For Immediate Release
Chicago, IL – May 19, 2022 – Zacks Equity Research shares Oxford Industries, Inc. (
OXM Quick Quote OXM - Free Report) as the Bull of the Day and Rockwell Automation, Inc. ( ROK Quick Quote ROK - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Citigroup Inc. ( C Quick Quote C - Free Report) , Berkshire Hathaway ( BRK.B Quick Quote BRK.B - Free Report) , and Wells Fargo & Co ( WFC Quick Quote WFC - Free Report) . Here is a synopsis of all five stocks: Oxford Industries, Inc. is the apparel company behind Tommy Bahama and other popular clothing brands that are staples within higher income demographics. Oxford posted a blowout year in 2021 and its outlook remains strong despite all of the very real economic setbacks.
Better still, Oxford's strong balance sheet helped it boost its dividend payout as it attempts to return more value to shareholders.
Oxford is an apparel firm that sells clothing under multiple brands that all have a beach/vacation vibe. The company's flagship Tommy Bahama brand has helped lead a broader push in casual short-sleeve, button-up shirts and polos in the men's fashion world for years.
The company's men's shirts are on the higher-cost side, ranging between $100 to $150, which helps with margins. Tommy Bahama is also in the women's clothing business. Tommy Bahama is by far Oxford's most well-established brand and the largest revenue generator, accounting for around 60% of 2021 revenue.
Beyond Tommy Bahama, Oxford owns women-focused brand Lilly Pulitzer that aims to represent the "resort lifestyle." Lilly Pulitzer is the second-largest brand at Oxford.
Southern Tide, The Beaufort Bonnet Company, and Duck Head are also under Oxford's umbrella. Outside of clothing, Oxford owns restaurants. The division's revenue jumped 15% last year, driven by the operation of five additional Marlin Bar locations.
Great Year & A Strong Outlook
Oxford's revenue surged 53% last year to come in above its pre-covid levels at $1.14 billion. The company also swung from an adjusted loss of -$1.81 per share to +$7.99 a share. OXM's sales were up 9% compared to its pre-covid levels in 2019, when excluding Lanier Apparel that it exited in 2021.
Oxford operates a heavily direct-to-consumer business, driven by its stand-alone and mall-based brick-and-mortar location. Last year, OXM's full-price DTC sales grew 21% to $723 million vs. 2019's levels.
Like all retailers, the Tommy Bahama owner is working to improve its e-commerce segment. And its e-commerce improvements paid dividends last year as the segment drove tons of growth. All of this helped Oxford boost its gross margin by 4.4% vs. 2019 to 62%, which was offset by higher freight and other costs.
Zacks current estimates call for Oxford's revenue to climb by 10% to $1.26 billion in 2022 and then another 4.5% in 2023. This compares favorably to the roughly 5% average revenue growth the firm posted between 2019 and 2014.
The vacation vibe retailer's adjusted earnings are projected to climb by 13% and 5%, respectively during this stretch. Oxford's consensus earnings estimates are up double digits since its last report to help it land a Zacks Rank #1 (Strong Buy). Plus, OXM has blown away Zacks EPS estimates in the trailing four periods, including a 24% beat in Q4 and a 310% beat in the third quarter.
Despite the ongoing supply chain bottlenecks and rising costs throughout the economy, Oxford's Textile – Apparel industry is in the top third of over 250 Zacks industries. OXM also grabs a "B" grade for Value and an "A" for Growth in our Style Scores system.
Speaking of value, the stock is currently trading near where it was at the covid lows at 9.5X forward 12-month earnings. This marks a 44% discount to its median over the past decade and 40% value vs. its industry's current 16.6X average. The valuation chart looks a little out of whack during covid when its earnings dried up, but the red line in the nearby chart show how 'cheap' the stock appears at the moment compared to nearly every point in the last 10 years.
Oxford shares have been a bit more volatile than its industry in the last 10 years, but it's still up 145%. The stock is also only down 3% in the last three months. This looks great next to its industry's 17% drop and the market's 7% fall. And Oxford's current Zacks consensus price target marks 40% upside to Wednesday's close of around $84 a share.
Oxford is set to release its quarterly financial results in the early part of June. The recent string of retail reports from the likes of Target and Walmart might make many investors nervous. Some might want to stay away until after the report, given the huge moves Wall Street titans from have made following their Q1 reports.
But, as we quickly mentioned up top, Oxford raised its quarterly dividend by 31% to $0.55 per share. This payout helps OXM yield 2.65% at the moment, which easily tops the S&P 500, many of its peers, and is not too far off from the 10-year U.S. Treasury's 2.89%.
Oxford has paid a quarterly dividend every year since it went public back in 1960. And it's committed to continuing to buy back its own shares. The company can raise its dividend and repurchase shares during these uncertain economic conditions because of its strong balance sheet. OXM closed last year with $400 million in total current assets, including $210 million in cash and equivalents, and $960 million in total assets vs. $226 million in current liabilities and $450 in total.
Rockwell Automation, Inc. is an industrial automation power. Rockwell is currently caught up in the ongoing supply chain logjam that's making its way through every corner of the economy.
Rockwell shares started falling at the start of 2022 along with most of the market. ROK then plummeted in early May following disappointing guidance.
Rockwell is an industrial automation and digital transformation company that aims to create what it calls the "next generation of smart manufacturing." ROK operates three core business units: Intelligent Devices, Software & Control, and Lifecycle Services.
Rockwell's products and solutions serve an array of industries including, metal, power generation, infrastructure, semiconductors, and beyond. Rockwell boasts partnerships with companies like Microsoft to help boost IoT within manufacturing to drive the ongoing revolution in connected technology.
