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Zacks Industry Outlook Highlights CVS Health, Walgreens Boots Alliance, Rite Aid and Amazon

Zacks Industry Outlook Highlights CVS Health, Walgreens Boots Alliance, Rite Aid and Amazon

For Immediate Release

Chicago, IL – January 25, 2023 – Today, Zacks Equity Research discusses CVS Health CVS, Walgreens Boots Alliance WBA, Rite Aid RAD and Amazon’s AMZN.

Industry: Pharmacy & Drugstore

Link: https://www.zacks.com/commentary/2043036/3-retail-pharmacy-and-drugstore-stocks-to-watch-amid-industry-headwinds

The past three years of the public health crisis have significantly altered the structure and trend of the Retail – Pharmacies and Drug Stores industry. On a positive note, amid the ongoing supply-chain disruption and staffing shortages within healthcare, the retail pharmacy business has been in high demand, thanks to the exponentially growing demand for distant medical services and remote patient care. Particularly, mail-order pharmacies are registering growth on account of telehealth and remote monitoring services.

Added to this, with digitization, retail industry players are significantly strengthening their omnichannel presence from sole brick-and-mortar dependency. All these are creating unique opportunities for stalwarts within the industry like CVS Health, Walgreens Boots Alliance and Rite Aid, which are investing strategically in easy patient access to prescription and maintenance medications.

However, the majority of the retail drug store heavyweights have been southbound due to the ongoing pressure of drug pricing and reimbursement. Further, with a decline in the severity of COVID-19, the demand for related retail health support has decreased meaningfully, resulting in a significant drop in pandemic-led revenue generation for the industry players.

Last but not least, perceiving the huge growth prospects of this space, there has been a number of new entries in this industry, increasing the competitiveness of the space. Especially, a stalwart like Amazon‘s entry into the retail drugstore space has created a survival issue among the existing entities.

Industry Description

The Zacks Retail – Pharmacies and Drug Stores industry includes retailing of a range of prescription and over-the-counter medications. The broad retail network of companies within the retail pharmacy industry delivers advanced health solutions to patients, customers and caregivers.

Over the past few years, the scope of the retail pharmacy and drugstore market has expanded exponentially. In North America, some of these entities evolved to add wellness products and groceries to their traditional portfolio of prescription and over-the-counter medications. Looking at the attractive growth potentials of this industry,  non-healthcare leaders like Amazon, in 2018, acquired pharmacy delivery startup PillPack to enter the U.S. healthcare space.

3 Trends Shaping the Future of the Retail – Pharmacies and Drug Stores Industry

Industry Trend Remains Dismal Amid Reimbursement Pressure: Brand-name drugs, which hold wide profit margins, are protected with a reliable supply chain. However, the low-margin generic drugs, which have a fragile supply chain network, have been bearing the brunt of the pandemic-induced economic slump. Drug retailers are also witnessing a constant rise in medicine prices, stemming from the rising cost of raw materials of drugs.

The industry players are currently grappling with continued pressure from non-reimbursable pharmacy expenses, which are significantly pulling down the mass demand for prescription as well as over-the-counter drugs and vaccinations. It has been widely observed that patients are replacing prescription medicines with low-cost generic drugs.

Amazon’s Entry Steals Market Share: A Business Insider report in 2021 came up with the speculation that there have been discussions about Amazon setting up standalone stores in a few locations, including Boston and Phoenix. Further, per the report, which cites insider sources, Amazon is exploring plans to place the pharmacies inside Amazon-owned Whole Foods locations. Earlier, following its entry, the e-commerce giant grabbed a significant chunk of the online pharmacy market from the legacy retail drug store space.

Amazon Pharmacy’s omichannel performance has been significantly robust since the inception. Going by a Viseven report of Jan 5, 2023, Amazon’s omnichannel experiences are the keystone to customer retention that help to cover previous sales reductions. This has already significantly increased competition in the retail pharmacy market. Needless to say, the speculation of Amazon planning to enter the Brick-And-Mortar space has come as a major blow to the industry, putting retail pharmacy and drugstore stocks in a tighter spot.

