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For Immediate Release
Chicago, IL – April 21, 2022 – Zacks Equity Research shares Matador Resources Co. MTDR as the Bull of the Day and Bed Bath & Beyond Inc. BBBY as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Williams-Sonoma Inc. WSM, LL Flooring Holdings, Inc. LL and The Lovesac Co. LOVE.
Here is a synopsis of all five stocks:
Bull of the Day:
Matador Resources Co. is cashing in on decade-high crude and natural gas prices. This Zacks Rank #1 (Strong Buy) is expected to double its earnings this year.
Matador is an independent exploration and production company in oil and natural gas with an emphasis on oil and natural gas shale and other unconventional plays.
Its operations are in the oil and liquids-rich portion of the Wolfcamp and Bone Spring plays in the Delaware Basin in Southeast New Mexico and West Texas. Matador also operates in the Eagle Ford shale play in South Texas and the Haynesville shale and Cotton Valley plays in Northwest Louisiana and East Texas.
The company also has midstream operations, mostly through its midstream joint venture, San Mateo, which supports its exploration, development and production operations. It also provides natural gas processing, oil transportation services, natural gas, oil and produced water gathering services and produced water disposal services to third parties.
Matador Resources has a market cap of $6.8 billion.
Double Digit Increase in Production Expected in 2022
On Feb 22, 2022, Matador issued its 2022 production guidance outlook.
Oil production is expected to rise 21% to between 21 and 22 million Bbl from 17.9 million Bbl in 2021. Natural gas production is also expected to jump 16% to the range of 92 to 98 Bcf from 81.7 Bcf in 2021.
Matador was one of the few producers to raise 2022 Capex. Total capex, including midstream, is expected to be up 34% to $690 to $770 million from $544 million in 2021.
In Feb, Matador was bullish and was looking for record free cash flow in 2022. With crude prices holding over $100 a barrel in March and April, it looks likely they will achieve it.
Earnings Estimates Rise Ahead of Q1 Earnings
Matador will report first quarter earnings on Apr 26, after the close, with the conference call the next morning, on Apr 27.
The analysts are already bullish. 1 estimate has been revised higher in the last week pushing the 2022 Zacks Consensus Estimate up to $8.92 from $8.05 during that same period.
That is earnings growth of 109.8% as the company only made $4.25 last year.
Matador has an outstanding earnings surprise track record. It hasn't missed in 5 years which is an impressive record given what was happening in the oil and natural gas markets during the start of the COVID-19 pandemic.
Shares Busting Out to 5-Year Highs
Matador shares have been red-hot in 2022, gaining 49.1% year-to-date.
But shares are still cheap, with a forward P/E of 6.5 because the earnings continue to move higher.
The first quarter results should be outstanding due to the rise in energy prices.
Matador pays a dividend, currently yielding 0.4%, but the company said in February that it will evaluate the dividend throughout the year based on free cash flow and market conditions.
For investors looking for a mid-cap oil and natural gas exploration and production company, Matador is one to keep on your short list.
Bear of the Day:
Bed Bath & Beyond Inc. is trying to turn around its business while the COVID-19 pandemic and supply chain constraints continue to rage. This Zacks Rank #5 (Strong Sell) is expecting revenue to decline this fiscal year.
Bed Bath & Beyond is an omnichannel retailer with a focus on Home, Baby, Beauty and Wellness. It operates websites and 953 stores including 771 Bed Bath & Beyond stores in all 50 states, DC, Puerto Rico and Canada, 130 buybuy BABY stores in 37 stores and Canada and 52 stores under the names Harmon, Harmon Face Values or Face Values in 6 states.
It also is a partner in a joint venture that operates 11 Bed Bath & Beyond stores in Mexico.
A Big Miss in Fiscal Q4 2021
On Apr 13, Bed Bath & Beyond reported its fiscal fourth quarter 2021 results, the holiday quarter, and missed the Zacks Consensus Estimate by $0.94. Earnings were a loss of $0.92 versus the Zacks Consensus of $0.02.
It was the fourth miss in a row.
Net sales fell 22% to $2.05 billion from $2.62 billion a year ago.
Comparable sales fell 12% on supply chain and inventory availability challenges. The inventory challenges had an estimated impact of $175 million, or high-single digit, impact to net sales under the Bed Bath & Beyond banner.
One bright spot was buybuy Baby comparables which were a positive low-single digits due to mid-teens growth in stores.
"Macroeconomic factors, such as the disruption of the global supply chain, the Omicron variant, as well as the geopolitical turbulence weighing on consumer confidence, have uncovered more vulnerabilities than we could have foreseen at this stage of our transformation, as we completely rebuild the foundation of our business," said Mark Tritton, CEO.
Analysts Are Bearish Again
With all this bad news, it's not a surprise that the analysts have cut fiscal 2022 earnings estimates.
8 estimates were cut in the last week, pushing the Zacks Consensus down to a loss of $1.92 from $0.63 in that time.
Bed Bath & Beyond lost $0.98 last year so this would be an earnings decline of 95.9%. That's a real disappointment as the company seemed to be making progress in its transformation.
Meme Stock or Not?
Bed Bath & Beyond was one of the January 2021 "meme" stocks along with GameStop and AMC.
