Chicago, IL – May 26, 2022 – Zacks Equity Research shares Malibu Boats MBUU as the Bull of the Day and Align Technology ALGN as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Genuine Parts Co. GPC, LKQ Corp. LKQ and Standard Motor Products SMP.
Here is a synopsis of all five stocks:
Malibu Boats is a Zacks #1 (Strong Buy) that operates as a designer, manufacturer and marketer of recreational powerboats. The company operates in three segments: Malibu, Cobalt and Saltwater Fishing. Its brands include,Axis, Maverick, Cobalt, Pursuit and Malibu, which are primarily used for recreational boating and fishing.
Like most stocks in 2022, it's been a hard year for MBUU. However, the company recently reported a strong earnings beat, which has brought renewed buying interest for the stock. Estimates are now headed higher as the company is stepping up to supply chain challenges
Malibu is headquartered in Loudon, Tennessee and was founded in 1982. The company operates through a network of independent dealers and employs over 2,600.
Malibu has a market cap of about $1.1 Billion and has Zacks Style Scores of "A" in Growth, Value and Momentum. The Forward PE is 7 and the company offers no dividend.
Malibu reported earnings earlier this month, seeing a 34% beat. This surprise to the upside added to the winning streak of earnings beats for the company, who hasn't missed since 2016.
Malibu Boats, Inc. price-eps-surprise | Malibu Boats, Inc. Quote
Revenues also came in above expectations, with the company reporting $344M v the $302M expected. Unit volumes were up 4.4% y/y and EBITDA margin went to 23.2% from 20.9% last year.
Malibu raised FY22 to 28-29% y/y and sees EBITDA margin approaching 20.5%.
Management said the company was able to ship more units than expected, in spite of the supply chain challenges across the industry. Malibu believes that their M&A strategy has become a competitive advantage and they have been able to expand their vertical integration model to give support to their brands and manufacturing. The company cites operational excellence as the reason for margin expansion, which has offset inflationary pressure.
After earnings, analysts had some very positive comments and raised their estimates.
Truist commented on the record margins that propelled that Q3 beat. They added that production volumes outpaced their estimates and reiterated their Buy rating and $80 target.
B.Riley also was impressed for the same reasons and says margin expansion bodes well for 2023. The firm has a Buy rating and a $103 price target, or 75% above current trading levels.
KeyBanc was another firm that reiterated its overweight target, but they did drop their PT to $80 from $94. This was due to macro reasons keeping investors on the sidelines for now, but they added the path of least resistance is higher when risk appetite shifts.
The positive quarter and outlook brought earnings estimates higher across the board. While the upcoming quarter have only seen slight adjustments, the numbers are spiking over the next couple years.
For the current year, estimates have jumped from $7.08 to $7.79 over the last 60 days. This is a 10% jump, which compares to the 8% hike for next year.
The stock took off in the back half of 2020, as consumers took their stimulus money and bought items like boats. The stock topped out at $93 in early 2021, but fell back under $50 just a month ago.
On that pullback under $50, the stock came into a 61.8% Fibonacci retracement drawn from the COVID lows to 2021 highs. This level just under $50 found support just before the stock spiked after earnings.
The bulls took the stock over $60, but got a little too excited. The stock was quickly sold, but found support at the 50-day moving average. The bulls now have control and will look to drive the stock higher, possibly up to the 200-day moving average at $65.
Unlike many stocks out there, Malibu is seeing margin expansion and strong earnings. This makes it a rare commodity in a market where stocks have trouble going higher.
Malibu might see an above average move higher when money starts to flow into stocks again. Investors should watch for continued strength in the stock and get ready to pounce when the market turns.
Align Technology is a Zacks Rank #5 (Strong Sell) that is a medical device company that designs, manufactures, and markets Invisalign clear aligners and iTero intraoral scanners and services. Their products are for orthodontists and general practitioner dentists, and restorative and aesthetic dentistry.
The stock had a great couple years, going from $200 during the COVID panic, to a high of $737 last year. However, 2022 has not been kind, with the stock down about 60% this year.
