Yahoo Finance Jabil and Lennar have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – December 23, 2022 – Zacks Equity Research shares Jabil JBL as the Bull of the Day and Lennar Corp. LEN as the Bear of the Day. In addition, Zacks Equity Research provides analysis on H&E Equipment Services, Inc. HEES and Terex Corp. TEX.
Here is a synopsis of all four stocks:
Bull of the Day:
Jabil is a manufacturing solutions provider and electronics maker. Jabil topped Zacks quarterly estimates on December 15 and raised its outlook once again to showcase its ongoing resilience as the wider economy and technology sector experience pullbacks.
Jabil stock has easily outperformed the S&P 500 and the Zacks Tech sector over the last decade and in 2022. And these are just a few of the reasons why JBL might be worth considering at the moment.
The JBL Basics
Jabil provides manufacturing services to companies in telecommunications and other industries. The firm's client list includes the likes of Apple, SolarEdge and other giants in critical and game-changing industries.
Jabil prides itself on operating in the background, working with hundreds of the biggest brands in the world to help make everything from smartphones and home appliances to healthcare technologies. Jabil boasts that it helps make its client's "most complex ideas and products a reality."
Jabil serves original equipment manufacturers and product companies across multiple industries and end markets. JBL's laundry list of client areas and spaces includes compute & storage, appliances, automotive, healthcare, telecom, energy & industrial, and beyond.
JBL's solutions include advanced assembly and automation, printed electronics, autonomous systems, and more. Meanwhile, its list of services spans from engineering and optics to supply chain, software, additive manufacturing, and others in between.
Growth and Outlook
Jabil's diversification has helped it grow steadily for years, including 14% growth in its fiscal 2022, which is highly impressive for a company that went public in the early 1990s and was founded long before that. JBL is also set to benefit from a broader onshoring/reshoring push from U.S. companies and the federal government.
Jabil on December 15 topped our Q1 FY23 earnings and revenue estimates, with its sales up 12% and adjusted EPS 20% higher. The growth was driven by 18% expansion in its Electronics Manufacturing Services segment. "I remain confident in our plan moving forward, which is supported by both strong secular tailwinds and continued refinement of our more traditional businesses," CEO Mark Mondello said in prepared remarks.
Looking ahead, Zacks estimates call for JBL's revenue to climb 3% in FY23 and another 3% in FY24 to reach $35.4 billion. This growth comes on top 12% average top line expansion over the last five years and roughly matches its YoY growth rates during a couple-year stretch prior to the recent run of outsized strength.
Jabil's adjusted earnings are projected to climb by 9% in FY23 to hit $8.31 per share and another 6.3% in FY24. JBL has topped our EPS estimates by an average of 9% in the trailing four quarters and it's beaten our bottom line estimates for five years running outside of one miss early in the pandemic.
Plus, Jabil's earnings outlook has continued to improve for FY23 and FY24, which is no easy task as the overall outlook for S&P 500 earnings and the economy fade. JBL's bottom-line positivity helps it land a Zacks Rank #1 (Strong Buy) right now.
Other Fundamentals
Jabil is part of the Electronics - Manufacturing Services industry that currently ranks No. 1 out of over 250 Zacks industries. Being part of a top-ranked industry that's showing strength in a difficult market is very important, and remember that studies have shown that 50% of a stock's price movement can be attributed to its industry.
Jabil lands "A" grades for Value and Momentum and a "B" for Growth in the Zacks Style Scores system. Plus, six of the seven brokerage recommendations Zacks has are "Strong Buys." The company also pays a small dividend that's yielding 0.5% at the moment.
JBL shares have only dipped -3% in 2022 vs. the Zacks Tech sector's 35% drop. The stock has also experienced impressive second-half momentum, up 30% in the last six months to hit fresh highs on December 13.
Jabil has pulled back slightly from those highs and it trades 14% below its current average Zacks price target. And it sits below neutral RSI levels (50) at 47. Jabil's recent performance is part of a 155% climb in the last five years vs. Tech's 44% and a 350% jump during the past 15 years compared to 160% for the Zacks Tech sector.
