National Fuel Gas and Landstar System Industries have been highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – August 6, 2024 – Zacks Equity Research shares National Fuel Gas Company’s NFG as the Bull of the Day and Landstar System LSTR asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on HCA Healthcare HCA, Byd Co. BYDDY and Ping An Insurance Co. of China PNGAY.

Here is a synopsis of all five stocks:

Bull of the Day:

Checking the boxes regarding fundamentals investors look for in a value stock, National Fuel Gas Company’s growth prospects have become more attractive as well.

The integrated energy company looks like a sound investment option amid recent market volatility and the reemergence of broader economic fears due to its diverse business operations. Keeping this scenario in mind, NFG sports a Zacks Rank #1 (Strong Buy) and lands the Bull of the Day.

Defensive Safety Overview

Because of the essentiality of their services, utility stocks are often sought out during heightened market volatility and economic uncertainty. This case has spawned over the last week after July’s weaker-than-expected jobs report showed the US unemployment rate spiked to its highest peak since 2021 while tensions between Iran and Israel have raised global geopolitical concerns.

As an investment that can potentially safeguard against market weakness, NFG’s essential business service is providing natural gas to over 2 million customers in New York and Pennsylvania. Notably, NFG’s Zacks Utility-Gas Distribution Industry is currently in the top 21% of over 250 Zacks industries.

Diverse Business Operations

Having natural gas assets located in the coveted Appalachian basin, NFG’s business operations extend to the exploration and production of oil. Plus, NFG has oil-producing assets in California with crude prices still hovering over $70 a barrel despite a recent dip in the commodity price. That said, recent geopolitical tensions in the Middle East could lead to sharp spikes in oil prices.

Increased Profitability

Benefitting from its strong business industry, earnings estimate revisions have continued to trend higher for NFG over the last two months. Even better, fiscal 2024 and FY25 EPS estimates have risen 8% and 4% in the last 30 days respectively.

NFG’s EPS is now expected to dip -1% in FY24 but is projected to rebound and climb 18% in FY25 to $6.05 per share.

It’s also noteworthy that FY25 EPS projections would represent 75% growth from pre-pandemic levels with earnings at $3.45 a share in 2019.

Attractive Valuation

What makes NFG’s increased probability stand out is a very reasonable P/E valuation of 11.5X forward earnings with rising EPS estimates offering support to the notion that this is cheap. To that point, NFG trades at a nice discount to its industry average of 15.2X forward earnings and well below the S&P 500’s 22.5X.

Dividend King

Lofty dividends also attract investors to utility stocks as they can offer generous payouts due to the steady demand for their services. NFG is very attractive in this regard and is considered a Dividend King, increasing its payout for more than 50 years.

NFG’s 3.49% annual dividend yield impressively tops the S&P 500’s 1.3% average and edges the industry average of 3.2%. Better still, NFG’s 41% payout ratio implies there is plenty of room to increase its dividend in the future.

Final Thoughts

At current levels, National Fuel Gas Company’s stock is certainly enticing considering the proposition of offering defensive safety in the portfolio. The trend of positive earnings estimate revisions further suggests now is an ideal to buy stock in this Dividend King given NFG’s attractive P/E valuation.

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Bear of the Day:

Amid heightened market volatility investors will certainly be cautious of “pricey” stocks that could fall as many of the big tech giants are starting to give back their lofty gains as well.

Unfortunately, Landstar System is one such stock that could drop as last week’s weaker-than-expected jobs report sparked mild recessionary fears in the US while tensions between Iran and Israel have led to global geopolitical concerns.

Landing a Zacks Rank #5 (Strong Sell) and the Bear of the Day, let’s see why there may be more downside risk ahead for the transportation management solutions company.

Weaker Industry Demand

Landstar has been grappling with a challenging freight environment as the impact of accumulated inflation on goods continues to impact truckload volumes in relation to consumer spending.

