For Immediate Release
Chicago, IL – May 1, 2023 – Zacks Equity Research shares General Motors GM as the Bull of the Day and Pool Corporation POOL as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Conagra Brands, Inc. CAG, General Mills, Inc. GIS and Lamb Weston Holdings, Inc. LW.
Here is a synopsis of all five stocks.
Bull of the Day:
Sporting a Zacks Rank #1 (Strong Buy) General Motors lands the Bull of the Day as there could be a nice amount of upside for the auto giant from its current levels.
Trading around $33 per share, General Motors stock is 24% from its 52-week highs with the company’s outlook more refreshing for investors at the moment.
To that point, General Motors was able to beat its top and bottom-line first-quarter expectations last Tuesday and raised its guidance in key areas. Driven by strong customer demand and increased operating efficiency, General Motors said it led the U.S. auto industry in retail and fleet deliveries, commercial deliveries, and truck sales.
This resulted in General Motors blasting Q1 earnings expectations by 35% with EPS at $2.21 per share compared to estimates of $1.64 per share. Year over year Q1 earnings were up 6% with sales jumping 11% from the prior year quarter at $39.98 billion. First-quarter sales also beat top-line estimates by 3%.
EPS Revisions & EV Presence
Aforementioned, General Motors also raised its outlook during its quarterly report and now expects fiscal 2023 EPS between $6.35 -$7.35 per share ($11 billion-$13 billion) and up from previous guidance of $6-$7 per share ($10.5 billion- $12.5 billion).
In correlation, earnings estimate revisions have climbed for General Motors over the last week and this is a great sign GM stock could start rising. Fiscal 2023 earnings estimates increased 5% last week and have now gone up 14% over the last quarter. Plus, FY24 EPS estimates have continued to trend higher as well.
More importantly, General Motors is starting to put an end to fears that Tesla and other EV companies would diminish its presence in the auto industry. With an electric vehicle expansion of its own, General Motors delivered 20,000 EVs during the first quarter.
This was a quarterly record and almost doubled Ford’s 10,866 EV deliveries with General Motors surpassing its long-term rival for the #2 spot in the U.S. market share behind Tesla. General Motors said it increased its EV market share by 8% during Q1 to surpass Ford, and unlike Tesla will not cut prices and dip into profits which came as a delight to investors.
With earnings estimates on the rise, General Motors’ price-to-earnings valuation is very attractive at just 4.9X forward earnings. This is nicely beneath the industry average of 10.5X and the S&P 500’s 19.1X. Even better, General Motors stock trades 77% below its decade-long high of 22.8X and at a 22% discount to the median of 6.7X.
General Motors’ cash flow is also attractive with the company raising its guidance for adjusted automotive free cash flow from expectations of $5 billion-$7 billion to $5.5 billion-$7.5 billion. Even better, when looking at General Motors’ price-to-cash flow its stock appears to have strong value right now.
With a lower P/CF number being desired, many professional investors typically prefer this valuation metric because cash is harder to manipulate on the income statement and bolsters the financial health of a company.
At 2.9X, General Motors P/CF is intriguingly below the industry average of 9.2X and the benchmark’s 16.5X.
Now appears to be an opportune time to buy General Motors stock with its attractive expansion in the EV market and the company offering good value to investors.
This is reason to believe there could be a considerable amount of upside in GM shares which sport an overall “A” VGM Zacks Style Scores grade for the combination of Value, Growth, and Momentum in addition to its Zacks Rank #1 (Strong Buy).
Bear of the Day:
Pool Corporation currently lands a Zacks Rank #5 (Strong Sell) with its Leisure and Recreation Products Industry in the bottom 17% of over 250 Zacks industries.
Although Pool Corp is the world’s largest wholesale distributor of swimming pool supplies, equipment, and related products, the company is dealing with weakening demand attributed to the economic headwinds of higher interest rates.
Investors may want to be cautious at the moment as this caused Pool Corp to significantly miss its first quarter top and bottom line expectations in late April and lower its guidance.
The company also attributed its dim quarterly results to unfavorable weather conditions in the Western United States as higher precipitation and cooler temperatures compounded the weaker demand.
Pool reported its first-quarter results on April 20 with earnings of $2.46 per share missing EPS estimates of $3.26 a share by -24%. Sales also came up short by -7% at $1.20 billion compared to top-line estimates of $1.29 billion.
Year over year, earnings declined -47% with EPS at $4.41 in Q1 2022. Sales were down -15% from the prior-year quarter. This was certainly alarming to investors and indicative of the tough operating conditions.
Declining Earnings Estimates
More concerning, earnings estimate revisions have continued to drop in the last week and had already declined over the course of the last quarter. Fiscal 2023 earnings estimates are now down -15% over the last 90 days with FY24 EPS estimates dropping -9%.
