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Petroleo Brasileiro and eXp World Holdings have been highlighted as Zacks Bull and Bear of the Day
Read MoreHide Full Article
For Immediate Release
Chicago, IL – November 13, 2023 – Zacks Equity Research shares Petroleo Brasileiro (PBR - Free Report) as the Bull of the Day and eXp World Holdings (EXPI - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Kinder Morgan, Inc. (KMI - Free Report) , MPLX LP (MPLX - Free Report) and The Williams Companies Inc. (WMB - Free Report) .
Petroleo Brasileiro, commonly known as Petrobras, is a Brazilian multinational energy company and one of the largest integrated oil and gas companies in the world. It is also one of the most compelling oil stock investments currently in the market. In addition to a historically low relative valuation, Petroleo Brasileiro also enjoys a Zacks Rank #1 (Strong Buy) rating, reflecting upward trending earnings revisions.
Furthermore, the technical price action in PBR stock is indicative of an imminent breakout and rally opportunity, while also showing considerable relative strength in the face of falling crude prices. All these bullish catalysts together lead me to believe PBR should be considered by investors looking for exposure to the energy market.
Analysts have unanimously raised their earnings estimates for Petroleo Brasileiro across timeframes, with next quarter earnings estimates increasing by 42%, and FY23 by 11.4%.
Industry Leader at a Discount
Petroleo Brasileiro operates in various segments of the energy industry, including exploration and production, refining, distribution, and marketing of petroleum and petroleum products.
The company is a state-controlled company and plays a significant role in Brazil's economy, both as a major employer and as a key player in the country's energy sector. It is the largest energy firm in Latin America.
Not only is PBR one of the world's major oil players, but it is also trading at an extremely reasonable valuation, massively limiting the downside risks. Today, Petrobras is trading at a one year forward earnings multiple of just 3.9x, which is just below the industry average of 4.1x, and well below its 10-year median of 8.8x.
Further sweetening the deal, PBR also offers a dividend yield of 2.1%, paying investors just to own the stock.
Crude Prices Rolling Over... Temporarily
The action in the price of Crude Oil has surprised many over the last few weeks. After rallying aggressively up to $95 in late September, prices quickly reverted to the mid $80s. But then conflict in the Middle East flared up, and the price spiked again, however it was unable to sustain the rally, and this week rolled over again to $75.
It seems market participants are pricing the possibility of economic slowdown, which is bearish for the price of oil. Yet the evidence of an economic slowdown is still in the very early stages, and I think this move is too far forward looking.
The most recent GDP data showed that the US economy was expanding at an annualized rate of 4.9%, while the unemployment rate remains below 4%, and inflation continues to ease. These are indications that the economy is still robust, pointing to continuing strong demand for oil.
Additionally, while a single headline out of the middle east could send the price of oil higher, there is another catalyst domestically that could do the same, refilling the US Strategic Petroleum Reserve.
Currently, the Strategic Petroleum Reserve holds 351 million barrels of oil, which is near 30-year lows. Having such a low level of reserves put the country at risk, and the Biden administration knows this.
Fortunately for them, this -20% fall-off in the price of oil has created a fantastic opportunity for them to refill the stores at very reasonable prices. I consider this to be a highly likely outcome in the situation and should provide a strong and steady bid in the oil market.
Technical Setup
PBR stock has so far put up a strong performance YTD, up 49% since the start of the year. Also impressive is that the stock has held up quite well in the face of a -20% correction in the price of oil. I have seen a number of oil stocks hold up during this sell off, which means oil stock investors are continuing to buy shares regardless of the temporary weakness.
It makes sense that investors are still focused on buying shares in oil companies, because like PBR many are at very reasonable valuations.
Making PBR even more of a compelling buy is its technical chart pattern. Since oil prices started selling off, PBR stock has been building out this very clean bull flag. If the price can break out above the $15.75 level, I would expect the stock to make new yearly highs.
Alternatively, if it loses the level of support at $14.80, it may be worth waiting for another opportunity to buy shares.
Bottom Line
Petroleo Brasileiro has several bullish catalysts on its horizon. With the downside protection of a depressed valuation, a top Zacks Rank, and technical pattern, the stock offers a convincing risk-reward setup.
So long as the US economy doesn't spiral into a recession before the year end, which I consider unlikely, PBR should be a fantastic addition to investor's portfolios.
eXp World Holdings, a forward-looking, cloud-based real estate brokerage, is dealing with numerous headwinds in the current economic environment, contributing to faltering sales growth and declining earnings estimates.
In addition to a Zacks Rank #5 (Strong Sell) rating, it also has a premium valuation, increasing downside risks, which is further compounded by the fact that it is becoming a popular short trade.
