For Immediate Release
Chicago, IL – November 25, 2022 – Zacks Equity Research shares Ethan Allen Interiors Inc. ETD as the Bull of the Day and PulteGroup, Inc. PHM as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Baker Hughes Company BKR, EOG Resources EOG and Continental Resources, Inc. (CLR).
Here is a synopsis of all five stocks:
Bull of the Day:
Ethan Allen Interiors Inc. is defying expectations as consumers continue to buy furniture. This Zacks Rank #1 (Strong Buy) is dirt cheap, with a single digit P/E.
Ethan Allen Interiors is a home furnishings retailer which sells a full range of home furnishings through a retail network of design centers across the United States and abroad as well as online at ethanallen.com. It's been in business for 90 years.
The company owns 10 manufacturing facilities in the United States, Mexico and Honduras, including one sawmill, one rough mill and a lumberyard. Approximately 75% of its products are made, or assembled, in those North American facilities.
Another Beat in the Fiscal First Quarter 2023
On Oct 26, Ethan Allen reported its fiscal first quarter 2023 results and beat the Zacks Consensus, reporting $1.11 versus the Consensus of just $0.79.
It was the 13th consecutive earnings beat in a row. Ethan Allen has only missed once in the last 5 years and it was in 2019, before the coronavirus pandemic hit.
Sales rose 17.7% to $214.5 million thanks to a higher backlog of orders.
Retail net sales were up 18.5% to $183.7 million while wholesale net sales rose 4.8% to $114.7 million.
The orders cooled off from the pandemic mania of last year, with retail written orders falling 8.6% compared with last year and wholesale declining 7.2%. But compared with the first quarter of fiscal 2020, the last pre-pandemic first quarter, written orders were up 7.4% and wholesale were down 0.1%.
Many are watching the inventory levels at retailers. Ethan Allen's inventories net decreased to $167.7 million as of Sep 30, 2022, compared with $176.5 million as of June 30, 2022 as the company restored its operating inventory levels to more historical norms as backlog declines.
Special Dividend and No Debt
Ethan Allen is proud of its dedication to its shareholders. It saw strong operating cash flow of $38.4 million during the quarter and returned $20.9 million to shareholders through cash dividends.
It not only paid its standard quarterly dividend, which is currently yielding 4.5%, it also paid a $0.50 special dividend in Aug 2022.
Ethan Allen also had no debt outstanding as of Sep 30, 2022.
Analysts Raise Full Year Estimates
Despite an uncertain economic environment, and fear of a recession, which will certainly hit furniture retailers, the analysts had apparently gotten too bearish on Ethan Allen.
2 estimates were raised for both fiscal 2023 and 2024 in the last 30 days. None were cut.
The Fiscal 2023 Zacks Consensus Estimate has jumped to $3.54 from $2.95 in the last 30 days. However, that's an earnings decline from last year of 9.9% as Ethan Allen made $3.93.
But analysts also raised fiscal 2024 to $3.00 from $2.70 in the last month.
While furniture orders may finally be slowing, the analysts were just too pessimistic.
Shares Stage a Mini-Rally
Ethan Allen shares are actually higher on the year, up 9.2%, but that's only thanks to the latest 1-month rally, which saw shares up 28.7%.
The Street has not favored Ethan Allen despite its big dividend. Shares are up just 0.4% over the last 5 years compared to the S&P 500 up 50.8% over the same time period.
Shares are still cheap, with a forward P/E of 8.
For investors looking for a retailer with no debt, a dividend, and where the shares are cheap, Ethan Allen should be on the short list.
Bear of the Day:
PulteGroup, Inc. is facing a challenging housing market in 2023. This Zacks Rank #5 (Strong Sell) is expected to see a big earnings decline next year as housing slows further.
PulteGroup is the nation's third largest homebuilder. It operates in 24 states and in over 40 major markets. Its brands include Centex, Pulte, Del Webb, DiVosta, John Wieland Homes and Neighborhoods, and American West.
Its sales consist of 32% first-time buyers, 43% to move up and 25% active adults. Its Del Webb and DiVosta brands are there to serve the baby boomers as they head towards retirement.
An Earnings Miss in the Third Quarter
On Oct 25, 2022, PulteGroup reported its third quarter results and posted a rare earnings miss. Earnings were $2.69 compared to the Zacks Consensus of $2.73, or a $0.04 miss.
This was only the second earnings miss in the last 5 years, with the other one in 2021.
Revenue was up 16% to $3.8 billion, driven by a 15% increase in the average sales price of homes closed to $545,000, along with a 1% increase in closings to 7,047 homes.
Gross margins also rose by 360 basis points year-over-year to 30.1% from 26.5%.
Unit backlog totaled 17,053 homes, down 14% from a year ago. The backlog value rose 3% to $10.6 billion.
Given the changing market conditions due to rising mortgage rates, PulteGroup elected to terminate a number of pending land transactions and wrote off $24 million of deposits and preacquisition expenses associated with the deals.
