Rio Tinto's and Adidas have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – March 22, 2023 – Zacks Equity Research shares Rio Tinto's RIO as the Bull of the Day and Adidas ADDYY as the Bear of the Day. In addition, Zacks Equity Research provides analysis on CVR Energy CVI, Marathon Petroleum MPC and Valero Energy VLO.
Here is a synopsis of all five stocks:
Bull of the Day:
The Mining-Miscellaneous Industry is currently in the top 30% of over 248 Zacks Industries and Rio Tinto's stock is standing out with a Zacks Rank #1 (Strong Buy) and overall "A" VGM grade for the combination of Value, Growth, and Momentum.
Rio Tinto is positioned to benefit from its strong business environment and higher commodity prices as an international miner of aluminum, borax, coal, copper and iron ore, lead, gold and silver, uranium, titanium, and diamonds among others. The Australian-based miner has mining operations in Australia, New Zealand, South Africa, Europe, and Canada.
Following another strong year, Rio Tinto's earnings are expected to dip -9% to $7.38 per share in fiscal 2023 compared to EPS of $8.15 in 2022. However, fiscal 2024 earnings are projected to rebound and rise 4% to $7.70 per share.
Plus, earnings estimate revisions have continued to trend higher for FY23 as commodity prices have remained higher in correlation with inflation. Rio Tinto's FY23 EPS estimates have jumped 13% throughout the quarter with FY24 estimates up 2%.
Even better, the rising earnings estimates support the case that Rio Tinto's stock appears to be undervalued. Shares of RIO trade around $66 and just 9X forward earnings which is nicely beneath the S&P 500's 18.1X and its industry average of 10X. Rio Tinto stock also trades 72% below its decade-long high of 32.2X and at a slight discount to the median of 10.1X.
Year to date, Rio Tinto stock is down -7% but this year's drop may be a buying opportunity, especially when considering RIO's stellar dividend. To that point, RIO's total return including dividends over the last three years is still +139% to easily top the S&P 500's +85% and the Mining-Miscellaneous Markets' +92%.
At the moment, Rio Tinto's annual dividend yield is 6.76% at $4.49 per share. This is well above the S&P 500's 1.61% average and the Mining-Miscellaneous Markets' 4.36%. More Impressive, Rio Tinto's annualized dividend growth over the last five years is 14.19%.
The rising earnings estimate revisions are a good sign that Rio Tinto will continue to benefit from higher commodity prices. On top of this, shares of RIO look undervalued from a price to earnings perspective, making the stock very attractive considering its stellar dividend and inflation-fighting ability. Furthermore, the Average Zacks Price Target of $90.50 per share suggests 36% upside from current levels.
Bear of the Day:
Adidas stock may be in store for a bearish downturn landing a Zacks Rank #5 (Strong Sell) at the moment. To that point, the Shoes and Retail Apparel Industry is also in the bottom 11% of over 248 Zacks Industries.
On top of high inflation disrupting consumer spending, the footwear and apparel provider is dealing with massive revenue losses from severing its partnership with Kanye West following antisemitic comments the entertainer made last year.
Declining Earnings Estimates
Adidas has stated it expects to lose $1.3 billion from cutting ties with Kanye West and discontinuing his popular Yeezy brand with the trendy shoes once retailing between $200-585 per pair.
Adidas also expects to lose up to $534 million in operating profit from the breakup. Confirming this is the declining earnings estimate revisions. Adidas is now expected to have an adjusted loss of -$.1.54 per share this year compared to estimates of $2.13 a share 90 days ago. Plus, fiscal 2024 EPS estimates have declined 53%.
Poor Performance & Competition
Losing the popularity of its Yeezy brand, Adidas could lose many fashion consumers back to its main competitor Nike. Adidas stock is up +12% year to date to top Nike's +6% and the S&P 500's +3%.
However, the rebound attempt may be overdone considering the decline in earnings estimates as Adidas stock Is still down -54% over the last two years to largely underperform Nike's -10% and the benchmark.
Furthermore, over the last decade, Adidas is only up +47% and has continued to lag the S&P 500's +154%, Nike's +319%, and the Shoe & Retail Apparel Markets +273%. This purgatory-like performance could continue with other companies like New Balance and Skechers becoming more fashionable and capitalizing on trends among younger generations.
Investors will want to be cautious of Adidas stock as the earnings picture continues to decline for the company. With inflation headwinds still affecting the broader Consumer Discretionary sector, ending its Yeezy partnership has unfortunately added more financial risk to Adidas and opened the door for increased competition.
3 Stocks for Oil & Gas Contrarians to Buy
Now that oil prices are below $70 a barrel it seems investors have lost faith in their energy investments. But what if the recent drop in oil and sentiment is just a fake out?
