Lamb Weston and Clorox have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – October 23, 2023 – Zacks Equity Research shares Lamb Weston Holdings, Inc. LW as the Bull of the Day and The Clorox Company CLX as the Bear of the Day. In addition, Zacks Equity Research provides analysis on PACCAR Inc. PCAR, Allison Transmission Holdings ALSN and Ford F.
Here is a synopsis of all five stocks.
Bull of the Day:
Lamb Weston Holdings, Inc. operates in a somewhat boring segment of the economy. Nonetheless, Lamb Weston’s frozen potatoes business is booming and it’s poised to keep humming through good economic times and bad since its offerings are staples across various cuisines and meals at restaurants, in homes, and beyond.
Lamb Weston topped our quarterly earnings and revenue estimates in early October and upped its outlook.
Yet, the stock has been hammered since the summer as Wall Street took profits after a massive year-plus run. Lamb Weston has also suffered amid a broad-based downturn across the consumer staples sector.
LW stock is now sitting at levels that might make investors want to consider diving into the frozen potato producer. Lamb Weston also recently announced plans to boost its dividend payout and stock buybacks.
An Essential in Consumer Staples
Lamb Weston has been in business for roughly 70 years and it spun off from ConAgra in the fall of 2016. Today, LW is one of the largest suppliers of frozen potatoes in the world, selling a nearly endless array of offerings including fries, hash browns, mashed potatoes, and beyond.
Lamb Weston sells its frozen potato products to restaurants and retailers around the world. LW’s growth has been rather impressive outside of its small Covid-based downturn. Simply put, fries, potatoes, and potato-based foods are core menu offerings at restaurants across the U.S. and internationally. Lamb Weston’s products are also likely filling up freezers in homes across the globe.
Recent Growth and Outlook
Lamb Weston grew its revenue by 31% during its fiscal 2023 (period ended in May 2023) after it posted 12% sales expansion in FY22. Most recently, its first quarter fiscal 2024 revenue soared 48% to $1.67 billion, including $375 million of incremental sales attributable to acquisitions.
Lamb Weston back in February completed its purchase of the remaining equity interests in its European joint venture with Meijer Frozen Foods. The company has also continued to benefit from the “pricing actions initiated last year as well as improved customer and product mix.”
LW’s adjusted quarterly earnings skyrocketed 109% to $1.63 per share to blow away our EPS estimate by 50%. The company boosted its FY24 guidance on October 5 on the back of its stellar quarter, coupled with what it views as solid current demand and a favorable pricing environment.
Zacks estimates call for Lamb Weston to expand its FY24 revenue by 28% to $6.84 billion and then add another 6% to the top line next year. Meanwhile, its adjusted earnings are projected to climb by 22% during FY24 and 6% higher in FY25.
Lamb Weston’s bottom line outlook has already jumped since its recent release and its most recent/most accurate EPS estimates came in solidly above the upbeat consensus. LW’s upward earnings revisions help it land a Zacks Rank #1 (Strong Buy) right now. The positivity extends a wave of upward earnings revisions that began at the start of 2023.
Other Fundamentals
Lamb Weston shares have soared 190% since their November 2016 debut to destroy the S&P 500’s 110% and the Zacks Consumer Staples sector’s -5% decline. LW stock is also up 52% in the past 24 months to blow away the benchmark’s -7% decline. This strong performance includes a 24% drop since early July.
Lamb Weston currently trades roughly 44% below its average Zacks price target. LW does trade under both its 50-day and 200-day moving averages right now.
That said, buyers started to nibble at the stock recently. LW currently trades between its 50-week and 200-week moving averages, and it sits at its most oversold RSI levels since it went on its last big run.
On the valuation front, Lamb Weston is trading around its Covid-selloff lows at 14.7X forward 12-month earnings. This marks an 8% discount to its sector despite its outperformance and 35% value compared to its own median.
Bottom Line
Lamb Weston on October 11 announced a series of near-term and long-term initiatives. Some of these efforts include a commitment to returning more cash to shareholders by targeting a dividend payout ratio of 25%-35% of net income and a newly-increased $500 million share repurchase authorization.
Lamb Weston is far from flashy, but it plays a crucial role in providing one of the most popular food items on the planet. Six of the seven brokerage recommendations Zacks has for LW are “Strong Buys,” next to one “Hold.”
Bear of the Day:
Company Overview
The Clorox Company has been on a rather steady decline after it went on an unsustainable surge at the start of Covid.
Clorox’s near-term outlook appears disappointing, driven lower by a cybersecurity attack that was disclosed in August. Despite its fall from its peaks, CLX shares are still rather pricey compared to the wider Consumer Staples sector.
