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Nintendo and WW International have been highlighted as Zacks Bull and Bear of the Day

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·14 min read
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For Immediate Release

Chicago, IL – April 11, 2022 – Zacks Equity Research shares Nintendo Co. NTDOY as the Bull of the Day and WW International WW asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Devon Energy Corp. DVN, MPLX LP MPLX, and The Williams Companies, Inc. WMB.

Here is a synopsis of all five stocks:

Bull of the Day:

Nintendo Co., a Zacks Rank #1 (Strong Buy) stock, is an iconic Japanese gaming company responsible for well-known franchises like Legend of Zelda, Mario, and Pokémon. Most people have heard of the established gaming company, but its stock has mainly flown under the radar.

Like others in the industry, Nintendo's growth accelerated in 2020 when the pandemic initially hit, as consumers bought more Switch gaming consoles and played more games. Last year was tough for comparison purposes as investors agonized over the Japanese gaming giant's decelerating growth, but NTDOY looks to have turned the corner as it finally moves past those relative comparisons from 2020.

The stock has been outperforming the overall market during the past 3 months with an +11.7% return. NTDOY is a component of the Zacks Toys – Games – Hobbies industry group, which currently ranks in the top 27% out of approximately 250 industries. The stocks within this industry group are experiencing positive earnings estimate revisions, which is the most powerful force impacting stock prices.

Quantitative research studies suggest approximately half of a stock's future price appreciation is due to it industry grouping. Investing in stocks within leading industry groups can provide a constant 'tailwind' to our investing results. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.

Company Description

Nintendo, a global leader in the creation of interactive gaming, develops and manufactures electronic entertainment products primarily in Japan, the Americas, and Europe. NTDOY offers video game platforms, handheld and home console systems, related software, and playing cards. Nintendo was founded in 1889 and is based in Kyoto, Japan.

Last year, Nintendo partnered with Comcast's Universal Studios in a deal that marks its first Super Nintendo World theme park in Japan. Nintendo also has plans to open new parks in Singapore, California, and Florida in the coming years.

The legendary gaming company hit a minor roadblock two weeks ago when it announced that it was pushing back the release of the highly anticipated sequel to "Legend of Zelda: Breadth of the Wild" to spring 2023. However, NTDOY boasts an impressive gaming pipeline for this year and can afford to delay the next version. For context, the "Breath of the Wild" Zelda release was delayed as well and ended up selling more than 25 million copies.

Nintendo's top line has been buoyed in recent years by new releases such as Animal Crossing: New Horizons. The company has shipped nearly 35 million copies of the online multiplayer game, which evolved into a social platform during the pandemic. With multiple Pokémon titles slated for release as well as classics such as Super Mario Brothers, the blockbuster lineup for this year will help breathe fresh life into the Nintendo Switch – the company's flagship console.

Earnings Trends and Future Estimates

NTDOY has missed earnings estimates just twice in the past five years and has exceeded the consensus mark in each of the past nine quarters. Back in February, the Japanese gaming giant reported fiscal Q3 EPS of $1.83, a +28.87% surprise over the $1.42 consensus estimate. Nintendo has posted a trailing four-quarter average earnings surprise +86.73%.

Nintendo boasts a $66.37 billion-dollar market capitalization and a 1.66% dividend yield. Analysts covering NTDOY have increased their fiscal 2023 earnings estimates by +8.42% in the past 60 days. The Zacks Consensus Estimate now stands at $3.99/share. While this figure is relatively flat compared to fiscal 2022, I believe it is conservative and analysts will continue to increase estimates in the near future.

Nintendo's subscription-based Switch Online platform recently exceeded 32 million subscribers, or roughly 30% of all Switch devices. In addition, the Switch remains the world's best-selling gaming console with approximately 103 million devices shipped since early 2017. Total NTDOY sales are expected to climb 1.07% in the coming year to $15.27 billion.

Charting the Course

NTDOY is up nearly 10% this year alone, widely outperforming the major indices. Only stocks that are in extremely powerful uptrends are able to weather bear markets and corrections so gracefully. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.

The stock is making a series of higher highs and is showing relative strength versus the market. With both strong fundamentals and technicals, NTDOY has been one of the pandemic's biggest beneficiaries.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. And as we know, Nintendo has seen a recent batch of positive revisions. As long as this trend remains intact (and NTDOY continues to post earnings beats), the stock should continue its bullish run this year.

Despite the remarkable run, NTDOY remains relatively undervalued and underappreciated.

Bottom Line

The gaming industry in general has been a substantial beneficiary of the pandemic. As an established veteran in the industry, Nintendo's core business remains strong despite competitive challenges and supply chain issues. Its sought-after lineup of new releases in addition to an extensive list of classics have helped push NTDOY higher on the year. Buoyed by an undervalued and leading industry group, it's not difficult to see why NTDOY is a compelling investment.

A history of positive earnings surprises along with a strong technical trend certainly warrant a closer look at this top-rated stock. Recent positive earnings estimate revisions should also serve to create a 'floor' in terms of any sudden or unexpected downside moves. Investors should aim to look past any potential issues as the company has moved beyond the tough post-lockdown comparisons.

Bear of the Day:

WW International, a Zacks Rank #5 (Strong Sell) stock, is a global provider of weight management services and products. The company's offering is comprised of nutritional, activity, behavioral, and lifestyle tools and approaches to weight loss. WW also provides wellness and weight management-based digital subscription services as well as various consumer products such as snacks, cookbooks, and kitchen tools. Formerly known as Weight Watchers, WW International was founded in 1961 and is headquartered in New York, NY.

The Zacks Rundown

WW is part of the Zacks Leisure and Recreation Services industry group, which currently ranks in the bottom 40% out of approximately 250 industries. Because this industry is ranked in the bottom half of all Zacks Ranked Industries, we expect it to underperform the market over the next 3 to 6 months.

