For Immediate Release
Chicago, IL – July 7, 2022 – Zacks Equity Research shares Sysco Corp.
SYY
as the Bull of the Day and Etsy, Inc.
ETSY
asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Assertio Holdings, Inc.
ASRT
, Clipper Realty Inc.
CLPR
and Consolidated Water Co. Ltd.
CWCO
..
Here is a synopsis of all five stocks:
Bull of the Day
:
Sysco Corp.
is a wholesale food and foodservice powerhouse that services an array of industries. The company boasts a strong history of top and bottom-line growth that was only really disrupted by covid.
Sysco topped our quarterly estimates in May and raised its guidance in the face of inflation and recession worries, even as many companies across an array of sectors cut their outlooks. Sysco also managed to hit new highs in 2022 and it’s part of a select group of Dividend Aristocrats.
Supplying a Vital & Diverse Industry
Sysco is a wholesale food products company that services an array of industries. The firm is nearly recession-proof considering that its clients include almost anyone who “prepare meals away from home.” Sysco’s clients operate in industries such as restaurants, healthcare, education, hotels, and beyond.
Sysco guarantees its clients access to what it calls the “industry’s best distribution network” to help keep customers “on trend and stocked with fresh products and fresh ideas.” Sysco’s product categories on the food side include meat & poultry, seafood, produce, dairy, bakery & desserts, pantry staples, beverages, and specialty & ethnic.
Sysco also sells foodservice offerings such as paper goods, equipment, supplies, and more. Alongside its food and product segments, Sysco operates a wide-ranging services unit that includes offerings like training materials, food cost advantages, menu and recipe ideas, and beyond. Overall, Sysco operates roughly 350 distribution facilities worldwide to help serve over 650k customer locations.
Growth & Outlook
Sysco caters to the food-away-from-home market that’s massive and nearly indestructible. In fact, the only time Sysco’s sales have declined at any point in the past 25 years was a tiny 1.8% dip in fiscal 2009 and slightly larger pullbacks during covid when many offices, schools, restaurants, and other in-person businesses and intuitions closed entirely.
SYY’s fiscal 2021 revenue (for the period ended on July 3, 2021) slipped 3%, after its FY20 revenue dropped 12%. As people began to return to their normal lives, Sysco’s sales rebounded in a big way. The firm topped our Q3 FY22 earnings and revenue estimates in early May. The company’s Q3 sales climbed 43% YoY and were up 15% from the pre-covid period in 2019. Its U.S. foodservice revenue was up 19% versus the same period in fiscal 2019.
Sysco raised its guidance at the time despite inflation headwinds, with it able to pass on its higher costs and steer clients toward items and categories that have not been impacted as much by inflation. The company also grew its market share last quarter. Sysco’s Zacks consensus EPS estimate for FY22 is up over 6% since the report, with FY23 5% higher.
Zacks estimates call for Sysco’s FY22 revenue to climb over 32% to roughly $68 billion to blow away its pre-covid total in 2019 of $60 billion. The firm’s sales are then projected to jump another 8.4% in FY23 to around $74 billion. Meanwhile, its adjusted earnings are expected to climb 124% to $3.23 a share this year and another 34% in FY23 to reach $4.32 per share.
Wrapping Up
Sysco stock is up 75% in the last five years to top its industry’s 35% and outpace the S&P 500’s 65% climb. SYY shares have also matched the broad benchmark index during the past decade, while nearly doubling its industry. Plus, the stock has held up really well even as the benchmark fell into a bear market, with SYY up 13% in the last 12 months and 8% in 2022. The stock closed regular trading Wednesday at around $85 per share, or about 6% off its April peaks.
Despite its strong performance recently and over the past 10 years, SYY is now trading right at its decade-long median at 19.7X forward 12-month earnings. This also represents a 40% discount to its covid highs and just a slight premium compared to its industry.
Sysco’s positive earnings revisions help it land a Zacks Rank #1 (Strong Buy) and it’s part of a space that’s in the top 25% of over 250 Zacks industries. And eight of the 11 brokerage recommendations Zacks has are “Strong Buys.”
Plus, Sysco is part of a small group of so-called Dividend Aristocrats, which are S&P 500 companies that have both paid and raised dividends for at least 25 straight years. SYY’s dividend yield comes in at 2.3% at the moment. Most importantly, Sysco appears as though it’s a stock poised to outperform amid the ongoing market turbulence and global recession worries.
Bear of the Day
:
Etsy, Inc.
is an arts and craft fair-style e-commerce firm that soared during covid. The stock has tumbled alongside many other pandemic winners as growth normalizes.
Etsy is also trying to figure out how to stick to its niche roots while expanding into a larger digital commerce player to challenge industry giants.
The Etsy Basics
Etsy is an e-commerce marketplace that allows individuals and small businesses to sell everything from clothing and jewelry to art and home décor. The online retailer was founded in 2005 and went public in 2015. The Brooklyn-based company carved out a solid space within the booming industry by selling items consumers might not be able to find on Amazon and eBay.
