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Allison Transmission and Alico have been highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – May 25, 2023 – Zacks Equity Research shares Allison Transmission Holdings ALSN as the Bull of the Day and Alico ALCO as the Bear of the Day. In addition, Zacks Equity Research provides analysis on UnitedHealth Group UNH, HCA Healthcare HCA and Pfizer PFE.

Here is a synopsis of all five stocks.

Bull of the Day:

Allison Transmission Holdings, a Zacks Rank #1 (Strong Buy), is witnessing bullish tailwinds including a set of strategic buyouts and new product launches that bode well for the automotive parts company. The stock is breaking out to the upside and hit an all-time high earlier this year. Only stocks that are in extremely powerful uptrends are able to make new highs amid an uncertain economic environment. Shares continue to display relative strength as buying pressure accumulates in this market leader.

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ALSN sports the highest Zacks Value Style Score of ‘A,’ indicating further upside based on favorable valuation metrics. The company is part of the Zacks Automotive – Original Equipment industry group, which ranks in the top 45% out of more than 250 Zacks Ranked Industries.

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

Allison Transmission Holdings designs, manufactures, and sells commercial and defense automatic transmissions for medium-duty and heavy-duty vehicles. The company offers transmissions for various applications including distribution, construction, fire, and emergency on-highway trucks; school and transit buses; energy and mining off-highway vehicles; and wheeled and tracked defense vehicles.

ALSN provides transmissions and electric propulsion solutions under the Allison Transmission brand name, as well as remanufactured transmissions under the ReTran brand name. In addition, the company sells branded replacement parts, support equipment, engineering services, and defense kits. ALSN markets its products to original equipment manufacturers, distributors, and the U.S. government through approximately 1,600 independent distributor and dealer locations.

Strategic buyouts such as Walker Die Casting, C&R Tool & Engineering, and Vantage Power are set to boost company prospects. New product launches in China such as the FracTran – a next-generation hydraulic fracturing transmission product – will help buoy sales in the coming quarters.

Earnings Trends and Future Estimates

ALSN has built up an impressive earnings history, surpassing earnings estimates in three of the last four quarters. Back in April, the company reported first-quarter earnings of $1.85/share, a 21.71% surprise over the $1.52 consensus estimate. ALSN has delivered a trailing four-quarter average earnings surprise of 12.84%.

The ALSN growth engine is expected to remain hot this year, as analysts covering the automotive parts company have increased their EPS estimates across the board. Full-year estimates have been raised by +9.8% in the past 60 days. The 2023 Zacks Consensus EPS Estimate now stands at $6.61/share, reflecting potential growth of 19.53% relative to the same quarter in the prior year.

Let’s Get Technical

ALSN shares have advanced nearly 30% in the past year. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.

Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping up. The stock has been making a series of higher highs. With both strong fundamentals and technicals, ALSN 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, Allison Transmission Holdings has recently witnessed positive revisions. As long as this trend remains intact (and ALSN continues to deliver earnings beats), the stock will likely continue its bullish run this year. Despite the impressive performance, ALSN currently trades relatively undervalued at just a 7.31 forward P/E.

Bottom Line

Solid institutional buying should continue to provide a tailwind for the stock price. ALSN is ranked favorably by our Zacks Style Score Categories, with an ‘A’ for Value and ‘B’ for Growth, paving the way for an overall ‘A’ VGM score. Increasing volume at recent breakout levels is another bullish sign.

Robust fundamentals combined with a strong technical trend certainly justify adding shares to the mix. Backed by a leading industry group and robust history of earnings beats, it’s not difficult to see why this company is a compelling investment. Investors would be wise to consider ALSN as a portfolio candidate if they haven’t already done so.

Bear of the Day:

Alico operates as an agribusiness and land management company in the United States. Alico cultivates citrus trees to produce citrus for delivery to the processed and fresh citrus markets. In addition, ALCO is involved in cattle ranching, sugarcane and sod production, and forestry. The company also owns and manages land for leasing, grazing, conservation, and mining activities. Based out of Fort Myers, ALCO owns over 74,000 acres of land in Florida.

The Zacks Rundown

ALCO, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Agriculture – Operations industry group, which ranks in the bottom 13% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months.

Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poor-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.

Along with many other agricultural stocks, ALCO experienced a climax top in April of last year and has been in a price downtrend ever since. The share price is hitting a series of lower lows and represents a compelling short opportunity as the market remains volatile.

Recent Earnings Misses & Deteriorating Outlook

ALCO has fallen short of earnings estimates in three of the past four quarters. Earlier in May, the company reported a fiscal Q2 loss of -$1.62/share, missing the $0.13/share consensus EPS estimate by -1,346.15%. Poor performance can be partially explained by decreased revenues due to lessened fruit production, as the company was still dealing with the fallout from Hurricane Ian.

Still, over the past four quarters, ALCO has delivered an average earnings miss of -449.78%. Consistently falling short of earnings estimates is a recipe for underperformance, and Alico is no exception.

ALCO has been on the receiving end of negative earnings estimate revisions as of late. For the current fiscal year, analysts have decreased estimates by -186.17% in the past 60 days. The 2023 Zacks Consensus EPS Estimate is now -$2.69/share, reflecting a -1,180.95% regression relative to fiscal 2022.

Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.

Technical Outlook

ALCO is in a sustained downtrend. The stock is making a series of lower lows, with no respite from the selling in sight.

While not the most accurate indicator, ALCO has also experienced what is known as a ‘death cross,’ wherein the stock’s 50-day moving average (blue line) crosses below its 200-day moving average. ALCO 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. The stock has fallen nearly 40% in the past year alone.

Final Thoughts

A deteriorating fundamental and technical backdrop show that this stock is not set to produce fresh highs anytime soon. The fact that ALCO is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.

Our Zacks Style Scores depict a weakening outlook for this stock, as ALCO is rated a worst-possible ‘F’ in our Value category and ‘F’ for our overall VGM score. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of ALCO until the situation shows major signs of improvement.

Additional content:

Debt Ceiling Crisis Looms: How Will It Impact Medical Stocks?

The United States is facing a looming debt-ceiling crisis that could have disastrous consequences for the global economy. The debt ceiling, or debt limit, is the total amount the U.S. government is allowed to borrow to finance its expenditure, such as paying salaries and welfare allowances.

On Jan 19, the United States hit its debt ceiling limit of $31.4 trillion, leading to a standoff between the White House and Congress over how to raise or suspend the limit, per a Reuters article. A continued impasse related to the debt-ceiling crisis will impact all sectors. The medical companies may face challenges as government healthcare spending may get reduced or halted without a resolution.

Probable Impact of the Crisis

U.S. Treasury Secretary Janet Yellen has warned that the country could default on its debt as early as Jun 1, 2023 if the impasse is not resolved. A default would mean that the United States would fail to pay its creditors, such as foreign governments and investors, who hold U.S. Treasury bonds. This could trigger a financial crisis that would have a ripple effect across the world, impacting markets, trade and currencies.

A potential default will also have significant implications for the healthcare industry, with the government focusing more on repaying its debt than healthcare-related spending. The default may also impact Social Security and unemployment insurance benefits, leading to lower or delayed medical expenses by patients.

Factors Causing High Debt

The debt-ceiling crisis is part of an ongoing political debate within Congress about federal government spending and the national debt that the U.S. government accrues. The United States has had large budget deficits for years, meaning that it spends more than it collects in taxes. In fiscal year 2022, the federal government brought in $4.90 trillion but spent $6.27 trillion, with a net budget deficit of $1.38 trillion (the fourth highest of the 21st century).

The main drivers of federal spending are mandatory programs such as Social Security, Medicare, and Medicaid. Other expenses of the government comprise discretionary spending, which also includes defense. A portion of the budget is also spent on paying interest on the debt, which is expected to rise further as debt grows.

Here we discuss three medical stocks that may be potentially impacted by the crisis going forward:

UnitedHealth Group is the largest health insurer in the United States, serving more than 150 million customers through its various plans, including Medicare and Medicaid. A default may result in a potential disruption in UNH’s revenue stream and cash flow. Shares of UnitedHealth Group have declined 9.6% so far this year.

HCA Healthcare, the largest for-profit hospital operator in the United States, owns and operates 186 hospitals and 121 freestanding surgery centers across 20 states and the United Kingdom. HCA could get delayed payments from Medicare and Medicaid, which account for about 40% of its net revenues in case of a default. Shares of HCA Healthcare have gained 11.6% so far this year.

Pfizer, one of the world's leading pharmaceutical companies, produces and sells a wide range of drugs and vaccines, including the COVID-19 vaccine. A default may affect PFE’s ability to collect payments from government agencies and programs, such as the Department of Defense and the Veterans Health Administration. Shares of Pfizer have lost 22.6% so far this year.

UnitedHealth Group, HCA Healthcare and Pfizer all carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Debt Ceiling History

Per a Reuters article, the United States has raised its debt ceiling 78 times since 1960, usually without much controversy. However, in recent years, some lawmakers have used the debt ceiling as a leverage point to demand spending cuts or policy changes from the opposing party. This resulted in several near-default situations and government shutdowns in 2011, 2013 and 2019.

Current Scenario

In the current impasse, Republicans have proposed cutting spending back to 2022 levels as a precondition to raising the debt ceiling, while Democrats have insisted on a "clean bill" without preconditions, as had been the case in raising the ceiling three times during the Trump administration.

President Joe Biden has urged Congress to act swiftly and responsibly to avoid a default that would harm millions of Americans and damage the country's reputation and creditworthiness. He has also ruled out invoking the 14th Amendment of the Constitution, which some legal scholars argue gives him the authority to bypass Congress and raise the debt limit unilaterally. Biden has said he does not want to create a constitutional crisis over a fiscal one.

As the deadline approaches, both sides are under pressure to reach a compromise or face the consequences of a historic default that could plunge the world into a new recession.

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UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report

Pfizer Inc. (PFE) : Free Stock Analysis Report

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Allison Transmission Holdings, Inc. (ALSN) : Free Stock Analysis Report

Alico, Inc. (ALCO) : Free Stock Analysis Report

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