MIZUHO SECURITIES USA INC. | US EQUITY RESEARCH
Finding Quality Stocks After The Dust Settles
We’ve put together a quick post-mortem of how our coverage of companies performed in 4Q15, relative to expectations. Against a backdrop of macro concerns and weak market conditions, stocks that missed expectations were punished, and stocks that met or exceeded expectations were mixed. We try to make sense of what happened, and after all of the 4Q dust settles, we look to see which companies could be a good buying opportunity for investors.
It was a tough 4Q15 EPS season. Of the 15 stocks we cover 6 reported 4Q revenue below Street expectations. For 1Q16 and/or 2016 guidance, 7 companies (AMZN, ATVI, EA, EBAY, LNKD, UBI and YHOO) guided below expectations, and 3 guided above expectations (GRUB, PYPL, TTWO). On average, stocks that guided below consensus are still down around ~(13%). Stocks that guided above consensus are now up ~8%.
Biggest losers were LNKD, FDC, and EBAY. LNKD’s guidance caused significant concern among investors, and we saw a ~(44%) correction in the stock price the day after it reported. FDC traded off ~(16%) on a modest topline miss just two quarters after going public which spooked investors. Finally, EBAY’s guidance implied continued low growth and heightened macro risk as global economies start to slow.
Biggest winners were FB and PYPL. FB traded up ~16% the day after it reported, and is now up 11%. Fundamentals remain strong, and the limited operating expense guide was within Street expectations. PYPL also reported a beat and raise and the stock was up 8% the day after its 4Q EPS and up ~16% since. We continue to like these two stocks into 2016.
Biggest opportunities include GOOGL, GRUB, ATVI and AMZN. GOOGL remains one of our top picks as trends continue to impress. GRUB is gaining traction in orders and revenue from delivery. ATVI reported a very rare miss quarter, but core games remain generally strong. Finally, AMZN was hit hard and continues to trade down (16%) since it reported 4Q earnings. Concerns are multi-fold, but we continue to like AMZN’s fundamentals, share gains, and the secular growth story.
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