For Immediate Release
Chicago, IL – December 22, 2022 – Zacks Equity Research shares Terex Corporation
TEX
as the Bull of the Day and Armstrong World Industries
AWI
as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Veracyte
VCYT
, Tactile Systems Technology
TCMD
and Neovasc
NVCN
.
Here is a synopsis of all five stocks:
Bull of the Day
:
Terex Corporation
, a Zacks Rank #1 (Strong Buy), has come roaring back to life following a weak start to the year. TEX recently entered positive territory in 2022, all while most stocks continue to hover in a deep correction. A slight retreat in price over the past few weeks presents investors with a solid buying opportunity. The company’s longevity and continued stock price ascent speak to management’s ability to adapt to the ever-changing market landscape.
TEX sports the second-highest Zacks Growth Style Score of ‘B’, indicating a strong possibility that the stock propels higher on favorable growth metrics. The company is part of the Zacks Manufacturing – Construction and Mining industry group, which ranks in the top 2% out of more than 250 Zacks Ranked Industries. The industry has widely outperformed the market this year with a nearly 14% return year-to-date.
Because this group is ranked in the top half of all industries, we expect it to continue to outperform the market over the next 3 to 6 months.
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Company Description
Terex manufactures and sells aerial work platforms and materials processing machinery worldwide. Its products include portable material lifts, utility equipment, telehandlers, cranes, concrete mixer trucks and pavement, and conveyors. Used in the construction, infrastructure, mining and recycling industries, its products are sold under recognized brands such as Terex, Fuchs, EvoQuip, Powerscreen and Cedarapids.
Terex’s backlog has shown year-over-year growth for eight consecutive quarters and reached $3.9 billion at the end of Q3 this year. This puts TEX in a great position for improved results in the near future. Solid demand and cost savings will help negate the impact of dwindling supply chain disruptions.
Earnings Trends and Future Estimates
TEX has built up an impressive earnings history, surpassing earnings estimates in each of the past four quarters. Back in October, the company reported Q3 EPS of $1.20/share, a 14.29% surprise over the $1.05 consensus estimate. TEX has delivered a +36.65% average earnings surprise over the last four quarters.
The TEX growth engine is expected to remain hot this year, as analysts covering the company have increased their 2023 EPS estimates by +4.79% in the past 60 days. The Zacks Consensus EPS Estimate now stands at $4.81/share, reflecting potential growth of 16.81% relative to last year. Sales are anticipated to climb 5.4% to $4.52 billion.
Let’s Get Technical
TEX shares recently broke into positive ground on the year. Only stocks that are in extremely powerful uptrends are able to make this type of price move while the market hovers in a deep correction. This is the kind of stock we want to include in our portfolio – one that is starting to trend well and receiving positive earnings estimate revisions.
Notice how both the 50 and 200-day moving averages (blue and red lines, respectively) are sloping up. It appears the 50-day average is now acting as support, and the recent pullback represents a solid buying opportunity. With both strong fundamentals and technicals, TEX is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Terex has recently witnessed positive revisions. As long as this trend remains intact (and TEX continues to deliver earnings beats), the stock will likely continue its bullish run this year.
Despite the impressive price run off the lows, TEX currently remains relatively undervalued.
Bottom Line
Solid institutional buying should continue to provide a tailwind for the stock price. TEX is ranked favorably by our Zacks Style Score Categories with an overall ‘B’ VGM score. It’s not too difficult to see why this company is a compelling investment.
Backed by a leading industry group and robust history of earnings beats, this market winner is poised to continue its recent run. Robust fundamentals combined with a strong technical trend certainly justify adding shares to the mix. Investors would be wise to consider TEX as a portfolio candidate if they haven’t already done so.
Bear of the Day
:
Armstrong World Industries
designs, manufactures, and sells ceiling systems primarily for use in the construction and renovation of residential and commercial buildings in the United States, Canada, and Latin America. The company produces suspended mineral fiber, wood and wood fiber, fiberglass wool, and metal ceiling systems. AWI also produces ceiling perimeters and trims, as well as grid items that support drywall ceiling systems. It sells its systems to resale distributors and contractors, as well as wholesalers and retailers.
The Zacks Rundown
AWI has been severely underperforming the market over the past year. A Zacks Rank #5 (Strong Sell) stock, AWI experienced a climax top in December of last year and has been in a price downtrend ever since. The stock is hitting a series of 52-week lows and represents a compelling short opportunity as the market continues to hover in a deep correction.
Armstrong World Industries is part of the Zacks Building Products – Miscellaneous industry group, which currently ranks in the bottom 14% out of approximately 250 industries. Because this industry is ranked in the bottom half of all Zacks Ranked Industries, we expect it to underperform the market over the next 3 to 6 months. Candidates in the bottom half of industry groups can often represent solid potential short candidates. While individual stocks have the ability to outperform even when included in poor-performing industries, their industry association serves as a headwind for any potential rallies.
Weak Foundation: Falling Short on Earnings and Deteriorating Forecasts
Earnings misses have been a sore spot for AWI during the past year. The ceiling system provider has fallen short of estimates in three of the past four quarters. AWI most recently reported Q3 EPS back in October of $1.36/share, missing the $1.47 consensus estimate by -7.48%. Revenues of $325 million also missed the mark by -1.66%. These are the types of negative trends that the bears like to see.
AWI has posted an average earnings miss of -5.23% over the past four quarters. Analysts have been revising earnings estimates downward as of late. For the current quarter, estimates have been slashed –16.3% over the past 60 days. The Q4 Zacks Consensus EPS Estimate now stands at $1.13/share, translating to minimal growth of just 3.67% relative to the same quarter last year – and this estimate may be high considering the string of misses lately.
