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Lemonade and MasTec have been highlighted as Zacks Bull and Bear of the Day

·11 min read

For Immediate Release

Chicago, IL – July 20, 2022 – Zacks Equity Research shares Lemonade, Inc. LMND as the Bull of the Day and MasTec MTZ as the Bear of the Day. In addition, Zacks Equity Research provides analysis on American Airlines AAL, Alaska Air Group ALK and Union Pacific Corp. UNP.

Here is a synopsis of all five stocks:

Bull of the Day:

Lemonade, Inc. is the small-cap insurance platform that offers homeowners and renters insurance principally in the United States, and contents and liability insurance primarily in Germany and the Netherlands, through its full-stack insurance carriers.

In May, the company reported a first-quarter operating loss of $1.21 per share, narrower than the Zacks Consensus Estimate of a loss of $1.43. The loss was however wider than the year-ago loss of 81 cents per share.

The results reflect gross earned premiums improvement, driven by an increase in force premium earned, offset by higher expense.

Fresh Squeezed Premiums

The analyst reactions were typical of many richly-valued software and FinTech companies since the bear market caused a big valuation reset.

JMP Securities analyst Matthew Carletti lowered the firm's price target on Lemonade to $40 from $95 to reflect "broad contraction in multiples across the technology and InsurTech sectors" in recent months. He maintained an Outperform rating on LMND shares.

The analyst observed that recent growth in premium-per-customer and bundling rates show that the company's model is working, but the significant recent changes in market environment that have been punishing growth and tech stocks demonstrate that "investors have become more demanding with regards to paths toward profitability."

And profitability is something that Lemonade is still a long way from squeezing. While the stock has moved into the upper realms of the Zacks Rank because of rising earnings estimates, the consensus for this year projects an EPS loss of $5.40, down 37% from last year.

The good news is on the topline where this year's consensus estimate for revenue of $208 million represents 62% annual growth. And next year is already projected to see a climb above $315 million for a 52% advance.

The recent beat-and-raise quarter gave analysts reasons to boost their outlook. Let's look at the quarter details and the guidance.

Behind the Q1 Headlines

Lemonade revenues increased 88.5% year over year to $44.3 million, driven by an increase in net earned premium, net investment income and commission and other income. The top line beat the Zacks Consensus Estimate by 2.4%.

Gross earned premiums soared 71% year over year to $96 million, driven by an increase in in-force premiums earned. Lemonade's in-force premium of $419 million jumped 66%, driven by a 37% increase in the number of customers as well as a 22% increase in premium per customer.

Premium per customer increased driven by the continued shift of business mix toward products with higher average policy values, increased prevalence of multiple policies per customer, and growth in the overall average policy value.

Total operating expenses, excluding net loss and loss adjustment expense, increased 68% year over year to $92.5 million, attributable to higher sales & marketing, technology development, and general and administrative expenses.

Adjusted EBITDA was negative $57.4 million, wider than negative $41.3 million in the year-ago quarter, attributable to increased operating expenses.

The loss ratio of 89 deteriorated 3100 basis points year over year. Lemonade estimates the loss ratio to be less than 75 in the long term.

Financial Update

Cash, cash equivalents, and investments were $1 billion as of Mar 31, 2022, down from 2021 end level of $1.1 billion, reflecting net proceeds from cash used in operations.

As of Mar 31, 2022, Lemonade had assets worth $1.5 billion, down about 1% from the level at 2021 end.

Shareholder equity at quarter-end was $912.7 billion, down 7.6% from the 2020-end level.

Cash used in operations was $39.5 million, lower than $40.3 million used in the year-ago quarter.

Q2 Guidance

In-force premium at quarter-end is projected between $445 and $450 million. Gross earned premium is expected in the range of $103-$105 million. Lemonade expects revenues between $46 million and $48 million. Adjusted EBITDA loss is expected to be $65-$70 million. Capital expenditure is estimated to be $4 million.

Full-Year 2022 View

Lemonade projects in-force premium between $535 million and $545 million. Gross earned premium is expected in the range of $426 million to $430 million. Revenues are anticipated between $205 million and $208 million.

Adjusted EBITDA loss is expected to be in the range of $265-$280 million and capital expenditure is estimated to be $14 million. Stock-based compensation expense is estimated to be about $60 million.

Bottom line on Lemonade: Insurance is solid business if managed properly. And Lemonade seems to have an angle on growth. It could also be a great acquisition target for a larger player who likes that flavor of growth.

Bear of the Day:

MasTec is a $5 billion provider of building infrastructure and services to North American C&E (construction & engineering) firms. The company engages in the engineering, building, installation, maintenance and upgrade of energy, communication and utility infrastructure.

MasTec reports its results under these four primary segments focused on broad end-user markets...

Communications (for 32% of total 2021 revenues): The segment performs engineering, construction and maintenance of communications infrastructure mainly related to wireless and wireline communications and install-to-the-home.

Oil and Gas (32%): The segment performs engineering, construction and maintenance services on oil and natural gas pipelines and processing facilities.

