Vertiv and Ashland have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – August 25, 2023 – Zacks Equity Research shares Vertiv VRT as the Bull of the Day and Ashland Inc. ASH as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Solaris Oilfield Infrastructure SOI, CVR Energy CVI and Helix Energy Solutions Group HLX.
Here is a synopsis of all five stocks:
Bull of the Day:
Vertiv crushed Q2 earnings in early August, confirming the significance of its nearly four-month stay on the Zacks #1 Rank list. The stock has put up an incredible performance, returning 160% YTD and 137% since being upgraded to a top Zacks Rank.
Vertiv is a global provider of critical digital infrastructure and services, offering solutions for data centers, communication networks, and commercial and industrial facilities. The company specializes in designing, building, and servicing essential technologies that enable its customers to effectively manage and optimize their digital operations.
As organizations increasingly rely on digital infrastructure, Vertiv plays a vital role in ensuring the uninterrupted operation of critical systems and applications. Furthermore, as data centers cement a critical role in the Artificial Intelligence revolution, Vertiv is assured to be a beneficiary of the boom.
Earnings Go Vertical
During its recent earnings report, Vertiv posted some truly impressive results. Q2 sales of $1.74 billion beat estimates by 7.3% and marked a 24% YoY increase. Additionally, EPS of $0.46 came in handily above analysts' expectations of $0.29 and demonstrated a more than 400% YoY increase.
Furthermore, adjusted operating margins of 14.5% expanded 860 basis points YoY, and management raised FY23 sales, earnings, and free cash flow guidance. CEO Giordano Albertazzi credited a few factors for the exciting performance; a strong rebound in the data center industry, hyper focus on operational execution, and growth acceleration due to the rapidly increasing demand for compute capacity driven by AI.
Vertiv's earnings estimates have been climbing higher over the last two months, demonstrated by its Zacks Rank #1 (Strong Buy) rating. Current quarter earnings estimates have been revised higher by 30.3% and are projected to increase 87% YoY to $0.43 per share. FY23 estimates have been boosted by 28.2% and are forecast to grow 200% YoY to $1.59.
Additionally, sales for the current quarter are expected to expand 18.4% to $1.75 billion, while FY23 sales are expected to grow 20% YoY to $6.8 billion.
Reasonable Valuation
Even with such stunning sales and earnings growth, Vertiv trades at a very fair valuation. VRT is trading at a one year forward earnings multiple of 22.4x, which is below the industry average of 35.3x, and above its three-year median of 20.7x.
It should also be noted that VRT makes a point to prioritize growing its free cash flow, which is a rarity in young technology companies. Annual FCF has increased from $10 million in 2019 to $371 million today.
Bottom Line
Vertiv is a standout stock with very strong near and long-term potential. With massive secular tailwinds in the data center and technology sector, a reasonable valuation, responsible management and very strong business economics, VRT is likely to put up durable stock performance going forward.
Bear of the Day:
Ashland Inc., a specialty chemical company, is underperforming the market and experiencing earnings downgrades due to industry headwinds. Ashland Inc sales fell -15% YoY as customers de-stocked inventory due to macroeconomic uncertainty, while tight raw materials supply increased costs.
This challenging environment is showing up in earnings misses, a declining stock price, and earnings estimates that continue to roll over, giving ASH a Zacks Rank #5 (Strong Sell) rating.
Sales Sliding
Sales and earnings have been falling at Ashland for some time, and the stream of recent challenges it faces only exacerbate that trend. Annual sales have been steadily declining over the last ten years, dropping from $6.5 billion to $2.3 billion today. It looked like 2020 may have been the trough, though the current situation lends to the possibility of new lows for revenue.
That being said, EPS have not declined nearly as much as sales. Over the last ten years EPS has fallen from $6.00 to $5.09, indicating that they have significantly improved profitability even with the lower sales. Nonetheless, near-term challenges mean the stock should be avoided until there is a material improvement in earnings estimates.
Earnings Estimates Crater
Current quarter earnings estimates have been downgraded by -41% over the last two months and are expected to fall 29.4% YoY to $1.03. Additionally, FY23 estimates have been revised lower by -21% and are forecast to fall -18.3% YoY to $4.66 per share.
Sales are also projected to fall in the current quarter, next quarter and FY23, however they are expected to rebound in FY24 with a 5% YoY gain.
Valuation
ASH is trading at a one year forward earnings multiple of 18.2x, which is below the industry average of 22.9x, and below its five-year median. While this is a relatively fair valuation, falling sales growth and macroeconomic headwinds mean it is still too high.
