For Immediate Release
Chicago, IL – December 30, 2022 – Zacks Equity Research shares CNH Industrial N.V. CNHI as the Bull of the Day and Beazer Homes USA, Inc. BZH as the Bear of the Day. In addition, Zacks Equity Research provides analysis on DCP Midstream Partners DCP, Global Partners LP GLP and Delek Logistics Partners DKL.
Here is a synopsis of all five stocks.
CNH Industrial N.V. is innovating with new equipment including electric tractors. This Zacks Rank #1 (Strong Buy) is also expected to grow its earnings by the double digits in 2023.
CNH Industrial is an equipment and services company that manufactures agriculture and construction equipment for customers in 180 markets. It has been manufacturing equipment since 1842 and operates 4 core brands: Case IH, New Holland Agriculture, New Holland Construction and CASE Construction Equipment.
New Innovations in Electric and LNG Tractors Unveiled
On Dec 9, CNH Industrial revealed the New Holland T4 Electric Power, the industry’s first all-electric light utility tractor prototype.
Developed by its teams in the United States and Italy, and in collaboration with strategic partner Monarch Tractor in California, the prototype was presented as New Holland Agriculture but the commercial model will also extend to the Case IH brand.
The TR Electric Power is suited to mixed farm, livestock, municipality, orchard and specialty applications.
Commercial production is expected to begin at the end of 2023 with a broader product offering to follow.
Also on Dec 9, at its Tech Day in Phoenix, CNH Industrial unveiled a prototype in natural gas tractors with the T7 Methane Power LNG (Liquefied Natural Gas) pre-production tractor.
New Electrification Center to Open in Detroit
With the auto industry well along its journey towards electric vehicles, it shouldn’t be surprising that CNH Industrial announced on Dec 12, 2022, that it would be opening a new technical center in the Detroit metro area designed to support innovation in electrification.
“This new location underlines our commitment to growing our electric vehicle and subsystem profile, and marks yet another milestone after successfully expanding our in-house team,” said Marc Kermisch, Chief Digital and Information Officer and ad interim Chief Technology & Quality Officer, CNH Industrial.
Record Third Quarter Consolidated Revenue
On Nov 8, 2022, CNH Industrial reported its third quarter results. It beat the Zacks Consensus Estimate by $0.09, reporting $0.41 versus the consensus of $0.32.
CNH Industrial has an excellent earnings surprise record. It has only missed once in the last 5 years and it was when the coronavirus pandemic hit in early 2020.
The company had record third quarter consolidated revenue of $5.8 billion, up 23.9% year-over-year.
A favorable mix of volume, price realization, operational execution and supportive product mix led to an increase in Industrial Activities gross margins by 260 basis points. However, the company did warn that significant challenges persist in the supply chain and “inflation continues to run hot.”
Free cash flow was $202 million in the quarter and the company continues to target full year industrial free cash flow of $1 billion.
Raised Full Year Guidance
In spite of the challenges, given the strong third quarter performance, CNH Industrial raised its full year guidance on net sales to the range of up 16% to 18%.
The analysts liked what they saw as 7 earnings estimates were raised for 2022 and 2023 in the last 2 months.
The 2022 Zacks Consensus Estimate rose to $1.47 from $1.38 during that time. That’s earnings growth of 8.9% as the company made $1.35 in 2021.
Similarly, for 2023, the Zacks Consensus jumped to $1.62 from $1.52 over the last 2 months. That’s earnings growth in 2023 of 10.3% despite all the challenges.
Shares Are Cheap
It’s been a volatile year for CNH Industrial shares but they are now down about 17% for the year.
But they are still cheap on a forward P/E basis. It trades at just 10.9x.
CNH Industrial is also shareholder friendly. It pays a dividend, currently yielding 1.8%. On Sep 19, 2022, it also announced a $300 million share buyback plan good through Oct 12, 2023.
For investors looking for an old economy company with both value and a growth outlook in 2023, CNH Industrial should be on your short list.
