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Jabil and Gap have been highlighted as Zacks Bull and Bear of the Day

·13 min read

For Immediate Release

Chicago, IL – May 10, 2022 – Zacks Equity Research shares Jabil JBL as the Bull of the Day and Gap Inc. GPS asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Disney DIS, Netflix NFLX and Roku ROKU.

Here is a synopsis of all five stocks:

Bull of the Day:

Companies built for the new economy should be investors' bullish focus in these periods of elevated volatility, and the latest flood of fresh fundamentals from Q1 earnings reports has shed some light on some winners. It's about time to add a next-generation industrial play to your portfolio mix as nations look to bring operations back home (economic independence through reversing globalization).

Jabil, a leading manufacturer of highly diversified new economy partners, is perfectly positioned for this onshoring push.

JBL's incredible buoyancy amid the market's latest volatility surge has illustrated a high level of bullish sentiment in the name.

Jabil has been exhibiting margin expanding growth throughout the pandemic, which is set to accelerate in the post-pandemic world as demand for its broad-based portfolio of future-focused international manufacturing operations allows it to take a controlling position amid the impending digital renaissance of the commencing 4th Industrial Revolution.

The acceleration of nationalization in the face of the Russia-Ukraine war, years of pandemic-fueled digital adaptation, JBL's breakout above its 50-day and 200-day moving average, and increasingly bullish analysts' estimates following a blowout earnings report in the back half of last week, JBL shares are a ripe new economy play for your future-focused portfolio.

JBL is a Zacks Rank #1 (Strong Buy) with every covering analyst calling the stock a strong buy today, with price targets centering tightly around $80 a share.

Let's dive into this "new economy" investment opportunity.

Jabil's Operations

Jabil is a multinational manufacturing giant that not only provides best-in-class manufacturing capabilities, but technical & design expertise, and top-notch sourcing/supply chain knowledge that would benefit any business amid this global resource shortage. This conglomerate operates across 100 locations in 30 different countries, with 260,000 employees (creating local jobs at each specialized site).

Jabil has been proving itself as a secular growth narrative for the past 5 years now, having generated year-over-year topline growth in the past 22 consecutive quarters (and expected to continue).

This company's operations were seemingly unaffected by the pandemic's wrath, as this exceptionally flexible manufacturer appears to have only benefited from the digitalizing tailwind that this devastating virus fortuitously generated.

Jabil's highly diverse portfolio of manufacturing services has hedged its operations against most broader market risks with defined end-markets that have been split up into 2 segments.

Diversified Manufacturing: Healthcare & Packaging, Connected Devices, Mobility, and Auto & Transportation.

Electronic Manufacturing: 5G Wireless & Cloud, Industrial & Semiconductors, Digital Print & Retail, and Network & Storage.

These complementary segments have been reliably growing in a consistent margin expanding way, which points to a level of operational excellence that only a superior management team would be able to achieve.

The Valuation

After an abbreviated 10-week correction to kick off 2022, JBL is off to the races once again in the wake of its bid driving quarterly report in mid-March. Jabil easily beat analysts' EPS estimates for the 8th successive quarter while providing bullish guidance for the current quarter.

JBL is trading at an investment ripe forward P/E of 7.7x, its lowest multiple since the depths of the pandemic sell-off two years ago.

This stock is also rocking a PEG (growth adjusted P/E) of 0.6x, representing a sizable discount from both JBL's 5-year median and industry average, with anything below 1x signifying potential value.

Jabil is not a sexy company or stock to trade for that matter, but at this valuation level coupled with its accelerating secular growth outlay, it represents a solid fundamentally fueled investment opportunity.

JBL shares haven't traded this buoyantly since the peak of the Dotcom Bubble in September 2000, only this time the company has a proven track record of secular growth (topline expansion through pandemic) and is 7x cheaper from a P/E multiple-basis.

