For Immediate Release
Chicago, IL – May 11, 2023 – Zacks Equity Research shares Shake Shack SHAK as the Bull of the Day and Community Bancshares DCOM as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Union Pacific Corp. UNP and Norfolk Southern Corp. NSC.
Here is a synopsis of all four stocks:
Bull of the Day:
Shake Shack, the fast-food hamburger and milkshake chain is on a tear this year, and it looks like the bull run may have just begun. Shake Shack boasts a compelling trade setup with top a Zacks Ranks, convincing technical chart patterns, and improving business fundamentals.
SHAK currently scores a Zacks Rank #1 (Strong Buy), indicating upward trending earnings revisions. It has also benefited from the recent strength of the Retail – Restaurant industry, which is currently in the top 18% of the Zacks Industry Rank, outperforming the broad market YTD.
Shake Shack serves elevated versions of American classic foods, with high quality ingredients. It is primarily known for its burgers, chicken sandwiches, hand-spun milkshakes, and house-made lemonade. The first Shake Shack location opened in 2004 in New York City and has grown to approximately 460 locations today.
The company operates 436 restaurants, including 254 domestic company-operated locations and 33 domestic-licensed locations. Additionally, there are 149 international-licensed restaurants. SHAK also operates an impressive mobile app through which diners can order meals before arriving at the restaurant.
Last week, Shake Shack reported Q1 earnings, and results came in better than expected. Earnings for the quarter were -$0.01 per share, beating estimates of -$0.09 per share. Sales for the quarter came in at $253 million, up 24.5% YoY and beating analysts' estimates of $246 million.
SHAK was also able to improve several key business metrics. Same store sales were up 10.3%, led by higher menu prices and double-digit traffic growth. This increase brings average weekly sales to $73,000. Additionally, operating margins have increased 310 basis points in the last year, bringing them up to 18.3%.
The company opened six new domestic, company-operated locations and seven new licensed restaurants including locations in Mexico and China.
Investors were clearly happy with the earnings beat as shares rallied tremendously following the report. Shares are up 20% following the earnings report, and SHAK stock is now up 60% YTD.
Shake Shack has grown at an impressive pace over the past decade. Sales have climbed nearly 10x from just $110 million in 2014 to over $950 million today.
Shake Shack stock just broke out of an extremely compelling chart pattern. After drawing in investors, and building out a year long base, SHAK has broken out of a bull flag consolidation.
Although the technical setup has already been completed, the close at the top of the range, followed by another weekly gap up is a bullish signal. From a technical perspective SHAK is a convincing investment, and any pullbacks are good buying opportunities.
Shake Shack is trading at a trailing twelve-month Price to EBITDA ratio of 34x, which is below its five-year median of 35x, and well above the industry average 15x. It should be noted that SHAK has traded at a significant premium to the industry for the entirety of its time as a public company.
When compared directly to a competitor of a similar caliber SHAK's valuation makes more sense. Chipotle Mexican Grill CMG, which is also a Zacks Rank #1 (Strong Buy) stock, has a very comparable valuation. Trading at 34x TTM Price to EBITDA, CMG is right in line with SHAK. Both provide innovative, high-quality offerings and are some of the fastest growing companies in their respective sectors.
Shake Shack has a lot going for it today. With improving business economics, growing same-store sales, increased traffic, improving earnings estimates, and strong technical momentum SHAK is a worthy consideration for any investor's portfolio.
Bear of the Day:
It is no secret that the regional banking sector is under considerable pressure, and Dime Community Bancshares has not been excluded. DCOM is a Zacks Rank #5 (Strong Sell) stock, indicating downward trending earnings revisions. DCOM also has some unfavorable banking metrics I want to draw attention to.
Dime Community Bancshares Inc. is the holding company for Dime Community Bank. It provides deposit and loan products and financial services to local businesses, consumers, and municipalities.
DCOM stock is being sold aggressively, considerably underperforming the sector and halving in value over the last five years.
Dime Community Bancshares experienced some brief solace following its earnings results at the end of April, however that strength was only an opportunity for more selling. DCOM managed to beat earnings estimates, but it wasn't enough to stop the selling.
Earnings of $0.92 per share beat Zacks Estimates of $0.82 per share. However, sales of $94.75 million missed estimates of $99 million. It is worth noting that because of the environment, DCOM estimates had been revised considerably lower leading up to the report. So, while earnings beat estimates, they were a much lower target, and sales couldn't reach even the lower expectations.
Future earnings expectations haven't improved either. Analysts are in unanimous agreement in downgrading DCOM across timeframes. Q2 earnings have been downgraded by -30% over just the last 60 days. Huge revisions lower in estimates are exactly what bears want to see.
The Q1 earnings report also showed some concerning data regarding deposits. As much as 30% of DCOM's bank deposits were non-insured, leaving it potentially vulnerable in the case of a run on the bank. Deposits did increase from $10.25 billion to $10.57 billion in the quarter though, which is very reassuring.
There was an additional balance sheet metric that caught my attention. A line labeled "accumulated other comprehensive loss (AOCI)," shows a -$98 million loss.
