For Immediate Release
Chicago, IL – September 30, 2022 – Zacks Equity Research shares Cracker Barrel Old Country Store CBRL as the Bull of the Day and Mohawk Industries MHK as the Bear of the Day. In addition, Zacks Equity Research provides analysis on HF Sinclair DINO, ExxonMobil XOM and Diamondback Energy FANG.
Here is a synopsis of all five stocks:
Bull of the Day:
Cracker Barrel Old Country Store is a Zacks Rank #1 (Strong Buy) that is engaged in the ownership and operation of full-service restaurants with a restaurant and a retail store in the same unit. Their popular signs can be seen all over the country when one takes a road trip on America's highways.
2022 has not been kind to the stock, which is down over 25%. Additionally, the stock is off over 45% from its 2021 highs. So, is now the time to buy?
A recent earnings beat was not initially good enough for investors, causing the stock to traded lower. However, the stock came off its post-earnings lows as analysts raised estimates. Investors should watch this one closely as the overall stock market tries to find its footing.
About the Company
Cracker Barrel was founded in 1969 and is headquartered in Lebanon, TN. The company operates over 650 stores in 45 states and has a market cap of $2 Billion.
The company aims to provide an environment that has a friendly home-away-from-home feel. They provide home-style meals and a retail shop that offers unique gifts and self-indulgences.
The stock has Zacks Style Scores of "B" in Value and "A" in Momentum. The stock also pays a hefty 5.4% dividend.
Q4 Earnings Beat
On September 27th, the company reported an earnings beat of 14%. Revenues came in below expectations, but the company guided initial FY23 revenues up 7-8%.
Comparable restaurant sales were up 6.1%, while operating income margin ticked up to 4.4% from 4.3% last quarter.
A couple negatives in the guidance was commodity inflation +8% and wage inflation +5%. These will add to cost pressures but management seemed optimistic, with the CEO saying:
"Despite the high levels of commodity inflation we faced throughout the year, we kept a long-term focus and invested to retain a position of value leadership through a thoughtful combination of pricing strategy and menu design, despite the short-term impact on margin. Our commitment to value and in delivering a great guest experience helped us weather a weaker than expected summer travel season, gas prices that exceeded expectations, and historic inflationary pressures on the consumer, and we were encouraged by better traffic and sales trends in the final few weeks of the quarter. I believe our focus on delivering a compelling value and experience to our guests, coupled with our cost savings programs, investments in technology, and strategies to attract a broader group of guests, position us well for fiscal 2023 and beyond, particularly when inflationary pressures eventually ease."
Since the earnings report, analysts' estimates have ticked higher for the current quarter. Over the last 7 days, estimates have gone from $1.04 to $1.12, or 7%.
For the current year, estimates have gone up 5% over that same time frame, from $6.06 to $6.35.
If you look at a larger time frame, estimates have gone up over the last 90 days. For next year, we see a 5% gain, with the number going from $6.18 to $6.51.
While commodity inflation has hurt margins, some analysts are making the case that the recent fall in commodities could help improve margins next year.
When looking at the charts, there is not much to like. The stock is below all the moving averages, with the 50-day MA at $104 and the 200-day at $111. Until the bulls push price over those levels, the bears are in control.
However, the stock does have a nice dividend, so some investors are very interested in current levels.
The recent pullback has fallen into a 61.8% Fibonacci retracement drawn from June lows to recent highs. This buy zone seems to be an area of interest and if it holds, could start a move back above $100.
The current market atmosphere is not the best for investors. However, there are stocks that are approaching buyable levels. Watch support zones for buyers and if the levels hold up, it could be a great buying opportunity.
Cracker Barrel presents one such opportunity, especially if the market can gain some footing into the end of the year
Bear of the Day:
Mohawk Industries is a Zacks Rank #5 (Strong Sell) designs, manufactures, sources, distributes, and markets flooring products for remodeling and new constructions of residential and commercial spaces.
The stock has been on a steady slide since its highs in 2021, down over 60% from the high mark of $231.80. So far in 2022, the stock is down 50% and drifting towards its COVID lows.
So, is there any reason to buy this dip?
While the company did beat Q2 earnings, a big guide lower forced analysts to take down numbers. Until this momentum to the downside improves, investors should shy away.
About the Company
Mohawk is headquartered in Calhoun, GA. The company was founded in 1982 and employs 43,000 people.
Mohawk manufactures carpet, rugs, ceramic tile, laminate, wood, stone, and vinyl flooring. This makes the company sensitive to housing improvements, which has been hurt due to higher interest rates.
The company has reorganized its business into three segments — Global Ceramic (35% of net sales), Flooring North America (Flooring NA) (37% of net sales), and Flooring Rest of the World (Flooring ROW) (28% of net sales).
MHK is valued at $6 billion and has a Forward PE of 7. The company holds a Zacks Style Scores of "A" in Value, but "D" in Growth. The stock is a value play for most, but pays no dividend.
The company last reported EPS on July 28th, beating expectations by only 1%. Revenues came in slightly below expectations, but the company guided Q3 lower.
Instead of the expected $4.14, the company now sees Q3 at a range of $3.33-3.43. The company announced they will cut expenses and implement multiple restructuring projects to cut costs.
Management said that they needed to adapt to current conditions to improve results. This means cost cutting by $30-$40 million annually.
Because of the guide lower, analysts have been forced to lower their estimates.
For the current quarter, over the last 60 days estimates have dropped 14%, from $4.05 to $3.47. For next quarter, the numbers have fallen 11% over the same time frame.
Analyst are not being as aggressive in dropping their numbers for next year, as they likely want to see how the cost cutting is implemented. For next year, estimates have fallen only 9%.
