For Immediate Release
Chicago, IL – February 8, 2023 – Zacks Equity Research shares Commercial Metals Company CMC as the Bull of the Day and Ovintiv OVV as the Bear of the Day. In addition, Zacks Equity Research provides analysis on The Walt Disney Company DIS, Paramount Global PARA and Netflix NFLX.
Here is a synopsis of all five stocks.
Bull of the Day:
Commercial Metals Company, a Zacks Rank #1 (Strong Buy), has broken out to the upside after bucking last year’s downtrend. Gracefully sidestepping last year’s bear market, the stock has hit a series of 52-week highs this year on increasing volume. Shares continue to display relative strength as buying pressure accumulates in this market leader.
CMC sports the highest Zacks Value Style Score of ‘A’, indicating further upside based on favorable valuation metrics. The company is part of the Zacks Steel – Producers industry group, which ranks in the top 7% out of more than 250 Zacks Ranked Industries.
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Commercial Metals Company manufactures, recycles, and fabricates steel and metal products and related materials globally. The company processes and sells ferrous and nonferrous scrap metals to steel mills and foundries, aluminum and alloy manufacturers, and copper refineries. CNC also provides fabricated steel products used to reinforce concrete in the construction of commercial buildings, hospitals, convention centers, stadiums, bridges, highways, and industrial plants.
Steel demand is expected to pick up aided by the automotive sector, as well as increased investment spending under the Infrastructure Investment and Jobs Act. A strong pipeline of projects entering the market and a robust backlog are tailwinds for fiscal 2023.
Earnings Trends and Future Estimates
CMC has built up an impressive earnings history, surpassing earnings estimates in each of the last four quarters. In January, the company reported fiscal Q1 EPS of $2.24/share, a 12.56% surprise over the $1.99 consensus estimate. CMC has delivered a trailing four-quarter average earnings surprise of 16.71%.
The CMC growth engine is expected to remain hot this year, as analysts covering the metals processing company have increased their EPS estimates across the board. Fiscal second-quarter estimates have been raised by +24.43% in the past 60 days. The Q2 Zacks Consensus EPS Estimate now stands at $1.63/share, reflecting potential growth of 6.54% relative to the same quarter in the prior year.
Let’s Get Technical
CMC shares have advanced nearly 70% in the past year. Only stocks that are in extremely powerful uptrends were able to weather last year’s bear market so gracefully. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
The stock has been making a series of higher highs. With both strong fundamentals and technicals, CMC is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Commercial Metals has recently witnessed positive revisions. As long as this trend remains intact (and CMC continues to deliver earnings beats), the stock will likely continue its bullish run this year. CMC currently trades relatively undervalued at just a 7.44 forward P/E.
Solid institutional buying should continue to provide a tailwind for the stock price. CMC is ranked favorably by our Style Score Categories, with an ‘A’ for Value and ‘B’ for Growth, paving the way for an overall ‘A’ VGM score. Increasing volume at recent breakout levels is another bullish sign.
Robust fundamentals combined with a strong technical trend certainly justify adding shares to the mix. Backed by a leading industry group and robust history of earnings beats, it’s not difficult to see why this company is a compelling investment. Investors would be wise to consider CMC as a portfolio candidate if they haven’t already done so.
Bear of the Day:
Ovintiv is engaged in the exploration, development, production, and marketing of natural gas and oil. The company is an independent energy producer whose principal assets reside in the Permian Basin in Texas and as well as the Anadarko Basin in Oklahoma. Formerly known as Encana Corporation, the company changed its name in January of 2020 and is shifted its headquarters to Denver, CO.
The Zacks Rundown
OVV, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Oil and Gas – Exploration and Production – Canadian industry group, which ranks in the bottom 8% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months. We can see that this group has underperformed to start off the new year:
Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poor-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
After moving higher for much of the last two years, many energy companies have lost traction amid the commodity price drops in oil and natural gas. Several companies have even shifted to new downtrends, and OVV appears to be on the precipice of a reversal after a long sideways move. The share price has made a series of lower lows recently and represents a compelling short opportunity as the energy sector has now taken a backseat.