While market sentiment is one reason the stock is lower, a recent earnings report forced investors to capitulate.
So is now the time to buy? Or is there more pain to come.
Align is headquartered in Tempe, AZ. The company employs over 23,000 people and was founded in 1997.
The company has two operating segments, Clear Aligner and CAD/CAM Services. The Clear Aligner segment is over 80% of revenues and deals with the popular Invisalign system. The CAD/CAM Services segment deals with the iTero intra-oral scanners and OrthoCAD services.
ALGN is valued at $21 billion and has a Forward PE of 26. The company holds a Zacks Style Score of "D" in Value and "B" in Growth. The stock does not pay out a dividend.
Align reported EPS back in April, seeing a 5% miss. Revenues came in below expectations, with the company seeing $973M v the $1.00B expected.
The company did affirm its long-term growth target of +20-30%, but operating margins fell from 28.6% last year to 24%. The company is planning on repurchasing shares, but analysts are aggressively lowering estimates.
Over the last 60 days, estimates are trending lower for all timeframes.
For the current quarter, estimates have dropped from $3.13 to $2.30, or 26%. For the current year, estimates fell to $10.14 from $12.59, or 19%.
In addition to estimates going lower, analysts dropped price targets after the earnings report. Margins are to blame, which is a common theme in 2022.
Goldman Sachs did maintain a Buy, but lowered their price target from $650 to $380. Stifel also maintained their Buy rating, but lowered targets from $575 to $425.
While those targets are well above the current price, those are big percentage drops. This has put pressure on the stock since EPS and it is currently trading at 2022 lows.
There is really nothing to like when looking at the ALGN chart. The stock is trading below all the moving averages and can't seem to get back above the $300 level. For now, the stock should be avoided until it can't get above that area.
For those looking to get a bargain, they should wait for lower prices. The $220 level was the area the stock traded before the 2020 breakout. This might be the spot where buyers step in as the whole post-COVID trade would finally be unwound.
Align is going to be trapped under $300 until market conditions change. The margins pressure will scare investors off and with the PE at 26, the value aspect is not there.
Per the latest report by S&P Global Mobility, the average age of U.S. vehicles hit a new record of 12.2 years in 2021. This marks the fifth consecutive year of increase in the average age of vehicles on U.S. roadways.
These aging vehicles could serve as a catalyst for auto replacement parts companies like Genuine Parts Co., LKQ Corp. and Standard Motor Products. But before delving into that, let's take a look at the factors that are lifting U.S. vehicles' average age and find out whether the auto replacement parts companies are in for a smooth ride in the days ahead.
For starters, the quality of vehicles has improved amid the technological advancement as a result of which they are lasting longer. But what has really moved the needle over the past two years has been the pandemic-induced chip crunch. It should be noted that the average age of vehicles crossed 12 years for the first time in 2020.
The chip famine had forced automakers to slash production owing to the scarcity of parts. Supply chain disruptions tightened inventory levels of both new and used vehicles in the dealerships. This is likely to have influenced customers to continue using their existing vehicles rather than replacing them with a new vehicle.
While the demand for cars has been strong, automakers haven't been able to keep pace with the buyers' appetite. This supply-demand mismatch has resulted in rising prices of vehicles, which brings us to the third factor contributing to the increasing average of vehicles. With the prices of vehicles going through the roof, more buyers have been choosing to postpone purchases. Customers are not willing to pay a heavy premium and instead prefer waiting and continue using their existing vehicle longer.
The average age of U.S. vehicles is expected to keep rising for the next couple of years as the auto industry continues to battle the chip dearth, which is preventing the dealerships from replenishing their lots. As we know, the supply chain snafu has been compounded by the Russia-Ukraine war and the resurgence of COVID-19 restrictions in China. This will likely keep a lid on inventory levels.
Many industry watchers believe that this chip shortage will linger well into 2023, leading to lost production and revenues for carmakers. Additionally, 40-year high inflation, rising interest rates and concerns regarding economic slowdown will likely result in customers delaying discretionary expenses like cars, especially when the prices of the same would continue to be high amid tight inventory.