CLX Basics
Clorox’s portfolio includes its namesake disinfectant wipes and other household and heavy-duty cleaning items designed for the healthcare industry and beyond. On top of that, the firm’s portfolio features everything from Kingsford charcoal and Brita water filters to Hidden Valley, Burt’s Bees, and beyond.
Clorox breaks up its business into four categories: Health and Wellness (Cleaning; Professional Products), Household (Bags and Wraps; Cat Litter; Grilling), Lifestyle (Food; Natural Personal Care; Water Filtration), and International (Sales Outside the U.S.).
CLX has posted rather steady sales growth for much of the last 20 years, outside of a few small YoY pullbacks. Clorox grew its fiscal 2023 revenue (period ended in June) by 4%.
CLX on October 4 outlined preliminary Q1 FY24 financial data. Clorox said sales are expected to decrease by between 28% and 23%, with organic sales “now expected to decrease by 26% to 21%” vs. its prior expectations “of mid-single-digits growth as provided in the Q4 earnings remarks.”
The downbeat outlook “is due to the impacts of the recent cybersecurity attack that was disclosed in August, which caused wide-scale disruption of Clorox's operations, including order processing delays and significant product outages. Shipment and consumption trends prior to the cybersecurity attack were in line with the Company's prior expectations.”
Meanwhile, its adjusted EPS are expected range between a loss of -$0.40 to $0.00, with the cybersecurity attack more than offsetting the “benefits of pricing, cost savings and supply chain optimization.”
Clorox’s FY24 revenue is projected to dip by -5.5%, based on Zacks estimates. Meanwhile, its adjusted earnings are expected to decline by 12% YoY. But these estimates could get worse since they don’t yet fully account for the updated Q1 guidance.
Bottom Line
Clorox’s downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now. CLX’s first quarter earnings estimate is already down 96%, with its FY24 figure 24% lower.
Plus, its most accurate/most recent quarterly earnings estimates came in at -$0.20 vs. the current consensus of +$0.06 per share.
CLX stock has fallen roughly 25% over the last six months and around 50% from its peaks. Despite the fall, it still trades above its 10-year median and at a 60% premium compared to the Zacks Consumer Staples sector at 25.5X forward 12-month earnings.
All in, investors might want to stay away from Clorox, at least until it reports its results and provides updated FY24 guidance.
Additional content:
3 Auto Stocks to Watch for Q3 Earnings Surprises
https://www.zacks.com/research-daily/2169481/top-stock-reports-for-apple-amgen-becton-dickinson
The third-quarter earnings season for the Auto-Tires-Trucks sector began on Oct 18. So far, two S&P 500 sector components — Tesla and Genuine Parts — have reported quarterly numbers. Electric vehicle (EV) king Tesla’s 10 consecutive quarter-long beat streak snapped as it reported lower-than-expected earnings for the third quarter of 2023. Revenues also lagged estimates. Auto replacement parts provider Genuine Parts topped earnings estimate but missed the mark for sales.
Per the Earnings Trend report dated Oct 18, the auto sector’s earnings for the third quarter are expected to decline 12.2% on a year-over-year basis. As for revenues, they are estimated to grow 5.8% year over year.
With a majority of companies left to release third-quarter 2023 results, we have identified — with the help of the Zacks Stock Screener — a few auto players, which are positioned to outshine the Zacks Consensus Estimate in third-quarter earnings. These include PACCAR Inc., Allison Transmission Holdings and Ford. Before we discuss the companies, let’s take a look at the factors shaping the quarterly performance of automotive companies.
Factors at Play
Per Automotive News, U.S. light vehicle sales in the third quarter of 2023 topped 3.8 million units, up 17% year over year. The seasonally adjusted annualized sales rate for September 2023 was 15.2-15.5 million vehicles, up from 13.7 million vehicles a year earlier, per GlobalData. Improving retail inventories and strong fleet shipments aided the U.S. auto market in the third quarter.
At the beginning of September, U.S. inventories had 2.2 million vehicles, representing an increase of approximately 813,000 cars and light trucks compared to September 2022, according to Cox Automotive. This marked a 60% increase from the year-ago levels and the highest new-vehicle inventory since early 2021.
The generous incentives offered by automakers are expected to have played a crucial role in boosting retail deliveries in the third quarter of 2023, offsetting the impact of high interest rates. However, discounts might have impacted margins. Also, commodity costs, forex woes, tough labor market and logistical challenges are likely to have played spoilsport. Moreover, high operating expenses, including R&D to develop technologically advanced products to adapt to the changing dynamics of the auto industry, are expected to have dented earnings.
