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Jabil, Harley-Davidson, TMO, LHCG and NovoCure 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 – October 7, 2020 – Zacks Equity Research highlights Jabil JBL as the Bull of the Day and Harley-Davidson HOG as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Thermo Fisher Scientific, Inc. TMO, LHC Group, Inc. LHCG and NovoCure Ltd. NVCR.

Here is a synopsis of all four stocks:

Bull of the Day:                                                 

Jabil is one of the largest suppliers of electronic manufacturing services globally, and its shares are preparing for launch as the roaring 20s commence. This innovation-driven enterprise summed up fiscal 2020 (ending August 31st), one of the most turbulent years in recent history, with record sales and a great outlook. Analysts have been increasing their EPS estimates, following an excellent August quarter and better than expected guidance for this current quarter, pushing JBL into a Zacks Rank #1 (Strong Buy).

The Business

Jabil seems to have its hand in every advanced digital industry, from automotive electronics to cloud computing, leveraging its engineering excellence to drive innovative solutions. 

There is no better way to accurately describe a company than from "the horse's mouth." According to Jabil's capabilities page, its "network of engineers spans electrical, optical, software, mechanical, and design disciplines, and our commitment to excellence in all these areas means customers consistently receive best-in-class service. That's why top-tier brands worldwide, across a broad range of industries, partner with Jabil to address production needs from conceptual design through supply chain management."

This digitally leveraged enterprise provides comprehensive design, manufacturing, supply chain, and product management services to some of the most influential brands in the world.

Jabil operates over 100 plants in 29 countries, employing more than 260,000 workers. Mobility, healthcare, and cloud technology were this adaptable business's biggest drivers in fiscal 2020 (which ended August 31st).

Fiscal 2020 was a record year for this digitally driven manufacturer, illustrating over $27 billion in revenue 8% topline growth. 2020 is the 6th consecutive year that the business has shown sales expansion.

The business has over $1 billion in liquidity cash & equivalents combined with robust annual cash flows to take advantage of organic and acquisitional growth opportunities.

Where Jabil Fits "A New Normal"

The global economy was faced with one of the greatest challenges in recent history in the wake of the worst pandemic in a century. This 10-nanometer virus shut down the economies across the globe, disrupting supply chains, annihilating tourism revenue, and forcing 10 of millions out of a job. 

Still, in the wake of what appeared to be global chaos, technology was the saving grace, allowing most of the developed world to function effectively while in quarantine. The world was digitized by years in only a matter of months during the pandemic. Businesses have relied on mobile devices, cloud computing, automation, as well as AI to stay operational, and this reliance is only going to grow in the years ahead. The pandemic accelerated a digital trend that was already underway.

The necessity of mobile devices, cloud technology, and other wireless markets (including 5G technology) cannot be overstated in the "new normal," with the economy now addicted to the ease and convenience that tech provides. Jabil is an industrial giant that has been well-positioned for the growing demand in these cutting-edge segments. 

JBL shares do not illustrate this business's potential as its inherent industrial sector association and slow profitability recovery have kept these shares hampered so far in 2020, still trading 21% below its December highs. JBL looks like it's finally beginning to break out of the trading rut and back up to its old highs.

Technical Analysis & Valuation

Jabil's shares are finally breaking past a resistance-level just south of $36 (represented by the yellow line) that has been the bane of long-term investors since early June. JBL hasn't seen $36 per share since the end of February. Still, JBL bulls temporarily propelled this stock past the $36 benchmark price yesterday before the broader market sold off on pessimistic stimulus outlook, provided by President Trump.

Jabil's shares have been bound by two key Fibonacci retracement levels roughly between $30 - $35, but the stock appears to be on its way back towards its December highs.

Not only is JBL on the right side of industrial manufacturing for the roaring 20s, but it's trading at a sizable valuation discount to its industry. The stock is trading at below 9 times price-to-forward earnings, which is not only on the lowest end of JBL's 10-year trend but sizably below the industry's 11.8x forward P/E (which you can see below).

