For Immediate Release
Chicago, IL – May 31, 2023 – Zacks Equity Research shares Li Auto LI as the Bull of the Day and BankUnited Inc. BKU as the Bear of the Day. In addition, Zacks Equity Research provides analysis on United Parcel Service, Inc. UPS and FedEx Corp. FDX.
Here is a synopsis of all four stocks.
Bull of the Day:
Li Auto is an electric vehicle (EV) maker that manufactures, engineers, and designs SUVs.
What sticks out about Li Auto?
In my experience as an investor, relative price strength is among the best “tells” out there. Zacks Rank #1 (Strong Buy) stock Li Auto is exuding unusual relative price strength versus other stocks. The EV manufacturer has been outperforming the Chinese market and its peer group. Shares of LI are higher by 38% year-to-date, while the Zacks Automotive – Foreign peer group is lower by 7.5%.
Meanwhile, the iShares China Large-Cap ETF is lower by 5% year-to-date, and other EV makers, such as LI competitor Nio, are lower by 21%. Most traditional auto manufacturers like GM are lagging versus LI and are flat year-to-date.
Over the past two quarters, LI has produced robust top and bottom-line growth. Last quarter, EPS grew 163% while revenue grew 81%, year-over-year. Li Auto also has a history of topping consensus estimates. LI has produced positive earnings surprises in six of the past six quarters. (Last quarter, earnings surprised by a healthy 121%).
While it’s nice to have strong current earnings and a strong earnings’ track record, future earnings are where “the rubber meets the road.” Because of Li’s strong expected earnings estimates moving forward, the company earns the coveted Zacks Rank #1 (Strong Buy). Only 5% of stocks in the entire market earn this rating. For full-year 2023, Zacks Consensus Estimates predict that Li’s EPS will rocket by 2,400% year-over-year.
As I mentioned earlier, LI is among the strongest stock in its industry group. However, that does not mean we should discount industry group strength. Studies have shown that roughly half of a stock’s price movement can be attributed to the underlying industry group. The Automotive – Foreign Industry is ranked 31 out of 250 groups tracked by Zacks (top 12%).
Li is showing a lot of strength from a technical perspective. The stock is outperforming on a relative basis, forming a bull flag pattern, and just triggered a bullish “golden cross” earlier this month.
Strong fundamentals, relative performance, and price action suggest that Li Auto may be in the running to become the EV leader in China. Though China’s economy and stock market have been struggling recently, a recovery there is yet another potential catalyst for this potentially new leader.
Bear of the Day:
Zacks Rank #5 (Strong Sell) stock BankUnited Inc. is a Miami Lakes, Fl based bank established in 2009. BankUnited’s primary banking markets are Florida and the Tri-State area of New York, New Jersey, and Connecticut.
Over the past few years, BankUnited’s expenses have been rising consistently. Inflationary pressures and technology upgrades are keeping the company’s expenses elevated. Furthermore, worsening asset quality and exposure to risky loan portfolios are other headwinds.
Risky Loan Exposure
Residential and other consumer loans comprise approximately 35% of the company’s loan portfolio. The company also has loan exposure to many industries still recovering from the COVID-19 pandemic, including hotels, airlines, and cruise lines. These high-risk loan exposures may negatively impact the company’s financials moving forward.
Spotty Earnings Picture
Since 2021, BankUnited’s annual earnings per share has been declining. Meanwhile, revenue has remained essentially flat since 2018.
For the full-year 2023, Zacks Consensus Estimates predict a fall in year-over-year EPS of ~14%.
Negative ESP Score
With the current earnings already abysmal, the next step is for investors to try to predict the future. BKU earns a Zacks Earnings ESP (Expected Surprise Prediction) score of -2.68%. The Zacks Earnings ESP score is a proprietary ranking that is derived from recent EPS revision activity. Stocks with positive ESP scores tend to beat on EPS and outperform and vice versa. BKU’s negative ESP score suggests that the company will miss earnings expectations when it reports in July and will underperform.
