For Immediate Release
Chicago, IL – March 7, 2022 – Zacks Equity Research shares Exxon Mobil Corporation (
XOM Quick Quote XOM - Free Report) as the Bull of the Day and Foot Locker, Inc. ( FL Quick Quote FL - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Citigroup ( C Quick Quote C - Free Report) , Morgan Stanley ( MS Quick Quote MS - Free Report) and First Business Financial Services ( FBIZ Quick Quote FBIZ - Free Report) .
Here is a synopsis of all five stocks:
: Bull of the Day Exxon Mobil Corporation is a well-rounded oil and gas titan that’s gone on an impressive run over the past year and a half after it suffered through a long slump alongside the broader energy space. XOM posted great growth in 2021 and rising oil prices, along with a focus on keeping costs low, help make Exxon worth considering even amid the crisis in Ukraine. The Comeback Story
The initial covid shock that sent oil prices and stocks of firms such as Exxon tumbling between February and April of 2020 seems like lightyears away. Oil prices rebounded in a serious way off their covid lows to around $65 a barrel by early March of 2021. Those levels now seem tame, with oil sitting at roughly $115 a barrel, as of late afternoon trading Friday.
Exxon and others benefitted from rising oil and energy prices amid the huge rebound in demand as the U.S. and economies around the globe soared back to life. Travel, including air travel, has already mounted a serious comeback and broader energy demand is returning to pre-covid levels.
Exxon reported $23 billion in profit in 2021. This marked its highest total since 2014 and included $8.9 billion in profit in the fourth quarter. The firm also generated $48 billion of cash flow from operating activities, the highest level since 2012, “more than covering capital investments, debt reduction, and dividend.”
Exxon’s FY21 revenue soared 57% to $285.6 billion, Meanwhile, XOM swung from an adjusted loss of -$0.33 per share to +$5.38 a share. “Our effective pandemic response, focused investments during the down cycle and structural cost savings positioned us to realize the full benefit of the market recovery last year,” said CEO Darren Woods in prepared Q4 remarks.
“We've made great progress in 2021 and our forward plans position us to lead in cash flow and earnings growth, operating performance, and the energy transition.”
Current Geopolitical Concerns
To say a lot has happened in the world since Exxon reported its Q4 results and provided guidance on February 1 is an understatement. The Russian invasion of Ukraine has upended global energy markets. The situation has sent oil prices from around $92 a barrel as recently as February 25 to over $110 a barrel. Oil hasn’t been at these levels since 2014.
Russia is a major supplier of oil and gas in Europe and elsewhere and it is unclear what is on the table in terms of energy-focused sanctions because the current situation has already caused prices to surge dramatically. Exxon said it’s halting operations at a multibillion-dollar oil and gas project in Russia and will stop investing in the country amid the attacks on Ukraine. Shell and BP have taken similar actions.
Exxon, like most of the industry, is slowing its capital spending and cutting costs amid rebounding demand instead of blowing out expenditures to ramp up production.
XOM said at its investor day at the start of March that its projected savings and other improvements are set to enable Exxon to “double earnings and cash flow potential” by 2027 compared to 2019, as well as “reduce breakeven costs by roughly $10 per barrel, boost returns on capital employed, and sustainably grow total shareholder returns and distributions.”
Current Zacks estimates call for Exxon’s revenue to climb another 8% to $308 billion to easily top its pre-Covid totals in 2019 and 2018. The company’s adjusted earnings are projected to surge 29% higher to $6.93 per share. Plus, XOM’s FY22 and FY23 consensus EPS estimates have jumped 16% and 12%, respectively since its Q4 release.
Some Other Fundamentals
Exxon’s earnings revisions activity helps it grab a Zacks Rank #1 (Strong Buy) right now. The stock also lands “A” grades for Growth and Momentum in our Style Scores system, and its industry sits in the top 10% of over 250 Zacks industries.
Exxon shares have surged 65% in the last two years to outclimb its highly-ranked industry’s 39% and the S&P 500’s 47%. This stretch of success includes a 35% surge to start 2022 vs. the benchmark index’s nearly 10% decline and its oil industry’s 25% gain.
XOM popped again on Friday to new 52-week highs of over $84 a share. Luckily it has more room to run before it returns to its 2018 levels and plenty of runway to get back to its 2014 peaks of around $100 a share.
Despite its recent climb, Exxon is trading at a 50% discount to its year-long highs at 12.1X forward 12-month earnings and right at its median. XOM’s current levels also represent a solid discount to where it traded for several years leading up to the pandemic.
Exxon’s 4.3% dividend yield provides investors solid income along with exposure to the resurgent oil and energy market. The stock’s yield tops its industry’s 4% average and crushes the 10-year U.S. Treasury’s 1.7% and the 30-year’s 2.2%.
Exxon’s stellar 2021 helped it repay about $20 billion in debt, or most of the total debt it borrowed during the pandemic downturn. And it announced in February a new $10 billion stock buy program. On top of that, Exxon is focused on expanding its low-carbon businesses, as part of its broader future-looking endeavors.
Bear of the Day: Foot Locker, Inc. shares have plummeted since its fourth quarter financial release on February 25 even though the sneaker retailer topped our estimates. The fall is part of a steady decline since last May, and Wall Street is increasingly worried about Nike’s shift to its own direct-to-consumer business. Basics
Foot Locker boasts roughly 2,900 retail stores across nearly 30 countries under multiple brands. FL’s expanding portfolio includes its namesake, Champs Sports, Eastbay, WSS, Footaction, and more. The company has grown within the broader sneaker culture that’s developed alongside the rise of Nike, its Jordan Brand, and other popular and trendy shoemakers.
