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Constellation Energy and Vornado Realty have been highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – June 24, 2024 – Zacks Equity Research shares Constellation Energy CEG as the Bull of the Day and Vornado Realty Trust VNO as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Target Corp. TGT, The Gap, Inc. GPS and Walmart WMT.

Here is a synopsis of all five stocks.

Bull of the Day:

Constellation Energy is now a $70 billion generator and marketer of electricity throughout the Mid-Atlantic and Midwest after shares rallied 90% this year.

My colleague Ben Rains, who runs the Zacks Alternative Energy Innovators portfolio, bought CEG in late January and his members are enjoying the bulk of those gains as nuclear power regains its stature and attracts capital for long-term energy development projects.

In a recent article, Ben described why CEG remains a core holding...

Constellation Energy is a nuclear energy titan that produces roughly 10% of all clean and renewable energy in the U.S. Constellation benefits from the energy-focused aspects of the Inflation Reduction Act, helping provide a price floor for nuclear power and put it on a level playing field with other clean energy sources.

Once shunned, nuclear is primed to transform into the powerhouse of the global energy transition. The U.S. co-led in December 2023 a coalition of over 20 countries from four continents that pledged to triple nuclear energy capacity by 2050.

Nuclear energy will grow as the world attempts to transition away from fossil fuels as energy demand soars to fuel the AI boom. Constellation is already partnering with big tech firms for nuclear power and CEG is attempting to be at the cutting edge of next-gen nuclear reactors.

Constellation plans to expand through mergers and acquisitions and return more capital to shareholders via buybacks and dividends.

(end of CEG notes from Ben Rains June 14 article 2 AI Stocks Not Named Nvidia or SMCI to Buy on the Dip)

Earnings Update: Analysts Propelled to Raise Estimates

Constellation Energy posted its Q1 results on May 9 and grew its adjusted quarterly earnings from $0.78 per share in the year-ago period to $1.82 per share, topping our $1.64 a share estimate.

In response to the results and outlook, Wall Street analysts raised this year's EPS consensus from $7.41 to $7.62. And in the past 90 days, the 2025 Zacks EPS Consensus has jumped 14% to $8.95.

Here was commentary from Ben to his Alternative Energy Innovators members following the company report...

The nuclear powerhouse’s GAAP net income soared 860% to $2.78 per share. As I mentioned yesterday, Wall Street is not too concerned with CEG’s exact top and bottom-lines at the moment. CEG has fallen way short of our bottom line estimates in three out of the past five quarters.

Constellation’s revenue fell 18% YoY to $6.2 billion, falling well shy of the Zacks Consensus Estimate of $8.4 billion.

Investors care much more about its longer-term outlook within the booming nuclear energy industry and its ongoing commitment to return value to shareholders.

Constellation’s total operating expenses fell 29% YoY to $5.35 billion. On top of that, CEG grew its operating income from $31 million in the prior-year quarter to $813 million.

Constellation stock soared last quarter after it started targeting long-term base EPS growth of at least 10% through the decade.

The company today affirmed its full-year 2024 adjusted earnings guidance range of $7.23 to $8.03 per share. The current Zacks consensus of $7.43 a share is below the midpoint outlook.

CEG repurchased nearly 3 million shares and deployed approximately $500 million during the quarter, bringing its cumulative repurchases to over $1.5 billion. CEG also authorized an additional $1 billion authority to repurchase shares under its previously announced program.

Moody’s during the quarter upgraded Constellation’s credit rating and assigned a stable outlook based on CEG’s improved debt coverage metrics and strong financial performance, “driven by climate policies that recognize the value of nuclear as a reliable clean energy resource.”

Constellation issued what it called the first U.S. corporate green bond to feature nuclear.

It issued a $900 million, 30-year term green bond to finance projects such as “nuclear uprates that will increase production of clean, carbon-free energy… and advance other technologies, including the production of clean hydrogen, energy storage systems, wind repowering and carbon-free energy solutions for our commercial customers.”

