For Immediate Release
Chicago, IL – August 18, 2023 – Zacks Equity Research shares
Workday ( WDAY Quick Quote WDAY - Free Report) as the Bull of the Day and Marriott Vacations Worldwide Corp. ( VAC Quick Quote VAC - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Radian Group ( RDN Quick Quote RDN - Free Report) , JPMorgan Chase & Co. ( JPM Quick Quote JPM - Free Report) and Mercantile Bank ( MBWM Quick Quote MBWM - Free Report) .
Here is a synopsis of all five stocks:
Zacks Rank #1 (Strong Buy) stock
Workday is a software platform provider that enables enterprise cloud solutions and a one-stop shop for human resources, finances, and business operations. Medium size and large businesses use Workday's platform to handle tasks like payroll, employee scheduling, benefits administration, and financial reporting more efficiently. Consistent Growth Despite Economic Instability
Workday's revenue growth continues to be driven by high demand for its human capital management (HCM) and financial management solutions. Like many enterprise software companies, the COVID-19 pandemic became a windfall for WDAY. However, unlike its peers, WDAY has sustained consistent and robust growth. Last quarter EPS jumped 58% while revenue shot higher by 17% year-over-year.
The 2022 tech bear market reset the deck of cards for WDAY. While earnings continued to grow, WDAY stock continued to fall. Now, WDAY's price-to-earnings ratio is at multi-year lows.
Meanwhile, earnings are expected to hit all-time highs, with the stock still well off its highs – a bullish sign.
Bullish Chart Pattern
WDAY shares are retreating to the 50-day moving average for the first time in months. Typically, the first pullback to the 50-day moving average is an area of attractive reward-to-risk.
Relative price strength measures the performance of a particular stock in relation to a benchmark (most commonly the S&P 500 Index). During market pullbacks, relative strength can be an especially powerful tool. Because three in four stocks follow the market's direction, most stocks will fall in tandem with the market during weak periods.
However, a good clue that a stock may be ready to lead occurs when the stock bucks the market weakness and goes against the tide. The thinking is that if the stock can go up in a down market, then it is likely to outperform when the market regains its footing.
Strong Earnings History & Expectations
WDAY is a consistent eps expectation breaker. The company has delivered positive surprises in the past four quarters that beat analyst expectations.
WDAY's positive Earnings ESP score suggests that the company will again deliver an earnings beat when it reports on August 24
th. Momentum Going Forward
Solid momentum in Workday's human capital and financial management portfolio drives top-line growth.
In addition, the company's cloud-based business model is increasingly gaining traction. Strong emphasis on integrating generative AI in Workday products and unique new AI-driven applications in development by the company looks to be a long-term tailwind.
Zacks Rank #5 (Strong Sell) stock
Marriott Vacations Worldwide Corp. is a leading global vacation company that offers vacation ownership, exchange, rental, resort, and property management services. Marriott has a portfolio of more than 120 resorts under seven different brand names. Though Marriott is a leader and a household name in the vacation space, the company has several bearish industry catalysts working against it, including: Higher Expenses Due to COVID-19
In 2018, Marriott Vacations completed its merger with ILG Inc, a vacation experiences provider, for $4.6 billion. Despite the synergy of the newly formed company, expenses have been increasing. Inflation from the COVID-19 pandemic hangover and several years of rock-bottom interest rates are taking their toll on the company. Furthermore, marketing and sales expenses are increasing, eating into margins.
Cyclical Nature of Travel Industry and International Exposure
The hospitality industry is highly cyclical in nature. Worsening global economic conditions are a risk for Marriott Vacation investors. Just this week, Germany and the Netherlands officially entered a recession. Meanwhile, the Chinese economy, one of the largest in the world, is seeing its real-estate sector on the brink of collapse, while an interest rate cut has done little to stabilize the equity market.
A global recession would mean less personal discretionary spending, lower demand, and less traveling for most people. Currently, analysts covering VAC expect top-line growth to slow over the next three quarters. Any worsening in the global economy will only slow earnings further.
More Competition Airbnb (ABNB ) and other newer forms of hospitality can pose potential threats to traditional vacation ownership companies like Marriott Vacations Worldwide because ABNB offers more: Flexibility: ABNB offers a wide range of accommodation options at various price points, making them more appealing to budget-conscious travelers. Meanwhile, unlike many VAC properties, ABNB offers flexible scheduling. Diverse Accommodations: ABNB's unique business model allows the company to offer a more diverse array of accommodations. Unique and Authentic Experiences: Modern travelers, especially younger generations, prioritize unique and authentic experiences. Airbnb's emphasis on staying in local neighborhoods and experiencing destinations like a local can be more aligned with these changing travel preferences. Negative Earnings ESP (Expected Surprise Prediction) Score
In the past few months, Zacks Consensus Estimates indicate that analysts are becoming more bearish on the VAC. Five analysts have decreased their EPS outlook for the company in the past month.
