Texas Pacific and IBM have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – July 25, 2022 – Zacks Equity Research shares Texas Pacific Land TPL as the Bull of the Day and International Business Machines IBM as the Bear of the Day. In addition, Zacks Equity Research provides analysis on The Boeing Company BA, L3Harris Technologies LHX and Spire Global, Inc. SPIR.
Here is a synopsis of all five stocks:
Bull of the Day:
Texas Pacific Land is a Zacks Rank #1 (Strong Buy) that is landowners principally in the State of Texas. The Company generates revenue from pipeline, power line and utility easements, commercial leases, material sales and seismic and temporary permits related to land uses including midstream infrastructure projects and hydrocarbon processing facilities.
The stock took off in late 2020 and into 2021, moving from $400 to $1770. From there, the stock saw a slow descent, back under the $1000 level earlier this year.
But investors have been buying the stock since those bottoms in Q1. The stock is back at all time highs and should be watched for buying opportunities.
More About TPL
The company describes itself as a "Pure play in the Permian Basin." Texas Pacific Land was founded in 1888 and is headquartered in Dallas, Texas. It employs about 100 people and has a market cap of $13.5 billion.
TPL engages in the land and resource management, and water services and operations businesses.
The company's Land and Resource Management segment manages approximately 880,000 acres of land in 19 counties in the western part of Texas. It rents this land out to oil and gas producers that pay fees for use of that land.
Texas Pacific also has a Water Services and Operations segment that provides full-service water offerings.
The stock has a Zacks Style Score of "B" in Momentum and "C" in Growth. However, it has a "F" in Value, due to the high Forward PE of 28. While the PE is high, investors value the free cash flow more, which has been high due to higher energy prices.
Q1 Earnings
On May 4th, TPL reported an 8% EPS miss for Q1. While the company missed the estimates, the year over year numbers came in almost double from last year.
For earnings, the company saw $12.64 v the $6.45 last year. And for revenues, $147.M vs the $84.2M last year.
The company raised their dividend 9.1% and boosted their special dividend to $20 a share.
Here are some comments from management on the special dividend and the quarter:
"With tailwinds of favorable commodity prices, strong production, and a debt-free balance sheet, we're pleased to announce a $20 per share special dividend as our shareholders reap the windfall of supportive underlying fundamentals."
The company added that the dividend is on top of their $100 million share repurchase program and they will continue to return capital back to shareholders.
Estimates Rising
Analysts are getting excited about the upcoming quarters and raising estimates across all time frames.
Over the last month, estimates for the current quarter have gone from $15.10 to $15.84, a move of 5%. For the current year, we have seen a move of 3.5% higher, with estimates moving from $60.73 to $62.91.
Next year's estimates are also moving higher. Over the last 60 days, estimates have gone from $67.26 to $70.60, or 5%.
Strength in a Weak Market
TPL has not only been a great place to hide, it has been very rewarding. The stock is up almost 50% so far in 2022 and over 120% since the beginning over 2020.
In addition to the appreciation, investors are being rewarded with a small annual dividend and of course, the large special dividend. Investors should expect more special dividends in the future, due to the free cash flow that is being generated from high energy prices.
The Technical Take
The stock is trading at all-time highs so instead of chasing it, investors might want to be patient and look for pullbacks.
The 21-day moving average is at $1600, while the 50-day is at $1550. The 200-day MA is all the way down at $1330 and not likely to hit anytime soon.
Looking at the Fibonacci levels, the pullback earlier this year came down into the 61.8% retracement at $930 and held. Investors looking for upside targets could target the -23.6% level at $2075.
In Summary
When markets are weak, investors should look for relative strength. Not only is TPL relatively strong, but the stock has taken off to all-time highs. This is a very positive sign for investors and when market sentiment improves, the stock could really get going.
Investors should watch energy prices when owning a name like this. A large drop in oil and natural gas could destroy the narrative.
Bear of the Day:
International Business Machines is a Zacks Rank #5 (Strong Sell) provides advanced information technology solutions, computer systems, quantum computing and super computing solutions, enterprise software, storage systems and microelectronics.
"Big Blue" has struggled over the last decade, so they have tried to adjust and pivot to the cloud. Their acquisition of Red Hat helped this idea, but a recent earnings report has disappointed investors.
The stock is now trending lower and looks like it might challenge 2022 lows.
About the Company
IBM is headquartered in Armonk, New York. The company was incorporated in 1911 and employs over 280,000 people.
The company operates through four business segments: Software, Consulting, Infrastructure, and Financing.
IBM is valued at $114 billion and has a Forward PE of 13. The stock holds a Zacks Style Score of "C" in Value, "B" in Growth and "B" in Momentum. The stock pays a dividend of 5%.
Q2 Earnings
The company reported EPS last week, seeing Q2 at $2.31 versus the $2.29 expected. Revenues came in at $15.5B versus $15.1B. IBM affirmed FY22 at the high end of its mid-single digit model, but narrowed the FY22 FCF to $10B from $10-10.5B.
