For Immediate Release
Chicago, IL – July 13, 2022 – Zacks Equity Research shares Caleres
CAL
as the Bull of the Day and Cisco
CSCO
asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Morgan Stanley’s
MS
, JPMorgan
JPM
, and Truist Financial
TFC
.
Here is a synopsis of all five stocks:
Bull of the Day
:
Caleres
is a Zacks Rank #1 (Strong Buy) that is a footwear retailer and wholesaler. The company owns and operates a variety of footwear brands that include Dr. Scholl’s, Lifestride, Naturalizer and Veronica Beard. Caleres is also the holding company for Famous Footwear, which has over 1,000 retail stores.
This year has not been kind to investors, but for those in CAL, they are well in the green. The stock is actually up 15% on the year, which is more than most stocks can claim in 2022.
In late May, an earnings beat and guidance raise kept investors in the stock, despite market weakness. So, the question now for investors is if the strength continues. And if the market can stabilize, how high can CAL go?
About the Company
Formerly known as Brown Shoe Company, Caleres was founded in 1878 and is headquartered in St. Louis, Mo. It employs 5,200 people and has a market cap of almost $1 billion.
The company operates in two segments, its Famous Footwear Stores and its Brand Portfolio segment. The stock has Zacks Style Scores of “A” in Value and “B” in Growth.
The valuation aspect is attractive to investors as the stock sports a Forward PE of only 6. The stock also pays 1% dividend.
Q1 Earnings Beat and Strong Guidance
The company is coming off a 61% EPS beat in late May, which was the eight straight EPS surprise to the upside. Caleres also raised their FY22 guidance, hiking its annual sales and EPS outlook.
For FY22, they now see a range of $4.20-4.40 v the $3.88 expected. Sales are now expected +2-5% vs the prior 2% (y/y). Gross margins came in above last year’s levels and saw brand portfolio sales growth of 46%. This was a big offset to Famous Footwear’s decline of 3%.
Management said on the call that they are optimistic about their long-term prospects and potential for strong cash flows. They added: “We continue to view our stock as an attractive investment option and buying back shares as a prudent use of cash and expect to make ongoing purchases under the existing authorization during the remainder of 2022.”
Because of the earnings beat and guidance, Caleres showed it was quite different from the other footwear names out there. Investors rewarded the company by driving the stock higher and analysts are taking their estimates higher as well.
Analyst Estimates
For the current quarter, we have seen numbers taken up over the last 60 days, from $1.04 to $1.32 or 27%. For the current year, they have gone from $3.88 to $4.32, or 11%.
Looking down the road, it looks like analysts expect the momentum to continue. Over the last 60 days, next year’s numbers have gone from $4.16 to $4.64.
Looking at analyst commentary, they are impressed with the Brand Portfolio performance and gross margins. Additionally, analysts believe the guide suggests continued momentum into next year.
Some analyst price targets include Seaport Global with a Buy rating and $35 target, as well as Telsey Advisory with targets at $32.
The Technicals
The earnings report helped the stock move to 2022 highs. Since then, it has pulled back about 15% to the 50-day MA at $26. There has been a lot of consolidation in that as the overall market continues to struggle.
If the bulls can hold that 50-day and the market can stabilize, the stock could shoot back to post earnings highs around $30. From there, the stock has 161.8% Fibonacci extension targets above $36.
The market might continue to struggle and if the stock does pull back, investors should be looking to buy the 200-day moving average. This level is currently at the $23.50 spot.
Bottom Line
Caleres is holding up well so far this year. Valuation and earnings strength should continue to give this name relative strength if the markets remain weak. And If investors get some confidence in the overall market, this could be a big winner into the end of the year.
Bear of the Day
:
Cisco
is a Zacks Rank #5 (Strong Sell) that designs, manufactures, and sells internet protocol based networking and other products related to the communications and information technology industry. The company operates globally where it provides infrastructure platforms, including networking technologies of switching, routing, wireless, and data center products.
The stock did pretty well during the pandemic as tech was in demand and people worked from home. But with the Nasdaq sell off, Cisco has been sold as well. The stock is down 30% in 2022 and only 5% off its lows.
Earnings out in early May caused the stock to cascade lower. While it has bounced back a bit, analysts have been lowering their estimates. Investors should be cautious in this bear market, as the stock could easily retest those recent lows.
About the Company
Cisco is headquartered in San Jose, CA and employs almost 80,000 people. The company was founded in 1984 and has a market cap of $180 billion.
The company holds a Zacks Style Score of “A” in Momentum, but “C” in Growth and in Value. That valuation was a big concern in the days of the tech bubble, but some investors actually see a lot of value in CSCO right now. The Forward PE is under 13 and it pays a 3.5% dividend.
While there might be some value there, earnings have led to falling estimates, which has put more pressure on the stock.
Q3 Earnings
In May, Cisco reported a 1% EPS beat, but missed on revenues. The company cut its fiscal year outlook to a range of $3.29-3.37 from $3.45. Cisco also guided Q4 lower, from $0.93 to a range of $0.76-$0.84.
Margins were slightly lower year over year and cash flow was down. Service sales were down 8% year over year.
Management blamed COVID lockdowns in China and the war in Ukraine, saying that those events impacted revenue in the quarter. They added saying “the fundamental drivers across our business are strong and we remain confident in the long term.”
While Cisco sounds confident the market didn’t like the earnings report. The stock fell from the $50 area to below $42, a drop of over 15% overnight.