Bolstered by geopolitical tensions, high inflation, and anemic domestic production, energy stocks posted a banner year in 2022. Energy was the only sector in the market that finished last year in the green, and it did so emphatically, up nearly 60%.
With higher interest rates and now a banking crisis many analysts think a recession is just around the corner. That would be bad for oil demand and energy stocks. But last week OPEC publicly committed to significantly cutting production, putting a floor under the price of oil. And now with the Fed potentially easing off the interest rate hikes, it is possible there is another rally in inflation.
Additionally, there is this kind of well-known investor names Warren Buffett who knows a thing or two about investing in stocks. Buffett cannot stop buying oil stocks, indicating that he thinks energy is still an appealing investment.
The price of oil is down nearly 50% from its 2022 high, yet many of the top oil and gas stocks are still holding up well. Even after the tremendous run up energy stocks had in 2022, many of them still boast reasonable valuations. In this article I will cover three highly ranked energy stocks that have forward earnings multiples below 10x, which help make them very compelling investments right now.
Headquartered in Sugar Land, Texas, CVR Energy is an independent refiner and marketer of high value transportation fuels such as gasoline and diesel. CVI owns and operates a coking medium-sour crude oil refinery in Kansas and a crude oil refinery in Oklahoma. The business serves retailers, railroads, farms and other refineries and marketers.
CVR Energy is currently a Zacks Rank #1 (Strong Buy) stock, indicating upward trending earnings revisions. CVI has been a strong performing stock over the last year and offers a very generous dividend yield of 6.5%.
Over the next few earnings periods sales are expected to fall, but current quarter earnings are still expected to skyrocket 4,300% YoY to $0.88 per share. Over the last 60 days analysts have unanimously revised earnings higher across all reporting periods. Current year earnings expectations have nearly doubled over the last three months.
CVI is trading at a one-year forward earnings multiple of 9x, which is below its 10-year median of 12x, and above the industry average 5x.
Marathon Petroleum is a U.S. based integrated, downstream energy company. MPC operates through two segments, Refining and Marketing and Pipeline Transportation. Marathon Petroleum's Refining and Marketing unit operates 16 refineries with a crude processing capacity of 3 million barrels per day. In 2022 the refining business recorded $16.5 billion in profits. Pipeline transportation, operating as a partnership with Andeavor Logistics, transports oil products and manages logistics. It earned $4.5 billion in profits in 2022.
Additionally, in 2021, Marathon Petroleum sold its Speedway retail gasoline business for $21 billion to Japanese retail group Seven & I Holdings – owner of the 7-Eleven convenience store chain.
MPC stock has been extremely strong over the last year. It has outperformed the industry and market considerably. Even with the weakness in the sector, its share price is still very close to breaking out to new all-time highs again.
Marathon Petroleum currently has a Zacks Rank #2 (Buy), indicating an upward trend in earnings revisions. While sales are projected to fall across the board, earnings have been revised higher nonetheless. Additionally, it has a very impressive earnings surprise prediction. The stock is expected to beat on all the next earnings reports, with next quarter projected to beat by 28%.
MPC is trading at a one-year forward earnings multiple of 6x, which is just above the industry average of 5x, and well below its five-year median of 11x. Marathon Petroleum also offers a dividend yield of 2.4%, which it has boosted by an average of 12% annually over the last three years.
Valero Energy is a deeply diversified oil refinery company with 15 plants across the U.S., Canada, and the Caribbean and capacity to refine 3.2 million barrels a day. The majority of VLO's refinery plants are located in the Gulf Coast with easy access to export facilities, boosting margins. Valero recently reported strong fourth-quarter results with a 13% upside surprise on EPS.
VLO stock has been a very strong performer over the last year. The stock has more than tripled the returns of its respective industry and trounced the returns of the broad market.
Valero Energy earns a Zacks Rank #1 (Strong Buy), indicating upward trending earnings revisions. Current quarter earnings are expected to climb 186% YoY to $6.62 per share, while current quarter sale are expected to drop -13% to $33.5 billion.
Although there have been some slight revisions lower in the current quarter recently, earnings have still been revised considerably higher over the last three months. Furthermore, all other earnings periods have been revised considerably higher, with current year earnings being upgraded by 36%.
VLO is trading at a very reasonable 5x one-year forward earnings, which is in line with the industry and well below its five-year median of 13x. VLO also offers a dividend yield of 3.2%, which has been raised by an average of 4.8% annually over the last five years.
There has been a major rotation out of energy stocks, yet based on the valuations and improving earnings expectations, they are still compelling investments. While energy prices have been rolling over for the better part of the last year, many of these stocks have held up very well. As uncomfortable as it is sometimes going against can be a profitable endeavor.
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Valero Energy Corporation (VLO) : Free Stock Analysis Report
Rio Tinto PLC (RIO) : Free Stock Analysis Report
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Adidas AG (ADDYY) : Free Stock Analysis Report
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
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