For Immediate Release
Chicago, IL – September 2, 2020 – Zacks Equity Research Shares of Sportsman's Warehouse Holdings, Inc. (SPWH - Free Report) as the Bull of the Day, DXP Enterprises, Inc. (DXPE - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis onAnthem, Inc. (ANTM - Free Report) and Centene Corporation (CNC - Free Report) .
Here is a synopsis of all four stocks:
Today’s Bull of the Day is a stock that is set to report earnings. I understand that could make me look like the Donkey of the Day for writing this up. The flipside of that is I could look like an omniscient oracle all things stock market. I am willing to take that risk.
What exactly is a “Bull of the Day” the ask? Well, the Bull of the Day is a stock that is currently in the good graces of the Zacks Rank. The Zacks Rank leans on earnings estimates coming from analysts all over Wall Street. When those analysts increase their earnings estimates, we assume they are doing it for good reason. The more analysts increasing those estimates, and the larger the margin is, the more bullish we can assume it is. That’s the secret sauce of the Zacks Rank.
Today’s Bull of the Day is in the good graces of the Zacks Rank. It’s a Zacks Rank #1 (Strong Buy) Sportsman’s Warehouse. Sportsman's Warehouse Holdings, Inc., together with its subsidiaries, operates as an outdoor sporting goods retailer in the United States. It offers camping products, such as backpacks, camp essentials, canoes and kayaks, coolers, outdoor cooking equipment, sleeping bags, tents, and tools; and clothing products, including camouflage, jackets, hats, outerwear, sportswear, technical gear, and work wear.
The reason for the favorable Zacks Rank is the series of positive earnings estimates coming from analysts. Over the last ninety days, two analysts have increased their earnings estimates for the current quarter as well as the current year. The bullish sentiment has pushed up our Zacks Consensus Estimate from 16 cents to 31 cents for the current quarter while the current year number is up from 63 cents to 91 cents. That 91-cent number would represent year-over-year growth of 93.62%. That’s on forecast revenue growth of 23.6%.
The market is on fire right now. Tech names continue to lead the way higher and it feels like every four-letter ticker is going to the moon. That feeling is great, but eventually, the bullish tide is going to subside. When it does, you are going to see who has been swimming naked all along.
Stocks with the strongest earnings trends are likely to stand the test of time, while stocks with weaker trends are likely to be in trouble. One way to find stocks with weaker earnings trends is by leaning on the Zacks Rank. Stocks which are Zacks Rank #5 (Strong Sell) stocks have negative earnings trends, which could mean tough times for the stock in the intermediate term.
One such stock is today’s Bear of the Day, DXP Enterprises. DXP Enterprises, Inc., together with its subsidiaries, engages in distributing maintenance, repair, and operating (MRO) products, equipment, and services to energy and industrial customers primarily in the United States and Canada. It operates through three segments: Service Centers (SC), Supply Chain Services (SCS), and Innovative Pumping Solutions (IPS).
Over the last thirty days, analysts have been cutting their earnings estimates for DXPE. Analysts have dropped estimates for the current quarter, next quarter, current year and next year. The bearish sentiment is most dramatic in the current quarter where our Zacks Consensus Estimate is down from 37 cents to one penny. Current year numbers have gone from 99 cents to 49 cents, while next year’s number is off from $1.34 to 65 cents.
Current year earnings are now set to contract by 75%. That’s on revenue contraction of 19.74%. The good news for longer-term investors is that earnings are still projected to grow by 32.65% next year. That could mean a turnaround is in the cards.
DXP Enterprises is in the Manufacturing – General Industrial industry which ranks in the Bottom 30% of our Zacks Industry Rank.
Centene vs. Anthem: Which Is the Better-Positioned Stock?
Although most industries suffered massively from the COVID-19 outbreak, the health insurance industry has so far had a minimal impact from the same.
In fact, the pandemic provided some relief to insurers’ Medical Loss Ratio (MLR), which is the ratio of premiums spent on claims. With maximum hospitals postponing the elective procedures and surgeries, it positively impacted the MLR of health insurers in the form of lower claim outgo. Thus, a decline in the MLR is expected to continue aiding insurers’ margins.
The industry players are well-poised for growth owing to rising enrolment, increasing contribution from complementary businesses, product modifications, improved services, expansion of international operations, better claims handling, medical cost management, technological investment and upgrade, mergers and acquisitions, and healthy balance sheets.
The health insurance industry remains a promising platform for investment on the back of solid demand for value-based health plans, higher number of baby boomers and better health outcomes through the usage of analytics, AI and other advanced technologies.
Given the current scenario and the buoyancy in demand for telemedicine in behavioral health, we expect many health insurers to gain traction from this business line. Some of the companies, such as Anthem witnessed a significant surge in telehealth visits.
The overall bullish scenario makes us believe that growth will be consistent in this industry, which should boost prospects of companies with strong business fundamentals. The Zacks HMO industry carries a Zacks Industry Rank within the top 13% (34 of 252).
Against this backdrop, let’s look at the two leading health insurers, namely Centene Corp. and Anthem with their respective market capitalization of $35.5 billion and $70.8 billion. Each stock currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past six months, Anthem and Centene have gained 4.5% and 10.6%, respectively. The industry has rallied 7.6% in the same time frame compared with the S&P 500 Index’s 8.4% increase.
Now let's analyze certain other parameters to find out which company is better placed.
Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Anthem’s bottom line managed to beat estimates in two of the trailing four quarters, missing the same in the other two, the average negative surprise being 1.02%. Notably, Centene’s earnings surpassed the consensus mark in one of the trailing four quarters, falling short of the same in the remaining three, the average miss being 4.10%.
While both companies have a negative earnings surprise, Anthem has an edge over Centene here.
Return on Equity
Return on equity is a profitability measure, which accounts for profits generated on shareholders’ equity. Hence, higher ROE reflects the company’s efficiency in using its shareholders’ funds and is preferred by all equity investors.
Anthem’s ROE of 19.44% compares favorably with Centene’s ROE of 14.1%.
Price-to-earnings value is one of the multiples used for valuing health insurers. Comparing favorably with the health insurance industry’s forward 12-month P/E ratio of 15.61, both Anthem and Centene are undervalued with a reading of 11.50 and 11.22 each. However, Centene has a better reading than that of Anthem.
Earnings growth along with stock price gains is often indicative of a company’s strong prospects.
The Zacks Consensus Estimate for Anthem’s 2020 earnings implies a 15.3% rise from the year-ago reported figure while that of Centene suggests an increase of 10.2% from the prior-year reported number.
Here Anthem has a marginal edge over Centene in terms of yearly earnings growth.
Both companies have a higher debt-to-equity ratio than the industry average of 61.8X. However, Anthem’s leverage ratio of 62.3X betters Centene’s ratio of 66.8X. Therefore, Anthem is at an advantage over Centene on this front.
Our comparative analysis shows that Anthem is better-positioned than Centene with respect to earnings surprise, return on equity and earnings growth. Meanwhile, Centene scores higher in terms of leverage ratio and valuation. As the scale is slightly tilted toward Anthem, the stock discernibly makes a more promising investment proposition.
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