Final Thoughts

Technology is beginning to seep into every corner of the economy. Jabil and its engineering expertise are providing cutting-edge digital solutions to seemingly every segment of the market. This innovation-powered enterprise has exceptionally diverse operations that will allow the company to drive growth from the 4th industrial revolution, which is taking off amidst the Roaring 20s.

JBL is an underappreciated value play that has a sizable upside as the rapid economic recovery continues. Its currently trading 24% off its average target price, but I think these shares could go much further than that. I would not miss out on this value train, which is about to leave the station.

Bear of the Day:

Harley-Davidson has been the symbol of mid-life crises for decades and has profited off the massive Baby Boomer generation, but there is a new group of consumers in town and there set of demands is quite different. The chopper is going out of style and leading its progenitor, Harley-Davidson, down with it. Analysts continue to pessimistically lower its already deflated EPS estimates for this seemingly antiquated stock, pushing HOG down to a Zacks Rank #5 (Strong Sell).

The End of an Era

Harley-Davidson hit its peak sales & profitability in 2014 and has since been experiencing a decline. The massive demographic shift in consumption is catalyzing this demand slump. Millennials recently overtook Boomers as the largest consuming generation, and they are making some profound changes to the retail landscape (e.g., the retail apocalypse). One of the unfortunate victims of this consumption change has been Harley and its iconic motorcycles.

This is not to say the Harley isn't making an effort to shape its brand image around the evolving consumer. The company has come out with a line of fully electric bikes and has a pipeline of sleek new designs and an eBicycle, which are to be released next year.

These brand changing efforts may be fruitless as millennials, and younger generations turn against some of the brands of their parents' and grandparents' generations as they are no longer "fashionable." Unfortunately, I don't believe Harley will be able to easily shake its chopper brand association.

COVID, Financials & Chart

Harley has experienced 7 straight quarters of topline declines, with its profits tumbling from $254 million in the second quarter of 2018 to negative $54 million this past quarter. COVID-19 pummeled Harley's Q2 sales and drove the company's bottom line to its lowest level since the heart of the financial crisis in 2009.

This most recent recession was very different from the systemic financial downfall, and I would have thought Harley Davidson would fare much better in this medically induced recession. 

With mortality at the forefront of many consumers' minds, I think there is more demand for "exciting" purchases like Teslas and Malibu Boats, with their respective stocks reaching all-time highs this year.

I would typically associate Harley with an "exciting" purchase, but the company couldn't perform. These shares are sitting 28% below where they were at the beginning of the year. This stock drop accentuates the downward trend HOG has been experiencing since mid-2014, and it's all-time high remains in 2006. HOG is trading 65% below that old high.

Final Thoughts

People are no longer excited about Harleys. The business appears to be hitting a level of obsolescence as it looks at its glory days in the rearview mirror. 

There is still a glimmer of hope that this motorcycle giant will be able to rebrand itself into something millennial-friendly. The success of next year's product releases will be telling in whether the company can evolve with the progressing consumer.

Additional content:

3 Growth-Focused MedTech Stocks Amid COVID-19 Crisis

The coronavirus pandemic has cast a pall over markets. Various rescue packages and fiscal stimuli have failed to be much of a support to the U.S. economy.

The latest coronavirus stimulus plan of $2.2 trillion was passed by the House on Oct 1 and currently awaits the Senate’s response. The stimulus plan proposes to inject $75 billion into COVID-19 testing and contact tracing efforts along with authorizing more money for a second round of Paycheck Protection Program loans for the hardest-hit businesses and industries. However, like the earlier stimulus packages, this plan does not explicitly offer any assistance to sectors like MedTech.

MedTech the Safe Haven

Amid the dismal show by the majority of the U.S. sectors and despite the stimulus-led conservativeness of the government related to the MedTech sector, market watchers consider this sector a safe investment bet now.