Recent Earnings Misses and Deteriorating Outlook
OVV has fallen short of estimates in three of the last four quarters. The energy company most recently reported Q3 earnings back in November of $1.44/share, missing the $1.98/share consensus estimate by -27%. The stock has moved steadily lower since the announcement.
OVV has posted a trailing four-quarter average earnings miss of -17.29%. Consistently falling short of earnings estimates is a recipe for underperformance, and OVV is no exception.
Ovintiv has been on the receiving end of negative earnings estimate revisions as of late. For the current fiscal year, analysts have revised their EPS estimates downward by -27.25% in the past 60 days. The 2023 Zacks Consensus Estimates is now $10.68/share. Falling earnings estimates are a huge red flag and need to be respected.
As illustrated below, OVV has been in a sideways chop for much of the last year. Notice how the stock has plunged below both the 50-day and 200-day moving averages signaled by the blue and red lines, respectively. The stock is making a series of lower lows, with no respite from the selling in sight. Also note how both moving averages have rolled over and are sloping down – another good sign for the bears.
While not the most accurate indicator, OVV is likely to experience what is known as a “death cross”, wherein the stock’s 50-day moving average crosses below its 200-day moving average. OVV would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. The stock has fallen nearly 7% this year while the general market has staged a new uptrend.
A deteriorating fundamental and technical backdrop show that this stock is unlikely to make new highs anytime soon. The fact that OVV is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
Our Zacks Style Scores depict a weakening outlook for this stock, as OVV is rated a second-worst possible ‘D’ in our Momentum category. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of an underperforming OVV until the situation shows major signs of improvement.
Key Factors to Consider When Walt Disney (DIS) Reports Q1 Results
The Walt Disney Company’s first-quarter fiscal 2023 results, set to be reported on Feb 8, are expected to benefit from the strong performance of Avatar’s sequel. However, the top line is likely to reflect a stalled Disney+ subscriber base.
The latest Avatar movie generated $63.4 million in domestic ticket sales in the first three days and globally $2.18 billion since its release on Dec 16. This puts the movie on track to beat Paramount Global’s Top Gun: Maverick’s total gross return, which has the bragging rights as the highest-grossing movie at the domestic box office for 2022.
Paramount Global’s Tom Cruise movie secured $1.49 billion in sales in 2022. However, Avatar: The Way of Water became the fastest release to cross the box office’s $1 billion threshold since Spider-Man: No Way Home in December 2021, and the fastest in 2022. The movie is en route to becoming the highest-grossing movie.
However, Avatar: The Way of Water failed to win at this year’s Golden Globe in Best Picture, Drama category, in which Universal Pictures emerged victorious with The Fabelmans. Steven Spielberg won the Best Director, Motion Picture award for the movie.
This Zacks Rank #5 (Strong Sell) company’s other movie, The Banshees of Inisherin won the category of Best Picture, Musical or Comedy competing against the likes of Glass Onion: A Knives Out Mystery from Netflix and Babylon from Paramount Pictures, a subsidiary of Paramount Global.
The Walt Disney Company revenue-ttm | The Walt Disney Company Quote
The Zacks Consensus Estimate for Disney’s Media and Entertainment Distribution revenues is currently pegged at $15.33 billion.
Click here to know how Disney’s overall first-quarter fiscal 2023 results are likely to be.
Disney+ Subscriber Base Likely to Have Stalled
Disney+ has emerged as a key growth driver for Disney, primarily driven by its solid content portfolio.
Disney’s cheaper bundled services (Disney+, ESPN+ and Hulu) have been able to attract subscribers amid stiff competition from Netflix, Apple TV+, Amazon Prime Video, HBO Max, Peacock, Paramount+ and TikTok.
The Zacks Consensus Estimate for paid subscribers for Disney+ is currently pegged at 157 million, indicating 21% growth from the figure reported in the year-ago quarter but down 4.3% sequentially.
Netflix reported better-than-expected fourth-quarter fiscal 2022 subscriber numbers. The streaming giant gained 7.66 million paid subscribers globally, higher than its estimate of gaining 4.5 million users.
Comcast’s Peacock ended 2022 with more than 20 million paying subscribers. Moreover, Peacock added more than 5 million paid subscribers in the fourth quarter.
Nevertheless, Disney is expected to have benefited from a strong content portfolio.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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