Eaton Corporation and Scotts Miracle-Gro Company have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – August 15, 2023 – Zacks Equity Research shares Eaton Corporation ETN as the Bull of the Day and Scotts Miracle-Gro Company SMG as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Heidrick & Struggles International, Inc. HSII, RCM Technologies, Inc. RCMT and ManpowerGroup Inc. MAN.
Here is a synopsis of all five stocks:
Bull of the Day:
Eaton Corporation, a Zacks Rank #1 (Strong Buy), is an intelligent power management company with a strong track record of shifting its business initiatives to adapt to the world around it. Eaton began as an auto parts supplier more than a century ago, and now derives the vast majority of its revenue from electrical products. ETN shares are widely outperforming the market this year with the backing of a leading industry group. The stock is hitting all-time highs and displaying relative strength as buying pressure accumulates in this market leader.
The diversified industrial company is part of the Zacks Manufacturing - Electronics industry group, which ranks in the top 13% out of more than 250 Zacks Ranked Industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months. This industry really picked up momentum over the previous 3 months:
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Company Description
Eaton operates as a global power management company. Its Electrical segment provides electrical and industrial components, power distribution and assemblies, residential products, circuit protection, and power reliability equipment. In addition, this segment offers hazard and safety products such as emergency lighting, fire detection, and structural support systems.
Eaton’s Aerospace segment provides pumps, motors, hydraulic power units, aircraft systems, and sealing and ducting products. Its Vehicle segment offers transmissions, clutches, hybrid power systems, engine valves, and transmission controls. Furthermore, its eMobility segment provides power distribution systems, voltage inverters, and commercial vehicle hybrid systems.
Eaton has been consistently investing in research and development (R&D) initiatives to introduce new and exciting products, including power management solutions that will reduce energy consumption and carbon emissions. The company has laid out a 10-year plan that includes a $3 billion investment in R&D programs.
Just a few weeks ago, Eaton announced a game-changing new approach that simplifies electric vehicle fleet charging by eliminating costly cable runs and major modifications to existing parking and conveyor structures. Eaton is using electrical distribution technology to streamline fleet charging for zero-emission pickup and delivery vehicles without traditional charging pedestals.
Earnings Trends and Future Estimates
ETN has built up an impressive earnings history, surpassing earnings estimates in each of the last four quarters. Earlier in August, the Dublin, Ireland-based company reported second-quarter earnings of $2.21/share, a 4.74% surprise over the $2.11 consensus estimate. Earnings grew 18.2% year-over-year, while revenues improved 12.5% from the year-ago quarter.
Eaton has delivered a trailing four-quarter average earnings surprise of 2.96%. Consistently beating earnings estimates is a recipe for success.
Analysts covering ETN are in agreement and have been increasing their earnings estimates across the board. For the current fiscal year, analysts have bumped up earnings estimates by 3.67% in the past 60 days. The 2023 Zacks Consensus EPS Estimate now stands at $8.76/share, reflecting potential growth of 15.72% relative to the prior year. Revenues are projected to climb 10.86% to $23 billion.
Let’s Get Technical
ETN shares have advanced nearly 42% this year. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping up. The stock has been making a series of higher highs. With both strong fundamentals and technicals, ETN is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Eaton has recently witnessed positive revisions. As long as this trend remains intact (and ETN continues to deliver earnings beats), the stock will likely continue its bullish run this year.
Bottom Line
The future looks bright for this highly-ranked, leading stock. Eaton has shown an ability to adapt to the ever-changing technological landscape, which puts the company in a strong position moving forward.
Backed by a leading industry group and impressive history of earnings beats, it’s not difficult to see why this company is a compelling investment. Robust fundamentals combined with an appealing technical trend certainly justify adding shares to the mix.
Bear of the Day:
The Scotts Miracle-Gro Company is involved in the manufacturing and marketing of products for lawn care, garden care, and indoor and hydroponic gardening. The company offers lawn fertilizers, grass seed products, spreaders, as well as lawn-related weed, pest and disease control products. In addition, its gardening and landscape products are comprised of water-soluble and continuous release plant foods, potting mixes and garden soils, mulch, and decorative groundcover products.
The company sells its products under recognized brands such as Scotts, Turf Builder, EZ Seed, PatchMaster, Thick’R lawn, Miracle-Gro, Weed B Gon, and Roundup. Scotts Miracle-Gro serves home centers, mass merchandisers, warehouse clubs, large hardware chains, garden centers, food and drug stores, retailers, and indoor gardening and hydroponic distributors.
The Zacks Rundown
Scotts Miracle-Gro, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Fertilizers industry group, which ranks in the bottom 3% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has year-to-date:
Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poorly-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
SMG shares are having trouble sprouting lately. The stock experienced a climax top more than two years ago and has been in a price downtrend ever since. Shares recently gapped down following a disappointing earnings report and represent a compelling short or hedge opportunity as the market takes a breather from its strong rally this year.