Pool Corp earnings are now forecasted to dip -17% this year at $15.32 per share compared to EPS of $18.43 in 2022. Fiscal 2024 earnings are expected to stabilize and rebound 10% but the declining earnings estimates are cause for temporary concern as Pool Corp stock is not cheap at $351 per share.
Pool Corp is a leader in its space but trades at 22.3X forward earnings which is double the broader industry average of 10.3X, and its ability to command a premium appears to be fading at the moment.
While Pool Corp stock is still up +16% year to date it could start to give back some of these gains on a less favorable outlook. Given that a pullback or correction looks more likely for Pool Corp stock investors may want to stay clear for now.
3 Grocery Stocks to Buy Amid Ongoing Price Challenges
U.S. GDP fell more than expected in the first quarter of 2023 as high inflation continues to slow down the economy. One of the biggest sufferers has been the retail sector, as sky-high prices have dampened consumer spending. This comes as the Fed gears up to increase interest rates next week.
Amid these doldrums, people are spending cautiously on necessities and aggressively cutting down on luxuries. However, spending on basic necessities is almost unavoidable. Hence, grocery is one such sector that is still showing growth although at a slower pace.
Given this situation, stocks like Conagra Brands, Inc., General Mills, Inc. and Lamb Weston Holdings, Inc. are likely to benefit in the near term.
Grocery Sales Still Growing
Retail sales have been slowing at an alarming pace as people are aggressively cutting down on spending owing to sky-high prices. However, grocery sales are still up. According to the Mastercard SpendingPulse, U.S. retail sales advanced 4.7% in March on a year-over-year basis.
This was down from February’s growth of 6.7%. Grocery has been one of the key drivers of retail sales lately. According to the report, grocery sales jumped 5.6% year over year in March.
A separate report from Brick Meets Click/Mercatus Grocery Shopping Survey also showed a rise in online grocery sales. According to the report, online grocery sales totaled $8 billion in March.
Since there is little room to reduce spending on necessities like food items, groceries have been the bright spot in the retail sector. Groceries fall under the consumer staples’ sector, given that they are basic necessities. Their demand is generally resilient to changes in the economic cycle. Companies in this fundamentally strong and mature category are thus defensive.
Wholesale prices have declined lately, which is a sign of easing inflation. The Labor Department said earlier this month that Producer Price Index (PPI) fell 0.5% in March. This comes after it remained unchanged in the first two months of the year.
Year over year, PPI increased 2.7% in March, significantly less than February’s jump of 4.7%. However, signs of slowing inflation came a bit too late, and the economy had already taken a hit by that time, with U.S. GDP slowing more than expected in the first quarter.
Preliminary data released by the Commerce Department showed that GDP grew a meager 1.1% in the first quarter of 2023, slower than expectations of a rise of 2%. Understandably, this is a tough year as GDP grew 2.6% in the final quarter of 2022. Moreover, the Fed is gearing up to increase borrowing rates by another 25 basis points, which would take the federal funds target to a range of 5% to 5.25%.
This will further escalate borrowing rates. However, the groceries segment is unlikely to be affected much during these trying times, given its defensive nature. The Consumer Staples Select Sector SPDR has gained 5.7% over the past six months compared to the S&P 500 Index’s growth of 1.6%.
Given this situation, it would be wise to invest in these food and grocery stocks. Each of the stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Conagra Brands, Inc. is one of the leading branded food companies of North America. CAG offers premium edible products with a refined focus on innovation. Conagra Brands maintains a highly dynamic product portfolio and incorporates alterations within it, per the preference pattern of end-users.
Conagra Brands’ expected earnings growth rate for the current year is 16.5%. The Zacks Consensus Estimate for current-year earnings has improved 3.4% over the past 60 days. CAG currently has a Zacks Rank #2.
General Mills, Inc. is a global manufacturer and marketer of branded consumer foods sold through retail stores. The company also serves the foodservice and commercial baking industries. General Mills’ principal product categories include ready-to-eat cereals, convenient meals, snacks (including grain, fruit and savory snacks, nutrition bars, and frozen hot snacks), super-premium ice creams, as well as baking mixes and ingredients.
General Mills’ expected earnings growth rate for the current year is 7.4%. The Zacks Consensus Estimate for current-year earnings has improved 1.2% over the past 60 days. GIS currently carries a Zacks Rank #2.
Lamb Weston Holdings, Inc.is a leading global manufacturer, marketer and distributor of value-added frozen potato products, particularly French fries, and provides a range of appetizers. LW, along with its joint venture allies, is the top frozen potato products supplier in North America, while it also operates internationally, with a robust and growing presence in emerging markets.
Lamb Weston’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current-year earnings has improved 14.2% over the past 60 days. LW presently sports a Zacks Rank #1.
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