Cardinal Health and RH have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – February 1, 2024 – Zacks Equity Research shares Cardinal Health CAH as the Bull of the Day and RH RH as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Abercrombie & Fitch Co. ANF, Chipotle Mexican Grill, Inc. CMG and Target Corp. TGT.
Here is a synopsis of all five stocks:
Bull of the Day:
Cardinal Health is a multinational healthcare services and products company based in the United States. It operates as a crucial player in the pharmaceutical and medical supply chain, providing a range of services to healthcare institutions, pharmacies, and manufacturers.
Cardinal Health is involved in pharmaceutical distribution, manufacturing of medical products, and offering various solutions to enhance the efficiency and effectiveness of healthcare delivery. The company plays a significant role in the US healthcare infrastructure and does an incredible $200 billion in sales per year.
Cardinal Health also enjoys a Zacks Rank #1 (Strong Buy) rating, demonstrating upward trending earnings revisions, and forecasts impressive EPS growth over the next few years. Additionally, after acquiring healthcare analytics company Specialty Networks for $1.2 billion, the stock broke out of a compelling technical chart pattern.
Earnings Estimates
After bottoming out at the end of 2022, earnings estimates have been steadily climbing higher over the past two years placing Cardinal Health on the top of the Zacks Rank on a number of occasions. Over that period the stock has returned 123%.
Current year sales are projected to climb 10.3% YoY to $226 billion and next year is expected to grow 8.2% to $245 billion, a strong growth rate for such a large company. Over those same intervals, earnings are expected to increase 19.3% and 12.3% YoY respectively.
Furthermore, over the next 3-5 years, EPS are forecast to grow at an average annual rate of 15.3%, which is not only an enviable growth rate, but especially for its reasonable relative valuation.
Valuation
CAH is trading at a one year forward earnings multiple of 15.5x, which is well below the industry over of 18.8x, but above its 10-year median of 13.1x. However, based on the strong EPS growth projections, CAH has a PEG Ratio of 1x, indicating fair value.
Thus, investors can expect to buy a fair valued company growing profits at 15% annually, which although not a deep discount seems like a fair deal. CAH also pays a tidy dividend yield of 1.9%.
Technical Setup
Finally, after announcing the acquisition on Wednesday morning, Cardinal Health stock broke out from this 3-month bull flag. This breakout brought the share price to new all-time highs and indicates powerful momentum behind the buying.
So long as the stock price doesn't breakdown below the breakout level of $106, CAH should continue to climb.
Bottom Line
Cardinal Health currently offers investors the opportunity to buy one of the most critical pieces of the US healthcare infrastructure at a very fair value.
And for investors looking to add some defensive positioning while the US monetary policy begins a major shift, healthcare names like Cardinal can often provide market-beating returns during uncertain times.
Because of these numerous bullish catalysts, I believe Cardinal Health to be a worthy consideration for any investor.
Bear of the Day:
RH, also known as Restoration Hardware, is a luxury home furnishings company known for its high-end and curated collections of furniture, lighting, textiles, and décor. RH is well known for its impressive retail locations and commitment to extremely high quality craftmanship.
However, uber-luxury furniture shopping has fallen off considerably since the post-Covid boom, and sales and earnings have taken a hit along with the share price.
Based on these trends, earnings estimates have fallen precipitously over the last two years, and more so in recent months, indicating the potential for more downside ahead. Additionally, with an earnings multiple well above historical averages and falling EPS expectations, there is considerable downside risk.
Because of this setup, I think investors should avoid RH and look for other opportunities in the market.
Earnings Estimates
Earnings estimates have clearly been falling over the last 18 months and more recently, giving RH a Zacks Rank #5 (Strong Sell) rating. Analysts have unanimously downgraded earnings estimates, with the current quarter being revised lower by -34.2% and the current year by -18.7%.
Sales this year are expected to drop -14.6% YoY to $3.07 billion. Earnings during the same period are anticipated to fall a brutal -60% YoY to $8.02 per share. Because of such weak expectations I think there is a distinct possibility that RH share price will fall below $200.
Valuation
Further increasing the risk of another plunge in the stock price is its relatively premium valuation. RH is trading at a one year forward earnings multiple of 32.8x, well above the industry average, and its 10-year median of 22.9x. And with annual EPS growth forecasts of just 8.4% over the next 3-5 years, the valuation appears even more overpriced.
Bottom Line
Although the current situation is grim, RH is still a fantastic company, with industry leading products, and will likely someday be a compelling investment option, but that time is not now. As mentioned, I think the stock price may flush below $200, but that could be a potential opportunity given the right circumstances.
However, as the situation presents today, RH is a stock that investors would be best to avoid.
Additional content:
Consumer Confidence Reaches 2-Year High, Fuels Retail Growth
In a promising start to 2024, the U.S. consumer confidence index has soared to its highest level since the close of 2021, registering an impressive 114.8 in January, a notable climb from the revised 108.0 in December, as reported by the Conference Board. This surge not only signifies a positive transformation in how Americans perceive the economy, job market, and inflation but also lays the foundation for an optimistic economic outlook.
Factors Propelling Confidence
The peak marks the third consecutive monthly rise in consumer confidence, indicating that the momentum in household spending from late last year is poised to continue.
Dana Peterson, chief economist at the Conference Board, attributes this confidence surge to a blend of factors. Slower inflation, anticipation of impending interest rate cuts and favorable employment conditions, with companies actively expanding their labor forces, have all contributed to renewed optimism among consumers.
Given that consumer spending constitutes a significant 70% of the U.S. economic activity, this confidence surge holds promising prospects for the retail sector. Over the past six months, the Retail & Wholesale sector has advanced 10.1% compared with the S&P 500's rise of 7.6%.
Retailers Strategically Positioned for Growth
Among the retailers strategically positioned for growth is Abercrombie & Fitch Co., a leading, global, omnichannel specialty retailer of apparel and accessories for men, women and kids. This Zacks Rank #1 (Strong Buy) company boasts a robust brand portfolio, operational efficiency and a sound regional strategy. You can see the complete list of today's Zacks #1 Rank stocks here.
Additionally, Chipotle Mexican Grill, Inc., a chain of fast-casual restaurants, and Target Corp., a general merchandise retailer, strategically positioned themselves to capitalize on the upswing in consumer confidence, seamlessly aligning with the current economic trajectory. Both carry a Zacks Rank #2 (Buy), showcasing their potential for growth.
Dispelling Recession Fears
This boost in consumer confidence aligns with other positive economic indicators, including a remarkable 3.3% annualized increase in gross domestic product (GDP) for the fourth quarter of 2023. The robust economic growth, coupled with eased inflation, has successfully steered the United States away from previously anticipated recessionary pressures.
Noteworthy is the Expectations Index, climbing to 83.8 in January 2024, up from 81.9 in December 2023, underscoring a positive consumer outlook and dispelling recession fears. Additionally, the Present Situation Index, reflecting consumers' assessment of current business and labor market conditions, surged to 161.3, up from 147.2 last month, underscoring the favorable current economic landscape.
Riding the Wave of Economic Confidence
As U.S. consumer confidence hits new highs and retailers strategically position themselves for growth, savvy investors stand to benefit from the buoyant economic climate. Navigating these optimistic trends with a strategic eye on retail stocks could offer investors a pathway to sustained growth in the evolving market landscape.
Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.
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Target Corporation (TGT) : Free Stock Analysis Report
Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
Cardinal Health, Inc. (CAH) : Free Stock Analysis Report
RH (RH) : Free Stock Analysis Report
