Chicago, IL – December 5, 2024 – Zacks Equity Research shares Stride LRN as the Bull of the Day and Fox Factory Holding Corp. FOXF as the Bear of the Day. In addition, Zacks Equity Research provides analysis on United Airlines UAL, Delta Air Lines DAL and American Airlines AAL.
Here is a synopsis of all five stocks.
The price movement is a sign of strength as we head deeper into the historically-positive fourth quarter. Increasing volume has attracted investor attention as buying pressure accumulates in this top-ranked stock.
Stride is part of the Zacks Schools industry group, which currently ranks in the top 5% out of more than 250 industries. Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next 3 to 6 months.
Historical 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 industries, we can dramatically improve our stock-picking success.
Stride offers products and services that enable clients to attract, enroll, educate, and facilitate individualized learning for students. The company provides an integrated package of systems, services, and professional expertise to support a virtual or blended public school; software and services to schools and school districts; and individual online courses and supplemental educational products.
With a focus on general education including subjects such as math, English, science, and history for K-12 students, Stride also offers post-secondary career learning programs including training for software engineering, health care, and medical fields to adult learners. The company serves public and private schools, charter boards, consumers, employers, and government agencies.
Stride, which was formerly known as K12 Inc., was incorporated in 1999 and is headquartered in Reston, Virginia. It was named of the nation’s leading technology-based education companies by the 2024 BIG Awards for Business, highlighting the company’s commitment to delivering accessible, personalized, and career-centric virtual learning experiences.
A premier education provider, Stride has built up an impressive earnings history, surpassing earnings estimates in each of the past eight quarters. The company has delivered a trailing four-quarter average earnings beat of 100.8%.
Back in October, Stride reported third-quarter earnings of 94 cents per share, a 370% surprise over the $0.20/share consensus estimate. Revenues of $551.1 million also exceeded projections by 10.2%.
Analysts are bullish on the stock and have been raising earnings estimates across the board. The fourth-quarter consensus EPS estimate has been revised upward in the past 60 days by 19.4% to $1.97/share. If the company is able to achieve this, it would translate to a 27.9% growth rate versus the same quarter last year.
This market leader has seen its stock advance more than 85% 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 higher highs throughout the year. With both strong fundamental and technical indicators, LRN 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, Stride has recently witnessed positive revisions. As long as this trend remains intact (and LRN continues to deliver earnings beats), the stock will likely continue its bullish run.
Backed by a leading industry group and history of earnings beats, it’s not difficult to see why Stride stock is a compelling investment. Robust fundamentals combined with an appealing technical trend certainly justify adding shares to the mix.
Recent positive earnings estimate revisions should also serve to create a ‘floor’ in terms of any sudden or unexpected downside moves. If you haven’t already done so, be sure to put LRN on your shortlist.
Fox Factory Holding Corp. designs, engineers, and manufactures performance-defining products and systems worldwide. The company provides its products for high-end bicycles and a variety of powered vehicles including on-road, off-road, all-terrain, snowmobiles, and military trucks.
In addition, Fox offers lift kits and components, rear suspension products, tuning services, as well as wheels and accessories. The company also serves aftermarket products under brands such as BDS Suspension, Zone Offroad, JKS Manufacturing, FOX, and Marzocchi.
Amid an intensifying and competitive environment, Fox faces challenges with OEM partners reducing their demand forecasts, impacting revenue. The company anticipates ongoing pressure on demand in 2025 as a difficult retail environment is expected to linger.
Fox Factory Holdings, a Zacks Rank #5 (Strong Sell) stock, is a component of the Zacks Automotive – Domestic industry group, which currently ranks in the bottom 48% out of approximately 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.
Stocks in the bottom tiers of industries can often be intriguing short candidates. While individual stocks have the ability to outperform even when they’re part of a lagging industry, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
Along with many other automotive-related stocks, FOXF shares have been underperforming this year while the general market returned to new heights. The stock is hitting a series of lower lows and represents a compelling short opportunity as we approach the New Year.
In the latest quarter, Fox stated that both its biking and powered vehicle segments were weaker than anticipated as excess inventory among manufacturers was reduced. As we’ll see, the company reported earnings below expectations and lowered full-year EPS guidance.
Fox Factory Holdings has fallen short of earnings estimates in three of the past five quarters. Back in October, the company reported third-quarter earnings of 35 cents per share, missing the $0.42/share Zacks Consensus Estimate by -16.7%.
Fox’s gross margin decreased to 29.9% from 32.4% in the same period last year, driven by shifts in the product offering and reduced operating leverage. Net income for the quarter plunged to $4.8 million from $35.3 million during the year-ago period. Revenues of $359.12 million also missed the Zacks Consensus Estimate by -2.02%.
Consistently falling short of earnings estimates is a recipe for underperformance, and FOXF is no exception.
The company has been on the receiving end of negative earnings estimate revisions as of late. Looking at the current quarter, analysts have slashed estimates by a whopping -40.82% in the past 60 days. The Q4 Zacks Consensus EPS Estimate is now $0.29/share, reflecting negative growth of -39.6% relative to the same quarter in the prior year.
