For Immediate Release
Chicago, IL – November 14, 2022 – Zacks Equity Research shares e.l.f. Beauty, Inc. ELF as the Bull of the Day and Ally Financial Inc. ALLY asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on JPMorgan Chase & Co. JPM, AT&T T and Caterpillar CAT.
Here is a synopsis of all five stocks.
e.l.f. Beauty, Inc. is defying the gloomy predictions that the consumer would pull back on spending. This Zacks Rank #1 (Strong Buy) recently beat again on earnings and raised full year guidance.
e.l.f. Beauty is a multi-brand beauty company that includes e.l.f. Cosmetics, e.l.f. SKIN, Well People and Keys Soulcare, a lifestyle beauty brand created with Alicia Keys.
Its brands are sold across a range of retailers in the United States and have a growing international presence.
7th Beat in a Row in the Fiscal Second Quarter
On Nov 2, 2022, e.l.f. Beauty reported its fiscal second quarter results and blew by the Zacks Consensus by $0.20. Earnings were $0.36 versus the Zacks Consensus of $0.20.
It was the 7th consecutive big earnings beat in a row. It has only missed on earnings once since 2019.
Second quarter sales were up 33% to $122.3 million driven by strength in both the retailer and e-commerce channels. e.l.f. Cosmetics were up 27% and e.l.f. Skin jumped 44%.
Gross margin rose 190 basis points to 65% due to price increases, cost savings and product mix, partially offset by inventory adjustments and higher transportation costs.
Raised Sales and Earnings Guidance
With the strong quarter and the holidays approaching, e.l.f. Beauty is bullish on the fiscal year. What consumer slowdown?
It raised its sales guidance to a range of $478 million to $486 million from $448 million to $456 million, which is sales growth between 22% and 24%, up from prior guidance of 14% to 16%.
e.l.f. Beauty also now sees earnings in the range of $1.07 to $1.10, up from $0.84 to $0.87.
Given the strong guide higher, it’s not surprising that the analysts all raised their earnings estimates as well.
10 estimates were raised for fiscal 2023 and fiscal 2024 since the earnings report. That pushed the fiscal 2023 Zacks Consensus up to $1.10 from $0.90 just 30 days ago, which is the high end of the company’s new range.
That is earnings growth of 31%.
The fiscal 2024 Zacks Consensus also jumped higher, rising to $1.22 from $0.99 in the last month. That’s further growth of 11%.
Shares Soar to 5-Year Highs
After the beat and the raise, shares soared to new 5-year highs, but they’ve been rallying for most of the year.
Year-to-date the shares have jumped 49.5% versus the S&P 500 which is actually down 16.6% during the same time.
It’s not cheap, with a forward P/E of 47. But investors are obviously willing to pay up for the growth in the beauty industry.
For investors looking for a growth stock that is still seeing the growth this year, e.l.f. Beauty is one to keep on the short list.
Ally Financial Inc. is raising credit loss provisions in its auto loan business as economic uncertainty rises. This Zacks Rank #5 (Strong Sell) is expected to see double digit earnings decline this year and next.
Ally Financial is a digital financial services company with commercial and corporate customers. It operates a digital bank, Ally Bank, which offers mortgage lending, personal lending, deposits and other banking products, as well as auto finance and insurance operations.
Ally also operates a consumer credit card business, a securities brokerage and investment advisory service and a corporate finance business for equity sponsors and middle-market companies.
A Big Miss in the Third Quarter
On Oct 19, 2022, Ally Financial reported its third quarter results and missed big on the Zacks Consensus Estimate. It missed by $0.61, with earnings at $1.12 versus the consensus of $1.73. It was the second earnings miss in a row.
Net income was $272 million compared to $683 million a year ago as higher net financing revenue was offset by higher provision for credit losses, higher noninterest expenses and lower other revenue.
The company’s mortgage business was hit by rising mortgage rates which cooled the housing market.
“Financial results were partially depressed this quarter as a result of an impairment on a nonmarketable equity investment related to our mortgage business, impacting $0.33 of EPS, and higher provisions as a result of loan growth in auto finance and a larger coverage build to ensure the company remains protected as recessionary conditions feel more likely to occur in the coming months,” said Jeffrey J. Brown, CEO.
Ally’s provision for credit losses increased $362 million year-over-year to $438 million, due to credit losses which are normalizing in-line with expectations and CECL reserve build attributable to robust retail auto origination volume.
Most of the build came in autos where the provision for credit losses jumped $275 million year-over-year to $328 million. The retail auto net charge-off rate was 1.05%, up 78 basis points year-over-year.
