For Immediate Release
Chicago, IL – February 28, 2023 – Zacks Equity Research shares W.W. Grainger GWW as the Bull of the Day and Southwest Airlines LUV as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Tapestry, Inc. TPR, Conagra CAG and General Mills, Inc. GIS.
Here is a synopsis of all five stocks.
Bull of the Day:
Incorporated in 1928, Illinois-based Zacks Rank #1 stock (Strong Buy) W.W. Grainger is a distributor of maintenance, repair, and operating (MRO) products and services. Its products include material-handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies, and metalworking tools. Grainger’s largest market is North America; however, the company has expanded internationally to Asia, Europe, and South America. The company serves a broad swath of clientele, including the commercial, manufacturing, government, and transportation industries.
Q4 Earnings Summary
Grainger reported strong earnings, growing sales, and expanding margins in early February. Adjusted earnings per share (EPS) of $7.14 in Q4 2022, beating the Zacks Consensus by a margin of 2%. The bottom line improved by 31% year-over-year. Sales rose ~17% year-over-year amid solid new customer acquisition numbers.
Fundamental Highlights include:
EPS Growth: GWW’s earnings grew 33% year-over-year in Q4 2022. Grainger has benefitted from volume growth in its two primary businesses: High Tech Solutions and Endless Assortment.
Surprise History:Grainger consistently beats consensus analyst expectations. The company has rewarded investors with positive earnings surprises for six straight quarters.
On average, GWW bests consensus estimates by ~9%.
Efficient Business: Grainger is seeing larger margins due to rising profits from its pandemic-related products, lower freight costs, and its ability to navigate supply-chain challenges. From a return on equity perspective (ROE), GWW is one of the strongest companies on Wall Street. GWW boasts an ROE of 60.13 – a staggering number compared to the Industrial Services industry average of 5.53%.
Past Performance: Adjusted EPS surged 49.5% year-over-year to $29.66 in 2022, surpassing the Zacks Consensus Estimate of $29.47. Including one-time items, EPS was $30.06 in 2022 compared with $19.84 in 2021. The top line beat the Zacks Consensus estimate of $15.19 billion. Sales were up 19.3% on a daily, constant currency basis.
Rosy Outlook: Consensus analyst estimates show that analysts are becoming more bullish on GWW earnings picture. Because of this, GWW earns a Zacks #1 Rank, putting it in the top 5% of stocks tracked by Zacks.
Technical Picture: Following the Q4 EPS release, GWW shares bolted higher by 13% on volume more than double the norm – a bullish sign of accumulation. Since then, shares have been consolidating in a bull flag.
A break out above the recent high will present investors with an attractive reward-to-risk zone.
Bear of the Day:
Based in Dallas, TX, Southwest Airlines is a low-cost airline provider mainly servicing the United States and “ten near-international” markets. Southwest provides short-haul, high-frequency, point-to-point, low-fare services. The company’s point-to-point route structure includes services to and from many secondary or downtown airports such as Dallas Love Field, Houston Hobby, Chicago Midway, Baltimore-Washington International, and Ft-Lauderdale-Hollywood.
Low Cost = Low Performance
Low-cost carriers like Spiritand Southwest have been dramatically underperforming their larger peers such as United.
What’s Behind the Underperformance?
Unprofitable and moving in the wrong direction: In Q4, Southwest Airlines swung to a loss for the first time in three quarters. The 38-cent loss was wider than the Zacks Consensus Estimate of 3 cents. Adding to the disappointment, Southwest earned 14 cents a year ago.
Operational Disruptions: Massive flight cancellations due to extreme winter weather conditions adversely impacted Southwest’s operations. Because Southwest is more focused on one part of the globe when compared to its larger counterparts, the company suffered more. Nearly 17,000 flights were cancelled in the last ten days of 2022 – equating to a pre-tax negative impact of approximately $800 million.
In-Fighting & Bad Publicity: Southwest is known and loved by its customers because of the laid-back nature of its flight attendants and employees. This laissez faire attitude is that Southwest management has found that many customers appreciate a less stuffy environment. However, that may change soon.
Southwest management and some 18,000 union workers have been in a contract dispute for months. In an era where workers are in high demand, this is not an encouraging sign for Southwest. Until management and the union come to an agreement, the stock is likely to be under pressure. Furthermore, even if an agreement is reached, the low-cost carrier will likely face reputational damage and low employee morale.
