For Immediate Release
Chicago, IL – August 25, 2022 – Zacks Equity Research shares Sotherly Hotels Inc. SOHO as the Bull of the Day and Yeti Inc. YETI as the Bear of the Day. In addition, Zacks Equity Research provides analysis on CBRE Group CBRE, Colliers International Group Inc. CIGI and FirstService Corp. FSV.
Here is a synopsis of all five stocks.
Bull of the Day:
Sotherly Hotels Inc. is seeing a return of travelers to its hotels in 2022. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by the triple digits in 2022.
Sotherly Hotels Inc. is a lodging REIT focused on upscale to upper-upscale full-service hotels in the Southern United States. It's portfolio currently consists of 10 hotel properties, comprising 2,786 rooms, as well as interests in 2 condominium hotels and their associated rental programs.
The hotels operate under the Hilton Worldwide and Hyatt Hotels brands, as well as independent hotels.
Another Beat in the Second Quarter
On Aug 11, Sotherly Hotels reported second quarter results and beat the Zacks Consensus by 571%. Earnings were $0.33 versus the Zacks Consensus of a loss of $0.07.
It was the third consecutive earnings beat in a row.
The all-important RevPAR metric, or room revenue per available room, actually exceeded the second quarter of 2019, which was pre-pandemic.
RevPAR increase to $128.63 for the second quarter from $94.93 in the same period in 2021. This was also 0.5% above second quarter 2019 RevPAR of $128.05. This was drive by higher average daily rates ("ADR") this year versus last year.
As anyone who has stayed in a hotel this year knows, rates have jumped. Sotherly's ADR for Q2 rose to $189.24 from $161.00 last year.
Occupancy also rose to 68% from 59% in 2021 as travel picked up steam this year. Compared to 2019, ADR also rose by 12.7%, but that was due to the higher daily rate as occupancy lagged 2019 by 8.3% which was at 76%.
Total revenue jumped to $47.2 million from $34.4 million a year ago. This was just under the revenue in Q2 of 2019, which was $51.5 million.
"We expect this momentum to continue, as same-store composite ADR during the month of July outperformed the same period in 2019 by 11.7%, leading to a 1.4% gain in RevPAR," said Dave Folsom, CEO.
"The quarter also saw the full repayment and extinguishment of the company’s outstanding loan with Kemmons Wilson, which was issued in June 2020 to provide liquidity as the Company experienced some of the strongest impacts of the pandemic," he added.
Full-Year Earnings Estimates Move Higher
Sotherly is still not providing full year guidance due to COVID-19 but it said its expects Composite RevPAR to be 6.5% ahead of Q3 2019 RevPAR and well ahead of last year.
Analysts liked what they heard as one earnings estimate has been revised higher for both 2022 and 2023 in the last 30 days.
The 2022 Zacks Consensus Estimate has jumped up to $0.60 from $0.34 in the last month. That's earnings growth of 300% as Sotherly lost $0.30 a share last year.
The 2023 Zacks Consensus Estimate also rose in the last 30 days, to $0.97 from $0.54. That's another 62% earnings growth.
Shares Are Dirt Cheap
Sotherly is a small cap company with a stock that is trading under $5. Shares have jumped 30.8% year-to-date on the return of travel, easily outperforming the S&P 500.
But with rising earnings, it's also dirt cheap. Sotherly has a forward P/E of just 4.7.
REITs normally pay a dividend, but Sotherly suspended the dividend when the pandemic hit. It has not yet reinstituted it.
But for investors looking for a value stock in the hotel industry, REITs like Sotherly, which are back on track as the pandemic eases, should be on your shortlist.
Bear of the Day:
YETI Inc. has seen changes in demand after 2-years of strong growth. This Zacks Rank #5 (Strong Sell) cut its full year earnings and sales outlook.
YETI is a retailer, designer and distributor of innovative outdoor products. It makes coolers, drinkware, bags and apparel designed to meet the needs of diverse outdoor pursuits. The company has built a strong following of brand loyalists globally.
A Miss in the Second Quarter
On Aug 4, YETI reported second quarter results and missed on the Zacks Consensus. It reported $0.63 versus the Zacks Consensus of $0.68.
This was the company's first earnings miss since going public in 2018.
Sales rose 17% to $420 million compared to $357.7 million a year ago. This was on top of last year's 45% growth. It had a 3-year compounded annual growth rate of 22%.
But these sales were slightly below expectations, due to softer digital traffic and new customer acquisition trends after several years of strong growth.
All of its segments saw growth in the quarter. Drinkware sales rose 12% as it expanded its Drinkware product offerings.
Cooler & Equipment sales gained 23% driven by strong performance in bags, soft coolers and hard coolers.
