For Immediate Release
Chicago, IL – December 19, 2022 – Zacks Equity Research shares JD.com JD as the Bull of the Day and c, Inc. EXPR as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Diamondback Energy, Inc. FANG, Pioneer Natural Resources Co. PXD and Matador Resources Co.'s MTDR.
Here is a synopsis of all five stocks:
Bull of the Day:
Who will be a beneficiary of China's reopening? JD.com is one of China's largest online retailers. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by the double digits in 2023.
JD.com describes itself as a "leading supply chain-based technology and service provider." But most of us know it as one of China's largest online retailers.
Its website says that its retail infrastructure allows consumers to "buy whatever they want, whenever and wherever they want it." It has multiple divisions including JD Retail, JD Health, JD Logistics and JD Industry. JD Retail continues to be its largest division, by revenue.
Another Beat in the Third Quarter
On Nov 18, 2022, JD.com reported third quarter 2022 results and beat on the Zacks Consensus Estimate again. Earnings were $0.88 versus the Zacks Consensus of $0.64.
But JD.com has an incredible track record of beating. Its last miss was all the way back in 2018 and that includes the coronavirus pandemic quarters and even this year, with China's Zero Covid policy.
But JD.com hums along.
Revenue rose 11.4% year-over-year to $134.2 billion with net service revenues up 42.2% to $6.5 billion compared to a year ago.
However, cost of revenue rose 10.5% year-over-year to $29.1 billion.
Free cash flow, for the 12 months ended Sep 30, 2022 was $3.6 billion.
"JD.com's focus on efficiency across various businesses helped drive healthy growth even when the industry continued to face significant challenges," said Lei Xu, CEO.
Analysts Raise Earnings Estimates
It's been a tough year for Chinese companies as China's Zero Covid policy has slowed the Chinese economy. But, it appears that the government is loosening the COVID regulations. This should mean better days ahead for Chinese companies.
One analyst has raised estimates in the last 30 days for both 2022 and 2023.
The 2022 Zacks Consensus Estimate has risen to $2.31 from $2.22 in the last month. This is earnings growth of 36.7% compared to 2021 where earnings came in at just $1.69.
The 2023 Zacks Consensus Estimate has also moved higher. The Zacks Consensus has risen to $2.71 from $2.60 in the last 2 months. That's another 17.3% earnings growth.
Shares Underperform the Last 5 Years
After the Great Recession, the investing strategy was that there was no better place to be than in Chinese stocks as they were in the early stages of growth.
But in the last five years, JD.com shares have struggled against even the NASDAQ QQQ benchmark. JD.com is up 40.4% versus the QQQ up 73.9% in that time.
This year, the shares have struggled as well, falling 19.2% year-to-date, but they've bounced in recent weeks due to the changes to China's Zero Covid policy.
However, shares still aren't cheap, on a P/E basis. It trades with a forward P/E of 24.5. And there is no dividend for shareholders either.
But if you're looking for a play on the China reopening, JD.com is one to keep on the short list.
Bear of the Day:
Express, Inc. is struggling with excess inventory in 2022 and a challenging economic environment. This Zacks Rank #5 (Strong Sell) has now fallen to $1 a share.
Express is a fashion apparel retailer which has brands Express and UpWest. It operates over 550 retail and outlet stores in the United States and Puerto Rico, the express.com online store and the Express mobile app.
Express and WHP Global Enter a Strategic Partnership
On Dec 8, 2022, Express and WHP Global, a global brand management firm, announced they entered into a mutually transformative strategic partnership to advance an omnichannel platform.
Express and WHP Global will form an intellectual property joint venture which will scale the Express brand through new domestic category licensing and international expansion opportunities.
WHP will invest $25 million to acquire 5.4 million newly issued shares of Express at $4.60 per share. It represents approximately 7.4% pro forma ownership.
The deal is closing in the fourth quarter.
A Big Miss in the Fiscal Third Quarter
Also on Dec 8, 2022, Express reported its fiscal third quarter results and missed on the Zacks Consensus Estimate by $0.21. Earnings came in at a loss of $0.50 compared to the Zacks Consensus which was looking for a loss of $0.29.
Sales fell 8% to $434.1 million from $472 million a year ago. Comparable retail sales, which includes both the Express brick and mortar stores and eCommerce, were down 11% compared to the third quarter of 2021. Retail stores were down 6%, as consumers returned to the malls, while eCommerce was down 17% from a year ago.
Comparable outlet store sales remained flat compared to the third quarter of 2021.
Inventory, which is the key item most are watching with the retailers, rose 10% to $422.7 million from $383.6 million at the end of last year's quarter.
Gross margin fell 540 basis points to 27.8% from 33.2% last year as the promotional environment hit hard.
