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Archer Daniels Midland and Ollie's Bargain Outlet have been highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – February 7, 2023 – Zacks Equity Research shares Archer Daniels Midland ADM as the Bull of the Day and Ollie’s Bargain Outlet OLLI as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Apple AAPL, Meta Platforms META and Chevron CVX.

Here is a synopsis of all five stocks.

Bull of the Day:

Archer Daniels Midland is a Zacks Rank #1 (Strong Buy) that procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients. ADM is one of the leading producers of food and beverage ingredients, as well as goods made from various agricultural products

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The stock has seen selling over the last couple months as money has been rotated out of last year's winning sectors and into 2022 losers such as tech. The stock is now down over 15%, but the selling might not last long as ADM is coming off an earnings beat and is seeing analyst estimates drift higher.  Additionally, ADM has hit technical support at a trend line that formed at the COVID lows.

About the Company

Archer Daniels Midland was founded in 1902 in Minneapolis, MN. The company is now headquartered in Chicago, IL and employs over 38,000. ADM has a market cap of $45 billion and has a Forward PE of 12. The company pays a dividend of almost 2%.

ADM operates through three segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition. The company also engages in the agricultural commodity and feed product import, export, and distribution; and structured trade finance activities.

The stock has a Zacks Style Score of “A” in Value and Growth.

Q4 Earnings Beat

In late January, the company reported an earnings beat of 17%. This was the 14th straight EPS beat, a streak that started back in 2019.

Digging into the fourth quarter, the company reported EPS of $1.93 v the $1.64 expected. Revenues came in at $26.2B, which was as expected. Strong global demand for crops and soy crushing margins were cited as reasons for the beat.

ADM saw a 46% y/y increase in operating profit in their Ag services and Oilseeds unit.

Management commented they are committed to returning cash to shareholders and announced they were hiking their dividend by 12.5%. The company guided FY23 capex flat y/y and planned share buybacks at $1.0B vs the $.5B last year.

Management sounded bullish for 2023, with the CEO expecting strong margins in starches, sweeteners, and wheat flour in Q1. ADM expects FY23 growth to be over 10%.

Analyst Estimates

The stock sold off about half a percent after earnings. Since then, it has dipped even further, falling about 5% since earnings were released. The current quarter saw estimates dip a tad, but analysts remain bullish long term.

For next quarter, estimates have shot up 4% over the last 7 days, moving from $1.62 to $1.69. For the current year, estimates have gone higher by 2% for that same time frame.

The longer-term trend is very positive, with next year’s estimates moving up 16% over the last month.

The Technicals

2023 has seen money flow into the beaten down names from last year, while rotating out of those strong 2022 performers. Tech has been hot, while commodity related stocks have been weak.

ADM has not been spared, with the stock being sold hard and down 9% the first three days of the trading year. Eventually this rotation will stop and the stock already seems to be stabilizing at technical support.

While the 200-day moving average broke in the first week of the year, the $80 level is holding. If you draw a trendline from the lows since March 2020, you can see the line has hit for the first time since July and the selling has stalled.

Additionally, the current price is the September support zone and a 61.8% Fibonacci retracement drawn from the July lows to October highs.

Bottom Line

The weakness in ADM so far in 2023 can be attributed to the sector rotation out of last year's winners into losers. For investors that expect the long-term trend to continue, the stock has dropped enough to gain a solid entry point.

Earnings momentum, valuation, dividend growth are factors that should offer the stock strong support for the rest of 2023.

Bear of the Day:

Ollie’s Bargain Outlet is a Zacks Rank #5 (Strong Sell) that is a value retailer of brand name merchandise at reduced prices. The company offers housewares, bed and bath, food, floor coverings, health and beauty aids, books and stationery, toys, and electronics; and other products, including hardware, candy, clothing, sporting goods, pet and lawn, and garden products.

The stock performed well during the pandemic, but has missed earnings expectations five out of the last six quarters. This has helped the stock fall over 50% from all-time highs seen in 2020.

While the stock has rallied off 2022 lows, investors might want to be cautious ahead of the next earnings report in March. Estimates are headed lower due to a challenging operating environment.

About the Company

Ollie’s is headquartered in Harrisburg, PA. The company was founded in 1982 and employs 4,700 people. As of Oct 2022, the company operated 463 outlets in 29 states, primarily in the eastern half of the country.

Ollie’s offers products under the following merchandise categories: Housewares (14.9% of 2021 Net Sales), Bed and bath (10.7%), Food (10.3%), Floor coverings (8.6%), Books and stationery (7.9%), Toys (6.4%), Health and beauty aids (5.9%). The remaining sales fit under the “Other” category and include hardware, candy, clothing, sporting goods, pet products, luggage, automotive, seasonal, furniture, summer furniture and lawn & garden.

