MercadoLibre and Churchill Downs have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – August 21, 2023 – Zacks Equity Research shares MercadoLibre MELI as the Bull of the Day and Churchill Downs CHDN as the Bear of the Day. In addition, Zacks Equity Research provides analysis on like D.R. Horton DHI, Lennar LEN and NVR NVR.
Here is a synopsis of all five stocks:
Bull of the Day:
Many analysts are bullish on e-commerce giant MercadoLibre's stock at the moment with the company's top and bottom-line continuing to expand at a monstrous rate.
Earnings estimates are beginning to soar after impressive Q2 results earlier in the month and MercadoLibre's stock currently carries a Zacks Rank #1 (Strong Buy) and the Bull of the Day.
Stellar Q2 Results
Based in Argentina, MercardoLibre operates one of the largest e-commerce platforms in South America. Thinking MercardoLibre's well-documented and renowned growth can't continue would be a mistake.
To that point, Q2 earnings of $5.16 per share easily surpassed estimates of $4.13 a share by 25%. This also soared 112% from earnings of $2.43 a share in Q2 2022. Second-quarter sales of $3.41 billion beat expectations by 4% and climbed 31% from $2.59 billion in the prior-year quarter.
Furthermore, MercadoLibre had a 16.3% profit margin on income from operations which nearly doubled to $558 million.
It's also noteworthy that the company's gross merchandise value (GMV) hit the $10 billion mark for the first time driven by strength in Brazil and Mexico. MercadoLibre's GMV came in at $10.5 billion also beating Zacks estimates by 4%.
Robust Growth Continues
Consumers in South America are more accustomed to economic headwinds so inflation did not slow MercadoLibre's growth like one might think. Still, as inflation begins to ease MercadoLibre's presence in many South American countries along with Mexico and Spain is expected to accelerate its growth.
Fiscal 2023 earnings estimates have now risen 16% over the last month after MercardoLibre's Q2 report helped reconfirm this. Even better, FY24 earnings estimates have soared 17% in the last 30 days.
MercadoLibre's annual earnings are now forecasted to skyrocket 103% this year to $19.39 per share compared to $9.53 a share in 2022. Fiscal 2024 earnings are anticipated to leap another 55% to $30.01 per share.
This will be accompanied by robust top-line expansion as well with sales projected to climb 31% this year to $13.86 billion compared to $10.54 billion in 2022. More impressively, FY24 sales are expected to soar another 24% and projections of $17.22 billion would represent an astonishing 652% growth from pre-pandemic levels with 2019 sales at $2.29 billion.
Bottom Line
Simply put, now looks like a great time to buy MercadoLibre stock as the company is strategically set up for growth with e-commerce operations in lucrative economic hubs throughout Latin America.
Easing inflation will only fuel the company's growth potential and with MercadoLibre's stock up 42% this year it's notable that the Average Zacks Price Target of $1,634.50 per share still suggests 36% upside from current levels.
Bear of the Day:
Following lackluster Q2 results in late July, earnings estimate revisions are still noticeably lower for Churchill Downs stock landing it a Zacks Rank #5 (Strong Sell) and the Bear of the Day.
Churchill Downs is the world's most legendary horse track but there have been short-term concerns after the company had to suspend operations at the historic venue following the deaths of 12 horses in May alone.
The horses were euthanized after suffering serious injuries on the racetrack which has created unwanted headlines over the last few months.
Declining Earnings Estimates
It's notable that Churchill missed Q2 top and bottom line expectations. Earnings missed estimates by -10% with Q2 EPS at $2.24 per share compared to estimates of $2.50 a share. On the top line, sales of $768.50 million came up -3% short of estimates.
The lackluster results may not seem too alarming but amid the mounting safety and health concerns, earnings estimates are largely down over the last two months despite ticking up in the last week.
Analysts are expecting Churchill to have expansive bottom-line growth over the next few years but fiscal 2023 earnings estimates are down -11% over the last 60 days with FY24 EPS estimates down -7%. This has correlated with Churchill's stock falling -16% over the last three months despite shares of CHDN still up +15% for the year.