Like most stocks this year, it is trading under all the moving averages. The 50-day MA is at $114 and the 200-day is at $135. These levels are significantly above the current trading price.
The stock has been bleeding out and is looking for support. The next area of interest for the bulls is all the way down at $80. So, patience is suggested with this name.
Mohawk is going to struggle as long as interest rates continue to go higher. The effect that rates have on housing and consumers will likely hurt earnings. Add in higher inflationary costs and the cost cutting program might not be enough to improve results.
3 Energy Stocks with Dividend Comfort
The Energy sector is infamous for being notoriously volatile, with sudden positive surprises and crashes. While wild price moves have always been integral to investment in oil and natural gas, the quantum of uncertainty has increased manifold in recent years, especially post-COVID.
Amid an erratic market setting, investing in high-quality dividend stocks like HF Sinclair, ExxonMobil and Diamondback Energy might fetch you promising returns.
Use Dividend to Shield From Unpredictable Energy Prices
From the depths of minus $38 a barrel during the height of the pandemic in April 2020 to a 14-year high surge of above $130 per barrel this March and finally around $80 now, crude has been on a roller-coaster ride over the past few years. It's not any different for natural gas.
The fuel slumped to a 25-year low in June 2020 but earlier this year hit $10 per MMBtu for the first time since 2008 before falling to the current $7-level. Diverse factors ranging from demand/supply fundamentals to economic events to geopolitical/weather shocks influence commodity price realizations.
As evident from the energy market story, stocks can take a sudden turn for the good (or bad), making stock picking a risky game. Every good stock also has its bad day, which adds to the risk. With uncertainty ruling the markets, it is not surprising that dividend investing has emerged as one of the most popular investing themes.
Dividend stocks are always investors' preferred choices as they provide steady income and cushion against market risks. These stocks are generally less volatile in nature and hence, are dependable when it comes to long-term investment planning. They not only offer higher income but also protect against equity market risks.
Dividend stocks are safe bets to create wealth, as the payouts generally act as a hedge against economic uncertainty and simultaneously provide downside protection by offering sizable yields on a regular basis. Finally, dividend growth can also help investors to offset some of the value destruction of the high inflationary environment prevailing at the moment.
How to Pick the Best Dividend Stocks?
Although the benefits of dividend investing cannot be stressed enough, one should keep in mind that not every company can keep up with its dividend-paying momentum. Hence, a cautious strategy needs to be followed to select the best dividend stocks with the potential for steady returns.
To guide investors to the right picks, we are recommending stocks with a payout ratio less than 60 and dividend yield of at least 2%. Moreover, these companies have hiked their dividends over the past five years.
Calculated by dividing dividend per share by earnings per share, the payout ratio indicates how comfortably a firm can pay the dividend from its earnings. It is one of the key metrics that dividend growth investors consider when looking for potential investments. A payout ratio below 60 looks quite sustainable and leaves enough scope for future dividend hikes.
With our objective to build a dividend income portfolio, we look for companies that at least have better yields than the S&P 500. A representative of the broader market, the index currently yields 1.66%. While our yield criterion isn't very high, it's at a level where the company can weather all kinds of commodity price environments and provide a reliable income stream to investors.
Finally, we only consider stocks that have consistent dividend, i.e., paying and increasing offerings over the past five years. It also acts as an indicator of what to expect from the company in the next few years on the payout front.
We have used the above criteria to narrow down three dividend-paying energy stocks.
HF Sinclair: A producer and marketer of gasoline, diesel fuel and other specialty products, HF Sinclair pays out a quarterly dividend of 40 cents ($1.60 annualized) per share that gives it a 3.16% yield at the current stock price. The Zacks Rank #1 (Strong Buy) company's payout ratio is 21, with a five-year dividend growth rate of 3.62%. (Check HF Sinclair's dividend history here)
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
DINO is valued at some $11 billion. The Zacks Consensus Estimate for HF Sinclair's 2022 earnings has been revised 18.1% upward over the past 60 days. The donwnstream operator has a trailing four-quarter earnings surprise of roughly 710.1%, on average. DINO shares have gained 63.8% in a year.
ExxonMobil: ExxonMobil is one of the largest publicly traded oil and gas companies in the world, which participates in every aspect related to energy — from oil production to refining and marketing. XOM's dividend of 88 cents per share ($3.52 annualized) represents a 4.11% yield. The Zacks Rank #2 (Buy) ExxonMobil's payout ratio is 36, with a five-year dividend growth rate of 2.80%. (Check ExxonMobil's dividend history here)
ExxonMobil is valued at some $357.3 billion. The Zacks Consensus Estimate for XOM's 2022 earnings has been revised 5.3% upward over the past 60 days. ExxonMobil, headquartered in Irving, TX, has a trailing four-quarter earnings surprise of roughly 1.6%, on average. XOM shares have gained 51.1% in a year.
Diamondback Energy: Diamondback Energy is an independent oil and gas exploration & production company with its primary focus on the Permian Basin. FANG's dividend of $3.05 per share comprises 75 cents ($3 annualized) in regular payout, plus a variable cash component of $2.30 apiece. The regular component represents a 2.64% yield. The #2 Ranked Diamondback's payout ratio is 15, with a five-year dividend growth rate of 57.26%. (Check Diamondback Energy's dividend history here)
Diamondback is valued at some $19.7 billion. For 2022, FANG has a projected earnings growth rate of 128.4%. Diamondback, headquartered in Midland, TX, has a trailing four-quarter earnings surprise of roughly 7%, on average. FANG shares have gained 26.1% in a year.
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Cracker Barrel Old Country Store, Inc. (CBRL) : Free Stock Analysis Report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Mohawk Industries, Inc. (MHK) : Free Stock Analysis Report
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HF Sinclair Corporation (DINO) : Free Stock Analysis Report
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