We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Covenant Logistics and Adam Resources & Energy have been highlighted as Zacks Bull and Bear of the Day
Read MoreHide Full Article
For Immediate Release
Chicago, IL – June 16, 2023 – Zacks Equity Research shares Covenant Logistics Group (CVLG - Free Report) as the Bull of the Day and Adam Resources & Energy (AE - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on PacWest Bancorp , Comerica (CMA - Free Report) and KeyCorp (KEY - Free Report) .
Standing out in terms of value and steady growth is Covenant Logistics Group which lands a Zacks Rank #1 (Strong Buy) and is the Bull of the Day.
After a record year with freight revenue topping $1 billion in 2022, Covenant has expanded its portfolio of transportation and logistics services with the recent acquisition of Lew Thompson & Son Trucking Inc. The acquired company is a dedicated contract carrier specializing in poultry feed and live haul transportation in Northwest Arkansas and surrounding areas.
This should keep Covenant ahead of a slowdown in the broader freight market which the company can capitalize on as transportation costs remain lower. To that point, it’s noteworthy that Covenant’s total truckload operating cost per total mile decreased by 4 cents last quarter, or 1.5%.
Lew Thompson Acquisition
Last quarter, Covenant stated they purchased 100% of the outstanding stock of Lew Thompson in exchange for a closing enterprise value of approximately $100 million plus an earnout of up to $30 million depending on the results achieved by the business over the three following calendar years.
The acquisition seems very lucrative considering Lew Thompson generated $64 million in revenue in 2022. This should give Covenant’s top and bottom lines a nice boost in the future and continue its steady growth. Notably, Covenant’s sales of $1.2 billion last year represented 37% growth over the last five years with 2018 sales at $885 million.
Earnings Estimates
Despite the recent completion of the Lew Thompson acquisition, Covenant’s earnings estimates have trended higher over the last 60 days.
The upward trend in earnings estimates is one of the most powerful forces impacting stock prices and this is another reason to believe that acquiring Lew Thompson could certainly pay off. The acquisition is not having a dismal impact on Covenant’s bottom line in the short term and should increase its earnings potential in the long term.
Impressively, annual earnings estimates for the current year and fiscal 2024 have risen 9% in the last two months. This is a great sign with Covenant coming off a record year for annual earnings per share with EPS at $5.84 in 2022.
Strong Value
What is most compelling about Covenant stock at the moment is its valuation. Covenant checks many boxes in terms of value with the company’s price to earnings, price to sales, and price to cash flow all standing out.
Trading at $39 a share, Covenant stock has a 9.5X forward earnings multiple which is a 47% discount to its industry average of 18.1X and well below the S&P 500’s 20.3X.
More intriguing, investors are only paying $0.43 for every $1 the company makes. Covenant’s price-to-sales ratio of 0.43X is also a distinct discount to the industry’s 1.05X average and the benchmark’s 3.71X.
Covenant’s price to cash flow indicates the company is in good financial health with a P/CF ratio of 4.31. This is attractively below the optimum level of less than 20, the industry average of 11.27, and the S&P 500’s 17.31 average.
Bottom Line
In addition to its Zacks Rank #1 (Strong Buy), Covenant stock has an overall “A” VGM Style Scores grade for the combination of Value, Growth, and Momentum. Covenant Logistics Group is starting to look like a very sound long-term investment following the acquisition of Lew Thompson & Son Trucking and now appears to be a great time to buy.
Adam Resources & Energy currently lands a Zacks Rank #5 (Strong Sell) with its Oil and Gas-Refining and Marketing Industry also in the bottom 29% of over 250 Zacks industries. Investors may want to be cautious with Adam Resources showing signs of a downtrend in the industry.
Recent volatility in crude oil prices may be weighing on Adam Resources which is engaged in oil and gas exploration and production, crude oil marketing, petroleum products marketing, and tank truck transportation of petroleum products and liquid chemicals.