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.
As illustrated below, FOXF stock is in a sustained downtrend. Notice how the stock has made a series of lower lows, widely underperforming the major indices. Also note that shares are trading below downward-sloping 50-day (blue line) and 200-day average (red line) moving averages – another good sign for the bears.
FOXF stock has experienced what is known as a “death cross,” whereby the stock’s 50-day moving average crosses below its 200-day moving average. The stock would have to make an outsized move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. Shares have fallen more than 50% this year alone.
A deteriorating fundamental and technical backdrop show that this stock is not set to make its way to new highs anytime soon. The fact that FOXF 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.
Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of FOXF until the situation shows major signs of improvement.
United Airlines shares are among the cheaper ones in the Zacks Transportation—Airline industry. The company has a Value Score of A presently.
UAL stock trades at a discount with a forward 12-month P/S of 0.52X compared with the industry’s 1.18X.
Its valuation is cheaper than that of fellow industry players like Delta Air Lines, which are attractive to investors.
Now, the question is whether it is worth buying the stock at current prices. Let us dig deeper to find out.
The stronger-than-expected recovery of air travel demand following the pandemic has been supporting growth of airline stocks like United Airlines. While air travel demand is particularly strong on the leisure front, it is heartening to note that business demand has made an impressive comeback.
UAL’s ability to capitalize on strong corporate travel volumes and premium leisure demand serves it well as the focus on these higher-yield segments aids growth. Driven by strong demand, corporate revenues increased 13% year over year in September. In the third quarter, premium revenues were up 5% year over year and revenues from Basic Economy were up 20% year over year. Owing to buoyant air travel demand, United Airlines posted a significant year-over-year increase (5.7%) in revenues during the first nine months of 2024. This year-over-year increase in the top line was driven by a 5.3% rise in passenger revenues (accounting for 90.9% of the top line).
The Thanksgiving holiday period is likely to have attracted substantial traffic with UAL expecting the same to be the busiest ever. Per UAL’s expectations, 6.2 million passengers were transported by its flights between Nov. 21 and Dec. 3. Per the forecast, nearly 480,000 people per day flew on UAL flights — about 30,000 more people per day than last year.
Driven by the uptick in bookings to European destinations, UAL expects to carry 25 million passengers during the holiday period, up 6% from the year-ago level. In the event of this expectation materializing, 2024 would represent the busiest holiday period yet for UAL. We remind investors that UAL had a busy summer this year as well, carrying a record 48 million passengers.
The southward movement of oil price bodes well for the bottom-line growth of airlines, including UAL. This is because fuel expenses are a significant input cost for the aviation space. Notably, oil prices declined 14% in the July-September period, mainly due to weakening global demand.
China's economy, the world’s largest oil importer, struggled with a slowdown in manufacturing, shrinking for the fifth consecutive month by September. In third-quarter 2024, expenses on aircraft fuel at UAL decreased 10.4% year over year to $3 billion. Average fuel price per gallon (adjusted) decreased to $2.56 from $2.95 a year ago. Average fuel price per gallon decreased to $2.73 in the first nine months of 2024 from $2.97 in the first nine months of 2023.
Driven by upbeat air travel and low fuel costs, UAL shares have outperformed its industry and fellow-airline operators American Airlines and Delta over the past three months.
On a shareholder-friendly note, in October, UAL’s management announced a $1.5 billion share buyback plan. This was the first buyback program announced by UAL since suspending share repurchases during the pandemic.
The restrictions, under the CARES Act, prohibited airlines from paying dividends or buying back shares till Sept. 30, 2022. The new buyback program highlights UAL’s financial strength. It aims to commence execution of the repurchase program from the ongoing quarter and throughout 2025. This program will be funded by free cash flow generation as the carrier expects its profitability to improve.
United Airlines’ environment-friendly approach is commendable as well. UAL aims to achieve net-zero emissions by 2050 without relying on traditional carbon offsets. United Airlines’ cost-management strategy is praiseworthy as well.
UAL’s expansion strategy, coupled with a focus on premium demand, serves it well and positions the Chicago-based carrier to capture a larger slice of the recovering travel market. Under its expansion strategy, UAL intends to offer nearly 60 nonstop flights each day from its hubs in the United States to Europe in November and December to meet the demand swell. This offering by UAL is more than any other U.S. airline.
Donald Trump's re-election is a positive for the airline industry and is expected to lead to a return to the pro-business stance that characterized his first term. The anticipation of a more relaxed regulatory environment under Trump's leadership is likely to lead to lesser scrutiny. This is expected to boost mergers and acquisitions in the industry. More mergers in the airline industry are expected to cut route capacity, which is expected to make airlines more profitable.
Reflecting the positive sentiment around UAL, the Zacks Consensus Estimate for earnings per share for the fourth quarter of 2024, as well as the full year and next year, has seen upward revisions over the past 60 days. The positive revision trend reflects confidence in UAL's ability to deliver strong financial performances.
UAL stock, as highlighted throughout the write-up, presents a compelling investment opportunity now. This Zacks Rank #2 (Buy) undervalued stock is an ideal candidate for addition to one’s portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
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