Graham, Elizabeth Arden, Exxon Mobil, Chevron and Matador Resources highlighted as Zacks Bull and Bear of the Day
CHICAGO, Sept. 9, 2013 /PRNewswire/ -- Zacks Equity Research highlights Graham Corporation (AMEX: GHM-Free Report) as the Bull of the Day and Elizabeth Arden (Nasdaq: RDEN-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis ontheExxon Mobil Corp. (NYSE: XOM-Free Report), Chevron Corp. (NYSE: CVX-Free Report) and Matador Resources Co. (NYSE: MTDR-Free Report).
Here is a synopsis of all five stocks:
There are signs the global economy is finding firmer footing. The August JP Morgan Global Composite Output Index rose 1.2 to 55.0, hitting a two and half year high. Moreover, the August U.S. employment report showed aggregate hours worked rising 2.4% from last year despite disappointing job creation. The boost in hours worked is consistent with the strength in the U.S. ISM production indices which were the strongest going back to 2011.
Signs of reviving economic growth argue for an examination of stocks with exposure to the industrial sector. Graham Corporation (AMEX: GHM-Free Report), Zacks Rank #1 (Strong Buy), fits the profile. Graham designs and manufactures vacuum and heat transfer equipment for energy and industrial markets. It has a small dividend yield of 0.34%.
Graham is a small cap with a value of just over $350 mln and is expected to post sales of $111 mln in the fiscal year ending March 2014 and $127 mln in the fiscal year ending March 2015. Sales are projected to accelerate and grow 14% between fiscal years 2014 and 2015 after rising 5.7% between fiscal years 2012 and 2013. The company has a goal of doubling organic revenues and achieving sales in excess of $200 mln at the next cycle peak.
The majority of sales, 53%, are in the U.S., but Graham has clear international exposure with 19% of sales coming specifically from Asia. By Industry, the biggest sales are generated from refining (39%), power (23%), and chemical/petrochemical (22%). It may be an indirect play on the growth in natural gas usage in the U.S. It also has exposure to the U.S. Navy's nuclear propulsion program. Given the geopolitical tensions in the Middle East, the Navy is likely to be active and a focus of military spending.
Elizabeth Arden (Nasdaq: RDEN-Free Report), Zacks Rank #5 (Strong Sell), posted an outsized downside earning surprised when it reported profits on August 8th. The company recorded a profit of $0.10 per share against a Zacks Consensus Estimate of $0.32. Weak sales performance and a poor replenishment ordering rate at a large mass retail customer, and failure to achieve product repositioning played a role in the short fall. European sales also disappointed.
This maker of beauty products has tumbled from nearly $50/share in May to a current price near $35. The CFO, who had been with the company since 2001, resigned on August 21st to take a job with Hain Celestial Group adding unease to investor confidence. After a long history of posting positive quarterly earnings surprises, the company has missed two out of the past three quarters.
Earnings estimates have tumbled over the past thirty days. The Zacks Consensus Earnings per Share Estimate has declined from $2.81 to $2.19 for the fiscal year ending June 2014 and from $3.39 to $2.59 for the fiscal year ending June 2015. Gross margin has also been under pressure in recent quarters falling from 49.2% in the June quarter of 2012 to 46.77% in the June quarter of 2013.
Elizabeth Arden is priced at a PEG ratio of 1.22 which is near the 10 year median. Although the company has seen earnings estimates fall sharply, the valuation is about in line with the historical average. Likewise, the price to sales ratio is 0.8 and above the 10 year median of 0.6.
Syria, Supply Drop Push Crude Above $108
The U.S. Energy Department's weekly inventory release showed that crude stockpiles logged a smaller-than-expected decline. The report further revealed that within the 'refined products' category, gasoline stocks fell, while distillate supplies were up from the week-ago level. Meanwhile, refiners scaled up their utilization rates by 0.5%.
Following the decline in U.S. crude inventories, the high probability of a military intervention in Syria and a report showing expansion in domestic services sector, oil prices crept higher, settling above $108 a barrel.
About the Weekly Petroleum Status Report
The Energy Information Administration (EIA) Petroleum Status Report, containing data of the previous week ending Friday, outlines information regarding the weekly change in petroleum inventories held and produced by the U.S., both locally and abroad.
The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of petroleum products. It is an indicator of current oil prices and volatility that affect the businesses of the companies engaged in the oil and refining industry.
Analysis of the Data
Crude Oil: The federal government's EIA report revealed that crude inventories fell by 1.84 million barrels for the week ending Aug 30, 2013, following an increase of 2.99 million barrels in the previous week.
The analysts surveyed by Platts had expected crude stocks to go down some 2.5 million barrels. An uptick in refinery processing rates and lower imports led to the stockpile drawdown with the world's biggest oil consumer even as domestic production continued to spike, now at their highest level since 1989.
In particular, crude inventories at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – were down 1.83 million barrels from the previous week's level to 34.76 million barrels. Stocks are currently at their lowest since Feb last year and 33.0% under the all-time high of 51.86 million barrels reached in Jan.
Despite the eighth inventory decrease in 10 weeks, at 360.21 million barrels, current crude supplies are up slightly (by 0.9%) from the year-ago period and are close to the upper limit of the average for this time of the year. The crude supply cover was down marginally from 22.9 days in the previous week to 22.8 days. In the year-ago period, the supply cover was 23.4 days.
Gasoline: Supplies of gasoline were down for the fourth time in as many weeks, as domestic consumption strengthened, while production and imports dropped.
The 1.83 million barrels withdrawal – above analysts' projections for a 1 million-barrels decrease in supply level – took gasoline stockpiles down to 215.99 million barrels. Notwithstanding this drawdown, the existing inventory level of the most widely used petroleum product is still 8.6% higher than the year-earlier level and is in the top half of the average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) edged up 549,000 barrels last week, lower than analysts' expectations for an 800,000 barrels rise in inventory level. The increase in distillate fuel stocks – the fourth in 5 weeks – could be attributed to weakening demand and higher output, partially offset by lower imports.
At 129.59 million barrels, distillate supplies are 2.0% above the year-ago level but is close to the lower limit of the average range for this time of the year.
Refinery Rates: Refinery utilization edged up 0.5% from the prior week to 91.7%. The analysts were expecting the refinery run rate to decrease 0.8% to 90.4%.
Stocks to Consider
With spot crude price staying strong – at around $108 a barrel – brokerage analysts are likely to upgrade their forecasts on oil-weighted companies and related support plays, leading to positive estimate revisions.
While all crude-focused stocks – including behemoths like Exxon Mobil Corp. (NYSE: XOM-Free Report) and Chevron Corp. (NYSE: CVX-Free Report) – stand to benefit from rising commodity prices, companies in the exploration and production (E&P) sector are the best placed, as they will be able to extract more value for their products.
In particular, one can look at Matador Resources Co. (NYSE: MTDR-Free Report) – a small-cap, undervalued E&P player – as a good buying opportunity. Dallas TX-based Matador Resources, sporting a Zacks Rank #1 (Strong Buy), with current focus on the high-return Eagle Ford shale formation in South Texas, is expected to witness earnings growth of an astounding 390% in 2013.
About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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