Online Pharmacy and Mail Order Boom: The widespread shelter-in-place regulations since the beginning of the pandemic have created a significant shift in demand toward mail order and online pharmacies. Experts say that this transition is expected to last even after the pandemic is over. Data claims that COVID-19 has only accelerated the already-growing demand for e-pharmacy and mail-ordered home delivery systems.

Going by a Patch report, “Two years ago, 11{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of U.S. adult pharmacy customers got their prescription from an online pharmacy, based on a survey conducted by market research firm CivicScience, [.] That figure has been steadily rising over the years, according to Statista.com, an online statistics portal.” With Amazon’s big move into the healthcare space, the retail pharmacy industry entered a new phase of fierce competition. To counter this rivalry, the companies are strategically attempting to gain in size and scale.

Zacks Industry Rank Indicates Dull Near-Term Prospects

The industry’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. The Zacks Retail – Pharmacies and Drug Stores industry, housed within the broader Zacks Retail and Wholesale sector, currently carries a Zacks Industry Rank #190, placing it in the bottom 24{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of more than 250 Zacks industries. Our research shows that the top 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of the Zacks-ranked industries outperforms the bottom 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} by a factor of more than 2 to 1.

We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Underperforms S&P 500 & Sector

The Zacks Retail – Pharmacies and Drug Stores industry has underperformed the Zacks S&P 500 composite as well as its sector over the past year. The stocks in this industry have collectively lost 20{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} over this period, while the Retail-Wholesale Sector has declined 12.3{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}. The S&P 500 composite has declined 10{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} over the said time frame.

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing medical stocks, the industry is currently trading at 9.3X compared with the S&P 500’s 17.78X and the sector’s 22.14X.

Over the last five years, the sector has traded as high as 12.51X, as low as 7.53X, and at the median of 9.92X.

3 Retail – Pharmacies and Drug Stores Stocks in Focus

CVS Health: CVS Health is currently seeing greater engagement in an expanded set of digital health services such as antibody and PCR testing, vaccinations and omni-channel pharmacy. During the last-reported third quarter of 2022, the company added nearly one million digital customers and is currently serving more than 46 million unique digital customers, an impressive 11 million more since this time last year.

This uptick was driven by the company’s omnichannel pharmacy strategy, focused on simplifying how consumers fill and receive prescriptions. CVS Health’s digital capabilities for health interactions such as COVID testing and vaccines, prescription services, and sales of health and wellness products have dramatically increased consumer engagement across all CVS Health businesses.

The Zacks Consensus Estimate for 2022 revenues indicates a 7.3{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} rise from 2021. CVS Health, a Zacks Rank #3 (Hold) stock, also has an impressive five-year historical earnings growth rate of 8.3{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Walgreens Boots: Walgreens Boots continues to make progress in transforming the pharmacy business and the method of delivering healthcare, both through physical stores and digital channels. Currently, the company’s U.S. retail business is demonstrating good momentum through digital and omnichannel growth from the myWalgreens loyalty program, owned brand innovation and alternative profit streams.

In the last-reported first quarter of fiscal 2023, the company continued to progress in transforming the pharmacy business and the method of delivering healthcare through physical stores and digital channels. The company is also witnessing mid-single-digit growth in stores with normal hours. Moreover, Walgreens has opened its ninth automated micro fulfillment center, now supporting about 3,000 total stores.

The Zacks Consensus Estimate for fiscal 2023 revenues indicates a rise of 1.5{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} from fiscal 2022. The long-term expected earnings growth rate is pegged at an impressive 5{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}. Walgreens Boots carries a Zacks Rank #3 at present.

Rite Aid: Rite Aid remains focused on strengthening its foothold in mid-market PBM, innovating across its retail and mail-order pharmacy channels, enhancing the in-store experience by curated digital offerings, improving merchandise and rebranding its image with a new logo. Rite Aid earlier launched the first three Stores of the Future and successfully concluded the acquisition of Bartell, which will help expand its customer base.

The company revealed plans to lower costs via the closure of 145 unprofitable stores, reduced corporate administrative expenses and enhanced efficiencies in worked payroll, and other store labor costs. It also intends to reduce costs related to Elixir due to declining membership.

