Winnebago, IBM, Facebook and PetMed Express highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – October 26, 2021 – Zacks Equity Research Shares of Winnebago Industries, Inc. WGO as the Bull of the Day, International Business Machines Corporation IBM as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Facebook, Inc. FB and PetMed Express, Inc. PETS.
Here is a synopsis of all four stocks:
Bull of the Day:
Winnebago Industries is a Zacks Rank #1 (Strong Buy) that is a leading producer of recreational vehicles (RVs). The stock has recently pulled back after supply chain issues brought weakness to the sector. However, recent earnings have shown the company can outperform during the challenging atmosphere.
More About WGO
The company was founded in 1958 and is headquartered in Forest City, Iowa. Winnebago employs over 5,500 people and sell its products through independent dealers in the United States, Canada and internationally.
The company is valued at $2.2 billion and pays a 1% dividend. It operates in six segments that focus on towable products, motorhomes, boats and specialty vehicles.
WGO has Zacks Style Scores of “A” in Value, Growth and Momentum. The Forward PE is just under 8, which makes it attractive to value investors.
Backlog and Supply Chain Worries
The supply chain has been a big problem for certain sectors and the RV makers are experiencing a challenging atmosphere. Both Thor Industries and Winnebago have seen record demand since the COVID pandemic begun. The main issue isn’t on the consumer side, but rather a problem of manufacturing the campers fast enough.
While the backlog continues to grow, the company is seeing rapid sell-through of inventories they provide to dealers. Winnebago credits its operational excellence, which has helped them deliver for both consumers and dealer partners efficiently and profitably.
Earnings Beat
Just last week, Winnebago reported Q4 earnings, seeing a 30% surprise to the upside. Revenues came in at $1.04B v the $936 million expected and gross margins were up 150 basis points y/y.
Motorhome deliveries came in at 2.97k v the 2.28k last year and motorhome revenue was up 49% year over year. The backlog increased to 18.2k v the 9.8k last year.
CEO Michael J. Happe had some comments on the year ahead:
"We look forward to continuing our momentum into Fiscal 2022 through a continued focus on quality, service and innovation as well as an expanded portfolio of high-quality outdoor lifestyle products that empower our customers to have extraordinary outdoor experiences as they travel, live, work and play.”
Estimates Rising
The strong earnings helped analysts take numbers higher across all-time frames. For next quarter, estimates have from $2.04 to $2.40 over the last 7 days, a hike of 18%. For the current year, we see a 10% jump in estimates for that same time frame.
A couple analysts have also raised price targets since earnings:
BMO Capital has WGO at an Outperform, raising its target from $100 to $115.
Wedbush has an Outperform rating and a $94 target.
The Technical Take
The stock has been weak since earnings. This has been a theme in the industry as Thor Industries also saw a strong quarter, but then sold off. The bears point to the supply chain, but technically the stock is still in a long-term trend higher.
While WGO is below all moving averages, it is basically flat on the year. The MA’s will be resistance going forward, but if the bulls can get the stock above those levels, we could see the recent trend turn positive. Look for the $73 level to be the short-term bull/bear line in the sand.
If the stock were to trade lower on market weakness, look for the $60-62 area as support. This zone held up over the summer and is the 61.8% Fibonacci retracement buy zone, which can be found by drawing November lows to March highs.
In Summary
Travel might have been changed permanently by the pandemic as more consumers came to market for RVs. While the current situation surrounding the backlog and supply chain makes the business challenging, Winnebago continues to beat expectations.
Investors should monitor this supply chain risk, but also view any dip in the stock as a long-term opportunity as the backlog gets sorted out in 2022.
Bear of the Day:
International Business Machines is a Zacks Rank #5 (Strong Sell) that provides integrated solutions and services worldwide. The company has transformed its focus into data and cloud, but still provides advanced information technology solutions, computer systems, quantum computing and super computing solutions, enterprise software, storage systems and microelectronics.
The stock has been hot since the beginning of the year, at one point up over 20%. However, after making a move over $150, the stock traded sideways until it fell off a cliff last week.
The reason was a big miss on earnings. Now investors are worried that it might be another lost year for IBM.
