Yahoo Finance Booking and Tyson Foods have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – April 11, 2023 – Zacks Equity Research shares Booking BKNG as the Bull of the Day and Tyson Foods Inc. TSN as the Bear of the Day. In addition, Zacks Equity Research provides analysis on SilverBow Resources SBOW, Cheniere Energy LNG and Comstock Resources CRK.
Here is a synopsis of all five stocks:
Bull of the Day:
Booking, a Zacks Rank #1 (Strong Buy) stock, is one of the largest online travel companies in the world and is the dominant player in the online travel space. The Connecticut-based company provides clients a one-stop shop for all their travel needs. Its broad and diverse travel-related offerings include hotel room bookings, airline tickets, rental cars, vacation packages, cruises, "things to do" at customer destinations, and travel insurance. Though Booking Holdings is the name behind the umbrella company, it has many different brands in its portfolio, including Kayak, Priceline, OpenTable, and Rentalcars.com, to name a few.
An International Growth Story
Unsurprisingly for the international travel booking juggernaut, earnings came to a screeching halt during the COVID-19 pandemic months. However, BKNG's earnings have clawed back to pre-pandemic levels and are expected to begin exceeding those levels this year.
What's driving the growth? BKNG is enjoying earning's growth spurred on by secular growth factors such as the transition from standard booking procedures of the past to online booking. Because much of BKNG's business is derived internationally, the secular tailwind should last for years. While much of the U.S. has already adopted online booking, the international market is still in the process of doing so. Furthermore, the European online travel market which BKNG also serves is currently growing faster than the domestic one. That said, BKNG management has made moves to increase domestic revenue by acquiring OpenTable and other U.S.-focused businesses.
Look Beyond the "Sticker Shock"
Though BKNG currently trades at around $2500 a share, investors should override any feelings of "sticker shock" they may have for three reasons:
Reasonable valuation: BKNG's forward P/E ratio of 19 is basically inline with the S&P 500 Index's forward P/E of 18. The company's valuation is also attractive when compared to competitors such as Airbnb, which has a forward P/E of 32.
You get what you pay for: Like with most things in life; you get what you pay for. The stock market is no different. Institutional investors tend to be attracted to higher priced stocks because they perceive them to be more stable and less risky, higher quality companies, and tend to be issued by companies with long track records of success.
Stock split potential: Management can unlock an immense amount of shareholder value through a stock split. While many institutions don't mind paying high stock prices, retail investors do. If management decided to implement a stock split, BKNG would attract a wider range of investors. While there are no plans to conduct a split at the moment, a future split would be a potential catalyst for the stock.
Liquidity + Earnings Growth: The Magic Elixir
Growing as a small company and growing as a large company are two completely different ball games. As a company grows into the multi-billions, scaling growth is much more difficult. Large investors are often attracted to mega-cap, liquid stocks with high earnings growth. The reason being is that for a large pension fund or mutual fund to take on a meaningful position, liquidity is a requirement that is non-negotiable. Otherwise, the fund will move the market too much and has a difficult time exiting the stock should that be necessary. At the same time, institutions do not want stagnant growth. Being both liquid and high growth is hard to achieve, but BKNG is one company that has pulled it off. The $97 billion company grew top-line growth at a healthy 56% and 41% over the past two quarters.
Technical Picture
The first factor that stands out is BKNG's relative strength. From a price and volume perspective, BKNG's performance is encouraging. Over the past six months, shares of competitors such as Airbnband Expediaare flat, while BKNG gained 54.6%.
Secondly, the stock has trended well and has continuously found support at its rising 50-day moving average – a sign of a strong trend.
As long as shares hold the 50-day moving average zone, investors can feel assured that the uptrend remains intact.
Bottom Line
Investors should expect BKNG to outperform over the next 6-12 months. The online travel giant differentiates itself through its diverse businesses, international foothold, and rare liquidity and earnings growth mix. BKNG's strong brand name gives the company a clear advantage over its small competitors. Furthermore, since the company offers such a wide variety of services through its ecosystem, customers often end up using the website for a multitude of services, rather than just one.