The Zacks Consensus Estimate for fiscal 2024 earnings indicates a rise of 28.24{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} from fiscal 2023. Rite Aid currently carries a Zacks Rank of #3.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance  for information about the performance numbers displayed in this press release.

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It’s a little-known chemical company that’s up 65{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.

This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} in little more than 9 months and NVIDIA which boomed +175.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} in one year.

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Rite Aid Corporation (RAD) : Free Stock Analysis Report

Amazon.com, Inc. (AMZN) : Free Stock Analysis Report

CVS Health Corporation (CVS) : Free Stock Analysis Report

Walgreens Boots Alliance, Inc. (WBA) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Zacks Industry Outlook Highlights Interactive Brokers and LPL Financial

Zacks Industry Outlook Highlights CVS Health, Walgreens Boots Alliance, Rite Aid and Amazon

For Immediate Release

Chicago, IL – December 30, 2022 – Today, Zacks Equity Research discusses Interactive Brokers Group, Inc. IBKR and LPL Financial Holdings Inc. LPLA.

Industry: Investment Banks

Link: https://www.zacks.com/commentary/2033334/2-investment-banks-to-buy-for-2023-on-robust-trading-business

The Zacks Investment Bank industry is supported by market volatility-driven growth in the trading business, which is expected to continue as the uncertainty-induced volatility will likely persist in the near-to-medium term. While costs related to technological upgrades might impede bottom-line growth, these will eventually lead to improved operating efficiency.

Yet, a challenging operating backdrop has resulted in faltering industry-wide corporate debt and equity issuances and muted global deal-making activities. Despite these headwinds, a few names, like Interactive Brokers Group, Inc. and LPL Financial Holdings Inc., are worth betting on.

Industry Description

The Zacks Investment Bank industry consists of firms that provide financial products and services that include advisory-based financial transactions to corporations, governments and financial institutions across the globe. These started as partnership firms focused on initial public offerings (IPOs), secondary market offerings, brokerage and mergers and acquisitions (M&As).

Gradually the companies have evolved into providers of various other services, including securities research, proprietary trading and investment management. Therefore, the industry players work mainly through three product segments — investment banking (comprising M&As, advisory services and securities underwriting), asset management and trading and principal investments (consisting of proprietary and brokerage trading).

3 Major Trends Shaping the Future of the Investment Bank Industry

Trading Business to Offer Support: Client activity in the trading business largely depends on the prevalent macroeconomic and geopolitical conditions. Since the beginning of 2022, market volatility has significantly increased on several geopolitical and macroeconomic concerns. Before that, the investment banking industry had witnessed a similar level of volatility from March 2020 till the first couple of months of 2021 owing to the coronavirus outbreak-induced uncertainty.

The current prevalent situation is likely to persist in 2023 as the markets are still grappling with looming recession expectations, the COVID-19 breakout in China and other geopolitical matters. Hence, the trading volumes will continue to rise, driven by huge client activities in both equity and fixed-income businesses, thereby boosting trading income.

Technological Upgrades to Improve Operating Efficiency: Innovative trading platforms and investments in technology and advertising are likely to support the overall operations of investment banks. The industry players are emphasizing attracting and retaining the best talent for building a leadership team and spending on technology to support clients with infrastructure development and new platforms. While investment banks are likely to face increasing technology-related costs in the near term, these initiatives are expected to result in improved operating efficiency over time.

Slowdown in Underwriting and M&As: After a blockbuster performance in 2021, IPO, underwriting and deal-making activities have almost come to a grinding halt since the start of 2022. The primary reasons for the shrinking investment banking (IB) activities are the ongoing Ukraine-Russia conflict, global supply-chain disruptions, significant monetary policy tightening across the globe to control raging inflation and recession risks.

These tough market conditions are leading to a plunge in stock prices and slowing global economic growth, thereby hurting debt and equity issuances. While the deal pipeline looks healthy, there has been a substantial decline in M&A activity and volumes. Thus, subdued underwriting and advisory businesses are expected to keep hurting industry players’ revenue growth in 2023.

