For Immediate Release

Chicago, IL – March 24, 2023 – Zacks Equity Research shares Meta Platforms (META Quick QuoteMETA - Free Report) as the Bull of the Day and Papa John's International (PZZA Quick QuotePZZA - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on MPLX LP (MPLX Quick QuoteMPLX - Free Report) , Magellan Midstream Partners and Enterprise Products Partners (EPD Quick QuoteEPD - Free Report) .

Here is a synopsis of all five stocks:

Bull of the Day:

Meta Platforms shares have rocketed well over 100% since early November as the company finally commits to cutting costs as its top-line growth slows after a decade-plus of rapid expansion. Meta stock might be a bit overheated right now, but its valuation is still highly attractive and it trades 40% below its peaks.

Crucially, the parent company of Facebook, Instagram, and WhatsApp reaches billions of people a day and its user base continues to grow. This means Mark Zuckerberg's metaverse bet doesn't have to pay off anytime soon, or possibly ever in order for Meta stock to churn out steady revenue expansion and huge profits.

Slimming Down, Still Resilient

Meta, like Amazon and others, over-hired during the pandemic boom, and now it is trimming its staff. The company closed 2022 with a headcount of roughly 86K, up 20% YoY. But that figure included a "substantial majority of the approximately 11K employees impacted" by its November layoff announcement.

Meta in mid-March announced plans to cut another roughly 10K jobs in what Zuckerberg has referred to as a "year of efficiency." Meta also said when it reported its Q4 results that it took "several measures to pursue greater efficiency and to realign our business and strategic priorities," which included a "facilities consolidation strategy... a pivot towards a next generation data center design" and more.

Meta, which first announced its name change from Facebook in the fall of 2021, has been forced to take a step back from its bets on people living in its metaverse world. The company in August said it would raise $10 billion in its first ever bond offering to help fund buybacks and feed investments to revamp its business, among other efforts.

Meta closed 2022 with $9.9 billion in long-term debt (first ever) to bring its total liabilities to $60 billion vs. $186 billion in assets, including $41 billion in cash, cash equivalents, and marketable securities. It repurchased $28 billion worth of stock in 2022 and it boosted its buyback program by $40 billion.

Looking Ahead

The social media titan's disappointing 2022 is in the rearview and it is ready to return to top and bottom line growth as it focuses on its core businesses: Facebook, Instagram, and WhatsApp, all of which will bounce back from a bad year from digital advertising because their collective reach is out of this world. Meta's 'monthly active people' popped 4% in Q4 to 3.74 billion, while daily active users jumped 5% to 2.96 billion or nearly 40% of the entire world.

Zacks estimates call for Meta's 2023 revenue to climb 5% to $122 billion (following its 1% YoY decline—its first ever) and then jump 11% in FY24 to $135 billion. Meanwhile, Meta's adjusted earnings are projected to jump 6% in FY23 and 21% in 2024.

Other Fundamentals

Meta's soaring earnings revisions help it land a Zacks Rank #1 (Strong Buy) right now and it crushed our Q4 estimate by 41%. The company's Internet – Software industry is currently in the top 24% of 250 Zacks industries right now.

Meta shares have skyrocketed roughly 130% since their early November lows from around $90 a share to roughly $205 per share on Thursday. This run includes a 70% surge in 2023 alone to outpace Tesla's 60%.

The stock has climbed 700% in the past decade vs. the Zacks tech sector's 215%. Yet, it trades around 40% below its 2021 peaks. And it sits 10% under its average Zacks price target and below where it was at points during 2018 and its pre-pandemic levels.

Meta's huge run higher has it back above both its 50-day and 200-day moving averages. Plus, Meta experienced a so-called golden cross near the end of February. This is when the shorter-term moving average climbs above the longer-term trend, which technical traders see as a bullish signal (see nearby chart).

Meta is trading at a discount to the Zacks Tech sector's 22.4X at 18.4X forward 12-month earnings. The company is now being valued as a more mature, slower growth tech stock, with Meta at a 33% discount to its decade-long median and miles below its highs.

Bottom Line

Meta could face near term selling pressure as it and other soaring stocks are near overbought RSI levels. But investors with long-term holding periods shouldn't be too afraid of picking up the owner of Facebook, Instagram, and WhatsApp now or in the near future. Just think, 85% of the brokerage recommendations Zacks has for Meta are "Strong Buys," next to only one sell.

Despite a rough year for digital ads and the shakeup Apple's privacy changes caused, digital ads are not going anywhere because companies need to get in front of people where they are, which is on their phones and devices. Advertisers will adapt and pay to reach Meta's billions of users.

Bear of the Day:

Papa John's International has seen its earnings revisions tumble over the last year as it faces rising costs and other headwinds. The pizza delivery powerhouse is also dealing with some leadership shakeups, as well as tough-to-compete against periods alongside a growing assortment of food delivery options.

Papa John's Basics

Papa John's is the world's third-largest pizza delivery company with over 5,700 restaurants in roughly 50 countries and territories. PZZA competes against Domino's Pizza and other low-priced pizza chains, as well as local and higher-end places for its share of the take-out pizza market.

Papa John's and other companies benefited from the stay-at-home covid boost and then a desire from consumers to eat out during a period of economic positivity. PZZA's earnings outlook has been fading for over a year now amid the shifting economic and consumer spending landscape.

Papa John's executive team has continually pointed to higher labor costs and commodity prices as some of the reasons for its shrinking earnings. The pizza power's adjusted earnings dropped from $3.51 a share in FY21 to $2.94 in 2022 on 2% higher revenue.  

Papa John's FY23 and FY24 consensus EPS estimates have dropped 10% and 13%, respectively over the last 60 days. These downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now. Zacks estimates call for PZZA's adjusted 2023 earnings to slip by 2.4% on 4.3% higher revenue.

