Royal Caribbean, and Advance Auto Parts have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL –August 26, 2024 – Zacks Equity Research shares Royal Caribbean Group RCL, as the Bull of the Day and Advance Auto Parts, Inc. AAP, as the Bear of the Day. In addition, Zacks Equity Research provides analysis on PulteGroup, Inc. PHM, KB Home KBH and Toll Brothers, Inc. TOL.
Here is a synopsis of all five stocks:
Bull of the Day:
Royal Caribbean Group has been seeing strong demand for cruises in 2024. This Zacks Rank #1 (Strong Buy) recently raised full year earnings guidance.
Royal Caribbean operates a global fleet of 68 cruise ships across five brands. Its ships travel to approximately 1,000 destinations, serving millions of guests each year. Its brands include Royal Caribbean International, Celebrity Cruises and Silversea.
The company also owns 50% of a joint venture which operates TUI Cruises and Hapag-Lloyd Cruises.
Another Earnings Beat in Q2 2024
On July 25, 2024, Royal Caribbean reported its second quarter 2024 earnings and beat on the Zacks Consensus by $0.44. Earnings were $3.21 versus the Consensus of $2.77.
It was the 10th consecutive earnings beat. You have to go back to early 2022 to find a miss.
Royal Caribbean beat its own guidance for the quarter due to stronger pricing on close-in demand and continued strength in onboard revenue.
Gross Cruise Costs per Available Passenger Cruise Days (“APCD”) increased 4.9%.
The demand and pricing environment remained strong in Q2. Booking volumes were higher than the same period in 2023 and at record pricing levels.
Royal Caribbean continued to see record booked position for 2024 sailings and consumer spending onboard. Pre-cruise purchases continued to “significantly exceed” 2023 levels.
The strong demand also appears to be continuing into bookings for 2025, as the company is already taking more bookings for 2025 sailing than 2024.
How Good Is It? Royal Caribbean Raised Full Year Guidance
With this strong demand continuing, it shouldn’t be a surprise that Royal Caribbean raised its full year earnings guidance. It raised the range to $11.35 to $11.45. This was above the Zacks Consensus.
The analysts followed suit, revising their estimates higher for 2024.
5 estimates were raised in the last 30 days, pushing the Zacks Consensus above the company’s new guidance range, to $11.50, from the previous consensus of $11.14.
That’s earnings growth of 69.9% versus 2023 as Royal Caribbean earned just $6.77 last year.
The analysts are also bullish about what they heard for 2025 too. 5 estimates were revised higher for next year in the last month, pushing up the Zacks Consensus to $13.39. That’s another 16.4% earnings growth.
Royal Caribbean Re-Started the Dividend
Royal Caribbean was so bullish about meeting its financial goals, a full 18 months early, thanks to strong bookings the last few years, that it reinstated the quarterly dividend. It will pay $0.40 per quarter.
That’s a yield of 1%.
Shares of RCL Soar but Are Still Cheap
The stock has been on quite a run the last year. It has easily outperformed the S&P 500, which hasn’t been a slouch itself.
Royal Caribbean hit new 5-year highs this year before pulling back in the recent market sell-off.
But it’s still attractively priced. It trades with a forward Price-to-Earnings (P/E) ratio of just 13.7. A P/E ratio under 15 is considered to be a value stock.
And with the big earnings growth expected, and the low P/E, it has a PEG ratio, which is the P/E divided by growth, of just 0.4. A PEG ratio under 1.0 usually indicates a company has both value and growth, a rare combination.
The Street is worried that the consumer is done with all their vacation spending. Royal Caribbean has said otherwise.
For investors looking for a play on travel and experiences, Royal Caribbean should be on your short list.
Bear of the Day:
Advance Auto Parts, Inc. is struggling in a challenging retail environment. This Zacks Rank #5 (Strong Sell) recently missed on earnings for the 6th quarter in a row.
Advance Auto Parks is an automotive aftermarket parts providers that serves both professional installers and do-it-yourself (DIY) customers.
As of July 13, 2024, Advance Auto Parks operated 4,776 stores and 321 Worldpac branches mostly in the United States but with additional locations in Canada, Puerto Rico, and the US Virgin Islands. It also sells online at its website of AdvanceAutoParts.com.
Another Miss in the Second Quarter of 2024
On Aug 22, 2024, Advance Auto Parts reported its second quarter 2024 results and missed again on earnings. It reported $0.75 versus the Zacks Consensus of $0.97, or a miss of $0.22.
Sales were flat compared to the year ago quarter, at $2.7 billion.
Comparable store sales, a key metric for retailers, was up, but just 0.4%. But the company saw this as a win due to the “challenging demand environment” during the quarter.
Selling Worldpac for $1.5 Billion
On Aug 22, 2024, Advance Auto Parts also announced it was selling its wholesale distribution business, Worldpac, to Carlyle for $1.5 billion in cash.
This will allow Advance Auto Parts to focus on the big box retail component of the business and will free up some ready cash.
The transaction is expected to close by the end of the year.
