Yahoo Finance Nvidia and Peabody Energy have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – May 15, 2024 – Zacks Equity Research shares Nvidia NVDA as the Bull of the Day and Peabody Energy BTU as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Walmart Inc. WMT, The TJX Companies TJX and Ollie's Bargain Outlet Holdings, Inc. OLLI.
Here is a synopsis of all five stocks.
Bull of the Day:
Zacks Rank #1 (Strong Buy) stock Nvidia is the global leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. Though Nvidia has been growing for years due to revenue streams from PC graphics and gaming and virtual reality (VR) platforms, the company has experienced exploding, “hockey stick” like growth for its artificial intelligence (AI) solutions that support high-performance computing (HPC). Revenue from Nvidia’s complex and powerful chips has lifted NVDA to a more than $2 trillion market cap and has solidified the company as the undisputed leader in the AI space, far ahead of semiconductor competitors like Inteland Advanced Micro Devices.
Blackwell Platform Is a Bullish Catalyst
Though Nvidia is already the dominant player in the AI space, visionary CEO Jensen Huang is not sitting back and enjoying the success. Instead, NVDA recently announced the Blackwell platform, “enabling organizations everywhere to build and run real-time generative AI on trillion-parameter large language models at up to 25x less cost and energy consumption than its predecessor.”
As mega-cap tech companies race to AI dominance, large language models like Open AI and Microsoft’sChatGPT will require efficiency for two reasons. First, large language models like ChatGPT require GPUs to “train” their models. Presently, companies like OpenAI and Alphabetare engaged in an AI arms race. Furthermore, by 2030 the data center share of electricity will be the equivalent of the electricity consumption of one-third of U.S. homes (which explains the recent bull trends in utility stocks like Vistra.
Explosive Growth Expected
Earnings, which have already been growing like a weed, are expected to increase by a triple-digit clip over the next two quarters and juicy 84.72% next year.
Technical View
Price is the ultimate “tell” in investing because it represents real supply and demand. From this standpoint, Nvidia is bullish for two reasons:
Relative Strength: While some AI-related stocks like Arm Holdingsand Super Micro Computerare well off their 52-week highs, NVDA is suffering a mild correction and is within 10% of its all-time high – a sign of relative strength.
Shakeout + Regain of 10-week MA: If investing were easy, everybody would be rich. Every so often stocks need to “shake the tree” and get rid of “weak hands” before resuming higher. NVDA plunged nearly 10% in mid-May before ripping back above the 10-week moving average (a level that has contained most of the stock’s multiyear move).
Valuation is Still Cheap
Amateur investors often make the mistake of conflating an appreciating stock price with a company being “overvalued.” However, NVDA’s Price-to-Earnings Growth (PEG) ratio is near a multiyear low and remains cheap.
Earnings ESP + Zacks Rank #1
Our extensive, in-house back test shows that stocks that sport a Zacks Rank #3 or better and have a positive Earnings Surprise Prediction (ESP) score tend to beat earnings and outperform. Furthermore, while Wall Street is bullish on the stock, NVDA has beaten consensus estimates in 18 of the past 20 quarters.
Cloud Demand
Data center demand is not only due to AI, but also to cloud growth. Companies like Amazon, Meta Platforms and Baiduare all investing billions in expanding their cloud presence.
EV Opportunities
As automakers strive for autonomous vehicles, Nvidia stands to benefit. The company is working with more than 320 automakers, suppliers, and automotive research institutions to develop AI systems for self-driving vehicles.
Bottom Line
Data center and AI growth, top-tier fundamentals, and new product offerings are just a few reasons to own Nvidia, the true market leader.
Bear of the Day:
Zacks Rank #5 (Strong Sell) stock Peabody Energy is a preeminent coal producer engaged in the mining, processing, and the sale of coal through 17 operations, mainly in the United States and Australia. Peabody Energy mostly mines and processes thermal coal, which is utilized for power generation, and metallurgical coal, which is utilized in steel production.
Global Coal Demand is Expected to Decline
In 2020, Coal stocks like BTU, Arch Resources and Warrior Met Coal were on the brink of collapse as demand plummeted due to the COVID-19 pandemic, and investor concerns about investors attempting to replace the entire industry with clean energy alternatives. Since then, several coal companies have gone bankrupt. Nevertheless, the ones that survived enjoyed recovering earnings and soaring stock prices.
However, despite the impressive recovery in coal demand, the International Energy Agency (IEA) sees global coal demand leveling off and cooling over the next few years and into 2026. The late 2023 report marks the first time the IEA has predicted a drop in global coal consumption. The reasons for the lower expectations include:
U.S. & EU Demand to Slow:
Though demand in developing nations like India and China is growing in the single digits, slowing demand in the European Union and the United States will likely outweigh the demand.
Global Demand Seen Slowing Regardless of Clean Energy Agenda
The IEA expects global demand to fall by 2.3% by 2026,“even in the absence of governments announcing and implementing stronger clean energy and climate policies. This decline is set to be driven by the major expansion of renewable energy capacity coming online in the three years to 2026.”
China Renewable Energy Growth
China is responsible for the most coal demand globally. However, the IEA sees demand falling as clean energy solutions are rolled out in the country.
Relative Weakness
Behind market direction, industry group health is the most critical driver of individual stocks. Currently, the Coal industry is ranked in the bottom 2% (245 out of 251) of all industries tracked by Zacks. Meanwhile, BTU is exhibiting concerning relative weakness compared to its peers. BTU is -8.4%, while the coal industry as a whole is -3% year-to-date.
Revenue Growth is Slowing
Fundamentals must grow for coal stocks to maintain their momentum. Unfortunately, BTU is experiencing slowing revenue growth.