The company boasts its Ollie’s Army loyalty program. This is a free membership in which you receive special discounts through both regular mail and email. The membership includes a point system in which you earn one point for every dollar spent.

The company is valued at $3.5 billion and has a Forward PE of 24. OLLI holds Zacks Style Scores of “F” in Growth and Value. The stock pays no dividend.

Q3 Earnings

The company last reported EPS on December 7th, missing expectations by 10%. Ollie’s reported Q3 at $0.37 v the $0.41 expected and missed on revenues. Despite sales trends improving in October, the company guided Q4 lower and now sees $0.78-.083 v the $0.95 expected.

Ollie's cut FY22 to $1.57-$1.62 v the $1.78 expected and sees same store sales down 3.8%.

Year over year margins were lower and inventories were up 11%. Management commented that they are pleased with the sales trends, but they are challenged by the highly promotional and inflationary environment.

To sum the quarter up the sales are there, but costs to get those sales, as well as inflationary costs, are eating into the bottom line.

Estimates

After the quarter, analysts lowered their estimates and cut their price targets. Over the last 60 days, there have been seven revisions to the downside for the current year. Earnings forced JPMorgan to immediately maintain its underweight and cut their price target from $54 to $42.

Over the last 60 days, estimates for the current have gone from $0.95 to $0.80, a drop of 15%. For next quarter they have fallen 9%, dropping from $0.53 to $0.48.

Looking ahead to next year, analysts have dropped their numbers 11% over the last 60 days, from $2.66 to $2.36.

Technical Take

Bulls have seen a 30% rally off the lows set in late December. This is partially due to the big market move higher since the start of 2023. But it also has to do with technical breaks of the 200-day MA, which caused a short squeeze.

This issue the bulls will have over the next month will be that earnings report due in March. If price gets back under the $52 level, the bears gain back control. If this happens before earnings, the bulls could be at risk of seeing new lows on a bad earnings report.

A move over the November high of $63 and the stock will look pretty good. So investors should expect a big technical fight between the bulls and the bear over the next month.

Summary

The current atmosphere is not good for deep discount retailers that thrive on margins. In an inflationary environment, margins contract and the company will become less profitable. While inflation has come in, it could be a while before Ollie’s starts to see improvement.

Additional content:

Meta & Chevron Buybacks: Who Benefits Most?

The Power of Buybacks

Buybacks can be a fruitful endeavor for companies with lots of cash on hand (a good problem to have. For example, over the past decade, Apple has repurchased more than half a trillion worth of its own shares. The results speak for themselves.

Buybacks can allow management teams to:

·      Inflate earnings per share (EPS): Because buybacks decrease the number of shares outstanding, earnings are calculated against fewer shares. Higher EPS can make stocks more attractive to institutions and individual investors.

·      Drive share prices higher: A lower supply of shares and more buying pressure can boost stock prices.

·      Have skin in the game: When a company buys back shares, it signals that management has confidence in the future.

·      Support dividend payments: Companies can finance dividend payments to shareholders. (CVX has raised its dividend for 36 years straight)

Meta Platforms and Chevron couldn’t be on further ends of the spectrum in terms of their underlying businesses and stocks. Chevron is one of the world’s largest oil producers, a value stock, a dividend payer, and one of the top-performing stocks of the past year. Meanwhile, Meta is a growth-oriented tech stock known for its innovative social media portfolio and is coming off one of the worst performance periods since the stock came public.

Despite their differences, both companies’ management teams have similar strategies in mind to boost their stock prices – massive stock buybacks.

Massive Buyback Programs

Last week, Chevron announced a massive buyback of $75 billion worth of stock after a record year of earnings – tripling its existing buyback program. Not to be outdone, Thursday, Meta increased its buyback plans by $40 billion – last year, the company purchased nearly $28 billion worth of its stock.

Which Stock Will Benefit Most?

If you want to learn more about the animals in the desert and how they act, sit in the desert and watch the animals. By the same token, if you wish to learn which stock benefited more from a buyback – watch the stock. Shares of CVX fell by 4.44% on above-average volume following the announcement. Conversely, shares of META soared more than 20% on volume nearly four times the average turnover.

While both stocks gave investors good news, the reaction in shares tells investors two different stories. Meta may be ready for a turnaround year, while the good news may already be priced into CVX shares.

Conclusion

Around big news items in the stock market, the reaction to the news is often more important than the news itself. Zuckerberg and META’s management team have injected confidence back into shares of META. Furthermore, META is seeing improving estimates, sports a Zacks Ranking of 2, and has its lowest valuation in years.

For these reasons, META is more likely to benefit in the coming months than CVX from its recent buyback.

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