Final Thoughts

The US stock market is the safest place to hold your capital in this highly inflationary (rapidly devaluing cash) rising rate environment (weakening bond values), while earnings growth continues with strong economic demand remaining buoyant. Valuation multiples for many new normal stocks have finally fallen to equitable levels.

With intrinsic valuation modeled denominators (aka enterprise discount rates) now aligning with interest rate expectations (if not exceeding), while earnings estimates point to outsized growth in the quarters ahead, many recently discounted US stocks are looking ripe for the picking.

Jabil is built for this new highly adaptable and rapidly digitizing economy. It's time to consider adding JBL to your portfolio as a next-generation manufacturing play as analysts drive up estimates.

Bear of the Day:

Gap Inc. stock skyrocketed off its covid lows on the back of larger market exuberance and its own sales comeback. But GPS, like many early highflyers during that run, simply went way too far, too fast.

The retailer also ran into supply chain constraints that have continued to drag down the company that owns Gap, Old Navy, and more.

Struggling in a Modern Retail World

Gap is an icon in the apparel world that initially rose to power on the back of denim. Today, the firm's portfolio of retail brands includes its namesake, Old Navy, Banana Republic, and Athleta, which competes against the likes of Lululemon in the athleisure realm.

The company has struggled to maintain consistent sales growth in the fickle fashion world. Plus, GPS now faces more competition than ever for customers from countless small e-commerce retailers that have found success through social media and direct marketing. Gap's revenue has dipped on a YoY basis in four out of the last seven years, including a 1.2% drop in 2019 and a 16% fall during the covid-hit 2020.

Gap did bounce back in a huge way in 2021, posting 21% revenue growth to climb above its pre-pandemic totals. Unfortunately, the firm is being hit hard by inventory setbacks as global supply chains remain clogged.

GPS shares tumbled again in April after the company lowered its Q1 guidance and announced the departure of Old Navy's chief executive. The company cited "macro-economic dynamics as well as the execution challenges at the Old Navy brand" as the reason for the subdued outlook.

Gap's first quarter FY22 financial results are due out on May 26. Zacks estimates call for its first quarter revenue to slide 14% YoY and for it to swing from adjusted earnings of +$0.48 a share in the prior-year period to a -$0.09 a share loss. Prior to the updated guidance on April 21, Gap's Q1 consensus stood at +$0.05 a share.

Bottom Line

The nearby chart showcases how far not only its first quarter estimate has fallen, but also its FY22 and FY23 outlooks—down 28% and 22%, respectively. The downward earnings revisions trends help Gap stock land a Zacks Rank #5 (Strong Sell) right now. Plus, the Retail - Apparel and Shoes space is in the bottom 33% of over 250 Zacks industries.

Gap stock has plummeted over 60% in the past year, alongside its industry's 35% downturn. And it might be best to stay away from GPS shares, even at these prices, at least until after its upcoming earnings results.

Additional content:

Can Disney (DIS) Bounce Back in Fiscal Q2?

The market conditions have not been ideal for investors over the last few weeks, to say the least. The unique economic environment we have found ourselves in coming out of a once-in-a-lifetime pandemic has weighed heavily on investors' sentiment, especially during earnings season. Many companies reporting their quarterly results have had their operations disrupted by supply-chain bottlenecks, soaring energy prices, and geopolitical issues.

Nonetheless, the show must go on, and so must earnings season. There are very minimal situations in the market in which investors can take a breather, so it is vital to remain focused on the long-term picture of things, even during dark times.

On deck to report quarterly results after the bell rings on Wednesday is the ever-popular Disney. Disney has transformed itself into a significant player in the streaming arena over the last few years while continuing its operations within its ever-beloved theme parks.

Streaming names have been hit hard throughout 2022. We can see this in the chart below that illustrates the year-to-date performance of two other streaming giants – Netflix and Roku – while blending in the S&P 500 for a benchmark.

Disney has shown significant relative strength compared to ROKU and NFLX, but shares have lost nearly a third of their value year-to-date. Upon stretching out the timeframe over the last year, the story remains the same; Disney has been able to outpace NFLX and ROKU quite considerably.