Constellation is extending the lives of its nuclear plants and increasing their output while attempting to roll out next generation nuclear reactors at its sites.

“The largest and most critical industries in America are coming to us to power their businesses with clean energy in every hour of every day, providing opportunities for sustainable growth as we lead the nation’s transition to a clean-energy economy,” CEO Joe Dominguez said in prepared remarks.

(end of Ben's commentary to his members)

Bottom line on CEG: Nuclear energy is back in a big way and for investors who stay the course of this long-term megatrend resurgence, the dividends should keep paying for decades.

Bear of the Day:

Vornado Realty Trust reported first-quarter results that continued to underwhelm Wall Street analysts and propelled them to lower estimates yet again to consensus figures representing a 2% decline in the topline and a 19% annual drop in the bottom line.

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Funds from operations (FFO), plus assumed conversions as adjusted per share, of 55 cents missed the Zacks Consensus Estimate of 58 cents. Moreover, the figure declined 8.3% year over year.

FFO measures cash generated by REITs from their core operations, excluding gains/losses on sales. It is used to assess the financial performance and value of real estate companies. FFO provides a more accurate depiction of a REIT's profitability than net income.

Results displayed lower-than-anticipated top-line growth despite decent leasing activity across the company’s portfolio. The year-over-year decline in total same-store net operating income (NOI) was also noticeable.

Total revenues came in at $436.4 million in the reported quarter, lagging the Zacks Consensus Estimate of $451.1 million. On a year-over-year basis, revenues declined nearly 2.1%.

Quarter in Detail

In the reported quarter, total same-store NOI (at share) came in at $255.1 million compared with the prior-year quarter’s $267.9 million. The metric for the New York, THE MART and 555 California Street portfolios decreased 4.6%, 10% and 2.4%, respectively, from the prior-year period.

Operating expenses decreased 1.1% to $226.2 million year over year.

During the quarter, in the New York office portfolio, 291,000 square feet of office space (250,000 square feet at share) was leased for an initial rent of $89.23 per square foot and a weighted average lease term of 11.1 years. The tenant improvements and leasing commissions were $12.98 per square foot per annum or 11.5% of the initial rent.

In the New York retail portfolio, 36,000 square feet were leased (33,000 square feet at share) at an initial rent of $253.83 per square foot and a weighted average lease term of 3.8 years. The tenant improvements and leasing commissions were $29.16 per square foot per annum or 11.5% of the initial rent.

Additionally, at THE MART, 51,000 square feet of space (all at share) was leased for an initial rent of $64.02 per square foot and a weighted average lease term of 4.5 years. The tenant improvements and leasing commissions were $8.37 per square foot per annum or 13.1% of the initial rent.

Vornado ended the quarter with occupancy in the New York portfolio at 88.2%, down 170 basis points (bps) year over year. Occupancy in THE MART declined to 77.6% from 80.3%. Further, occupancy in 555 California Street also declined 40 bps to 94.5%.

Default Risk Rises as CRE Needs to Refi

Since the start of 2022, Vornado Realty Trust has faced at least two significant loan defaults impacting its commercial real estate portfolio.

Fifth Avenue and Times Square Joint Venture: In December 2022, Vornado defaulted on a $450 million loan secured by retail properties along Fifth Avenue and Times Square. This includes assets like 697-703 Fifth Avenue, where tenants include luxury brands such as Harry Winston and Blancpain. The company has been negotiating with lenders to restructure the loan, but there's a possibility they might have to hand over the property if an agreement isn't reached, according to Moguldom and The Real Deal.

Lincoln Road Mall: Vornado defaulted on an $83 million loan for its Lincoln Road Mall property in Miami Beach. The loan, originally secured in 2017, matured in 2021. After defaulting, Vornado sold the property to BH Properties at a discount of at least $35 million, according to the Commercial Observer in a May 2022 article.

These defaults reflect the broader challenges facing the commercial real estate market, particularly in major metro areas, as remote work trends and high-interest rates continue to impact leasing activities and property values.

