FDX, H, MIK, GLW and LEN as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – September 21, 2020 – Zacks Equity Research highlights FedEx FDX as the Bull of the Day and Hyatt Hotels Corporation H as the Bear of the Day. In addition, Zacks Equity Research provides analysis on The Michaels Companies, Inc. MIK, Corning GLW and Lennar Corp. LEN.
Here is a synopsis of all five stocks:
Bull of the Day:
FedEx posted blowout quarterly results on September 15 that highlighted its ability to thrive during the coronavirus. FDX shares have now soared roughly 80% in the past three months and its outlook appears strong, as it expands its e-commerce reach.
Expansion Plans…
FedEx shares had been falling over the last several years, as its longer-term earnings outlook fell. FDX then surprised some on Wall Street when it essentially cut ties with Amazon last summer. Company executives apparently didn’t want to be in business with an e-commerce titan that has its own shipping and logistics aspirations.
FedEx said at the time that Amazon represented only a small proportion of its sales. Since then, the company has focused on working with all of the other major players in traditional retail like Walmart and Target, that have gone all-in on e-commerce.
Meanwhile, the Memphis, Tennessee-based firm is bolstering its automation efforts and modernizing its Express air fleet. The long-term plan is to attract more e-commerce and business-to-consumer clients, while remaining a business-to-business heavy operation.
Pandemic Boost…
FedEx topped our bottom-line estimate by 80% in its fiscal fourth quarter, as it gained momentum in its business to consumer space. Still, its sales slipped over 2% on the back of declines in its higher-margin Express air-shipment unit. But Wall Street seemed convinced that its B2B focused segment would bounce back, while its digital commerce division continued to grow.
FDX promptly smashed our adjusted Q1 fiscal 2021 earnings estimate by nearly 90%, with the figure up 60% from the year-ago period. And its revenue jumped over 13% to $19.3 billion for the three-month period ended on August 31, which marked its strongest sales growth since Q4 FY17.
The firm’s ground segment jumped during the summer months, as consumers continued their massive digital shopping sprees. FDX also benefited from declines in international passenger flights, as businesses had fewer opportunities to use extra cargo space on commercial flights.
FedEx Express saw its adjusted operating income “more than doubled,” while Ground operating income jumped 30%, with Freight up 41%. Overall, its adjusted Q1 operating income popped 56% from the prior-year period. Retiring CFO Alan Graf said on FDX’s earnings call that this growth was “primarily due to international priority volume growth of 31%, a surge in demand for US residential delivery, yield improvement at FedEx Ground and FedEx Freight,” and more.
Down the Road…
On top of its record revenue, Wall Street was also likely pleased to hear that FedEx expects the overall e-commerce market to explode. “Pre-COVID, we projected that the US domestic market would hit 100 million packages per day by calendar year 2026. We now project that the US domestic parcel market will hit this mark by calendar year 2023,” Chief Marketing and Communications Officer Brie Carere said on the call.
FDX projects that 96% of this anticipated growth will come from e-commerce. The firm will, of course, be competing for its portion of a growing pie against core competitors such UPS , DHL and the US Postal Service. And this trend could continue for years, as e-commerce accounted for only 16% of total retail sales in Q2, according to U.S. Census data, despite perfect conditions to outperform.
Meanwhile, the company is preparing to hire as many as 70,000 seasonal holiday workers, up from around 55,000 in previous years. FedEx is also rolling out extra fees, mostly aimed at large customers, during the high-traffic season to offset costs and manage volume.
With all of this in mind, Zacks estimates call for the firm’s adjusted Q2 EPS figure to jump 32% on 7% stronger sales. FDX’s adjusted earnings are then projected to climb 40% in FY21 and another 17% in FY22.
FedEx's revenue is expected to expand by 8% this year, with FY22 projected to jump over 5% higher. Plus, its earnings estimates have soared since its last report, as its outlook improves significantly.
Bottom Line
FedEx’s bottom line revisions help it earn a Zacks Rank #1 (Strong Buy) right now, alongside a “B” grade for Growth and an “A” for Momentum in our Style Scores system. The firm’s Transportation - Air Freight and Cargo industry rests in the top 2% of over 250 Zacks industries, and its 1.07% dividend yield also tops the 10-year U.S. Treasury.
