Leidos and Nabors have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – January 22, 2024 – Zacks Equity Research shares Leidos Holdings LDOS as the Bull of the Day and Nabors Industries NBR as the Bear of the Day. In addition, Zacks Equity Research provides analysis on PulteGroup PHM, Dream Finders Homes DFH and Granite Construction GVA.
Here is a synopsis of all five stocks.
Bull of the Day:
Leidos Holdings, a Zacks Rank #1 (Strong Buy), provides services and solutions in the defense, intelligence, civil, and health markets. Renewed strength in the aerospace sector provides a durable backing for this industry leader. LDOS stock has begun to display relative strength, recently surging to 52-week highs. Increasing volume has attracted investor attention as buying pressure accumulates in this top-ranked stock.
LDOS is part of the Zacks Aerospace – Defense industry group, which currently ranks in the top 25% 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.
Quantitative 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
Leidos Holdings offers national security solutions and systems for air, land, sea, space, and cyberspace for the U.S. Intelligence Community, the Department of Defense, the National Aeronautics and Space Administration, as well as other government agencies and military services. The company is a technology leader in areas such as cybersecurity, data analytics, and logistics.
In addition, Leidos Holdings provides IT solutions in cloud computing, mobility, data center management, and help desk operations. The company boasts a wide array of customers including foreign governments and their agencies, which are primarily located in the United Kingdom, the Middle East, and Australia.
Increased contract wins for Leidos from the Pentagon and other U.S. allies have been a primary growth driver for the company. In the third quarter of last year, Leidos recorded net bookings worth $7.9 billion. This led to an impressive backlog of $38.04 billion, a solid increase relative to the $34.15 billion from the year-ago period.
Earnings Trends and Future Estimates
The diversified defense provider has put together an impressive earnings history, surpassing earnings estimates in three of the last four quarters. Back in October of last year, the company reported third-quarter earnings of $2.03/share, a 23.8% surprise over the $1.64/share consensus estimate. Leidos Holdings has delivered a trailing four-quarter average earnings surprise of 11.5%.
LDOS shares received a boost as analysts covering the company have been increasing their 2024 earnings estimates lately. For the full year, earnings estimates have risen 0.4% in the past 60 days. The 2024 Zacks Consensus EPS Estimate now stands at $7.48/share, reflecting a potential growth rate of 6.3% relative to the prior year. Revenues are projected to climb 4.2% to $15.89 billion.
Let’s Get Technical
LDOS stock has advanced more than 40% in the past eight months alone. Only stocks that are in extremely powerful uptrends are able to experience this type of outperformance. 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 52-week highs, widely outperforming the major indices. With positive fundamental and technical indicators, LDOS stock 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, Leidos Holdings has recently witnessed positive revisions. As long as this trend remains intact (and LDOS continues to deliver earnings beats), the stock will likely continue its bullish run this year.
Despite the impressive performance, LDOS stock remains relatively undervalued based on traditional valuation metrics:
Bottom Line
Leidos is ranked favorably by our Zacks Style Scores, with a best-in-class ‘A’ rating in our Growth category and a second-best ‘B’ rating in our Value category. This indicates that LDOS stock is likely to move higher based on a favorable combination of earnings/sales growth and undervaluation.
Backed by a top industry group and 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. The future looks bright for this highly-ranked, leading stock.
Bear of the Day:
Nabors Industries provides drilling and related services for land-based and offshore oil and natural gas wells in the United States and internationally. The company offers solutions such as tubular running, directional drilling, rig instrumentation, and drilling optimization software. Nabors Industries markets approximately 300 rigs for land-based drilling operations and 29 rigs for offshore platform operations.
The Hamilton, Bermuda-based company provides several intelligent products including ROCKit and SmartSLIDE, which are two advanced directional steering control systems; SmartNAV, a collaborative guidance and advisory platform; and RigCLOUD, which provides the infrastructure to deliver real-time insight into operations across its rig fleet.
Despite a relatively constructive operating environment, the oilfield services provider continues to be exposed to overcapacity and pricing pressure. Its rig count is down since the start of 2023, and customers seem to be drilling fewer wells. Volatile crude oil prices are likely to persist in 2024, and a high debt-to-capitalization ratio restricts the company’s financial flexibility.
The Zacks Rundown
Nabors Industries, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Oil and Gas – Drilling industry group. This industry ranks in the bottom 5% 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, just as it has over the past several months.