Bottom Line

News broke earlier this week that Papa John's CFO would step down. The c-suite change came after PZZA said in early March that Jeffrey Smith, CEO of Starboard Value LP and Chair of the Papa John's board of directors, resigned.

Papa John's shares have dropped over 40% from their late 2021 peaks, as it fell alongside many early pandemic winners that simply got overheated. Its main rival, Domino's, tumbled by almost exactly as much, with the two stocks now neck-and-neck over the last five years.

The selloff has PZZA trading at more reasonable valuations. Still, it might be best to stray away from Papa John's right now as it continues to face various cost pressures and more delivery competition than ever before as Uber Eats and others expand.

Additional content:

Worried Over Interest Rates? Check Out 3 Oil Pipeline Stocks

With the current banking chaos and stubborn inflation, the Federal Reserve concluded its two-day policy meeting on Wednesday by sticking to its plot and raising interest rates by another 25 basis points. This brings the Fed funds rate range to 4.75-5.00% — the highest level since 2007.  

For investors, who have seen their holdings erode amid the price rise, one of the key themes is to use the energy pipeline space to wade through this period of macro volatility. In this context, investing in the likes of MPLX LP, Magellan Midstream Partners and Enterprise Products Partners might offer some respite to investors.

Inflation Affects Purchasing Power

In the United States, several measures of inflation show it to be more stubborn than previously expected. Despite some moderation from last summer's 40-year high level, inflation continues to be entrenched.

The outbreak of coronavirus has significantly devastated the global supply-chain system in the last two years. Input costs have soared for businesses, while wages have gone up owing to the shortage of labor. At the same time, strong pent-up demand, supported by massive personal savings during this period, has resulted in soaring prices.

Market participants are highly concerned that inflation will remain elevated in the near term. At present, the banking crisis and the lingering war between Russia and Ukraine are the biggest threats to the global economy. As long as the uncertainties persist, chances are bleak that we will get rid of the elevated inflation.
 
While the cost of going to the supermarket or ordering meals from restaurants has clearly spiked for consumers, another worrying side effect of inflation is that it eats into the returns generated by financial instruments such as equities and bonds by eroding their value.  

Allaying Inflation Concerns

A particular asset class that possesses attributes to combat the value destruction from inflation is energy midstream. These entities typically operate transportation services, storage facilities and refined products' terminals. They are often structured as Master limited partnerships (or MLPs), which differ from regular stocks since interests in them are referred to as units, and unitholders (not shareholders) are partners in the business. Importantly, these low-risk hybrid entities bring together the tax benefits of a limited partnership with the liquidity of publicly-traded securities that earn a stable income.  

Let's check out the underlying rationale for owning midstream companies during periods of rising consumer prices.

Midstream to the Rescue

Inflation Indexation: A salient feature of these entities is that the bulk of their cash flows is under long-term, fee-based contracts, which are indexed to inflation. In other words, midstream operators fix tariff rates in accordance with FERC regulations tied to the Producer Price Index — a measure of changes in prices covering a host of goods and services. Consequently, pipelines can pass on at least a portion of the higher costs to customers.

Real Assets: The properties that these entities own are mostly pipelines and storage facilities or infrastructure systems that help in moving oil and natural gas. Unlike stocks and bonds, midstream firms own real (physical) assets that do not derive their value from a contractual right. Their intrinsic worth has been historically proven to outperform traditional stock and bond instruments in years when inflation is high. This is because the economy is healthier and demand for real assets rises.

Distribution Growth: Apart from defensive characteristics, investors are typically attracted to MLPs for their reliable distributions. Adjusting costs with the prevailing business activity, the partnerships have focused on the generation of free cash flow (post-distribution payment) to lower debt and strengthen their financial position. The growing free cash flows could be used to boost investor returns through buybacks and distribution hikes. Finally, the distribution growth, which often ranges in double digits, can also help investors to offset some of the impacts of high inflation.

3 Pipeline Operators You Need to Know

We bring here three energy pipeline firms with high yields that could be used as an inflation hedge.

MPLX LP: MPLX owns and operates gathering and processing assets along with crude transportation and logistics infrastructure. The partnership, which is valued at around $34.1 billion, carries a Zacks Rank #3 (Hold). MPLX has edged up 1.8% in a year.

You can see the complete list of today's Zacks #1 Rank stocks here.

The energy infrastructure provider has an expected earnings growth rate of 7.7% for the current quarter. MPLX pays out 77.50 cents quarterly distribution ($3.10 per unit annually), which gives it a 9.1% yield at the current unit price. (Check MPLXs distribution history here)

Magellan Midstream Partners: This leading energy infrastructure firm has the longest refined petroleum pipeline system in the United States, with access to almost half of the total domestic refining capacity. MMP primarily transports, stores and distributes refined petroleum products and, to a lesser extent, ammonia.

This Zacks Rank #3 partnership has an expected earnings growth rate of 5.7% for the current year. MMP pays out a $1.0475 quarterly distribution ($4.19 per unit annually), which gives it an 8% yield at the current unit price. MMP units have gained 3.2% in a year. (Check Magellan Midstream Partners' distribution history here)

Enterprise Products Partners: The firm is among the leading midstream energy players in North America. With its wide base of midstream infrastructure assets, EPD provides services to producers and consumers of commodities that include natural gas, natural gas liquids (NGL), oil and refined petrochemical products.

Enterprise Products Partners pays out 49 cents quarterly distribution ($1.96 per unit annually), which gives it a 7.8% yield at the current unit price. EPD has an expected revenue growth rate of 6.1% for the current quarter. Valued at around $54.5 billion, the partnership, a #3 Ranked stock, has lost 1.2% in a year. (Check Enterprise Products Partners' distribution history here)

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