Trex and MasterCraft have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – September 11, 2023 – Zacks Equity Research shares Trex Company TREX as the Bull of the Day and MasterCraft Boat Holdings, Inc. MCFT as the Bear of the Day. In addition, Zacks Equity Research provides analysis on The Goldman Sachs Group, Inc. GS, UBS Group AG UBS and The Charles Schwab Corp. SCHW.
Here is a synopsis of all five stocks.
Bull of the Day:
Trex Company is seeing resilient consumer demand in 2023. This Zacks Rank #1 (Strong Buy) has beat on earnings 3 quarters in a row.
Trex is a manufacturer of high-performance, low maintenance and eco-friendly wood-alternative decking and railing. Its products are stocked in more than 6,700 retail locations worldwide, including at Home Depot and Lowe's.
A Big Earnings Beat in the Second Quarter
On July 31, 2023, Trex reported its second quarter results and easily blew by the Zacks Consensus, reporting earnings of $0.71 versus the Zacks Consensus of $0.54. That's a 31.5% beat.
It was the third consecutive earnings beat in a row. Trex has only missed twice in the last 5 years.
Revenue was $357 million, which was down 5% from last year's revenue of $386 million as the channel was building inventory. It saw margin expansion, however, with gross margin of 43.9% compared to 40.7% a year ago.
Trex saw mid-single digit growth in the channel sell through as consumer demand remained resilient.
The company also launched Trex Select T-Rail system, a value priced composite railing that rounds out its portfolio at the entry level. It is designed to compete with PVC vinyl railing.
Announced Full Year Guidance
Trex has improving visibility so it was finally able to provide full year 2023 revenue guidance. It expects revenues to range from $1.04 billion to $1.06 billion. This is below last year's revenue of $1.11 billion. It's still rebounding from last year's inventory build.
The analysts are more bullish, however, as the Zacks Consensus is calling for $1.08 billion, above the company's guidance range.
The analysts are also bullish on earnings as well. 9 estimates were revised higher in the last 2 months which pushed the Zacks Consensus up to $1.76 from $1.61. This is still 2.2% below last year's earnings of $1.80, however.
But looking forward, the analysts are even more bullish on 2024 as the Zacks Consensus has jumped to $2.11, which is earnings growth of 19.7%.
Trex Was a Big Pandemic Winner
As we stayed home during the pandemic, what did we do? We put on new decks. Trex was a huge pandemic winner as its shares soared.
But in 2022, the stock sold off along with the other growth stocks, only to rally again in 2023. Shares of Trex are up 59% year-to-date as the consumer has kept spending and the US has avoided a recession. But on a 2-year stack, it's still down 40%.
Timing matters.
Trex saw an opportunity while its shares were lower. In the second quarter, Trex repurchased 264,896 shares for $16 million.
On a P/E basis, Trex is not a "cheap" stock. It trades with a forward P/E of 39.1.
But for those investors who believe that the consumer will continue to spend on their home, Trex is one to keep on your short list.
Bear of the Day:
The boom times are over for MasterCraft Boat Holdings, Inc. This Zacks Rank #5 (Strong Sell) is expecting to see a dramatic decline in earnings and sales in Fiscal 2024.
MasterCraft designs and manufactures recreational powerboats through three brands: MasterCraft, Crest and Aviara. It has two segments of the powerboat industry, performance sport boats and pontoon boats, while also entering the luxury day boat segment.
Retail Sales Slowed in Fiscal Q4 2023
On Aug 30, 2023, MasterCraft reported its fiscal fourth quarter 2023 and full year 2023 results. The pandemic was a catalyst for the boating industry as consumers bought boats during the lock downs to be outdoors.
Fiscal 2023 was the third consecutive record year for earnings and sales for the company. It was also the most profitable fiscal year in the Company's history as net sales rose to $662 million, up 3.2% over the prior year.
It saw the highest cash flow in the company's history at $134 million. Times were good.