Analysts Cutting Earnings Estimates for 2022 and 2023
PulteGroup's headline report looks solid because they are still delivering out of their big backlog from before rates rose.
But analysts have been cutting estimates over the last 30 days.
In the last month, 6 estimates were lowered for 2022 which pushed down the Zacks Consensus Estimate to $10.15 from $11.21 90 days ago.
That is still earnings growth of 39% compared to 2021, when PulteGroup made $7.30.
4 estimates were also cut for 2023, but one was raised in the last month as well. The 2023 Zacks Consensus Estimate has plunged to $7.09 from $9.98 in the last 90 days. That's down 30% from 2022's hot market.
Value or Value Trap?
PulteGroup shares are down 20.3% year-to-date which is worse than the S&P 500, which has fallen 15.8%. But with mortgage rates jumping over 7%, it's not surprising that investors have jumped out of the homebuilder stocks this year.
Shares are dirt cheap. PulteGroup has a forward P/E of just 4.3. But with those earnings expected to decline sharply next year, that makes it a value trap.
PulteGroup does pay a dividend, which currently yields 1.4%. It also has a share repurchase program. In the third quarter, it repurchased 4.4 million shares, or 2% of its common shares, for $180 million.
With mortgage rates remaining elevated, and a possible recession looming, it may be too early to dive back into the homebuilders. Watch the earnings estimates for a turnaround.
Permian Oil Drilling Rig Count Rises for 6th Week in 10
In its weekly release, Baker Hughes Company reported that the U.S. rig count was higher than the prior-week tally. The rotary rig count, issued by BKR, is usually published in major newspapers and trade publications.
Baker Hughes' data, issued at the end of every week since 1944, helps energy service providers gauge the overall business environment of the oil and gas industry. The number of active rigs and its comparison with the prior-week figure indicates the demand trajectory for Baker Hughes' oilfield services from exploration and production companies.
Total U.S. Rig Count Increases: The count of rigs engaged in the exploration and production of oil and natural gas in the United States was 782 for the week ended Nov 18. The figure is higher thanthe prior week's count of 779. Thus, the tally increased in five of the prior six weeks. The current national rig count is higher than the year-ago level of 563.
The onshore rigs in the week ended Nov 18 totaled 762, higher than the prior-week count of 758. In offshore resources, 17 rigs were operating, in line with the prior-week count.
U.S. Oil Rig Count Rises: Oil rig count was 623 for the week ended Nov 18, higher than the prior week's figure of 622. The current number of oil rigs — far from the peak of 1,609 attained in October 2014 — is up from the year-ago figure of 461.
U.S. Natural Gas Rig Count Increases: Natural gas rig count of 157 was higher than the prior-week figure of 155. The count of rigs exploring the commodity is higher than the prior-year week's tally of 102. Per the latest report, the number of natural gas-directed rigs is 90.2% lower than the all-time high of 1,606 recorded in 2008.
Rig Count by Type: The number of vertical drilling rigs totaled 23 units, higher than the prior-week count of 22. The horizontal/directional rig count (encompassing new drilling technology with the ability to drill and extract gas from dense rock formations, also known as shale formations) of 759 is higher than the prior-week level of 757.
Gulf of Mexico (GoM) Rig Count Flat: GoM rig count was 16 units, all oil-directed. The count was flat with the prior-week number.
Rig Count in the Most Prolific Basin
Permian — the most prolific basin in the United States — recorded a weekly oil rig tally of 345, lower than the prior week's count of 347. However, the tally increased in six of the prior 10 weeks.
The West Texas Intermediate crude price is trading at more than the $80-per-barrel mark, which is still extremely favorable for exploration and production activities. Solid oil prices will likely pave the way for further rig additions despite a slowdown in drilling activities, as upstream players mainly focus on stockholder returns rather than boosting output.
Investors may keep a close eye on energy stocks like EOG Resources and Continental Resources, Inc., as these companies are expected to benefit from the current healthy oil price scenario.
EOG Resources, a leading oil and natural gas exploration and production company currently carrying a Zacks Rank #3 (Hold), is well-placed to capitalize on the promising business scenario. It has an estimated 11,500 net undrilled premium locations, resulting in a brightened production outlook. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
EOG Resources is strongly committed to returning capital to shareholders. Since it transitioned to premium drilling, the company has returned $10.4 billion in cash to stockholders. With the employment of premium drilling, EOG will be able to reduce its cash operating costs per barrel of oil equivalent, thereby aiding its bottom line.
Continental Resources is also a leading upstream energy company with proven reserves in North Dakota and Oklahoma. Its oil inventories are among the best in the industry.
Headquartered in Oklahoma City, Continental Resources is likely to witness earnings growth of roughly 141% in 2022. The Zacks Rank #3 firm has gained 50% in the past year, outpacing the 35.7% rise of the composite stocks belonging to the industry.
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