Dimming Outlook
The steep decline in Adam Resources' earnings estimates over the last few months is very alarming. Fiscal 2023 earnings estimates have plunged -70% to $0.80 per share compared to EPS estimates of $2.76 a share 60 days ago.
Furthermore, FY24 EPS estimates have dropped -38% to $1.88 per share compared to estimates of $3.05 a share two months ago.
High Valuation
Declining earnings estimates have also dimmed Adam Resources’ valuation. At $35 a share, Adam Resources’ price-to-earnings valuation is still concerning despite dropping from a peak of 101.3X earnings over the last year.
Shares of AE currently trade at 42.5X forward earnings which is uncomfortably above the industry average of 6.7X and the S&P 500’s 20.3X.
Bottom Line
It may be wise for investors to stay away from Adam Resources stock at the moment. The large decline in earnings estimate revisions signals shares of AE could move lower. This is more likely with Adam Resources P/E valuation appearing to be inflated at the moment.
Additional content:
Hawkish Fed Pauses Rate Hikes: What This Means for Banks
The cooling inflation numbers reinforced the market participants' expectations that the Federal Reserve will hit a pause on interest rate hikes. And as expected, the rates remain unchanged at 5-5.25% after 10 consecutive raises beginning January 2022.
After peaking at 9.1% in June 2022, the Consumer Price Index (CPI) for May was just 4%. This is the smallest monthly growth in the CPI since March 2021. Nonetheless, the number is still way above the Fed’s target of 2%. Also, the job markets continue to be tighter.
Hence, the Fed officials have left the door open for more hikes later in the year. They now see the Fed fund rates peaking at 5.6% this year, up from the previous March projection of 5.1%. Investors didn’t seem to be happy with this. The KBW Nasdaq Regional Banking Index declined 2.7% yesterday. Likewise, shares of most banks, including PacWest Bancorp, Comerica and KeyCorp, ended the day in the red.
In the statement issued following the end of the two-day FOMC meeting, the officials noted, “In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
While the Fed officials don’t expect any interest rate cuts this year, they project rates to come down to 4.6% in 2024.
Further, in its latest Summary of Economic Projections, the central bank sees marginally stronger economic growth in 2023. The U.S. economy is anticipated to grow 1% this year, up from March's 0.4% projection. But the labor market will likely continue to be more resilient than expected. The officials now expect the unemployment rate to rise to 4.1% this year, well below the prior 4.5% forecast.
Impact of the Fed Policy on Banks
“The U.S. banking system is sound and resilient.” The Fed statement said this.
But over the past few months, we have seen what these unprecedented faster rate hikes (not seen since the 1980s) could do to the regional banking industry. Huge exposure to uninsured deposits and asset-liability mismatches caused much damage to the industry. This led to the regional banking crisis, which resulted in heavy deposit outflows and the failure of three major regional banks.
Several regional banks, including PacWest Bancorp, Zions, Comerica, Fifth Third Bancorp and KeyCorp, witnessed pessimistic investor sentiments. Though the crisis has since been contained, the faster rate hike continues to take a toll on banks’ top-line performance because of rising funding costs and waning loan demand.
Recently, several banks came out with a bleak second-quarter 2023 outlook. KeyCorp CEO Chris Gorman noted that net interest income (NII) will come much lower than previously expected. NII is now anticipated to slide 12% sequentially, which is substantially below the 4-5% fall guided during the first-quarter earnings conference call.
Likewise, Zions expects its net interest margin to shrink to almost 2.85% from 3.33% in the first quarter of 2023. Further, Comerica anticipates NII to be at the low end of the previously-mentioned range of a sequential decline of 11-13%.
Fifth Third also lowered its second-quarter revenue guidance. The lender now expects the metric to be down in the range of 2-3% sequentially compared with its previous forecast of stable revenues.
