StoneX and Leslie's have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – August 10, 2023 – Zacks Equity Research shares StoneX Group SNEX as the Bull of the Day and Leslie's LESL as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Limbach Holdings, Inc. LMB, Construction Partners, Inc. ROAD and Chuy’s CHUY.
Here is a synopsis of all five stocks.
Bull of the Day:
StoneX Group is a global financial services firm that offers a comprehensive range of brokerage, trading, and advisory services to institutional and retail clients. In addition to several long-term bullish characteristics, StoneX Group boasts a Zacks Rank #1 (Strong Buy) rating, indicating upward trending earnings revisions, and boosting near-term stock expectations.
With expertise in commodities, foreign exchange, and global markets, StoneX Group enables clients to navigate complex financial landscapes and manage risk effectively. Through its advanced technology platforms and deep industry insights, SNEX facilitates trading and investment across a diverse array of asset classes, making it a trusted partner for those seeking strategic financial solutions and market access.
StoneX Group has been a stellar stock to own over the last 10 years. During that period, it has compounded at an annual rate of 17.4%, considerably outperforming both the broad market and respective industry. And with growing revenues, a devoted management team, and reasonable valuation, SNEX is likely to continue to perform well in both the near and long term.
Earnings Estimates
Although the current quarter earnings estimates have been downgraded over the last 30 days, all other timeframes have seen significant revisions higher. FY23 earnings estimates have been revised higher by 8% over the last two months and are projected to climb 10.9% YoY to $11.10 per share.
Additionally, current quarter sales are expected to grow 18.8% YoY to $693 million and FY23 sales are forecast to increase 44.1% YoY to $2.8 billion.
During the most recent earnings report StoneX Group surprised massively to the upside. Earnings came in at $3.35 per share, which was a 37.7% beat and indicated a 38% YoY gain. Additionally, revenue of $777 million beat estimates by 13.2% and showed a 47% YoY increase.
While some of the gains in revenues came from increased financial transactions, the largest portion came from the growth of interest payments collected on the client float. Because interest rates are now significantly higher than they have been in the past, SNEX makes a tidy sum on the cash that sits in client accounts. Interest income grew 329% YoY to $92 million in Q2.
StoneX Group has a strong record of beating earnings estimates, with the average beat being nearly 20%. Based on that, even the recent revisions higher may not meet the strong results the company continues to put up.
High Insider Ownership
Something that is consistent with the best performing stocks in the market is a high percentage of insider ownership. When management aligns with outcomes, great things can happen for a company.
Today, insiders own approximately 15.5% of outstanding shares, which is above average, demonstrating that executives at the company believe in the business and are willing to put their own money on the line.
Reasonable Valuation
Even with SNEX’s forecasts of high sales growth in the coming years, it still trades at a very fair valuation. The company is trading at a one year forward earnings multiple of 9.5x, which is below the industry average of 13x, and just below its three-year median of 9.9x.
The discounted valuation relative to the industry is particularly compelling. Over the last three years SNEX stock has returned 65% or 18.2% annualized, while the industry is down -7.4%, or -2.5% annualized.
Bottom Line
StoneX Group is a top-notch financial services provider with a number of enticing qualities. In addition to its deep insider ownership, strong returns, and reasonable valuation, SNEX enjoys very nice Return on Equity (ROE) statistics. Over the last five years ROE has not gone below 12.9% and has been as high as 20.9%.
These strong business economics along with improving earnings make StoneX Group a very exciting investment opportunity today.
Bear of the Day:
Leslie's, a leading specialty retailer of swimming pool and spa products, has unfortunately been on the wrong side of some significant downward earnings revisions, giving it a Zacks Rank #5 (Strong Sell).
Leslie’s seems to be suffering from the pool related spending that was pulled forward following the Covid-19 pandemic. In 2020, during the first summer of lockdowns, pool builds, and pool related spending exploded well above trend because everybody was stuck at home, and this continued through 2021.
However, that spending reversed considerably when people were again able to leave their homes. Additionally, with the pressures from inflation shifting budget priorities, and renewed interest in travel, pool-focused spending has fallen considerably as is evident from LESL’s most recent quarterly earnings report.
Company and Performance
Catering to both residential and commercial customers, Leslie's offers a wide range of high-quality products, including pool chemicals, equipment, maintenance tools, and accessories. The company operates through a combination of retail stores, e-commerce, and a mobile app, providing convenient access to essential pool and spa supplies.
Although the company was founded all the way back in 1963, it has changed hands several times since then. More recently, in 2017 the company was purchased by a private equity firm who then brought the company public through an IPO in 2020. The stock has not performed well since then, down -69% since its IPO.
