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QUALCOMM, National Bank Holdings, Union Pacific, United Parcel Service and Norfolk Southern highlighted as Zacks Bull and Bear of the Day

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·16-min read
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For Immediate Release

Chicago, IL – September 1, 2021 – Zacks Equity Research Shares of QUALCOMM Incorporated QCOM as the Bull of the Day, National Bank Holdings Corporation NBHC as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Union Pacific Corporation UNP, United Parcel Service, Inc. UPS and Norfolk Southern Corporation NSC.

Here is a synopsis of all five stocks:

Bull of the Day:

Qualcomm is the $150 billion pioneer in Code Division Multiple Access (CDMA) technology. They've been keeping iPhones great again, and again, for many years.

The Apple and QCOM relationship wasn't always friendly, but they've worked out their differences enough to get to #13.

And as the 5G rollout expands capabilities around the globe, QCOM's fortunes have risen. That's why it's back in the upper realms of the Zacks Rank.

Beat-and-Raise Quarter

Following its Q3 report on July 28, analyst confidence in the resurgence of handset chip markets was clear. As global smartphone supply-chain constraints eased, most felt the company was well positioned to benefit from the long-term 5G investment cycle.

I'll show you some of the commentary and price target boosts, but first let's look at what revised earnings estimate revisions did to the profit outlook.

The fiscal 2021 consensus (ends in September) moved up 5.8% from $7.80 to $8.25 EPS, representing a +97% snapback in growth. And fiscal 2022 was bumped 6.5% from $8.57 to $9.13 EPS.

Meanwhile, topline growth is over 40% for this year and is projected to hit $36.5 billion next year, for a 10.5% advance.

Analysts Are Bullish

At KeyBanc, analyst John Vinh raised the his price target on Qualcomm to $190 from $180, noting that despite concerns regarding licensing weakness in QTL, Qualcomm posted strong results and guidance, which were above expectations as QTL benefited from a favorable mix.

And in the QCT segment (QCOM CDMA Technologies are 80% of company revenues), upside was due to stronger than expected RFFE and IoT revenues. Vinh was encouraged to see RFFE, auto, and IoT now represent 40% of QCT, showing the company's increasing diversity. The analyst also liked management's expectations for material improvement in capacity to drive a strong second half of the year outlook.

Right after the report on late July, Bank of America and Canaccord Genuity analysts both raised their price targets to $200.

Then August 12, Canaccord analyst T. Michael Walkley raised the firm's price target on Qualcomm to $225 from $200. The analyst remains bullish about Qualcomm maintaining strong QCT EBT margins, diversifying revenue growth, and maintaining its strong leadership position.

At Baird, analyst Tristan Gerra added Qualcomm to the firm's top large-cap idea list, citing the view that the company is "at the center of the coming Industrial 4.0 revolution" and should benefit from improved wafer availability in the second half of 2021. As of August 11, Gerra had an Outperform rating and $200 price target on QCOM.

Some Resistance to New Highs

I bought QCOM shares for the Zacks TAZR Trader portfolio in June near $135 because I saw strong value in this pivotal 5G growth resurgence.

After the Q3 report, I was definitely looking forward to challenging the old highs above $160. But then Google announced on August 2 that they were dropping QCOM chips for phones and making their own.

So I sold half of my position just below $150, because I also thought the Nasdaq looked vulnerable.

That was the right move in hindsight, but I certainly didn't expect QCOM to drop all the way back down below $135.

So I'm looking to add back to my position as I watch the price action around the latest M&A news from August 5: QCOM tops current bidder for Swedish automotive safety technology firm Veoneer.

The Back Story

On July 23, Canadian auto tech company Magna International announced they had struck a deal to acquire Veoneer, positioning Magna's ADAS (advanced driver assistance systems) business as a global leader in a fast-growing industry.

Veoneer’s complementary products and capabilities strengthen and broaden Magna’s ADAS portfolio and industry position. The transaction is expected to add significant engineering and software expertise, including in sensor perception and handling software.

Pursuant to the agreement, Magna would acquire all outstanding shares of Veoneer for $ 31.25 per share in cash, representing a total value of $ 3.8 billion, and an enterprise value of $ 3.3 billion, inclusive of Veoneer’s cash, net of debt and other debt-like items as of March 31, 2021.

Well if QCOM management was waiting around for an ADAS company to drop into its lap, they may have waited to long. After they bid $37 per share for VNE -- about $4.6 billion -- and Veoneer brass considered the competing deals for a month, QCOM shares drifted lower, finding some support above $140.

Then on September 14, Veoneer made it official that they were sticking with Magna. And QCOM shares fell from $144 to $134 that week.

This is a space I'm watching closely, ever since I was an investor in Mobileye shares 5 years ago before Intel acquired the Israeli company for $15 billion. My current favorite small favorite is Luminar Technologies, which specializes in a LIDAR platform being used by Volvo.

Bottom line on QCOM: They may have demonstrated some poor M&A skills that aroused investor doubt, but longer-term QCOM is in a great position to lead the 5G revolution and the stock appears a value play among semiconductors given its growth.

