For Immediate Release
Chicago, IL – June 8, 2022 – Zacks Equity Research shares CarParts.com PRTS as the Bull of the Day and Bath & Body Works BBWI asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Occidental Petroleum OXY, Coterra Energy CTRA and Marathon Oil MRO.
Here is a synopsis of all five stocks:
CarParts.com is a Zacks Rank #1 (Strong Buy) that operates as an online provider of aftermarket auto parts and accessories. The company offers replacement parts, such as parts for the exterior of an automobile; mirror products; engine and chassis components, as well as other mechanical and electrical parts; and performance parts and accessories to individual consumers through its network of e-commerce websites and online marketplaces
The stock took off during the pandemic as the company thrived in the back half of 2020. PRTS moved from under $3 to $23, but has since fallen back under the $10 level.
With the stock trading over 65% from the 2021 highs, investors are looking for a bottom to form. A recent earnings report might have finally given the bulls the green light to get back into the stock.
More About PRTS
The company was founded in 1995 and is headquartered in Torrance, CA. It employs 1,500 people and has a market cap of $400 million.
In addition to individual consumers, CarParts.com sells auto parts to repair shops and wholesale distributors. The company also runs the websites jcwhitney.com, autopartswarehouse.com and usautoparts.com.
The stock has a Zacks Style Score of “A” in Growth, but “D” in Value. The company pays no dividend.
Q1 Earnings Beat
On May 3rd, PRTS reported a 180% EPS beat for Q1. Earnings came in at $0.04 v the -$0.06 a year ago. Revenues came in at $166 million v the $144.8 million last year. EBITDA was up to $9.4M from $3.6M last year and gross margins were up 280 basis points year over year.
This was a record-breaking sales quarter for the company, which also brought record breaking adjusted EBITDA. Management said that the company is on solid ground both operationally and financially. They commented that focusing on outstanding customer service, operational excellence, financial discipline, and innovation will be their areas of focus going forward.
The EPS beat was the second in a row and the sixth beat out of the last eight quarters.
Because of the big earnings beat, analysts are starting to take estimates higher across most time frames.
For the current quarter, we have seen numbers taken up over the last 60 days, from -$0.03 to $0.03. For next quarter, they have gone from -$0.25 to -$0.13 over that same time frame
This is a steady improvement that will continue into next year. Over the last 60 days, next year’s numbers have gone from -$0.18 to -$0.10.
Analyst commentary cited sales and margin growth as a reason to be long the stock.
Despite a tough environment due to freight/input costs, Roth Capital says it is “encouraged by the company’s ability to optimize margin dollars through an ensemble of variables.” The firm has a $12 price target on the stock, which is over 50% from current levels.
The Technical Take
Before earnings, the stock tested the $6 level for the second time in 2022. The solid EPS numbers helped the stock pop over 30% off those lows. However, selling came in as the overall market continued to struggle.
But the bulls have since taken back control and the stock is trading over the 50-day MA. If the buyers can hold the $8 level, the post earnings highs of $9 should be in play rather quickly.
The next big level is the 200-day moving average, which is currently at the $11 mark.
The current market environment is a difficult one where companies beating earnings are getting sold anyway. The key to whether a stock goes lower after they report are margins and if the current inflationary environment is eating into profitability.
For CarParts.com, the company is seeing improving margins and record sales growth. This is a nice recipe to keep investors interested in the stock during this tough environment.
If the bulls can keep the 50-day MA level, the stock should eventually grind back to those post-earnings highs.
Bath & Body Works is a Zacks Rank #5 (Strong Sell) that operates a specialty retailer of home fragrance, body care, and soaps and sanitizer products.
The stock continues to probe the 2022 lows after a recent earnings report that has analysts taking down estimates. With the stock off 45% for the year and 55% from all-time highs, it might be too early to start buying.
About the Company
Bath & Body Works is headquartered in Columbus, Ohio. The company was founded in 1963 and employs over 8,000 people.
The company sells its products under the Bath & Body Works, White Barn, and other brand names through specialty retail stores and websites. The company operates over 1,700 retail stores in the U.S. and Canada, as well as over 300 international partner-operated stores.
BBWI is valued at $8.5 billion and has a Forward PE of 9. The company holds a Zacks Style Score of “A” in Value, but “C” in Growth. The stock pays out a dividend with 2.1% yield.
The company reported EPS in mid-May, seeing a 25% beat on the bottom line. Revenues also came in above expectations at $1.45B vs the $1.43B expected.
However, fiscal year 2022 guidance was cut from $4.56 to a range of $3.80-4.15. Q2 was also reduced, with the company now seeing $0.60-65 v the $0.65 expected. The FY22 cut shows a big range, which tells investors there is a lot of uncertainty down the road.
Management commented that the business is very strong and they saw positive store transaction trends and engagement. However, they reduced their outlook due to investment into IT, the customer loyalty program and increases in inflationary pressures.
The guidance forced analysts to cut estimates across the board.