Though the operating backdrop is not expected to change much in the near term, a pause in the rate hike will likely provide a much-needed breather for banks.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Covenant Logistics and Adam Resources & Energy have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – June 16, 2023 – Zacks Equity Research shares Covenant Logistics Group (CVLG - Free Report) as the Bull of the Day and Adam Resources & Energy (AE - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on PacWest Bancorp , Comerica (CMA - Free Report) and KeyCorp (KEY - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Standing out in terms of value and steady growth is Covenant Logistics Group which lands a Zacks Rank #1 (Strong Buy) and is the Bull of the Day.
After a record year with freight revenue topping $1 billion in 2022, Covenant has expanded its portfolio of transportation and logistics services with the recent acquisition of Lew Thompson & Son Trucking Inc. The acquired company is a dedicated contract carrier specializing in poultry feed and live haul transportation in Northwest Arkansas and surrounding areas.
This should keep Covenant ahead of a slowdown in the broader freight market which the company can capitalize on as transportation costs remain lower. To that point, it’s noteworthy that Covenant’s total truckload operating cost per total mile decreased by 4 cents last quarter, or 1.5%.
Lew Thompson Acquisition
Last quarter, Covenant stated they purchased 100% of the outstanding stock of Lew Thompson in exchange for a closing enterprise value of approximately $100 million plus an earnout of up to $30 million depending on the results achieved by the business over the three following calendar years.
The acquisition seems very lucrative considering Lew Thompson generated $64 million in revenue in 2022. This should give Covenant’s top and bottom lines a nice boost in the future and continue its steady growth. Notably, Covenant’s sales of $1.2 billion last year represented 37% growth over the last five years with 2018 sales at $885 million.
Earnings Estimates
Despite the recent completion of the Lew Thompson acquisition, Covenant’s earnings estimates have trended higher over the last 60 days.
The upward trend in earnings estimates is one of the most powerful forces impacting stock prices and this is another reason to believe that acquiring Lew Thompson could certainly pay off. The acquisition is not having a dismal impact on Covenant’s bottom line in the short term and should increase its earnings potential in the long term.
Impressively, annual earnings estimates for the current year and fiscal 2024 have risen 9% in the last two months. This is a great sign with Covenant coming off a record year for annual earnings per share with EPS at $5.84 in 2022.
Strong Value
What is most compelling about Covenant stock at the moment is its valuation. Covenant checks many boxes in terms of value with the company’s price to earnings, price to sales, and price to cash flow all standing out.
Trading at $39 a share, Covenant stock has a 9.5X forward earnings multiple which is a 47% discount to its industry average of 18.1X and well below the S&P 500’s 20.3X.
More intriguing, investors are only paying $0.43 for every $1 the company makes. Covenant’s price-to-sales ratio of 0.43X is also a distinct discount to the industry’s 1.05X average and the benchmark’s 3.71X.
Covenant’s price to cash flow indicates the company is in good financial health with a P/CF ratio of 4.31. This is attractively below the optimum level of less than 20, the industry average of 11.27, and the S&P 500’s 17.31 average.
Bottom Line
In addition to its Zacks Rank #1 (Strong Buy), Covenant stock has an overall “A” VGM Style Scores grade for the combination of Value, Growth, and Momentum. Covenant Logistics Group is starting to look like a very sound long-term investment following the acquisition of Lew Thompson & Son Trucking and now appears to be a great time to buy.
Bear of the Day:
Adam Resources & Energy currently lands a Zacks Rank #5 (Strong Sell) with its Oil and Gas-Refining and Marketing Industry also in the bottom 29% of over 250 Zacks industries. Investors may want to be cautious with Adam Resources showing signs of a downtrend in the industry.
Recent volatility in crude oil prices may be weighing on Adam Resources which is engaged in oil and gas exploration and production, crude oil marketing, petroleum products marketing, and tank truck transportation of petroleum products and liquid chemicals.
