For Immediate Release
Chicago, IL – December 3, 2020 – Zacks Equity Research Shares of The Goldman Sachs Group, Inc. GS as the Bull of the Day, Hexcel Corporation HXL asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Pfizer Inc. PFE, CrowdStrike Holdings, Inc. CRWD and Snowflake Inc. SNOW.
Here is a synopsis of all four stocks:
Bull of the Day:
In the spirit of full disclosure, I have to admit that for a long time during my professional trading career, I had an active relationship with today’s Bull of the Day – Goldman Sachs Group. Goldman had purchased the Chicago-based clearing firm that handled our firm’s accounts and positions, renaming the new division “Goldman Sachs Execution and Clearing” – GCEC for short - and my experiences with them were overwhelmingly positive.
Though our options market making business occupied a somewhat obscure corner of the financial markets, I always felt that each of the people from Goldman who we interacted with understood exactly what we needed and frequently helped us achieve our goals.
I no longer have any business relationship with Goldman – or any sort of conflict whatsoever – but I was happy to see that after a difficult stretch for the banking and finance industry as a whole, Goldman is back on top with a Zacks Rank #1 (Strong Buy). Thanks to a culture that has evolved with the times – but also never deviated from core principles of honesty and integrity, the company that Marcus Goldman and Samuel Sachs founded in New York shortly after the Civil War has been an industry leader in an increasingly diverse set of businesses for 150 years.
A former Goldman Sachs managing director was renowned for imploring his staff to, “be greedy, but be long-term greedy.” That’s great advice in almost any business pursuit. The focus should always be profitability, but it’s also important to resist the temptation to reach for quick gains that come at the expense of establishing partnerships and lines of business that will bear fruit for years or decades into the future.
Because of that sort of long-term thinking, Goldman is truly a “money-machine” through all sorts of economic conditions. In the most recent quarter – obviously a tough period for many businesses – Goldman posted net profits of $9.68/share. That exceeded the Zacks Consensus Earnings Estimate by more than 70% and importantly, it reassured the investment community that Goldman is still capable of churning out big results, even in an atmosphere of low interest rates and significant business challenges.
Thanks in part to that outstanding number, the consensus estimate for full-year earnings has risen from $13.49/share all the way to $19.08/share over the last 60 days.
The full-year 2021 estimate went from $22.73/share to $24.37/share over the same period despite an expectation for slightly lower total revenues. It’s important to keep in mind that “slightly lower revenues” still means more than $38 billion. When you look at the numbers for a huge, diversified company like Goldman, sometime you end up doing a double-take because the figures are so big – especially when compared to smaller companies that trade at sky-high multiples and for whom beating the estimates by a few cents is a major achievement, even as Goldman beats by dollars.
Of course, large banking and finance institutions tend to trade a much lower price-to-earnings valuations than the broad indices. The relative stability of revenue streams and net earnings and huge amounts of capital involved mean that a huge unexpected growth surge is fairly unlikely. As an investor, what you might give up in growth potential you get back in consistency.
With a forward 12-month P/E ratio of just 12.17X, Goldman is priced more attractively than the industry average of 13.4X and the S&P 500 as a whole at 28X.
Owning a big investment bank like Goldman Sachs might not be nearly as exciting as those companies that make electric vehicles, fancy home exercise equipment or hamburgers made out of vegetables, but thanks to rising estimates and a history of steady progress through even the roughest seas – as well as a juicy 2.15% dividend yield – Goldman is one of those core holdings that let’s you sleep easily at night.
Bear of the Day:
Sometimes the price movement in a stock just makes sense. You can observe generally positive sentiment, improving business conditions, expectations for increased revenues and earnings and the fact that the shares are climbing in value seems to be an appropriate response.
Sometimes it’s the opposite. A stock gets hot based on a general theory about a particular industry and the shares rally even though traditional analysis would suggest that things are more likely to get worse before they get better. That certainly seems to be the case for materials manufacturer Hexcel Corp.
In a typical year between 70 and 90% of Hexcel’s revenues come from selling composite materials used in the manufacture of commercial aircraft. Their next biggest source of sales are parts for wind power turbines. The first half of 2020 was a rough time for aircraft manufacturers and the various suppliers from whom they buy parts and materials.
With demand for domestic air travel dropping precipitously and much international travel suspended altogether, the major airlines were cancelling routes, furloughing employees and parking their aircraft fleets. They certainly weren’t ramping up their orders for new aircraft.
The most obvious effect was on the manufacturer Boeing, which was already operating under a difficult set of conditions when its most popular and profitable aircraft – the 737 MAX – was grounded worldwide because of safety concerns after two fatal accidents. Boeing really only assembles aircraft however and it didn’t take long to realize that its suppliers (and those of European competitor Airbus) would suffer as well.
