Terex and Stepan have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – June 12, 2023 – Zacks Equity Research shares Terex Corporation TEX as the Bull of the Day and Stepan SCL as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Turtle Beach HEAR, Wingstop WING, and Horizon Technology Finance HRZN.
Here is a synopsis of all five stocks:
Bull of the Day:
Terex Corporation, a Zacks Rank #1 (Strong Buy), checks off all the boxes in terms of what we look for in a leading stock. Coming out of a bear market, leaders tend to bottom before the major indices. TEX bottomed out in July of last year and has built on the momentum in 2023. Strong demand is leading to rising earnings estimates for this highly-ranked stock. The company’s longevity and continued stock price ascent speak to management’s ability to adapt to the ever-changing market landscape.
TEX sports the second-highest Zacks Value Style Score of ‘B’, indicating an increased probability that the stock propels higher on favorable valuation metrics. The company is part of the Zacks Manufacturing – Construction and Mining industry group, which ranks in the top 2% out of more than 250 Zacks Ranked Industries.
Because this group is ranked in the top half of all industries, we expect it to continue to outperform the market over the next 3 to 6 months. Also note the favorable metrics for this industry group below:
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Company Description
Terex manufactures and sells aerial work platforms and materials processing machinery worldwide. Its products include portable material lifts, utility equipment, telehandlers, cranes, concrete mixer trucks and pavement, and conveyors. Used in the construction, infrastructure, mining and recycling industries, its products are sold under recognized brands such as Terex, Fuchs, EvoQuip, Powerscreen and Cedarapids.
Terex’s backlog has shown year-over-year growth for nine consecutive quarters and reached $4.1 billion at the end of the first quarter. This puts TEX in a great position for improved results in the near future. Solid demand and cost savings will help negate the impact of dwindling supply chain disruptions.
Earnings Trends and Future Estimates
TEX has built up an impressive earnings history, surpassing earnings estimates in each of the past four quarters. Back in May, the company reported first-quarter earnings of $1.60/share, a 52.38% surprise over the $1.05 consensus estimate. TEX has delivered a 27.06% average earnings surprise over the last four quarters.
The TEX growth engine is expected to remain hot this year, as analysts covering the company have increased their full-year earnings estimates by 21.88% in the past 60 days. The Zacks Consensus EPS Estimate now stands at $5.96/share, reflecting potential growth of 37.96% relative to last year. Sales are anticipated to climb 11.73% to $4.94 billion.
Let’s Get Technical
TEX shares bottomed out well in advance of the major indices during last year’s bear market. The stock has continued outperforming this year and has doubled in price off the lows. Only stocks that are in extremely powerful uptrends are able to make this type of price move. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Notice how the 200-day moving average (blue line) is now sloping up. The 200-day average has acted as support throughout the move higher. With both strong fundamentals and technicals, TEX is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Terex has recently witnessed positive revisions. As long as this trend remains intact (and TEX continues to deliver earnings beats), the stock will likely continue its bullish run this year.
Despite the impressive price run off the lows, TEX remains relatively undervalued:
Bottom Line
Solid institutional buying should continue to provide a tailwind for the stock price. Relative undervaluation and a healthy backlog point to more strength ahead. It’s not too difficult to see why this company is a compelling investment.
Backed by a leading industry group and impressive history of earnings beats, this market winner is primed to build upon its recent run. Robust fundamentals combined with a strong technical trend certainly justify adding shares to the mix. Investors would be wise to consider TEX as a portfolio candidate if they haven’t already done so.
Disclosure: TEX is a current holding in the Zacks Headline Trader portfolio.
Bear of the Day:
Stepan produces and sells specialty and intermediate chemicals to manufacturers for use in various end products. The company offers surfactants that are used as principal ingredients in cleaning products such as detergents, fabric softeners, disinfectants, and lubricating agents. The company also provides raw materials for coatings, adhesives, and sealants. Furthermore, Stepan provides emulsifiers and flavors for use in food and nutritional supplement applications.
The Zacks Rundown
SCL, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Chemical – Diversified industry group, which ranks in the bottom 37% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months. Note how this group has widely underperformed to start the year:
Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poorly performing industry group, the industry association serves as a headwind for any potential rallies and the journey forward is that much more difficult.
SCL hit a 52-week low in April of this year and has failed to produce any meaningful rally, all while markets have recovered nicely. When a stock fails to rally while the general market is bullish, it’s telling us that buying pressure remains weak. The share price remains in a downtrend, and a recent uptick presents a compelling short opportunity.