Dimming Outlook
The steep decline in Adam Resources' earnings estimates over the last few months is very alarming. Fiscal 2023 earnings estimates have plunged -70% to $0.80 per share compared to EPS estimates of $2.76 a share 60 days ago.
Furthermore, FY24 EPS estimates have dropped -38% to $1.88 per share compared to estimates of $3.05 a share two months ago.
High Valuation
Declining earnings estimates have also dimmed Adam Resources’ valuation. At $35 a share, Adam Resources’ price-to-earnings valuation is still concerning despite dropping from a peak of 101.3X earnings over the last year.
Shares of AE currently trade at 42.5X forward earnings which is uncomfortably above the industry average of 6.7X and the S&P 500’s 20.3X.
Bottom Line
It may be wise for investors to stay away from Adam Resources stock at the moment. The large decline in earnings estimate revisions signals shares of AE could move lower. This is more likely with Adam Resources P/E valuation appearing to be inflated at the moment.
Additional content:
Hawkish Fed Pauses Rate Hikes: What This Means for Banks
The cooling inflation numbers reinforced the market participants' expectations that the Federal Reserve will hit a pause on interest rate hikes. And as expected, the rates remain unchanged at 5-5.25% after 10 consecutive raises beginning January 2022.
After peaking at 9.1% in June 2022, the Consumer Price Index (CPI) for May was just 4%. This is the smallest monthly growth in the CPI since March 2021. Nonetheless, the number is still way above the Fed’s target of 2%. Also, the job markets continue to be tighter.
Hence, the Fed officials have left the door open for more hikes later in the year. They now see the Fed fund rates peaking at 5.6% this year, up from the previous March projection of 5.1%. Investors didn’t seem to be happy with this. The KBW Nasdaq Regional Banking Index declined 2.7% yesterday. Likewise, shares of most banks, including PacWest Bancorp, Comerica and KeyCorp, ended the day in the red.
In the statement issued following the end of the two-day FOMC meeting, the officials noted, “In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
While the Fed officials don’t expect any interest rate cuts this year, they project rates to come down to 4.6% in 2024.
Further, in its latest Summary of Economic Projections, the central bank sees marginally stronger economic growth in 2023. The U.S. economy is anticipated to grow 1% this year, up from March's 0.4% projection. But the labor market will likely continue to be more resilient than expected. The officials now expect the unemployment rate to rise to 4.1% this year, well below the prior 4.5% forecast.
Impact of the Fed Policy on Banks
“The U.S. banking system is sound and resilient.” The Fed statement said this.
But over the past few months, we have seen what these unprecedented faster rate hikes (not seen since the 1980s) could do to the regional banking industry. Huge exposure to uninsured deposits and asset-liability mismatches caused much damage to the industry. This led to the regional banking crisis, which resulted in heavy deposit outflows and the failure of three major regional banks.
Several regional banks, including PacWest Bancorp, Zions, Comerica, Fifth Third Bancorp and KeyCorp, witnessed pessimistic investor sentiments. Though the crisis has since been contained, the faster rate hike continues to take a toll on banks’ top-line performance because of rising funding costs and waning loan demand.
Recently, several banks came out with a bleak second-quarter 2023 outlook. KeyCorp CEO Chris Gorman noted that net interest income (NII) will come much lower than previously expected. NII is now anticipated to slide 12% sequentially, which is substantially below the 4-5% fall guided during the first-quarter earnings conference call.
Likewise, Zions expects its net interest margin to shrink to almost 2.85% from 3.33% in the first quarter of 2023. Further, Comerica anticipates NII to be at the low end of the previously-mentioned range of a sequential decline of 11-13%.
Fifth Third also lowered its second-quarter revenue guidance. The lender now expects the metric to be down in the range of 2-3% sequentially compared with its previous forecast of stable revenues.
Though the operating backdrop is not expected to change much in the near term, a pause in the rate hike will likely provide a much-needed breather for banks.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
See Stocks Free >>
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
https://www.zacks.com
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.