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Sonic Automotive and Yum China have been highlighted as Zacks Bull and Bear of the Day

·12 min read

For Immediate Release

Chicago, IL – February 11, 2022 – Zacks Equity Research shares Sonic Automotive SAH as the Bull of the Day and Yum China YUMC asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Builders First Source BLDR and Micron Technology, Inc. MU.

Here is a synopsis of all five stocks:

Bull of the Day:

It is no secret that car dealers have been raking in the big bucks. Scarcity coming from manufacturers has allowed them to make money coming and going. Whether it’s new or used, dealers are marking up cars to astronomical levels. Good luck finding something new under MSRP nowadays and used car prices are so high that sometimes they are worth more than the new ones.

This has helped stocks out there like today’s Bull of the Day Sonic Automotive. Sonic Automotive, Inc. operates as an automotive retailer in the United States. It operates in two segments, Franchised Dealerships and EchoPark. The Franchised Dealerships segment is involved in the sale of new and used cars and light trucks, and replacement parts; provision of vehicle maintenance, manufacturer warranty repair, and paint and collision repair services; and arrangement of extended warranties, service contracts, financing, insurance, and other aftermarket products. The EchoPark segment sells used cars and light trucks; and arranges finance and insurance product sales in pre-owned vehicle specialty retail locations. As of December 31, 2020, the company operated 96 new vehicle franchises representing 21 brands of cars and light trucks; 14 collision repair centers in 12 states; and 16 EchoPark stores.

Sonic is a Zacks Rank #1 (Strong Buy). In addition to the favorable Zacks Rank, Sonic enjoys a Zacks Value Style Score of A, Growth of A and Momentum of A to help it round out with a VGM Composite Score of A. The Automotive – Retail and Wholesale industry ranks in the Top 2% of our Zacks Industry Rank, making this just about the most attractive a stock could possibly be in terms of the Zacks Rank.

The reason for the favorable rank stems from the series of earnings estimate increases coming from analysts. Over the last sixty days, four analysts have increased their estimates for next year, while one has done so for next quarter. The bullish move has pushed up our Zacks Consensus Estimate for next quarter from $1.73 to $2.22 while next year’s number is up from $8.74 to $9.35.

Bear of the Day:

The market is treacherous right now. Even when everything looks to be going great, one hawkish comment from a Fed president can send it all sinking to the bottom. That happened during the day yesterday when Bullard bullied the market into a tailspin. You have to protect yourself in markets like this and look for stocks with the strongest earnings trends. Today’s Bear of the Day is a stock that actually has a ton of earnings growth, it’s just been under the gun recently as estimates have come down

Today’s Bear of the Day is Zacks Rank #5 (Strong Sell) Yum China.Yum China owns and operates franchise restaurants in China. The company operates under two segments, KFC and Pizza Hut, but owns brands such as Little Sheep, Huang Ji Huang, COFFii & JOY, East Dawning, Taco Bell and Lavazza.

The reason for the unfavorable rank is the recent negative earnings estimate revisions coming from analysts. Over the last thirty days, two analysts have cut their earnings estimates for the current year and next year. The negative sentiment has brought down our Zacks Consensus Estimate for the current year from $2.06 to $1.97 while next year’s number is off from $2.64 to $2.55.

The good news for long-term bulls in the stock is that the growth is still forecast to be very strong. Both revenue and earnings estimates are double-digit percentage gains. Current year sales forecast is set to come in at 17.51% with next year at 11.96%. Current year EPS is forecast to come in at 62.8% with next year at 29.36%. Estimates have been coming down since peaking along with the stock price in June 2021. Since then, shares are off from the high $60s to $50.

The Retail – Restaurants industry is in the Bottom 9% of our Zacks Industry Rank.

Additional content:

2 Top Stocks to Buy Now and Hold for Years

The market posted its second-straight day of solid gains on Wednesday, as Wall Street continues to buy up beaten-down stocks. The recent rally has helped restart the recovery that was disrupted by massive drops from PayPal, Facebook/Meta, and a few other big-tech names last week.

The Nasdaq has now popped roughly 8% off its late January lows, while the S&P 500 is up nearly 6% since then. The benchmark index is approaching its 50-day moving average once again. The rebound comes even as the 10-year U.S. Treasury is on the brink of breaking above 2% for the first time since the summer of 2019. Wall Street is also waiting on January’s Consumer Price Index results that are due out Thursday morning.

Prices are not projected to come down and any surprise to the high-end could place more pressure on the Fed. That said, the recent market positivity might suggest that Wall Street has already priced in a fair amount of rate hikes in 2022.

It is hard to get a solid read on the market in the early days of 2022, amid rising inflation, supply chain setbacks, and the impending end of super-easy money. There could be another wave of selling and the market might simply be in for a choppier stretch following three years of huge returns.

This doesn’t mean investors should run away because staying constantly exposed to the market is a tried-and-true tactic to help long-term investors achieve success. We have already seen Wall Street buy some of the tech titans after they fell.

