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Joint, Cabot, Lowe's and Home Depot highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research
Joint, Cabot, Lowe's and Home Depot highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – May 23, 2019 – Zacks Equity Research The Joint Corp JYNT as the Bull of the Day, Cabot Corporation CBT as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Lowe’s LOW and Home Depot HD.

Here is a synopsis of all four stocks:

Bull of the Day:

The Joint Corp has been posting some impressive topline growth and that has helped propel some recent earnings estimate revision to the upside.  When estimates move higher so does the Zacks Rank and this stock has the highest Zacks Rank #1 (Strong Buy) and it is the Bull of the Day.

Description 

The Joint Corp. is a healthcare franchisor of chiropractic clinics. The Company's plans include: Single Visit, Premium Wellness Plan and Wellness Plan. It also provides a family wellness plan. The Company also provides removal of subluxations. It operates its clinics across: Albany, New York; Austin, Texas; Brentwood, California; Fort Mill, South Carolina; Lubbock, Texas; Lynnwood, Washington; Middletown, New Jersey; San Antonio, Texas; San Diego, California and Spartanburg, South Carolina, among others. The Joint Corp. is headquartered in Scottsdale, Arizona.

Earnings History

The earning history is pretty good for JYNT.  Over the last four quarters I see two beats, one miss and one NA on the Zacks website.  There was no estimate data for one quarter, but looking back at the price and consensus and EPS surprise chart (https://www.zacks.com/stock/chart/JYNT/price-consensus-eps-surprise-chart) you can see of the last 6 quarters where Zacks had estimates, there were 5 beats and one miss.

Revenue growth like that is just what I love to see.  Consistent revenue growth tends to help bring in new buyers to a stock.

Estimate Revisions

The Zacks Rank is an algorithm that is based on the movement of earnings estimates over the last 60 days.  For JYNT, I see a positive one penny move for this quarter and nothing for next quarter.

The full year 2019 EPS consensus estimate has risen from $0.21 to $0.23.  The 2020 EPS consensus estimate has moved from $0.52 to $0.54.

Those two cent moves don’t seem like much but the implied growth rate is what is really attracting more and more investors to this story.

Valuation

JYNT has some lofty numbers in the valuation department.  That style score grade of F is hard to swallow, as is a 124x trailing PE and 77x forward multiple.  Given the franchise model, the book value is very low, so the 116x price to book multiple is going to keep that Zacks Value Style Score at an F for some time.  That said, the 50% annual topline growth rate is going to draw a lot of attention, even with a 6.8x price to sales multiple.

Bear of the Day:

Cabot Corporation is a Zacks Rank #5 (Strong Sell) and is the Bear of the Day today.  Let's take a look at why this stock has the lowest of all Zacks Ranks.

Description

Cabot Corporation is a leading global specialty chemicals and performance materials company headquartered in Boston, Massachusetts, USA. Our businesses deliver a broad range of products and solutions to customers in every corner of the globe, serving key industries such as transportation, infrastructure, environment and consumer. Cabot Corporation provides performance solutions that solve customers' challenges today while preparing them to meet tomorrow's needs. Cabot is a leading provider of rubber and specialty carbon blacks, activated carbon, inkjet colorants, cesium formate drilling fluids, fumed silica, aerogel, and elastomer composites.

Earnings History

As I look at the detailed estimates page, I see an OK earnings history for CBT. The company has topped the Zacks Consensus Estimate in 2 of the last four quarters and the other two quarters were misses.

The average surprise over the last four quarters is -1.92%, so the beats were just a little smaller than the loss.  We don't want to see that as investors.

Recent Earnings

I see the recent beat of a penny also came with guidance that was below consensus.  The company now expects to see FY19 EPS of $4.05 - $4.30, and that is below the prior guide of $4.20 - $4.60.  

Estimate Revisions

Following the beat and guide lower, estimates have dropped.  This quarter the Zacks Consensus has dropped from $1.25 to $1.00.  That is a big move lower.  Next quarter has only seen a small move of 2 cents lower.

The full year estimate is at $4.13, but that is down from the $4.39 level it was at prior to earnings.

Next year has also taken a hit.  The Zacks Consensus Estimate has slipped from $4.93 to $4.66.

Additional content:

Time to Buy LOW?

Lowe’s fell over 11% following their Q1 earnings release this morning and continues to fall. LOW showed weaker than expected EPS results and management cut its full-year earnings guidance by more than 8%. The firm missed its EPS estimates by 8.3%, with very little growth from the prior year. Revenues narrowly beat estimates and showed just over 2% growth from the same quarter last year.

Marvin Ellison took the helm as Lowe’s president and CEO in July of last year and has committed to focus on consumer and retail fundamentals to drive growth. Ellison is concentrated on improving customer service, inventory control, and other efficiencies within the firm. The stock has been all over the place since the torch was passed last year, and with LOW’s gap down this morning, the stock is performing below the S&P 500’s 52-week performance. Lowe’s went from being up almost 20% for the last 12 month yesterday to being up only 5.6% today.

Ellison’s attempted improvements have taken a hit on Lowe’s margins. Gross margins went from 33.11% for Q1 last year, down to 31.46% in this most recent quarter. This drop in gross margin is a concern for investors moving forward because it could be an indication of systemic issues with Ellison’s new strategy.

I discussed how homebuilding & improvement retailers were correlated with the housing market in my article yesterday, Home Depot, Lowe’s, and Housing Development: What to Expect. I talked about some of the pressures that Home Depot and Lowes were facing for this past quarter and the rest of the year. Constraints include labor and land shortages for home builders as well as a wetter than expected spring. These caused an oversupply of lumber (meaning lower prices) and potentially lower demand for other construction products as well.

Take Away

Companies like Lowe’s and Home Depot have betas above 1 because of their exposure to the volatile housing market, making them sensitive to economic pressures. If you are a contrarian investor and believe in both Ellison as a CEO and strong economic performance throughout the year, this may be a perfect time to buy LOW at a lower valuation. The market could be overselling LOW on this negative news.

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The Home Depot, Inc. (HD) : Free Stock Analysis Report
 
Lowe's Companies, Inc. (LOW) : Free Stock Analysis Report
 
Cabot Corporation (CBT) : Free Stock Analysis Report
 
The Joint Corp. (JYNT) : Free Stock Analysis Report
 
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