Royal Caribbean Cruises and Royal Gold's have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – August 4, 2023 – Zacks Equity Research shares Royal Caribbean Cruises RCL as the Bull of the Day and Royal Gold's RGLD asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Ford Motor F, Alphabet GOOGL and Block SQ.
Here is a synopsis of all five stocks:
Bull of the Day:
Among the consumer discretionary sector, Royal Caribbean Cruises stock is standing out with a Zacks Rank #1 (Strong Buy) and lands the Bull of the Day.
Royal Caribbean's stock continues to gain steam with this summer's peak travel season boosted by pent-up demand following the pandemic. This was reconfirmed in Royal Caribbean's second quarter results last Thursday with the company impressively surpassing top and bottom-line expectations and raising its full-year EPS guidance.
Q2 Review
Driven by stronger pricing in correlation with higher demand, Royal Caribbean beat Q2 earnings expectations by 15% last week. Earnings came in at $1.82 per share compared to EPS estimates of $1.58.
More importantly, the company's post-pandemic rebound now looks in full swing after posting an adjusted loss of -$2.08 a share in the prior-year quarter. On the top line, Q2 sales of $3.52 billion surpassed estimates by 4% and soared 61% from a year ago.
It's also noteworthy that Royal Caribbean has now surpassed earnings expectations for six consecutive quarters.
Higher Guidance
Strong Q2 results led to Royal Caribbean raising its full-year fiscal 2023 EPS guidance by 33% to between $6.00-6.20 a share. This makes Royal Caribbean shares very attractive as earnings estimate revisions should keep going up and are widely considered the most significant catalyst in the upward price movement of a stock.
The Zacks Consensus for Royal Caribbean's FY23 earnings has already soared 19% over the last week to estimates of $5.63 per share compared to $4.73 a share seven days ago. Fiscal 2024 EPS estimates have climbed 7% over the last week and are now expected at $7.70 a share compared to $6.93 per share a week ago.
Stellar Performance
Correlating with the reassuring trend of rising earnings estimates throughout the year, Royal Caribbean stock has now soared +112% in 2023.
This has largely outperformed the S&P 500, Nasdaq, and Norwegian Cruise Line's +41% while being roughly on par with Carnival Cooperation's +117%.
Royal Caribbean stock has wiped away any losses from the pandemic and is now up +113% over the last three years. This also tops the broader indexes, Norwegian's +35%, and Carnival's +28%. Despite this year's impressive rally, Royal Caribbean's stock still trades very reasonably at 18.6X forward earnings which is attractively below its industry average of 29.5X and the S&P 500's 21.2X.
Takeaway
Following strong Q2 results last week, the rally in Royal Caribbean stock may accelerate this year. Earnings estimates have continued to soar and the company's P/E valuation is also supportive of the rally gaining more steam even with RCL shares up over +100% in 2023.
Bear of the Day:
Landing a Zacks Rank #5 (Strong Sell) and the Bear of the Day, investors may want to be cautious of Royal Gold's stock for the moment.
This is not to say that Royal Gold won't be a viable investment among the basic materials sector in the future. However, the current business environment is weakening for the precious metals stream and royalty company.
To that point, the Zacks Mining-Gold Industry is currently in the bottom 26% of over 250 Zacks industries. Royal Gold could be susceptible to a potential slowdown in the space and the company's Penasquito mine remains closed following union strikes.
Valuation Concerns
Amid a softening business environment, the premium being paid for Royal Gold stock is more concerning. Royal Gold currently has an "F" Zacks Style Scores grade for Value.
Royal Gold's price-to-earnings valuation is less reassuring right now. Shares of RGLD trade at a 31.3X forward earnings multiple which is noticeably above the industry average of 20.8X and the S&P 500's 21.2X.
More concerning is the premium being paid for the company's price to sales. Investors are paying $10.96 for every $1 of sales Royal Gold makes. This translates into a P/S ratio of 10.9X compared to the industry average of 3X with the optimum level being less than 2X. Royal Gold also trades alarmingly above the benchmark's 3.9X sales.
Declining Earnings Estimates
Declining earnings estimates are the reason for Royal Gold's less attractive P/E valuation at the moment. This is also reason to believe Royal Gold's stock may have some short-term weakness ahead.
Notably, fiscal 2023 earnings estimates have declined -8% over the last 30 days from $3.93 per share to $3.61 a share. Furthermore, FY24 earnings estimates are down -6% over the last month.