Zacks Industry Rank Indicates a Bright Picture

The Zacks Investment Bank industry is a 17-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #42, which places it in the top 17{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of more than 245 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates rosy near-term prospects. Our research shows that the top 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of the Zacks-ranked industries outperform the bottom 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider on the back of an improving trading picture, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry Outperforms Sector and S&P 500

The Zacks Investment Bank industry has outperformed its sector and the S&P 500 over the past two years. While the stocks in the industry have collectively gained 22.5{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}, the S&P 500 composite has rallied 1.1{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} and the Zacks Finance sector has risen 5.6{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}.

Industry Valuation

One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), which is commonly used for valuing investment banks because of large variations in their earnings results from one quarter to the next.

The industry currently has a trailing 12-month P/TBV of 3.81X, above the median level of 2.66X, over the past five years. This compares with the highest level of 4.09X and the lowest level of 1.37X over this period. However, the industry is trading at a huge discount when compared with the market at large, as the trailing 12-month P/TBV ratio for the S&P 500 is 9.76X and the median level is 9.85X.

As finance stocks typically have a lower P/TBV ratio, comparing investment banks with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/TBV ratio with that of the broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TBV ratio of 4.54X and the median level of 3.90X for the same period are above the Zacks Investment Bank industry’s respective ratios.

2 Investment Banks to Buy for 2023

Interactive Brokers: This Zacks Rank #2 (Buy) company operates as an automated global electronic market maker and broker. The company, based in Greenwich, CT, specializes in routing orders, executing and processing trades in securities, futures, foreign exchange instruments, bonds and mutual funds on more than 135 electronic exchanges and market centers worldwide.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Since its inception, Interactive Brokers has been chiefly focusing on developing proprietary software to automate broker-dealer functions, which has resulted in steady top-line improvement. Also, innovative products and the launch of several new products and services (like IBKR GlobalTrader and IBKR Lite) are expected to strengthen the company’s position in the online brokerage space. The company has also launched cryptocurrency trading via Paxos Trust Company, charging lower commissions than other crypto exchanges.

Though rising expenses act as a deterrent, the company continues to explore opportunities in the emerging markets of Taiwan, Mexico and India. Given the rapid growth of its European business, IBKR has substantially expanded its operations there. These diversification efforts help it experience revenue stability.

Shares of the company, which has a market cap of $30.6 billion, have lost 9.2{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} over the past year. The Zacks Consensus Estimate for earnings implies year-over-year growth of 16.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} and 27.8 {1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} for 2022 and 2023, respectively.

LPL Financial: This Zacks Rank #2 company is a clearing broker-dealer and an investment advisory firm. The company, based in Boston, MA, acts as an agent for its advisors on behalf of its clients by providing access to a broad array of financial products and services.

LPLA has been making efforts to increase its client base. Given the company’s recruiting efforts and solid advisor productivity, advisory revenues are expected to keep improving. The acquisition of Allen & Company in 2019 and the launch of a no-transaction-fee exchange-traded fund network will continue to boost the value of LPL Financial’s advisory platform.

LPL Financial has accomplished several strategic deals over the past few years. In July 2022, it entered into an agreement to acquire the private client group business of Boenning & Scattergood, while in 2021, it acquired Waddell & Reed’s wealth management business. These, along with the past inorganic expansion efforts, will continue to support growth and help LPL Financial diversify revenues.

LPLA has a market cap of $17 billion. Over the past 12 months, shares of the company have jumped 31.6{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}. The Zacks Consensus Estimate for earnings indicates year-over-year surge of 61.3{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} and 72.8 {1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} for 2022 and 2023, respectively.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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Interactive Brokers Group, Inc. (IBKR) : Free Stock Analysis Report

LPL Financial Holdings Inc. (LPLA) : Free Stock Analysis Report

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Zacks Investment Research

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The Zacks Analyst Blog Highlights Altair Engineering, ChampionX, ASML Holding, Datadog and Tenaris

Zacks Industry Outlook Highlights CVS Health, Walgreens Boots Alliance, Rite Aid and Amazon

For Immediate Release

Chicago, IL – December 28, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Altair Engineering Inc. ALTR, ChampionX Corp. CHX, ASML Holding N.V. ASML, Datadog Inc. DDOG and Tenaris S.A. TS.