"Our strategy to elevate our brand through higher average unit retails and reduced promotions, which has driven steady growth for the past five quarters, came up against the consumer's reduced spending in discretionary categories and increased appetite for deep discounts," said Tim Baxter, CEO.
"At the same time, we had some misses in our women's business that further impacted our performance. We did, however, post our sixth consecutive quarter of positive comps in our men's business," he added.
Analysts Cut Earnings Estimates for Fiscal 2022 and 2023
Express gave guidance of comparable sales for the year of flat to up 1%.
It also expected inventory to move closer to parity with sales trends by the end of the year.
Earnings guidance was given at a loss of $1.12 to a loss of $1.22.
This was below consensus so the analysts moved to cut their estimates. 2 estimates were lowered for fiscal 2022, pushing it down to a loss of $1.20 from a loss of $0.18. This is an earnings decline of 421% as Express lost only $0.23 last year.
2 estimates were also cut for fiscal 2023, pushing the Zacks Consensus down to a loss of $0.44 from $0.13.
Shares Plunge in 2022
Express shares have been on a wild ride the last 5 years.
In 2022, they have plunged 64% and are back around $1 a share.
Is it a bargain? Investors might want to stay away and look at other retailers with stronger fundamentals, at least until both inventory and earnings turnaround. The economic environment in 2023 is likely to be challenging, even for the top retailers.
Buy the Zacks Rank #1 (Strong Buy) retail stocks, not the Zacks Rank #5 (Strong Sells).
3 Permian Oil Explorers to Gain as Oil Prices Remain Healthy
Oil and gas explorers and producers have been ramping up activities in shale resources this year. This is reflected in the rising number of drilling rigs, and the count will possibly increase more since oil price is expected to remain favorable. The positive developments are aiding businesses for upstream energy players.
Handsome Oil Price
West Texas Intermediate crude price, trading at more than $75 per barrel, is still handsome and is favorable for the energy business. The positivity prevails even though global inflation worries are dragging down the commodity's price.
According to the U.S. Energy Information Administration ("EIA"), the West Texas Intermediate spot average price will likely be $95.22 per barrel this year, significantly higher than $68.21 last year.
U.S. Shale Oil Production to Rise
In January 2023, total oil production from shale resources in the United States will likely increase by 94,000 barrels per day to 9,319 thousand barrels per day (MBbl/D), per EIA. The shale resources comprise Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara and Permian.
Of all the resources, the Permian will witness the highest increase in daily oil production next month, according to the EIA's drilling productivity report. In the Permian, the EIA projects oil production to rise by 37,000 barrels per day to 5,579 MBbls/D in January.
Time to Bet on Permian Explorers
Clearly, a favorable crude pricing scenario is backing higher production volumes. Improving Permian production amid healthy oil prices has raised the incentive to keep an eye on stocks of companies operating in the most prolific basin.
3 Stocks to Gain
Since selecting the right companies with a footprint in the Permian from the stock universe is not an easy task, we are employing our proprietary Stock Screener to zero in on three stocks that are well-poised to gain. All the stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Once the pending Lario acquisition closes,probably on Jan 31, 2023, Diamondback Energy, Inc. will boost its footprint in the Midland Basin. From the transaction, the company will add more than 150 gross locations in the core of the Northern Midland Basin. FANG expects the deal to be accretive on all relevant financial metrics.
Owing to its differentiated upstream operations, Diamondback Energy projects to generate at least $4.45 billion of free cash flow this year.
Pioneer Natural Resources Co. has a strong presence in the low-cost oil-rich Midland basin — a sub-basin of the broader Permian. The upstream energy player has a massive inventory of premium wells that will likely generate significant returns for the company.
Pioneer Natural is focused on returning capital to shareholders. This includes a substantial variable dividend along with a strong base dividend. PXD is also employing opportunistic share repurchases to reward shareholders.
Pioneer Natural has considerably lower exposure to debt capital than the composite stocks belonging to the industry. This reflects PXD's strong balance sheet on which the firm can rely to sail through the volatile energy businesses.
Solid oil prices are a boon for Matador Resources Co.'s upstream operations. This is because MTDR has a strong presence in oil-rich core acres of the Wolfcamp and Bone Spring plays in the Delaware Basin. Favorable oil price is likely to aid it in increasing production volumes. For 2022, the upstream energy player expects total production of 37.7-38.3 million barrels of oil equivalent (MMBoE), higher than 31.5 MMBoE in 2021.
On another positive note, Matador plans to turn to sales a net of 71 wells this year, including operated and non-operated wells. The prime priorities that MTDR has set for this year are lowering debt levels, delivering free cashflows and maintaining or increasing dividends.
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