Picking Potential Winners
While it is not possible to be sure about which companies are well positioned to beat earnings estimates, our proprietary methodology — Earnings ESP — makes it relatively simple. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that for stocks with the abovementioned combination, the chances of an earnings beat are as high as 70%.
Our Choices
PACCAR is one of the leading names in the trucking business, with reputed brands like Kenworth, Peterbilt and DAF. The new DAF lineup (comprising the XF, XG and XD models) and accelerated efforts toward electrification, connected vehicle services and advanced driver-assistance are likely to have bolstered third-quarter results.
We expect truck deliveries of 51,421 units during the quarter under discussion, which reflects 15.8% growth year over year. While PACCAR derives the bulk of its revenues from truck sales, it also produces and sells a wide range of parts, including its brand of engines. Continued growth in aftermarket parts — which is a high margin and less cyclic business — bodes well. Our projections for Trucks and Parts revenues imply year-over-year growth of 22.2% and 7.2%, respectively.
PACCAR has an Earnings ESP of +1.18% and a Zacks Rank #2. The company is scheduled to release third-quarter results on Oct 24. The Zacks Consensus Estimate for PACCAR’s to-be-reported quarter’s earnings and revenues is pegged at $2.07 per share and $8.02 billion, respectively. The EPS estimate for the third quarter has moved by a cent in the past seven days. PCAR surpassed earnings estimates in the trailing four quarters, with the average surprise being 15.21%.
PACCAR Inc. price-eps-surprise | PACCAR Inc. Quote
Allison is a manufacturer of fully automatic transmissions for medium and heavy-duty commercial and heavy-tactical U.S. defense vehicles. The strategic buyouts of Walker Die, C&R Tool & Engineering, Vantage Power, the Off-Highway transmission portfolio of AVTEC and AxleTech’s EV systems division are likely to aid Allison’s third-quarter results. Regular product launches, including FracTran, TerraTran and the 3414 Regional Haul Series fully automatic transmission, bode well.
The eGen Flex portfolio and the eGen Force portfolio demonstrate its ability to adapt to the changing dynamics of the auto industry and are expected to have driven third-quarter revenues. Our estimate for the company’s North America On-Highway — which accounts for the bulk of its revenues — is pegged at around $368 million, implying year-over-year growth of 8.3%.
Allison has an Earnings ESP of +8.19% and a Zacks Rank #1. The company is scheduled to release third-quarter results on Oct 25. The Zacks Consensus Estimate for ALSN’s to-be-reported quarter’s earnings and revenues is pegged at $1.71 per share and $759.2 billion, respectively. The EPS estimate for the third quarter has moved by a cent in the past seven days. ALSN surpassed earnings estimates in the trailing four quarters, with the average surprise being 19.32%.
Allison Transmission Holdings, Inc. price-eps-surprise | Allison Transmission Holdings, Inc. Quote
Ford, one of the leading automakers in the United States, saw its US sales increase 7.7% to 500,504 units. Sales of the Ford brand rose 8%, while that of Lincoln increased 1.8%. The third quarter of 2023 marked record electric vehicle sales for Ford on the soaring popularity of Mustang Mach-E and E Transit.
For the to-be-reported quarter, our estimate for Ford Blue wholesale shipments is pegged at 750,000 units, indicating an increase of 1.2% from the year-ago period. The combination of Ford Pro's strong order books and the successful launch of the all-new Super Duty sets the stage for promising results of the Ford Pro segment. Our forecast for third-quarter Ford Blue and Ford Pro adjusted EBIT implies an uptick of 6.2% and a whopping 370.1% on a year-over-year basis.
Ford has an Earnings ESP of +14.57% and a Zacks Rank #3. The company is scheduled to release third-quarter results on Oct 26. The Zacks Consensus Estimate for Ford’s to-be-reported quarter’s earnings and revenues is pegged at 40 cents per share and $37.83 billion, respectively. The EPS estimate for the third quarter has moved by 6 cents in the past 90 days. Ford surpassed earnings estimates in two of the trailing four quarters for as many misses, with the average surprise being 20.11%.
Ford Motor Company price-eps-surprise | Ford Motor Company Quote
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Ford Motor Company (F) : Free Stock Analysis Report
PACCAR Inc. (PCAR) : Free Stock Analysis Report
The Clorox Company (CLX) : Free Stock Analysis Report
Allison Transmission Holdings, Inc. (ALSN) : Free Stock Analysis Report
Lamb Weston (LW) : Free Stock Analysis Report