Technical Outlook
AWI stock has been steadily falling since last year and has now established a well-defined downtrend. Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping down. Shares have declined more than 40% in the past year. The stock continues to trade below both averages, while the 50-day moving average has acted as resistance several times throughout the down move.
While not the most accurate indicator, AWI has also experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average crosses below its 200-day moving average. AWI would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock.
Final Thoughts
The recent earnings misses in addition to deteriorating estimates are both huge red flags and need to be respected. These will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
AWI’s characteristics have resulted in a Zacks Value Style Score of ‘D’, indicating weak valuation metrics. The fact that AWI is included in a bottom-performing industry group simply adds to the growing list of concerns. Investors will want to steer clear of AWI until the situation shows major signs of improvement, or possibly include it as part of a hedge or short strategy.
Additional content:
3 Medical Instruments Stocks on the Recovery Path
The medical instrument industry has been witnessing a significant transformation in the nature of business, with robotic and remote medical services in the limelight. However, the industry has suffered, having faced several challenges like rising raw material and labor cost as well as freight charges. These factors coupled with uncertainties related to the emergence of new COVID strains in some parts of the world are making it difficult to gauge the magnitude of economic revival.
A number of medical instrument companies, which confirmed a gradual rebound in their base businesses through the first half of 2022, once again witnessed staffing shortages and supply chain-related hazards in the second half of 2022.
However, companies that have adapted well to changing consumer preferences are witnessing a gradual recovery in their share price.
Here we discuss three medical instrument makers —
Veracyte
,
Tactile Systems Technology
and
Neovasc
— that have declined so far this year amid lingering challenges as shown above. However, these stocks have shown promise as their share price recovered nearly or more than 50% in the past 12 weeks despite a meagre upside in the S&P 500. The performance of these stocks has also outperformed their Zacks Medical – Instruments industry in the past 12 weeks.
TCMD and NVCN carry a Zacks Rank #2 (Buy), indicating positive revisions in earnings per share (EPS) estimates lately. VCYT carries a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
Veracyte
The company delivered an earnings and revenue surprise of 50% and 12.82%, respectively, for the quarter ended September 2022. Its loss per share narrowed 7.7% year over year in the third quarter of 2022 on the back of strong growth of more than 25% in revenues.
This molecular diagnostic company is expected to incur an annual loss of 61 cents per share in 2022, which implies an improvement of 41.4% from the year-ago quarter. The consensus EPS estimate for the full-year 2022 has improved 23.8% over the past 60 days. VCYT’s revenues in 2022 are expected to grow 32.9% year over year. The estimates for EPS and revenues for full-year 2023 imply an improvement of 15.1% and 12.1%, respectively, over 2022 numbers.
Veracyte’s earnings beat estimates in three of the past four quarters, with the average surprise being 23.50%.
While VCYT’s shares have declined 25.7% so far this year, they have gained 58.7% in the past 12 weeks. Veracyte offers genomic tests for cancers with increasing prevalence like lung cancer, prostate and bladder cancer, and breast cancer. These targeted indications are likely to drive revenues higher for the company going forward.
It also provides genomic tests for other indications like thyroid cancer and interstitial lung diseases. Based on these favorable services and rising earnings estimates, shares of this company are likely to be on an upward trend in the upcoming months.
Tactile Systems Technology
The company delivered an earnings and revenue surprise of 200% and 8.4%, respectively, for the quarter that ended September 2022. It reported earnings of 10 cents per share against a loss of 8 cents in the year-ago quarter on the back of strong growth of 25% in revenues in the same period.
Although this medical technology company is expected to incur a loss of 76 cents per share for full-year 2022, implying a deterioration of 26.7% from the year-ago period, earnings estimates for the fourth quarter and the first quarter of 2023 indicate an improvement of 150% and 42.8%, respectively.
The consensus estimate for 2022 earnings has improved 12.6% over the past 60 days. TCMD’s revenues for full-year 2022 are expected to grow 17% year over year. The estimates for EPS and revenues for full-year 2023 suggest an improvement of 87.3% and 12%, respectively, over 2022 numbers.
While TCMD’s shares have declined 35.7% so far this year, the shares have gained 45.4% in the past 12 weeks. Tactile Systems Technology manufactures and distributes medical devices for the treatment of patients with underserved chronic diseases at home.
The COVID-19 crisis over the past two-and-a-half years called for several services to be provided at home, including multiple healthcare services. The demand for at-home medical services is likely to increase going forward irrespective of COVID-19, especially driven by older patients and increasing focus on telehealth.
The global home healthcare market is projected to reach $340.2 billion by 2027 at a CAGR of 8.5%, per a
MarketsAndMarkets report
. The growing market is likely to benefit Tactile Systems Technology going forward.
Neovasc
Although the company’s revenues and earnings were lower than expected and declined year over year in the third quarter, the metrics are expected to grow 33.7% and 148.6%, respectively, in 2023.
Neovasc has one commercial product — Neovasc Reducer — approved in Europe for the treatment of refractory angina. The company is evaluating the product in a pivotal clinical study to support regulatory approval in the United States.
The company’s revenues continue to grow on the back of demand for Neovasc Reducer in Europe, which is expected to grow 37.4% in 2022 from the year-ago period.
Neovasc Reducer enjoys Breakthrough Device designation, which will likely expedite the development and review of a device that demonstrates the compelling potential to provide more effective treatment or diagnosis. The study is expected to be completed in 2024. A potential U.S. approval to the product will likely drive revenues higher significantly. The company is also developing another product — Tiara for the transcatheter treatment of mitral valve disease. These developments augur well for the company.
While NVCN’s shares have declined 15.3% so far this year, the shares have gained 46.2% in the past 12 weeks.
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