For the current quarter, estimates have dropped from $0.68 to $0.63, or 7%. For the current year, estimates fell from $4.62 to $4.01, or 13%.
In addition to estimates going lower, analysts are dropping price targets as well. Since the earnings report we have seen the following firms drop their price targets:
JPM Chase: $67 to $63
Credit Suisse: $64 to $49
BMO: $83 to $65
Goldman Sachs: $85 to $61
UBS: $102 to $70
BBWI broke the 200-day moving average the first week of 2022 and hasn’t looked back. The stock is now down about 45% on the year as it trades below all the big moving averages.
The stock is barley off the lows seen in May and if that area was taken out, the stock could fall into the $20s.
Investors looking at the stock should eyeball the $23-27 area, which was the trading range before the pandemic.
While the company did perform last quarter, Bed & Body Works has some issues over the short term. Investors should be patient while the company sorts through those issues, especially the inflationary headwinds.
For now, a better retail option might be Ulta Beauty (ULTA). The stock is a Zacks Rank #1 (Strong Buy) and the company is coming off a 42% EPS beat last month.
Barclay’s, Citi Lift Oil Price Outlook on Tighter Supplies
A clutch of investment banks recently raised their forecasts for oil realizations on the back of heightened geopolitical risks and the delayed return of Iranian crude to the market. Considering the commodity’s tighter supplies and strong consumption, Citibank and Barclays lifted their oil price projections for 2022 and 2023.
As it is, the price of Brent crude — the global benchmark — and the U.S. WTI, have both risen more than 50% year to date and are currently trading close to $120 per barrel. Prices have been driven up by curbs on Russia, as well by robust consumption thanks to the reopening of economies and a rebound in activity.
What the Banks Said
For the second quarter of this year, Citibank now sees Brent Crude averaging $113 per barrel, up from a previous projection of $99. The bank lifted its price target in the third and fourth quarters to $99 and $85 per barrel, repectively, from $87 and $73 before. The U.S. bank said in a note that it expects oil price to average $75 next year, indicating a $16 increase from the earlier view.
On the supply side, Citi does not foresee a waiver of Iranian sanctions before the first quarter of 2023 that will perk up daily crude barrels by 500,000 in the first half and 1.3 million over the second half. The timeline for additional oil supplies from Iran has been pushed back from the bank’s earlier assumption of mid-2022. Citi analysts added that flows from Russia could fall between 1 million and 1.5 million barrels per day by the end of this year.
British bank Barclays struck a similar tone as it projected production from Moscow to drop by 1.5 million barrels per day during the same timeframe, as the country battles global sanctions in the wake of its Ukraine invasion.
The bank expects Brent to average around $111 per barrel in 2022 and 2023. Barclays’ previous forecast was an average of $100 a barrel this year and $88 for the next. Barclays also added that WTI is likely to average $108 for both years.
Oil briefly crossed $120 yesterday, primarily reflecting the above-mentioned factors, plus Saudi Arabia’s increased pricing for oil shipments. Higher rates from the world’s biggest crude exporter reflects the robust health in Oil/Energy markets.
The space continues to enjoy support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world’s largest producers of the commodity. The Biden administration’s ban on the import of Russian crude and energy products contributed to oil’s rapid price increase.
Agreed, crude has pulled back from those lofty levels, but with the conflict showing no sign of a quick resolution and the European Union finally following the United States in blocking imports of Russian energy — even at the detriment of their economies — the oil bulls are getting a fresh impetus.
Even the fundamentals point to a tightening of the market. Per the latest government report, U.S. commercial stockpiles have been down more than 13% in a year, prompted by a demand spike.
As a matter of fact, the Energy Select Sector SPDR — an assortment of the largest U.S. companies thronging the space — has risen 61.1% year to date against a 13.5% loss for the broader S&P 500 benchmark.
Consequently, the top three gainers of the S&P 500 this year are all energy-related names: Occidental Petroleum, Coterra Energy and Marathon Oil.
Occidental Petroleum: OXY is the top-performing S&P 500 stock in 2022, with a gain of 140.1%. Occidental Petroleum’s expected EPS growth rate for three to five years is currently 32.3%, which compares favorably with the industry’s growth rate of 21.9%.
OXY has a projected earnings growth rate of 296.1% for this year. The Zacks Consensus Estimate for Occidental Petroleum’s 2022 earnings has been revised 77.8% upward over the past 60 days.
Corterra Energy: This Zacks Rank of #2 (Buy) stock was the second-best performer in the S&P 500 Index, with shares having appreciated 95.3% in 2022. CTRA has a projected earnings growth rate of 85.3% for this year.
The Zacks Consensus Estimate for Corterra Energy’s 2022 earnings has been revised 39.5% upward over the past 60 days. CTRA’s expected EPS growth rate for three to five years is currently 55%, which compares favorably with the industry’s growth rate of 26.8%.
Marathon Oil: Marathon stock has jumped 91.3% year to date. MRO beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 23%.
Marathon is valued at around $22.4 billion. MRO has a projected earnings growth rate of 214.7% for this year.
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