Textron and RCI Hospitality have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – March 8, 2024 – Zacks Equity Research shares Textron TXT as the Bull of the Day and RCI Hospitality Holdings RICK as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Valaris Ltd. VAL, Murphy USA MUSA and Sunoco LP SUN.
Here is a synopsis of all five stocks.
Bull of the Day:
Textron, a Zacks Rank #1 (Strong Buy), is a global manufacturer of aircraft, automotive engine components, and industrial tools. The company continues to enjoy strong order flows for its commercial and defense products. The stock recently broke out to an all-time high and has been benefiting from a resurgence in the industrial sector. Textron shares are displaying relative strength as buying pressure accumulates in this market leader.
The company is part of the Zacks Aerospace – Defense industry group, which currently ranks in the top 34% out of more than 250 Zacks Ranked Industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months. This industry is also showing several favorable characteristics.
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
Textron operates in the aircraft, defense, and industrial businesses worldwide. The company manufactures and sells business jets, defense aircraft, and military and commercial helicopters. It also provides maintenance, inspection, and repair services, as well as sells commercial parts.
In addition, Textron offers advanced marine crafts, electronic systems and solutions, live military training, and armored and specialty vehicles. The multi-industry company was founded in 1923, employs 35,000 people and is headquartered in Providence, Rhode Island.
Solid order activities resulted in a $14 billion backlog to start this year, which strengthens the company’s revenue-generating capacity. A solid product pipeline along with high levels of innovation are expected to boost future operating results significantly.
Earnings Trends and Future Estimates
Textron has established an impressive earnings history, surpassing earnings estimates in each of the last four quarters. Back in January, the company reported fourth-quarter earnings of $1.60/share, which marked a 4.58% surprise over the $1.53/share consensus estimate. Earnings improved 49.5% year-over-year.
The industrial manufacturer has delivered a trailing four-quarter average earnings surprise of 13.5%. Consistently beating earnings estimates is a recipe for success.
Analysts covering TXT are in agreement and have been raising their earnings estimates across the board. For the current quarter, analysts bumped up earnings estimates by 7.32% in the past 60 days. The Q1 Zacks Consensus EPS Estimate now stands at $1.32/share, reflecting potential growth of 25.7% relative to the year-ago quarter. Revenues are projected to climb 11.6% to $3.37 billion.
Let’s Get Technical
TXT shares have started off 2024 on a strong note, advancing more than 12% year-to-date. 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 both the 50-day (blue line) and 200-day (red line) moving averages are sloping up. The stock has been making a series of 52-week highs and recently surpassed its former all-time high. With both strong fundamental and technical indicators, TXT 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, Textron has recently witnessed positive revisions. As long as this trend remains intact (and TXT continues to deliver earnings beats), the stock will likely continue its bullish run this year.
Despite the impressive performance, TXT stock remains relatively undervalued.
Bottom Line
As industrials rebound amid a broad market rally, the future looks bright for this highly-ranked, leading stock. Textron is ranked favorably by our Zacks Style Scores, with a second-best ‘B’ rating in each of our Growth and Value categories. This means that the stock is likely to move higher based on a promising combination of strong earnings and sales growth along with favorable valuation metrics.
Backed by a leading industry group and impressive history of earnings beats, it’s not difficult to see why TXT stock is a compelling investment. An appealing technical trend along with robust fundamentals paint a bullish picture for Textron.
Bear of the Day:
RCI Hospitality Holdings owns and operates upscale adult nightclubs, dance clubs, restaurants, and sports bars in the United States. Its brands include recognized names in the industry such as Bombshells Restaurant & Bar, Rick’s Cabaret, Jaguars Club, Club Onyx, and Studio 80.
In addition, RCI Hospitality owns a national industry convention and tradeshow; two national industry trade publications; and two national industry award shows, along with approximately a dozen social media websites tailored to the adult retail products industry. The company was founded in 1983 and is based in Houston, Texas.
The Zacks Rundown
RCI Hospitality, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Leisure and Recreation Services industry group. This industry ranks in the bottom 50% 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, just as it has over the past year.
Stocks in the bottom tiers of industries can often be potential candidates for short positions. While individual stocks have the ability to outperform even when they are part of a lackluster industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
Despite a rebound in stocks with the Dow Jones Industrial Average, S&P 500, and more recently the Nasdaq hitting new all-time highs, RICK shares have not been participating lately. The stock has experienced considerable volatility over the past year.
Past Earnings Misses and Deteriorating Outlook
RCI Hospitality has fallen short of earnings estimates in three of the prior four quarters. Back in February, the hospitality provider reported fiscal first-quarter earnings of $0.77/share, missing the Zacks Consensus Estimate by -17.20%.
The company has delivered a trailing four-quarter average earnings miss of -26.5%. A history of missing earnings estimates is a recipe for underperformance and exactly what the bears want to see.