Etsy also owns musical instrument marketplace Reverb, and it ramped up its growth bet over the last few years. This includes its $1.6 billion purchase of fashion resale app Depop that’s widely popular within the fast-growing resale space, especially with Gen Z. The company also last year purchased fellow online craft seller Elo7 which some have called the Brazilian Etsy.
Etsy makes money from every transaction, as well as advertising, paid search, and more. The firm faced backlash from some of its sellers earlier this year when it raised its transaction fee from around 5% to 6.5%. Etsy executives said that the higher fee—its first increase since 2018—is crucial to help it provide better seller support and expand its marketing efforts.
Etsy closed the first quarter with roughly 5.5 million active sellers on its namesake website, with 7.7 million overall. The company also boasts around 95 million active buyers. Etsy averaged 33% revenue growth in its first five years as a public company. Then its sales skyrocketed 111% in 2020, driven by locked-down spending, face masks, and more.
Etsy followed that up with 35% revenue expansion in 2021. But the covid-boosted growth is over and it faces nearly impossible to compete against periods. Zacks estimates call for its 2022 revenue to climb 8.6% to $2.53 billion, with FY23 projected to pop 16% higher.
Wall Street is frustrated that Etsy’s adjusted earnings are projected to fall 41% YoY to $2.01 per share in 2021. And the company’s FY22 and FY23 consensus earnings estimates have dropped 8% and 9.5%, respectively since its first quarter release on the back of subdued guidance and other macro headwinds.
Bottom Line
Etsy’s downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now. The stock sports “F” grades for Value and Momentum in our Style Scores system. Etsy’s balance sheet is also not as strong as some might hope for an e-commerce player and younger tech company, after taking on a large amount of debt in the past few years to fuel growth.
Etsy stock is still up nearly 500% in the past five years. But it’s down 23% in the last two years and 70% from its November 2021 peaks. Etsy could bounce back, but it might be best for investors to hold off on Etsy until the market shows some willingness to start buying these beaten-down tech stocks and former covid high-flyers.
Additional content:
3 Stocks to Gain from a Stronger Dollar
The U.S. dollar, recently, soared to its highest level in nearly two-decades against its key counterparts. The dollar’s striking rise comes among multi-decade high inflation and an uptick in U.S. bond yields.
Nonetheless, a stronger dollar impacts international sales of multinational companies. But small-cap companies stand to gain from a wider domestic revenue exposure, which protects them from the effect of a stronger dollar. Some such companies are Assertio Holdings, Inc., Clipper Realty Inc. and Consolidated Water Co. Ltd.
US Dollar Strengthens on High Inflation
Citing a
MarketWatch article
, the ICE US Dollar Index advanced 1.5% to 106.69 on Jul 5, its highest level since 2002. Notably, the US Dollar Index began trading at around 96 at the beginning of the year. While the euro, the Canadian dollar and the Australian dollar underperformed, emerging market currencies too took a hit.
So, what’s behind the rise in the U.S. dollar? The consumer price index (“CPI”) soared 8.6% in May, its highest level since December 1981, and is mostly driven by a rise in energy and food prices. What’s more, inflation is widely expected to remain elevated in the near future, indicating that interest rates in the economy should eventually catch up.
The Fed, by the way, has not only hiked interest rates recently by 75 basis points, but has also kept the door open for further rate hikes to curb the rise in prices of essential goods and services. Notably, a rate hike might impact the stock market, but it makes bond investments in the country more lucrative, thereby increasing the demand for the currency.
To put things into perspective, the yield on the 10-year U.S. government bond has now jumped from 1.4% to 2.8% in a year. Thus, investors can easily reinvest their money from maturing bonds in new bonds with higher yields.
Having said that, investors shouldn’t completely shun equities.
Stronger Dollar a Boon for These Stocks
An increasing dollar, for sure, hinders the earnings growth of companies that generate the bulk of their revenues overseas. After all, such companies are bare to foreign exchange risk between the United States and the countries they function in. However, unlike such multinational companies, small-cap companies that mostly generate their revenues in the United States are way better as they are cushioned against the currency translation impact of a strong greenback.
We have thus picked three such stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such stocks also have a
VGM Score
of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Assertio Holdings
is known for providing medicines in areas of neurology, inflammation and pain. The company is based in Lake Forest, IL. ASRT is a specialty pharmaceutical company that currently has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has moved 14.3% north over the past 60 days. ASRT’s expected earnings growth rate for the current year is a whopping 1,433.33%. You can see
the complete list of today’s Zacks #1 Rank stocks here
.
Clipper Realty
is a real estate investment trust that owns and operates commercial as well as residential properties primarily in the New York metropolitan area. CLPR presently has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved 10.3% north over the past 60 days. CLPR’s expected earnings growth rate for the current year is 16.2%.
Consolidated Water
is involved in the development and operation of water treatment plants in such areas of the United States where water is scarce or nonexistent. CWCO currently has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved 26.4% north over the past 60 days. CWCO’s expected earnings growth rate for the current year is 191.3%.
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