Despite its 60% climb in 2020, which destroys the S&P 500’s 4% gain, and its 80% run over the past three months, FDX sits around 8% off its early 2018 highs. This could give it more room to run, and its business should also start to benefit as economies around the world continue to adapt to the virus.
Bear of the Day:
Hyatt Hotels Corporation shares had been largely outpacing the broader market over the last several years. Then the coronavirus brought the entire travel and leisure industry to as close to a complete halt as possible.
Even as the economy starts to turn around and consumer spending bounces back, the hotel and travel industry remains largely devastated, for now.
Vacancy…
Hyatt’s first quarter revenue fell 20%, as the virus didn’t really begin to interrupt travel for business and pleasure until early March. The company’s second quarter sales then tumbled 80% from the year-ago period, as the pandemic crushed the entire travel sector. Meanwhile, it posted an adjusted loss of -$1.80 per share.
Hyatt fell short of both our Zacks earnings and revenue estimates in early August. Luckily for Hyatt and the broader industry, there have been signs of a slow recovery. “We are encouraged by the demand progression we have seen in China and also in certain markets in the U.S. and other parts of the world,” CEO Mark Hoplamazian said in prepared Q2 remarks.
“Our teams are prepared for varied recovery scenarios sustained by continuously evolving new ways of operating that reduce the occupancy levels that are required to break even at the hotel operating level.”
Outlook
Zacks estimates call for Hyatt’s adjusted earnings to sink from +$0.37 in the year-ago period to a loss of -$1.22 per share in the third quarter.
Meanwhile, its sales are projected to sink 62% in Q3 and 52% in the fourth quarter. This marks a positive trend and might be better than some investors would have thought given the current industry conditions.
Overall, its full-year FY20 revenue is projected to fall 53% to $2.34 billion. Peeking ahead to FY21, the hotel giant’s sales are projected to climb 56% above our current-year outlook, which would still come in far below FY19’s figure.
On the bottom end, Hyatt is expected to post adjusted losses of -$4.38 per share this year and -$1.95 in FY21.
Bottom Line
Hyatt closed regular trading Friday around 40% off its 52-week highs. And the nearby chart highlights how much worse Hyatt’s earnings outlook appears. This negative revision activity helps Hyatt earn a Zacks Rank #5 (Strong Sell) right now. H stock also sports a “D” grade for Value and “F” grades for Growth and Momentum in our Style Scores system, while its Hotels and Motels space rests near the bottom of our over 250 Zacks industries.
On top of that, Hyatt has temporarily suspended its share repurchase program and its dividend. Therefore, investors might want to hold off on the stock until there are more signs that the industry is ready for a turnaround.
Additional content:
3 Quality Fundamental Outperformers
All of the Zacks Premium Screens have some tough criteria for stocks to pass. However, the Quality Fundamental Outperformers screen may have the biggest hurdles to overcome.
It requires a Zacks Rank #1 (Strong Buy), which is difficult enough to obtain in its own right. But on top of that, it also demands a Momentum Style Score of “A” and a Zacks Industry Rank in the Top 50%. Not easy!
But the companies able to make it through all this have an outstanding chance to outperform the market today and keep that momentum going in the future.
Below are three names that recently passed the test. Make sure to click here for the complete list.
The Michaels Companies, Inc.
Michaels can help you make a beautiful quilt for your beloved grandmother to let her know how much you’re thinking of her as winter approaches in this difficult time.
Or, Michaels can help you make enough money to just buy granny a quilt (that would probably be better than anything you could make anyway) and maybe even take a trip to bring it to her in person.
For the point of this article, let’s deal with the latter scenario.
MIK is the country’s leading specialty retailer of arts and crafts with more than 1200 stores in 49 states and Canada. The company offers all the goods you’ll need to be creative and cope with a pandemic that just won’t go away.