Foot Locker posted 15% comps growth in 2021, with revenue up 19% to $9 billion to help it blow away its pre-pandemic total of $8 billion. Meanwhile, its adjusted earnings skyrocketed 177% against an easy to compete against period.
FL benefitted from the economic comeback and strong consumer spending. Foot Locker also raised its dividend by 33% and is set to roll out a new $1.2 billion buyback program. All of this should have wowed investors. But Wall Street focused on the company’s rather substantial change to its vendor mix going forward.
Foot Locker said that starting in the fourth quarter of 2022, it does not expect any single vendor will represent more than 55% of total supplier spend, which would be down from 65% in the Q4 FY21. Consequently, FL executives expect no single vendor (Nike) to represent more than roughly 60% of total purchases in FY22, down from 70% last year and 75% in 2020.
The company said the move “reflects the accelerated strategic shift to DTC by one of the Company's vendors and Foot Locker, Inc.'s ongoing brand and category diversification efforts.” Many on Wall Street have been worried for years about Foot Locker’s heavy reliance on Nike.
Nike is the most powerful and popular sneaker company in the U.S., even amid a resurgent Adidas. This has helped Foot Locker for years, and NKE has continued to work with FL even as it cuts ties with many other retailers in favor of its own stores and e-commerce business.
Foot Locker’s FY22 and FY23 consensus earnings estimates have both tumbled over 20% since its Q4 release to help it land a Zacks Rank #5 (Strong Sell) at the moment. FL shares have dropped around 30% since its report and 43% in the past year.
The recent decline is part of a long-term trend over the past five years, with Foot Locker shares down 60% vs. its industry’s 30% decline. Foot Locker could no doubt bounce back after its huge drop. Still, long-term investors might want to stay away from FL stock until it proves it’s ready to thrive in its next, less Nike-heavy era.
Additional content: Is There Merit in Citigroup's ( C Quick Quote C - Free Report) Medium-Term Business Plan?
Following the investor conference on Wednesday,
Citigroup’s shares slid 3.3% in yesterday’s trading hours. While the company’s financial targets for the near term have likely underwhelmed investors, CEO Jane Fraser noted that it would “take a few years” to achieve her return targets, and she remained confident that the bank will see revenue growth “sooner rather than later,” per a CNBC article.
Citigroup’s management unveiled a detailed outline of its new financial reporting structure, effective first-quarter 2022, which was previously hinted at in its fourth-quarter 2021 earnings release. The change is designed to better align the company with its refreshed strategy and simplify its organization. Specifically, the company is removing its Global Consumer Banking segment amid efforts to exit the banking business in international markets.
The new reporting structure differentiates five core businesses — Services, Markets and Banking, which are grouped under the Institutional Client Group segment, and U.S. Personal Banking and Global Wealth Management under the Personal Banking and Wealth Management segment. The five businesses will improve the company’s earnings mix. A third segment, Legacy Franchises, will house businesses being exited (Asia consumer and Mexico businesses) and the company legacy holding assets.
Favorable interest rates and recovery in the consumer lending backdrop are likely to be key revenue drivers in the near to medium term. At the same time, the company’s ongoing business-led investments will drive medium to longer-term growth.
Macro factors aside, the company intends to ramp up its transformation efforts, and continue investments in front-office expansions and modernization in the near term. Also, mix shifts toward higher-returning businesses, including Services and Wealth, and transformation efficiencies beginning to bear fruits will carve the path to realize medium-term RoTCE goal of 11-12%.iti
Also, the company has been making advancements in the rundown of its legacy assets and consumer banking business exits. Of the announced 14 market exits, it has found buyers for seven franchises and plans to gradually wind down its consumer banking business in South Korea.
Such exits will free up capital and help the company pursue investments in wealth management operations in Singapore, Hong Kong, the UAE and London to stoke growth. Notably, Citigroup anticipates the release of $12 billion (in aggregate) of allocated tangible common equity over time from such market exits.
While expenses are projected to increase in the near term, the bank sees the same to normalize over the medium term, targeting an efficiency ratio (excluding the impacts of Asia sales) of less than 60%, which compares favorably with 65% witnessed in 2021.
Hence, capital allocation shifts to higher-returning businesses and a gradual decline in expenses will foster growth for Citi in the medium term. Also, the company appears to implement sweeping changes and appropriate long-term measures rather than making do with short-term tactical fixes to satisfy near-term financial targets. This should be rewarding for patient investors.
However, in the near term, its slow pace at transformation efforts and higher expenses might dampen investor interest in the stock.
Shares of the bank lost 19% over the last six months, underperforming the 0.6% decline for the
Citi currently carries a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Stocks to Consider
A couple of better-ranked companies from the finance space are
Morgan Stanley and First Business Financial Services. Morgan Stanley currently carries a Zacks Rank #2 (Buy), while FBIZ sports a Zacks Rank #1.
The Zacks Consensus Estimate for Morgan Stanley’s current-year earnings has been revised 4.2% upward over the past 60 days. MS’s shares have risen 7% in the past year.
First Business recorded an upward earnings estimate revision of 9% for 2022 over the past 60 days. The FBIZ stock has jumped 41.3% in the past year.
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