Leidos and America's Car-Mart have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – June 28, 2024 – Zacks Equity Research shares Leidos Holdings LDOS as the Bull of the Day and America’s Car-Mart CRMT as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Chevron Corp. CVX and Occidental Petroleum Corp. OXY.
Here is a synopsis of all four stocks.
Bull of the Day:
Leidos Holdings, a Zacks Rank #1 (Strong Buy), provides services and solutions in the defense, intelligence, civil, and health markets. Renewed strength in the aerospace sector provides a durable backing for this industry leader. Leidos shares have begun to display relative strength, recently surging to 52-week highs. Increasing volume has attracted investor attention as buying pressure accumulates in this top-ranked stock.
Leidos is part of the Zacks Aerospace – Defense industry group, which currently ranks in the top 36% out of more than 250 Zacks Ranked Industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.
Quantitative research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Company Description
Leidos Holdings offers national security solutions and systems for air, land, sea, space, and cyberspace for the U.S. Intelligence Community, the Department of Defense, the National Aeronautics and Space Administration, as well as other government agencies and military services. The company is a technology leader in areas such as cybersecurity, data analytics, and logistics.
In addition, Leidos Holdings provides IT solutions in cloud computing, mobility, data center management, and help desk operations. The company boasts a wide array of customers including foreign governments and their agencies, which are primarily located in the United Kingdom, the Middle East, and Australia.
Increased contract wins for Leidos from the Pentagon and other U.S. allies have been a primary growth driver for the company. In the first quarter of this year, Leidos recorded net bookings worth $3.7 billion. This led to an impressive backlog of $36.57 billion, a solid increase relative to the $35.09 billion from the year-ago period.
Earnings Trends and Future Estimates
The diversified defense provider has put together an impressive earnings history, surpassing earnings estimates in each of the last four quarters. Back in April, the company reported first-quarter earnings of $2.29/share, a 38.8% surprise over the $1.65/share consensus estimate. Leidos Holdings has delivered a trailing four-quarter average earnings surprise of 23.4%.
LDOS stock received a boost as analysts covering the company have been increasing their 2024 earnings estimates lately. For the full year, earnings estimates have risen 12.47% in the past 60 days. The Zacks Consensus EPS Estimate now stands at $8.75/share, reflecting a potential growth rate of 19.9% relative to the prior year. Revenues are projected to climb 4.4% to $16.12 billion.
Let’s Get Technical
This market leader has seen its stock advance more than 35% in 2024 alone. Only stocks that are in extremely powerful uptrends are able to experience this type of outperformance. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping up. The stock has been making a series of 52-week highs, widely outperforming the major indices. With positive fundamental and technical indicators, LDOS stock is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Leidos Holdings has recently witnessed positive revisions. As long as this trend remains intact (and LDOS continues to deliver earnings beats), the stock will likely continue its bullish run this year.
Despite the impressive performance, the stock remains relatively undervalued based on traditional valuation metrics.
Bottom Line
Leidos is ranked favorably by our Zacks Style Scores, with a best-in-class ‘A’ rating in our Momentum category and a second-best ‘B’ rating in our Growth category. This indicates that LDOS stock is likely to continue its strong momentum based on a favorable combination of earnings and sales growth.
Backed by a top industry group and impressive history of earnings beats, it’s not difficult to see why this company is a compelling investment. Robust fundamentals combined with an appealing technical trend certainly justify adding shares to the mix. The future looks bright for this highly-ranked, leading stock.
Bear of the Day:
America’s Car-Mart operates automotive dealerships in the United States. The company primarily sells used vehicles while providing financing for its customers. The auto retailer focuses on the Buy Here/Pay Here segment of the used car market. America’s Car-Mart operates its dealerships in small cities and rural locations, mainly in the South-Central region of the country.
The Zacks Rundown
America’s Car-Mart, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Automotive – Retail and Whole Sales industry group. This industry ranks in the bottom 4% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months.
Candidates in the bottom tiers of industries can often be potential candidates for short positions. While individual stocks have the ability to outperform even when included in a lackluster industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
Despite a rebound in stocks this year, CRMT shares have not been participating lately. The stock has experienced considerable volatility over the past year. CRMT is hovering near a 52-week low, all while the general market reaches new heights.