Bear of the Day:

National Bank Holdings Corp is a $1 billion enterprise based in Denver and serving its home state and the greater Kansas City region, Texas, Utah, and New Mexico with over 80 branches.

Created to build a leading community bank franchise through its bank subsidiary, NBH Bank, National Bank Holdings Corporation operates a network of banking centers, serving individual consumers, small, medium and large businesses, and government and nonprofit entities.

While its comprehensive residential mortgage banking group primarily serves the bank's core footprint in Colorado, NBH Bank operates under the following brand names throughout its growing territory:

Community Banks of Colorado and Community Banks Mortgage, a division of NBH Bank, in Colorado, Bank Midwest and Bank Midwest Mortgage in Kansas and Missouri, and Hillcrest Bank and Hillcrest Bank Mortgage in Texas, Utah and New Mexico.

Why Is NBHC a Zacks #5 Rank?

The Zacks Rank is a quantitative model which pits 4,000 public companies against each other every day based on the earnings estimate revisions (EER) that come directly from Wall Street investment bank analysts.

I like to call it a "bell curve cage match" because only the top 5% of those 4,000 companies -- those 200 with the best EER profile -- get to be a Zacks #1 Rank Strong Buy.

Meanwhile, the bottom 5% -- those 200 with the biggest downward EPS revisions -- get to be a Zacks #5 Rank Strong Sell.

And that leaves another 3,600 companies duking it out in the middle of the bell curve cage match. If you're curious, only another 15% get to be Buys, and the bulk of the 4,000 end up in the middle of the curve as you might expect.

Long story shorter, the reason that NBHC is in the cellar of the Zacks Rank is because the 3 covering analyst submitting estimates have revised down this year's consensus from $2.90 to $2.79 in the past 60 days (the prime window for viewing EER).

Not only does that represent -4% "growth" in EPS, next year also took a hit with a consensus downward revision from $2.57 to $2.46 -- which represents a 12% decline on top of this year's loss.

An Investment Year, Perhaps

We know small banks have had it rough in the past decade with interest rates so low, crunching the NIM (net interest margin) they can collect on deposits vs. loans.

And then there is the unfolding megatrend of FinTech, where companies like PayPal, Square and SoFi seek to engage consumers enough to provide a financial ecosystem that almost makes any traditional bank obsolete.

Indeed, the reason I chose to profile NBHC today is that a much bigger regional bank from the Southeast just launched a Millennial-friendly app that intends to capture the "no worries" attitude of youth about their finances.

Regions Financial Corp. is a $20 billion member of the S&P 500 with 1,400 community bank branches and the largest deposit holder in Alabama and Tennessee. It is also one of the largest deposit holders in Arkansas, Louisiana, Mississippi, and Florida.

The new Regions marketing copy is going full-tilt for the digital app crowd with these attack points, in my humble fintech opinion (based on 30 years experience)...

**They are appealing to new age Millennials/GenY/Z who don’t want to "sweat" about money and just want experiences.
**They are further appealing to them by painting themselves “green” and environmentally conscious. The website is rich with such language and imagery.
**They profile a smartphone app, a major "youth" selling point at this point in digital culture.

It will be interesting if the Regions marketing pitch succeeds or not. Because, as I learned some 30 years ago in my idealistic 20s, you can’t save the planet if your own financial house isn’t in order.

The NBHC Investment in FinTech Innovation

While I'm not advising to buy NBHC shares with their deteriorating earnings trend, I am very interested in their foray into Fintech. Here was an August press release that really caught my eye since I follow so many startups in this arena...

National Bank Holdings Corporation Announces New Strategic Vision for Small and Medium-Sized Businesses

Company Release - 8/10/2021

Digital financial ecosystem delivers powerful solutions

DENVER, Aug. 10, 2021 (GLOBE NEWSWIRE) -- National Bank Holdings Corporation (NYSE: NBHC) announced today that it is collaborating with Finstro Holdings Pty Ltd., a technology-powered provider of digital working capital solutions, and Figure Technologies, a blockchain fintech firm. These partnerships will accelerate the realization of NBHC’s vision for building a comprehensive digital financial ecosystem for small and medium-sized businesses.

Tim Laney, Chief Executive Officer of NBHC shared, "Our vision is to create a digital financial ecosystem within a bank regulatory framework. We are collaborating with best of breed technology partners to deliver innovative and powerful solutions to solve problems for small and medium-sized businesses in the United States."

NBHC expects to finalize an investment in Finstro, which has developed working capital solutions delivered via a fully digital platform. Brad Prout, CEO and Founder of Finstro commented, "We are honored to partner with NBHC and deliver technology-enabled credit and payment solutions that support B2B trade and inspire growth."

In addition, NBHC has invested in Figure Technologies and will be collaborating on a range of blockchain related initiatives to drive innovation, speed and convenience for payments, investments and other financial transactions. "We’re excited to partner with NBHC to bring blockchain payment solutions to small and medium-sized businesses," said Mike Cagney, co-founder and CEO of Figure Technologies.