Beazer Homes USA, Inc. is cutting prices and offering incentives as the housing market slows. As a result, this Zacks Rank #5 (Strong Sell) is expected to see falling earnings in fiscal 2023.
Beazer Homes is one of the largest homebuilders in the United States. It builds homes in many states, including Arizona, California, Nevada, the Carolinas, Tennessee, Texas, Virginia, Georgia, Indiana, Delaware, and Florida.
It also operates a Mortgage Choice program which allows buyers to compare multiple loan offers and choose the best lender and loan offer.
Another Beat in the Fiscal Fourth Quarter of 2022
On Nov 10, 2022, Beazer Homes reported its fiscal fourth quarter 2022 results and beat the Zacks Consensus again. Beazer reported earnings of $2.82 versus the Zacks Consensus of $2.00. That’s an $0.82 beat, or 41%.
Beazer has put out an amazing string of earnings beats. It has now beat 11 quarters in a row and has only missed twice in the last 5 years.
But the fourth quarter was really backward looking, as it’s the result of delivering on the big backlog that built up due to the strong demand during the pandemic.
Market conditions have turned more bearish, as mortgage rates rise, and sales drop.
“The environment for new home sales became significantly more challenging over the course of fiscal 2022, as higher mortgage rates worsened an already strained affordability equation for most buyers,” said Allan P. Merrill, Beazer CEO.
“In response, we have increased incentives and reduced base prices in most of our communities. In the quarters ahead we will continue to adjust the included features, size, and pricing of our homes to compete for sales,” he added.
However, on the bright side, commodity costs are coming down, especially lumber prices, which should help margins in 2023.
Earnings Estimates for Fiscal 2023 Get Cut
It’s not a surprise, given market conditions, that Beazer Homes’ earnings are expected to decline in fiscal 2023 after a red-hot fiscal 2022.
2 estimates have been cut in the last 60 days for fiscal 2023. It has pushed the Zacks Consensus Estimate down to $3.46 from $5.08 during that time.
That is 51.7% below fiscal 2022’s earnings of $7.17. Analysts are looking for a rebound in fiscal 2024, but it’s still expected to be below 2022’s strong number.
Value or Value Trap?
Beazer shares have fallen 44% in 2022. They appear to be dirt cheap, on a forward P/E basis. It trades with a forward P/E of just 3.6.
But with earnings expected to decline this fiscal year, it has more of a value trap look to it than a true value.
Investors interested in the home builder stocks might want to wait until the spring season to see what develops with sales and prices before diving into the stocks.
3 Energy Pipeline Stocks for Strong Yield, Inflation Hedge
Despite some moderation from a 40-year high level, inflation in the United States is proving to be much more stubborn than expected. According to the last released Consumer Price Index (CPI) numbers for November, the figure was at 7.1% — high enough for the Fed to raise its core interest rate by another 0.50% and took the year-to-date increase in inflation to 4.25%. In fact, inflation fears have roiled the market this year, with the S&P 500 losing nearly 20% so far. Worse, experts believe that there will be continued upward pressure on most prices in the near-to-medium term.
As the above scenario pans out with upside inflation surprises, investing in high-quality energy infrastructure stocks like DCP Midstream Partners, Global Partners LP and Delek Logistics Partners might help you earn a decent return.
Inflation Affects Purchasing Power
While peak inflation seems behind us, prices continue to rise at a still-rapid pace, particularly for food and many services. The outbreak of coronavirus has significantly devastated the global supply-chain system in the last two years. Input costs have soared for businesses. At the same time, strong pent-up demand, supported by massive personal savings in the last two years, has resulted in soaring prices.
Market participants are highly concerned that inflation will remain elevated in the near term due to the prolonged war between Russia and Ukraine and the intermittent resurgence of coronavirus in China.
While the cost of going to the supermarket or ordering meals from restaurants has clearly spiked for consumers, another worrying side effect of inflation is that it eats into the returns generated by financial instruments such as equities and bonds by eroding their value.