Estimates
Because of the poor guidance, analysts dropped their estimates across the board. For the current quarter, we have seen a drop from $0.93 to $0.82 over the last 30 days. For next year, we see a drop from $3.72 to $3.56 over that same time frame. In percentage terms, these are cuts of 12% and 4% respectively.
Technical Take
The stock was up almost 50% in 2021. However, this year has brought selling to levels below the start of 2021. Investors have lost all of last year and now the stock approaches areas not seen since the height of the pandemic.
The stock is currently trading below all moving averages. The 200-day is at $53.50, the 50-day Is at $45.30 and the 21-day is just above the current price.
If CSCO bulls could break the 21-day, they might be able to get the price to that $45 level. However, I would expect selling at that 50-day moving average unless there is an extremely positive catalyst.
If the bulls lose control under $42, expect the earnings lows to be taken out and the stock to trade under the $37 mark.
In Summary
CSCO is an old favorite that went from a dot-com bubble stock twenty years ago to a value stock today. Some investors might find it attractive here, especially with the nice dividend. However, there might be a little more room to go on the downside, so investors should be patient.
Additional content:
Trading to Support Morgan Stanley Q2 Earnings
Morgan Stanley
‘s second-quarter 2022 earnings, scheduled to be announced on Jul 14, are expected to have benefited from solid trading performance. Like the last quarter, wherein market volatility and client activity were unexpectedly robust, the overall trading business in the second quarter was a bright spot as well.
The market volatility that started in February-end persisted in the second quarter. The Russia-Ukraine conflict continued to disrupt supply chains, leading to global ambiguity. Also, fears of an economic slowdown, higher inflation and rising interest rates worldwide resulted in heightened client activities and increased trading volume.
These developments led to extreme volatility in equity markets (with the S&P 500 Index witnessing the worst first-half performance in more than 50 years) and other asset classes, like commodities, bonds and foreign exchange. Hence, Morgan Stanley is likely to have recorded a substantial improvement in trading revenues this time.
The Zacks Consensus Estimate for equity trading revenues is pegged at $2.81 billion. The figure is relatively stable with the previous-year quarter’s reported number. The consensus estimate for fixed-income trading revenues of $1.76 billion indicates an increase of 4.8% year over year.
Other Factors at Play
Net interest income (NII):
The overall loan demand witnessed a solid improvement in the second quarter, as the demand for commercial and industrial loans, real estate loans and consumer loans accelerated. Also, the Federal Reserve hiked the interest rates by 125 basis points during the quarter. Thus, the policy rate reached 1.5-1.75%, the highest level since just before the March 2020 pandemic. This is likely to have had a favorable impact on Morgan Stanley’s net interest margin (NIM) and NII.
Yet, the flattening of the yield curve (the difference between short and long-term interest rates) might have hampered NII growth to some extent.
Management expects loan growth to be $5 billion during the quarter.
Investment banking (IB) income:
After an amazing performance for almost two years, deal-making across the globe hit a purple patch. Raging inflation, equity markets rout and fears of recession dealt a blow to the business sentiments and plans for expansion through acquisitions. Thus, both deal volume and total value crashed during the second quarter.
However, Morgan Stanley’s position as one of the leading players in the space is likely to have provided leverage and support to advisory fees. The consensus estimate for advisory fees is pegged at $945 million, suggesting a jump of 42.3% on a year-over-year basis.
Given the above-mentioned concerns, equity market performance was disappointing and thus, the IPOs and follow-up equity issuances dried up. Likewise, bond issuances are likely to have been muted too. Hence, Morgan Stanley’s underwriting fees are expected to have been hurt during the quarter under review.
The consensus estimate for fixed-income underwriting fees is pegged at $516 million, suggesting a rise of 19.4% from the prior-year quarter’s reported figure. The Zacks Consensus Estimate for equity underwriting fee of $772 million indicates a fall of 28%. Thus, the consensus estimate for total underwriting fees of $1.29 billion implies a year-over-year plunge of 25.8%.
Overall, the Zacks Consensus Estimate for IB income of $1.69 billion indicates a decline of 29% from the prior quarter’s reported number.
Expenses:
Cost reduction, which has long been the main strategy of Morgan Stanley to remain profitable, is unlikely to have been a major support in the April-June quarter. As the company continues to invest in franchises, overall costs are anticipated to have flared up.
What Our Quantitative Model Predicts
Our proven model does not predict an earnings beat for Morgan Stanley this time around. This is because it doesn’t have the right combination of the two key ingredients — a positive
Earnings ESP
and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our
Earnings ESP Filter
.
Earnings ESP:
The Earnings ESP for Morgan Stanley is -6.39%.
Zacks Rank:
The company currently carries a Zacks Rank #4 (Sell).
Morgan Stanley price-eps-surprise
|
Morgan Stanley Quote
The Zacks Consensus Estimate for
second-quarter earnings
has moved marginally lower to $1.62 over the past seven days. The estimate shows a 14.3% decline from the year-ago reported number. The consensus estimate for sales is pegged at $13.87 billion, which indicates a year-over-year fall of 6%.
Major Banks to Consider
Here are a couple of major bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
JPMorgan
is scheduled to release second-quarter 2022 earnings on Jul 14. The company, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +1.32%. You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
JPM’s quarterly earnings estimates have moved 1.1% upward over the past month.
The Earnings ESP for
Truist Financial
is +1.38% and it carries a Zacks Rank #3, at present. The company is slated to report second-quarter 2022 results on Jul 19.
Over the past 30 days, TFC’s Zacks Consensus Estimate for quarterly earnings has remained unchanged.
Stay on top of upcoming earnings announcements with the
Zacks Earnings Calendar
.
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