Although MedTech companies have been hurt by the pandemic-led supply disruption and procedural delays, certain companies from this space have actually performed impressively and sustained the market meltdown due to the nature of business which aligns well with COVID-19-related healthcare needs.

Here we are talking about companies engaged in the manufacturing and supply of critical care products like ventilators and masks. These companies have put up stellar performances on the pandemic-led surge in demand. A prominent example is ResMed, which is a renowned manufacturer of ventilators. It has outperformed the S&P 500 over the past year, rallying 29.2% versus the latter’s 16.2%. Investing in such companies seems prudent given the current market volatility.

Invest in the Best MedTech Options Now

The MedTech sector, although not totally unscathed by the pandemic-led market mayhem, has performed way better than the overall U.S economy. The companies, whose performances were boosted by the pandemic, boast strong fundamentals and have appealing long-term prospects. This has made them the best investment option amid the market mayhem.

3 Stocks to Buy

Here we have handpicked three stocks from the MedTech space which have held their ground during the pandemic-led market meltdown. To narrow down the list, we have selected stocks with a Growth Score of A or B. Our research shows that stocks with a Growth Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

We have listed stocks which have strong growth potential and have become extremely attractive picks now.

The first company that investors can consider is Thermo Fisher Scientific, Inc. The company is a scientific instrument maker and a world leader in serving science. The Zacks Rank #1 company, with a Growth Score of B, delivered an outstanding quarterly performance in the second quarter of 2020, leveraging on its capacity to extend support amid the pandemic.

We are encouraged by the exceptionally strong year-over-year revenue growth at the company’s Life Sciences Solutions segment. In terms of end market, pharma and biotech registered growth on robust performance in bioproduction and pharma services businesses. COVID-19-related sales also boosted the company’s quarterly results.

Its return on equity (ROE) stands at an impressive rate of 18.2% against the industry’s negative return. Further, its projected earnings per share (EPS) growth rate currently stands at 27.8% versus the industry’s 1.5%. The company projects 15.5% earnings growth for the next five years. During Apr 1 to Sep 30, the stock has gained 60.4% compared with the S&P’s 35.6% rise.

Our next pick is LHC Group, Inc., a company that serves as a post-acute care partner for hospitals, physicians and families in the United States. The Zacks Rank #1 company has a Growth Score of A and continues to gain from hospice admissions, which rose year over year in the second quarter. Its better-than-expected earnings results in the reported quarter buoy optimism.

The recent finalization of a joint venture (JV) partnership with Orlando Health is encouraging. LHC Group is focused on acquisitions and JVs for inorganic expansion. Its pipeline of potential M&A growth opportunities also remain robust and well balanced between Home Health and Hospice.

Its ROE of 9.1% compares favorably with the industry’s negative return. Further, its projected EPS growth currently stands at 7% versus the industry’s anticipation of loss per share. The company projects 13.1% earnings growth for the next five years. During Apr 1 to Sep 30, the stock has gained 65.6% compared with the S&P’s 35.6% rise.

Our final choice is global oncology company NovoCure Ltd. Although the oncology business has suffered due to procedural deferrals, this company wrapped up the second quarter with better-than-expected results. The year-over-year top and bottom-line growth of this Zacks Rank #2 company has been impressive. The company is currently working to extend survival in some of the most aggressive forms of cancer by developing and commercializing its innovative therapy, Tumor Treating Fields. For investors’ note, Tumor Treating Fields is the company’s proprietary platform technology.

The company has a Growth Score of A and a ROE of 5.1% against the industry’s negative returns. Further, its projected EPS growth currently stands at an impressive rate of 359.5% against the industry’s anticipation of loss per share. The company projects 94.4% earnings growth for the next year. During Apr 1 to Sep 30, the stock has gained 72.5% compared with the S&P’s 35.6% rise.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.

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Jabil, Inc. (JBL) : Free Stock Analysis Report
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