For Immediate Release
Chicago, IL – September 28, 2023 – Zacks Equity Research shares Texas Pacific Land TPL as the Bull of the Day and Columbia Sportswear COLM as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Kinder Morgan, Inc. KMI, MPLX LP MPLX and The Williams Companies Inc WMB.
Here is a synopsis of all five stocks:
Bull of the Day:
Texas Pacific Land is a Zacks Rank #1 (Strong Buy) that engages in the land and resource management, and water services and operations businesses. The company provides holistic water services to oil and gas operators in the Permian Basin.
As energy prices spiked in 2022, so did TPL, more than doubling in the first ten months of the year. However, as energy prices came in, so did TPL and the stock fell over 50%.
Looking forward, bullish investors look to be in a good spot as energy prices are moving higher once more.
More about Texas Pacific Land
The company was formed in 1888 and is headquartered in Dallas, Texas. It employs about 100 people and has a market cap of $14 billion.
The company is one of the largest landowners in Texas, holding approximately 874,000 acres of land in West Texas.
TPL has two segments:
Land and Resource Management- This segment focuses on managing TPL's oil and gas royalty interest and surface acres located in 19 different counties. Revenue streams include oil and gas royalties, easements, commercial sales, land sales, and material sales.
Water Service and Operations- This segment offers operators service across the Permian Basin, focusing on water sourcing, gathering, treatment, recycling, disposal, tracking analytics, and well testing. It is also responsible for infrastructure and development.
The stock has a Forward PE of 37 and the stock pays a dividend of just under 1%.
Texas Pacific last reported earnings back in August, with a 17% EPS beat. Earnings were below last year, as revenue came in at $160.6M v the $176.3M y/y.
This of course makes sense with lower energy prices, which pays out lower royalties. However, losses were largely offset by increased revenue from the business water sales and royalties' income.
With the recent uptick in oil and natural gas, analysts are lifting estimates.
Estimates Trend Higher
Looking at earnings estimates, they are on the move higher since earnings.
For the current quarter, numbers go up from $12.87 to $13.55 over the last 60 days. This is a hike of 5%.
Next quarter we see a similar gain of 2%, with estimates going from 12.34 to $13.56 over that same time frame.
Looking at a longer-term time frame it gets exciting.
For the current year, we see estimates have ticked 6.5% over the last 60 days, going from $46.83 to $49.83. For next year we see a spike of 17%, with estimates going from $62.13 to $71.54.
The Technical Take
Investors had a tough time earlier this year as prices moved below all moving averages this summer. But after the recent rally in energy, the stock has rallied and stabilized around the level it started the year.
For those looking for an entry, below are some levels to watch:
21-day Moving Average (MA): $1840
50-day MA: $1760
200-day MA: $1730
Texas Pacific Land gives investors exposure to energy in a unique way. This historical company will benefit from the recent rise in energy prices and the desire of energy companies to utilize their land.
After a rough ride earlier this year, the stock looks to have stabilized and is ready for a push higher into the end of the year. Investors should target any pullbacks to technical support and look for a good finish to 2023 if energy remains strong.
Bear of the Day:
Columbia Sportswear is a Zacks Rank #5 (Strong Sell) that designs, sources, markets, and distributes outdoor, active, and everyday lifestyle apparel, footwear, accessories, and equipment. The company provides apparel, accessories, and equipment for mountaineering, climbing, skiing, and snowboarding, trail, and camp enthusiasts.
The stock has not been kind to investors, down 20% on the year. As it trades near 2023 lows, it looks like more pain might be ahead after poor guidance and falling estimates.
About the Company
Columbia is headquartered in Portland, OR.The company was founded in 1938 and employs over 9,000 people.
The company offers products under four well-established brands – Columbia, Sorel, Mountain Hardwear and prAna. The company sells its products through the company-owned network of branded and outlet retail stores, brand-specific e-commerce sites, and concession-based arrangements with third-parties at branded outlet and shop-in-shop retail locations, as well as through independently operated specialty outdoor and sporting goods stores, sporting goods chains, department store chains, internet retailers, and international distributors.
