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Plexus and Seagate have been highlighted as Zacks Bull and Bear of the Day

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For Immediate Release

Chicago, IL – November 17, 2022 – Zacks Equity Research shares Plexus Corporation (PLXS - Free Report) as the Bull of the Day and Seagate Technology Holdings (STX - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Ryder System, Inc. (R - Free Report) and Triton International Ltd. .

Here is a synopsis of all four stocks.

Bull of the Day:

Plexus Corporation, a Zacks Rank #1 (Strong Buy), has recently broken out to the upside in a bullish move that is pushing the stock to new 52-week highs. Simply put, there aren’t many stocks making fresh yearly highs right now. The price movement is a sign of strength, with the general market looking to narrow its yearly losses as we head deeper into the historically positive fourth quarter.

PLXS sports the second-highest Zacks Momentum Style Score of ‘B’, indicating a strong likelihood that the stock continues to propel higher on the combination of price performance and earnings momentum. The company is part of the Zacks Electronics – Manufacturing Services industry group, which ranks in the top 1% out of more than 250 industries. Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next 3 to 6 months.

Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top industries, we can dramatically improve our stock-picking success.

Company Description 

 Plexus provides electronic manufacturing services globally. The company offers design and development, supply chain, new product introduction, and manufacturing solutions. PLXS delivers its services to companies in a host of different sectors including healthcare and life sciences, industrial, aerospace and defense, and communications.

In its fiscal fourth quarter, PLXS won 32 manufacturing contracts that are worth a combined $214 million in annualized revenues. The company’s expansion into several secular growth markets and massive backlog bode well for the foreseeable future. In addition to its continuation of new program ramps, Plexus has been streamlining its manufacturing facilities to optimize its operations.

Earnings Trends and Future Estimates

PLXS has built up an impressive earnings history, surpassing earnings estimates in three of the past four quarters with a 17.52% average beat over this timeframe. Last month, the electronic manufacturer reported fiscal Q4 EPS of $1.78/share, a 39.06% surprise over the $1.28 consensus estimate. Revenues of $1.12 billion also exceeded projections by 11.13%.

Analysts are bullish on the stock and have been raising earnings estimates across the board. The fiscal Q1 consensus EPS estimate has been revised upward in the past 60 days by 14.84% to $1.47/share. If the company is able to achieve this, it would translate to growth of 67.05% relative to the same quarter last year.

Looking ahead, estimates for the current fiscal year appear favorable. The 2023 Zacks Consensus EPS Estimate now stands at $5.98/share, translating to potential growth of 21.54% relative to last year. Sales are seen rising 17.75% to $4.49 billion. It’s clear that the growth trends for PLXS remain promising.

Let’s Get Technical

In a bullish sign, PLXS shares bottomed back in February – well before the major indices. Since that time, the stock has advanced more than 40% and is showing no signs of slowing down. After completing a powerful cup-with-handle breakout pattern in October, shares have soared to new 52-week highs. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.

The stock has been making a series of higher highs into November. With both strong fundamentals and technicals, PLXS is poised to continue its outperformance.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Plexus has recently witnessed positive revisions. As long as this trend remains intact (and PLXS continues to deliver earnings beats), the stock will likely continue its bullish run.

Bottom Line

Buoyed by a leading industry group, it’s not difficult to see why PLXS is a compelling investment. A healthy number of contract wins along improved operational efficiencies paint a pretty picture for this top-rated stock.

Robust sales and earnings growth combined with a strong technical trend certainly warrant a closer look. Recent positive earnings estimate revisions should also serve to create a ‘floor’ in terms of any sudden or unexpected downside moves. If you haven’t already done so, be sure to put PLXS on your shortlist.

Bear of the Day:

Seagate Technology Holdings, a Zacks Rank #5 (Strong Sell) stock, is a global provider of data storage technology and solutions. The company provides mass capacity storage products including hard disk drives (HDDs), solid state drives (SSDs), and network-attached drives. Based in Dublin, Ireland, STX sells its products primarily to original equipment manufacturers, distributors, and retailers.

STX faces stiff competition in an evolving industry. The merger between Western Digital and SanDisk has made it more challenging for Seagate to capture market share in the important SSD market. Ongoing global macroeconomic headwinds, high inflation, as well as lingering component shortages are likely to continue to exert pressure on revenues in the short-term.

Furthermore, Seagate derives a significant portion of its revenues from outside the United States, subjecting the company to exchange rate volatility. Unfavorable movement in exchange rates can adversely impact results and undermine growth potential.

The Zacks Rundown

STX has been severely underperforming the market over the past year. This poorly-rated stock experienced a climax top in December of last year and has been in a price downtrend ever since. Shares are hitting a series of 52-week lows and represent a compelling short opportunity. When a stock can’t even muster a rally when the general market is moving higher, it’s telling us “I’m very weak.”

Seagate Technology is part of the Zacks Business Services sector, which currently ranks in the bottom 44% out of all 16 Zacks Ranked Sectors. As such, we expect this sector as a whole to underperform the market over the next 3 to 6 months. The Business Services sector has underperformed the market this year at nearly every turn.