Stocks in the bottom tiers of industries can often be potential candidates for short positions. While individual stocks have the ability to outperform even when they are part of a lackluster 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 stocks with the Dow and S&P 500 hitting new all-time highs, NBR shares have not been participating lately. The stock has experienced considerable volatility over the past year. NBR hit a 52-week low earlier this month, all while the general market eclipses its former highs.
Recent Earnings Misses and Deteriorating Outlook
NBR has fallen short of earnings estimates in each of the last four quarters. The company most recently reported a fiscal third-quarter loss in October 2023 of -$5.40/share, missing the -$0.20/share consensus EPS estimate by a whopping -2,600%.
Nabors Industries has posted a trailing four-quarter average earnings miss of -817.39%. Consistently falling short of earnings estimates is a recipe for underperformance, and NBR is no exception.
The company has been on the receiving end of negative earnings estimate revisions as of late. The fourth-quarter outlook has been slashed by -105.26% in the past 60 days. The fiscal Q4 Zack Consensus Estimate stands at -$0.78/share, the second consecutive (expected) loss in what has been a consistent string of misses.
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, NBR 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 pressure in sight. Also note how both moving averages have rolled over and are sloping down – another good sign for the bears.
NBR 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. Nabors Industries would have to make a surprising move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. NBR shares have fallen more than 56% in the past year alone, all while the major indexes have shown strength.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to hit new highs anytime soon. The fact that NBR 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.
Highlighted underperformance bodes well for the bears. Potential investors may want to consider including this stock as part of a short or hedge strategy. Bulls will want to steer clear of NBR shares until the situation shows major signs of improvement.
Additional content:
3 Housing Stocks to Buy as Home-Builder Confidence Surges
U.S. homebuilders’ sentiment soared for the second successive month in January. The Housing Market Index of the National Association of Home Builders (“NAHB”), which determines homebuilders’ confidence in newly constructed single-family houses, increased to 44 in January from December’s reading of 37. The reading came in better than the 39 estimated by economists. Also, it’s more than the year-ago reading of 35.
Homebuilders have successfully trimmed prices and provided various other incentives to attract buyers and improve sales. The NAHB reported that nearly 31% of homebuilders cut prices in January. Nonetheless, builders think that the current sales scenario is buoyant, while they are hopeful about forthcoming sales prospects for the first time since August. Builders are, at the moment, witnessing an uptick in traffic among potential buyers.
The decline in mortgage rates since late October has also bolstered homebuilders’ confidence, per Freddie Mac. The 30-year mortgage rate is hovering below the 7% mark and is at its lowest level in three weeks. This decline in mortgage rates lifted home-buying and demand for refinancing. On the other hand, mortgage application volume picked up last week.
Mortgage rates continue to ease on expectations of a series of interest rate cuts this year. This is because mortgage rates always tend to follow the Federal Reserve’s funds rate. Now, with inflationary pressure showing signs of cooling down, the Fed is widely expected to trim interest rates. The CME FedWatch Tool is now showing that 53.8% of market participants are expecting a rate cut in March’s Federal Open Market Committee meeting.
Lest we forget, economic activity in the housing market has already picked up, with construction spending increasing for the 11th month in November. The Commerce Department reported that construction outlays increased 0.4% to $2.04 trillion in November.
Thus, with the housing market warming up, homebuilding and construction stocks such as PulteGroup, Dream Finders Homes and Granite Construction are making compelling investment choices as of now. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
PulteGroup engages in homebuilding and financial services businesses, primarily in the United States. PHM currently has a Zacks Rank #2. The Zacks Consensus Estimate for its next-year earnings has moved up 0.6% over the past 60 days. PHM’s expected earnings growth rate for the current year is 6.4%.
Dream Finders Homes is a homebuilding company. It operates principally in Florida, Texas, North Carolina, South Carolina, Georgia, Colorado, Virginia and Maryland. DFH currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 5.5% over the past 60 days. DFH’s expected earnings growth rate for the next five-year period is 8.6%.
Granite Construction is one of the nation's largest infrastructure contractors and construction materials producers. GVA currently has a Zacks Rank #2. The Zacks Consensus Estimate for its next-year earnings has moved up 2.1% over the past 60 days. GVA’s expected earnings growth rate for the current year is 35.1%.
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Nabors Industries Ltd. (NBR) : Free Stock Analysis Report
PulteGroup, Inc. (PHM) : Free Stock Analysis Report
Granite Construction Incorporated (GVA) : Free Stock Analysis Report
Leidos Holdings, Inc. (LDOS) : Free Stock Analysis Report
Dream Finders Homes, Inc. (DFH) : Free Stock Analysis Report