Despite its long-term and recent outperformance, Jabil trades at a 50% discount to the Zacks Tech sector at 9.5X forward 12-month earnings. This also represents a discount compared to its own 15-year median and well below its highs of 23X.
Bottom Line
Jabil stands to grow for years to come as technologies of all shapes and sizes drive the world and the economy forward. Let's also remember that the covid pandemic and other factors spurred companies and the U.S. government to start manufacturing more crucial tech in the U.S. such as semiconductors, solar panels, and countless other high-tech offerings.
Jabil appears to be a worthy stock to consider for 2023 given its valuation and resilience, alongside its ability to grow even as the U.S. and the global economy face recession fears.
Bear of the Day:
Lennar Corp. is one of the largest U.S. homebuilders. Lennar's business has been booming for most of the last decade and it certainly benefited from the covid housing push alongside its peers and the likes of Home Depot.
Lennar now faces a rapidly cooling housing market on the back of higher mortgage rates and a natural slowdown after the year-plus covid surge. The company released its fourth quarter FY22 results on December 14 and provided rather downbeat guidance that sent its earnings estimates much lower.
Lennar's Story
Lennar's homebuilding operations include the construction and sale of single-family detached homes as well as townhomes and condominiums. The company primarily focuses on homes in communities targeted to first-time, move-up, and active adult homebuyers. Lennar builds homes in roughly 25 states across the country from California and Arizona to Illinois, Georgia, and beyond
Lennar operates other segments within the wider home buying space and aims to help its clients with the entire process from financing and selling their current home to its core building segment. The company's average sale price was $424K in 2021, up from $394K in 2020.
Lennar then benefited from a strong housing market and higher prices once again in its fiscal 2022 which ended on November 30. Overall, its home sales revenue increased 25%, with sales driven by an 11% increase in the number of home deliveries and a 13% jump in the average sales price. New home deliveries climbed to 66.4K and its average sale price hit $480K. Homebuilding sales accounted for roughly 95% of total FY22 revenue.
The nearby chart showcases Lennar's massive spike in revenue in the lead up to the financial crisis and its boom years from around 2011 onward. But the housing market is cooling and it faces tough-to-compete-against periods.
Mortgage rates earlier this year climbed above 6% for the first time since 2008, up from 2.9% in the summer of 2021. The higher rates make buying homes far more expensive, with the average 30-year fixed rate mortgage sitting at around 6.3% at the moment. Fresh data out earlier this week showcased that the U.S. housing market slowed for a 10th straight month in November.
Zacks estimates call for Lennar's FY23 revenue to slide by -15% to $28.74 billion and then stabilize in FY24 to come in around 1.6% higher YoY. Meanwhile, its adjusted earnings are projected to tumble 40% in FY23 from $17.55 per share to $10.50 a share and then pop 7% in FY24.
Bottom Line
The company's FY23 and FY24 consensus EPS estimates have fallen rather substantially since its Q4 report. The nearby chart showcases Lennar's sliding Zacks consensus estimates, with FY23 down 17% in the last 60 days and FY24 now 34% lower. These downward revisions help LEN land a Zacks Rank #5 (Strong Sell) right now.
LEN shares have outclimbed its Zacks econ sector over the last 10 years, up 140% vs. 77%. More recently, Lennar had fallen 22% in 2022. This downturn includes a 30% surge in the last six months.
The company does pay a dividend and its valuation is solid. Overall, the stock likely offers long-term potential for those looking to hold Lennar for years and years to come. But the near-term uncertainty likely means investors should be cautious about LEN stock at the moment.
Additional content:
2 Manufacturing Stocks with Strong Growth Potential in 2023
According to the December 2022 Semiannual Economic Forecast recently issued by the Institute for Supply Management (ISM), growth expectations of 5.5% for 2023 are down from the 6.5% rate estimated six months ago and well below the 9.2% rate for 2022. The numbers are based on a survey of purchasing and supply chain executives, which is however not a homogeneous group.