One of the major pieces of data that initially caused concern regarding Silicon Valley Bank before its downfall was unrealized losses on securities. SIVB was holding a ton of long-dated Treasuries on its balance sheet, and when interest rates rose in 2022, the value of those securities dropped. SIVB reported a loss of -$1.8 billion because of this, which led them to try and raise capital through a share offering. It was never completed.
Unrealized losses on securities are included in that AOCI figure, meaning DCOM is holding securities that are underwater. I want to make this extremely clear, SIVB didn't fail because of its unrealized losses, and neither will Dime Bancshares, but it was and is a concerning figure.
As it currently stands, AOCI as a percentage of total stockholders' equity is -8.2%. When Silicon Valley Bank went under that number was -11.7%. Again, this isn't an alarm that should cause the stock to crash, but a red flag.
Dime Community Bancshares is currently trading at a one-year forward earnings multiple of 6x, which is below the industry average 8x, and below its four-year median of 9.5x. The tremendous fall in share price is what has caused the valuation to fall so precipitously from last year.
During the most recent quarterly report management announced that they were raising the dividend payment from $0.24 per quarter to $0.25, which they believe reflects a strong financial position. DCOM has an annual dividend yield of 5.9%.
DCOM is in a very challenging position. Not only is it caught up in one of the worst national bank scares since the Savings and Loan Crisis, but it also displays some concerning financial metrics to back those fears. Fortunately for them, the deposit base remains at the bank quelling the worst fears, but analysts are still bearish. While there is no evidence DCOM should suffer the same fate as SIVB, it is likely to continue to see downward pressure, and should thus be avoided.
2 Dividend-Paying Railroad Stocks You Can Count On
The Zacks Transportation - Rail industry continues to suffer from headwinds like raging inflation, higher interest rates, increased fuel price and supply-chain disruptions. Even though oil price has declined (down 5.7% in the January-March period) due to recession fears, it remains high. Since fuel expenses represent a key input cost for any transportation player, an uptick in fuel costs is not a welcome development. Operating expenses are on the way up, given the rise in fuel cost.
Partly due to these headwinds, the industry has declined 3.9% over the past six months, underperforming the S&P 500 Index's 4% appreciation and 0.7% decline of the broader Zacks Transportation sector.
Despite the challenges surrounding the industry,some railroad companies like Union Pacific Corp. and Norfolk Southern Corp. have consistently announced dividend hikes, thus highlighting their pro-shareholder stance.
Stocks that have a strong history of dividend growth belong to mature companies, which are less susceptible to large swings in the market, and act as a hedge against economic or political uncertainty as well as stock market volatility. At the same time, they offer downside protection with their consistent increase in payouts.
Additionally, these companies have superior fundamentals like a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics.
How to Pick Stocks With Solid Dividend Payouts?
In order to choose some of the best dividend stocks from the aforementioned industry, we have run the Zacks Stock Screener to identify stocks with a dividend yield in excess of 2% and a sustainable dividend payout ratio of less than 60%. Each of the two stocks mentioned below carries a Zacks Rank #3 (Hold).You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Union Pacific: Headquartered in Omaha, NE, Union Pacific, through its subsidiary, Union Pacific Railroad Company, operates in the railroad business in the United States. Currently, it has a market capitalization of $121.90 billion.
UNP pays out a quarterly dividend of $1.30 ($5.20 annualized) per share, which gives it a 2.60% yield at the current stock price. This company's payout ratio is 45% of its earnings at present. The five-year dividend growth rate is 12.02%. (Check Union Pacific's dividend history here).
We are impressed with Union Pacific's consistent efforts to reward its shareholders through dividends and share repurchases. The company hiked its dividend twice in 2021. In May 2022, UNP's board of directors increased its quarterly cash dividend by 10% to $1.30 per share. Notably, Union Pacific has been paying dividends on its common stock for 123 consecutive years.
During first-quarter 2023, UNP paid dividends worth $795 million and repurchased shares worth $575 million. In 2022, UNP paid dividends worth $3,159 million and repurchased shares worth $6,282 million. For 2023, management continues to anticipate a dividend payout of approximately 45% (of earnings).
Norfolk Southern: Headquartered in Atlanta, GA, Norfolk Southern engages in the rail transportation of raw materials, intermediate products and finished goods in the United States. Currently, it has a market capitalization of $47.14 billion.
NSC pays out a quarterly dividend of $1.35 ($5.40 annualized) per share, which gives it a 2.61% yield at the current stock price. This company's payout ratio is 38% of its earnings at present. The five-year dividend growth rate is 11.95%. (Check Norfolk Southern's dividend history here).
We are impressed with Norfolk Southern's efforts to reward its shareholders through dividends and share repurchases. In January 2023, the company's board announced a dividend hike of 9%, thereby raising its quarterly dividend payout from $1.24 per share to $1.35. During first-quarter 2023, Norfolk Southern paid dividends worth $307 million and repurchased and retired 0.6 million shares for $163 million.
During 2022, Norfolk Southern paid dividends worth $1,167 million and repurchased and retired common stock worth $3,110 million. In 2021, Norfolk Southern paid dividends worth $1,028 million and repurchased and retired common stock worth $3,390 million. Such shareholder-friendly moves indicate the company's commitment to creating value for shareholders and underline its confidence in its business. These initiatives not only instill investors' confidence but also positively impact earnings per share.
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