For Immediate Release
Chicago, IL – December 22, 2021 – Zacks Equity Research Shares of The Goodyear Tire & Rubber Company GT as the Bull of the Day, Energizer Holdings, Inc. ENR as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Oasis Midstream Partners LP OMP, Transportadora de Gas del Sur SA TGS and Enbridge Inc. ENB.
Here is a synopsis of all five stocks:
Bull of the Day:
Goodyear Tire and Rubber Company is a Zacks Rank #1 (Strong Buy) that is one of the largest tire manufacturing companies in the world. Goodyear sells tires, undertakes automotive repairs and provides other services.
The company is firing on all cylinders as earnings haven’t missed since the COVID crash. The stock is up 300% from those lows, but is still off almost 50% from the 2017 highs.
Investors are now looking at this stock to see if the continued momentum can continue into 2022. While those all-time highs might be a far way off, the stock is looking very attractive to the bulls from both the fundamental and technical aspects.
About the Company
Goodyear is headquartered in Akron, Ohio and employs over 62,000 people. The company was founded in 1898 and sells its products worldwide through a network of independent dealers, regional distributors, retail outlets, and retailers.
It manufactures products in 47 facilities across 21 countries, selling under popular brands like Goodyear, Kelly, Dunlop, Fulda, Debica, Sava and various other house brands.
Goodyear is a global company, with North America generating 53% of their business. Asia-Pacific is about 15%, while the Europe, Middle East and Africa segment is 32%.
GT is valued at $5.3 billion and has a Forward PE of 10. The company holds a Zacks Style Score of “A” in Momentum and “B” Value. The stock pays no dividend.
Earnings Beat
In early November, the company reported its sixth straight earnings beat. Q3 came in at $0.72, which was 213% above expectations. Revenue came in at $4.93B v the $3.47B last year.
Tire unit volumes were up 32% year over year, while replacement tire shipments were up 44% y/y. Original equipment volume was off 7% y/y, but total segment operating margin was 7.5%, which is almost back to 7.7% in 2019.
Management credited freight volume as a reason for the great results. CEO Richard Kramer had the following comments:
“With the transportation industry moving record freight volume, we also saw robust demand from our largest commercial customers. As a result, our commercial business delivered another strong quarter, with fleet tire volume well above pre-pandemic levels.”
Goodyear also commented on their recent Cooper Tire transaction. They expect to continue to “deliver significant, immediate and long-term financial benefits as a result of the business combination”. They see $250 million in run-rate synergies by mid-2023 and will realize $20 million of those savings in 2021. The acquisition is expected to reduce Goodyear’s cash tax payments.
Goodyear is looking for markets to stabilize in Q4, but added that inflationary cost pressures will continue. Despite that they affirmed FY21 capex of $1B and guided Q4 volume similar to Q3 2019.
Estimates Rising
Analysts have been fairly aggressive in raising estimates for the current year and for next year.
Over the last 60 days, the current year has seen a tick higher from $1.05 to $1.85, or 76%. For 2022, we have seen a 35% rise over that same time frame, from $2.05 to $2.77.
Analysts are taking price targets higher as well. Since earnings we have seen Deutsche Bank raise the stock to a Buy with a $32 price target. Additionally, Citigroup reiterated its Neutral stance, but raised their target to $24, from $20.
The Technical Take
The stock is well off those COVID lows from March of 2020. Over the last six months the stock has ranged between $14 and $25. The 61.8% Fibonacci retracement is the $18 area, which recently showed support. Additionally, the 200-day is just above that $18 level, making this support area a big buy zone for the bulls.
The stock has bounced off those support levels and will now make a run to its 50-day moving average at $21. From there, the bulls will need to break the $22.50 area and we could see an accelerated move to 2021 highs and to the $27 area where the Fib extension targets reside. This setup gives a trader a good risk reward against those recent lows.
In Summary
Goodyear has a lot of earnings momentum with the freight volume continuing to be strong. Additionally, the technical setup currently in place gives traders and investors a great risk/reward scenario.
Earnings will be in early February and should be the next big catalyst that could take the stock higher. If the positive earnings scenario plays out, look for strong returns in 2022.
Bear of the Day:
Energizer is a Zacks Rank #5 (Strong Sell) that is one of the world’s leading manufacturers and distributors of batteries and lighting products. The company is also a major designer and marketer of automotive fragrance, appearance and air conditioning recharge products.
The stock has underperformed all year and with falling estimates, investors are worried that 2021 lows might be taken out before the year is over.
About the Company
Energizer is headquartered in Saint Louis, MO and employs 6,000 people. The company distributes products to consumers through several retail locations worldwide, including mass merchandisers as well as warehouse clubs, food, drug and convenience stores, electronics specialty stores and department outlets, hardware and automotive centers, e-commerce and military stores.
Energizer consists of three segments, with Batteries making up 75% of FY21 revenues. Auto Care is 20% and Lights and Licensing is 5%. The company saw 71% of its revenues from the Americas and 29% from international operations.
ENR is valued at $2.5 billion and has a Forward PE of 12. The company holds a Zacks Style Score of “A” in Value and Growth.
