Sunoco and Adient’s have been highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – June 18, 2024 – Zacks Equity Research shares Sunoco SUN as the Bull of the Day and Adient’s ADNT as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Bank of America BAC, JPMorgan JPM and Citigroup C.

Here is a synopsis of all five stocks:

Bull of the Day:

Making its way onto the coveted Zacks Rank #1 (Strong Buy) list this week, Sunoco lands the Bull of the Day. This comes as the year-to-date dip in the leading energy infrastructure and fuel distributors’ stock is starting to look like a pleasant buying opportunity.

Although Sunoco’s stock is down -10% YTD, SUN is still sitting on +20% gains over the last year and is up +50% in the last two years. More importantly, here are some key viewpoints as to why now is an ideal time to invest in Sunoco.

Industry Leadership

As one of the largest refined product terminal operators in the United States, Sunoco has valuable assets that position it well in various energy transition scenarios. Operating as a Master Limited Partnership (MLP), Sunoco’s primary business comprises the distribution of motor fuel to roughly 10,000 customers across 40 states including independent dealers, commercial customers, convenience stores, and other distributors.

Additionally, Sunoco owns refined product transportation and terminalling assets. Enhancing Sunoco’s financial base and distribution pipeline was the recent acquisition of NuStar Energy for $7.3 billion in May. With that being said, NuStar produced revenues of $1.68 billion and $1.63 billion in 2022 and 2023 respectively with net income spiking 23% last year to $274 million.

The acquisition will expand Sunoco’s domestic dominance and introduce the company’s presence in Mexico while further diversifying its assets. To that point, NuStar has approximately 9,500 miles of pipeline and 63 terminal and storage facilities that store and distribute crude oil, refined products, renewable fuels, ammonia, and specialty liquids.

Earnings Estimate Revisions: Seeing that Sunoco’s diversification has strengthened its market position and operational performance, it’s noteworthy that earnings estimate revisions for fiscal 2024 have soared 10% over the last 30 days upon the completion of the NuStar acquisition. Plus, FY25 EPS estimates have spiked 7% in the last month.

Overall, Sunoco’s increased profitability is very compelling to investors with FY24 earnings now expected to soar 100% to $7.29 per share versus $3.65 a share last year.

Cheap P/E Valuation: With rising EPS estimates offering support, Sunoco’s stock is starting to look cheap trading at 7.1X forward earnings which is well below the S&P 500’s 22.7X and a noticeable discount to its Zacks Oil and Gas-Refining and Marketing-Master Limited Partnerships Industry average of 13.2X.

Tax Fee Distribution (Dividend): Since MLPs are structured as pass-through entities, they don’t pay corporate taxes and in turn distribute most of their free cash flow to shareholders in the form of tax-deferred distributions/dividends.

This makes Sunoco’s stock very appealing to income investors with SUN currently having a 6.74% annual dividend yield that towers over the S&P 500’s 1.29% average and impressively tops its industry average of 5.04%.

Bottom Line

Following the recent acquisition of NuStar Energy now looks like an ideal time to invest in Sunoco’s stock which in addition to its strong buy rating has an overall “A” VGM Zacks Style Scores grade for the combination of Value, Growth, and Momentum.

Bear of the Day:

Before investors get too excited about what appears to be a cheap P/E valuation for Adient’s stock, they may want to pay attention to the trend of declining earnings estimate revisions.

Adient’s stock has the remnants of a value trap as ADNT has fallen -29% YTD and although the Dublin Ireland-based company is one of the world’s largest automotive seating suppliers there are more attractive original equipment manufacturers (OEMs) to choose from in the auto sector. Considering such, Adient lands a Zacks Rank #5 (Strong Sell) and the Bear of the Day.

Industry Challenges

Notably, the Zacks Automotive-Original Equipment Industry is currently in the bottom 33% of approximately 250 Zacks industries. Supply chain issues and softer demand for EV production have started to perplex the industry’s growth with Adient already dealing with challenges related to adverse customer mix and the slower-than-expected ramp-up of programs aimed at boosting its operational performance.

Declining Earnings Estimates

For investors not following the trend of earnings estimate revisions the projected bottom-line expansion of Adient may be persuasive as EPS is expected to increase 3% in fiscal 2024 and is forecasted to expand another 60% in FY25 to $3.59 per share.

Plus, Adient’s stock trades at 11.2X forward earnings but the risk of ADNT being a value trap has been on the horizon with FY24 and FY25 EPS estimates falling -14% over the last 60 days respectively.

Market Value Analysis

With there being an abundance of OEMs to choose from in the auto sector, broader competitors are seemingly taking market share from Adient. This is illustrated by the slope beneath the red trendline as shown below in regards to Adient’s $2.2 billion market cap compared to the industry average of $5.35 billion which also shows most of its peers have moved above the trendline.

For instance, some of the OEMs that appear to be taking market share and experiencing more consistent demand for their auto part offerings are Allison Transmission Holdings with a market cap of $6.34 billion, and Gentex at $7.86 billion.

Bottom Line

For now, it’s best to stay clear of Adient’s stock as investors hoping for a rebound in ADNT may be disappointed given the downward trend of earnings estimate revisions which still suggests more short-term weakness ahead.

Additional content:

Is This the Right Time to Buy BofA Stock?

