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Enterprise Products Partners and Target have been highlighted as Zacks Bull and Bear of the Day

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·13 min read
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For Immediate Release

Chicago, IL – June 13, 2022 – Zacks Equity Research shares Enterprise Products Partners L.P. EPD as the Bull of the Day and Target TGT as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Starbucks Corp. SBUX, BBQ Holdings, Inc. BBQ and Arcos Dorados Holdings Inc. ARCO.

Here is a synopsis of all five stocks:

Bull of the Day:

Enterprise Products Partners L.P. is a leading provider of midstream energy services in North America. EPD shares have ripped higher in 2022 to outpace its surging Oil and Gas Production-Pipeline Market.

Enterprise Products Partners stands to benefit as oil and energy prices continue to climb and EPD's dividend yield should help investors try to keep pace with 40-year high inflation.

Growing in the Midstream

The oil and gas industry is divided into three major components: upstream, midstream, and downstream. Enterprise Products Partners' midstream segment is focused on the transportation and storage side of the equation.

Enterprise Products Partners L.P. is one of the largest publicly traded master limited partnerships, and a leading North American provider of midstream energy services to producers and consumers of natural gas, natural gas liquids, crude oil, refined products, and petrochemicals.

Enterprise Products Partners boasts an extensive network of pipelines that spreads more than 50,000 miles. EPD's storage capacity hovers at around 260 million barrels for NGLs, crude oil, petrochemicals, and refined products, with 14 billion cubic feet of natural gas capacity. Enterprise Products Partners also boasts 24 natural gas processing facilities, as well as 18 fractionators, 11 condensate distillation facilities, 19 deep-water docks, and more.

Natural gas currently accounts for about 40% of U.S. electricity generation, which is by far the largest, ahead of nuclear, coal, and renewables all of which hover around 20%.

Meanwhile, despite the rise of Tesla and the push from major automakers such as Ford, electric vehicles account for under 5% of the U.S. market. This means that companies such as Enterprise Products Partners can play a role as part of a diversified portfolio during the current price boom and beyond.

Other Key Fundamentals

Enterprise Products Partners' revenue soared 50% last year to $40.8 billion, marking its largest sales total since 2014. Zacks estimates call for its sales to climb another 20% in 2022 to reach $48.9 billion and then pop over 6% in FY23 to hit $52.9 billion. Both of these totals would represent new records, topping 2014's $47.9 billion.

Meanwhile, Enterprise Products Partners' adjusted earnings are projected to climb over 14% this year and 5% next year to come in at $2.52 per share. EPD's earnings outlook has improved since its early May report that saw it beat our Q1 EPS by 15% and raise its outlook. The firm's FY22 consensus EPS estimate is up 8% and its FY23 is 6% higher. This bottom-line positivity helps it land a Zacks Rank #1 (Strong Buy) right now.

Enterprise Products Partners lands "B" grades for Growth and Momentum in our Style Scores system and its Oil and Gas - Production Pipeline business sits in the top 12% of over 250 Zacks industries. Plus, eight of the 10 brokerage recommendations Zacks has are "Strong Buys," alongside two "Holds."

Enterprise Products Partners Distributable Cash Flow was a record $1.8 billion for the first quarter of 2022, up from $1.7 billion in the year-ago period. And it's well-positioned to generate additional cash flow from under-construction growth capital projects worth $4.6 billion.

Enterprise Products Partners' quarterly $0.46 per unit dividend yields a 6.7% at the moment to roughly match its industry and below away oil and gas titans like Chevron and Exxon. This also crushes both the 10-year and 30-year U.S. Treasuries and could go a long way in helping investors try to keep pace with 8.6% inflation.

Bottom Line

The energy sector went through a really rough back half of the past decade as oil prices cooled and technology stocks dominated. Enterprise Products Partners shares are still, however, up 420% since their debut in the late 1990s to blow away its industry and the broader Zacks Oil and Energy sector's 60%. This falls behind the S&P 500's 480% climb. But if you look at total returns, which factors in dividend payments and more, Enterprise Products Partners has skyrocketed roughly 2,400% vs. the benchmark's 890%.

Zooming into the last two years, EPD shares have popped 40%, with it now up 26% in 2022. Some investors might also appreciate the fact that Enterprise Products Partners is trading at around $28 per share. This gives it plenty more room to run before it returns to its 2014 records of around $40 a share. And its current Zacks consensus price target marks 11% upside.

Enterprise Products Partners currently trades at 11.5X forward 12-month earnings, marking a slight discount to its industry and 20% value compared to the larger Zacks Oil & Gas Production Pipeline market. EPD trades 40% below its own 20-year median and 55% beneath its highs.

Despite the expansion of renewables such as solar and the growth of EVs, oil and natural gas will play a massive and crucial role in the U.S. and global economies for decades.

All in, investors might want to consider Enterprise Products Partners for its ability to expand in the near term amid soaring inflation, with oil and energy prices possibly heading even higher. Plus, its solid balance sheet and strong dividend payment are useful now and down the line.

Bear of the Day:

Wall Street dumped Target after its first quarter FY22 financial release on fears of mounting costs and inventory issues. The retail titan lowered its guidance when it released its quarterly results on May 18.

Target stock tumbled 25% following its report, for its worst one-day showing since Black Monday in 1987. Target then on June 7 slashed its outlook again, citing inventory imbalances and more.

Not Pandemic Shoppers Anymore

Target and its peers such as Walmart were huge beneficiaries of the initial covid lockdowns and the post-pandemic boom that saw Americans go on shopping sprees for items such as furniture and TVs.