Shares have jumped more than 547% since the coronavirus low For its fiscal second quarter report, earnings per share of 30 cents beat the Zacks Consensus Estimate of a five-cent loss by 700%! It also improved nearly 58% year over year.
Meanwhile, net sales rose over 11% to $1.15 billion, trouncing our expectations of just around $1 billion. Comps were up an impressive 12%.
If a retailer is doing this well in such an unprecedented environment, it must be making a lot happen over the Internet. Sure enough, MIK reported e-commerce growth of more than 353%!
It’s been enjoying success through curbside pick-up, BOPIS, same-day delivery, ship from store and in-app purchases. Even more impressive, all of its stores were re-opened by the beginning of July, so it’s not relying completely on e-commerce.
Analysts like what they’ve seen with MIK and have raised their expectations significantly for this year and next. The Zacks Consensus Estimate for the fiscal year ending January 2021 soared 68% in the past 30 days to $1.68! Expectations for next fiscal year (ending January 2022) jumped 27.2% in that time to $1.92.
Therefore, they currently expect earnings growth of 14.3% for next fiscal year over this one.
Corning
It’s hard to explain what Corning does in one or two sentences. On the one hand, it makes glass substrates that are used in LCD TVs and PC monitors. However, it also makes optical cables and even glassware (such as Pyrex) that’s used in laboratories and kitchens all over the word.
You could say that GLW is a glass company, but that would be like saying Disney makes cartoons or Amazon sells books. Yeah, that’s true, but it’s only the tip of the iceberg.
Instead, let’s start by saying that GLW has a leadership position in each of its five Market-Access Platforms: Life Sciences, Mobile Consumer Electronics, Automotive, Optical Communications and Display.
It’s latest innovative product was Gorilla Glass Victus, which significantly improves drop and scratch performance in the Gorilla Glass family. By the way, Gorilla Glass has been designed into more than 8 billion devices by more than 45 major brands!
GLW has beaten the Zacks Consensus Estimate for 17 straight quarters. Most recently, it reported second-quarter earnings per share of 25 cents, which beat expectations by more than 127%. It now has a four-quarter average of just under 40%.
Core sales in the quarter came to $2.59 billion, which was down from the year-ago result but still managed to easily beat expectations of $2.39 billion
The past two months have included nice upward revisions from analysts. The Zacks Consensus Estimate for his year has jumped 19.4% in that time to $1.23. Expectations for next year are up 8.4% to $1.81.
Most importantly though, analysts currently forecast earnings to soar more than 47% next year over this year.
Corning boasts of being around for approximately 170 years, so it’s seen a good amount of challenges over the years. The company performed well during this pandemic with shares soaring about 89% from the March 23 low… and it plans to continue being an industry leader far into the future.
Lennar Corp.
Even if you’re living happily in the “forever home” of your dreams… you’ve probably checked out some listings on those real estate brokerage sites. Why wouldn’t you? There’s always a better home in a better neighborhood somewhere, but there may never be a better opportunity.
And those opportunities are not just for homeowners or potential homeowners, but for investors too. Not only do the historically low interest rates make buying a home more appealing than ever right now, but the industry is dealing with a serious case of undersupply. And it comes right at the point when a whole new generation of buyers are ready to hit the market.
All those late-20, early-30 somethings who spent their first years away from home by posting pictures of food on Facebook and boasting about not needing a car are starting families. They need a home, but there might not be much for them.
This undersupply is one reason why the building products – home builders space is in the Top 2% of the Zacks Industry Rank.
One of the bigger names in this group is Lennar Corp., which showed how strong a hand it has these days with a solid fiscal third-quarter performance earlier this week. The home builder reported its sixth straight positive surprise as earnings of $2.12 beat the Zacks Consensus Estimate by more than 40%. It now has a four-quarter average surprise of over 33%.
Revenue of $5.87 billion were up a little from last year, but demolished expectations by over 10%.
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Corning Incorporated (GLW) : Free Stock Analysis Report
FedEx Corporation (FDX) : Free Stock Analysis Report
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Lennar Corporation (LEN) : Free Stock Analysis Report
The Michaels Companies, Inc. (MIK) : Free Stock Analysis Report
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