Gross Margins Fall
The company saw a decrease in gross margins of 630 basis points primarily driven by higher inbound freight, higher product costs and the unfavorable impact of foreign currency exchange rates. This was only partially offset by price increases.
Additionally, a shift towards wholesale and towards coolers and equipment also negatively impacted gross margin.
YETI expects this shift to continue throughout the balance of the year.
In better news on transportation costs, it's seeing signs of meaningful container cost decreases which should positively impact gross margins as they enter into Fiscal 2023.
YETI Cut Full Year Sales and Earnings Guidance
Given the dynamic environment, YETI felt it was prudent to cut its full year guidance.
Sales are now expected to increase between 15% and 17%, which is down from its prior outlook of between 18% and 20%.
Earnings are now forecast to be between $2.34 and $2.46, down from their previous guidance of $2.86 to $2.91.
Not surprising, the analysts have cut their estimates. 8 estimates were lowered for both 2022 and 2023 in the last 30 days.
The 2022 Zacks Consensus Estimate is now expected to be $2.46, down from $2.90. That's actually an earnings decline of 4.3% in 2022 as the company made $2.57 last year.
Shares Plunge, But Is YETI on Sale?
YETI was one of the big pandemic winners. From 2018, when it went public, through late 2021, shares were up over 500%.
But they have sunk 51% year-to-date.
But is it a deal? YETI has a forward P/E of 16.6. That's cheaper than the shares have been in the past, but it's not dirt cheap.
YETI doesn't pay a dividend, but it did complete a $100 million share repurchase plan in the first quarter of 2022.
Investors who love the brand might want to wait for signs that earnings may start to rise again before diving in.
CBRE Group (CBRE) Cheers Investors with a $2B Buyback Increase
CBRE Group recently received the board of directors' nod for a $2-billion increase in its stock repurchase authorization. This stock buyback authorization is effective immediately.
What is encouraging is that this latest authorization is in addition to the existing $2-billion authorization, which has roughly $898.4 million remaining as of Jul 31, 2022. The latest increase in the share repurchasing authorization is a prudent way of maximizing shareholders’ wealth and generating more value. The move also reflects CBRE’s confidence in its financial position and ability to generate sufficient cash flows.
CBRE Group also noted that share repurchases to be made in connection with the program are likely to be executed through open market transactions, privately negotiated transactions or any other way as determined by the company and that includes through plans complying with Rule 10b5-1 under the Exchange Act.
Moreover, the stock repurchase program may be extended, suspended or discontinued at any time without notice. Ultimately, such efforts are a strategic fit as these provide additional flexibility within CBRE’s capital-allocation framework and scope for book value creation.
In the second quarter of 2022, CBRE Group repurchased 7.5 million shares at an average price of $81.39, spending around $611.2 million.
As the largest commercial real estate services and investment firm (based on 2021 revenues), the company enjoys a robust scale. It is among a few companies offering a full suite of services to multinational clients. Moreover, the company has grown organically and banked on strategic in-fill acquisitions to boost its service offerings and geographic reach.
The company continues to benefit from diversifying across asset types, business lines, client types and geographies as well as expanding its resilient business in recent years. Given the size and scale of the company, CBRE Group has compelling opportunities to expand near-term earnings, and this is likely to translate to higher shareholder returns.
Speaking of CBRE’s financial position, the company is rich in cash and boasts a sturdy cash-flow generating ability. As of Jun 30, 2022, the company had $4.2 billion in total liquidity. This comprised $1.2 billion in cash in addition to the ability to borrow a total of $3.0 billion under its revolving credit facilities, net of any outstanding letters of credit. The company’s net leverage ratio was 0.20 as of the same date. This is significantly less than CBRE Group’s primary debt covenant of 4.25X.
Moreover, early in August, CBRE Group expanded its revolving credit facility from $3.15 billion to $3.5 billion by entering into a new five-year revolving credit agreement. The move was part of its efforts to boost its liquidity position and flexibility.
Shares of this Zacks Rank #3 (Hold) company have outperformed the industry it belongs to so far in the quarter. Its shares have risen 10.3% compared with the industry’s growth of 8.2%.
Stocks to Consider
Some better-ranked stocks from the real estate sector are Colliers International Group Inc. and FirstService Corp.
The Zacks Consensus Estimate for Colliers International Group’s 2022 EPS has moved 4% upward in the past month to $7.50. CIGI sports a Zacks Rank #1 (Strong Buy) currently. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FirstService’s current-year EPS is pegged at $4.28. The consensus mark for 2022 revenues stands at $3.7 billion, implying growth of 12.2% year over year. FSV sports a Zacks Rank #1 at present.
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