Here are highlights from Tuesday’s Analyst Blog:

5 Stocks Set to Pop in 2023

As we get into the final days of the year, it’s a good time to plan for next year.

This hasn’t been the best of years for the stock market, mainly because of earlier actions to boost the economy with quantitative easing. But inflation went up to 40-year highs and the Fed finally changed course in the first quarter of this year. Through 7 meetings, the federal funds rate was raised by a total of 4.25{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}. This increased borrowing costs for individuals and businesses, slowing down the economy and leading to some moderation in prices.

Historically, the Fed has never managed to do this without the economy falling into recession. So experts are divided on whether we will actually have a recession next year. There’s one camp that says that things will turn worse in the first half itself. There’s another camp that says it will take longer, perhaps moving into 2024, mainly because the labor market is just too strong at the moment.

The Fed would like its actions to also raise the unemployment levels because until that happens, there won’t be sufficient cause to bring prices back to normal. However, there are labor shortages in most industries and a certain reluctance to let skilled or experienced people go. Technology is an exception, since it bulked up during the pandemic and is now offloading. As long as people are employed, they will continue to try and absorb higher prices, so inflation will be hard to bring down.    

With that as the backdrop and further rate hikes lined up for 2023, the following year is also likely to be challenging. One way to deal with this is to aim for value stocks. As the markets have softened notably this year, valuations have come down, making this a great time to shop value.

Another strategy would be to select stocks that analysts expect have both near-term and longer-term growth potential. Even before getting into the details of each stock, we can skim through the numbers for a general idea.

In the examples discussed below, some of these numbers have been highlighted. The Zacks Rank, industry position, the estimate revisions history, surprise history, near-term and longer-term growth potential and analyst expectations of a rally next year, in combination, give you a pretty good idea. After shortlisting in this way, you can get into further details on each stock.

Altair Engineering Inc.

Zacks Rank #2: The Zacks Rank is sensitive to changes in estimates. Therefore, Zacks #1 (Strong Buy) ranked stocks reflect positive estimate revisions in the recent past while #2 (Buy) ranked stocks reflect positive estimate revisions from a little further back (or it can represent slight moderation in estimates also).

In the case of Altair, the Zacks Consensus Estimate for 2023 has dropped a penny in the last 60 days. It may be harder to develop estimates for smaller companies since they usually grow at a faster rate. Analysts have been duly conservative as regards Altair, as reflected in the average surprise of 145.6{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} in the last four quarters.

Zacks Industry Rank 61/248 (top 25{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}): The Engineering – R and D Services industry to which Altair belongs has returned over 8{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} to investors this year, which compares favorably with the S&P 500’s nearly 21{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} loss. Its revenues plunged significantly in 2020 as the pandemic ravaged the world and have been increasing very gradually since then.

Earnings have, however, recovered to pre-pandemic levels. Therefore, the ability to quickly take down cost when necessary, seems to be a basic characteristic. The leaner operating structure should stand it well in case of softer demand in 2023. On the other hand, relatively stronger demand could raise profitability.

Also encouraging is the fact that 80{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} (12) of the 15 companies that have reported results for this quarter have topped analyst estimates, 13{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} (2) met estimates while 7{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} (1) missed.

A buy-ranked stock in the top 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of Zacks-classified industries has historically been seen to outperform stocks in the bottom 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}. Therefore, this is an indication of relative strength for Altair by virtue of its belonging to an attractive industry.

Strong Growth Profile: Current estimates for 2023 represent a 21.5{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} increase in earnings and 8.0{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} increase in revenue over 2022 levels. Therefore, recession or not, analysts are extremely optimistic about the stock’s growth next year. They’re also positive about its long-term prospects, as indicated in the 12{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} growth forecast for the long term.

Upside Potential: The average target price fixed by analysts represents 30.4{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} upside from the current level of $44.59.

ChampionX Corp.

Zacks Rank #2: The Zacks Rank reflects positive estimate changes for 2023. The Zacks Consensus Estimate for the year is up 22 cents (13.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}). There is a reasonable possibility that the company will beat the raised number since it has topped estimates in each of the last four quarters at an average rate of 9.6{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}.

