Yahoo Finance The Vita Coco and Xerox have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL –June 12, 2024 – Zacks Equity Research shares The Vita Coco Company COCO, as the Bull of the Day and Xerox Holdings XRX, as the Bear of the Day. In addition, Zacks Equity Research provides analysis on General Motors GM, Ford’s F and Tesla’s TSLA.
Here is a synopsis of all five stocks:
Bull of the Day:
The Vita Coco Company, a Zacks Rank #1 (Strong Buy), is a leading producer of coconut water. The company develops, markets, and distributes coconut water products under the Vita Coco brand in Canada, Europe, the Middle East, the Asia Pacific region, as well as the United States.
Coconut water has been all the rage over the past several years, but the fact is this nutritious beverage has been around for centuries. Coconut water is a clear liquid found inside young coconuts that is packed with flavor and electrolytes.
Naturally loaded with potassium, magnesium, and phosphorus, you may have noticed some coconut water appears with a pink hue, which is due to higher levels of polyphenols and exposure to sunlight over time.
Vita Coco is part of the Zacks Beverages – Soft Drinks industry group, which currently ranks in the top 28% out of more than 250 Zacks Ranked Industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.
Stocks within this industry group are also expected to experience above-average earnings growth. Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.
It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Company Description
Vita Coco has managed to maintain a substantial market share, commanding over half of the coconut water market in the United States. In addition to coconut water, Vita Coco offers coconut oil and coconut milk; sparkling and purified water; plant-based energy drinks; protein-infused fitness drinks; and a hydration drink mix in powdered form. Vita Coco distributes its products through club, food, retail, drug, mass convenience, e-commerce, and foodservice channels.
The global coconut water market is projected to be worth nearly $12 billion by 2027, growing at a CAGR of 15.3% over the next several years. As a consumer shift to healthier products continues, the company is well-positioned to take advantage of this theme.
Vita Coco has also secured partnerships with major beverage companies. For example, the company’s partnership with Diageo led to the launch of Vita Coco Spiked with Captain Morgan, which serves as a prime example of its intent to broaden market reach.
Earnings Trends and Future Estimates
The producer of coconut water has established an impressive earnings history since its IPO in 2021. The company exceeded earnings estimates in each of the last six quarters. Back in May, Vita Coco posted first-quarter earnings of $0.24/share, a 26.3% surprise over the $0.19/share Zacks Consensus Estimate.
Vita Coco has delivered a trailing four-quarter average earnings surprise of 25.3%. Consistently beating earnings estimates is a recipe for success.
Analysts covering COCO are in agreement and have been raising their earnings estimates lately. For the current fiscal year, analysts increased earnings estimates by 9.47% in the past 60 days. The Zacks Consensus Estimate now stands at $1.04/share, reflecting potential growth of 40.5% relative to the prior year.
Let’s Get Technical
COCO shares have surged nearly 40% over the past four months. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
The stock has also been making a series of higher highs. With both strong fundamental and technical indicators, Vita Coco is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Vita Coco has recently witnessed positive revisions. As long as this trend remains intact (and COCO continues to deliver earnings beats), the stock will likely continue its bullish run this year.
Bottom Line
Vita Coco is ranked favorably by our Zacks Style Scores, with a best-in-class ‘A’ rating in our Growth category and a ‘B’ rating in our Momentum category. This indicates that COCO stock is likely to continue its strong momentum based on a favorable combination of earnings and sales growth.
Backed by a leading industry group and impressive history of earnings beats, it’s not difficult to see why COCO stock is a compelling investment. An appealing technical trend along with robust fundamentals paint a bullish picture moving forward.
Bear of the Day:
Xerox Holdings, a Zacks Rank #5 (Strong Sell), operates as a global workplace technology company that integrates hardware, services, and software for enterprises. Xerox designs, develops, and sells document systems, IT software products, and print solutions.
The company also provides graphic communications, end user computing devices, network infrastructure, commercial robotic process automation, as well as technology product support. Xerox sells its products through its direct sales force, distributors, independent agents, dealers, and e-commerce marketplaces.
Xerox continues to grapple with decreased demand for paper-related systems and products due to technological advancements. The presence of a large number of substitutes raises competitive pressure. A vulnerability to security breaches along with an inability to protect intellectual property rights represent major concerns.
The Zacks Rundown
Xerox Holdings has been severely underperforming the market over the past year. Shares represent a compelling short or hedge opportunity, even as the major indices eclipse former all-time highs.