Candidates in the bottom half of industry groups can often represent solid potential short candidates. While individual stocks have the ability to outperform even when included in poor-performing industries, their industry association serves as a headwind for any potential rallies. WW keeps trying to shed the added weight, but the stock keeps having trouble as it continues to make a series of lower lows.

Recent Earnings Misses

After a fairly long track record of successfully beating earnings estimates, WW has hit a cold streak lately as the company has missed the mark in two out of the past three quarters. Even in the most recent Q4 earnings announcement back in March, WW simply met expectations of $0.35/share. Revenue estimates missed expectations during the fourth quarter, and the company provided a full-year outlook that was well below forecasts.

The weight management company has posted an average earnings miss of -5.14% over the past four quarters. Consistently falling short of (or barely meeting) earnings estimates is a recipe for underperformance, and WW is no exception.

Deteriorating Outlook

Analysts have decreased EPS estimates for WW across the board. The Q1 estimate has declined -154.55% in the past 60 days to $-0.28, which would represent a -40% earnings regression versus the same quarter last year. Second-quarter estimates have fallen -31.15% to $0.42/share.

For the year, analysts have slashed 2022 EPS estimates by -36.93% to $1.11, translating to negative growth of -18.98% versus last year. Falling earnings estimates are always a concern, but a decline of this magnitude is a big red flag. If the company continues its recent streak of earnings misses, more pain will likely be ahead for the stock. Negative growth year-over-year is the type of trend that bears like to see.

Technical Trend

WW is in a sustained downtrend. The stock has plunged below both the 50-day and 200-day moving averages and is making a series of lower lows.

The Death Cross, a technical pattern in which a stock's 50-day moving average crosses below the longer-term 200-day moving average, occurred last year. The stock has fallen over 66% in the past year and is showing no signs of a bottom.

Final Thoughts

Recent earnings misses and an unpredictable equity market don't exactly favor bullish WW investors. Our Zacks Style Scores depict a weakening outlook for this stock, as WW is rated a 'C' in our Growth category and a 'D' for our Momentum category. A deteriorating fundamental and technical backdrop show that this stock is fighting an uphill battle.

Falling future earnings estimates are a big red flag and need to be respected. These will likely serve as a ceiling to any potential rallies, nurturing the stock's downtrend. The fact that WW is part of one of the worst-performing industry groups simply adds another headwind to a long list of concerns. Potential investors should only think about including this stock in their portfolio as part of a hedge or short strategy. Bulls will want to steer clear of an overvalued WW until the situation shows signs of a turnaround.

Additional content:

Bet on These 3 Energy Stocks with Attractive Dividend Yields

Investing in energy companies or partnerships that offer handsome dividends or distribution yields is always wise. This is because paying out regular dividends or distributions signifies a stable and well-established business model. Energy players are now in the spotlight since the overall business environment is favorable, aiding them to return capital to shareholders through dividends and distributions or stock repurchases.

Healthy Energy Business

Prices of both oil and natural gas are trading significantly higher, thanks to the escalation of Russian attacks on Ukraine. The price of West Texas Intermediate crude, trading at more than $95 per barrel mark, has improved drastically over the past year. Meanwhile, the price of natural gas is trading at more than $6 per million British thermal units, marking an improvement of more than 70% year to date.

Higher oil and gas prices are favorable for exploration and production activities, as reflected by upstream companies' addition of rigs in shale plays. With healthy commodity prices, exploration and production players are generating handsome cashflows, which will ultimately benefit shareholders in the form of lucrative dividend yields.

Midstream energy players, as usual, have lesser exposure to the volatility in commodity prices. This is because shippers are booking their assets for a long period of time. Hence, midstream companies generally derive hefty distribution yields for their unitholders.

3 Stocks With Lucrative Dividend Yield

Owing to the favorable energy business environment for upstream and midstream companies, which in turn could result in substantial dividend yields or distribution yields, it would be wise to bet on these three energy stocks. Two of the stocks sport a Zacks Rank #1 (Strong Buy), while one carries a Zacks Rank #2 (Buy).

All the stocks generate a higher dividend yield than the energy sector. You can see the complete list of today's Zacks #1 Rank stocks here.

Devon Energy Corp. is well-positioned to capitalize on the recent surge in oil price. This is because #1 Ranked Devon Energy is a leading producer of oil and gas in the United States.

Devon Energy is strongly focused on returning capital to shareholders. Based on its fourth-quarter 2021 financial performance, DVN has raised its fixed-plus-variable payout to a record-high $1 per share, reflecting a significant improvement from 34 cents in the first quarter of last year. Considering the dividend yield picture, Devon Energy's yield of 6.64% is significantly higher than the 3.64% yield of the composite stocks belonging to the energy sector.

MPLX LP is no exception among the leading midstream players to derive stable fee-based revenues since the partnership is the operator of midstream energy infrastructure and logistics assets. MPLX is also involved in services related to fuel distribution.

Looking at the distribution picture, the distribution paid by MPLX in the three months ended Dec 31 last year was $1,345 million, signifying a considerable improvement from $742 million in the comparable period in 2020. The distribution yield of MPLX, with a Zacks Rank of 2, is hefty at 8.49%.

The Williams Companies, Inc. is the operator of pipeline assets spanning more than 30,000 miles. The Williams Companies generates stable cashflows as its midstream infrastructures handle 30% of the natural gas consumed daily in the United States.

The Williams Companies has a strong focus on creating long-term value for shareholders through the payment of attractive dividends. In 2022, Zacks #1 Ranked WMB projected annualized dividend payment of $1.70 per share, marking a 3.7% improvement from $1.64 in 2021. The dividend yield of WMB is handsome at 5.05%.

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