World Acceptance and Foot Locker have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – July 19, 2023 – Zacks Equity Research shares World Acceptance Corporation WRLD as the Bull of the Day and Foot Locker, Inc. FL as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Visa V, Mastercard MA and PayPal PYPL.
Here is a synopsis of all five stocks.
Bull of the Day:
World Acceptance Corporation, a Zacks Rank #1 (Strong Buy), has staged a remarkable turnaround this year amid improving lending prospects. The stock is breaking out to the upside after bottoming out late last year. A surge near 52-week highs reflects the underlying momentum that appears set to continue in the months ahead. Shares are displaying relative strength as buying pressure accumulates in this highly-ranked company.
WRLD stock sports the second-highest overall Zacks VGM Style Score of ‘B’, indicating further upside is likely based on promising value, growth and momentum metrics. The company is part of the Zacks Financial – Consumer Loans industry group, which ranks in the top 12% out of more than 250 Zacks Ranked Industries.
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
World Acceptance is engaged in the consumer finance business in the United States. The lender offers short-term small installment loans, medium-term larger installment loans, related credit insurance, and ancillary products and services to individuals.
The company also provides income tax return preparation and filing services, as well as automobile club memberships. It serves individuals with limited access to other sources of consumer credit such as banks, credit unions, and credit card lenders. World Acceptance was founded in 1962 and is headquartered in Greenville, SC.
Earnings Trends and Future Estimates
WRLD has built up an impressive earnings history, surpassing earnings estimates in three of the last four quarters. Back in May, the company reported fiscal fourth-quarter earnings of $1.97/share, a 32.21% surprise over the $1.49/share consensus estimate. Consistently beating earnings estimates is a recipe for outperformance.
Analysts have grown increasingly bullish in terms of earnings estimates. Full-year estimates have been raised by 40.75% in the past 60 days. The Zacks Consensus EPS Estimate for the current fiscal year now stands at $11.26/share, reflecting potential growth of 212.78% relative to the previous year.
Let’s Get Technical
WRLD shares have advanced over 115% this year alone. The stock has been making a series of higher highs on increasing volume and is now approaching the coveted 52-week high mark. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
The stock has been widely outperforming the major indexes. With both strong fundamentals and technicals, WRLD is poised to continue its bullish run.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, World Acceptance has recently witnessed positive revisions. As long as this trend remains intact (and WRLD continues to deliver earnings beats), the stock will likely continue its surge this year. Despite the impressive performance, WRLD currently trades at just a 12.47 forward P/E.
Bottom Line
Improved lending prospects should continue to provide a tailwind for the stock price. WRLD is ranked favorably by our Zacks Style Score Categories, with a ‘B’ for Value and an overall ‘B’ VGM score. Increasing volume at recent breakout levels is another bullish sign.
Robust fundamentals combined with a strong technical trend certainly justify adding shares to the mix. Backed by a leading industry group and an impressive history of earnings beats, it’s not difficult to see why this company is a compelling investment. Investors would be wise to consider WRLD as a portfolio candidate.
Bear of the Day:
Foot Locker, Inc. operates as a global footwear and apparel retailer. The company’s brand portfolio includes Foot Locker, a youth culture brand consisting of sneakers and apparel; Kids Foot Locker, which offers athletic footwear, apparel and accessories for children; and Champs Sports, a mall-based specialty retailer. Foot Locker also provides its products under the WSS and atmos brands through various e-commerce sites and mobile apps.
The Zacks Rundown
FL, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Retail – Apparel and Shoes industry group, which ranks in the bottom 24% 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 three months.
Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poorly-performing 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.
Foot Locker has failed to gain a spring in its step, and the stock is agreeing with this notion. FL stock experienced a climax top in February of this year and has been in a price downtrend ever since. The share price is hovering near 52-week lows, all while the general market has rebounded sharply.
Recent Earnings Miss and Deteriorating Outlook
Foot Locker fell short of the earnings mark in the most recent announcement. The footwear and apparel company reported first-quarter earnings back in May of $0.70/share, missing the $0.78/share consensus EPS estimate by -10.26%. The stock gapped down following the release and has failed to gain any traction ever since.
FL has been on the receiving end of negative earnings estimate revisions as of late, with analysts slashing estimates across the board. For the second quarter, analysts have decreased estimates by 92.86% in the past 60 days. The Q2 Zacks Consensus EPS Estimate is now $0.04/share, reflecting a -96.36% decline relative to the same quarter last year.