TGT remains a retail powerhouse and will for years to come. The retailer's expanded e-commerce offerings and same-day services will help it thrive in the have-it-your-way style shopping environment that's here to stay.

Along with its new-age shopping push, the Minneapolis-based retailer has focused even more heavily on its own in-house brands for fashion, furniture, food, and more. Target's various store brands succeed because of its ability to adapt and stay on-trend, while remaining affordable.

Target's near-term outlook, however, has been slashed almost overnight on the back of rising costs and a mismatch between its current inventory and what shoppers want, having returned to their normal lives.

Investors initially hammered Target after its first quarter release for its executive team's inability to navigate rising freight costs and more. Alongside its bottom-line miss, Wall Street didn't appreciate Target's decision to absorb higher costs instead of passing them on to consumers. Walmart got hit hard for a similar report.

Along with the hit to margins, Target is dealing with inventory issues and is currently stuck holding onto too much furniture, appliances, and more. Target on June 7 announced that it would take "actions to right-size its inventory for the balance of the year and create additional flexibility to focus on serving guests in a rapidly changing environment."

The Minneapolis retailer is set to make additional markdowns, as well as remove excess inventory, and cancel orders. In addition, TGT will add "incremental holding capacity near U.S. ports to add flexibility and speed in the portions of the supply chain most affected by external volatility."

Target is also experiencing other near-term setbacks that it plans to address, including "working with suppliers to shorten distances and lead times in the supply chain."

Target's adjusted earnings outlook has fallen since its Q1 release: the FY22 Zacks consensus estimate has dropped 37% and 20% for 2023 since the company provided its updated guidance last week.

Bottom Line

Target's downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now. The stock has tumbled around 45% from its November records and 35% in 2022, with it now trading around where it was in August 2020.

TGT is Monday's Bear of the Day given its near-term outlook and the continued unknowns ahead on the consumer spending and inflation fronts. But Target remains a strong company and the retailer flexed its financial strength on June 9 when it raised its dividend by 20% even as it undergoes its campaign to recalibrate its inventory.

Additional content:

Is Starbucks Worth Buying at a 32% Discount?

The past six months have been tough for Starbucks Corp. The company's shares have fallen 31.7% in the past six months, compared with the industry's decline of 18%. The dismal performance in China and high costs are hurting its performance.

In the past 60 days, the company's earnings for 2022 and 2023 have witnessed downward revisions of 42 cents and 41 cents to $2.92 and $3.52 per share, respectively. Earnings in 2022 is likely to witness a decline of 9.9%.

Factors Hurting Performance

The Omicron variant has negatively impacted the company's performance in China. A city like Shanghai, which is four times the size of New York City, is completely locked down. Other major cities have also been witnessing new COVID outbreaks, which have been hurting the company's performance.

Due to uncertainty in China, the company is unable to predict its performance in the country in the back half of the year. During second-quarter 2022, net revenues in China decreased 14%, while sales comp declined 20% compared with the last year after adjusting for the VAT subsidy.

Due to the Shanghai lockdown and resurgence of the virus in other cities, the company expects its China performance to worsen in third-quarter 2022. At the end of second-quarter 2022, the company noted that nearly one-third of its stores in China remain temporarily closed or are offering mobile ordering channels only.

Given the ongoing uncertainty surrounding China, increasing inflation and significant planned investments, Starbucks management has suspended guidance for the third quarter and the fourth quarter for the time being. Starbucks believes its performance will be under pressure for the balance of the year, especially in the third quarter.

From the capital allocation perspective, although the company has suspended share repurchases for the balance of this fiscal year, it has returned more than $5 billion through share repurchases and quarterly dividends during the first half of fiscal 2022. SBUX expects share repurchases made earlier in the year to contribute at least 1% to fiscal 2022 EPS growth. The company intends to provide a comprehensive update on its business outlook for fiscal 2023 and beyond at its Investor Day in September.

The company's margin in second-quarter 2022 was negatively impacted by inflationary pressures, and increased investments in store partner wages and benefits. Reduced traffic in China added to woes. However, this was partially offset by higher pricing in North America. On a non-GAAP basis, the operating margin during the fiscal second quarter came in at 13%, down from 16% reported in the prior-year quarter.

The company's earnings in fiscal 2022 are likely to be impacted by strategic investments and cost inflation. The expiration of government subsidies in Asia and the transition of Starbucks Korea to the licensee are likely to hurt the company's margin in fiscal 2022.

Starbucks carries a Zacks Rank #4 (Sell).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Key Picks

Some better-ranked stocks in the Zacks Retail-Wholesale sector are BBQ Holdings, Inc., and Arcos Dorados Holdings Inc.

MarineMax sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 32.8%, on average. Shares of the company have declined 14.4% in the past year.

The Zacks Consensus Estimate for MarineMax's 2022 sales and EPS suggests growth of 16% and 21.5%, respectively, from the year-ago period's levels.

BBQ Holdings carries a Zacks Rank #2 (Buy). BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have decreased 17.5% in the past year.

The Zacks Consensus Estimate for BBQ Holdings' 2022 sales and EPS suggests growth of 46.1% and 67.6%, respectively, from the year-ago period's levels.

Arcos Dorados carries a Zacks Rank #2. ARCO has a long-term earnings growth of 34.4%. Shares of the company have increased 16.3% in the past year.

The Zacks Consensus Estimate for Arcos Dorados' 2022 sales and EPS suggests growth of 16.6% and 83.3%, respectively, from the year-ago period's levels.

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