Analysts are Bearish as They Cut Earnings Estimates
Analysts are bearish on Advance Auto Parts. 3 estimates have been cut for both 2024 and 2025 over the last month.
The 2024 Zacks Consensus has fallen to $3.61 from $3.94 over the last 90 days. But that is still earnings growth of 622% as the company only made $0.50 last year.
3 estimates have also been cut for 2025 over the last month as well. That has pushed the Zacks Consensus down to $4.25 from $4.46 over the last 90 days. That’s further earnings growth of 17.9%.
However, for 2024, the company’s comparable store sales guidance remained weak at a range of a decline of 1.0% on the low end and flat, or 0.0%, on the high end.
Shares of Advance Auto Parts Near New 5-Year Lows
Once a pandemic winner, shares of Advance Auto Parts have now sunk to new 5-year lows. It is going the opposite direction from the S&P 500 over that period.
Is it cheap?
Advance Auto Parts trades with a forward P/E of 13.6.
It is also paying a dividend, currently yielding 2%.
But with the analysts so pessimistic, investors may want to wait on the sidelines for a turnaround in comp sales. That's when you'll know the business is turning ti around.
Additional content:
US Mortgage Rates Drop to a New Low in 2024! 3 Big Gainers
Affordability issues have largely impacted home buyer’s sentiments all through the year. Their incomes were also stretched due to elevated interest rates, a frustration for the housing market. However, with interest rate cut expectations growing, mortgage rates dropped to their lowest level this year.
With mortgage rates sliding, things are hunky-dory for PulteGroup, Inc. , KB Home and Toll Brothers, Inc. making them enticing buys.
Mortgage Rates Fall Under 6.5%
For the week ending on Aug 22, the most sought-after 30-year fixed-rate mortgage slipped to its lowest level since May 2023. The 30-year fixed mortgage average rate was 6.46%, down from last week’s 6.49%, according to Freddie Mac.
Similarly, the average rate on the 15-year fixed-rate mortgage slipped again this week, an encouraging development for probable house hunters. The rate on a 15-year loan averaged 5.62%, down from 5.66% in the prior week, added Freddie Mac.
To top it off, the average rate on the 30-year and 15-year fixed-rate mortgages fell noticeably in over a year. The average rate for 30-year and 15-year fixed mortgages was 7.23% and 6.55%, respectively, a year ago, per the government-sponsored enterprise.
Why Are Mortgage Rates Falling?
Growing expectations of a long-awaited interest rate cut as early as September are pushing the yields on long-term bonds lower, which in turn is dragging mortgage rates downward.
Fed minutes from the Jul 30-31 meeting recently showed that most central bank officials have agreed that a September interest rate cut would be appropriate as inflationary pressure has ebbed.
Moreover, weakness in the U.S. labor market, with 818,000 fewer jobs being added in the 12 months ending in March, has further raised hopes that the Fed will dial back its aggressive monetary policy as early as possible. Market participants now seek further interest rate cut hints from Fed Chair Jerome Powell at the Jackson Hole Symposium (read more: Jackson Hole Event is Bullish for Stocks: HCA, RCL, GM to Gain).
Anyhow, 75.5% of traders are now pricing in a 25 basis points interest rate cut at the September policy meeting, with many expecting at least two rate cuts this year, per CME FedWatch Tool (read more: Tamed Inflation Bolsters September Rate Cut: PHM, MU, ATO to Gain).
Drop in Mortgage Rates Are a Boon for PHM, KBH, TOL
The steady decline in mortgage rates should motivate potential homebuyers, a blessing in disguise for homebuilders. What’s more, with millennials about to settle into a family life, demand for a suitable home is all set to rise. Interestingly, existing home sales increased by 1.3% to an annual rate of 3.95 million in July, per the National Association of Realtors.
Given the positives, astute investors should invest in fundamentally sound housing stocks for striking returns. These stocks flaunt a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
PulteGroup
PulteGroup is involved in homebuilding businesses in the United States. PulteGroup’s balanced operational model improved its revenues and earnings.
The Zacks Consensus Estimate for PHM’s current-year earnings has increased almost 4% over the past 60 days. The company’s expected earnings growth rate for the current year is nearly 14%.
KB Home
KB Home is an established homebuilder in the United States. The company’s solid pricing strategy helped KB Home’s shares to gain considerably this year.
The Zacks Consensus Estimate for KBH’s current-year earnings has increased 2.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 19.2%.
Toll Brothers
Toll Brothers builds single-family detached and attached homes. The company’s land acquisition stratagems and build-to-order model led to Toll Brothers’ growth.
The Zacks Consensus Estimate for TOL’s current-quarter earnings has increased 1.2% over the past 60 days. The company’s expected earnings growth rate for the current year is 14.2%.
Shares of PulteGroup, KB Home, and Toll Brothers have gained 25.2%, 30.9% and 37.4%, respectively, year to date.
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Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report
PulteGroup, Inc. (PHM) : Free Stock Analysis Report
Advance Auto Parts, Inc. (AAP) : Free Stock Analysis Report
Toll Brothers Inc. (TOL) : Free Stock Analysis Report
KB Home (KBH) : Free Stock Analysis Report