Inconsistent EPS Surprise History
BTU has missed Zacks Consensus estimates in three out of the past four quarters – a signal that earnings are stabilizing.
Bottom Line
Slowing demand, underperformance, and a weak industry group are reasons to avoid this coal producer.
Additional content:
How to Play Walmart (WMT) Ahead of Q1 Earnings
With a chunk of the earnings season behind us, the spotlight remains on the retail sector. While major retailers are lined up for their quarterly releases this month, the focus currently lies on the omnichannel behemoth, Walmart Inc., which is all set to release first-quarter fiscal 2025 earnings results before the opening bell on May 16.
We believe that it’s a good time for investors to assess both the potential advantages and risks linked to investing in this retail powerhouse. While Walmart shows promise due to its strong omnichannel strategy, diverse operations and significant market position, there are also inherent uncertainties that come with investing in this supermarket giant.
Analysts' expectations for WMT’s upcoming release paint quite a bright picture. The Zacks Consensus Estimate for first-quarter revenues stands at $159.2 billion, which suggests 4.5% growth from the figure reported in the year-ago period. The consensus estimate for earnings per share has remained unchanged at 52 cents over the past 30 days, which indicates a jump of 6.1% from the year-ago period earnings of 49 cents.
It is also worth noting that leading up to its upcoming release, Walmart has made headlines by announcing job cuts and requesting remote employees to transition back to office spaces, per a media report. This move aligns with the company's ongoing efforts to streamline operations, as it aims for approximately 65% of its stores to be automated by the end of fiscal 2026.
All said, the decision to invest in Walmart ahead of its quarterly earnings release demands a thoughtful evaluation of both potential rewards and inherent risks.
Walmart Inc. price-consensus-eps-surprise-chart | Walmart Inc. Quote
Weighing Prospects and Risks
Walmart stands out for its strong position, benefiting from a highly diversified business across various segments, markets and channels. The company has been benefiting from an increase in both in-store and digital channel traffic, reflecting its adept navigation of the evolving retail landscape. Walmart's commitment to innovation and adaptability, particularly in the e-commerce space, has been a major driver. Gains from higher-margin ventures, such as advertising, are also noteworthy.
The focus on enhancing its physical store fleet has been instrumental, serving customers directly while also supporting a significant portion of e-commerce sales. Store remodeling initiatives have helped upgrade stores with advanced in-store and digital innovations. Concurrently, Walmart has strengthened its e-commerce operations through acquisitions, partnerships, and improved payment and delivery systems, exemplified by services like Express On-Demand Early Morning Delivery, the Spark Driver platform, investments in DroneUp and the Walmart+ membership program.
However, challenges stemming from market saturation and increased competition from online retailers may temper Walmart's growth trajectory. The company's extensive presence across the United States has led to market saturation in many areas, particularly urban and densely populated regions. Additionally, stiff competition from e-commerce giant Amazon has intensified competition in the marketplace.
Valuation Picture & Zacks Model
Walmart exhibits a forward 12-month price-to-earnings ratio of 25.07, which is above the Retail – Supermarkets industry's average of 23.22 but below its five-year high of 27.24. While the current valuation is above the industry average, the gap from its historical high indicates potential room for growth. Investors may view this as an opportunity, considering Walmart’s strong market position and excellent growth prospects.
Recent market movements show Walmart’s shares rising by 7.1% in the last three months compared with the industry's growth of 8%. Currently trading at $60.41, the company is poised to potentially surpass its 52-week high of $61.66, as our proven model predicts that Walmart is likely to beat earnings estimates in the upcoming release.
The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is the case here. Walmart has an Earnings ESP of +1.65% and carries a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Bright Horizons Ahead
A look at the road ahead for Walmart reveals a rather positive picture. The Zacks Consensus Estimate for sales for the current and next fiscal year stands at $672.6 billion and $699.6 billion, which suggests 3.8% and roughly 4% year-over-year growth, respectively. The consensus estimate for earnings per share is pegged at $2.36 and $2.55 for the current and next fiscal years, which calls for an increase of 6.3% and 8.1%, respectively.
Other Stocks With the Favorable Combination
Here are two other companies worth considering, as our model shows that these also have the correct combination to beat on earnings this time:
The TJX Companies currently has an Earnings ESP of +2.50% and a Zacks Rank #2. TJX is likely to register top and bottom-line growth when it reports first-quarter fiscal 2024 results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $12.5 billion, which indicates 5.8% growth from that reported in the prior-year quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for TJX’s fiscal first-quarter earnings is pegged at 87 cents, which implies 14.5% growth from the year-ago quarter's actuals. The consensus mark has been unchanged in the past 30 days. TJX has a trailing four-quarter earnings surprise of 6.3%, on average.
Ollie's Bargain Outlet Holdings, Inc. currently has an Earnings ESP of +3.08% and a Zacks Rank of 3. The company is likely to register top-and-bottom-line increases when it posts first-quarter fiscal 2024 numbers. The Zacks Consensus Estimate for Ollie's Bargain’s quarterly revenues is pegged at $503.8 million, which calls for growth of 9.7% from the figure reported in the prior-year quarter.
The Zacks Consensus Estimate for Ollie's Bargain’s quarterly earnings of 65 cents suggests a rise of 32.7% from the year-ago quarter’s levels. OLLI has a trailing four-quarter earnings surprise of 7.3%, on average.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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The TJX Companies, Inc. (TJX) : Free Stock Analysis Report
Walmart Inc. (WMT) : Free Stock Analysis Report
Peabody Energy Corporation (BTU) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Ollie's Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report