Bear of the Day:
Zacks Rank #5 (Strong Sell) stock Tyson Foods Inc. is the largest chicken company in the United States. Beyond chicken, the company also produces, distributes, and markets beef, pork, and an assortment of prepared foods under the Jimmy Dean name and other brands.
Earnings Need to Beef Up
From a size perspective, Tyson is the market-leading meats producer in the United States by far and has a hold on roughly 20% of the market share. However, this fact is already priced into shares. Is there room for much growth from here? Tyson's dismal forward estimates suggest not much. This year, top-line growth is expected to slog along at a 2.8% growth rate, while bottom-line growth is expected to plunge 52.5%.
Meanwhile, last quarter, earnings growth was an abysmal -70% year-over-year. The company's lagging beef segment is one factor dragging down Tyson's growth. In Q1, Tyson's beef segment declined from $5,002 million to $4,723 million. The slowdown is not isolated to Tyson – the United States Department of Agriculture (USDA) projects fiscal 2023 domestic production to fall roughly 5% in the segment.
Inefficiency
One way for a slower-growing company (like Tyson) to thrive is to have high margins. Unfortunately, in the case of Tyson, gross margins are moving in the wrong direction. Higher competition, industry headwinds, and international currency movements are squeezing the meat producer. TSN's gross margins are now at their lowest levels since 2016. The picture gets uglier When you compare TSN's 10.49% gross margin to that of the S&P 500 (48.73).
Lagging Price and Volume Action
Even ahead of fundamentals, the best arbiter of truth in the stock market is the price and volume action – it doesn't lie. Like Tyson's fundamental picture, its technical picture is dull. For example, S&P 500 has shot higher by 56.7% over the past five years while Tyson is down 15.7%.
Zoom in a bit more, and the picture doesn't get much prettier. The stock is clearly in a downtrend and is approaching the underside of the 50-day moving average – a zone where the stock failed the past four visits.
Weak Industry
Outside of the general market and earnings estimates, the single most significant factor impacting the price of a stock is the industry group it is in. The Food–Meat Products group is in the bottom 9% of all industry groups tracked by Zacks. Industry group peers such as Hormel Foodsand Pilgrim's Pridealso show poor earnings growth and weak technical action.
Bottom Line
Meat producers like Tyson Foods are facing several challenges that could lead to further declines in stock prices. Furthermore, Tyson's fundamental picture is one of slowing growth and shrinking margins – a lethal combo. Lastly, the poor price and volume action confirms the fundamental picture laid out above.
Additional content:
Natural Gas Prices Extend Losses for Yet Another Week
The U.S. Energy Department's weekly inventory release showed a smaller-than-expected decrease in natural gas supplies. The negative inventory numbers, coupled with other factors, meant that futures fell week over week.
In fact, the market hasn't been kind to natural gas in 2023, with the commodity trading considerably lower year to date and briefly breaking below the $2 threshold for the first time since 2020.
While macro challenges are leading to some concerns, we advise investors to focus on stocks like SilverBow Resources and Cheniere Energy.
EIA Reports a Withdrawal Marginally Smaller Than Anticipated
Stockpiles held in underground storage in the lower 48 states fell 23 billion cubic feet (Bcf) for the week ended Mar 31, just below the guidance of 24 Bcf decline per a survey conducted by S&P Global Commodity Insights.
While the decrease compared favorably with the five-year (2018-2022) average net change of 0 Bcf, it came slightly below last year's shrinkage of 24 Bcf.
The latest draw of the winter heating season puts total natural gas stocks at 1,830 Bcf, which is 443 Bcf (31.9%) above the 2022 level at this time and 298 Bcf (19.5%) higher than the five-year average.
The total supply of natural gas averaged 105 Bcf per day, unchanged on a weekly basis as lower dry production was offset by an increase in shipments from Canada.