Therefore, some segments are expected to do much better than others (45% of respondents are looking for 14.9% growth, 43% flattish growth and the remaining 12% expecting a 10.3% decline on average). Thus, there are segments within manufacturing that should have a stellar year, recession or not.
Significantly, the ISM expects raw material price increases to decelerate to 2% from 11.4% in 2022. This should be a huge relief for players, as labor issues persist. Manufacturing employment is expected to increase 3.9%.
Working conditions in the manufacturing industry aren't great compared to other industries, which is why it has lost more people during the "great resignation". Consequently, today the industry is severely short staffed with employees making demands for higher pay, a better working environment, work-life balance, flexible hours, etc. About a quarter of the workforce are also aged 55 and above, which along with the technical skills required for the job means that labor will remain a top concern/focus area in the next few years.
However, technology adoption, including factory automation, robotics and increased use of Industrial IoT (IIoT) devices are expected to bring efficiencies, cost control, deeper insights into operations and customer relationship management by facilitating in-depth information gathering, monitoring equipment and process efficacy, early diagnosis of problems, as well as a predictive approach to analytics. AI is expected to wring further efficiencies. This is a multi-year trend that has been ongoing over the last five years and is expected to continue over at least the next three.
A lot of innovation is also happening in the supply chain, with larger players increasingly absorbing middlemen on both the sourcing and supply sides. This helps in two ways, by eliminating some cost, building direct relationships with suppliers and customers, better pricing and better control. The benefits of this model are not lost on smaller players, so changes may be expected to continue.
Manufacturers have been building capacity all through this year at an average rate of 12%, something that will continue in 2023, albeit at a much slower rate of 2.6%, according to the ISM report. Despite these additions, 2022 utilization remains quite high at 88.4%.
From the above, we can come to a few conclusions:
First, there are pockets of considerable strength within the manufacturing segment although the overall market can appear sluggish in 2023.
Second, while labor and raw material cost will continue to increase next year, the rate of increase will come down sharply. Therefore, players with pricing power will benefit disproportionately.
Third, technology will continue to play a big role in increasing efficiencies (which is the need of the hour). Therefore, investments will continue.
With that in mind, let's jump to a couple of stocks that are looking very good right now. Both are members of the Zacks Manufacturing - Construction and Mining industry, which is in the top 2% of Zacks-ranked industries.
H&E Equipment Services, Inc.
Baton Rouge, Louisiana-based H&E Equipment Services is an integrated equipment services company. It operates in five segments: Equipment Rentals, Used Equipment Sales, New Equipment Sales, Parts Sales, and Repair and Maintenance Services. H&E Equipment targets industrial and commercial companies, construction contractors, manufacturers, public utilities, municipalities, maintenance contractors and other industrial customers.
The Zacks Rank #1 (Strong Buy) stock has Value, Growth and Momentum scores of B, A and B, respectively. Its estimates continue to rise even when the markets expect doom and gloom next year. In the last 60 days, the 2022 estimate is up 48 cents (17.3%) while the 2023 estimate is up 64 cents (19.8%).
Analysts expect 2023 revenue and earnings growth of 13.1% and 19.0%, respectively. But the current pace of estimate revisions indicate that growth will ultimately be much stronger. The surprise history (41.7% average surprise in the last four quarters) shows that analyst estimates tend to be conservative.
Analysts have also set their target prices quite high, the average representing 19% upside from the current price of $44.92.
Terex Corp.
Terex manufactures and sells aerial work platforms and materials processing machinery worldwide. Its products are used in construction, infrastructure and recycling projects; quarrying and mining, and material handling applications; maintenance applications to lift equipment or material; and landscaping and biomass production industries.
The Zacks Rank #2 (Buy) stock has Value, Growth and Momentum scores of B, B and D, respectively. In the last 60 days, its 2022 estimates have increased 14 cents (3.5%) and 2023 estimates 22 cents (4.8%). Revenue and earnings are expected to grow a respective 5.4% and 16.8% in 2023. The surprise history is good with the previous four quarter average surprise coming to 36.7%.
The average target price represents 14% upside from the current level of $43.64.
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