Despite its standing in a key growth industry, Rockwell's revenue has fallen on a YoY basis three times in the past seven years. Most recently, ROK fell short of Zacks Q2 FY22 earnings estimates by 27%.
Worse, Rockwell provided Wall Street subdued guidance, citing all-to-familiar supply chain bottlenecks. Rockwell management pointed directly to "new pressures from COVID-19 related shutdowns in China and war in Ukraine that are difficult to quantify."
Rockwell is still projected to post 11% revenue growth this year and 9% higher in FY23. But investors appear worried about the possibility of its bottom-line coming under even more pressure. ROK's FY22 and FY23 consensus EPS estimates have dropped by 11% and 7%, respectively over the last few months.
Rockwell's downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now. And Wall Street is rather mixed on the stock at the moment when it comes to brokerage recommendations, with three "Strong Sells," seven "Holds," and four "Strong Buys."
Rockwell could certainly mount a comeback if the market finds its bottom sometime soon, and it remains a strong business overall. But ROK shares have tumbled 45% in 2022 and it might be best to stay away from the industrial automation company for now with the macroeconomic picture dragging down Rockwell and countless others at the moment.
Additional content: Will Warren Buffett's Bet on Citi ( C Quick Quote C - Free Report) Drive Confidence in the Stock?
Citigroup Inc. gained 7.5% in yesterday's trading session after Berkshire Hathaway, Warren Buffett's investment giant, announced on Monday through its 13F SEC filing that it staked up 55.2 million shares of the big bank in first-quarter 2022.
The equity portfolio holding aggregates $2.95 billion and indicates a stake of 2.5% of Citigroup's outstanding shares. This provided the much-needed boost to the company's shares, which have been dominated by the bears in the year so far. Until the market closed on Monday, shares of this S&P 500 member had slid 21.4%.
In the year-to-date period, Citigroup's shares dipped 15.5%, narrower than the
industry's and the S&P 500 index's declines of 20.1% and 16.2%, respectively.
Let's take a look at what has attracted Berkshire's investment in the stock and how the banking giant is poised for the future.
A Deep Value Pick
Value investment style — picking stocks with low multiples or assets trading below their intrinsic value — is a widely known investment proposition and is broadly followed by Buffett.
As for Citigroup, its low multiples suggest that the stock is trading at a significant discount.A forward price-to-tangible book (P/TB) multiple of 0.65 and forward price-to-earnings (P/E) multiple of 7.10 make it one of the biggest steals in the banking industry presently. Hence, the heavily-discounted big bank could become a deep value investment in the long term.
Generous Capital Deployment Plans
Dividend-paying stocks always attract investors as these act as a steady source of income and Citigroup's dividends and repurchase activities might have also encouraged Buffett's position in the company. The bank has a dividend yield (annual dividend per share/stock's price) of 4%, higher than its industry's average of 3.17%.
From 2017 through 2021, the company returned capital of around $77 billion to shareholders in the forms of dividends and share buybacks.
Also, Citigroup aims to use excess capital for share buybacks, similar to 2021 and the first quarter of 2022. Given that the bank is trading at a discount, repurchases grow tangible book value.
Looming Regulatory Scrutiny
Citigroup continues to encounter many investigations and lawsuits from investors and regulators. The company paid a significant amount in fines previously to federal regulators, and was issued a cease-and-desist order for lacking compliance, data and risk management controls.
In third-quarter 2021, the company submitted its remedial plans, comprising six major programs over a multi-year period, to regulators. C is expecting to increase "investment in transformation" spend to $3-$3.5 billion in 2022 from $1.7 billion reported in 2021. The investments relate to consent orders and technology upgrades, among others.
Hence, as Citigroup continues to work through its legacy legal issues, we believe that the company will witness elevated regulatory expenses and litigation provisions, which will likely hurt its financials in the near term.
Strategic Revamp to the Rescue
Citigroup is making efforts to simplify operations and reduce costs. In January 2022, the company revealed plans to exit the consumer, small business and middle-market banking operations in Mexico. This was in addition to its major strategic action announced in April 2021 to exit the consumer banking business in 13 markets across Asia and EMEA, including Australia, Bahrain, China, India, Indonesia and Korea.
Since then, the company has signed deals to sell nine consumer businesses in Australia, Indonesia, Malaysia, Philippines, Thailand, Taiwan, Vietnam, India and Bahrain. It also 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 fuel growth.
Citigroup anticipates the release of $12 billion (in aggregate) of allocated tangible common equity over time from such market exits. These efforts will likely help augment its profitability and efficiency over the long term.
Multi-Year Strategy to Drive Shareholder Value
At its investor day meeting earlier this March, Citigroup unveiled a mid-term strategy that underlined streamlining of operations to improve the banking mix, investment in technology to modernize the operations and boosting the company's global presence.
The bank aims to boost its return on average tangible common shareholder equity, driven by medium-term revenue growth and improved business mix. It is targeting a return on average tangible common shareholder equity of 11-12% over the next three to five years.In the medium term, revenues are expected to grow, seeing a compound annual growth rate (CAGR) of 4-5%.The company expects to achieve a Common Equity Tier 1 ratio of 12% by 2022 end.
While in the near term, its slow pace of transformation efforts and higher expenses might dampen investor interest in the stock, Buffett's investment in the stock is likely to shift investors' focus to the company's long-term growth prospects.This should be rewarding for patient investors.
Buffett also unloaded a 3-decade-old investment in
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