Hubbell and DocuSign have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – May 26, 2023 – Zacks Equity Research shares Hubbell Inc. HUBB as the Bull of the Day and DocuSign, Inc. DOCU as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Diamondback Energy, Inc. FANG, Pioneer Natural Resources Co. PXD and Matador Resources Co. MTDR.
Here is a synopsis of all five stocks.
Bull of the Day:
Hubbell Inc. is a leading manufacturer of utility and electrical solutions that’s poised to benefit from two megatrends that are still in their early stages in the U.S. and globally: electrification and grid modernization.
HUBB stock has more than doubled the S&P 500 over both the last 20 years and the past five. Hubbell smashed our quarterly earnings estimate in late April and provided significantly upbeat guidance.
HUBB also broke back above some key technical levels recently on its way to fresh highs, without overextending its valuation.
Supplying Critical Growth Areas
Hubbell is a top manufacturer of utility and electrical solutions with an established track record that is set to benefit from the critically pressing need for grid modernization and the wave of electrification. Expanding and revamping electrical grids is vital as the U.S. and many countries around the globe roll out more alternative energy sources in the coming decades.
Hubbell is a more stable, proven stock to help benefit from the booming growth of solar, wind, nuclear, EVs, and beyond. Hubbell is also exposed to the ongoing expansion of broadband networks and service.
Hubbell has been in business for 135 years and it boasts a very solid history of earnings and revenue growth. HUBB splits its business into two major categories: Utility Solutions and Electrical Solutions.
Digging a little deeper, Hubbell’s product categories include lighting and controls, wiring and electrical, power and utilities, and datacom. Meanwhile, its solution offerings feature energy savings, safety and security, extreme environment, wire and cable management, and more.
Recent Growth and Outlook
Hubbell grew its adjusted earnings by 70% in Q1 to top the Zacks estimate by 47% on the back of 11% revenue growth. HUBB also boosted its operating margin by 7% YoY to 19.4%, driven by “price realization, lower raw material costs and improved productivity.”
Better still, Hubbell provided upbeat guidance that helps it land a Zacks Rank #1 (Strong Buy) right now. HUBB’s FY23 consensus earnings outlook has jumped 23% since its first quartet release, with its FY24 figure now 19% higher.
The recent positivity extends HUBB’s trend of upward earnings revisions that began early last year. “Utility Solutions orders remained strong, leading to another quarter of backlog build as customers actively invest in grid hardening and resiliency initiatives, smart grid applications and broadband deployments,” CEO Gerben Bakker said in Q1 remarks on April 25.
“In Electrical Solutions, industrial end markets and strategic growth verticals highlighted by renewables were strong, while commercial markets were more modest, and the residential market remained soft as expected.”
Current Zacks consensus estimates call for Hubbell to post another 30% adjusted earnings expansion in 2023 and 8% higher sales to see it pull in $5.36 billion. These projections follow 18% sales expansion last year and 14% growth in 2021, alongside double-digit EPS gains.
Hubbell is set to expand its top and bottom lines again in 2024 even as it faces this tough-to-compete-against stretch. And it has beaten our quarterly earnings estimates in 17 out of the last 20 periods.
Performance & Valuation
Hubbell stock has climbed roughly 735% in the last 20 years, with a total return of 1,300% vs. the S&P 500’s 330% and 575%, respective gains. HUBB also outshined its Zacks Industrial Products sector on both metrics over these timeframes. HUBB’s outperformance remains firmly intact over the last 15- and five-year time periods as well.
Hubbell shares are up 155% in the last five years and 50% in the past 12 months. This run includes a nearly 30% climb since early April, boosted by a big post-earning release surge.
HUBB’s recent run helped the stock rebound back above both its 200-day and 50-day moving averages. The stock could face some near-term selling pressure with it trading right near fresh all-time highs.
Despite Hubbell’s recent pop, its long-term outperformance, and the fact it trades near its peak in terms of price, HUBB’s valuation hardly appears stretched. HUBB is trading right around its 10-year median at 19.7X forward earnings, which also marks a 16% discount to its own highs. And Hubbell is trading roughly in line with the Zacks Machinery-Electrical Market.
Hubbell should continue to benefit from the changing energy landscape, electrification, the broadband buildout, and more for decades to come. On top of that, the company raised its dividend (by 7%) for the 15th straight year in 2022, with it yielding 1.6% at the moment.
Hubbell boasts a rather sturdy balance sheet that should help it keep boosting its dividend and buying back more stock, and possibly continue to expand its business down the line through strategic acquisitions.
(Disclosure: Ben Rains owns HUBB in the Zacks Alternative Energy Innovators service)
Bear of the Day:
DocuSign, Inc. sells software offerings highlighted by e-signature, document generation, contract lifecycle management, and more.
DocuSign stock got overheated alongside many other pandemic high-flyers, and it currently trades around 80% below its peaks as Wall Street remains concerned about slowing growth and increased competition from Adobe and others. And some of DocuSign’s earnings revisions are trending in the wrong direction.
