Fomento Economico Mexicano and Delek Logistics Partners have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – August 30, 2023 – Zacks Equity Research shares Fomento Economico Mexicano FMX as the Bull of the Day and Delek Logistics Partners, LP DKL as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Ryder System, Inc. R, Triton International Ltd. TRTN and Air Lease Corp. AL.
Here is a synopsis of all five stocks:
Bull of the Day:
Fomento Economico Mexicano, a Zacks Rank #1 (Strong Buy), is a defensive staple that has been widely outperforming this year. Through its subsidiaries, the company operates the second-largest independent Coca-Cola bottling group in the world by sales volume, along with the largest convenience store chain in Mexico. FMX shares bottomed out in July of last year, well ahead of the major indexes. The stock is now hitting all-time highs and displaying relative strength as buying pressure accumulates in this market leader.
The diversified beverage company is part of the Zacks Beverages – Soft Drinks industry group, which ranks in the top 17% 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.
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
Fomento Economico Mexicano operates as a bottler of Coca-Cola trademark beverages. The company produces, markets, and distributes beverages in Mexico, Guatemala, Nicaragua, Costa Rica, Panama, Columbia, Venezuela, Brazil, Argentina, and Uruguay. FMX also operates small-box retail chain stores under the OXXO brand name, as well as retail service stations for fuels, motor oils, lubricants, and care products under the OXXO GAS name in Mexico.
Furthermore, FMX operates drugstores under recognized names such as La Moderna, Cruz Verde, YZA, and Fybeca. The company has expanded its reach and is also involved in the production and distribution of commercial refrigeration equipment, plastic boxes, and food processing and preservation equipment. Additionally, FMX operates food convenience chain stores in Switzerland, Germany, Austria, Luxembourg, and the Netherlands.
Earnings Trends and Future Estimates
FMX has built up an impressive earnings history, surpassing earnings estimates in three of the last four quarters. Back in July, the Monterrey, Mexico-based company reported second-quarter earnings of $1.64/share, a 35.54% surprise over the $1.21 consensus estimate. The company has delivered a trailing four-quarter average earnings surprise of 6.12%. Consistently beating earnings estimates is a recipe for success.
Analysts covering FMX 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 23.25% in the past 60 days. The 2023 Zacks Consensus EPS Estimate now stands at $5.62/share, reflecting potential growth of 58.31% relative to the prior year. Revenues are projected to climb 31.86% to $44.2 billion.
Let's Get Technical
FMX shares have advanced nearly 54% 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, FMX 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, Fomento Economico Mexicano has recently witnessed positive revisions. As long as this trend remains intact (and FMX 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. Fomento Economico Mexicano is a defensive staple that has been widely outperforming this year, as its earnings and revenue trends have skyrocketed.
Backed by a leading industry group and an 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:
Delek Logistics Partners, LP owns and operates logistics and marketing assets for crude oil and refined products in the United States. DKL operates crude oil transportation pipelines and associated crude oil storage tanks.
The energy company's facilities provide crude oil and natural gas gathering and processing, water disposal and recycling, and transportation services. Its terminals and pipelines operate in Texas, Tennessee, Arkansas, Oklahoma, New Mexico, as well as the Gulf Coast region.
The Zacks Rundown
Delek Logistics Partners, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Oil and Gas – Production Pipeline – MLB industry group, which ranks in the bottom 31% 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.
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.
Despite a rebound in energy stocks over the past two months, DKL shares have not been gushing lately. The stock has experienced considerable volatility over the past year. Shares recently hit a 52-week low following a disappointing earnings report and represent a compelling short or hedge opportunity.
Recent Earnings Misses and Deteriorating Outlook
DKL has fallen short of earnings estimates in three of the last four quarters. The energy company most recently reported second-quarter earnings earlier this month of $0.73/share, missing the $0.81/share consensus EPS estimate by 9.88%. Earnings declined slightly from the same quarter in the prior year.
Delek Logistics Partners has delivered a trailing four-quarter average earnings miss of -7.35%. Consistently falling short of earnings estimates is a recipe for underperformance, and DKL is no exception.
The company has been on the receiving end of negative earnings estimate revisions as of late. For the current quarter, analysts have decreased estimates by 19.59% in the past 60 days. The third-quarter Zacks Consensus EPS Estimate is now $0.78/share, reflecting negative growth of -24.27% relative to the same quarter last year. Revenues are expected to drop -10.94% during Q3.