Margins were down year over year, from 55.2% to 53.4%. While software, consulting and infrastructure revenues were all higher year over year.
Here are some comments from CEO Arvind Krishna:
"In the quarter we delivered good revenue performance with balanced growth across our geographies, driven by client demand for our hybrid cloud and AI offerings. The IBM team executed our strategy well."
Estimates
Analysts are already starting to drop estimates as a result of the earnings report.
After stabilizing over the last few months, estimates have fallen off a cliff over the last 7 days. For the current quarter, estimates have fallen from $2.57 to 2.07, or 20%.
Things look to improve next quarter, but we see estimates tracking lower again for next year. Over the last 60 days, numbers have been lowered from $10.81 to $10.26, or 5%.
Technical Take
The stock was holding up well before earnings, as it was seeing support at the 50-day moving average. But IBM is now trading under all its moving averages after the earnings report, slicing right through the 200-day at $130.50.
The lows of the year are just under $120. These should be taken out if the momentum continues and the bears could possibly target the 2021 lows around $113.
Looking at Fibonacci levels, a 61.8% retracement drawn from May lows to June highs was holding at $133. However, this support was broken and bears should target the 161.8% extension at $113. This lines up with that 2021 low support.
In Summary
While big blue had some positive aspects to the quarter, investors were disappointed overall. The stock fell over 8% after earnings and looks like it could take out 2022 lows on any market weakness.
The stock pays a nice dividend, but with cash flow being taken down, investors might start to lose faith in that payout.
Additional content:
Will Abnormal Costs Hurt Boeing (BA) on Q2 Earnings?
Increased 737 delivery figures are expected to have boosted The Boeing Company's commercial business in the second quarter. However, second-quarter 2022 results, scheduled for release on Jul 27, are projected to reflect the impacts of abnormal costs related to the 777-9 program, on the bottom-line front.
Click here to know how the company's overall Q2 performance is expected to have been.
Solid 737 Max Deliveries to Boost Growth
Thanks to steadily recovering air traffic, improved delivery figures for Boeing's 737 jets, a trend we have been witnessing in the past couple of quarters, were observed in the second quarter of 2022 as well. Notably, the aerospace giant delivered 103 737 jets in the soon-to-be-reported quarter, reflecting quite a solid improvement of 106% from 50 units delivered in the year-ago quarter.
In fact, such significant delivery figures of 737 primarily drove a significant surge of 53.2% in the company's overall commercial deliveries. This, in turn, must have contributed to Boeing Commercial Airplane (BCA) business segment revenues in the soon-to-be-reported quarter.
The Boeing Company price-eps-surprise | The Boeing Company Quote
However, the aerospace giant was unable to deliver any of its 787 Dreamliner jets in the second quarter of 2022, owing to production quality issues related to the program. This might have partially impacted the top-line performance of the BCA segment.
Currently, the Zacks Consensus Estimate for Boeing's commercial business segment's revenues, pegged at $6,491 million, indicates a solid 7.9% improvement from the year-ago quarter's reported figure.
Earnings Expectation
On the cost front, delivery delays concerning the 787 performance issue are likely to have had an impact on BCA's operating profit, thereby hurting its quarterly earnings. Also, the production pause for the 777-9 program is projected to result in approximately $1.5 billion of abnormal costs beginning in the second quarter, which in turn must have weighed on this unit's bottom line.
However, improvements in commercial airplanes' financial performance due to increasing 737 MAX deliveries and consistent efforts by the BCA team to manage costs through business transformation activities must have contributed to this unit's bottom-line growth in the first quarter.
Further, we expect to witness a steady improvement in the company's expenses in relation to the storage of the 737 aircraft as jets stored so long in the inventory are gradually getting delivered.
So, the effect of the aforementioned factors on the overall second-quarter earnings performance of the BCA segment seems to have been mixed.
Currently, the Zacks Consensus Estimate for Boeing's commercial business segment's bottom line, pegged at a loss of $158 million, indicates an improvement from the year-ago quarter's reported figure of a loss of $472 million.
What the Zacks Model Unveils
Our proven model does not conclusively predict an earnings beat for Boeing this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here.
Boeing has an Earnings ESP of -62.40% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
Stocks to Consider
Here are a couple defense companies you may want to consider as these have the right combination of elements to post an earnings beat this season:
L3Harris Technologies: It is scheduled to release its second-quarter results on Jul 28. LHX holds a Zacks Rank #3 and has an Earnings ESP of +1.01%. You can see the complete list of today's Zacks #1 Rank stocks here.
LHX delivered a four-quarter average earnings surprise of 2.32%. The Zacks Consensus Estimate for L3Harris' second-quarter earnings, pegged at $3.16, has moved up 0.3% over the past seven days.
Spire Global, Inc. has an Earnings ESP of +9.43% and a Zacks Rank #3.
Spire delivered an earnings surprise of 7.7% in the last reported quarter. The Zacks Consensus Estimate for Spire's second-quarter sales is pegged at $18.93 billion.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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