Bottom Line
Royal Gold's stock look's less attractive considering the premium investors are paying relative to its peers.
This is compiled by the Mining-Gold industry dealing with a softening business environment at the moment which serves as a further warning that it could be time to sell Royal Gold stock.
Additional content:
Forget August's Notorious Past, Instead Buy 3 Growth Stocks
Wall Street, time and again, witnessed bouts of volatility in August, which easily disrupted the stock market's blockbuster performance in the first seven months of this year.
However, the underlying strength in the economy and a possible rate hike pause are largely expected to boost the stock market this August. This calls for investing in growth players like Ford Motor, Alphabet and Block.
August: Bad Month for Wall Street
Major bourses in the United States recently registered their strongest seven months to begin a year in decades. Per Dow Jones Market Data, the broader S&P 500 witnessed its best first seven-month period in a year since 1997, while the tech-laden Nasdaq wrapped up its strongest performance in the same period since 1975.
But August is here, and that could mean trouble for Wall Street. Lest we forget, the S&P 500's seven-month winning streak in the year 2021 stopped in August. Morningstar reported that August has been the worst-performing month for stocks since 1986. The month, in reality, marks a volatile period as market participation reduces, leading to lower trading volumes.
So far this August, stocks have hit a selloff after Fitch Ratings downgraded the long-term rating for the United States. The debt ceiling turmoil in Washington compelled Fitch to downgrade the United States to AA+ from AAA. The rating agency forecasts the debt burden in the United States to escalate soon and expects a fiscal deterioration in the next three years.
Things May Not Be the Same This August
Despite a discouraging start to August, investors are betting on a market revival as they believe the U.S. economy may not slip into a downturn. After all, the second-quarter GDP numbers came in stronger than expected, while orders for durable goods improved in June. To top it, the real-estate industry recently declared that the housing recession has ended.
Meanwhile, retail inflation came in at 3% on a yearly basis in June, way below the 9% peak it touched last year. The slowdown in the prices of indispensable commodities may now force the Federal Reserve to be less aggressive with its monetary policies.
The CME FedWatch Tool at present shows that 82.5% of market pundits expect a rate hike pause in September, as was done in the June meeting. Needless to say, a rate hike pause bodes well for stocks vis-à-vis the economy since it improves consumer outlays, and curtails borrowing costs.
3 Best Growth Stocks to Own in August
Unlike its notorious past, things are surely looking up for the stock market this August. Astute investors, thus, should shrug off the temporary dip in the market and instead place bets on solid growth stocks to boost returns in the near future.
These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have a Growth Score of A or B, a combination that offers the best opportunities in the growth investing space. You can see the complete list of today's Zacks Rank #1 stocks here.
Ford Motor is one of the leading automakers in the world. An impressive vehicle lineup, including F-series trucks and SUV models, is expected to boost Ford's top-line growth. Ford's ample liquidity position is expected to help the company in further investments.
F has a Zacks Rank #2 and a Growth Score of B. The Zacks Consensus Estimate for Ford's current-year earnings has moved up 17.8% over the past 60 days. The company's expected earnings growth rate for the current year is 9%. Ford's estimated earnings growth rate for the next five-year period is 7%.
Alphabet is one of the most innovative companies in the modern technological age. Momentum in its cloud business and efforts to strengthen its position in the growing wearable space should improve Alphabet's profit margin.
GOOGL has a Zacks Rank #2 and a Growth Score of B. The Zacks Consensus Estimate for Alphabet's current-year earnings has moved up 4.3% over the past 60 days. The company's expected earnings growth rate for the current year is 23.7%. Alphabet's estimated earnings growth rate for the next five-year period is 15.3%.
Block provides financial and marketing services through its all-inclusive commerce ecosystem that aids sellers to begin, run and grow their businesses. Its ever-expanding customer base, coupled with strong Cash App engagement, is benefiting Block, formerly known as Square.
SQ has a Zacks Rank #1 and a Growth Score of A. The Zacks Consensus Estimate for Block's next-year earnings has moved up 0.9% over the past 60 days. The company's expected earnings growth rate for the current year is 69%. Block's estimated earnings growth rate for the next five-year period is 20.2%.
Shares of Ford Motor, Alphabet and Block have gained 12.1%, 45.5% and 18.5%, respectively, so far this year.
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Ford Motor Company (F) : Free Stock Analysis Report
Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report
Royal Gold, Inc. (RGLD) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Block, Inc. (SQ) : Free Stock Analysis Report
