For Immediate Release
Chicago, IL – May 18, 2022 – Zacks Equity Research shares
DDS">Dillard's () as the Bull of the Day and Starbucks ( DDS SBUX Quick Quote SBUX - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Verizon Communications Inc. ( VZ Quick Quote VZ - Free Report) , AT&T Inc. ( T Quick Quote T - Free Report) , and T-Mobile US, Inc. ( TMUS Quick Quote TMUS - Free Report) . Here is a synopsis of all five stocks: Dillard's, a Zacks Rank #1 (Strong Buy), is a long-term stock market winner within the Zacks Retail – Wholesale sector. After becoming severely undervalued when the pandemic initially hit, the stock has surged more than 1,400% since the March 2020 market bottom and is showing no signs of slowing down.
DDS sports the highest-possible 'A' rating in both our Zacks Growth and Momentum Style Score categories, indicating an increased likelihood that the stock continues to propel higher. The powerful combination of positive earnings estimate revisions and strong price momentum should serve bullish DDS investors well into the future.
Dillard's is a component of the Zacks Retail – Regional Department Stores industry, which currently ranks in the top 8% out of approximately 250 industry groups. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.
Quantitative research studies suggest that approximately half of a stock's future price appreciation is due to its industry grouping. By targeting stocks contained within leading industry groups, we can dramatically improve our odds of success.
Dillard's operates retail department stores where it offers merchandise, cosmetics, home furnishings, and other consumer goods. DDS is also one of the nation's largest fashion retailers. The company operates approximately 280 stores as well as an online presence. Dillard's was founded in 1938 and is headquartered in Little Rock, AR.
DDS is much more than just a department store chain. The company also owns a real estate investment trust (REIT), which helps it to enhance its liquidity position. Dillard's also owns a captive insurance company, enabling it to manage risks more efficiently and provide access to reinsurance markets. The retailer is also engaged in the general contracting construction business.
Recent Earnings and Future Estimates
DDS has been on a hot streak in terms of earnings surprises, beating estimates for eight quarters in a row. Just last week, the company reported Q1 EPS of $13.37, a +149.44% surprise over the $5.36 consensus estimate. Dillard's has posted a trailing four-quarter average earnings surprise of +224.13%. When a company is consistently exceeding estimates by this wide of a margin, it typically creates a 'tailwind' and boosts price momentum.
Sales for the first quarter of $1.61 billion also topped estimates by 4.12%. DDS has surpassed revenue estimates in each of the last five quarters.
In the past week, analysts have raised their full-year EPS projections by +30.66%. The Zacks Consensus EPS Estimate now stands at $23.44 per share. Revenues are anticipated to climb 6.13% to $6.89 billion.
Charting the Course
DDS is up nearly 34% this year alone, widely outperforming the major indices. Only stocks that are in extremely powerful uptrends are able to weather bear markets and corrections so gracefully. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Notice how the 10-month moving average (as evidenced by the blue line) is sloping up. The stock is making a series of higher highs and is showing relative strength versus the market. With both strong fundamentals and technicals, DDS has been one of the biggest winners over the past several years.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. And as we know, Dillard's has seen a recent batch of positive revisions. As long as this trend remains intact (and DDS continues to post earnings beats), the stock should continue its bullish run this year.
Other Factors to Consider
Dillard's remains focused on maintaining a strong balance sheet and liquidity. The company owns 90% of its retail stores and 100% of its corporate headquarters, distribution and fulfillment facilities. DDS has relatively low long-term debt obligations.
Management recently approved a $500 million share repurchase plan. Additionally, Dillard's board increased its quarterly dividend to 20 cents/share, equating to a yield of 0.25%.
As an established veteran in the industry, Dillard's core business remains strong despite competitive challenges. Buoyed by an undervalued and leading industry group along with a maximum overall Zacks VGM score of 'A', it's not difficult to see why DDS is a compelling investment.
A history of large earnings surprises along with a strong technical trend certainly warrant a closer look at this top-rated stock. Recent positive earnings estimate revisions should also serve to create a 'floor' in terms of any sudden or unexpected downside moves. If you're looking for a way to diversify your portfolio, make sure to put DDS on your shortlist.
Starbucks operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company offers roasted whole beans, coffee and tea beverages, single-serve products, and various food items such as pastries and breakfast sandwiches.
SBUX provides its services under the Teavana, Seattle's Best Coffee, Evolution Fresh, Ethos, Princi and Starbucks brands. The coffee retailer operates approximately 16,830 company-operated and licensed stores in North America, as well as over 17,000 stores internationally. Starbucks was founded in 1971 and is based in Seattle, WA.
The Zacks Rundown
SBUX is a Zacks Rank #5 (Strong Sell) stock and has been severely underperforming the market this year. Shares topped out in July of last year and have been in a price downtrend ever since. The stock has been hitting a series of 52-week lows and represents a compelling short opportunity as the market continues its volatile start to the year. Starbucks is part of the Zacks Retail – Restaurants industry, which currently ranks in the bottom 17% out of approximately 250 industries. Because this industry is ranked in the bottom half of all Zacks Ranked Industries, we expect it to underperform the market over the next 3 to 6 months. Candidates in the bottom half of industry groups can often represent solid potential short candidates.
While individual stocks have the ability to outperform even when included in poor-performing industries, their industry performance provides a headwind to any rally attempts. Also note this industry group is relatively overvalued.
Recent Earnings Misses and Deteriorating Outlook
After a long period of consistently beating earnings estimates, SBUX has missed the mark in each of the past two quarters. The company most recently reported fiscal Q2 earnings earlier this month of $0.59 per share, slightly missing the $0.60 consensus estimate by -1.67%.
In its fiscal first quarter, SBUX reported EPS of $0.72/share, equating to a -10% earnings miss. This trend of falling short of estimates may spell continued trouble for SBUX investors.