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, DKL 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 both moving averages have rolled over and are sloping down – another good sign for the bears.
While not the most accurate indicator, DKL 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. Delek Logistics Partners 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 20% in the past 2 months alone.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to gush to new highs anytime soon. The fact that DKL 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.
A potential false breakout in crude oil may temper down the recent move in energy stocks. Potential investors may want to consider including this stock as part of a short or hedge strategy. Bulls will want to steer clear of DKL shares until the situation shows major signs of improvement.
Additional content:
3 Transport Equipment Leasing Stocks with Solid Dividend Yields
The Zacks Transportation - Equipment and Leasing industry is suffering from headwinds like raging inflation, higher interest rates, supply-chain disruptions and high operating costs. These headwinds are likely to hurt the demand for containers.
Despite these headwinds, the industry has gained 13.6% over the past three months, outperforming the S&P 500 Index's 5.1% appreciation and a 5.3% jump of the broader Zacks Transportation sector.
Given this encouraging backdrop, it would be a wise decision to invest in some dividend-paying companies like Ryder System, Inc., Triton International Ltd. and Air Lease Corp. from the Transportation - Equipment and Leasing industry. These companies have consistently announced dividend hikes, thus highlighting their pro-shareholder stance.
Stocks that have a strong history of dividend growth belong to mature companies, which are less susceptible to large swings in the market, and act as a hedge against economic or political uncertainty as well as stock market volatility. At the same time, they offer downside protection with their consistent increase in payouts.
Additionally, these companies have superior fundamentals like a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics.
3 Transport Equipment & Leasing Stocks to Embrace Now
In order to choose some of the best dividend stocks from the industry, we have run the Zacks Stock Screener to identify stocks with a dividend yield in excess of 2% and a sustainable dividend payout ratio of less than 60%.
Ryder: Headquartered in Miami, FL, it operates as a logistics and transportation company worldwide. Ryder pays out a quarterly dividend of 71 cents ($2.84 annualized) per share, which gives it a 2.93% yield at the current stock price. This company's payout ratio is 17%, with a five-year dividend growth rate of 3.04%. (Check Ryder's dividend history here). Ryder presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
We are impressed with Ryder's consistent efforts to reward its shareholders through dividends and share repurchases. In July 2023, Ryder announced a 14.5% hike in its quarterly dividend, taking the total to 71 cents per share (annualized $2.84). The company is also active on the buyback front. In February 2023, Ryder's board approved a new 2-million share discretionary repurchase program. The management is now authorized to buyback up to 2 million shares of common stock at its discretion from Feb 10, 2023, through Feb 10, 2025 (two years).
Triton: Headquartered in Hamilton, Bermuda, Triton engages in the acquisition, leasing, re-leasing, and sale of various types of intermodal containers and chassis to shipping lines, and freight forwarding companies and manufacturers. Triton currently carries a Zack Rank #2 (Buy).
Triton pays a quarterly dividend of 70 cents ($2.80 annualized) per share, giving it a 3.36% yield at the current stock price. This company's payout ratio is 27%, with a five-year dividend growth rate of 7.75%. (Check Triton's dividend history here).
We are impressed with Triton's efforts to reward its shareholders through dividends and buybacks. Concurrent with its third-quarter 2022 earnings release, Trition's board of directors increased its quarterly cash dividend from 65 cents per share to 70 cents, indicating a dividend hike of 8%. The company is also active on the buyback front. During the first half of 2023, TRTN repurchased 1,884,616 shares for a total cost of $125.7 million.
Air Lease: Headquartered in Los Angeles, CA, Air Lease operates asan aircraft leasing company engaged in purchasing and leasing of commercial jet aircraft to airlines worldwide. AL pays out a quarterly dividend of 20 cents ($0.80 annualized) per share, which gives it a 2% yield at the current stock price. This company's payout ratio is 19%, with a five-year dividend growth rate of 12.55%. (Check AL's dividend history here).Air Lease presently carries a Zack Rank #3 (Hold).
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Ryder System, Inc. (R) : Free Stock Analysis Report
Fomento Economico Mexicano S.A.B. de C.V. (FMX) : Free Stock Analysis Report
Air Lease Corporation (AL) : Free Stock Analysis Report
Delek Logistics Partners, L.P. (DKL) : Free Stock Analysis Report
Triton International Limited (TRTN) : Free Stock Analysis Report