"We share a common objective of leveraging Provenance Blockchain to bring faster, cheaper and immediate payment solutions outside of interchange."

CEO Tim Laney sounds like he knows what he's doing to turn it around for NBHC. And something happened in mid-Sep (besides the Fed) that saw big buyers come in and drive shares up toward new highs.

Keep this one in your pocket. Because when the EPS estimates stop going down and start going back up, it could be an emerging regional bank to own as they enter the FinTech arena.

Additional content:

3 Transportation Stocks with Dividend Growth to Keep Tabs On

It is no secret that stocks in the transportation sector were the worst hit by the COVID-19 pandemic and related consequences in 2020. With the revenue stream dwindling, companies belonging to various corners of the sector resorted to multiple cost-cutting measures, including furloughs, layoffs and dividend cuts as they battled to fend off the liquidity crisis.

However, things have been gradually looking up for the industry players of the widely-diversified sector this year. The gradual resumption of economic activities has been a boon for the sector participants. The wide-spread vaccination programs have also provided a boost to the uptick in economic activities.

Reflecting better economic conditions, the freight scenario in the United States has become quite rosy, as can be gauged from the  latest Cass Freight Shipments Index report, according to which shipment volumes climbed 12.3% on a year-over-year basis in August. The various channels of the transportation sector like railroads and trucking companies are benefiting from the continued improvement in freight demand amid the rebounding U.S. economy. Per the American Trucking Associations’ latest report, the advanced seasonally-adjusted for-hire truck tonnage index inched up 0.5% in August from the year-ago levels.

Headwinds

The rapid spread of the highly contagious Delta variant of the coronavirus in many places across the globe, including the United States, is proving to be a huge setback and threatening to derail the economic uptick. Due to the Delta-variant induced woes, a number of airline companies have issued bleak Delta variant-induced forecasts for the September-end quarter.

Due to the Delta variant-induced supply-chain woes, shipment volumes declined 3% and 4.4% month over month in June and July, respectively. Additionally, the American Trucking Associations’ Truck Tonnage Index edged down 1.5% and 1.2%, year over year, in June and July, respectively. The disruptions caused by the hurricane Ida are also responsible for the above disappointing readings. China’s crackdown on technology companies is also a dampener as far as investors’ sentiments are concerned.

Moreover, the crisis triggered by fears over the potential collapse of a debt-ridden Evergrande Group has shaken the global stock markets. As a result of this cascading impact of the troubles in China’s property market, major indexes in the United States were dealt a huge blow. Due to the Evergrande Group-led crisis, market volatility soared with the volatility level represented by the CBOE Volatility Index (VIX), jumping 32% on Sep 20, the highest one-day rise since Feb 25, 2021.

Dividend Stocks to the Rescue?

Despite such uncertainties, investors interested in the Zacks Transportation sector should watch out for sound dividend players. Amid bouts of market volatility, nothing seems to be a better strategy than picking dividend-focused stocks. We have, thus, highlighted three such stocks that currently carry a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Dividend payers should be on the watchlist of investors as they are financially stable and mature, and can even generate steady cash flow irrespective of the market direction. The solid dividend players are unperturbed by market volatility, thanks to their sustainable business model and long track record of profitability.

Union Pacific Corp, with a market capitalization of $132.9 billion, is our first choice. With economic activities gaining pace, the overall volumes are improving. We are also pleased by the efforts of the company to promote safety and enhance productivity. Reflective of the improving conditions in the United States, Union Pacific announced a 10% hike in its quarterly dividend payout to $1.07 per share in May. Union Pacific has rewarded the company’s shareholders with dividends on its common stock for 122 consecutive years. Its current dividend yield is 2.10% higher than the industry’s 1.62%.

United Parcel Service, with a market capitalization of $163.8 billion, is another solid dividend-paying transportation stock to keep tabs on. We are encouraged by UPS' solid free cash-flow generating ability. Even in this coronavirus-hit scenario, UPS generated impressive free cash flow of $5.1 billion in 2020. In February, UPS' board approved a 1% increase in its quarterly dividend to $1.02 per share.

Robust free cash-flow generation by UPS is a major positive and will likely lead to an uptick in shareholder-friendly activities. The stock’s current dividend yield is 2.17% higher than its industry’s 1.84%. The company has either maintained or increased its dividend each year since going public in 1999.

Norfolk Southern Corp., with a market capitalization of $60.5 billion, is another solid dividend-paying transportation stock to keep an eye on. With economic activities steadily gathering steam, the overall volumes are improving. The company’s liquidity position is also encouraging. We are encouraged by Norfolk Southern’s solid free cash-flow generating ability.

Even in this coronavirus- hit scenario, the railroad operator generated an impressive free cash flow of $2.1 billion in 2020, which was up 14% year over year. Norfolk Southern raised its dividend by 10 cents to $1.09 per share in August. The company has paid dividends for 156 consecutive quarters. The dividend hike in August marks the company’s second such dividend increase this year. Its current dividend yield is 1.78%.

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