The bearishness has resulted in a negative Earnings ESP score. A negative Earnings ESP score mixed with a Zacks Rank #5 suggests that the company will likely fall short of earnings expectations the next time it reports.
Relative Weakness & Poor Price Action
VAC shares are drastically underperforming both the market and its industry. Over the past six months, VAC shares are lower by nearly 30% while the leisure industry is flat.
Additional content: 3 Stocks to Gain as the Fed Hints at Further Rate Hikes
Persistent inflationary woes have obligated the majority of the Fed officials to remain hawkish in the July meeting as they hint at higher interest rates soon. This, in turn, is a boon for financial companies such as
Radian Group, JPMorgan Chase & Co. and Mercantile Bank, which makes them compelling investment choices as of now. Stocks End in the Red for the Second Straight Day
Major bourses ended in the negative territory on Aug 16 and registered back-to-back losses. After all, the broader S&P 500 Index, the tech-laden Nasdaq, and the 30-stock index, better known as the Dow, slipped more than 1% on Aug 15.
The S&P 500, in particular, ended below its 50-day moving average on Aug 15 for the first time since Mar 28, per Dow Jones Market Data. It's a tell-tale sign that the index could extend its losses further, as it did on Aug 16, and that the summertime stock-market selloff trend hasn't finished yet.
Fed Officials See More Rate Hikes
From an increasing long-dated Treasury yield to a stronger U.S. dollar, all are hurting the stock market rally. But recently, the Fed's minutes from the meeting held in July showed that most of the officials believe that "upside inflation risks" persist, which could lead to further interest rate increases.
The possibility of more rate hikes rattled investors and dragged the stock-market indexes lower. This is because interest rate hikes impact borrowing costs, curtail consumer spending, and hamper economic growth.
Most Fed officials said, "further tightening of monetary policy" is needed to ease inflationary pressure. Lately, both retail and producer prices may have moderated from last year, but inflation remains above the Fed's desired target of 2%. And with consumer outlays showing no signs of ebbing, prices of indispensable commodities are well-poised to rise (read more:
5 Stocks to Make the Most of Booming Retail Sales).
Most Fed officials also believe that moderation in real GDP growth and softening of labor market conditions are required to bring down inflationary pressure. However, at present, the economy continues to chug along, and the labor market exhibits strength.
Currently, the CME FedWatch Tool shows that most market participants anticipate the Fed to keep interest rates unchanged in the September meeting. But the likelihood of a 25-basis-point rate increase in the November meeting has gone up modestly following the release of the Fed minutes.
The Big Winners
The broader stock market may have fallen on fears of an increasing interest rate environment. But such a situation bodes well for insurance companies. They invest the premiums they get from policyholders in corporate and government bonds. When the interest rate increases, bond yields rise, helping insurance companies to invest the premiums at a higher yield, and earn more.
When interest rate increases, banks also stand to gain. The spread between what a bank earns from loans with short-term liabilities like deposits increases amid higher interest rates, thereby increasing their profit margins.
3 Solid Choices
With insurance players and banks poised to win big, we have selected three solid stocks from these areas that boast a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see
the complete list of today's Zacks #1 Rank stocks here. Radian Group is known for providing its clients with an array of private mortgage insurance products and services. The decline in primary delinquent loans coupled with an improving risk-based capital ratio, all augur well for Radian's long-term growth.
Radian Group's estimated earnings growth rate for the next five-year period is 5%. Its shares have already gained 19% over the past five years. The Zacks Consensus Estimate for its current-year earnings has moved up 5.8% over the past 60 days. RDN, presently, has a Zacks Rank #2.
JPMorgan Chase is one of the biggest global banks. Its strong liquidity position and diversification initiatives will surely boost its long-term growth prospects.
JPMorgan's estimated earnings growth rate for the next five-year period is 5%. Its shares have already gained 10.4% over the past five years. The Zacks Consensus Estimate for its current-year earnings has moved up 10.3% over the past 60 days. JPM, currently, has a Zacks Rank #1.
Mercantile Bank aids consumers across Grand Rapids and Kent County with a variety of mortgage, lending, deposit, and checking products and services.
Mercantile Bank's estimated earnings growth rate for the current year is 26.5%. Its shares have already gained 12.5% over the past five years. The Zacks Consensus Estimate for its current-year earnings has moved up 11.4% over the past 60 days. MBWM has a Zacks Rank #2 at present.
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 >>
Zacks Investment Research
800-767-3771 ext. 9339
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.
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.