XRX stock is part of the Zacks Office Supplies industry group, which currently ranks in the bottom 8% out of approximately 250 industries. Because this industry is ranked in the bottom half of all Zacks Ranked Industries, we expect it to underperform the market over the next 3 to 6 months. This industry has widely underperformed the market so far in 2024.
While individual stocks have the ability to outperform even when included in weak industry groups, their industry association serves as a headwind for any potential rallies. Xerox continues to fight an uphill battle and the stock is confirming this notion, lagging the general market by a wide margin.
Recent Earnings and Deteriorating Forecasts
The print solutions company has missed the earnings mark in two of the past three quarters. Back in April, Xerox posted first-quarter earnings of $0.06/share, missing the $0.38/share consensus estimate by a whopping 84.2%.
Xerox has delivered a trailing four-quarter average earnings miss of 7.8%. Consistently falling short of earnings estimates is a recipe for underperformance.
Analysts covering XRX decreased their earnings estimates recently. Looking at the current fiscal year, earnings estimates have been slashed by 7.93% in the past 60 days; the Zacks Consensus Estimate now stands at $2.09/share. Revenues are projected to decline 6.2% year-over-year to $6.46 billion.
Companies like Canon, Hewlett-Packard, and Toshiba are capable of giving tough competition to Xerox. These companies are also broadening their product lines and strengthening their global presence, putting a dent in potential growth prospects for Xerox.
Technical Outlook
Xerox’s stock has been steadily falling this year after forming a bearish head-and-shoulders pattern and has now established a well-defined downtrend.
XRX stock has also experienced the dreaded death cross, whereby its 50-day moving average crosses below its 200-day moving average. Xerox Holdings would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. Shares remain in negative territory this year while the general market has eclipsed its former highs.
Final Thoughts
A deteriorating fundamental and technical backdrop show that we’re not likely to see this stock print new highs anytime soon. The fact that Xerox is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns.
A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of XRX stock until the situation shows major signs of improvement.
Additional content:
Time to Ride GM Stock for Higher Highs?
General Motors stock printed another day of fresh 52-week highs after the auto giant announced an additional $6 billion in stock buybacks. Continuing to appease investors, this comes as General Motors launched a $10 billion accelerated share repurchase (ASR) program at the end of last year and increased its dividend by 33% going into 2024.
This is certainly a nod to the confidence General Motors has in its business operations and the ability to generate cash flow but let’s see if it's time to buy GM for more upside.
Recent Performance Overview
Edging towards $50 a share, General Motors' stock has climbed +34% year to date which has largely outperformed Ford’s virtually flat performance and Tesla’s -32% while also topping the broader indexes with the S&P 500 up +6% for the year and the Nasdaq sitting on +15% gains.
Notably, concerns of slower EV sales have been the knock on Tesla’s stock while in contrast GM has thrived on delivering stronger profits thanks to its diverse lineup of EVs and traditional gasoline vehicles. General Motors has also attributed its recent success to its operating discipline with the company’s free cash flow ballooning to almost $30 billion and setting the stage for the recent stock buybacks and dividend hike.
EPS Outlook & P/E Valuation
Speaking to General Motors' increased profitability, its bottom line expansion is expected to continue with fiscal 2024 earnings now projected to jump 22% to $9.40 per share compared to $7.68 a share last year. Plus, FY25 EPS is projected to rise another 1%.
More intriguing is that GM still trades at just 5X forward earnings which is even beneath Ford’s 6.2X and the industry average of 12.8X while being well below the S&P 500’s 21.7X and Tesla’s 70.4X.
Reinstated Dividend
After reinstating its dividend in 2022 following a suspension during the pandemic, General Motors increased its payout from 3 cents per quarter to 12 cents at the beginning of the year.
Although General Motors' annual dividend yield of 1.01% is still well below Ford’s 4.85% it has crept closer to the S&P 500’s 1.38% average with it being noteworthy that many auto stocks (including Tesla) don’t offer a payout to shareholders as they are focused on growth.
Takeaway
After such an extensive YTD rally, General Motors stock currently lands a Zacks Rank #3 (Hold). To that point, there could be better buying opportunities ahead but longer-term investors should continue to be rewarded from current levels considering General Motors' increased profitability and cheap P/E valuation.
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Ford Motor Company (F) : Free Stock Analysis Report
Vita Coco Company, Inc. (COCO) : Free Stock Analysis Report
Xerox Holdings Corporation (XRX) : Free Stock Analysis Report
General Motors Company (GM) : Free Stock Analysis Report
Tesla, Inc. (TSLA) : Free Stock Analysis Report
