For Immediate Release
Chicago, IL – October 11, 2018 – Zacks Equity Research Chevron CVX as the Bull of the Day, Outfront Media OUT as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Boeing Co. BA, Lockheed Martin Corp. LMT and Huntington Ingalls Industries, Inc. HII.
Here is a synopsis of all five stocks:
Bull of the Day:
Stocks were hammered on Wednesday as Wall Street opted to reduce risk and cash out of profitable trades amid rising bond yields. Oil sunk to a similar degree. But these moves are likely healthy corrections, and if/when selling plateaus, the oil stocks which showed strength prior to this volatility should continue to attract investors. Our Zacks Rank model says Chevron is among the top choices.
Chevron is one of the world’s largest energy companies. It has its hands in all aspects of oil, natural gas, and geothermal energy production and is active in basically corner of the globe. This diversity means it is one of a few oil companies positioned to benefit extensively from an extended surge in oil prices, which is exactly what we have seen recently.
Higher prices have led to positive earnings estimate revisions, lifting the stock to a Zacks Rank #1 (Strong Buy). The firm also pays a healthy dividend and looks to be the perfect combination of growth, income, and momentum that will be needed to investors continue to shun risk.
A number of things have led to oil’s recent run, but the basic trend has been a tightening of supply. This has been influenced by reduced production in Venezuela, sanctions on Iran, weather, and a number of other global factors.
Bear of the Day:
Wednesday was a brutal day for U.S. stocks, with major indexes suffering their worst day since the February selloff. This week’s selling has been abrupt, but predictable as yields and rates rise. Things still feel healthy, and I think a rebound will come sooner rather than later. That said, I would recommend continuing to avoid sluggish underperformers such as Outfront Media.
Outfront Media is a REIT focused on out-of-home advertising structures. In other words, this is a billboard company—although it does have exposure to bulletins, wallscapes, and other outdoor advertising.
The stock is currently holding a Zacks Rank #5 (Strong Sell). Shares have underperformed their broader industry this year, as the advertising segment of the REIT market has faced challenging conditions. This segment is also rather competitive, and any loss in market share would just exacerbate issues for Outfront right now.
An extended chart would show you that this stock has struggled to generate extended periods of momentum over the past several years, but a one-year view shows enough for me to be concerned as well.
What I see here is at least a pair of rejected rallies. Traders looked to have found a higher bottom when the first rally ended with a selloff in August, but a second rally was also rejected, sending the stock barreling back toward its April lows.
According to our latest Zacks Consensus Estimates, analysts expect Outfront to finish the current fiscal year with earnings and revenue growth of just 2.5% and 2.7%, respectively.
The other big issue here is that REITs are rate sensitive, and those with higher debt loads are going to face headwinds in this rising rate environment. Outfront had $2.3 billion in debt through the first half of the year, an amount nearly equal to its current market cap.
Boeing’s (BA) 737 Model Boosts Commercial Deliveries YTD
The Boeing Co. delivered 190 airplanes in the third quarter of 2018, marginally lower than 202 deliveries in the year-ago quarter. However, on a year-to-date basis, deliveries touched 568 compared with 554 airplanes delivered in the year-ago period.
The 737 model continues to be a major pillar of Boeing’s strength in the commercial airplane sector. Year to date, the company delivered 407 airplanes from its 737 model compared with 381 deliveries in the year-ago period. Boeing is on course to meet its commercial airplane delivery target for 2018, which is expected in the range of 810-815. Boeing expects the commercial airplane segment to generate within $59.5-$60.5 billion in 2018.
The commercial airplane market is showing gradual signs of improvement, as reflected in the order books of the commercial airplane manufacturer. Net order received by the company in the first nine months of 2018 was 631 airplanes versus 529 in the year-ago period.
Defense Deliveries & Budget
During the quarter, the company delivered 25 items to the defense department, including helicopters, fighter jets and satellites. However, year-to-date defense deliveries were 66, much lower than the year-ago level of 131 items.
Fiscal 2019 defense budget is fixed at $717 billion. Boeing along with Lockheed Martin Corp. are expected to benefit from the strong U.S. defense budget. Both the companies have a wide presence in the defense space, given their wide assortment of products.
Long-Term Outlook for Commercial Airplane
The demand for commercial airplanes is expected to double in the next two decades, per long-term outlook provided by Boeing. Per the outlook, the demand for new planes will touch 42,730 by 2037. The single aisle segment is expected to witness maximum growth, with a demand of 31,360 airplanes.
The total value of the commercial airplane market, with commercial airplanes and services, will touch nearly $15 trillion. We expect that Boeing will be a major player with its 737 family, a premier single-aisle commercial airplane.
Boeing’s dominance in the international commercial market will be challenged by Airbus Group’s A-320 model.
New Developments in Commercial Space
At present, the commercial aircraft market is a duopoly, with Boeing and Airbus being the primary operators. However, new companies are being formed to develop new aircrafts for curbing the dominance of these two major operators.
The China and Russian joint venture, The China-Russia Commercial Aircraft International Corporation (CRAIC), is working to develop a wide-body, long-range aircraft, which will likely provide serious competition to the existing players.
In a year’s time, Boeing has returned 47.4% compared with its industry’s rally of 21.9%.
Zacks Rank & A Key Pick
Boeing currently has a Zacks Rank #3 (Hold). A better-ranked stock from the same industry is Huntington Ingalls Industries, Inc., currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Huntington Ingalls delivered an average positive surprise of 9.48% in the last four quarters and its long-term earnings growth is pegged at 15.0%. The Zacks Consensus Estimate for 2018 has moved up 1.5% in the past 60 days to $17.24.
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