Correlating with such, Landstar’s Zacks Transportation-Truck Industry is currently in the bottom 3% of over 250 Zacks industries. Feeling the industry’s rift, Landstar reported Q2 EPS of $1.48 last Tuesday which declined 20% from $1.85 a share in the comparative quarter despite slightly edging expectations.

However, quarterly sales of $1.22 billion missed estimates of $1.25 billion by 2% and declined 11% from $1.37 billion in Q2 2023.

Subpar Q3 Guidance

Further indicating it may be time to sell Landstar’s stock was the company’s weaker-than-expected EPS and revenue guidance for the third quarter. This has led to earnings estimate revisions dropping in the last week with Landstar’s fiscal 2024 and FY25 EPS estimates now down 4% and 5% over the last 30 days respectively.

Valuation Concerns

Lastly, Landstar has some valuation concerns such as the company’s EV/ EBITDA ratio and price-to-cash flow which is higher than preferred levels and its industry average.

Landstar does trade at 30.6X forward earnings which is slightly below its industry average of 31.5X but above the S&P 500’s 22.5X. Furthermore, industry risk and declining EPS estimates may start to question the earnings premium Landstar commands to the broader market.

Bottom Line

With broader indexes experiencing a correction over the last week, Landstar’s price tag of $185 a share may not be worth the risk at the moment considering the weaker outlook for the tranportation-trucking industry.

Additional content:

Global Week Ahead: Nervous Stock Markets

Global markets are heading into what promises to be another volatile trading week.

Investors fret U.S. and global stocks might be looking too pricey.

Even a reasonably solid Q2-24 earnings season, so far, hasn’t been able to soothe those jitters.

Next are Reuters’ five world market themes, re-ordered for equity traders–

(1) When stocks are ‘priced to perfection’, the Fed does not cut, and jobs recede?

Around half of the world’s developed-market central banks have started cutting interest rates – the Bank of England (BoE) did so on Aug. 1st and the Federal Reserve is teeing up a cut for September.

Global stocks, crypto and bonds have been rallying this year in giddy anticipation of central banks finally lowering interest rates, while inflation and economic growth gently tail off from their post-COVID highs.

So far, so good. Recession appears unlikely.

Earnings have been decent, with more beats than misses.

The problem is when assets are “priced to perfection”, it does not take much for disappointment to set in.

And thin summer markets often mean more volatility.

Weaker readings of U.S. business activity and employment have prompted investors to assess whether rate cuts are a reflection of a U.S. economy that is weaker than they bargained for — and it is time to take some money off the table.

(2) More Q2 earnings land this week

A U.S. corporate earnings season that has come in better than expected –so far– gets a fresh test in the coming week, with a number of high-profile reports due.

With more than half of S&P500 companies having already reported, second-quarter earnings are on pace to have climbed +12.6% from a year earlier, LSEG IBES data showed on July 31st.

That is better than the +10.6% increase expected for the period on July 1st.

So far, 78.4% of companies have topped analyst estimates for earnings, nearly the same beat rate as in the prior four quarters.

While most of the mega-cap companies will have reported already, other important results are expected in the days ahead.

Those include industrial bellwether Caterpillar (CAT), media and entertainment giant Walt Disney (DIS), weight-loss drugmaker Eli Lilly (LLY), and Super Micro Computer (SMCI), which is at the center of the market’s artificial intelligence excitement.

(3) Obesity drug-makers Novo Nordisk and Eli Lilly report earnings

Novo Nordisk (NOVO), Europe’s most valuable company, releases its second-quarter results on Wednesday.

The company’s fortunes – and shareholder returns – have soared with the blazing success of its weight-loss drug Wegovy.

Its market value has risen by $380 billion since it launched the anti-obesity injection three years ago, to $572 billion.

The top questions for investors and analysts are: manufacturing capacity and supply.

Novoand Eli Lilly and Co., the only other company, for now, with a rival obesity drug on the market, face the same challenge: increasing production of these medicines, which are delivered weekly in a self-injection pen.