Analysts covering RICK have been steadily decreasing earnings estimates across the board. Looking into the current quarter, analysts have decreased EPS estimates by -23.02% in the past 60 days. The Zacks Consensus Estimate stands at $0.97/share, reflecting a -25.4% decline relative to the year-ago period.
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that supports a bearish viewpoint.
Technical Outlook
As illustrated below, RICK stock is in a sustained downtrend and has witnessed considerable volatility, all while the general market reaches new heights. Notice how shares are trading below both the 50-day and 200-day moving averages, signaled by the blue and red lines, respectively. The stock has been making a series of lower lows, widely underperforming the major indices. Also notice how both of the moving averages are sloping down – another good sign for the bears.
RICK stock has experienced what is known as a ‘death cross,' wherein the stock’s 50-day moving average crosses below the 200-day moving average. The stock would have to make a surprising move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. Shares have fallen more than 17% this year alone.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to hit new highs anytime soon. The fact that RICK 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.
Highlighted underperformance bodes well for the bears. Potential investors may want to consider including this stock as part of a short or hedge strategy. Bulls will want to steer clear of RICK stock until the situation shows major signs of improvement.
Additional content:
Oil Closing in on $80 as EIA Reports Bullish Inventory Data
U.S. oil prices finished high on Wednesday after a weekly report from the Energy Information Administration ("EIA") showed a smaller-than-expected increase in supplies, to go with bigger declines in fuel stocks. Saudi Arabia’s decision to raise the official selling prices of its crude for Asian buyers further supported the commodity.
On the New York Mercantile Exchange, WTI crude futures gained $1.60 (or 2%), to close at $79.75 a barrel yesterday.
We believe that oil’s current levels allow long-term-oriented market participants to buy shares in quality companies at attractive prices. Investors interested in the sector could benefit from having top-ranked stocks like Valaris Ltd., Murphy USA and Sunoco LP in their portfolio.
Let's dig deep into EIA’s Weekly Petroleum Status Report for the week ending Mar 1.
Analyzing the Latest EIA Report
Crude Oil: The federal government’s EIA report revealed that crude inventories rose 1.4 million barrels compared to analysts’ expectations of a 3.7-million-barrel increase per the analysts surveyed by S&P Global Commodity Insights. The stockpile build with the world’s biggest oil consumer was largely thanks to higher imports and lower export shipments. However, the magnitude was lower than expected due to a pullback in production and strong demand.
Total domestic stock now stands at 448.5 million barrels — 6.3% lower than the year-ago figure of 478.5 million barrels and 1% less than the five-year average.
The latest report also showed that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) rose 701,000 barrels to 31.7 million barrels.
Meanwhile, the crude supply cover edged down from 30.5 days in the previous week to 30.4 days. In the year-ago period, the supply cover was 31.9 days.
Let’s turn to the products now.
Gasoline: Gasoline supplies decreased for the fifth time in as many weeks. The 4.5-million-barrel draw was primarily attributable to a surge in demand. Analysts had forecast that gasoline inventories would drop 2.3 million barrels. At 239.7 million barrels, the current stock of the most widely used petroleum product is 0.7% more than the year-earlier level, while it is 2% lower than the five-year average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) fell for the seventh successive week. The 4.1-million-barrel drop mainly reflected healthy demand and exports. Meanwhile, the market looked for a supply draw of 800,000 barrels. Following last week’s decrease, current inventories — at 117 million barrels — are 4.3% below the year-ago level, while it is 10% lower than the five-year average.
Refinery Rates:Refinery utilization, at 84.9%, rose 3.4% from the prior week.
3 Energy Stocks to Buy
Having gone through the Weekly Petroleum Status Report, investors interested in the energy sector might consider operators like Valaris Limited, Murphy USA and Sunoco LP. Each of these companies currently carries a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Valaris Limited: The 2024 Zacks Consensus Estimate for VAL indicates 324.1% year-over-year earnings per share growth.
Valaris is valued at around $4.8 billion. VAL has seen its shares fall 12.8% in a year.
Murphy USA: Murphy USA beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed in the other. It has a trailing four-quarter earnings surprise of 13.6%, on average.
Murphy USA is valued at around $8.7 billion. The company has seen its shares surge 61.2% in a year.
Sunoco LP: The 2024 Zacks Consensus Estimate for SUN indicates 34% year-over-year earnings per unit growth.
Sunoco is valued at around $6.2 billion. SUN has seen its units rise 33.7% in a year.
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Textron Inc. (TXT) : Free Stock Analysis Report
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Sunoco LP (SUN) : Free Stock Analysis Report
Murphy USA Inc. (MUSA) : Free Stock Analysis Report
RCI Hospitality Holdings, Inc. (RICK) : Free Stock Analysis Report