Power Delivery (12.8%): The segment primarily serves the energy and utility industries through the engineering, construction and maintenance of electrical transmission lines and substations.

Clean Energy and Infrastructure (primarily known as Power Generation and Industrial) (23.5%): The segment primarily serves the energy and utility end-markets and other end-markets through the installation and construction of conventional and renewable power plants, related electrical transmission infrastructure, ethanol facilities and various types of industrial infrastructure.

Why is MTZ in the Cellar of the Zacks Rank?

Since reporting earnings in early May and lowering company guidance, EPS estimates have dropped over 15% from $5.25 to $4.42.

Even next year's EPS estimates have been clipped double digits from $6.86 to $6.12.

MTZ lowered its expectation for 2022, considering project delays owing to supply disruptions. Also, the updated guidance considers restarting a large Oil & Gas project that will move into 2023 from the previously planned second-half 2022 project activity.

Elaborating on the performance and looking ahead, Jose Mas, MasTec's CEO, said, "As we have previously indicated, 2022 will mark an important transition year for MasTec, as our operations evolve to take advantage of end market growth opportunities across Communications, Clean Energy & Infrastructure and our recently expanded Power Delivery segments. Accordingly, we remain bullish on significant growth opportunities in 2023 and beyond. That said, our updated 2022 guidance range reflects project timing risks related to solar panel availability and a large Oil & Gas project restart that will move previously planned second half 2022 project activity into 2023."

Bottom line on MTZ: This is a significant player in energy and telecom infrastructure that will be around growing revenues and earnings for many years to come. There could be a buying opportunity approaching.

For right now, we need to keep an eye on the direction of EPS estimates. The Zacks Rank will let you know.

Additional content:

What to Expect from These 3 Transportation Stocks on Q2 Earnings

The Zacks Transportation sector is widely diversified in nature. It houses airlines, railroads, shipping and trucking companies to name a few.

Only one S&P 500 transportation company has reported second-quarter 2022 numbers so far, as air-travel demand rebounded from the pandemic lows.

The gradual uptick in the economic scenario implies that trading volumes are consistently rising. This bodes well for the entire sector. The latest Earnings Preview indicates that the total earnings of transportation companies belonging to the S&P 500 universe are likely to have increased massively in second-quarter 2022 from the first-quarter reported levels, mainly on ramped-up economic activities. With more and more Americans getting inoculated, people are now more confident of going out and resuming their daily activities.

With economic activities picking up the pace, as highlighted above, the respective June-quarter results of American Airlines, Alaska Air Group and Union Pacific Corp., scheduled to be released on Jul 21, are likely to have been boosted by higher revenues. However, high fuel costs are likely to have hurt all three stocks' bottom-line performances. In the second quarter (Apr-Jun period), oil prices escalated 5.5% year over year, induced by the Russia-Ukraine war.

Our quantitative model predicts an earnings beat for a company if it has a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). This combination increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

You can see the complete list of today's Zacks #1 Rank stocks here.

Let's delve deeper.

American Airlines' results are likely to reflect the impacts of upbeat passenger revenues (post the pandemic-led slump), courtesy of strong air-travel demand.  The Zacks Consensus Estimate for second-quarter 2022 revenues is expected to grow 79.3% from the year-ago period's reading.

However, due to the Russia-Ukraine war, fuel prices have been soaring ever since. AAL estimates average fuel cost per gallon in the $4.00-4.05 range (prior guidance: $3.59-$3.64 band).

American Airlines Group Inc. price-eps-surprise | American Airlines Group Inc. Quote

Our proven model predicts an earnings beat for American Airlines this season as AAL has an Earnings ESP of +2.33% and a Zacks Rank #3 at present.

High fuel costs are likely to have dented Alaska Air's second-quarter performance despite increasing passenger revenues on solid air-travel demand. The carrier expects second-quarter economic fuel costs of $3.66 per gallon, suggesting a rise from $2.62 reported in first-quarter 2022.

Alaska Air Group, Inc. price-eps-surprise | Alaska Air Group, Inc. Quote

Our proven model predicts a bottom-line outperformance for Alaska Air this reporting cycle as ALK has an Earnings ESP of +0.54% and a Zacks Rank of 3 at present.

Union Pacific Corporation price-eps-surprise | Union Pacific Corporation Quote

Strong freight demand is expected to have boosted Union Pacific's freight revenues in the second quarter. Higher volumes, higher fuel surcharge revenue, pricing gains and a favorable business mix are likely to have aided Union Pacific's top-line performance.

Our proven model does not predict a beat for Union Pacific this earnings season as UNP has an Earnings ESP of -0.32% and a Zacks Rank #3 at present. The same was predicted earlier when the second-quarter earnings preview article was issued. At that time, UAL had an Earnings ESP of -1.69% and the same Zacks Rank.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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Union Pacific Corporation (UNP) : Free Stock Analysis Report
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MasTec, Inc. (MTZ) : Free Stock Analysis Report
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