About the Company
IBM is headquartered in Armonk, NY and employs over 345,000 people. The company was founded in 1911 and is a leader in patent wins. In 2020 they maintained the lead spot for the 28th year, with 9,130 patents.
IBM is valued at $115 billion and has a Forward PE of 12. The company holds a Zacks Style Score of “D” in Growth, but “B” in both Value and Momentum. The company also pays a 5% dividend.
Q3 Earnings
The company reported earnings last week, seeing EPS at $2.52 v the $2.49 expected. Revenues came in below expectations after legacy computer services disappointed. Guidance also was a drag, with the company expecting mid-single-digit growth and lower margins.
The stock had a severe sell off, gapping lower and closing lower by almost 10%. Investors might be in store for more pain, as analysts are dropping estimates.
Estimates
The recent quarter was followed by a drop in estimates across all time frames. Over the last 7 days, the current quarters numbers have fallen from $4.22 to $3.80, or 10%. For the current year, estimates have fallen about 9% over that same time frame.
The momentum the company saw earlier this year is now gone, so investors should be cautious with the stock into next year.
Technical Take
IBM is trading well below its 200-day moving average after the earnings move lower. Now over 15% off its 2021 highs, the stock is threatening to go red on the year.
Considering the S&P is up over 20% this year, investors might start to give up on IBM if the stock falls below $125.
The dividend will offer support and the $120 level is a long-term support area. However, if this spot fails, look for a move to the $100 level.
In Summary
Expect IBM to struggle after this recent earnings report. After losing its 2021 gains, investors now look at another lost year and negative returns. The 5% plus dividend will bring in buyers as the stock goes lower, but there are plenty of places to put money that offer more opportunity.
Additional content:
Facebook (FB) Mixed on Troubled Quarter, PETS Misses
Another healthy start to a new trading week as Q3 earnings season gears up to full-throttle this week and next. Roughly a quarter of the way through reporting on the S&P 500 when this week began, by the end of next week we’ll have a clear sense of Q3’s overall performance. The Dow hit a fresh all-time closing high: +673 points (+0.19%) to 35,744. The S&P did even better, +0.48% on the day. The Nasdaq doubled that performance to +0.90% and the Russell 200 took the day: +0.93%.
Facebook released mixed results in its Q3 report after the bell yesterday: earnings beat by 2 cents in the quarter to $3.22 per share, and up nearly +20% from year-ago earnings, on revenues of $29.01 billion which missed the Zacks consensus $29.55 billion. It’s still better than 30% growth year over year, but missing sales numbers is never ideal for a growth company.
Daily Active Users (DAU) were right in-line with estimates at 1.93 billion, while Monthly Active Users (MAU) actually missed by a tad: to 2.91 billion from 2.93 billion anticipated. The company itself blamed issues related to Apple iOS privacy changes, but what this narrative seems to articulate is that Facebook is growing its core businesses — Facebook, Messenger, Instagram and What’s App — at a slower rate than previously.
For this reason, the company is setting up a new reporting system in future quarters: revenue numbers for its core businesses will now be kept separate from its new Facebook Reality Labs businesses. This new segment is likely where much investment is going to take place with the idea that this is where the company’s future growth will stem. Facebook is also under attack from former internal sources regarding policy choices made at the company in recent years. It would be difficult to cite a social media firm going through the wringer as painfully as Facebook is at this moment.
It wasn't keeping late traders from picking up Facebook shares, however. The graph looks like a parabolic shift back toward early-September highs, as the stock was up nearly +4% in the after-market. Shares already had been +22% year to date — no sell-the-news here, even with Facebook having lowered its revenue guidance for next quarter to $31-34 billion. The Zacks consensus had been for $34.78 billion in sales next quarter earlier.
Petmed Express, on the other hand, was -4.4% in late trading Monday, giving up its daily gains and then some on its fiscal Q2 report which missed on both top and bottom lines: earnings of 31 cents per share missed the Zacks consensus by 3 cents (and well off the year-ago pace of 42 cents per share — PETS was a pandemic winner, relatively, a year ago), and sales of $67.4 million was well below the $70.9 million expected. Shares of PETS had already been down nearly -15% year to date.
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