Let's take a closer look into how DIS is shaping up for its upcoming quarterly release.

Previous Earnings Impact

Over its last six quarterly reports, shares have had mixed reactions to earnings releases. There have been two instances where the company has smoked EPS estimates by triple digits, yet shares still moved downwards following the report. However, DIS beat EPS estimates by nearly 86% in its latest quarterly report, fueling a 7% upwards move for shares.

These mixed reactions make it challenging to form an accurate data-based prediction of where shares stand to move following the quarterly report. However, it's worth noting that many companies' quarterly releases have caused shares to take a downward trajectory over the last few weeks.

Growth Driver

A key metric that will undoubtedly be watched like a hawk will be the company's streaming subscriber count and growth. Disney+ has been a revelation for consumers, allowing them access to a vast selection of some of the most famous movie titles and franchises globally, such as Star Wars and Marvel's Avengers movies.

The company also has ESPN+, home to Ultimate Fighting Championship (UFC) events, and owns a majority stake in Hulu, a widely-popular streaming service with hit shows such as The Handmaid's Tale. These two services provide diverse streaming service revenue, ranging from sports to various genres of TV content.

Disney+ has been a massive success for the company. In its latest quarterly release, the overall subscriber count for this service surged 18% from the year-ago quarter up to 42.9 million. Additionally, the average monthly revenue per paid subscriber on the Disney+ service was up to $6.68, up 15% from 2021.

Unlike other streaming services, what sets DIS apart is its unique ability to further monetize content via its widely-hailed entertainment parks and other related merchandise that the company can sell.

Quarterly Estimates

EPS estimates for DIS are looking robust heading into Wednesday. For the quarter, the Consensus Estimate Trend has increased by a respectable 2.5% over the last 60 days to $1.20 per share, boosted by three analysts positively revising their quarterly estimates. Additionally, the quarterly estimate reflects a very sizable 51% growth in earnings from the year-ago quarter.

Revenue estimates are looking solid as well for the quarter. The Zacks Consensus Sales Estimate has DIS raking in $20.3 billion for the quarter, a notable 30% increase in the top line from the year-ago quarter's revenue of $15.6 billion. For the current year, Disney's top line is expected to surge 26% year-over-year from 2021.

Netflix Comparison

We all witnessed the meltdown within Netflix shares following its quarterly release, so it's appropriate to compare the company to see if we can obtain a clearer picture of what to expect from DIS.

NFLX's valuation was slashed by double-digits following its quarterly report, mainly driven by a slowdown in the growth picture for the company. Following a pandemic surge in subscribers that massively drove the run shares went on, NFLX's subscriber count and growth rate have since significantly cooled off.

Disney has been able to reap the rewards of its own content, and Disney+ is still on track to achieve its guidance of 230 – 260 million paid subscribers by the end of FY24.

Additionally, DIS has other streams of revenue pouring in from its theme parks paired with pent-up demand thanks to COVID-19 shutting the world down, which will further drive top-line growth in the near future.

Bottom Line

The COVID-19 induced surge in online streaming is very much cooling off. With the world re-opening, many consumers have turned away from the TV and are enjoying the outside world again. Disney stands to capitalize here with its theme parks that have amassed a ton of pent-up demand.

Furthermore, ESPN+ and Hulu subscriber counts have been increasing alongside Disney+, boding well for the company's streaming line of business.

The quarter's revenue and EPS forecasts are looking solid, and Disney's bottom line is expected to expand by 23% over the next three to five years. It looks beneficial for investors to implement a defense-first approach to the quarterly release; earnings season has not been kind to many companies. However, Disney is looking well-rounded heading into Wednesday, and with the re-opening of the world paired with a massive catalog of streaming options, the future does look bright.

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Netflix, Inc. (NFLX) : Free Stock Analysis Report
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Roku, Inc. (ROKU) : Free Stock Analysis Report
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