Another warning sign is the fact that future earnings estimates have been on the decline. Analysts have slashed fiscal Q3 earnings estimates by -22% from 60 days ago. The Zacks Consensus Estimate now sits at $0.78, reflecting -22.77% negative growth relative to the same quarter a year ago.
As we zoom out and view the year as a whole, analysts covering SBUX have also reduced their full-year EPS estimates by -12.84% in the past two months. This estimate is now $2.92/share, reflecting a -9.9% earnings regression relative to 2021. Declining earnings estimates are a good sign for the bears.
Let's Get Technical
As we can see below, SBUX is in a sustained downtrend. Note how the stock has plunged below both the 50-day (blue line) and 200-day (red line) moving averages and is making a series of lower lows. It's also important to point out that both of the moving averages have rolled over and are sloping downward, the opposite of what the bulls would like to see.
Starbucks has continued its descent into the new year, with shares falling nearly -37%. Even with the recent price decline, the stock is still relatively overvalued, which could continue to hurt performance in the short-term.
Our Zacks Style Scores illustrate a deteriorating investment picture for SBUX, as the company is rated a second-worst possible 'D' in our overall VGM score. Recent earnings misses and declining future estimates signal more trouble on the horizon. The fact that SBUX is included in a bottom-performing industry group simply adds to the growing list of concerns. Investors will want to steer clear of an overvalued SBUX until the situation shows major signs of improvement.
Additional content: Two Major Telecom Carriers Hike Wireless Prices on Inflation Woes
The U.S. consumer inflation has been steadily rising since the second half of 2021, reaching 8.3% in April – slightly down from a 40-year high of 8.5% recorded in March. This has largely affected companies' business operations with high production costs and mounting wage bills denting margins.
This has forced various firms to hike overall prices and pass a significant portion of their inflated bills to the consumers for sustainability. The telecom carriers are the latest in the fray to join this bandwagon.
Verizon Communications Inc. has announced an imminent hike in wireless prices – the first in about two years to offset the rising costs. The company has informed consumers that the administrative charges for each voice line will be raised by $1.35 from June onward. For business customers, Verizon has decided to bring in an "economic adjustment charge" from June 16, 2022, which is likely to increase mobile data bills by $2.20 a month and basic service plans by about 98 cents.
The hike follows a similar suit by rival
AT&T Inc., which increased tariff rates earlier this month. The company had raised its consumer wireless tariffs by $6 on single lines and by $12 for families as part of the inflation-adjusted prices. Like other industry players, AT&T has been increasingly feeling the price pinch owing to inflationary pressures, adverse foreign currency translations and high operating costs for 5G deployments and fiber expansion.
The continuous infrastructure investments and high operating costs are weighing on the margins. The company has even divested its advertising and analytics division, Xandr, and spun off the WarnerMedia business to trim its huge debt burden and focus on core businesses.
While optimizing operations, AT&T is also aiming to increase efficiencies to lower operating costs while focusing on 5G and fiber-based broadband connectivity. The company expects to connect 3.5-4 million additional locations with fiber each year as it continues to expand its fiber builds in metro areas to significantly increase its existing fiber footprint to more than 30 million locations by the end of 2025.
In addition, AT&T intends to deploy 120 MHz of mid-band spectrum to considerably expand its 5G coverage, which currently spans more than 16,000 cities and towns, covering more than 255 million people. The company expects that 75% of its network footprint will be either served by fiber or 5G, which will likely halve its legacy copper services exposure. These simplification initiatives are likely to drive additional cost savings while creating new revenue opportunities.
On the other hand, Verizon is striving hard to balance higher prices with better customer service and improved 5G offers. The company's 5G mobility service offers an unparalleled experience that impacts industries as diverse as public safety, health care, retail and sports.
Verizon's 5G network hinges on three fundamental drivers to deliver the full potential of next-generation wireless technology. These are massive spectrum holdings, particularly in the millimeter-wave bands for faster data transfer, end-to-end deep fiber resources and the ability to deploy a large number of small cells.
In order to expand coverage and improve connectivity, Verizon has acquired 161MHz of mid-band spectrum in the C-Band auction for a total consideration of $45.5 billion. These airwaves offer significant bandwidth with better propagation characteristics for optimum coverage in both rural and urban areas.
With two of the leading carriers increasing their wireless tariffs, consumers are likely to be burdened with additional monthly expenses. This may have been one of the primary reasons why the Federal Communications Commission initially offered stiff resistance toward the
T-Mobile US, Inc. and Sprint merger on the grounds that the combination of the third and fourth-largest carriers in the domestic market would stifle competition and lead to monopolistic trade practices.
Following its merger with Sprint, T-Mobile boasts an unrivaled bouquet of high- and low-band spectrum for a faster nationwide 5G rollout, undeniably disrupting the competitive landscape of the U.S. telecom market. To its credit, T-Mobile has the largest nationwide 5G network, with its Extended Range 5G covering 315 million people or 95% of Americans. The company is further strengthening its mid-band coverage by adding more towers and spectrum in places with 5G network connectivity.
The company intends to offer the same services at a discounted rate for three years post-merger. The revamped T-Mobile competes for consumers at all price points. Customers, including prepaid and Lifeline, have access to the same 5G network and services. The combined company's network has 14 times more capacity than on a standalone basis, which enables it to leapfrog the competition in network capability and customer experience. Furthermore, T-Mobile launched new Magenta for Business plans, with Microsoft 365 included at no extra charge on up to two lines per account. This underscores the company's commitment to supporting small business owners with the plan, devices and solutions they need to adapt to the evolving market conditions.
Whether this would mean a large influx of customers in the long run from Verizon and AT&T to T-Mobile remains to be seen.
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