Furthermore, with interest rates pushing 16-year highs in recent weeks, sales in the residential housing market have slowed considerably. As a real estate brokerage, this has put huge downward pressure on EXPI's volume and thus sales growth.
Because of this setup, I think eXp World Holdings stock should be avoided by investors.
Tumbling Earnings Estimates
As a somewhat experimental startup company, eXp World Holdings already struggles with a potentially questionable business model. The stock enjoyed a powerful run during the frothy days of 2021, but has since fallen nearly -90%.
Net margins have fluctuated from negative to barely positive, and even gross margins are quite low, below 10%. While I am not certain that it is a broken business model, it certainly isn't appealing where it stands today.
Sales forecasts are not strong either. FY23 sales are projected to fall -3.3% YoY, and FY24 are expected to grow just 4.9% YoY.
Because of this situation, analysts have not surprisingly lowered earnings expectations. Current quarter earnings estimates have been revised from $0.01 to -$0.02 and FY23 earnings estimates have declined by -15.4% in just the last week.
Bloated Valuation
While some of the current data may be forgivable given the interest rate situation, eXp World Holdings stock is still priced for big growth, and industry disruption, neither of which appears to be a reality currently.
EXPI is trading at a one year forward earnings multiple of 54.5x, which is much higher than the industry average and is in line with its recent median. And because sales and earnings estimates are projected to be so weak, it is hard to rationalize this as anything but overvalued.
Short Sellers Love It
This rather obvious bearish scenario has not been overlooked by investors, as EXPI has become a popular shorting opportunity. In the chart below, you see that every big rally in the stock has been met by huge selling pressure.
Short interest in eXp World Holdings has risen to 25% of the outstanding float. At 25%, EXPI has clearly become a short target for hedge funds, and although growing short interest can increase the possibility of a short squeeze, it doesn't seem likely at this point.
Bottom Line
eXp World Holdings is in a very challenging position. It showed huge promise after going public, with a unique value proposition, and strong sales growth. But that success appears to now be in the rearview mirror, with a challenging macro environment, and still evolving business economics.
And while a lot of bad news has been priced into the stock, it looks like there may be potential for further downside, as a premium valuation offers little downside support.
I don't know what the path forward for EXPI looks like, but I do think investors should avoid the stock until its future becomes clearer.
Additional content:
3 Midstream Stocks to Gain Amid Energy Market Volatility
The initial pandemic period, when there were no vaccines, saw an environment of heightened uncertainties. The price of crude oil plunged to a negative $36.98 per barrel on Apr 20, 2020. However, with the rapid developments of vaccines, which led to the gradual opening of the economies, the pricing scenario of West Texas Intermediate crude improved drastically over time to reach $123.64 per barrel on Mar 8, 2022. Oil price data are per the U.S. Energy Information Administration.
Currently, WTI oil price is trading at more than $75 per barrel. Thus, it's pretty apparent that the business model of most energy players, by nature, is exposed to extreme volatility in commodity prices. Hence, it would be wise for investors to keep an eye on midstream stocks like Kinder Morgan, Inc., MPLX LP and The Williams Companies Inc..
Midstream Energy Players to the Rescue
Although the fate of energy players is highly dependent on oil and gas prices, stocks in midstream space have lower exposure to volatility in commodity prices than oil and gas producers. This is because midstream players generate stable fee-based revenues since the transportation and storage assets are being booked by shippers for the long term. Hence, their business model is relatively low-risk, which indicates considerably less exposure to oil and gas prices and volume risks.
We have employed our Stock Screener to zero in on three stocks belonging to the midstream energy space that are well-poised to gain, and hence, investors should keep an eye on these stocks. While one stock carries a Zacks Rank #2 (Buy), the remaining two have a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
3 Stocks to Gain
Kinder Morgan: With its operating interests in oil and gas pipeline networks spread across 83,000 miles, KMI is a leading energy infrastructure company in North America. It derives most of its earnings from take-or-pay contracts, generating stable fee-based revenues.
Kinder Morgan, carrying a Zacks Rank #3, is poised to grow on the back of its business model, which is relatively resilient to volume and commodity price risks.
MPLX: The firm, carrying a Zacks Rank #2, has ownership and operating interests in midstream energy infrastructure and logistics assets, thereby generating stable cashflow. With a strong focus on returning capital to unit holders, MPLX repurchased $491 million of common units last year. Under its unit repurchase authorization, the partnership has yet to buy back the remaining $846 million of its units.
The Williams Companies: It is well-poised to capitalize on the mounting demand for clean energy since it is engaged in transporting, storing, gathering and processing natural gas and natural gas liquids.
With its pipeline networks spread across more than 30,000 miles, The Zacks Rank #3 company connects premium basins in the United States to the key market. WMB's assets can meet 30% of the nation's consumption of natural gas, which is utilized for heating purposes and clean-energy generation.