Bottom line for Vornado: While the CRE crisis we expected in 2023 after the failures of large regional banks never materialized, there is still pressure on the REITs with loans that need to be refinanced at steadily higher costs and an office environment that will never see pre-pandemic occupancy.

Additional content:

Target (TGT) to Roll Out GenAI Tool Nationwide

Target Corp. has announced its plans to introduce a new generative Artificial Intelligence (GenAI) tool named Store Companion to team members across nearly 2,000 stores by August 2024. This initiative will make Target the first major retailer to implement GenAI technology for store staff on a nationwide scale.

Store Companion is a GenAI-powered chatbot specifically designed by Target to support store operations and enhance the working experience of team members. The tool aims to simplify the jobs of Target’s store staff by providing immediate and accurate answers to various procedural questions.

For instance, if a team member needs to know how to sign a guest up for a Target Circle Card or restart a cash register in the event of a power outage, Store Companion can provide instructions and resources within seconds. Beyond handling process-related queries, Store Companion also functions as a coach, particularly for new and seasonal team members, helping them to quickly learn and adapt to their roles.

Implementation and Testing

The rollout of Store Companion follows a successful pilot phase involving about 400 stores. During this phase, the in-house technology team at Target collected frequently asked questions and processed documents from store teams across the United States to develop a robust and practical tool. The feedback from the pilot stores has been overwhelmingly positive.

According to Jake Seaquist, store director at one of the pilot locations in Champlin, MN, the tool has significantly streamlined day-to-day tasks, thereby allowing team members to spend more time interacting with guests and enhancing their shopping experience. Experienced team members also contributed to the tool’s development by sharing their expertise and adding valuable materials, helping to refine Store Companion before its wider release.

Broader GenAI Strategy Bodes Well

Store Companion is part of Target's comprehensive approach to integrating GenAI technology across its business. In addition to Store Companion, Target plans to introduce another GenAI tool for its headquarters team members in the coming months. This move underscores Target's commitment to leveraging advanced technology to improve efficiency and effectiveness across all levels of the organization.

Target is utilizing GenAI to enhance its digital consumer experience. This includes improvements to product display pages on Target.com, where GenAI is used to summarize reviews and create more relevant product descriptions, helping shoppers make informed purchasing decisions. GenAI also enriches product titles with additional information, making it easier for customers to find the items they need quickly. By the end of the summer, more than 100,000 product pages are expected to have undergone these enhancements.

Additionally, Target has started rolling out a GenAI-powered Guided Search feature on its website. This feature allows customers to use conversational language in their searches, leading to more intelligent and curated search results. For example, a search for "summer party" will yield a comprehensive selection of related items, from party supplies and invitations to outdoor tableware, grilling meat, snacks, drinks, and even commonly forgotten items like sun protection and insect repellents. This enhanced search experience will be fully available to all consumers later this summer.

Wrapping Up

Target is dedicated to the safe and responsible use of GenAI technology. The company is focused on building a GenAI ecosystem that not only drives its business forward but also enhances the experiences of both team members and guests. Target’s strategic approach to GenAI underscores its commitment to embracing the future of retail while maintaining a strong focus on innovation and growth.

We note that shares of this Zacks Rank #3 (Hold) company have gained 8.3% in the past year compared with the industry’s 38% growth.

Key Picks

Here we have highlighted three better-ranked stocks, namely The Gap, Inc. and Walmart.

Gap is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Gap’s fiscal 2024 earnings and sales indicates growth of 21.7% and 0.2%, respectively, from fiscal 2023. GPS has a trailing four-quarter average earnings surprise of 202.7%.

Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Walmart’s current financial-year sales and earnings implies growth of 4.2% and 9%, respectively, from the year-ago period. WMT has a trailing four-quarter earnings surprise of 8.3%, on average.

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Constellation Energy Corporation (CEG) : Free Stock Analysis Report

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Walmart Inc. (WMT) : Free Stock Analysis Report

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