For Immediate Release
Chicago, IL – June 4, 2020 – Zacks Equity Research Shares of Big Lots BIG as the Bull of the Day, Intercontinental Hotel Group IHG as the Bear of the Day.
Here is a synopsis of the two stocks:
Bull of the Day:
One of the strongest industries lately has been retail. Specifically, Retail – Discount stores. That industry is currently in the Top 21% of our Zacks Industry Rank. Today’s Bull of the Day is a Zacks Rank #1 (Strong Buy) within this industry. Stocks with positive Zacks Ranks have the strongest earnings trends. These strong trends take months to develop and don’t reverse on a dime like price.
Today’s Bull of the Day is Zacks Rank #1 (Strong Buy) Big Lots. Big Lots, Inc., through its subsidiaries, operates as a retailer in the United States. The company offers products under various merchandising categories, such as furniture category that includes upholstery, mattress, case goods, and ready-to-assemble departments; seasonal category, which comprises Christmas trim, lawn and garden, summer, and other holiday departments; soft home category that consists of fashion and utility bedding, bath, window, decorative textile, home organization, area rugs, home décor, and frames departments; and food category that includes beverage and grocery, candy and snacks, and specialty foods departments.
The reason for the positive Zacks Rank is recent earnings revisions coming from Wall Street. Over the last week alone, six analysts have increased their earnings estimates for the current year while five have done so for next year. The bullish sentiment has increased our Zacks Consensus Estimate for the current year from $2.87 to $4.44 while next year’s number is up from $2.99 to $4.30. That’s pretty impressive given the $38.58 price point for BIG today. That puts the PE ratio down at 8.41x which is less than the industry average of 8.9x and the broad market’s 18.5x.
Big Lots has been on an incredible run since bottoming out near $10 on March 16th. It hit a 52-week high of $42.33 on May 29th after reporting earnings. Earnings came in much higher than expected, more than tripling consensus.
Bear of the Day:
With the market screaming higher, it can feel like any stock you invest in is going to make money. Over the short-term that may very well be correct. Eventually, the music is going to stop and you don’t want to be left holding the bag. One way to put the odds in your favor is to invest in stocks that have strong earnings trends. That way, when the momentum of the broad market finally slows down you stand a chance of keeping those profits.
Today’s Bear of the Day is a stock with a weak earnings trend. It’s Zacks Rank #5 (Strong Sell) Intercontinental Hotel Group. InterContinental Hotels Group PLC owns, manages, franchises, and leases hotels in the Americas, Europe, Asia, the Middle East, Africa, and Greater China. The company operates hotels, resorts, restaurants, and spas under the InterContinental Hotels & Resorts, Regent, Six Senses, Kimpton Hotels & Restaurants, Hotel Indigo, EVEN HOTELS, HUALUXE, Crowne Plaza, Voco, Holiday Inn, Holiday Inn Express, Holiday Inn Club Vacations, avid, Staybridge Suites, Atwell Suites, and Candlewood Suites brand names. It also provides IHG Rewards Club, a hotel loyalty program. As of February 28, 2020, the company had approximately 5,900 hotels and 884,000 rooms in approximately 100 countries.
I am sure you didn’t need to read this article to realize that the hotel industry has been under pressure. The Hotels and Motels industry is in the Bottom 26% of our Zacks Industry Rank. The reason for the Zacks Rank #5 (Strong Sell) lies in the series of negative earnings revisions coming into the downside recently. Over the last 60 days, three analysts have cut their estimates for the current year and next year. The negative revisions have cut our Zacks Consensus Estimate for the current year down from $3.12 to $1.43 while next year’s numbers are down from $3.37 to $2.82.
Markets 2020: Still Dealing in Historic Terms
Much of the year 2020 deals in historical terms, both to the downside — biggest jump in weekly jobless claims (late March), lowest price per barrel of oil (late April), to name just a couple — and to the upside: we are now witness to the fastest 50-day rally in the S&P 500 of all time. As regular economic data continues to depict a recessionary environment from myriad angles, the stock market is keeping its focus on the future, when these “shelter in place” initiatives that shuttered our economy are a mere blip in the rearview mirror.
Part of this might be the result of the exceedingly crafty and generous maneuvers by the Fed in March and Congress in April, where unprecedented amounts of corporate relief flooded the market and helped investors more easily climb the wall of worry. Stimulus in the EU is following suit, boosting spirits in overseas trading as well.
Further, those dire economic reads we’ve now grown accustomed to seeing have been surprising to the upside: while a May ADP private sector employment headline of -2.76 million jobs is no one’s idea of a good result, it is far, far better than we’ve seen in the previous month. Motor vehicle sales reported yesterday were weak, but also much higher than expectations. Even today, with the ISM Nonmanufacturing index coming in for May at 45.4% was an improvement over consensus.
Thus, we see another big day on the Dow — up 527 points, or slightly above 2% — as well as the Nasdaq +74.5 (+0.78%) and the S&P 500 +42 points (+1.36%). Even the small-cap Russell 2000 gained 33.9 points, up 2.4% at the close. If you knew nothing about what was going on around the U.S. of late — from emergency rooms overwhelmed with COVID-19 patients to city curfews enacted to attempt to bring down heated tensions between civilians and police — you’d be forgiven for thinking we were living the dream right now.
Look at Warner Music Group, the music streaming service just having begun its public trading existence today, and with its stock rising 19% from Initial Public Offering (IPO). CEO Stephen Cooper has said that the online music streaming business is “still in its early stages” overall.
The biggest economic data of the week — not to mention the most challenging — come out in the next couple days: Thursday morning’s Initial and Continuing Jobless Claims are likely to continue counting more than a million newly unemployed Americans, with totals going back to the start of the economic shutdown now 40+ million, and Friday’s all-encompassing Employment Situation report. Analysts currently expect an Unemployment Rate around 20%.
This would extend the already highest-ever levels of unemployment in the U.S. since this survey began in 1948. Let’s see if market exuberance stares these coming figures down, or whether we finally see it blink.
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