Recent Earnings Misses and Deteriorating Outlook
CRMT has fallen short of earnings estimates in seven of the last eight quarters. Consistently falling short of earnings estimates is a recipe for underperformance, and this company is no exception. America’s Car-Mart has posted a trailing four-quarter average earnings miss of -184.65%.
The company has been on the receiving end of negative earnings estimate revisions as of late. The current quarter’s EPS outlook has been slashed by -15.22% in the past 60 days. The fiscal Q1 Zack Consensus Estimate stands at $0.39/share, reflecting negative earnings growth of -38.1% relative to the year-ago period.
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
Technical Outlook
As illustrated below, CRMT stock is in a sustained downtrend. Notice how shares have plunged below both the 50-day and 200-day moving averages signaled by the blue and red lines, respectively. The stock is making a series of lower lows. Also note how both moving averages have rolled over and are sloping down – another good sign for the bears.
CRMT stock has also experienced what is known as a death cross, whereby the stock’s 50-day moving average crosses below its 200-day moving average. America’s Car-Mart would have to make a surprising move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. CRMT shares have fallen more than 20% this year alone, all while the major indexes have shown strength.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to hit new highs anytime soon. The fact that CRMT stock is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
Highlighted underperformance bodes well for the bears. Potential investors may want to consider including this stock as part of a short or hedge strategy. Bulls will want to steer clear of CRMT shares until the situation shows major signs of improvement.
Additional content:
Energy Comprises 9.9% of Buffett's Portfolio: 2 Stocks to Watch
The Oracle of Omaha and his team have demonstrated a strong preference for oil and energy stocks, as evidenced by the fact that 9.9% of Berkshire Hathaway's total portfolio value is invested in two major energy companies — Chevron Corp. and Occidental Petroleum Corp. According to data from Stockcircle, Berkshire Hathaway's current total portfolio value stands at $361 billion.
This significant investment in energy stocks underscores the belief that the demand for fossil fuels will likely persist throughout this decade despite the rapid growth of investments in renewable energy and renewable fuels.
Investing in these two energy stocks likely reflects Warren Buffett's strong preference for companies with robust balance sheets, a characteristic increasingly evident in Occidental Petroleum. Following the $55 billion acquisition of Anadarko in 2019, Occidental Petroleum saw a significant rise in its debt load. However, through disciplined spending and benefiting from sustained high oil prices, the company has managed to substantially reduce its debt burden.
2 Stocks to Keep an Eye on
Considering the backdrop, it would be wise to keep an eye on these two energy stocks, each carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Chevron generates most of its earnings from its upstream operations. With a current holding value of $19.5 billion in this energy giant – per data from Stockcircle –, it’s apparent that Buffett and his team are likely bullish on oil prices and appreciate Chevron's position as one of the largest producers of oil and gas in the Permian Basin, the most prolific in the United States. In addition to maintaining disciplined capital spending, Chevron has a strong balance sheet, providing a solid foundation to rely on during unfavorable energy market conditions.
As an integrated energy player, Chevron also benefits from a diversified energy business, including downstream operations, which helps stabilize its earnings during periods of low oil prices. Currently, CVX is Berkshire’s fifth-biggest stock holding.
Recently, there was news that Warren Buffett has bought more shares of Occidental Petroleum for nine straight days, driving its stakes in the energy player to 29%. Currently, OXY ranks as the sixth-largest stock holding in Berkshire Hathaway's portfolio.
Crucially, Berkshire holds warrants that grant it the right to purchase an additional 83.9 million common shares of the energy company for $5 billion, with each share priced at $59.62. With the stock closing yesterday at $62.87 per share, Warren Buffett's warrants are now deemed "in the money."
To gain insight into Warren Buffett and his team's rationale for including this stock in their portfolio, one should consider their optimistic outlook on oil prices and the company's strong presence in the upstream sector. Occidental Petroleum is actively addressing its substantial debt burden, having reduced it from $47.6 billion in long-term debt as of the third quarter of 2019 to $18.5 billion by the first quarter of 2024.
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Chevron Corporation (CVX): Free Stock Analysis Report
Occidental Petroleum Corporation (OXY): Free Stock Analysis Report
America's Car-Mart, Inc. (CRMT): Free Stock Analysis Report
Leidos Holdings, Inc. (LDOS): Free Stock Analysis Report