Weak Industry Group
The banking sector has been the weakest area of the equity market in 2023. BankUnited is part of the Zacks Banks – Major Regional Industry Group which holds a poor rank of 232 out of the 250 industries tracked by Zacks (bottom 7%). Because roughly half of a stock’s price movement is beholden to the underlying industry group, BKU is an avoid.
Like most banks, BKU is underperforming the general market and showing signs of relative weakness. After finding support near the 2020 pandemic lows, the stock has rallied in the past few weeks to form a bear flag pattern.
A weak industry, rising costs, and spotty fundamentals are a few reasons investors should avoid BankUnited.
2 Dividend-Paying Air Freight and Cargo Stocks You May Count On
The Zacks Transportation - Air Freight and Cargo industry continues to grapple with issues like supply-chain disruptions and higher fuel costs. These are likely to keep the bottom line of the companies in this industrial cohort under pressure.
Despite these challenges, the industry has gained 6% year to date, underperforming the S&P 500 Index’s 10.7% appreciation but outperforming 2.4% growth of the broader Zacks Transportation sector.
We believe the buoyant e-commerce demand scenario is a huge positive for the industry participants. Even though economies have reopened, consumers’ thirst for online shopping is rampant. High shipping rates should also drive revenues.
Given this backdrop, let’s focus on some air freight and cargo stocks — United Parcel Service, Inc. and FedEx Corp. — which have consistently announced dividend hikes, thus highlighting their pro-shareholder stance.
Stocks that have a strong history of dividend growth belong to mature companies, which are less susceptible to large swings in the market and act as a hedge against economic or political uncertainty as well as stock market volatility. At the same time, they offer downside protection with their consistent increase in payouts.
Additionally, these companies have superior fundamentals. These include a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet, and some value characteristics.
How to Pick Stocks with Solid Dividend Payouts?
We have run the Zacks Stock Screener to identify stocks with a dividend yield in excess of 2% and a sustainable dividend payout ratio of less than 60%. Each of the two stocks mentioned below carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FedEx: Based in Memphis, TN, FedEx provides transportation, e-commerce, and business services in the United States and internationally. Currently, the stock has a market capitalization of $56.34 billion.
FDX pays out a quarterly dividend of $1.26 ($5.04 annualized) per share, which gives it a 2.05% yield at the current stock price. This company’s payout ratio is 27% of its earnings at present. The five-year dividend growth rate is 12.72%. (Check FedEx’s dividend history here)
FedEx Corporation dividend-yield-ttm | FedEx Corporation Quote
FedEx has been consistently making efforts to reward its shareholders through dividends and share buybacks, which are encouraging. During the first nine months of fiscal 2023, FedEx paid dividends worth $888 million (higher than $598 million in the first nine months of fiscal 2022). During fiscal 2022, FedEx paid dividends worth $793 million (higher than the $686 million dividend payout in fiscal 2021). Such shareholder-friendly moves indicate the company’s commitment to creating value for shareholders and underline its confidence in its business. These initiatives not only instill investors’ confidence but positively impact earnings per share.
United Parcel: Headquartered in Atlanta, GA, United Parcel provides transportation and delivery, distribution, contract logistics, ocean freight, air freight, customs brokerage, and insurance services. Currently, it has a market capitalization of $147.36 billion.
UPS pays out a quarterly dividend of $1.62 ($6.48 annualized) per share, which gives it a 3.78% yield at the current stock price. This company’s payout ratio is 54% of its earnings at present. The five-year dividend growth rate is 12.60%. (Check United Parcel’s dividend history here)
United Parcel Service, Inc. dividend-yield-ttm | United Parcel Service, Inc. Quote
UPS’ strong free cash flow-generating ability supports its shareholder-friendly activities. In first-quarter 2023, UPS generated a free cash flow of $2,357 million. In 2022, UPS generated a free cash flow of $9,038 million. Robust free cash flow generation is a major positive, leading to an uptick in shareholder-friendly activities. Notably, UPS paid dividends worth $1,348 million and repurchased shares worth $751 million in first-quarter 2023. In 2022, UPS paid dividends worth $5,114 million and repurchased shares worth $3,500 million. In 2023, UPS expects to make dividend payments of $5.4 billion and repurchase shares worth $3 billion.
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