Alcoa Corporation and First Solar highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – February 17, 2022 – Zacks Equity Research Shares Alcoa Corporation AA as the Bull of the Day, First Solar FSLR asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on NVIDIA NVDA, Cisco Systems CSCO and DoorDash DASH.
Here is a synopsis of all five stocks:
Bull of the Day:
Alcoa Corporation, a Zacks Rank #1 (Strong Buy), has surged nearly 1,400% since the March 2020 bottom after dropping to roughly $5/share at the trough of the pandemic-induced market plunge. Only the best companies that are experiencing stellar revenue and earnings growth are able to make this type of price move. AA stock is currently hitting all-time highs even as the market has taken a breather to kick off the new year.
Alcoa boasts the highest Zacks Momentum Style Score of ‘A’. The company is a component of the Zacks Metal Products – Distribution industry, which ranks in the top 22% of all Zacks Ranked Industries.
Quantitative research studies have repeatedly shown that roughly half of a stock’s future price appreciation is due to its industry grouping. By targeting stocks contained within top industry groups, investors can dramatically improve their rate of success. The Metal Products – Distribution industry is part of the Zacks Industrial Products sector, which ranks in the top 44% of all 16 Zacks Ranked Sectors.
Company Description
Alcoa produces and sells bauxite, alumina, and aluminum products globally. Its business segments revolve around these three materials. AA engages in mining operations, processing bauxite into alumina and selling it to industrial customers. The metals producer also offers primary aluminum to customers that are involved in the transportation, construction, and packaging markets. In addition, AA owns hydro power plants that produce and sell electricity.
Alcoa’s founding traces back to 1888 in Pittsburgh, PA where the company is currently headquartered. AA completed its separation from its parent company in November 2016 and subsequently began operating as an independent, publicly-traded company listed on the New York Stock Exchange.
Recent Earnings and Future Estimates
Alcoa has exceeded earnings estimates in each of the past eight quarters. AA’s most recent announcement came in January when the company reported Q4 EPS of $2.50, a +22.55% surprise over the $2.04 consensus. This compares quite favorably to EPS of $0.26 in the same quarter in 2020.
Despite the impressive performance, analysts are still raising earnings estimates for the company. Current quarter (Q1) estimates have been increased by 39.55% in the past 60 days to $2.47. If AA is able to simply match this estimate, the metals producer will have achieved year-over-year quarterly EPS growth of 212.66%. Sales are expected to climb 17.28% to $3.37 billion.
Analysts covering AA have also upped their ‘22 full-year EPS estimates by 47.34% in the past 60 days. The Zacks Consensus Estimate now stands at $8.03, translating to growth of 17.57% relative to last year. Alcoa’s next earnings announcement is slated for April 21st.
Charting the Course
Alcoa has delivered an average earnings surprise of +27.08% over the past four quarters, helping the stock advance nearly 250% in the past year. The price ascent has not slowed down in 2022, with shares advancing over 30% while the S&P 500 has fallen more than 6%.
Notice how both the 50 and 200-day moving averages are sloping up in the chart below, evidenced by the red and purple lines, respectively. The stock does appear extended in the short-term, and bullish investors may consider waiting for a slight pullback before initiating a new purchase.
However, empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. And as we know, Alcoa has seen a steady batch of positive revisions as of late. As long as this trend remains intact (and AA continues to post earnings beats), the stock should continue its bullish move this year.
Near-Term Outlook
Despite the massive price run, AA currently trades at just a 9.22 forward P/E. The valuation picture looks constructive for the bulls.
Bauxite, which is at the heart of Alcoa’s business, is the world’s main source of aluminum. AA is benefitting from an overall uptrend in bauxite and aluminum.
Inflation worries continue to persist as recent readings have come in well above expectations. There isn’t really an end in sight as the Fed will now need to play catchup in an attempt to halt the immense price increases. I think we can call agree that they’re playing from way behind at this point.
Bottom Line
With a maximum ‘A’ Zacks overall VGM score and a constant tailwind provided by a leading industry group and sector combination, it’s not difficult to see why AA is a compelling investment. Robust sales and earnings growth along with a strong technical trend certainly justify adding shares to the mix. Recent positive earnings estimate revisions should also serve to create a ‘floor’ regarding any sudden or unexpected downside moves. If you haven’t already done so, make sure to put AA on your shortlist.
Bear of the Day:
First Solar is a global provider of photovoltaic (PV) solar energy solutions. The company operates in two segments – Modules and Systems. The Modules segment designs and manufactures solar modules that convert sunlight into electricity, driving integrators and operators of PV solar power systems. Its Systems segment offers power plant solutions including project development, engineering, procurement, and maintenance servers geared to utility and industrial companies. First Solar was founded in 1999 and is based out of Tempe, AZ.
The Zacks Rundown
FSLR, a Zacks Rank #5 (Strong Sell), experienced a climax top in late October of last year and has been in a price downtrend for the past several months. The stock is hitting a series of new 52-week lows and represents a compelling short opportunity as the market continues its volatile start to the year.