Valuation Concerns
Taking a closer look at Churchill's valuation we can see some cracks as well. Looking at Churchill's PEG ratio may be beneficial right now due to the hiccups from halting horseraces.
With the PEG ratio, analysts can compare a company's valuation with different growth rates. Taking the price-to-earnings ratio and dividing it by the long-term growth rate consensus, the optimum PEG is less than 1.
Unfortunately, Churchill's PEG is currently at 9.9 and well above this level along with its industry average of 4.6, and the S&P 500's 1.71.
Bottom Line
While Churchill Downs is expected to resume live racing at its namesake Kentucky Derby track in September, investors may want to be cautious of its stock until the smoke clears surrounding health and safety concerns for horses at its venue.
Additional content:
3 Must-Buy Housing Stocks That Buffett Made a Big Bet On
The recent spike in Treasury bond yields that resulted in an uptick in mortgage rates does not favor the homebuilding industry. However, homebuilders have seen an upsurge in their share prices for most of this year, thanks to a rebound in new home sales that took a beating last year due to the housing slump.
Homebuilders, all through this year, have applied innovative strategies to attract potential buyers of new homes. They have kept affordable prices on the properties and offered mortgage rate buydowns. Shortage of existing homes in the housing market has also increased the requirement for newly constructed homes, eventually enhancing the sales figures for housebuilders.
In reality, the construction of new homes picked up in July. After being adjusted seasonally, the annual rate of housing starts climbed to 1.452 million last month, per the Census Bureau. It surpassed market expectations of 1.448 million.
Single-family housing starts, which mostly constitute the bulk of the construction, jumped 6.7% in July from the prior month to a seasonally adjusted annual rate of 983,000 units. The jump in single-family housing starts was primarily seen in the western part of the United States. Additionally, building permits ticked up 0.1% to an annual rate of 1.442 million units last month. Applications to build one-family homes increased to their highest level in more than a year.
Let us also not forget that construction spending in the United States already increased strongly in June. Outlays on constructing single and multifamily housing establishments rose 0.5% in June, while May's figure was revised to show spending increasing 1.1% from an earlier reported 0.9%, per the Commerce Department.
Thus, with builders ramping up housing construction as buyers search for reasonably priced homes, housing stocks like D.R. Horton, Lennar and NVR are well-poised to benefit soon.
What's more, one of the best role models for any investor, Warren Buffett, CEO of Berkshire Hathaway Inc. (BRK.B) recently disclosed that he has made big bets on these three U.S. home builders in the second quarter of 2023. The Oracle of Omaha's Berkshire Hathaway owned DR Horton, Lennar and NVR shares worth a total of $814 million, as of Jun 30.
Thus, these stocks make compelling investment choices at the moment. The stocks boast a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
D.R. Horton is one of the leading national homebuilders, primarily engaged in the construction and sale of single-family houses. D.R. Horton's estimated earnings growth rate for the next five-year period is 18.5%. Its shares have already gained 39.1% over the past five years. The Zacks Consensus Estimate for its current-year earnings has moved up 8.8% over the past 60 days. DHI, presently, has a Zacks Rank #1.
Lennar is engaged in homebuilding services in the United States. Lennar's estimated earnings growth rate for the next five-year period is 6%. Its shares have already gained 29.6% over the past five years. The Zacks Consensus Estimate for its current-year earnings has moved up 15.3% over the past 60 days. LEN, currently, has a Zacks Rank #1.
NVR is engaged in the construction and sale of single-family detached homes. NVR's estimated earnings growth rate for the next five-year period is 4.3%. Its shares have already gained 26.9% over the past five years. The Zacks Consensus Estimate for its current-year earnings has moved up 7.9% over the past 60 days. NVR, presently, has a Zacks Rank #2.
Shares of D.R. Horton, Lennar and NVR have gained 30.7%, 29.3% and 30.6%, respectively, so far this year.
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Lennar Corporation (LEN) : Free Stock Analysis Report
D.R. Horton, Inc. (DHI) : Free Stock Analysis Report
NVR, Inc. (NVR) : Free Stock Analysis Report
Churchill Downs, Incorporated (CHDN) : Free Stock Analysis Report
MercadoLibre, Inc. (MELI) : Free Stock Analysis Report
