For Immediate Release
Chicago, IL – January 4, 2023 – Zacks Equity Research shares CECO Environmental
CECO
as the Bull of the Day and Amazon
AMZN
as the Bear of the Day. In addition, Zacks Equity Research provides analysis on The Travelers Companies, Inc.
TRV
and The Allstate Corporation
ALL
.
Here is a synopsis of all four stocks.
Bull of the Day
:
CECO Environmental
is a Zacks Rank #1 (Strong Buy) and it sports a C for Value and an A for Growth. This company helps protect people from industrial exposures and that in turn, helps keep the environment safe. This stock has bucked the system, seeing a dramatic run since May while the broader market tumbled. Let’s explore more about this company in this Bull of The Day article.
Description
CECO Environmental Corp. provides industrial air quality and fluid handling systems worldwide. It operates in two segments: Engineered Systems Segment and Industrial Process Solutions Segment. The company markets its products and services to natural gas processors, transmission and distribution companies, refineries, power generators, industrial manufacturing, engineering and construction companies, semiconductor manufacturers, compressor manufacturers, beverage can manufacturers, metals and minerals, and electric vehicle producer companies. CECO Environmental Corp. was incorporated in 1966 and is headquartered in Dallas, Texas.
Earnings History
When I look at a stock, the first thing I do is look to see if the company is beating the number. This tells me right away where the market’s expectations have been for the company and how management has communicated to the market. A stock that consistently beats has management communicating expectations to Wall Street that can be achieved. That is what you want to see.
For CECO, I see four straight beats of the Zacks Consensus Estimate. That is great to see, but by itself that is not enough to make the company a Zacks Rank #1 (Strong Buy).
The average positive earnings surprise over the course of the last year works out to be 62%.
Earnings Estimates Revisions
The Zacks Rank tells us which stocks are seeing earnings estimates move higher.
Over the last 60 days, earning estimates have moved up for CECO.
This quarter has moved up from $0.17 to $0.20.
The full fiscal year 2022 has increased from $0.63 to $0.73.
Next fiscal year has seen the estimate move from $0.77 to $0.92.
Positive movement in earnings helped move this stock to a Zacks Rank #1 (Strong Buy).
Valuation
The valuation for this name is low even with the solid growth. I see a forward PE of 16x which is a little low given the company is coming off a quarter that saw topline growth of more than 35%. The price to book multiple is 2x. Price to sales comes in a 1x while the stock carries operating margins of roughly 4%.
Bear of the Day
:
Amazon
is a Zacks Rank #5 (Strong Sell) after missing earnings in late October. The November retail sales report came in awfully weak so it is not surprising to see analysts taking down estimates of select consumer goods names. This article will look at why this stock is a Zacks Rank #5 (Strong Sell) as it is the Bear of the Day.
Description
Amazon.com is one of the largest e-commerce providers, with sprawling operations in North America, now spreading across the globe.
Its online retail business revolves around the Prime program well-supported by the company’s massive distribution network. Further, the Whole Foods Market acquisition helped Amazon establish a footprint in the physical grocery supermarket space.
Earnings History
When I look at a stock, the first thing I do is look to see if the company is beating the number. This tells me right away where the market’s expectations have been for the company and how management has communicated to the market. A stock that consistently beats has management communicating expectations to Wall Street that can be achieved. That is what you want to see.
In the case of AMZN, I see one beat of the Zacks Consensus Estimate and three misses. This alone does not make the stock a Zacks Rank #1 (Strong Buy) and it doesn’t make it a Zacks Rank #5 (Strong Sell) either.
The Zacks Rank does care about the earnings history, but it is much more heavily influenced by the movement of earnings estimates.
Earnings Estimates
The Zacks Rank tells us which stocks are seeing earnings estimates move higher or in this case lower. For AMZN I see annual estimates moving lower of late.
The current fiscal year consensus number moved lower from a loss of $0.09 to a loss of $0.12 over the last 60 days.
The next year has moved from $1.70 to $1.56. That move lower is probably the biggest deciding factor for this stock to be a Zacks Rank #5 (Strong Sell).
Negative movement in earnings estimates like that is why this stock is a Zacks Rank #5 (Strong Sell).
It should be noted that a majority of stocks in the Zacks universe are seeing negative earnings estimate revisions. That means that the stocks that are seeing small but negative earnings estimate revisions are falling to a Zacks Rank #5 (Strong Sell).
Additional content:
Travelers or Allstate: Which P&C Stock Is Better Placed Right Now?