Q4 Earnings
Energizer reported earnings in early November, seeing a 10% beat. This was the fourth straight beat, but the stock continues to go lower. Once reason for the recent selling was a weak FY22 guide.
The company sees FY22 at $3.00-3.30 v the $3.51 expected and sees organic revenue unchanged year over year. The see gross margin headwinds due to inflation that might hit margins by 150 basis points.
The margins are already down 70bps y/y and organic revenue is down 5.8% year over year.
Management sees demand normalizing in 2022, but also sees inflationary pressures continuing.
Estimates
Margins are hurting earnings and estimates are being lowered across the board. For the current quarter, estimates have dropped 15% over the last 60 days, falling from $1.11 to $0.94. For the current year, we see an 8% drop over that same time frame.
While value investors might start looking at the name, they might want to hold off until the inflationary issues start to fade.
Technical Take
Energizer is down 25% from 2021 highs and just a couple points off the recent lows. The stock remains just under tis 50-day moving average and until the bulls can get back above the $40 level it looks like dead money.
If the momentum can be turned, then look for the 200-day at $42 as the next resistance.
If the stock breaks lower, the $35 level could offer support. If not, the COVID crash low of $25 would likely be a place of interest.
In Summary
Energizer is a popular brand, but the business is being hit by inflationary pressures. Until the trend changes, there are better places for investors to put their money.
Additional content:
3 Stocks to Buy Despite Omicron Uncertainty
Uncertainty is again haunting energy businesses, with major oil producers witnessing a significant fall in share prices. Rapidly spreading new variants of coronavirus are spooking investors as there are possibilities of renewed lockdown measures that could dent fuel demand.
This doesn’t imply that investors should steer clear of energy stocks. It is in fact better to divert focus to midstream energy players since they have minimal oil and gas price and volume risks.
Oil Price Volatility
The pricing scenario of West Texas Intermediate (WTI) crude has been extremely volatile of late. The price of the commodity is currently trading below the $70-per-barrel mark, reflecting a significant decline from the high of more than $84 per barrel reached early November this year.
The rapid spread of Omicron is slowing down the revival in fuel demand since investors are concerned that there will be delays in air travel with people likely to prefer working from home. Uncertainty in the energy business, backed by rising coronavirus cases, is making oil prices volatile again.
Better to Focus on Midstream Business
Volatility in oil prices has induced uncertainty in the upstream business. This is likely shifting the focus of investors toward midstream companies since companies involved in oil and gas transportation and storage operations have lower exposure to coronavirus-induced volatility in commodity prices.
Midstream companies transport oil, natural gas and refined products from prolific basins to end markets. The pipeline networks and storage assets are usually contracted by shippers for a long period of time, thereby generating stable fee-based revenues.
3 Stocks in the Spotlight
Employing our proprietary Stock Screener, we have shortlisted three midstream stocks with strong potential to gain. Two of the stocks carry a Zacks Rank #2 (Buy), while one carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Oasis Midstream Partners, with its diversified portfolio of midstream assets, provides services to its sponsor, Oasis Petroleum Inc., and third parties. Oasis Midstream Partners’ services include gas & crude gathering, gas processing and natural gas liquid storage.
There has been a consistent track record of business development by Oasis Midstream Partners. Since its initial public offering (IPO) in 2017, Oasis Midstream Partners, with a Zacks Rank of 2, has been generating incremental earnings before interest, tax, depreciation and amortization.
Transportadora de Gas del Sur SA’s midstream asset portfolio has the most extensive pipeline network of natural gas in Latin America. Transportadora de Gas del Sur generates stable fee-based revenues since its pipeline assets transport more than 60% of the gas consumed in Argentina.
Transportadora de Gas del Sur has witnessed upward earnings estimate revisions for 2021 in the past 60 days. The upward revisions are being backed by TGS’s stable business model and strong focus on creating differential value for shareholders. Also, Transportadora de Gas del Sur, with a Zacks Rank of 2, has lower debt exposure than the composite stocks belonging to the industry.
Enbridge, a leading North American energy infrastructure player, generates stable fee-based revenues. For 2022, Enbridge is projecting EBITDA in the band of C$15 to C$15.6 billion and DCF per share in the range of C$5.2 to C$5.5. The metrics for next year thus suggest an improvement as compared to this year. By 2024, Enbridge expects average annual DCF per share growth of 5% to 7%.
Enbridge has a strong commitment toward returning capital to shareholders. It has raised its quarterly dividend by 3% to 86 Canadian cents per share. Thus, Enbridge has increased its 2022 dividend (C$3.44 annualized), marking a dividend increase for 27 straight years. The Zacks #3 Ranked firm also intends to establish a share buyback program through which it can repurchase C$1.5 billion of outstanding shares.
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
https://www.zacks.com
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks “Terms and Conditions of Service” disclaimer. www.zacks.com/disclaimer.
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Goodyear Tire & Rubber Company (GT) : Free Stock Analysis Report
Energizer Holdings, Inc. (ENR) : Free Stock Analysis Report
Enbridge Inc (ENB) : Free Stock Analysis Report
Transportadora De Gas Sa Ord B (TGS) : Free Stock Analysis Report
Oasis Midstream Partners LP (OMP) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research