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FedEx, Harley-Davidson, Microsoft, Micron and Amazon highlighted as Zacks Bull and Bear of the Day

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Zacks Equity Research
·14 min read
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For Immediate Release

Chicago, IL – February 9, 2021 – Zacks Equity Research Shares of FedEx Corporation FDX as the Bull of the Day, Harley-Davidson, Inc. HOG as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Microsoft Corporation MSFT, Micron Technology, Inc. MU and Amazon.com, Inc. AMZN.

Here is a synopsis of all five stocks:

Bull of the Day:

FedEx is a Zacks #1 (Strong Buy) that is a leader in global express delivery services. The company proves a broad portfolio of transportation, e-commerce and business services that delivers to more than 220 countries and territories.

The stock really got going late last year, more than tripling from its March lows to the end of 2021. The recent pullback provides investors with a technical entry point after the stock saw support at a Fibonacci retracement level. Additionally, after UPS earnings last week, the fundamentals in the industry look strong, making an argument for FDX to grind higher into earnings on March 18th.

About the Company

FedEx was founded in 1971 and is headquartered in Memphis, Tennessee. The company employs 245,000 employees, has 30,000 service vehicles and has 98,000 drop off locations.

FDX has a market cap of about $67 Billion and has Zacks Style Scores of “A” in Growth and “B” in Value. The Forward PE is just 15, which makes the case for valuation in relative terms.

The company is currently reporting, primarily through the FedEx Express (including TNT Express acquired in 2016), FedEx Ground and FedEx Freight segments. These segments contributed 51.3%, 32.8% and 10.3% respectively to the company’s total revenues in fiscal 2020.

FedEx also pays a dividend of 1.02%.

Q2 Earnings

FDX reported in late December, seeing an EPS surprise beat to the upside of 23%. The company also beat on revenue and affirmed FY21 capex. It was the third straight EPS beat for FedEx after a string of messy quarters in the previous years.

The company said that operating results increased due to volume growth in the FedEx International Priority and U.S. domestic residential package services as well as pricing initiatives across all transportation segments. Those positive factors were offset by increased costs due to expanded services and COVID-19 related costs, but Non-GAAP op margins came in at 7.4% vs the 3.9% last year.

The company expects earnings growth in the second half of the year, but investors took the opportunity to sell into the good news after the monster stock run.

Estimates

Over the last 60 days, estimates have shot higher. For the current quarter, we have seen estimates raised by 17%, from $2.74 to $3.25. For the current year, we have seen a 12% move higher in that same time frame.

The trend higher is bullish and that idea has been reinforced by recent earnings from the company’s biggest competitor.  

UPS Earnings

Last week, UPS reported an EPS beat on the top line and a 26% surprise to the upside. The company saw double digit year over year growth in domestic and international revenues. For the upcoming year, the company expects higher margins and a hike to its dividend.

The numbers signal that FedEx will enjoy similar success when it announces earnings in March. With the recent move higher in FDX this past week, it looks like investors are already jumping in.

The Technicals

The stock moved below $100 in March, but rose throughout the rest of the year, making a high of $305.66 in December. Since then, the company reported earnings and profit takers have come in, taking the stock below $240.

That area marked the halfway back, or 50% Fibonacci retracement level form the August breakout point to the $305 highs. The stock has now bounced and is above the 21-day moving average at $249. If it can take back the 50-day, currently at $266, the bulls will have fresh powder higher into the EPS report in March.

Bottom Line

The run last year happened only after the realization that the company would thrive during the pandemic. The recent sell off was due to profit taking and the question of if the success can continue. The UPS earnings gives us a clear signal that FDX will continue to thrive in the current environment.

Expect the stock to grind higher into earnings, much like it did during the August and September months. If the company can prove itself once again, all-time highs should come before the end of the quarter.

Bear of the Day:

Harley-Davidson is a Zacks Rank #5 (Strong Sell) that is a popular motorcycle manufacturer. The company operates in two segments, Motorcycles and Related Products and Financial Services. The motorcycle segment represents 80% of their revenues and is the primary driver of earnings growth.

Unfortunately for investors, there wasn’t much growth this past quarter. The company disappointed on EPS and the stock was crushed. As we approach the summer driving season, investors are left with hope that the motorcycle consumer will come back strong with their stimulus checks. However, there might be more of a fundamental issue at hand.

More about HOG

Harley-Davidson is an iconic American brand that was founded in 1903 in Milwaukee, Wisconsin. The company is valued around $5 billion and has a PE of 14. HOG has Zacks Style Scores of “A” in Value but “D” in Growth. Harley pays a small dividend of 0.24%.

There is no questioning Harley's influence in Americana over the years, but that doesn’t help its stock price today. Earnings last week forced the stock over 20% lower the day they reported.

Q4 Earnings

Before this quarter, Harley has missed on EPS only twice since 2019. The surprise miss last week wasn’t necessarily surprising, but the magnitude was, with a 730% EPS miss. The company lost 44 cents instead of the expected +.10 and revenues came in below expectations as well. Both U.S. and international sales were down year after year and the operating margin hurt, coming in at -37% vs the -5.3% last year.

While the numbers may seem like a disaster, the company unveiled “The Hardwire” a five-year strategic plan that will target profitable growth and brand desirability. In this plan the company will target low double-digit EPS growth through 2025 by broadening the view of its customer, investing in core segments and strengthening its commitment to electric motorcycles.