Candidates in the bottom tiers of sectors can often represent solid potential short candidates. While individual stocks have the ability to outperform even when included in a poor-performing sector, the inclusion in a weaker group serves as a headwind for any potential rallies. The odds are stacked against STX and the stock is agreeing with this notion after making a series of lower lows.

Weak Foundation: Falling Short on Earnings and Deteriorating Forecasts

Earnings misses have been a sore spot for STX during the past year. The data storage provider has fallen short of estimates in three of the past four quarters. STX most recently reported fiscal Q1 EPS last month of $0.48/share, missing the $0.68 consensus estimate by -29.41%. Revenues of $2.03 billion also missed the mark by -1.95%. These are the types of negative trends that the bears like to see.

STX has posted an average earnings miss of -11.59% over the past four quarters. Consistently missing earnings estimates by that wide of a margin is a recipe for stock price underperformance.

Analysts have been revising earnings estimates downward as of late. For the current quarter, estimates have been slashed -74.8% over the past 30 days. The fiscal Q2 Zacks Consensus EPS Estimate now stands at $0.32/share, translating to a -86.72% earnings regression relative to the same quarter last year.

Technical Outlook

STX stock has been steadily falling since late last year and has now established a well-defined downtrend. Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping down. Shares have declined more than 45% in the past year. The stock continues to trade below both averages – another bearish sign.

While not the most accurate indicator, STX has also experienced what is known as a ‘death cross,’ wherein the stock’s 50-day moving average crosses below its 200-day moving average. STX would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock.

Final Thoughts

The recent earnings misses in addition to deteriorating estimates are both huge red flags and need to be respected. These will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.

STX’s characteristics have resulted in a Zacks Momentum Style Score of ‘C’, indicating further downside is likely. The fact that STX is included in a bottom-performing sector simply adds to the growing list of concerns. Investors will want to steer clear of STX until the situation shows major signs of improvement, or possibly include it as part of a hedge or short strategy.

Additional content:

2 Dividend-Paying Equipment & Leasing Stocks You May Count On

The Zacks Transportation - Equipment and Leasing industry is gaining from strong trade volumes and upbeat container demand, with economic activities picking up. The improvement in the demand scenario with respect to railcars is also a positive for the industry.

Given this encouraging backdrop, it would be a wise decision to invest in some dividend-paying stocks like Ryder System, Inc. and Triton International Ltd. from the Transportation - Equipment and Leasing industry.

Why Dividend Growth Stocks?

Stocks that have a strong history of dividend growth belong to mature companies, which are less susceptible to large swings in the market, and act as a hedge against economic or political uncertainty as well as stock market volatility. At the same time, these offer downside protection with their consistent increase in payouts.

Additionally, these stocks have superior fundamentals that make dividend growth a quality and promising investment for the long term. These include a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics.

In view of the tailwinds mentioned, it can be safely said that dividend-paying stocks appear as a preferred option compared to non-dividend-paying stocks in periods of a high degree of market volatility such as the present situation.

How to Pick Stocks with Solid Dividend Payouts?

In order to choose some of the best dividend stocks from the aforementioned industry, we have run the Zacks Stock Screener to identify stocks with a dividend yield in excess of 2% and a sustainable dividend payout ratio of less than 60%.

Ryder: Headquartered in Miami, FL, this Zacks Rank #2 (Buy) operates as a logistics and transportation company worldwide. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ryder pays out a quarterly dividend of 62 cents ($2.48 annualized) per share, which gives it a 2.85% yield at the current stock price. This company’s payout ratio is 16% of its earnings at present. The five-year dividend growth rate of 3.51%. (Check Ryder’s dividend history here).

Ryder is benefiting from strong rental demand and favorable pricing. R’s bullish outlook for 2022 is also encouraging. It now expects total revenues and operating revenues to increase approximately 23% and 18%, respectively, in 2022 (previous view: rise 22% and 16%, respectively). Adjusted EPS for the whole year is estimated in the range of $15.65-$15.85 (prior view: $14.30 - $14.80). R expects free cash flow in the range of $800-900 million (previous view: $750-$850 million) in 2022.  Adjusted ROE (return on investment) is expected to be 26-27% (previous view: 25-26%).

Ryder System, Inc. dividend-yield-ttm | Ryder System, Inc. Quote

Triton International: Headquartered in Hamilton, Bermuda, this Zacks Rank #3 (Hold) company engages in the acquisition, leasing, re-leasing, and sale of various types of intermodal containers and chassis to shipping lines, and freight forwarding companies and manufacturers.

Concurrent with the third-quarter 2022 earnings release, TRTN’s board of directors has increased its quarterly cash dividend from 65 cents per share to 70 cents, indicating a dividend hike of almost 8%. The raised dividend will be paid out on Dec 22, 2022 to shareholders of record at the close of business on Dec 8, 2022.

Prior to the dividend hike, Triton paid out a quarterly dividend of 65 cents ($2.60 annualized) per share, which gives it a 4.01% yield at the current stock price. This company’s payout ratio is 23%, with a five-year dividend growth rate of 6.98%. (Check Triton’s dividend history here).

Triton International is also active on the buyback front. Triton repurchased 3.2 million common shares during the third quarter and has repurchased an additional 0.9 million shares through Oct 26, 2022.

Triton International Limited dividend-yield-ttm | Triton International Limited Quote

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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