Lilly, which reports on Thursday, has quickly gained ground on Novo since launching Zepbound in December.

Novo accounts for almost 4% of Europe’s STOXX 600 (STOXX), so its results carry more weight for the broader index than ever.

(4) Mainland China will release macro data. How will their second half of 2024 go?

A slew of economic releases from China will reveal how its shaky recovery is taking shape in the second half of the year and chances are, the picture still is not going to be particularly rosy.

The week begins with a private-sector survey on services activity, followed by trade data on Wednesday and a reading on consumer prices to round off the week.

Recent Chinese data continues to point to a gloomy outlook, and a growing sense of urgency in Beijing’s efforts to shore up the economy has since been reflected in its surprise rate cuts, with investors betting on more to come.

Officials will be keeping a close eye on Friday’s inflation report for clues on how much more needs to be done to bolster anemic domestic demand, especially after policymakers signaled their support for more consumer-directed stimulus measures.

(5) On Tuesday, the Reserve Bank of Australia (RBA) sets its monetary policy

From an outside chance of a rate hike at the Reserve Bank of Australia’s Aug. 5th-6th policy meeting, traders switched to pricing in the risk of a rate cut by year-end instead – all because of one soft inflation reading.

The Aussie dollar skidded to a three-month low and stocks surged to a record high, after core inflation unexpectedly slowed to a two-year low.

This will be very welcome news at the central bank, which would have been very reluctant to raise rates already at a 12-year high amid flatlining economic growth, moribund consumer spending and a weakening labor market.

Traders now put the odds of a rate cut at a coin toss for November, much sooner than the RBA’s assumed timing of possible easing – around the middle of next year should inflation continue to slow as desired.

Zacks #1 Rank (STRONG BUY) Stocks

I wrote up one major U.S. hospital stock, and two Mainland Chinese stocks.

(1) HCA Healthcare : This is a $363 stock with a market cap of $93.7B. It is found in the Medical – Hospital industry. I see a Zacks Value score of A, a Zacks Growth score of B, and a Zacks Momentum score of C.

HCA Healthcare is the largest non-governmental operator of acute care hospitals in the United States. Headquartered in Nashville, TN, it operates hospitals and related health care entities. At the end of 2023, the company operated 186 hospitals and approximately 2,400 ambulatory sites of care, including surgery centers, freestanding emergency rooms, urgent care centers and physician clinics, in 20 states and the United Kingdom.

It also operates outpatient health care facilities, which include freestanding ambulatory surgery centers (“ASCs”), freestanding emergency care facilities, urgent care facilities, walk-in clinics, diagnostic and imaging centers, comprehensive rehabilitation and physical therapy centers, radiation and oncology therapy centers, physician practices and various other facilities.

The company operates in two geographically organized groups, the National and American Groups. HCA generated revenues of $65 billion in 2023.

The National Group (accounted for 27.9% of the overall 2023 revenues) had 57 hospitals located in states like Alaska, California, Idaho, Indiana, Kentucky, Nevada, New Hampshire, North Carolina, Tennessee, Utah and Virginia. The American Group (34.4%) has 60 hospitals in states like Colorado, Central Kansas, Louisiana and Texas.

Its Atlantic Group (32.6%) included 62 hospitals located in Florida, Georgia, Northern Kansas, Missouri and South Carolina. The company also operates seven hospitals in England that are included in the Corporate and Other group (5.2%).

The company’s 178 general, acute care hospitals with 48,755 licensed beds provide a wide range of services to cater to different medical specialties, such as internal medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics and obstetrics as well as diagnostic and emergency services.

The general, acute care hospitals also provide outpatient services such as outpatient surgery, laboratory, radiology, respiratory therapy, cardiology and physical therapy.

Its six behavioral hospitals with 653 licensed beds offer child, adolescent and adult psychiatric care. It also provides adolescent and adult alcohol and drug abuse treatment and counseling.