Zacks Industry Rank 61/248 (top 25{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}): Like Altair, ChampionX belongs to the Engineering – R and D Services industry, so the same positives apply to it as well.

Strong Growth Profile: Current estimates for 2023 represent an 8.0{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} revenue increase and 46.3{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} earnings increase over 2022 levels. Therefore, analysts are pretty optimistic about growth next year. They’re also positive about its long-term prospects, as earnings are expected to grow 57.8{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} in the long term.

Upside Potential: The average target price fixed by analysts represents 17.6{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} upside from the current price of $28.59.

ASML Holding N.V.

Zacks Rank #2: This Zacks Rank indicates that analysts have been raising their estimates on ASML shares and we can see the evidence in the numbers. In the last 60 days, the 2023 estimate has increased 70 cents (3.5{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}).

ASML is a well-established semiconductor equipment supplier. It supplies leading edge technology for a market that is rapidly expanding. Therefore, there is underlying strength in the business that is likely to override any near-term weakness we may see as a result of the Fed’s money market manipulations. This is probably why analysts haven’t been as good at figuring out its growth potential. Therefore, we see that the average earnings surprise for the last four quarters is as high as 37.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}.

Zacks Industry Rank 47/248 (top 19{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}): Clearly, the Semiconductor Equipment – Wafer Fabrication industry is attractive and offers strong growth potential for its constituents. All of the companies that have reported results thus far have topped estimates.

Being a high-growth segment, it has been beaten down 33.4{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} so far this year. But unlike other growth segments, this one has not faltered materially after the strong tech buildup during the worst of the pandemic. Here, we see more or less steady revenue and earnings growth to way above pre-pandemic levels.

Strong Growth Profile: In 2023, analysts expect revenue to grow 23.0{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} and earnings to grow 41.2{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}. They are projecting 23.7{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} growth for the long term.

Upside Potential: The average target price that analysts have set represents 30.0{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} appreciation from the current price of $551.37.

Datadog, Inc.

Zacks Rank #2: The Buy rating on Datadog shares indicates that estimate revisions have been positive. And so we see that the Zacks Consensus Estimate for 2023 has moved up 14 cents (14.7{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}).

The company has been growing its earnings at such a rapid pace that analyst estimates have been left in the dust. The surprise percentage in the last four quarters averages 81.2{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}.

 Zacks Industry Rank 54/248 (top 23{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}): The rank indicates that the Internet – Software industry to which Datadog belongs is attractive. Out of the total 139 companies within this industry, 101 (73{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}) have topped the Zacks Consensus Estimate in the latest quarter. About 8{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} met estimates while 15{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} missed.

It’s worth noting that the constituent companies may actually be very different from each other and cater to different use cases/industries. So numbers for the total industry may not reflect the good news in several of the segments.

Strong Growth Profile: Datadog is currently expected to grow its 2023 earnings by 20.1{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} on top of revenue that is expected to grow 33.7{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}. Strong earnings growth is expected to continue over the next few years, averaging to a long-term rate of 42.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}.

Upside Potential: The average target price indicates that analysts expect Datadog shares to appreciate 57.2{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} from the current price of $72.42.

Tenaris S.A.

Zacks Rank #2: It’s the estimates that drive changes in the Zacks Rank. And estimates for Tenaris have been moving up. The Zacks Consensus Estimate for 2023 has gone up 60 cents in as many days to $5.18. This is a 13{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} increase in a relatively short timeframe, indicating increased optimism.

Although the company missed by a penny in the last quarter, the average surprise in the last four quarters is 20.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}. Therefore, there’s reason to believe that another beat is around the corner.

Zacks Industry Rank 18/248 (top 7{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}): The Steel – Pipe and Tube industry to which Tenaris belongs has things going for it. Barring the June 2022 quarter, revenue and earnings have been moving up pretty consistently since the pandemic hit in the June quarter of 2020. As a result, it has returned 45.4{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} to investors this year.

Two out of the four companies in this industry that have reported earnings this quarter have topped estimates.

The 2023 estimate for this industry has moved up 70.4{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} so far this year.