Recent Earnings Misses and Deteriorating Outlook
SMG has fallen short of estimates in two of the last four quarters. The lawn care company most recently reported fiscal third-quarter earnings earlier this month of $1.17/share, missing the $1.41/share consensus EPS estimate by 17.02%. Earnings declined 40.9% from the same quarter in the prior year.
The stock has moved steadily lower since the announcement. Consistently falling short of earnings estimates is a recipe for underperformance, and SMG is no exception.
Scotts Miracle-Gro has been on the receiving end of negative earnings estimate revisions as of late. For the current quarter, analysts have decreased estimates by 55.56% in the past 60 days. The fiscal fourth-quarter Zacks Consensus EPS Estimate is now -$2.66/share, reflecting a 30.39% regression relative to the same quarter last year.
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
Technical Outlook
As illustrated below, SMG stock is in a sustained downtrend. Notice how shares have plunged below both the 50-day and 200-day moving averages signaled by the blue and red lines, respectively. The stock is making a series of lower lows, with no respite from the selling in sight. Also note how the 50-day moving average has rolled over and is sloping down – another good sign for the bears.
While not the most accurate indicator, SMG stock has also experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average crosses below its 200-day moving average. Scotts Miracle-Gro would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. The stock has fallen more than 23% in the past 3 months alone.
Despite the underperformance, SMG stock remains relatively overvalued, irrespective of the metric used:
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not due to bloom anytime soon. The fact that SMG stock is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
Lingering high commodity costs are also a concern, which will continue to exert pressure on company margins. Potential investors may want to consider including this stock as part of a short or hedge strategy. Bulls will want to steer clear of an overvalued SMG until the situation shows major signs of improvement.
Additional content:
3 Stocks to Buy on Jobs Growth, Rise in Wages
Hiring has slowed in the United States but still remains high. This has left the Fed worried as it continues to struggle to bring down multi-year high inflation while higher interest rates make things difficult for the manufacturing and services sector.
At the same time, wages have been increasing steadily month over month and the unemployment level remains low.
The Labor Department said that nonfarm payrolls increased by 187,000 in July, below the consensus estimate of 200,000. The figure is lower than the previous month's total of 209,000. However, the labor market still continues to be resilient.
The economy must generate around 100,000 jobs each month to maintain pace with the expansion of the working-age population. Moreover, the report said that there are 1.6 job opportunities for every person.
In July, the growth in employment was driven by robust performance in sectors such as health care, social services, financial activities and wholesale trade.
Within the healthcare industry, a total of 63,000 jobs were added, largely attributed to significant hiring surges by hospitals and nursing-care facilities. Financial services added 19,000 jobs, while wholesale trade added 18,000 jobs.
Moreover, the unemployment rate fell to 3.5% in July from 3.6% in June, reaching levels last seen more than 50 years ago. Also, hourly wages increased 0.4% in July, the same as the rise in June. On a year-over-year basis, hourly wages increased 4.4% in July.
As the U.S. economy continues to witness the addition of more jobs, staffing companies are undoubtedly poised to reap rewards. Given their direct connection to job growth, they stand to gain significantly.
Additionally, it's important to note that recent layoffs from various companies have prompted a greater number of people to seek new employment opportunities, which ultimately aid staffing companies. Moreover, as inflation is managed and the Federal Reserve halts its rate hikes, businesses will likely increase hiring, which will, in turn, benefit staffing firms.
Stocks to Watch
Heidrick & Struggles International, Inc. serves the executive talent and leadership needs of the world's top organizations as the premier provider of leadership consulting, culture shaping and senior-level executive search services. HSII is one of the leading global executive search firms. With years of experience in fulfilling their clients' leadership needs, Heidrick & Struggles offers and conducts executive search services in every major business center in the world.
Heidrick & Struggles International's expected earnings growth rate for next year is 7.6%. The Zacks Consensus Estimate for current-year earnings has improved 3.4% over the past 60 days. HSII shares have gained 11% in the past three months. Heidrick & Struggles International presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
RCM Technologies, Inc. is a national provider of Business, Technology and resource solutions in information technology and professional engineering to customers in corporate and government sectors. RCMT has grown its information technology competencies in the areas of resource augmentation, e-business, Enterprise Resource Planning support, network and infrastructure support and knowledge management.
RCM Technologies' expected earnings growth rate for next year is 22%. RCMT shares have gained 34.8% in the past three months. RCM Technologies has a Zacks Rank #3 (Hold).
ManpowerGroup Inc. is one of the leading providers of innovative workforce solutions and services across the globe. MAN has a well-established network of 2,500 offices in 75 countries and territories. ManpowerGroup provides its wide range of staffing solutions as well as engagement and consulting services through its major brands — Manpower, ManpowerGroup Solutions and Experis.
ManpowerGroup's expected earnings growth rate for next year is 17.4%. Shares of MAN have gained 7.8% in the past three months. ManpowerGroup carries a Zacks Rank #3.
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ManpowerGroup Inc. (MAN) : Free Stock Analysis Report
Eaton Corporation, PLC (ETN) : Free Stock Analysis Report
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RCM Technologies, Inc. (RCMT) : Free Stock Analysis Report