(2) Byd Co.: This is the $57 Mainland China EV stock, with a market cap of $85.3B. It is found in the Foreign-Automotive industry. I see a Zacks Value score of B, a Zacks Growth score of B, and a Zacks Momentum score of A.

BYD Company Limited is principally engaged in the research, development, manufacture and distribution of automobiles, secondary rechargeable batteries and mobile phone components.

It’s Automobiles and Related Products segment manufactures and sells automobiles, and auto-related molds and components.

The Company researches, develops, manufactures and sells batteries, which are applied on mobile phones, cordless phones, power tools and other kinds of portable electronic devices. Its rechargeable battery business provides lithium-ion batteries and nickel batteries.

BYD‘s mobile phone components and assembly business segment engages in the manufacture and sale of mobile handset components, such as housings and keypads; and provides assembly services.

It has operations primarily in China, India, Hungary, and Brazil.

BYD Company Limited is based in Shenzhen, the People’s Republic of China.

(3) Ping An Insurance Co. of China: This is a very cheap $9 a share Mainland China insurance stock, still with a large market cap of $78.3B. It is found in the Insurance – Multi-line industry. I see a Zacks Value score of A, a Zacks Growth score of D, and a Zacks Momentum score of F.

Ping An Insurance Company of China, Ltd. is engaged in providing products and services in insurance, banking and investment to retail customers and corporate clients.

It offers life insurance; property and casualty insurance, including motor, property loss, liability, credit and trust, mortgage loan and individual car installment loan; health insurance comprising accident, committed governmental health insurance management, health consulting, and reinsurance; and annuity products, such as commercial supplementary pension and short-term group insurance.

The company also provides trust services; products and services for investment banking, fixed earnings, assets management, securities trading, brokerage, research, and derivate products; and financial futures’ business and commodity futures’ brokerages, as well as asset hedge service, futures investment consultation, and futures training.

Ping An Insurance Company of China, Ltd. is headquartered in Shenzhen, the People’s Republic of China.

Key Global Macro

Lots of Mainland China macro data! That’s worth staying on top of, this week.

On Monday, the ISM U.S. services PMI for July comes out. I see a 51 consensus (that’s a modest expansion!), after a prior 48.8 June print.

On Tuesday, the RBA policy rate decision and monetary policy statement come out.

On Wednesday, Mainland China shows its July exports (prior was +10.7% y/y in yuan terms), its imports (prior was -0.6% in yuan terms), and its trade balance (the prior here was a 703.7B surplus.

On Thursday,the now-closely watched weekly U.S. initial jobless claims come out. The prior week reached up to 249K, while the 4-week moving average is 238K.

On Friday, Mainland China’s CPI for July comes out. The consensus calls for -0.9% y/y, while the prior reading was -0.8% y/y.

Conclusion

We are 2/3rd the way thru this Q2-24 earning season for the S&P500.

On August 1st, Zacks Research Director Sheraz Mian posted his latest thoughts on Q2 earnings season —

With results from two thirds of S&P500 members already out, we can say with a high degree of confidence that the Q2 earnings season has been a good one.

The earnings and revenue growth pace show acceleration. Companies have provided reassuring commentary and guidance, for the current and coming periods.

Through Thursday, August 1st, we have seen Q2-24 results from 343 S&P500 members, or 68.6% of the index’s total membership.

• Total earnings for these companies are up +11.7% from the same period last year, on +5.1% higher revenues.

• 80.2% beat EPS estimates and 60.3% beat revenue estimates.

This is a better performance relative to what we have seen from this group of 343 index members in other recent periods.

The one performance metric on which Q2 results track unfavorably to other recent reporting cycles is with respect to the revenue beats percentage.

This has been tracking towards the lower end of the high-low range for the preceding 20-quarter period.

Have a successful trading and investing week!

Warm Regards,

John Blank, PhD
Zacks Chief Equity Strategist and Economist

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