MasterCraft also beat on the fiscal fourth quarter for the 13th time in a row. It reported earnings of $1.37 versus the Zacks Consensus of $1.08.
It has an excellent earnings surprise track record with just one miss in the last 5 years.
But as the fourth quarter progressed, MasterCraft saw retail sales slow significantly. It reduced production plans but dealer inventories at the end of fiscal 2023 were at higher levels than the company would consider optimal.
Fiscal 2024 Guidance Was Below Consensus
“Macroeconomic factors, including elevated interest rates as well as tightening credit standards and availability, are creating significant uncertainty which is limiting our retail demand visibility," said Fred Brightbill, CEO.
"In addition, the general expectation for an economic downturn during fiscal 2024 will likely be a headwind for the industry."
As a result, it guided net sales to be between $390 million and $420 million, well under the $662 million it made in fiscal 2023.
The earnings guidance was in the range of $1.46 to $1.88, well below the consensus of $4.03.
As a result, the analysts have had to slash their earnings and sales estimates. 5 earnings estimates have been cut since the Q4 earnings report which has pushed the Zacks Consensus down to $1.81.
That's at the high end of the company's guidance range, but it is still 66.2% below the record $5.35 the company made last year.
Shares Plunge in the Last Month
With earnings and sales expected to fall sharply in fiscal 2024, it's not surprising that the shares fell on the news. They're down 22.4% in the last month.
Over the last year, they're up, but just 0.7%. Will they re-test the Sep 2022 lows soon?
Shares are cheap, with a forward P/E of 11.8.
With the record free cash flow, the company has been buying back shares. MasterCraft bought back $22.9 million in shares in fiscal 2023.
But with the possibility of a recession looming, investors should probably stay away from this boat manufacturer until there is visibility on the consumer.
Additional content:
Goldman Sachs Plans New Round of Job Cuts
The Goldman Sachs Group, Inc. is planning another wave of job cuts that could take place as soon as next month, per Financial Times article.This is a part of its yearly practice of letting go of those employees who are deemed to be the lowest performers.
The expected move usually affects between 1-5% of GS’ total staff. It is aiming to cut jobs at the lower end of the range, primarily in its main business divisions like investment banking and trading.
Markedly, GS has undergone a minimum of three phases of layoffs since last September. These initiatives are part of the company's deep cost-savings drive amid slump in deal making activity.
Reportedly, in June 2023, Goldman announced job cuts of more than 30 IB positions across the Asia region and considered firing around 125 managing directors across the globe.
Further, during the first quarter of 2023, GS trimmed its headcount by 3,200, marking its biggest round of layoffs since 2008 financial crisis. In September last year, the company also announced an employment reduction of about 500 jobs.
Goldman’s shares have lost 4.2% in the past three months against the industry’s growth of 2.6%.
GS presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
Similar to Goldman, UBS Group AG and The Charles Schwab Corp. have been reducing their workforce.
Reportedly UBS is expected to cut around 3,000 jobs in Switzerland in the upcoming period. It had been planning on workforce reduction at Credit Suisse post its acquisition in order to save costs. UBS expects that during the integration of Credit Suisse more staff would leave on their own accord.
Such job cuts are being planned by UBS as it aims to achieve gross cost reductions of more than $10 billion by the end of 2026.
SCHW announced a business streamlining plan as part of its cost-saving measures. Per the filing with the Securities and Exchange Commission, the company will slash jobs and close or downsize its corporate offices with an aim to achieve at least $500 million in annual cost savings.
In addition to cost efficiencies associated with the integration of TD Ameritrade (acquired by SCHW in October 2020), the above-mentioned action is a step taken to simplify its business to better prepare for the post-integration period.
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The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
UBS Group AG (UBS) : Free Stock Analysis Report
The Charles Schwab Corporation (SCHW) : Free Stock Analysis Report
Trex Company, Inc. (TREX) : Free Stock Analysis Report
MASTERCRAFT BOAT HOLDINGS, INC. (MCFT) : Free Stock Analysis Report