The U.S. property and casualty (P&C) insurance industry has been benefitting from a couple of factors — a better pricing environment, exposure growth and strong customer retention rates. Frequent rate hikes by the Fed act as another tailwind for insurers. However, continued catastrophic events and persistent inflationary headwinds might create roadblocks in the way of P&C insurers.
Premiums, being the most significant contributors to insurers’ top lines, remain well-poised for growth as an improved pricing environment encourages insurers to implement price hikes. With consistent rate increases, insurers can pursue uninterrupted claim payments, which is of dire need amid an active catastrophe season. According to the Swiss Re Institute, the insurance industry is expected to generate average annual premium growth of 2.1% in 2023 and 2024.
Though an active catastrophe environment comes with its share of worries, they usually accelerate the policy renewal rate. P&C insurers also remain equipped with reinsurance covers and favorable reserve development to counter catastrophe losses and shield their underwriting results.
An improving interest rate scenario usually boosts the investment yields of insurers. Seven rate hikes were implemented by the Fed last year. Reports have surfaced hinting at rate increases in early 2023.
A solid capital position motivates P&C insurers to increasingly undertake mergers and acquisitions (M&A). These growth initiatives aim to strengthen an insurer’s capability and bring about a diversified portfolio, which minimize concentration risks for insurers. However, the looming fear of recession and continued interest rate increases might slow down the pace of entering M&A deals by industry players.
The insurance industry pursues significant technology investments in blockchain, AI and advanced analytics for ramping up claim payments and bringing about automation in processes. These investments will save operational costs and boost the margins of insurers in the long-run.
The prevailing scenario makes us optimistic regarding consistent growth in the industry, which should boost the prospects of companies with sound business fundamentals.
The Zacks
P&C Insurance
industry, which is housed within the broader Zacks
Finance
sector, has gained 10.4% in the past six months compared with the sector’s growth of 2.6%. The S&P Index dipped 0.5% in the same time frame.
Against this backdrop, let’s take a look at the two P&C insurers,
The Travelers Companies, Inc.
and
The Allstate Corporation
, with market capitalizations of $43.9 billion and $36 billion, respectively. Both stocks carry a Zacks Rank #3 (Hold) at present. You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
Let’s delve deeper into specific parameters to ascertain which company is better positioned at the moment.
Price Performance
Though shares of both companies have underperformed the industry’s rally of 10.4% in the past six months, Travelers has the edge over Allstate on this front. TRV and ALL gained 9.6% and 3.8%, respectively, in the same time frame.
Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Travelers’ bottom line beat estimates in each of the trailing four quarters, the average surprise being 25.39%. Meanwhile, Allstate’s earnings surpassed the mark in three of the trailing four quarters and missed once, the average surprise being 8.29%. It is clear that TRV has a better reading than ALL here.
Return on Equity (ROE)
ROE is a profitability measure, which indicates how efficiently the company is utilizing its shareholders’ funds.
Travelers’ ROE of 14.3% compares favorably with Allstate’s ROE of 5.1% and remains higher than the industry’s average of 6.7%.
Valuation
Price-to-book (P/B) value is the best multiple used for valuing insurers. Compared with Allstate’s trailing 12-month P/B ratio of 2.31, Travelers is cheaper, with a reading of 2.21. The P&C insurance industry’s P/B ratio is 1.52.
Debt-to-Equity Ratio
The lower the debt-to-equity ratio, the better it is for the company, as it implies a sound solvency level. Both stocks have a higher leverage ratio than the industry’s average of 25.8%. TRV’s leverage ratio of 36.6% betters ALL’s ratio of 45.4%. Therefore, Travelers holds an edge over Allstate on this front.
Dividend Yield
Both companies are regular dividend payers. Allstate’s dividend yield of 2.5% betters Travelers’ metric of 2% and remains higher than the industry’s average of 0.4%. ALL wins over TRV on this front.
Growth Projection
Both stocks’ expected long-term earnings growth rate is lower than the industry’s average of 9.7%. However, the metric for Travelers is pegged at 5.5%, better than Allstate’s figure of 5.1%.
VGM Score
VGM Score
rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth and the most promising momentum. Both Travelers and Allstate have an impressive VGM Score of B, faring equally on this front.
Insurance Premiums
One of the major contributors to a P&C insurer’s revenues is its premiums. Net written premiums of Travelers improved 11% year over year in the first nine months of 2022. Meanwhile, Allstate’s premiums rose 8.4% year over year in the same time frame. Thus. TRV is the winner in this context.
Conclusion
Our comparative analysis shows that Travelers is better-poised than Allstate with respect to most metrics barring the ones on dividend yield and VGM Score. With the scale significantly toward TRV, the stock appears to be better positioned than ALL.
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