It should be noted that the scrappage rate in 2021 as a percentage of total vehicles on road was just 4.2% — the lowest in the past 20 years. And this comes as a stark contrast to the 2020 rate of 5.6% — the second-highest scrappage rate in two decades.
Meanwhile, vehicle miles traveled has also returned to pre-pandemic levels. Per S&P global Mobility, U.S. light vehicles traveled around 12,300 miles on average, up 10% from the 2020 levels. Miles traveled are anticipated to witness a similar rate of increase in 2022.
With drivers putting more miles on their cars coupled with the increasing average age of vehicles, the need to fix and repair these aging vehicles is set to drive the business of auto replacement and repair companies.In a bid to ensure the long-term functioning of the aging vehicles, customers will more likely spend on expensive repairs instead of splurging on a high-priced new vehicle amid economic uncertainty.
The longevity of vehicles will thus act as a tailwind for the auto replacement parts industry. In this regard, below we have highlighted a few stocks from the industry that could benefit from the trend of increasing average age of vehicles.
Genuine Parts: Atlanta-based Genuine Parts distributes automotive and industrial replacement parts and materials. As of Dec 31, 2021, the company had a network of more than 10,000 locations across 15 countries. GPC's strategic acquisitions to improve product offerings and expand its geographical footprint are commendable.Strategic bolt-on acquisitions including Winparts, Rare Spares, PartsPoint and Alliance Automotive Group are adding to the top-line growth of GPC.
Genuine Parts' upbeat 2022 view has sparked optimism. The company forecasts full-year adjusted earnings per share in the band of $7.70-$7.85, higher than the previous forecast of $7.45-$7.60. Free cash flow is projected in the band of $1.2-$1.4 billion, indicating a surge from $992 million generated in 2021. GPC currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2022 earnings and sales implies year-over-year growth of 13.6% and 12.2%, respectively.
LKQ: Illinois-based LKQ is one of the leading providers of replacement parts, components, and systems that are required to repair and maintain vehicles.LKQ's strategic acquisitions are boosting its prospects. The buyouts of Elite Electronics, Green Bean Battery, Greenlight and Fabtech Industries have bolstered the firm's product offerings. LKQ merged its subsidiary, Auto Kelly Bulgaria, with ElitKar, creating one of Bulgaria's leading distributors of automotive spare parts. The more recent acquisitions of Hanu and SeaWide Marine Distribution will further aid top-line growth.
LKQ forecasts organic revenue growth for parts and services in the range of 4.5-6.5% for 2022. Encouragingly, the company has updated its 2022 adjusted EPS projection to $3.80-$4.10 from the earlier $3.72-$4.02 per share. The stock currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for 2022 sales implies year-over-year growth of 2%. The consensus mark for 2022 earnings has moved 4 cents north in the past 30 days to $3.95 per share.
Standard Motor: New York-based Standard Motor is one of the leading manufacturers, distributors, and marketers of premium automotive replacement parts for engine management and temperature control systems. Triple buyouts of Trombetta, Stabil and the particulate matter sensor business of Stoneridge (all closed in 2021) are expected to drive the top line of Standard Motor.The three acquisitions together are set to add $300 million to the firm's annual sales.
The Zacks Consensus Estimate for SMP's 2022 EPS and sales implies year-over-year growth of 2% and 6.4%, respectively. The consensus mark for 2022 earnings per share has been revised upward by 10 cents over the past 30 days to $4.54. Over the trailing four quarters, Standard Motor topped the consensus estimate for earnings on all occasions, the average surprise being 40.3%. SMP currently carries a Zacks Rank #3.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here
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Genuine Parts Company (GPC) : Free Stock Analysis Report
Align Technology, Inc. (ALGN) : Free Stock Analysis Report
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LKQ Corporation (LKQ) : Free Stock Analysis Report
Malibu Boats, Inc. (MBUU) : Free Stock Analysis Report
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