For Immediate Release
Chicago, IL – June 22, 2022 – Zacks Equity Research shares Penske Automotive Group (
PAG Quick Quote PAG - Free Report) as the Bull of the Day and Kornit Digital ( KRNT Quick Quote KRNT - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Commercial Metals Co. ( CMC Quick Quote CMC - Free Report) , Reliance Steel & Aluminum Co. ( RS Quick Quote RS - Free Report) and Greif, Inc. ( GEF Quick Quote GEF - Free Report) .
Here is a synopsis of all five stocks:
Penske Automotive Group, a Zacks Rank #1 (Strong Buy), is a long-term stock market winner within the Zacks Retail and Wholesale sector. PAG hit an all-time high in price earlier this month, all while most stocks hover in bear market territory. A slight retreat in price over the past few weeks presents investors with a solid buying opportunity. The company's longevity and continued stock price ascent speak to management's ability to adapt to the ever-changing market landscape.
PAG sports the highest Zacks Momentum Style Score of 'A.' The company is part of the Zacks Automotive – Retail and Wholesale industry group, which ranks in the top 8% out of more than 250 Zacks Ranked Industries.
Historical research studies suggest that approximately half of a stock's price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It's no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Penske Automotive Group is a diversified transportation services company that operates automotive and commercial truck dealerships. PAG engages in the sale of new and used motor vehicles, related services such as collision repair, as well as the placement of lease contracts and third-party insurance products.
PAG also distributes diesel and gas engines as well as power systems. The company operates 320 retail franchises, 23 used vehicle dealerships, and 37 commercial truck dealerships across the United States and Canada. Penske Automotive Group was incorporated in 1990 and is based in Bloomfield Hills, MI.
Earnings Trends and Future Estimates
PAG has built up an impressive earnings history, surpassing earnings estimates in each of the last eleven quarters. Back in April, the company reported Q1 EPS of $4.76, a 20.81% surprise over the $3.94 consensus estimate. PAG has delivered a +17.73% average earnings surprise over the last four quarters.
The PAG growth engine is expected to remain hot this year, as analysts covering the transportation company have increased their full-year EPS estimates by +15.41% in the past 60 days. The 2022 Zacks Consensus EPS Estimate now stands at $17.38, reflecting potential growth of 13.74% relative to last year. Sales are anticipated to climb 10.53% to $28.24 billion.
Let's Get Technical
PAG shares have advanced over 45% in the past year. Only stocks that are in extremely powerful uptrends are able to make this type of price move while the market makes a series of lower lows. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
The stock had been making a series of higher highs through early June, and the recent pullback represents a solid buying opportunity. With both strong fundamentals and technicals, PAG is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Penske Automotive has recently witnessed positive revisions. As long as this trend remains intact (and PAG continues to deliver earnings beats), the stock will likely continue its bullish run this year. Cautious investors may feel hesitant about investing in a stock that has come this far over decades, but the fact is this elite company is still outperforming.
Other Factors to Consider
Despite the massive price run, PAG currently trades relatively undervalued at just a 6.1 forward P/E. Its Price/Sales ratio of 0.3 compares favorably to that of its industry (0.31) and the S&P 500 (2.65).
Management is confident that future earnings will be able to sustain higher dividend payments. Last year, the company hiked its dividend four times, and PAG has already increased it twice this year. Penske currently pays an annual dividend of $2.00, which translates to a 1.9% yield.
In another investor-friendly move, Penske repurchased 1.9 million shares totaling $184.1 million through April 30
th of this year. The company has an additional $46.3 million available for repurchase under its existing share buyback program. Bottom Line
Solid institutional buying should continue to provide a tailwind for the stock price. PAG is ranked favorably by our Style Score Categories with an 'A' for Value and 'A' for Momentum, paving the way for an overall 'A' VGM score. This indicates that there's a strong likelihood that momentum will continue on the heels of strong sales and earnings growth.
Robust fundamentals combined with a strong technical trend certainly justify adding shares to the mix. Backed by a leading industry group and robust history of earnings beats, it's not difficult to see why this company is a compelling investment. This long-term stock market winner continues to prove its doubters wrong, and investors would be wise to consider PAG as a portfolio candidate if they haven't already done so.
Kornit Digital develops, designs, and markets digital printing solutions for the fashion, apparel, and home décor segments of the printed textile industry. KRNT provides digital printing systems, associated software, and ink and related consumables. The company operates both domestically and internationally where it serves decorators, online businesses, brand owners, and contract printers. Kornit Digital was incorporated in 2002 and is based in Israel. The Zacks Rundown
KRNT, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Commercial Printing industry group, which ranks in the bottom 5% 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.
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 tougher.
The odds are stacked against KRNT, and the stock is agreeing with this notion. KRNT experienced a climax top in November of last year and has been in a price downtrend ever since. The share price is hitting a series of 52-week lows and represents a compelling short opportunity as the market continues its volatile start to the year.
Kornit Digital is also relatively overvalued, irrespective of the valuation metric used.
Recent Earnings Misses
KRNT has fallen short of estimates in three of the last four quarters. The printing company most recently reported zero Q1 earnings in May, missing the $0.15/share consensus EPS estimate by -100%. The stock has moved steadily lower since the announcement.
In Q4 of last year, KRNT once again missed estimates when it reported earnings of $0.13 per share. This represented a -48% miss versus the $0.25 estimate. KRNT has posted a trailing four-quarter average earnings miss of -38%. Consistently falling short of earnings estimates is a recipe for underperformance, and KRNT is no exception.