FSLR is a component of the Zacks Solar industry which ranks in the bottom 13% of all Zacks Ranked Industries. Our proprietary historical research has shown that stocks in the bottom half of industry groups underperform the top half by a factor of more than 2 to 1. As such, we expect this industry group to underperform the market over the next three to six months. Candidates in the worst-performing industries can often represent good shorting opportunities, as their industry association provides a headwind to any rally attempts.
The Past and Present: Earnings History and Forecasts
Earnings misses have been a sore spot for First Solar in recent years. The solar provider has fallen short of estimates in seven of the past twelve quarters. FSLR most recently reported Q3 EPS back in November of $0.42, missing the $0.63 consensus estimate by -33.33%.
First Solar is scheduled to report Q4 earnings on March 1st. Analysts are expecting EPS of $1.07, which would translate to negative growth of -0.93% relative to the same quarter in the prior year. The situation looks even more dire for the current quarter as analysts have reduced their estimates by -19.05% in the past 60 days. The Q1 Zacks Consensus EPS estimate now sits at $0.34, marking an -82.65% regression versus the first quarter last year. Sales are anticipated to fall -19.61% to $645.79 million.
Looking into 2022, analysts covering FSLR are in agreement and have condensed their full-year EPS estimates by -16.51% during the past two months. The Zacks Consensus Estimate is now $1.77, reflecting a -57.98% reduction in yearly EPS. Sales are seen falling by -6.01% to $2.75 billion.
Consensus earnings estimates have been weakening along with the stock, a good sign for the bears.
Technical Outlook
FSLR stock has been steadily falling since late last year and have now established a well-defined downtrend. Notice how both the 50-day (red line) and 200-day (purple line) moving averages are sloping down. The stock continues to trade below both averages, while the 50-day moving average has acted as steady resistance throughout the down move.
First Solar has continued its descent into the new year, with shares falling nearly 18%. Even with the recent price decline, the stock is still relatively overvalued which could continue to hurt performance in the short-term:
Final Thoughts
A variety of headwinds such as pandemic-related delays and shortages as well as unfavorable changes in import tariffs for solar products may continue to hurt the stock. A history of earnings misses and deteriorating sales and earnings estimates are a huge red flag and need to be respected. These will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
FSLR’s characteristics have resulted in a Zacks Momentum Style Score of ‘C’ and an overall ‘D’ VGM score. The company is part of an industry group that ranks in the bottom 13% of all Zacks Ranked Industries. Potential investors will want to steer clear of FSLR until the situation shows drastic signs of improvement, or possibly include it as part of a short or hedge strategy.
Additional content:
Mixed Wednesday on Ukraine, Fed Minutes; NVDA, CSCO Beat, DASH +30%
We found ourselves with a mixed day in the market indexes Wednesday, and fairly flat compared to the volatility we’ve grown used to over the past few months. The Dow, which had been -346 points at the low during the session, finished -53 points, -0.15%; the Nasdaq was -0.11% on the day; the S&P 500 posted a slight gain of +0.09% and is now within 7% of its all-time high; and the Russell 2000 brought the small-caps higher than their counterparts yesterday, +0.14%.
Minutes from the latest meeting from the Federal Open Market Committee (FOMC) in late January show several members clearly concerned about inflation tripping the economy in the near term. This was before many of the 40-year highs in inflation metrics had been announced in the past week or two. The committee also expressed interest in winding down the bond portfolio in a substantial way.
Yet the Fed decided to keep the taper ongoing, with $20 billion in Treasury-bill purchases and $30 billion mortgage-backed securities continuing to backstop the economy.
The FOMC message was, “A significant reduction in the size of the [$9 trillion] balance sheet [would be] appropriate.” Continuing loose monetary policy is considered to carry major risks; that much was in agreement across the voting members.
After Wednesday's market close, Zacks Rank #2 (Buy)-rated NVIDIA beat expectations on top and bottom lines for its Q4, extending an excellent track record that has shown only one earnings miss in more than five years. Earnings of $1.32 per share outpaced the Zacks consensus by a solid dime, while sales of $7.64 billion in the quarter sped past the $7.43 billion analysts had been expecting.
Exceptional demand in both Gaming (+61% year over year) and Data Center (+60%), along with more products and applications coming down the pike, are helping keep NVIDIA strong, despite its slight sell-off on the news. Though the stock is down -12% year to date, it’s still up nearly +78% from a year ago and almost +900% from this time in 2017. The stock is off the near-term lows in late January, when NVDA shares sold at $219.44 per share.
Cisco Systems shares are up more than +5% on its beat on both top and bottom lines Wednesday afternoon, as well. Earnings of 84 cents per share outpaced estimates by 3 cents, while revenues came in at $12.72 billion for the quarter, higher than the $12.65 billion expected. Also, a $15 billion share buyback program was announced, along with a one-cent (+3%) increase in its dividend yield.
The big winner after-hours was DoorDash. +30% in late trading on a mixed Q4 report after the bell. A bottom-line loss of -45 cents per share was worse than the -28 cents expected, but still a considerable improvement from the -$2.67 per share reported a year ago. Sales of $1.30 billion surpassed the $1.27 billion expected. Short-covering looks to be keeping this stock much higher in after hours; at $123 per share it’s still about half of its trading level back in November of last year.
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