TROX – WILLIAM O'NEIL+CO

Global Laggards

Posted on August 9, 2018February 1, 2019 by Heetae Kim

Highlighted Charts

U.S.: Pan American Silver ( PAAS ), Crown Holdings ( CCK ), Autoliv ( ALV ), Hilton Worldwide ( HLT ), Harley Davidson ( HOG ), Kraft Heinz Company ( KHC ), Sunpower ( SPWR ), SEI Investments ( SEIC ), Perrigo ( PRGO ), Tivity Health ( TVTY ), Sothebys ( BID ), Delux Corp ( DLX ) Netscout Systems ( NTCT ), Jetblue Airways ( JBLU ).

Developed: Kobe Steel ( BS@N.JP ), Kawasaki Heavy Industry ( KW@N.JP; 7012 JP ), Daimler ( DAIX.DE, DAI GR ), Thai Beverage Public ( THBE.SG; THBEV SP ), Nomura Real Estate ( NREH.JP; 3231JP ), UDG Healthcare ( UDG.GB; UDG LN ), Isetan Mitsukoshi Holdings ( ZW@N.JP; 3099 JP ), AMS ( AMS.CH; AMS SW ), Nexon ( NXCL.JP ; 3659 JP ), East Japan Railway ( EAJR.JP; 9020 JP )

Emerging: Com2us ( CUS.KR; 078340 KS ), Tata Global Beverages ( TEA.IN; TGBL IN ), KB Financial Group ( KHB.KR; 105560:KS ), Sino-America Silicon Products ( SAS.TW; 5483 TT ), Korean Airlines ( KAA.KR; 003490 KS ).

Stocks worth focusing on in this week’s Global Laggards:

Hilton Worldwide ( HLT ) – Cyclical ( $23B market cap ) – a hospitality company operating more than 5,300 properties (~879,000 rooms) through 14 brands across 106 countries. Its brands include Hilton Hotels & Resorts, Waldorf Astoria, Embassy Suites, and Hampton.

The stock has been trading along its 10-WMA since February and broke below its 40-WMA after reporting earnings last week. The stock is testing the lower end of the current consolidation at ~$75-76; should this break, the next level of support is ~$67.
HLT’s RS line has been declining from late April with a current RS Rating of 50 (poor). Its three-year earnings growth rate is -3%, along with an EPS Stability Factor of 26, which is the second weakest among its industry group peers. Its after-tax margin of 9.2% in the latest quarter was among the lowest of all U.S. lodging stocks. The stock’s A/D Rating has remained negative for seven out of the past nine weeks, indicating ongoing distribution.
After exceeding EPS expectations over the last several quarters, HLT’s Q2 EPS was in line with consensus expectations.
The RevPAR guidance for 2018 remains unimpressive at 3-4% y/y. Management expects system-wide RevPAR growth for Q3 at 2.5-3% y/y, which is below the full-year guidance range.
HLT generates roughly 70% of its EBITDA from U.S. hotels and we continue to believe that the U.S. lodging industry is near its peak.
In 2019, supply growth in the U.S. lodging industry will surpass demand growth for the second time in 10 years. HLT’s development pipeline continues to grow; it had a pipeline of 362,000 rooms (2,370 hotels) at the end of Q2. Slightly less than half of this pipeline consists of developments for the U.S., and this leaves HLT vulnerable to RevPAR underperformance in the coming years.

Global Laggards

Posted on May 24, 2018February 1, 2019 by Heetae Kim

U.S.

Arch Coal (

)—Energy ($1.6B market cap) – Coal producer with operations in West Virginia, Virginia, Kentucky, and Wyoming generates two-thirds of revenues from the U.S. and one-third from overseas, mostly in Europe/Asia.

After emerging from bankruptcy in Q3 2016 with a big reduction in debt and operations that were once again profitable, the Company reported five quarters of solid growth.
From Q4 2016 to Q4 2017, it averaged 16% sales growth and 40% EPS growth. It also beat consensus EPS estimates by double digits in four of the five quarters.
Q1 2018 EPS missed the consensus by 33% as sales declined 4% and missed the consensus by high-single digits. It was hit with a trifecta of lower volumes, lower realized prices, and higher cash costs in the quarter.
The Company also lowered full-year 2018 guidance for coking and thermal coal volumes and raised cash cost guidance by high-single digits.
Consensus now expects sales and EPS to decline an average of 4% and 13%, respectively, for the next eight quarters. Full-year 2018 consensus EPS estimates have come down 25% since the Q1 miss.
Despite pledges by the Trump administration to keep the coal industry alive, competition from natural gas in the U.S. and the combination of natural gas and other renewables in overseas markets will likely continue to erode industry revenues.
U.S. natural gas production is at an all-time high and supply is expected to continue growing along with domestic demand for the next two decades.
Coal production increased in 2017 for first time in three years, but remains 35% below a 2008 peak. However, demand did not increase and is expected to fall by single digits annually going forward. Supply is expected to fall this year but flatline thereafter, which could put more pressure on prices.
Shares fell 15% on volume that was 700% above average after the Q1 earnings miss, breaking through the 200-DMA. Volume to the upside has since been weak, and shares are hitting resistance at the 21-DMA. This is a new short opportunity.
Despite the cheap valuation (7x trailing Q4 EPS), declining earnings for the next few years could create a value trap.

Global Laggards

Posted on May 3, 2018February 1, 2019 by Heetae Kim

National Beverage ( FIZZ ) – Consumer Staples ( $4B market cap ) – Manufactures and distributes multi-flavored soft drinks, juice, flavored carbonated, and spring water products.

The stock’s RS line is hitting new 52-week lows as the stock is finding resistance along the 10-WMA. It has a weak RS Rating of 14. We believe the stock will likely fall to near-term support in the low ~$80s and see potential for an eventual drop to the last breakout range at ~$63.
The Company reported Q3 FY 2018 revenue of $227.5M, below consensus expectations for $232.1M. The stock sold off 8% on the miss on March 9 on a very strong day for the market.
Revenue growth rate has peaked and is expected to decelerate over the next two fiscal years.
Growth has been driven by the Company’s LaCroix sparkling water and competition is increasing in the sparkling water space with larger players making pushes to take market share. Pepsi recently launched Bubly, Nestle has been rolling out sparkling water brands, and Coca-Cola bought Topo Chico last year.

Moneysupermarket.com Group ( MONY.GB ) – Technology ($2.2B market cap) – Moneysupermarket.com provides online money saving and personal finance services through brands such as MoneySuperMarket.com, MoneySavingExpert.com, and TravelSupermarket.com. Under its Money segment, the Company offers customers the ability to search for and compare products, including credit cards, accounts, mortgages, loans, debt solutions, savings accounts, and business finance.

On February 22, the Company announced 2017 results that were slightly below forecasts and warned that, in 2018, the Company plans to step up costs to improve site optimization. It noted that revenue is likely to increase at a slower pace in 2018 (~ +4% versus consensus expectations of ~ +7%). Adjusted EBITDA is expected to be flat versus 2017. This cautious outlook has resulted in downward revisions to 2018 and 2019 EPS consensus forecasts.
Shares sharply breached their 40-WMA on above average volume following the disappointing outlook. Shares have been unable to rebound to their original levels since breaking below long-term support at the 40-WMA.
MONY has a poor RS Rating of 16 and Datagraph Rating of 40.
Shares are now trading 17% off highs after topping in January.
Per consensus estimates, EPS growth is expected to decelerate from 16% in 2018 to 9% in 2019, both figures were recently revised downward.
We anticipate shares will roll over after hitting resistance near the 40-WMA and may retest prior lows of ~240p.