Recent Earnings Misses & Deteriorating Outlook
SCL has fallen short of earnings estimates in three of the past eight quarters. Back in April, the company reported first-quarter earnings of $0.71/share, missing the $0.94/share consensus EPS estimate by -24.47%. Consistently falling short of earnings estimates is a recipe for underperformance, and Stepan is no exception.
SCL has been on the receiving end of negative earnings estimate revisions as of late. For the current year, analysts have decreased estimates by -18.21% in the past 60 days. The 2023 Zacks Consensus EPS Estimate is now $4.58/share, reflecting a -31.13% regression relative to last year.
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
Technical Outlook
As illustrated below, SCL is in a sustained downtrend. Notice how the stock has plunged below the 200-day moving average (signaled by the blue line). The stock is making a series of lower lows, with no respite from the selling in sight. Also note how the 200-day moving average is sloping down – another good sign for the bears.
A recent uptick over the last month presents traders with a potential short entry, as the moving average is acting as resistance. SCL would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. The stock remains in negative territory this year while the general market is showing strength.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to produce new highs anytime soon. The fact that SCL is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
Our Zacks Style Scores depict a weakening outlook for this stock, as SCL is rated a second worst-possible ‘D’ in our Growth category and ‘C’ for our overall VGM score. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of SCL until the situation shows major signs of improvement.
Additional content:
3 Top-Ranked Small-Caps Investors Shouldn't Ignore
Small-caps have rebounded nicely so far in 2023, undoubtedly a welcomed development among market participants after a rough showing last year.
Still, there is a lot of negative sentiment surrounding the stocks due to their volatile nature at times.
However, many small-cap stocks turn out to be big winners in the long run, and they typically have less analyst coverage, providing investors an opportunity to get in "early" before the crowd.
For those seeking exposure to small-caps, three stocks – Turtle Beach, Wingstop, and Horizon Technology Finance – could all be considerations.
All three sport a favorable Zacks Rank, indicating optimism among analysts. Let’s take a closer look at each.
Wingstop
Wingstop offers cooked-to-order, hand-sauced, and tossed chicken wings. Currently, the stock carries a favorable Zacks Rank #1 (Strong Buy), with earnings expectations increasing across the board.
The company has posted robust quarterly results as of late, exceeding the Zacks Consensus EPS Estimate by an average of 31% over the last four quarters. Just in its latest release, Wingstop penciled in a 29% EPS beat and reported revenue 7.7% above expectations.
As shown below, the company’s revenue growth has been remarkable.
It’s worth noting that investors will have to fork up a premium for WING shares, with the current 92.4X forward earnings multiple undoubtedly expensive. Still, investors have had little issue paying the premium given the company’s strong growth trajectory.
Turtle Beach
Turtle Beach Corporation, a Zacks Rank #2 (Buy), is an audio technology company that designs products for consumer, commercial, and healthcare markets.
Like WING, Turtle Beach posted results that came in well above expectations in its latest release, exceeding the Zacks Consensus EPS Estimate by more than 35%. Quarterly revenue totaled $51 million, 12% ahead of expectations and improving nearly 10% from the year-ago period.
Shares aren’t stretched regarding valuation, with the current 0.7X forward price-to-sales ratio sitting beneath the 0.8X five-year median and highs of 1.6X in 2021. The stock carries a Style Score of “B” for Value.
Keep an eye out for the company’s next quarterly release on August 14th; the Zacks Consensus EPS Estimate of -$0.33 indicates a 57% jump in earnings from the year-ago period.
Horizon Technology Finance
Horizon Technology Finance makes secured loans to development-stage companies in the technology, life science, healthcare information and services, and cleantech industries. The stock sports the highly-coveted Zacks Rank #1 (Strong Buy), with the revisions trend particularly noteworthy for its current fiscal year.
For those seeking income, HRZN has that covered; shares currently yield 10.8% annually, crushing the Zacks Finance sector average of an already impressive 2.6%. Dividend growth is there, too, with the company’s payout growing modestly over the last five years.
Bottom Line
With small-caps staging a significant rebound in 2023, investors are undoubtedly looking to ride the trend.
And for those seeking exposure, all three stocks above – Turtle Beach, Wingstop, and Horizon Technology Finance – deserve a watchlist spot.
All three have witnessed positive earnings estimate revisions among analysts, indicating near-term optimism.
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Terex Corporation (TEX) : Free Stock Analysis Report
Horizon Technology Finance Corporation (HRZN) : Free Stock Analysis Report
Stepan Company (SCL) : Free Stock Analysis Report
Wingstop Inc. (WING) : Free Stock Analysis Report
Turtle Beach Corporation (HEAR) : Free Stock Analysis Report