Meanwhile, daily consumption deteriorated 4.8% to 99.7 Bcf from 104.7 Bcf in the previous week, mainly reflecting lower industrial as well as residential/commercial demand.
Price Action Remains Bearish
Natural gas prices trended downward last week — a holiday-shortened one — following the smaller-than-expected inventory draw. Futures for May delivery ended Thursday at $2.01 on the New York Mercantile Exchange, falling around 9.3% from the previous week's closing. The decrease in natural gas realization is also indicative of mild spring weather in the days ahead, which would translate into bigger inventory additions due to tepid requirements for heating and cooling
As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. With the latest models anticipating little temperature-driven consumption in the near term (with less use of heaters/coolers across homes and businesses), prices are likely to be impacted adversely. Compounding the matter, daily production has hovered around the record 100 Bcf mark due to a relatively mild winter, and this has pushed stocks significantly above historical levels.
However, a stable demand catalyst in the form of continued strong LNG feedgas deliveries is also supporting natural gas. LNG shipments for export from the United States have been elevated for months on the back of environmental reasons and record-high prices of the super-chilled fuel elsewhere.
Now, with the Russia-Ukraine conflict dragging on, LNG has become even more coveted. As a matter of fact, last year, the United States entered into a partnership with the EU to export additional LNG to wean the bloc off its dependence on Russian natural gas supplies. This means that LNG deliveries are poised to remain robust, especially with squeezed natural gas supplies from Moscow to Europe, following a shutdown in the Nord Stream pipeline from last August.
Finally, the return of the Freeport LNG export plant in Texas to full capacity will lead to more gas flowing overseas. The Quintana, TX facility — responsible for around 15% of U.S. liquefaction capacity — was knocked offline by a blast in June last year and was only partially functional till recently.
Final Thoughts
Based on several factors, the natural gas market is down more than 55% so far this year. As a matter of fact, the space is currently quite unpredictable and spooked by the sudden changes in weather. As such, investors are rather unsure of what to do. As of now, the lingering uncertainty over the fuel means that they should preferably opt for holding on to fundamentally strong stocks like SilverBow Resources and Cheniere Energy.
SilverBow Resources: SilverBow has operations across roughly 130,000 net acres in the Eagle Ford, and more than 80% of its total output comprises natural gas. The Zacks Rank #3 (Hold) company's exposure to premium markets and focus on costs and margins should help it to benefit from any increase in natural gas prices.
You can see the complete list of today's Zacks #1 Rank stocks here.
SilverBow beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 80.8%. Valued at around $528 million, SBOW has lost 36.3% in a year.
Cheniere Energy: Being the first company to receive regulatory approval to export LNG from its 2.6 billion cubic feet per day Sabine Pass terminal, Cheniere Energy certainly enjoys a distinct competitive advantage.
Cheniere Energy has a projected earnings growth rate of 187.6% for the current year. The Zacks Consensus Estimate for this #3 Ranked natural gas exporter's 2023 earnings has been revised 8.7% upward over the past 60 days. LNG shares have gained 10% in a year.
At the same time, investors might want to sell some bottom-ranked stocks like Comstock Resources.
Comstock Resources: CRK is a leading operator in the Haynesville shale — a premier natural gas basin — with 323,000 net acres. About 98% of the company's total output is natural gas.
Comstock Resources has a projected earnings growth rate of -50.1% for the current year. Valued at around $2.9 billion, this Zacks Rank #5 (Strong Sell) company's 2023 earnings have been revised 37.8% downward over the past 60 days. CRK shares have lost 30.8% this year.
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Comstock Resources, Inc. (CRK) : Free Stock Analysis Report
Tyson Foods, Inc. (TSN) : Free Stock Analysis Report
Cheniere Energy, Inc. (LNG) : Free Stock Analysis Report
SilverBow Resources (SBOW) : Free Stock Analysis Report
Booking Holdings Inc. (BKNG) : Free Stock Analysis Report