Bank of America, one of the largest banks in the country, seems to have regained investors’ confidence. After just a 1.6% gain last year, the stock has jumped 16.5% in 2024. It has also outperformed the industry and the S&P 500 Index’s growth of 10.8% and 14.1%, respectively.

Last year, the banking industry was marred by high interest rates, a slowdown in loan demand, a rise in funding costs, prospects of recession and weakening asset quality. Further, the regional banking crisis in early March led to the collapse of three large banks and deposit outflows.

Though the situation has somewhat changed for the better, the overall operating environment continues to be challenging for the banks. The central bank officials have indicated higher rates are here to stay for a longer duration because of the ‘sticky’ inflation, while signaling one rate cut later this year.

This means that banks will continue to record higher deposit costs. The situation for Bank of America is more challenging. The company has billions of dollars worth of long-dated Treasuries and mortgage bonds, which it had piled up at low rates during the pandemic.

As the rates remain high, the interest that the company had to pay on deposits surged while the interest that it received from the above-mentioned long-term securities was relatively lesser. This resulted in hundreds of billions of dollars of unrealized losses being accumulated on Bank of America’s balance sheet.

Despite this major headwind, Bank of America has performed better than its major regional bank peers, including JPMorgan and Citigroup, in 2024. This can be seen from the price chart below:

Before we dig into the fundamentals to understand what is driving the stock higher, first, let’s have a look at near-term management guidance.

Management Guidance

At an investor conference in May-end, Bank of America CEO Brian Moynihan noted that consumer spending is growing but at a slower pace. Also, he added loan demand continues to be weak because of higher borrowing costs. Thus, the company’s net interest income (NII) is expected to come in at 1% below the previously forecasted target of $14 billion for the second quarter of 2024. In the second half of the year, NII is expected to grow on a sequential basis. Notably, Citigroup anticipates NII (excluding Markets) to be modestly down this year.

On the other hand, Bank of America will likely get support from improvement in capital markets businesses this quarter. The company’s investment banking (IB) fees are projected to rise 10-15% year over year while trading revenues will increase at a low single-digit rate (driven by strong performance in equities, partially offset by broadly flat revenue in fixed income).

Likewise, JPM is also anticipating strong capital markets performance for the ongoing quarter. The company’s IB revenues are likely to increase 25-30% in the second quarter, up from the prior guidance of mid-teen percentage range. Also, the company’s markets revenues are expected to improve slightly more than the previously mentioned mid-single-digit growth.

On the expense front, Bank of America expects non-interest expenses to decline sequentially as nearly two-thirds of the first-quarter elevated payroll tax expenses come back out. For the remainder of the year, expenses are expected to trend further down.

Let’s now check the factors that show that the stock is worth betting on.

Robust Growth Drivers

Bank of America continues to align its banking center network according to customer needs. The bank is set to embark on an ambitious expansion plan to open financial centers in new and existing markets. In the last couple of years, it entered eight new markets and now plans to expand its financial center network into nine new markets by 2026.

The company also remains committed to providing modern and state-of-the-art financial centers through its ongoing renovation and modernization project. Over the past three years, Bank of America has been renovating and updating its existing financial centers across the country. By 2023-end, more than 2,500 centers were renovated, creating offices and meeting spaces for clients to engage with financial specialists and ensuring a consistent and modern experience across all centers.

These initiatives, along with the success of Zelle and Erica, will enable the company to improve digital offerings and cross-sell several products, including mortgages, auto loans and credit cards. Further, at Morgan Stanley US Financials, Payments & CRE Conference in early June, Dean Athanasia (president, Regional Banking) said, “Any time we open a financial center and we go to a new market, that increases our digital sales by over 50%. So, digital is a huge component to all of our businesses.”

Additionally, Bank of America remains focused on acquiring the industry’s best deposit franchise and strengthening the loan portfolio. Despite a challenging operating environment, deposit balances and loans have remained solid over the past several years. As of Mar 31, 2023, the company’s net loans and leases grew marginally year over year to $1.04 trillion. While the tough macroeconomic scenario remains a headwind, the demand for loans is projected to be decent in the quarters ahead.

Impressive Capital Distributions

Following the clearance of the 2023 stress test, Bank of America announced a hike in the quarterly dividend by 9% to 24 cents per share. Prior to this, the company had announced a 4.8% hike to its quarterly dividend in July 2022.

In October 2021, the company’s share repurchase plan of $25 billion was renewed. As of Mar 31, 2024, $10.2 billion worth of authorization remained available. Driven by a strong capital position and earnings strength, the company is expected to sustain improved capital distributions and enhance shareholder value.

Attractive Valuation

At $39.24 per share, Bank of America is currently trading at a price/tangible book value of 1.61X. This is way below the broader market average of 14.72X. Thus, the company’s attractive valuation is a good entry point for investors.

Rising Earnings Estimates

Analysts seem to be bullish on Bank of America’s prospects. The company’s Zacks Consensus Estimate for 2024 and 2025 have been rising over the past 60 days.

Given the current challenging operating environment, the company’s earnings are expected to decline 5.6% year over year this year. The earnings are then projected to rebound and grow 9.4% in 2025.

Further, Bank of America stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Conclusion

Considering Bank of America’s growth prospects and robust fundamentals, investors must invest in the stock for long-term gains. The company’s efforts to bolster revenues, strong balance sheet and liquidity positions and expansion into new markets will keep aiding its financials.

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