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Bear of the Day: Alico, Inc. (ALCO)

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Alico (ALCO - Free Report) operates as an agribusiness and land management company in the United States. Alico cultivates citrus trees to produce citrus for delivery to the processed and fresh citrus markets. In addition, ALCO is involved in cattle ranching, sugarcane and sod production, and forestry. The company also owns and manages land for leasing, grazing, conservation, and mining activities. Based out of Fort Myers, ALCO owns over 74,000 acres of land in Florida.

The Zacks Rundown

ALCO, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Agriculture – Operations industry group, which ranks in the bottom 13% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months. Note how this group has widely underperformed to start the year:

Zacks Investment Research
Image Source: Zacks Investment Research

Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poor-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.

Along with many other agricultural stocks, ALCO experienced a climax top in April of last year and has been in a price downtrend ever since. The share price is hitting a series of lower lows and represents a compelling short opportunity as the market remains volatile.

Recent Earnings Misses & Deteriorating Outlook

ALCO has fallen short of earnings estimates in three of the past four quarters. Earlier in May, the company reported a fiscal Q2 loss of -$1.62/share, missing the $0.13/share consensus EPS estimate by -1,346.15%. Poor performance can be partially explained by decreased revenues due to lessened fruit production, as the company was still dealing with the fallout from Hurricane Ian.

Still, over the past four quarters, ALCO has delivered an average earnings miss of -449.78%. Consistently falling short of earnings estimates is a recipe for underperformance, and Alico is no exception.

ALCO has been on the receiving end of negative earnings estimate revisions as of late. For the current fiscal year, analysts have decreased estimates by -186.17% in the past 60 days. The 2023 Zacks Consensus EPS Estimate is now -$2.69/share, reflecting a -1,180.95% regression relative to fiscal 2022.

Zacks Investment Research
Image Source: Zacks Investment Research

Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.

Technical Outlook

As illustrated below, ALCO is in a sustained downtrend. Notice how the stock has plunged below the 200-day moving average (signaled by the red line). The stock is making a series of lower lows, with no respite from the selling in sight. Also note how the 200-day moving average is sloping down – another good sign for the bears.

Image Source: StockCharts

While not the most accurate indicator, ALCO has also experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average (blue line) crosses below its 200-day moving average. ALCO 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. The stock has fallen nearly 40% in the past year alone. 

Final Thoughts

A deteriorating fundamental and technical backdrop show that this stock is not set to produce fresh highs anytime soon. The fact that ALCO is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.

Our Zacks Style Scores depict a weakening outlook for this stock, as ALCO is rated a worst-possible ‘F’ in our Value category and ‘F’ for our overall VGM score. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of ALCO until the situation shows major signs of improvement.

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