And while the shares continue to be volatile, over the last month they've fallen 26%.
Are the memesters abandoning Bed Bath & Beyond?
For investors who are actually looking for a retail investment, they might want to focus on those retailers who are winning in this tough environment, instead of those who are attempting a complete rebuild.
3 Top Picks on Rise in Housing Starts & Building Permits
The month of March saw blistering growth in U.S. housing amid concerns surrounding rising mortgage rates and home prices.
According to Commerce Department data released on Apr 19, housing starts jumped 0.3% month over month to a seasonally adjusted annual rate of 1.793 million units in March, beating the consensus of 1.731 million units by 3.6%. Also, the March figure rose 3.9% on a year-over-year basis. The February figure was also revised upward to 1.788 million units from 1.769 million units reported previously.
Adding to the positives, residential building permits — an indicator of construction activity — leaped 0.4% month over month and 6.7% year over year in March to an annualized rate of 1.873 million units. The March permit level surpassed analysts' prediction of 1.825 million units by 2.6%. Also, permits for multi-family homes increased 10.9% last month from February and 33.6% year over year.
Yet, single-family homebuilding starts — accounting for the lion's share of the housing market — pulled back 1.7% in March from February and 4.4% year over year. Starts for the volatile multi-family housing segment soared 7.5% in March and 28.1% from the year-ago period. Permits to build single-family homes also slipped 4.8% from February and 3.9% from March 2021.
Trends to Rule Housing
Although the Fed does not control mortgage rates, any movement in the federal funds rate might have an impact. As expected, the Federal Reserve or Fed hiked its benchmark interest rate for the first time in three years by a quarter point to a range of 0.25-0.5% last month. The rate hike came after the Fed announced the wind-down of its policies enacted during the health crisis and to limit the economic damage from the pandemic.
Now, the Fed's latest rate hike is certainly not going to work in favor of housing. Consumers' borrowing costs have already been increasing, thereby hitting the affordability of prospective buyers hard amid economic uncertainty.
It is to be noted that the 30-year fixed-rate mortgage averaged 5% for the week ended Apr 14, 2022. This marked an increase from the last week when it averaged 4.72% and the year-ago period, when it averaged 3.04%.
Also, market pundits, with a more hawkish tone, are of the opinion that the Fed will likely raise the rate by another half-percentage-point at its May 3-4 meeting.
Overall, builders have been facing supply chain disruptions that have pushed prices for building materials higher. Also, a shortage of skilled labor, materials and lots has been making it difficult to increase the pace of construction.
Homebuilder sentiment is also reflective of the fact. According to the recently released National Association of Home Builders/Wells Fargo Housing Market Index, homebuilder sentiment declined 2 points to 77 in April, marking the fourth consecutive month of decline.
Nevertheless, Freddie Mac expects the single-family purchase market to remain solid in 2022 despite increases in mortgage rates, per the latest Quarterly Forecast released on Apr 19, 2022. The company's chief economist further highlighted that the rising rates might lead to moderation in demand and house price appreciation. Yet, the housing market will remain a bright spot in the U.S. economy.
Sam Khater, Freddie Mac's chief economist said, "The Federal Reserve's actions to address inflationary pressure are certainly impacting mortgage rates, which undoubtedly will affect the housing market." He further added, "While the sharp increase in mortgage rates will lead to a precipitous drop in refinance originations in 2022, demand for housing continues to remain solid, propelled by the large swath of first-time homebuyers and prospective purchasers looking to lock in a mortgage rate before they increase further."
A few stocks in the housing and home furnishing industries have been benefiting from their respective fundamental strength.
Stocks to Bet On
With that positivity in mind, adding some stocks, which have been cashing in on the positive market dynamics, looks like a smart move at this point.
Yet, picking winning stocks is no mean feat at the moment. With the help of the Zacks Stock Screener, we have zeroed in on three stocks that have a Zacks Rank #1 (Strong Buy) and favorable metrics. You can see the complete list of today's Zacks #1 Rank stocks here.
Williams-Sonoma Inc., a multi-channel specialty retailer of premium quality home products, has been benefiting from strength across all brands along with accelerated e-commerce growth. Williams-Sonoma remains optimistic about business strength, continued success of new initiatives and competitive advantages that are rooted in key differentiators like in-house design, digital-first channel strategy, and values.
Earnings estimates for Williams-Sonoma — which currently carries a Zacks Rank #1 — for the current fiscal year have increased to $15.75 per share from $15.56 over the past 30 days. WSM's earnings are expected to rise 6.1% year over year in fiscal 2022.
LL Flooring Holdings, Inc. — a specialty retailer of hard-surface flooring — has been accelerating store openings, enhancing customer experience and innovating products to drive growth.
LL currently carries a Zacks Rank #1. Earnings estimates for the current fiscal year have increased to $1.18 per share from $1.00 over the past 30 days.
The Lovesac Co. — which designs, manufactures, and sells furniture — has been gaining from operational flexibility, highly-engaged customers, innovation and a proven omni-channel approach.
LOVE currently carries a Zacks Rank #1. Earnings estimates for the current fiscal year have increased to $3.16 per share from $1.91 over the past 30 days. LOVE's earnings are expected to rise 71.7% year over year this year.
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