Earnings Downgrades
Earnings estimates have experienced some severe revisions lower over the last two months reflecting the shifting economics in the pool industry. Current quarter earnings estimates have been downgraded by -51.4% and are expected to fall -51% YoY to $0.17 per share. FY23 earnings have been revised lower by -61.5% and are projected to decline -70% YoY to $0.51 per share.
Sales forecasts aren’t promising either. Current quarter sales are expected to fall -11.6% YoY to $420.4 million, while FY23 sales are expected to fall -7.9% YoY to $1.44 billion.
During the most recent quarterly earnings call executives highlighted the numerous challenging developments at Leslie’s. CEO Michael Egeck noted “it was a difficult quarter,” and that “low double-digit traffic declines resulted in a 12% comparable sales decline and a 9% total sales decline.”
Additionally, on the call, he pointed to three primary factors challenging LESL’s business performance – weather, consumer price sensitivity, and leftover pool chemicals from the prior year. That price sensitivity is the inflation effect we noted, and a surplus of pool chemicals is the spending that was pulled forward immediately following Covid.
Hopefully, the business can eventually recover from these effects, however for now it makes the stock rather unappealing.
Valuation
For a stock with falling business expectations, Leslie’s trades at a rather high valuation. Today it is trading at a one year forward earnings multiple of 27.8x, which is above the industry average of 19.9x, and above its three-year median of 20.8x.
Bottom Line
While Leslie’s has a long history of contributing to the pool industry, the near-term headwinds make the stock hard to invest in. Investors will want to wait for pool-related spending to normalize, and earnings revisions to begin trending higher before considering getting involved in the stock.
Additional content:
3 Stocks to Gain on the Dollar's Newfound Strength
The U.S. dollar’s newborn strength can be attributed to China’s recovery worries and the lowering of several banks’ credit ratings that led to market turbulence. The dollar’s safe-haven appeal helped the currency to shrug off the current threats and scale upward.
Being mostly U.S.-centric, stocks such as Limbach Holdings, Inc., Construction Partners, Inc. and Chuy’s are in a better position to weather a stronger dollar. These stocks are well protected from the currency translation impact of a stronger greenback.
What’s Driving Dollar?
The ICE U.S. Dollar Index bounced back from the Aug 4 one-week low and advanced to around mid-102.00s. A discouraging set of Chinese trade numbers coupled with Moody’s and Fitch’s downgrade of several U.S. banks dampened investor sentiment but strengthened the dollar predominantly because of its traditional safe-haven status.
China’s economy has started to show signs of distress mostly due to suppressed global demand for commodities. In July, China’s imports and exports dropped way more than anticipated. While the country’s imports tanked by 12.4% from the year-ago period, exports were down by 14.5%.
On the domestic front, multiple U.S. lenders were downgraded by Moody’s. The rating agency lowered the credit ratings of many small to mid-sized U.S. banks and cautioned that these lenders may find it difficult to make money as threats of a recession loom, and interest rates remain high.
At the same time, Fitch has downgraded the U.S. government’s credit rating to AA+ from AAA, thanks to the debt ceiling crisis in Washington. The rating agency did raise apprehensions about the country’s current financial conditions as well.
Recent comments from Fed Governor Michele Bowman on more interest rate hikes boosted the dollar. He said further rate hikes are required as inflation remains elevated. Needless to say, higher rates allure overseas investors looking for higher returns on interest-rate products, and in the process make the dollar stronger.
How a Stronger Dollar Impacts Stocks
A stronger dollar generally hinders the earnings growth of multinational companies. Since these companies generate a bulk of their earnings from overseas, they are exposed to foreign exchange risks. Hence, if the dollar strengthens, it tends to adversely impact the foreign sales of such companies.
On the other hand, smaller companies with wider domestic revenue exposure tend to benefit. These companies are insulated from the negative impact of a stronger dollar.
3 Big Winners
We have picked three such smaller companies that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such stocks also have a VGM Score of A or B. Here V stands for Value, G for Growth, and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.
Limbach Holdings provides building systems. LMB currently has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its next-year earnings has increased 4.1% over the past 60 days. The company’s expected earnings growth for the current year is 75%.
Construction Partners is an infrastructure and road construction company. ROAD presently has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has increased 20% over the past 60 days. The company’s expected earnings growth for the current year is 104.9%.
Chuy's owns and operates full-service restaurants serving a distinct menu of authentic Mexican food. CHUY has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has moved up 3.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 31.4%.
Shares of Limbach Holdings, Construction Partners and Chuy's have gained 163.7%, 27.2% and 36.1%, respectively, so far this year.
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Chuy's Holdings, Inc. (CHUY) : Free Stock Analysis Report
Limbach Holdings, Inc. (LMB) : Free Stock Analysis Report
Construction Partners, Inc. (ROAD) : Free Stock Analysis Report
StoneX Group Inc. (SNEX) : Free Stock Analysis Report
Leslie's, Inc. (LESL) : Free Stock Analysis Report