A particular asset class that possesses attributes to combat the value destruction from inflation is energy midstream. These entities typically operate transportation services, storage facilities and refined products’ terminals. They are often structured as Master limited partnerships (or MLPs), which differ from regular stocks since interests in them are referred to as units, and unitholders (not shareholders) are partners in the business. Importantly, these low-risk hybrid entities bring together the tax benefits of a limited partnership with the liquidity of publicly traded securities that earn a stable income.
Let’s check out the underlying rationale for owning midstream companies during periods of rising consumer prices.
Midstream to the Rescue
Inflation Indexation: A salient feature of these entities is that the bulk of their cash flows is under long-term, fee-based contracts, which are indexed to inflation. In other words, midstream operators fix tariff rates in accordance with FERC regulations tied to the Producer Price Index — a measure of changes in prices covering a host of goods and services. Consequently, pipelines can pass on at least a portion of the higher costs to customers.
Real Assets: The properties that these entities own are mostly pipelines and storage facilities or infrastructure systems that help in moving oil and natural gas. Unlike stocks and bonds, midstream firms own real (physical) assets that do not derive their value from a contractual right. Their intrinsic worth has been historically proven to outperform traditional stock and bond instruments in years when inflation is high. This is because the economy is healthier and demand for real assets rises.
Distribution Growth: Apart from defensive characteristics, investors are typically attracted to MLPs for their reliable distributions. Adjusting costs with the prevailing business activity, the partnerships have focused on the generation of free cash flow (post-distribution payment) to lower debt and strengthen their financial position. The growing free cash flows could be used to boost investor returns through buybacks and distribution hikes. Finally, the distribution growth, which often ranges in double digits, can also help investors to offset some of the impacts of high inflation.
3 Pipeline Choices
We bring here three energy pipeline firms with high yields that could be used as an inflation hedge.
DCP Midstream Partners: This leading energy infrastructure firm has a diversified portfolio of gathering, logistics, marketing, and processing assets. DCP Midstream, carrying a Zacks Rank #1 (Strong Buy), has a foothold in the major shale plays of the United States, including the Permian Basin, Eagle Ford, DJ Basin and SCOOP.
This Zacks Rank #1 (Strong Buy) partnership has an expected earnings growth rate of 181.1% for the current year. DCP pays out a 43-cent quarterly distribution ($1.72 per unit annually), which gives it a 4.45% yield at the current unit price. DCP units have gained 40.2% so far this year. (Check DCP Midstream Partners’ distribution history here)
DCP Midstream Partners, LP dividend-yield-ttm | DCP Midstream Partners, LP Quote
Global Partners LP: GLP is a vertically integrated energy partnership focused on the distribution of gasoline, distillates, residual oil and renewable fuels, apart from owning several refined-petroleum-product terminals. Unlike most energy operators, which maintained their payout through the coronavirus-induced downturn, Global Partners is among the minority that continued to increase distributions.
The gasoline station and convenience store operator has an expected earnings growth rate of 654.2% for the current year. GLP pays out 62.50 cents quarterly distribution ($2.50 per unit annually), which gives it a 6.95% yield at the current unit price. Valued at some $1.2 billion, the #1 Ranked GLP has gained 50.2% year to date. (Check Global Partners’ distribution history here)
Global Partners LP dividend-yield-ttm | Global Partners LP Quote
Delek Logistics Partners, LP: The firm is engaged in the gathering, transportation, storage and distribution of crude oil, intermediate products, feedstocks and refined products, and is also into wholesale marketing.
DKL pays out 99 cents quarterly distribution ($3.96 per unit annually), which gives it an 8.39% yield at the current unit price. Delek Logistics has an expected earnings growth rate of 4.2% for the current year. Valued at around $2 billion, DKL, a Zacks Rank #2 (Buy) stock, has gained 10% in 2022. (Check Delek Logistics Partners’ distribution history here)
Delek Logistics Partners, L.P. dividend-yield-ttm | Delek Logistics Partners, L.P. Quote
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.