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.
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Petroleo Brasileiro and eXp World Holdings have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – November 13, 2023 – Zacks Equity Research shares Petroleo Brasileiro (PBR - Free Report) as the Bull of the Day and eXp World Holdings (EXPI - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Kinder Morgan, Inc. (KMI - Free Report) , MPLX LP (MPLX - Free Report) and The Williams Companies Inc. (WMB - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Petroleo Brasileiro, commonly known as Petrobras, is a Brazilian multinational energy company and one of the largest integrated oil and gas companies in the world. It is also one of the most compelling oil stock investments currently in the market. In addition to a historically low relative valuation, Petroleo Brasileiro also enjoys a Zacks Rank #1 (Strong Buy) rating, reflecting upward trending earnings revisions.
Furthermore, the technical price action in PBR stock is indicative of an imminent breakout and rally opportunity, while also showing considerable relative strength in the face of falling crude prices. All these bullish catalysts together lead me to believe PBR should be considered by investors looking for exposure to the energy market.
Analysts have unanimously raised their earnings estimates for Petroleo Brasileiro across timeframes, with next quarter earnings estimates increasing by 42%, and FY23 by 11.4%.
Industry Leader at a Discount
Petroleo Brasileiro operates in various segments of the energy industry, including exploration and production, refining, distribution, and marketing of petroleum and petroleum products.
The company is a state-controlled company and plays a significant role in Brazil's economy, both as a major employer and as a key player in the country's energy sector. It is the largest energy firm in Latin America.
Not only is PBR one of the world's major oil players, but it is also trading at an extremely reasonable valuation, massively limiting the downside risks. Today, Petrobras is trading at a one year forward earnings multiple of just 3.9x, which is just below the industry average of 4.1x, and well below its 10-year median of 8.8x.
Further sweetening the deal, PBR also offers a dividend yield of 2.1%, paying investors just to own the stock.
Crude Prices Rolling Over... Temporarily
The action in the price of Crude Oil has surprised many over the last few weeks. After rallying aggressively up to $95 in late September, prices quickly reverted to the mid $80s. But then conflict in the Middle East flared up, and the price spiked again, however it was unable to sustain the rally, and this week rolled over again to $75.
It seems market participants are pricing the possibility of economic slowdown, which is bearish for the price of oil. Yet the evidence of an economic slowdown is still in the very early stages, and I think this move is too far forward looking.
The most recent GDP data showed that the US economy was expanding at an annualized rate of 4.9%, while the unemployment rate remains below 4%, and inflation continues to ease. These are indications that the economy is still robust, pointing to continuing strong demand for oil.
Additionally, while a single headline out of the middle east could send the price of oil higher, there is another catalyst domestically that could do the same, refilling the US Strategic Petroleum Reserve.
Currently, the Strategic Petroleum Reserve holds 351 million barrels of oil, which is near 30-year lows. Having such a low level of reserves put the country at risk, and the Biden administration knows this.
Fortunately for them, this -20% fall-off in the price of oil has created a fantastic opportunity for them to refill the stores at very reasonable prices. I consider this to be a highly likely outcome in the situation and should provide a strong and steady bid in the oil market.
Technical Setup
PBR stock has so far put up a strong performance YTD, up 49% since the start of the year. Also impressive is that the stock has held up quite well in the face of a -20% correction in the price of oil. I have seen a number of oil stocks hold up during this sell off, which means oil stock investors are continuing to buy shares regardless of the temporary weakness.
It makes sense that investors are still focused on buying shares in oil companies, because like PBR many are at very reasonable valuations.
Making PBR even more of a compelling buy is its technical chart pattern. Since oil prices started selling off, PBR stock has been building out this very clean bull flag. If the price can break out above the $15.75 level, I would expect the stock to make new yearly highs.
Alternatively, if it loses the level of support at $14.80, it may be worth waiting for another opportunity to buy shares.
Bottom Line
Petroleo Brasileiro has several bullish catalysts on its horizon. With the downside protection of a depressed valuation, a top Zacks Rank, and technical pattern, the stock offers a convincing risk-reward setup.
So long as the US economy doesn't spiral into a recession before the year end, which I consider unlikely, PBR should be a fantastic addition to investor's portfolios.
Bear of the Day:
eXp World Holdings, a forward-looking, cloud-based real estate brokerage, is dealing with numerous headwinds in the current economic environment, contributing to faltering sales growth and declining earnings estimates.
In addition to a Zacks Rank #5 (Strong Sell) rating, it also has a premium valuation, increasing downside risks, which is further compounded by the fact that it is becoming a popular short trade.
Furthermore, with interest rates pushing 16-year highs in recent weeks, sales in the residential housing market have slowed considerably. As a real estate brokerage, this has put huge downward pressure on EXPI's volume and thus sales growth.