If Apple and other stable powers fall again, a similar pattern of buying great stocks at discounts will likely follow. On top of that, the two things that drive stocks prices over the long haul, earnings and interest rates, should support equities. The nearby chart shows the 10-year U.S. Treasury is still below its 10-year median and well off its highs—which are all extremely low historically.

Builders First Source

Builders First Source manufactures everything from roof and floor trusses and stairs to vinyl windows, custom millwork, doors and nearly everything else in between. Along with various other products, Builders First Source offers design services, product installation, and turn-key framing. Overall, Builders First Source is one of the largest U.S suppliers of building products, prefabricated components, and services to the professional market for new residential construction and remodeling.

Builders First Source has steadily grown its revenue over the past decade, including multiple years of big double-digit expansion. The Dallas-based company operates in roughly 40 states, with a market presence in 47 of the top 50 and 84 of the top 100 metropolitan statistical areas. BLDR provides great exposure to various trends in housing and helps play the entire market instead of picking winners within the homebuilders.

Builders First Source has benefitted from the covid-boosted housing market. Some are rightfully worried about rising interest rates, but the market is finally being driven by millennials who are starting families a bit later in life. As we mentioned with the 10-year Treasury, 30-year mortgage rates are still very attractive compared to their pre-covid levels and even better historically.

Zacks estimates call for Builders First Source’s 2021 revenue to soar 130% from $8.6 billion to $19.6 billion. This would come on top of last year’s 18% sales growth. Meanwhile, its adjusted FY21 earnings are projected to skyrocket 208% to $9.26 a share.

Clearly, 2021 would be nearly impossible to follow up and our current estimates call for a pullback on both the top and bottom lines. But BLDR has crushed our EPS estimates by a 71% average in the trailing four periods and its FY22 and FY23 estimates have continued to trend higher. And its positive bottom-line revisions help it land a Zacks Rank #1 (Strong Buy) right now, alongside its “A” grade for Growth and “B” for Value in our Style Scores system.

Builder First Source’s results are due out on March 1 and the stock popped 2% on Wednesday to close regular hours at $71.48 a share. BLDR shares have bounced back recently and are up 67% in the past year to crush its industry’s 25%. The stock has also soared 475% in the last five years vs. its industry’s 150% and the S&P 500’s 100%. Despite the overall strength, the stock is trading 17% below its highs and 30% under its current Zacks consensus price target of $92.2 a share.

Even though it’s crushed its peers and the market and is on a huge run, BLDR trades at a 12% discount to its own five-year median, 52% below its highs, and offers great value against its industry at 10.2X forward 12-month earnings. Builder First Source also boasts a solid balance sheet and it upped its stock buyback program by $1 billion in November. Plus, 10 out of 11 brokerage recommendations Zacks has are “Strong Buys,” with the other at a “Buy.”

Micron Technology, Inc.

Micron is one of the largest makers of memory chips in the world. The company makes DRAM chips, which are featured within PCs and beyond, while NAND, or flash memory, is made for storing data and can be found in mobile phones and other devices. The memory space has been historically even more cyclical compared to the broader chip market and heavily impacted by pricing. Luckily, Micron is becoming less cyclical as it benefits from exposure in areas such as connected vehicles and all-important data centers.

Micron fiscal 2021 sales surged 29% and its adjusted earnings skyrocketed 115%. In late December, MU posted 33% Q1 FY22 revenue growth. The company also provide upbeat guidance amid the global chip shortage that helped the stock surge. CEO Sanjay Mehrotra remains confident in its outlook and MU’s ability to grow market share and benefit over the long-run through expansion in secular growth areas of technology, including 5G, AI, data centers, EVs, and more.

Looking ahead, the memory chip maker’s fiscal 2022 revenue is projected to climb 16% to reach $32 billion, with FY23 expected to surge another 15% to roughly $37 billion. At the bottom end, Micron’s adjusted earnings are projected to soar 47% on top of last year and 22% higher in 2023. The company’s FY22 and FY23 consensus earnings estimates have trended higher since its release and it has consistently topped our EPS estimates.

Wall Street is largely high on the stock, with 15 of the 19 brokerage recommendations Zacks has at “Strong Buys.” MU stock has climbed 260% in the last five years to outpace the broader Semiconductor market’s 200% climb. Better yet, it has skyrocketed 1,000% in the past decade to double its chip peers and destroy the Zacks Tech sector’s 300%.

More recently, the stock is up 7% in the last year, which once again tops tech overall. And Micron shares have jumped 20% in the past three months. MU popped 4.8% during regular trading Wednesday to close at $88 a share. Even with the climb, the stock is down 10% off its January records and it has 24% more room to run before it hit its current Zacks consensus price target of $109 a share.

Micron trades at a discount to the larger chip segment due to memory’s standing in the space. Compared to itself, MU trades at a 50% discount to its year-long highs and right at its median of 8.7X forward 12-month earnings. Micron, which lands a Zacks Rank #3 (Hold), boasts an overall “A” VGM score and a strong balance sheet.

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