Columbia is valued at $4 billion and has a Forward PE of 15. COLM holds Zacks Style Scores of "C" in Growth, "D" in Value, but "D" in Momentum. The stock pays a dividend of 1.7%.
When Columbia reported earnings back in early August the headline looked great, with a 600% earnings beat. Q2 Revenue also beat, but the company cut guidance in a big way.
The company sees Q3 at $1.60-1.70 v the $1.95 expected and sees net sales below expectations. Columbia also cut FY23 to a range of $4.40-4.65 v the $5.23 expected. Operating margins are seen lower and the company cut capex.
Management said that because of trends they are seeing across the business, they are taking a conservative approach for the year. They are looking to manage expenses and looking for opportunities to drive growth.
Despite the spin, analysts had to cut estimates because of the guide lower.
Over the last 60 days, estimates have dropped from $1.95 to $1.68 for the current quarter. The 14% move lower is not as bad as the next quarter, which has dropped 19%.
Looking longer term, analysts have lowered estimates by 12% for the current year and 8% for next year.
Looking at the chart there is not much to like. The stock is trading below all its major moving averages and almost 30% off 2023 highs.
There will likely be support in the mid $60s, but if that fails the COVID lows at $55 is the next stop.
Columbia has clearly lost steam over the last couple of months and the short term does not look great fundamentally. The chart is confirming that story as the stock trades at 2023 lows.
Energy Market Volatility Bothering You? Watch These 3 Stocks
The initial pandemic period, when there were no vaccines, saw an environment of heightened uncertainties. The price of crude oil plunged to a negative $36.98 per barrel on Apr 20, 2020. However, with the rapid developments of vaccines, which led to the gradual opening of the economies, the pricing scenario of West Texas Intermediate crude improved drastically over time to reach $123.64 per barrel on Mar 8, 2022. Oil price data are per the U.S. Energy Information Administration.
Currently, WTI oil price is trading at more than $90 per barrel. Focus on supply tightness and the possibility of a soft landing for the U.S. economy is primarily aiding the recent crude rally.
Thus, it's pretty apparent that the business model of most energy players, by nature, is exposed to extreme volatility in commodity prices. Hence, it would be wise for investors to keep an eye on midstream stocks like Kinder Morgan, Inc., MPLX LP and The Williams Companies Inc.
Midstream Energy Players to the Rescue
Although the fate of energy players is highly dependent on oil and gas prices, stocks in midstream space have lower exposure to volatility in commodity prices than oil and gas producers. This is because midstream players generate stable fee-based revenues since the transportation and storage assets are being booked by shippers for the long term. Hence, their business model is relatively low-risk, which indicates considerably less exposure to oil and gas prices and volume risks.
We have employed our Stock Screener to zero in on three stocks belonging to the midstream energy space that are well-poised to gain, and hence, investors should keep an eye on these stocks. While MPLX and The Williams Companies carry a Zacks Rank #3 (Hold), Kinder Morgan has a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
3 Stocks to Gain
Kinder Morgan: With its operating interests in oil and gas pipeline networks spread across 83,000 miles, KMI is a leading energy infrastructure company in North America. It derives most of its earnings from take-or-pay contracts, generating stable fee-based revenues.
Kinder Morgan is poised to grow on the back of its business model, which is relatively resilient to volume and commodity price risks.
MPLX: The firm has ownership and operating interests in midstream energy infrastructure and logistics assets, thereby generating stable cashflow. With a strong focus on returning capital to unit holders, MPLX repurchased $491 million of common units last year. Under its unit repurchase authorization, the partnership has yet to buy back the remaining $846 million of its units.
The Williams Companies: It is well-poised to capitalize on the mounting demand for clean energy since it is engaged in transporting, storing, gathering and processing natural gas and natural gas liquids.
With its pipeline networks spread across more than 30,000 miles, The Williams Companies connects premium basins in the United States to the key market. WMB's assets can meet 30% of the nation's consumption of natural gas, which is utilized for heating purposes and clean-energy generation.
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