Bottom Line
Ashland Inc. is by no means a business that I expect to disappear. The company provides goods for an array of industries, has a dividend payment it regularly increases, and steadily repurchases shares. However, in the near-term, falling earnings estimates and shifting economic trends make the situation far too uncertain to consider investing in the stock.
While I think there is a path where ASH turns the business around, now is not the time to expect that to materialize and thus investors should look for opportunities elsewhere in the market.
Additional content:
EIA Reports a Big Draw in Oil Stocks as Refinery Runs Pick Up
U.S. oil prices fell yesterday on concerns over China's demand and the possibility of more rate hikes in the near future. However, a weekly report from the Energy Information Administration ("EIA") showing a bigger-than-expected decline in crude stockpiles helped to ease some worries over the commodity's demand outlook.
On the New York Mercantile Exchange, WTI crude futures lost 75 vents (or 0.9%) to close at $78.89 a barrel yesterday.
Despite oil's slide, it remains around $80 per barrel – a healthy enough level for market participants. In fact, investors interested in the sector could benefit from having quality stocks like Solaris Oilfield Infrastructure, CVR Energy and Helix Energy Solutions Group.
Let's dig deep into the Energy Information Administration's ("EIA") Weekly Petroleum Status Report for the week ending Aug 18.
Analyzing the Latest EIA Report
Crude Oil: The federal government's EIA report revealed that crude inventories fell 6.1 million barrels compared to expectations of 4.24 million barrels decrease per the analysts surveyed by S&P Global Commodity Insights. The stockpile draw with the world's biggest oil consumer was largely thanks to rising U.S. refinery runs that reached 16.78 million barrels per day last week, the highest in more than three and a half years. This more than offset the spike in domestic production, which, at 12.8 million barrels per day, was the most since March 2020.
Total domestic stock now stands at 433.5 million barrels — 2.8% more than the year-ago figure but 2% lower 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) dropped 3.1 million barrels — the biggest in nearly two years — to 30.7 million barrels.
Meanwhile, the crude supply cover decreased from 26.5 days in the previous week to 26 days. In the year-ago period, the supply cover was 25.9 days.
Let's turn to the products now.
Gasoline: Gasoline supplies increased for the first time in three weeks. The 1.5-million-barrel addition was attributable to higher production and imports. Analysts had forecast that gasoline inventories would fall 1.15 million barrels. At 217.6 million barrels, the current stock of the most widely used petroleum product is marginally (0.9%) more than the year-earlier level, while it is 5% below the five-year average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) rose for the second week in a row. The 945,000-barrel increase primarily reflected an increase in production. Meanwhile, the market looked for an unchanged supply level. Following last week's build, current inventories — at 116.7 million barrels — are 4.6% above the year-ago level but 16% lower than the five-year average.
Refinery Rates: Refinery utilization, at 94.5%, ticked down 0.2% from the prior week.
3 Energy Stocks to Buy
Having gone through the Weekly Petroleum Status Report, investors interested in the energy space might consider the operators mentioned below. These companies currently sport a Zacks Rank #1 (Strong Buy).
You can see the complete list of today's Zacks #1 Rank stocks here.
Solaris Oilfield Infrastructure: SOI beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters at an average of 18.8%.
SOI is valued at around $477.3 million. Solaris Oilfield Infrastructure has seen its shares move down 5.9% in a year.
CVR Energy: CVI beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. Over the past 30 days, CVR Energy saw the Zacks Consensus Estimate for 2023 move up 32.8%.
CVR Energy is valued at around $3.5 billion. CVI has seen its shares lose 1.2% in a year.
Helix Energy Solutions Group: Over the past 30 days, Helix Energy Solutions Group saw the Zacks Consensus Estimate for 2023 move up 4.3%. The 2023 Zacks Consensus Estimate HLX indicates 200% year-over-year earnings per share growth.
Helix Energy Solutions Group is valued at around $1.4 billion. HLX has seen its shares surge 114.6% in a year.
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Ashland Inc. (ASH) : Free Stock Analysis Report
CVR Energy Inc. (CVI) : Free Stock Analysis Report
Helix Energy Solutions Group, Inc. (HLX) : Free Stock Analysis Report
Solaris Oilfield Infrastructure, Inc. (SOI) : Free Stock Analysis Report
Vertiv Holdings Co. (VRT) : Free Stock Analysis Report