Because of this setup, I think eXp World Holdings stock should be avoided by investors.
Tumbling Earnings Estimates
As a somewhat experimental startup company, eXp World Holdings already struggles with a potentially questionable business model. The stock enjoyed a powerful run during the frothy days of 2021, but has since fallen nearly -90%.
Net margins have fluctuated from negative to barely positive, and even gross margins are quite low, below 10%. While I am not certain that it is a broken business model, it certainly isn't appealing where it stands today.
Sales forecasts are not strong either. FY23 sales are projected to fall -3.3% YoY, and FY24 are expected to grow just 4.9% YoY.
Because of this situation, analysts have not surprisingly lowered earnings expectations. Current quarter earnings estimates have been revised from $0.01 to -$0.02 and FY23 earnings estimates have declined by -15.4% in just the last week.
Bloated Valuation
While some of the current data may be forgivable given the interest rate situation, eXp World Holdings stock is still priced for big growth, and industry disruption, neither of which appears to be a reality currently.
EXPI is trading at a one year forward earnings multiple of 54.5x, which is much higher than the industry average and is in line with its recent median. And because sales and earnings estimates are projected to be so weak, it is hard to rationalize this as anything but overvalued.
Short Sellers Love It
This rather obvious bearish scenario has not been overlooked by investors, as EXPI has become a popular shorting opportunity. In the chart below, you see that every big rally in the stock has been met by huge selling pressure.
Short interest in eXp World Holdings has risen to 25% of the outstanding float. At 25%, EXPI has clearly become a short target for hedge funds, and although growing short interest can increase the possibility of a short squeeze, it doesn't seem likely at this point.
Bottom Line
eXp World Holdings is in a very challenging position. It showed huge promise after going public, with a unique value proposition, and strong sales growth. But that success appears to now be in the rearview mirror, with a challenging macro environment, and still evolving business economics.
And while a lot of bad news has been priced into the stock, it looks like there may be potential for further downside, as a premium valuation offers little downside support.
I don't know what the path forward for EXPI looks like, but I do think investors should avoid the stock until its future becomes clearer.
Additional content:
3 Midstream Stocks to Gain Amid Energy Market Volatility
The initial pandemic period, when there were no vaccines, saw an environment of heightened uncertainties. The price of crude oil plunged to a negative $36.98 per barrel on Apr 20, 2020. However, with the rapid developments of vaccines, which led to the gradual opening of the economies, the pricing scenario of West Texas Intermediate crude improved drastically over time to reach $123.64 per barrel on Mar 8, 2022. Oil price data are per the U.S. Energy Information Administration.
Currently, WTI oil price is trading at more than $75 per barrel. Thus, it's pretty apparent that the business model of most energy players, by nature, is exposed to extreme volatility in commodity prices. Hence, it would be wise for investors to keep an eye on midstream stocks like Kinder Morgan, Inc., MPLX LP and The Williams Companies Inc..
Midstream Energy Players to the Rescue
Although the fate of energy players is highly dependent on oil and gas prices, stocks in midstream space have lower exposure to volatility in commodity prices than oil and gas producers. This is because midstream players generate stable fee-based revenues since the transportation and storage assets are being booked by shippers for the long term. Hence, their business model is relatively low-risk, which indicates considerably less exposure to oil and gas prices and volume risks.
We have employed our Stock Screener to zero in on three stocks belonging to the midstream energy space that are well-poised to gain, and hence, investors should keep an eye on these stocks. While one stock carries a Zacks Rank #2 (Buy), the remaining two have a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
3 Stocks to Gain
Kinder Morgan: With its operating interests in oil and gas pipeline networks spread across 83,000 miles, KMI is a leading energy infrastructure company in North America. It derives most of its earnings from take-or-pay contracts, generating stable fee-based revenues.
Kinder Morgan, carrying a Zacks Rank #3, is poised to grow on the back of its business model, which is relatively resilient to volume and commodity price risks.
MPLX: The firm, carrying a Zacks Rank #2, has ownership and operating interests in midstream energy infrastructure and logistics assets, thereby generating stable cashflow. With a strong focus on returning capital to unit holders, MPLX repurchased $491 million of common units last year. Under its unit repurchase authorization, the partnership has yet to buy back the remaining $846 million of its units.
The Williams Companies: It is well-poised to capitalize on the mounting demand for clean energy since it is engaged in transporting, storing, gathering and processing natural gas and natural gas liquids.
With its pipeline networks spread across more than 30,000 miles, The Zacks Rank #3 company connects premium basins in the United States to the key market. WMB's assets can meet 30% of the nation's consumption of natural gas, which is utilized for heating purposes and clean-energy generation.
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 >>
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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.