Then things started to turn around.
When Joe Biden won the Presidential election, the prospect of additional fiscal stimulus became more likely and the airline industry is the most obvious potential recipient of financial assistance. Vaccine research promises to return the travel industry to more normal conditions.
After nearly two years, Boeing received certification from the FAA to resume flights of the 737 MAX and expects the workhorse planes to be back in the air at scale in 2021.
For Hexcel, the expectation of a Presidential administration that might be more friendly to renewable sources of energy also made it possible that the wind turbine market would benefit as well.
It all made sense and the markets love a good story. Hexcel shares have rallied 65% from their October lows. It’s probably a case of moving “too far, too fast” however - because the numbers simply don’t back up the optimistic narratives just yet.
Fiscal stimulus from Congress is still far from certain and even is the airlines do receive assistance, that will simply help them shore up their operational budgets in the immediate term. It may still be a long time before they’re increasing orders for new aircraft. It will be even longer until those orders filter down into the financial results of materials suppliers.
Also, Republicans actually gained seats in the House of Representatives and are favored to retain control of the Senate after two runoff elections in Georgia. Though the general sentiment in favor of alternative energy has improved somewhat, the chances for any sort of sweeping legislation that would directly benefit companies like Hexcel remain small. We'r much more likely to see gridlock.
In the last 60 days, Hexcel has experienced:
A huge earnings miss in which they lost $(0.29)/share instead of the expected $0.07 profit.
Reduced consensus estimates that took the current quarter lower by 30%, the current (2020) year lower by 48% and 2021 lower by 35%. Those downward revisions earn Hexcel a Zacks Rank #5 (Strong Sell).
And yet the stock has been climbing! Even with the reduced expectations, HXL shares now trade at a forward 12-month P/E Ratio of 130X.
It’s a natural tendency to want to be an optimist – recognizing an opportunity before the turnaround is obvious to everyone and making a profit. In the cases of companies like Hexcel however, it’s important not to let an optimistic story cloud your judgement about questionable fundamentals.
CrowdStrike (CRWD) Beats, Snowflake (SNOW) Mixed in Q3
+Markets were tepid Wednesday, after fair-to-middling private-sector employment numbers ahead of the open, and an announcement mid-day that New York state is scheduled to receive 170K vaccine doses by December 15th — two weeks from Tuesday. The biggest performing major index on the day was the Dow, +0.20%, followed by the 28th all-time high close from the S&P 500, +0.18%. The small-cap Russell 2000 brought in +0.11% on the day, while the Nasdaq finished narrowly in the red, -0.05%.
High-risk healthcare workers and senior living facility tenants will represent the first tier of Covid-19 vaccinations from Pfizer, followed by the general elderly population — much in line with Great Britain’s approval of the Pfizer vaccine made earlier in the day. But the market had already been pricing in a post-Covid world; apparently investors are keeping something of a wet blanket on current valuations.
The rollout of Covid-19 vaccines promises to be extraodinarily huge and complex. That there is some sort of dosages plan is a big step in the right direction, but there are always pitfalls — and they’re not always visible to the naked eye in real time. But Operation Warp Speed has had its shingle up for several months now; we look for the operation’s execution to adhere to military-like precision. In other words, the outlook for the vaccine rollout looks to be a huge challenge, but those in charge appear prepared.
Cyberintelligence security firm CrowdStrike surged well ahead of estimates on every metric in its Q3 report this afternoon, with 8 cents per share reported easily surpassing the $0.00 expected. Revenues of $232 million topped the expected outpaced the $213.7 million analysts were anticipating, and rose 86% year over year. Revenues for fiscal Q4 are now expected in a range of $245.5 million - 250.5 million, notably ahead of the $231 million in the most recent Zacks consensus.
Shares of CrowdStrike are up 11% on the news, putting the stock performance at roughly +110% year to date. We look for analysts covering the company — which has not missed an earnings estimate since its IPO in 2018 — to ratchet up estimates, and perhaps pull a higher Zacks Rank as a result.
The debut earnings report release from enterprise software fledgling Snowflake was a rather inauspicious one: a bottom line of -$1.01 per share was well off the pace of -27 cents per share in the Zacks consensus; then again, initial public earnings reports are notoriously hard to gauge. Revenues beat expectations slightly: $148.5 million topped the $146.9 million estimate, +11.5% year over year. Yet shares are selling on the news 4.5%; recall Snowflake’s IPO surged right out of the gate. This looks to be a sell-the-news move.
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The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
Pfizer Inc. (PFE) : Free Stock Analysis Report
Hexcel Corporation (HXL) : Free Stock Analysis Report
Snowflake Inc. (SNOW) : Free Stock Analysis Report
CrowdStrike Holdings Inc. (CRWD) : Free Stock Analysis Report
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