For the year, analysts have also revised their EPS estimates downward by 40.29% in the past 60 days. The 2023 Zacks Consensus Estimate is now $2.09/share, translating to negative growth of -57.78%. Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
Technical Outlook
As illustrated below, FL stock is in a sustained downtrend. Notice how the stock has plunged below both the 50-day and 200-day moving averages signaled by the blue and red lines, respectively. The stock is hovering near 52-week lows, with no respite from the selling in sight. Also note how both moving averages have rolled over and are sloping down – another good sign for the bears.
While not the most accurate indicator, FL has also experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average crosses below its 200-day moving average. FL would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. The stock has fallen nearly 29% this year alone. When a stock is falling while the general market is rallying, it’s telling us that it’s extremely weak.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to sprint to new highs anytime soon. The fact that FL is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A recent earnings miss and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
Potential investors will want to avoid this stock, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of Foot Locker until the situation shows major signs of improvement.
Additional content:
3 Payment Stocks Gaining from Improving Consumer Sentiment
Americans, at present, are feeling much more confident about their welfare. They feel financially secure, and a few are anxious about an imminent economic slump.
After all, the preliminary reading of the University of Michigan’s consumer sentiment index came in at 72.6 in July from June’s reading of 64.4, the largest climb since December 2005. What’s more, the sentiment index is now at its highest level since September 2021.
The report further stated that Americans’ views on current economic conditions climbed to 77.5 in July from a June reading of 69. At the same time, the gauge of consumers’ expectations rose to 69.4 in July from 61.5 in the prior month.
Sentiment improved as prices of gasoline remained unchanged this summer. Most importantly, a strong labor market and a slowdown in inflation consistently boosted consumer sentiment.
The U.S. labor market may have reported a lesser number of job additions in June compared to May, but it’s still above analysts’ expectations. The unemployment rate continues to hover below the coveted 4% mark and average hourly earnings continue to increase.
On the other hand, the annual rate of increase in the prices of indispensable commodities dropped to its lowest level in more than two years in June. A decline in airfares and prices of used cars dragged price pressures down for the 12th consecutive month in June. Inflation, in this day and age, has more than halved from the 40-year high it touched last year (read more: 5 Solid Stocks to Gain on Signs of Inflation Cooling Down).
Now, with consumer sentiment soaring amid steady wage growth, a lower jobless rate, and cooling inflation, household outlays are set to improve. The renewed strength in consumer spending, meanwhile, is beneficial for certain companies like payment processors.
These companies are involved in financial transactions between consumers and merchants and automatically stand to gain in an environment of increasing consumer spending. We have, thus, selected three payment stocks worth a look at as they are poised to show long-term gains in line with an increase in consumer outlays.
Visa is a payment technology company that operates across the globe. Investments in digital technology and a healthy cash inflow are some of the tailwinds for Visa.
The company’s expected earnings growth rate for the current year is 14.5%. Visa’s estimated earnings growth rate for the next five-year period is 15.2%. V shares have already gained 15.4% over the past five years. The Zacks Consensus Estimate for its current-year earnings has moved up 0.1% over the past 60 days. Visa, currently, carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Mastercard is another global payment solutions company, whose constant initiatives to upgrade technologies and diversify products promise long-term growth.
The company’s expected earnings growth rate for the current year is 14.6%. Mastercard’s estimated earnings growth rate for the next five-year period is 17.5%. MA shares have already gained 16.4% over the past five years. The Zacks Consensus Estimate for its current-year earnings has moved up 0.5% over the past 90 days. Mastercard, currently, has a Zacks Rank #3 (Hold).
PayPal is also involved in providing online payment solutions to customers and merchants. The increase in payment volumes, at the moment, is benefiting PayPal.
The company’s expected earnings growth rate for the current year is 19.9%. PayPal’s estimated earnings growth rate for the next five-year period is 17.5%. PYPL shares have already gained 16.1% over the past five years. The Zacks Consensus Estimate for its current-year earnings has moved up 0.8% over the past 90 days. PayPal, currently, carries a Zacks Rank #3.
Shares of Visa, Mastercard, and PayPal, by the way, have gained 17.4%, 15.7%, and 3.2%, respectively, so far this year.
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Mastercard Incorporated (MA) : Free Stock Analysis Report
Visa Inc. (V) : Free Stock Analysis Report
World Acceptance Corporation (WRLD) : Free Stock Analysis Report
Foot Locker, Inc. (FL) : Free Stock Analysis Report
PayPal Holdings, Inc. (PYPL) : Free Stock Analysis Report
