fitness, where Adidas focused on athleisure. Reebok will be focusing on running, training, and classics, with running being the main category due to its overwhelming popularity in recent years.
Reebok looks to repeat its parent company’s success in China with the same strategy, choosing the right athletes for the relevant market. The sports brand wanted a different face to represent its latest campaign, “Be More Human,” and the face belongs to Wang Deshun, also known as China’s hottest grandpa.
China’s hottest grandpa came into the spotlight as he walked the catwalk at Beijing Fashion Week in 2015 at age 80. Wang, an actor, model and artist, who started taking fitness seriously at the age of 70, offers not only a new perspective on aging in China, but also motivation in fitness.
“Our ‘Be More Human’ message is one that resonates incredibly well today with Chinese consumers eager to live healthier lifestyles,” Wittman added.
Bottom Line
According to Research and Markets , the revenue in China’s sports market is expected to be more than $100 billion by the year 2020.
Besides global sportswear giants like Nike Inc. (NYSE:NKE – Free Report ) and Under Armour (NYSE:UAA – Free Report ) competing in China’s market share, there are also many local brands that Reebok has to overcome.
Adidas showed strong 2016 annual earnings with an 18% currency-neutral growth in sales for the full year of 2016 and expected sales to increase 11% to 13% for this year. If Reebok can strengthen its foothold in China’s sports market, there is no reason that Adidas won’t see a greater sales growth than expected.
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Huntington Ingalls Industries, Inc. (HII): Free Stock Analysis Report
Red Rock Resorts, Inc. (RRR): Free Stock Analysis Report
Adidas AG (ADDYY): Free Stock Analysis Report
Nike, Inc. (NKE): Free Stock Analysis Report
Under Armour, Inc. (UAA): Free Stock Analysis Report
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Zacks Investment Research
April 03, 2017 at 07:24PM
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