Management obviously has identified the issues and had comments going forward:

“The entire Harley-Davidson team put forth tremendous effort in 2020 and we now have the right organization, structure and strategy in place to make step changes in our performance and enhance our position as the most desirable motorcycle brand in the world.”

While there is a plan, analysts and investors might not be on board yet. The company will have to prove itself in upcoming quarters as for now, estimates are falling.

Estimates

The quarter forced estimates lower over all time frames. The last 7 days have seen next quarters estimates fall from $1.20 to $0.90, or 20%. For the current year, estimates dropped from $2.76 to $2.34, or 15%.

The drop in estimates led to price cuts from Wedbush ($42 from $45) and BMO ($40 from $46).

A Fundamental Issue

The motorcycle industry has gone through hard years as late, with sluggish sales being blamed on more risk-averse millennials. There simply aren’t enough new riders to replace the older riders that supported the industry for so long. Motorcycles simply aren’t as cool as they used to be. For those with the disposable income that might have taken up the idea thirty years ago, they are not riding or buying into the brand. 

But perhaps the end of COVID might change everything. The idea of getting out on the road after being stuck in your house for a year might sound great for some new customers. Harley and other motorcycle companies need to market and sell that idea if they want to change the trend away from bikes.

The Technicals

The chart looked great before earnings, but the down move broke some key levels. The $30 area is the 200-day Moving average and investors that think the company can turn things around should eyeball that level. Back over $40 would indicate the bulls know something the bears don’t, so let’s assume if the stock can get back there, The Hardwire plan is working

In Summary

It's going to take a while for the company to prove itself, so for now investors should consider this stock dead money. It is hard not to root for a brand like Harley, as the iconic American image has so much value in itself. Everyone loves a turnaround story, but be patient with this one and let the chart speak for itself.

Additional content:

Stocks to Watch as Adoption of A.I. Looks Poised to Grow

Artificial Intelligence (“AI”) has become an integral part of the technology revolution that we have been witnessing over the years on an accelerated shift toward automation to increase efficiency or handle complex data sets and calculations. The COVID-19 pandemic last year gave a push to digital transformation as the world shifted to a remote working model to curb the spread of the virus, in turn, boosting the need for AI. Notably, per a report by SG Analytics, the global market size of AI is estimated to witness a CAGR of 42.2% between 2020 and 2027.

The report mentioned that certain trends will be important to look forward to in 2021. This includes trends like robotic process automation, which allows monotonous tasks to be carried out efficiently in large volumes by AI.

Other trends like natural language processing, which teaches computers to understand what is being written or spoken about a process, with the help of a machine learning model, is also becoming important. Notably, this particular trend is rapidly decreasing the need for users to type on a device’s screen, thereby increasing convenience.

Meanwhile, the digital transformation has also led to an increased need for cybersecurity in order to better protect important data and information. The report mentioned that AI will assist security departments in organizing a “digital shield to protect data from malicious attacks.” Separately, the Internet of Things is another area where AI is set to gain prominence as it helps to monitor "the performance of various interconnected gadgets.”

In fact, per a report by the International Data Corporation (“IDC”), global spending on artificial intelligence is estimated to reach $110 billion in 2024 at a CAGR of 20.1% from 2019 to 2024. Notably, the report mentioned that the main drivers behind the adoption of AI will be delivering a better customer experience and helping employees improve at their jobs.

Moreover, the report mentioned that retail and banking are set to spend the most on AI solutions during the forecast period. While the retail industry will focus on improving customer experience through chatbots and recommendation engines, the banking sector will focus on fraud analysis and investigation, among others. Notably, IDC stated that the United States is set to deliver more than half of all the spending on AI during the forecast period.

3 Stocks to Keep an Eye On

AI looks set to continue disrupting the technology sector and in turn, influence the ways in which businesses and users function as it is becoming increasingly present in varied activities that we engage in. From automation to delivering personalized recommendations and chatbots, leading to higher customer satisfaction, AI is becoming indispensable.

Hence, this makes it a good time to watch out for companies focused on AI that can make the most of this continued upswing. We have selected four such stocks that carry a Zacks Rank #2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Microsoft develops, licenses, and supports software, services, devices, and solutions worldwide. Notably, businesses can use the company’s Azure AI platform for the development of AI solutions. Moreover, in 2019, the company invested $1 billion in San Francisco-based research lab OpenAI, for the development of artificial general intelligence.

The company also has its own virtual assistant named Cortana. Microsoft currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 8.9% over the past 60 days. The company’s expected earnings growth rate for the current- year is 27.4%.

Micron Technology designs, manufactures, and sells memory and storage products worldwide. Notably, the company’s products like high-capacity memory and multichip power packages are used to power AI training and inference engines whether in cloud, or embedded in mobile and edge devices. It currently has a Zacks Rank #3. The Zacks Consensus Estimate for its current-year earnings increased 11.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 36.4%.

Amazon engages in the retail sale of consumer products and subscriptions in North America and internationally. Notably, the company has its own AI voice assistant Alexa which brings customers increased convenience. Moreover, the company also has its Amazon Web Services platform which offers tools for businesses in order to create machine learning solutions.

Amazon currently has a Zacks Rank #3. The Zacks Consensus Estimate for its current-year earnings increased 8.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 16.1%.

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Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
Micron Technology, Inc. (MU) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
FedEx Corporation (FDX) : Free Stock Analysis Report
 
HarleyDavidson, Inc. (HOG) : Free Stock Analysis Report
 
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