Analysts Slash Full Year Earnings Estimates
With the big earnings miss and the build of provision for credit losses, the analysts are bearish on the full year and 2023.
8 estimates have been cut for 2022 in the last month, pushing the Zacks Consensus Estimate down to $6.05 from $7.19. That’s an earnings decline of 29.7% compared to 2021 when Ally made $8.61.
They remain bearish on next year too. The 2023 Zacks Consensus Estimate has fallen to $4.17 from $6.21 in the last 30 days after 9 estimates were slashed during that time.
That’s another 31% earnings decline.
Shares are Cheap
Shares of Ally Financial have taken a dive in 2022. They’re down 38% year-to-date, even with the recent market bounce off the better-than-expected October CPI number.
They’re cheap, with a forward P/E of just 4.9 and a PEG ratio of only 0.15. A PEG under 1.0 usually indicates there is both growth and value. It’s a rare combination.
Ally is also shareholder friendly. In the third quarter it did $415 million in share repurchases. Ally also pays a dividend, currently yielding 4.1%.
But with the macro environment still uncertain heading into 2023, investors might want to wait on the sidelines for the next few months to see if earnings estimates turn around.
3 Top-Ranked Stocks Up More than 25% in the Past Month
Following a better-than-expected Consumer Price Index (CPI) print, the market reacted accordingly, with green widespread in yesterday’s trading session.
Still, inflation remains too high for the Fed’s liking, but the better-than-expected print gives hope that peak inflation is behind us.
While the market charges ahead on the news, there have been several currently top-ranked stocks quietly crushing the market over the last month, including JPMorgan Chase & Co., AT&T and Caterpillar.
As we can see, all three stocks are up at least 25% over the last month, indicating that buyers have been busy.
And all three pay a handsome dividend, undoubtedly a major positive.
Let’s take a deeper dive into how each company stacks up.
Caterpillar is the world’s largest construction-equipment manufacturer. The company designs, develops, engineers, manufactures, markets, and sells machinery, engines, financial products, and insurance to customers.
CAT’s earnings outlook has turned visibly bright over the last several months, helping land the stock into a Zacks Rank #2 (Buy).
The company posted a strong quarter in its latest release, exceeding the Zacks Consensus EPS Estimate by more than 20% and surpassing revenue expectations by roughly 4.5%. Below is a chart illustrating the company’s revenue on a quarterly basis.
For the cherry on top, Caterpillar is a Dividend Aristocrat, showing a commendable commitment to shareholders through 25+ years of increased dividend payouts.
CAT’s annual dividend yield currently sits at 2.1%, nicely above its Zacks Industrial Products sector average.
JPMorgan Chase & Co.
JPMorgan Chase & Co. is one of the largest financial service firms in the world, organizing its business through five reportable segments. JPM sports a favorable Zacks Rank #2 (Buy).
Analysts have upped their earnings outlook across the board over the last several months.
JPM’s annual dividend yield currently comes in at 2.9%, paired with a solid 13.1% five-year annualized dividend growth rate and a sustainable payout ratio of 34% of earnings.
The yield is modestly higher than its Zacks Finance sector average.
Shares embarked on an upwards trajectory following its latest print, where JPM exceeded earnings estimates by more than 5% and revenue expectations by 1.2%.
AT&T is North America’s second-largest wireless service provider and one of the world’s leading communications service carriers.
Like the companies above, analysts have taken a bullish stance on AT&T’s near-term earnings outlook, helping push the stock into a favorable Zacks Rank #2 (Buy).
AT&T’s valuation multiples aren’t stretched; its 7.1X forward earnings multiple is beneath its 9.1X five-year median and represents a 62% discount relative to its Zacks Computer and Technology sector.
The company sports a Style Score of an A for Value.
T has long been a favorite among income-focused investors, and its dividend metrics make it easy to see why; AT&T’s annual dividend currently sits at a steep 5.9%, notably above its Zacks sector average.
Investors let out a big sigh of relief following the better-than-expected CPI print, giving stocks the boost they desperately needed.
Of course, it’s worth noting that inflation is still well above the Fed’s target, with the tightening expected to continue, but perhaps at a slower pace.
Further, the positive CPI release could indicate that peak inflation is in the rearview, undoubtedly what investors want to see.
While the market charges ahead, all three stocks above – JPMorgan Chase & Co., AT&T and Caterpillar – joined the party early, seeing their shares soar over the last month and indicating that buyers have been settled in for some time.
Further, all three carry a favorable Zacks Rank, telling us their near-term earnings outlook is bright.
And for the cherry on top, all three pay their investors handsomely.
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