Strong Growth Profile: Tenaris is currently expected to generate 21.1{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} revenue growth and 19.6{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} earnings growth in 2023. Analysts expect earnings growth of 27.0{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} in the long term.

Upside Potential: The average target price indicates an upside potential of 25.0{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}.

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Zacks Industry Outlook Highlights BYD, BMW and XPeng

Zacks Industry Outlook Highlights BYD, BMW and XPeng

For Immediate Release

Chicago, IL – November 10, 2022 – Today, Zacks Equity Research discusses BYD Co. BYDDY, BMW AG BAMXF and XPeng Inc. XPEV.

Industry: Foreign Autos

Link: https://www.zacks.com/commentary/2015947/3-foreign-auto-stocks-to-ride-the-industrys-upbeat-mood

Rising vehicle prices and robust demand for electric vehicles (EVs) are major catalysts for the Zacks Automotive – Foreign industry. Near-term sales prospects in Europe and Japan still look dubious, given an uncertain macro-environment and inflationary pressure, which may induce consumers to put off discretionary expenses. However, China auto sales are finally gathering momentum. A slew of favorable automotive policies in the world’s largest car market is set to fuel sales.

The fact that manufacturers are successfully managing to pass the rising costs of production to consumers by charging high prices for vehicles is acting as a tailwind. Despite the supply chain chaos and cost headwinds, the industry’s prospects still look good enough now to place your bets on BYD Co., BMW AG and XPeng Inc.

Industry Overview

Companies in the Zacks Automotive – Foreign industry are involved in designing, manufacturing and selling vehicles, components as well as production systems. The foreign automotive industry is highly dependent on business cycles and economic conditions. China, Japan, Germany and India are some of the key foreign automotive manufacturing countries.

The widespread usage of technology is resulting in a fundamental restructuring of the market. Stricter emission and fuel-economy targets and ramp-up of charging infrastructure as well as supportive government policies are boosting sales of green vehicles. With almost all firms intensifying their electrification game, competition is getting tougher with each passing day. Foreign automakers are now actively engaged in the R&D of electric and autonomous vehicles, fuel efficiency along with low-emission technologies.

4 Key Trends

Vehicle Sales in China Start Picking Pace: Vehicle sales in China — the world’s largest auto market —rose 25.7{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} year over year to 2.61 million units in September. This marked the fourth straight month of increase on the back of the relaxation of COVID-induced curbs as well as stimulus packages offered by the government to revive the market. In the first nine months of 2022, sales increased 4.4{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} to 19.47 million units. Vehicle sales in China are expected to sustain their momentum in the fourth quarter, courtesy of favorable policies from the central government and local authorities.China Association of Automobile Manufacturers anticipates 2022 vehicle sales to be higher than last year’s levels.

European Market Not Out of Woods Yet: The European Union (EU) market auto sales finally returned to growth in August, snapping 13 straight months of decline. The new passenger car registrations continued to witness year-over-year increase in September but that was majorly driven by extreme chip shortage in the year-ago month.

Over the first nine months of 2022, the EU passenger car market contracted 9.9{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} to 6,784,090 units. While so far, the supply side of the market has remained constrained, the European Automobile Manufacturers’ Association (ACEA) now expects demand to take a hit going forward amid inflation and recessionary fears. Factoring in the headwinds, the agency now expects EU vehicle sales to edge down by 1{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} to 9.6 million units in 2022, withdrawing its earlier forecast of growth.

Japan Auto Market’s Uncertainty: While new vehicle sales in Japan witnessed year-over-year growth in September and October, total sales from January-October 2022 were down 7.4{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} year over year, per MarkLines Automotive Industry Portal. The near-term outlook for sales remains clouded, given inflation worries and an uncertain macro environment. Chip crisis and tight inventories are likely to keep the prices of cars elevated, which may further prompt consumers to put off discretionary expenses. Per Focus2Move, Japan’s auto sales are expected to decline 7.7{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} in 2022.

Soaring Popularity of Green Vehicles a Boon: Various cities and nations are pushing toward green energy amid heightening climate concerns. The European Commission is set to phase out new petrol and diesel cars by 2035. China intends to ban fossil fuel cars and sell only new energy vehicles by 2035. Japan will scrap the sale of gasoline-powered cars by the mid-2030s.