Margins Being Squeezed: Rising fuel and labor costs are causing Southwest’s financial efficiency to take a significant hit. In fact, LUV’s return-on-equity of 6.7% pales in comparison to the S&P 500 Index’s 26.2%.
Relative Weakness: When it comes to the stock market, price action = truth. Over the past six months, United Airlines is up 41.0%, while Southwest is down 10.4%
Prospective airline investors should avoid low-cost carriers, such as Southwest and instead opt for larger players such as United Airlines. Southwest has slower growth, shrinking margins, and notable reputational damage to contend with. Furthermore, the price action is disheartening when compared to the market and the airline group.
E-Commerce Sales to Hit New Highs: 3 Stocks to Buy
E-commerce has played a major role in driving retail sales ever since the onset of the pandemic. Although life has bounced back to normal, the spending habit of consumers has changed drastically over the past couple of years, with an increasing number of people shopping online.
Be it consumer staples, discretionary items, or consumer durable goods, people are today more confident making their purchases online. This has also made retailers’ online shopping and delivery arms stronger. Given this scenario, stocks like Tapestry, Inc., Conagra and General Mills, Inc. are likely to benefit in the near term.
Online Shopping Boosts Retail Sales
The Commerce Department reported that retail sales rose 3% month over month in January, surpassing economists’ expectations of a jump of 1.9%. E-commerce once again played a major role in driving overall retail sales, as online sales grew 1.3% month over month.
E-commerce has emerged as the most popular mode of shopping. Millions of people chose to shop from home throughout the pandemic due to fears of contracting the COVID-19 virus. They finally understood the benefits of online purchasing as a result of this. Since then, the tendency has prevailed and significantly aided the retail industry.
This comes as e-commerce retail sales crossed the $1 trillion mark for the first time in 2022. According to ComScore’s annual State of Digital Commerce report, online sales hit $1.09 trillion in 2022, climbing 11% from $904.3 billion recorded in 2021. Overall online sales increased 18% year over year in the fourth quarter.
E-Commerce Poised to Grow
People have been shopping online for years but e-commerce got a boost only after the pandemic, and since then, it has been capturing more market share almost every day. According to a Forbes report, 20.8% of overall retail purchases are expected to be done online in 2023.
A physical presence is thus no longer a top priority, with retailers shifting focus toward having a solid web presence that will allow a low barrier to entry for consumers. The report also mentions that 24% of retail purchases will be online by 2026.
E-commerce sales are expected to grow 10.3% in 2023, while the global e-commerce market is poised to hit $6.3 trillion in 2023. The U.S. e-commerce market, in particular, is expected to hit $8.1 trillion by 2026.
This is, thus, the right opportunity to invest in retail stocks that have a strong online presence.
Tapestry, Inc.is the designer and marketer of fine accessories and gifts for women and men in the United States and internationally. TPR offers lifestyle products, which include handbags, women’s and men’s accessories, footwear, jewelry, seasonal apparel collections, sunwear, travel bags, fragrances and watches.
Tapestry’s expected earnings growth rate for the current year is 7.2%. The Zacks Consensus Estimate for current-year earnings has improved 2.5% over the past 60 days. TPR presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Conagra Brands, Inc.is one of the leading branded food companies in North America. CAG offers premium edible products with a refined focus on innovation. Conagra Brands maintains a highly dynamic product portfolio and incorporates alterations within it as per the preference pattern of the end-users.
Conagra Brands’ expected earnings growth rate for the current year is 12.7%. The Zacks Consensus Estimate for current-year earnings has improved 9% over the past 60 days. CAG presently sports a Zacks Rank #1.
General Mills, Inc. is a global manufacturer and marketer of branded consumer foods sold through retail stores. GIS also serves the foodservice and commercial baking industries. General Mills’ principal product categories include ready-to-eat cereals, convenient meals, snacks (including grain, fruit and savory snacks, nutrition bars, and frozen hot snacks), super-premium ice creams, as well as baking mixes and ingredients.
General Mills’ expected earnings growth rate for the current year is 6.1%. The Zacks Consensus Estimate for General Mills’ current-year earnings has improved 1.5% over the past 60 days. GIS has a Zacks Rank #2.
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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
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W.W. Grainger, Inc. (GWW) : Free Stock Analysis Report
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