KRNT has been on the receiving end of negative earnings estimate revisions as of late. For the current quarter, analysts have decreased estimates by 92.31% in the past 60 days. The Q2 Zacks Consensus EPS Estimate is now $0.02, reflecting a -90.9% regression relative to the same quarter last year.
For the year, analysts have also revised their EPS estimates downward by 67.37% in the past 60 days. The 2022 Zacks Consensus Estimates is now $0.31, translating to negative growth of -58.11%. 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.
KRNT is in a sustained downtrend.The stock is making a series of lower lows, with no respite from the selling in sight.
While not the most accurate indicator, KRNT has also experienced what is known as a 'death cross,' wherein the stock's 50-day moving average crosses below its 200-day moving average. KRNT 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 77% this year alone.
A deteriorating fundamental and technical backdrop show that this stock is not set to print new highs anytime soon. The fact that KRNT 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 KRNT 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 an overvalued KRNT until the situation shows major signs of improvement.
Additional content: 3 Cheap Buy-Ranked Stocks That Also Pay a Dividend
Bearish sentiments continue to reign the markets this week, as not much has changed since the Fed intensified measures to contain inflation. Continued supply chain issues and energy market pressures are the primary reasons that inflation is proving so hard to contain. Last week, we also had unfavorable numbers from the housing market where weaker starts point to continued strength in pricing.
From the look of things as they stand now, it appears that this will be a long and slow correction, with much more pain in the cards. But the bitter pill must be swallowed as there is no other known cure. The quicker we realize that we must cut consumption (even if it means postponing things we feel we can afford) and pay down whatever debt we may have taken, the greater will be the impact on the market and the quicker we will be out of the mess. Speed is really what we need through this transition, which may include a recession on the way.
Most of us looking to invest in the current environment are under no illusions about the risk involved. But whether we should be hoarding cash instead is the question. Could it be that we will lose more by staying out?
Falling markets can be disconcerting, but a long-term investor often waits for these opportunities. When markets are rising, you can ride the wave. But you would need to spend more. On the other hand, when markets are down, you can get more for less.
You do need to be prepared for something of a short-term beating, however, as nobody can guarantee what the absolute bottom will be. And it's imperative that you do your homework because it would never pay to get into stocks that are justifiably underpriced.
One factor that really helps in such situations is analyst reaction. If analysts are raising their estimates on a stock, they are obviously optimistic about its potential to climb out of the situation. The revisions trend is captured in the Zacks Rank, which grades companies on a scale of 1 to 5, #1 being Strong Buy, #2 Buy, #3 Hold, #4 Sell and #5 Strong Sell.
It also makes sense to check out the current year's growth rate. If it is strong, the company is positioned to weather the current uncertainties well enough. If not, it is at the receiving end of inflation and supply chain issues and could be seeing early effects of interest rate hikes.
Another factor is the valuation, which doesn't just mean the cost of buying a share. Valuations are linked to performance metrics to help you understand how a stock is doing relative to its earnings power, earnings growth potential, sales, cash flow, or a variety of other factors.
This helps you avoid making mistakes. So for example, a stock that has a low price because its earnings are declining, would have a high price-to-earnings (P/E) ratio (because as earnings fall, the price appears high in comparison, even if it too is declining).
If the company also pays a dividend, it's a bonus because dividends can offset losses from the investment and can be used for expenses or re-investment in the security, thus lowering the overall cost of the investment.
Let's take a look at a few companies that satisfy all these criteria:
Commercial Metals Co.
This manufacturer and recycler of steel and other metal products carries a Zacks Rank #1. Commercial Metals' revenue is expected to grow 31.5% this year and its earnings are expected to grow 153.0%. In the last 7 days, its earnings estimates for the current and following year have climbed a respective 42.0% and 19.2%.
Its P/E of 5.89X is close to its lowest point over the past year and way below the S&P 500's 15.71X. Its P/S ratio of 0.50 is at its lowest point over the past year and indicates that the market is discounting its sales potential. It is also well below the S&P 500's 3.68X. Therefore, the shares are really cheap. To top it all, Commercial Metals also pays a dividend that yields 1.54%.
Reliance Steel & Aluminum Co.
Reliance Steel, the largest North American metals service provider and a major distributor of metal products into a broad range of industries, carries a Zacks Rank #1. Analysts expect its revenue and earnings to grow a respective 16.6% and 26.1% this year.
In the last 7 days, the Zacks Consensus Estimate for its 2022 earnings increased 35.2% while the estimate for 2023 earnings increased 25.6%. With a P/E of 6.91X (close to its annual low point) and P/S of 0.64X (also near its annual low point), Reliance Steel shares look decidedly undervalued. And they come with the added advantage of a dividend, that currently yields 2.06%.
This provider of paper and other packaging products for industrial use has a Zacks Rank #1. Its revenue and earnings are expected to grow a respective 17.5% and 36.3%. Estimate revisions in the last 30 days have only been in one direction, and that is up.
Greif's earnings estimate for the year ending in October 2022 has increased 17.4% while the estimate for 2023 increased 7.4%. Its dividend currently yields 3.18%. A P/E of 8.16X (close to its low point over the past year) and P/S of 0.43X (its lowest point over the past year) indicates a cheap valuation.
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