California will ban the sale of new ICE cars effective 2035 and ensure that 100{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of new car and truck sales are electric by 2035 and 2045, respectively. The acceleration of EV targets is offering opportunities to automakers. With consumers’ confidence in EVs rising fast, automakers are prioritizing their resources toward the sale of new energy vehicles, and sales of green vehicles are rocketing. 

Zacks Industry Rank Signals Optimism

The Zacks Automotive – Foreign industry is a 27-stock group within the broader Zacks Auto-Tires-Trucks sector. The industry currently carries a Zacks Industry Rank #96, which places it in the top 38{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates decent near-term prospects. Our research shows that the top 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of the Zacks-ranked industries outperform the bottom 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} by a factor of more than 2 to 1.

The industry’s positioning in the top 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since September, average earnings estimates for 2022 have inched up nearly 3{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}.

Before we present a few stocks that investors can buy given their sturdy potential, let’s look at the industry’s recent stock market performance and current valuation.

Industry Lags S&P 500, Tops Sector

The Zacks Automotive – Foreign industry has outperformed the Auto, Tires and Truck sector but underperformed the Zacks S&P 500 composite over the past year. The industry has lost 39.1{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} compared with the S&P 500 and the sector’s decline of 20.4{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} and 42.6{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}, respectively.

Industry’s Current Valuation

Since automotive companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio.

Based on trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 7.04X compared with the S&P 500’s 11.28X and the sector’s 13X.

Over the past five years, the industry has traded as high as 10.59X, as low as 5.42X and at a median of 7.74X.

3 Promising Stocks

BYD: China-based BYD is principally engaged in the research, manufacture, and distribution of automobiles, secondary rechargeable batteries as well as mobile phone components. The company stands to benefit from robust demand for green vehicles and batteries in China. The firm’s rechargeable battery business provides lithium-ion and nickel batteries that are essential for the development of green vehicles.

The rising deliveries of Han and Tang models are driving BYD’s top line. Solid execution capabilities and expansion efforts outside China, particularly in the European market, will further fuel the stock. The company’s revenues have been growing rapidly and unlike other pure EV players based in China, BYD has been making profits for years.

BYD currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for 2022 earnings has been upwardly revised by 15 cents over the past seven days to $1.46 per share. The consensus mark for 2022 earnings and sales implies year-over-year growth of 342.4{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} and 77{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

BMW AG: Germany-based BMW AG is one of the leading multi-brand automobile manufacturers that focuses on the premium segments of the worldwide automobile and motorcycle markets. BMW AG is taking great strides in electrification and expects EVs to account for 50{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} of its global sales by 2030. By 2025, the carmaker expects to sell more than two million all-electric vehicles. This year, BMW is putting as many as 15 EVs into production.

The auto biggie has pledged to invest around €30 billion toward e-mobility by 2025 end. It intends to build five gigafactories for electric car batteries through partnerships, strategically positioned globally at places where the auto biggie manufactures its EVs.

BMW AG currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2022 earnings has been upwardly revised by 35 cents over the past 30 days to $24.49 per share. The consensus mark for 2022 earnings and sales implies year-over-year growth of 10.3{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} and 4{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}, respectively.

XPeng: This rising EV star of China is poised for speedy sales growth, thanks to the soaring popularity of the existing models, including G9, G3i and G3 SUVs as well as P7 and P5 sedans. In addition to vehicle sales, XPeng also generates revenues from after-sales services, and ride-hailing and supercharging services.

We expect XPeng’s commitment to innovation and continuous R&D spending to bolster its standing in the market and fortify its EV game. With the mission of bringing Smart EVs to the China auto market through continuous innovation in core vehicle systems, driverless technology and smart connectivity, this company is set to become a name to reckon with in the coming years.

XPeng currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2022 loss has been narrowed by 6 cents over the past seven days. The consensus mark for 2022 and 2023 sales implies year-over-year growth of 47{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b} and 92{1668a97e7bfe6d80c144078b89af180f360665b4ea188e6054b2f93f7302966b}, respectively.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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