DocuSign offers various platforms for e-signature, document generation, contract lifecycle management, and beyond. DocuSign sells industry and department-specific solutions, and it has pre-built integrations within other big names in business software.
DocuSign’s revenue boomed as more of the economy moved to the digital world. Mortgage documents, tons of legal agreements, and much more now often live in electronic format. DOCU’s revenue soared following its 2018 IPO, including four-straight years of between roughly 35% to 45% growth. However, the company reported its full-year fiscal 2023 results in early March that showed revenue only climbed 19%.
Zacks estimates call for DocuSign’s revenue to climb 7.3% this year and 8% next year. The slowing revenue growth comes as DOCU faces a difficult-to-compete-against stretch, a slowing economy, and growing competition from the likes of Adobe and other large, more diversified tech companies.
DocuSign’s earnings outlook has recently dipped slightly for next year. On top of that, the most accurate (most recent) EPS estimate for next year comes in 7% below the current Zacks consensus to help it land a Zacks Rank #5 (Strong Sell) at the moment.
DocuSign still operates a solid business, and Zacks estimates call for it to post 15% adjusted earnings growth this year and 10% higher EPS next year. And DOCU is attempting to cut costs to improve its bottom line and help make up for slowing revenue expansion.
But Wall Street and the price movement are telling investors to stay away from DocuSign right now. DOCU is still down 34% in the last year and it has slipped around 4% YTD. DOCU’s technical chart appears a little worrisome as well. Plus, DocuSign is sitting slightly above neutral RSI levels, which means it would take even more selling to get it near oversold territory.
Until there is a material change in its guidance or buyers finally start to show up in waves to buy the beaten-down DocuSign, investors might want to look at other tech stocks that have boosted their earnings guidance and participated more heavily in the 2023 comeback.
DocuSign will have a chance to start changing the hearts and minds of Wall Street when it reports its first quarter fiscal 2024 results on Thursday, June 8.
Oil Prices Still Healthy: 3 Permian Stocks to Keep an Eye On
Since the beginning of this year, the oil pricing environment has favored exploration and production activities. Upstream players will likely keep increasing their operations in prolific shale resources, in turn raising their count for drilling rigs. Thus, with increasing drilling activities, production will possibly increase, aiding businesses for explorers and producers. Amid such a scenario, stocks that could gain are Diamondback Energy, Inc., Pioneer Natural Resources Co. and Matador Resources Co.
Oil Price Still High
West Texas Intermediate crude price is trading at more than $70 per barrel, which is highly favorable for exploration and production activities. Also, in its short-term energy outlook, the U.S. Energy Information Administration (“EIA”) projected the average spot price of West Texas Intermediate crude at $73.62 per barrel this year, still a handsome price for upstream operations.
Shale Oil Production to Rise
In June, total oil production from shale resources in the United States will likely increase by 41,000 barrels per day to 9,332 thousand barrels per day (MBbl/D), per EIA. The shale resources comprise Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara and Permian.
Of all the resources, the Permian will witness the highest increase in daily oil production next month, according to the EIA’s drilling productivity report. In the Permian, the EIA projects oil production to rise by 15,000 barrels per day to 5,707 MBbls/D in June.
Permian Explorers in the Spotlight
It has been crystal clear that a favorable crude pricing scenario is backing higher production volumes. Improving Permian production amid healthy oil prices has raised the incentive to keep an eye on companies operating in the most prolific basin.
3 Stocks to Gain
Diamondback Energy is a leading pure-play Permian operator. The firm, carrying a Zacks Rank #3 (Hold), expanded its footprint in the Midland basin since it acquired all leasehold interest and associated properties of Lario Permian, LLC — a wholly-owned affiliate of Lario Oil & Gas Company. FANG also has an investment-grade balance sheet.
Pioneer Natural has a strong presence in the low-cost oil-rich Midland basin — a sub-basin of the broader Permian. The #3 Ranked upstream energy player has a massive inventory of premium wells that will likely generate significant returns for the company. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pioneer Natural is focused on returning capital to shareholders. This includes a substantial variable dividend along with a strong base dividend. PXD is also employing opportunistic share repurchases to reward shareholders.
Pioneer Natural has considerably lower exposure to debt capital than the composite stocks belonging to the industry. This reflects its strong balance sheet on which the firm can rely to sail through the volatile energy businesses.
Solid oil prices are a boon for Matador Resources’ upstream operations. This is because the company has a strong presence in oil-rich core acres of the Wolfcamp and Bone Spring plays in the Delaware Basin. Favorable oil prices are likely to aid it in increasing production volumes. For 2023, Matador, with a Zacks Rank of 3, reiterated its oil equivalent production guidance of 44.35-46.25 million barrels. The metric suggests an improvement from 38.5 million oil-equivalent barrels reported in 2022. MTDR is now expecting production at the high end of the projected band.
On another positive note, Matador plans to turn to sales a net of 97.5 wells this year, including operated and non-operated wells. The prime priorities that the firm has set for this year are lowering debt levels, delivering free cashflows and maintaining or increasing dividends.
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