For Immediate Release
Chicago, IL – September 21, 2023 – Zacks Equity Research shares Gibraltar Industries ROCK as the Bull of the Day and IDEX Corporation IEX as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Chevron CVX, Shell SHEL and ExxonMobil XOM.
Here is a synopsis of all five stocks:
Bull of the Day:
There continues to be an abundance of opportunity among the Zacks Construction sector with this area of the economy thriving at the moment.
Specifically, homebuilders have had immense success in 2023 and further opportunity lies with their suppliers. To that point, the Zacks Building Products – Miscellaneous Industry is currently in the top 9% of over 250 Zacks industries.
Among the space Gibraltar Industries ROCK stock stands out with a Zacks Rank #1 (Strong Buy) and is the Bull of the Day.
Gibraltar has a leading presence and unique niche in the building products industry as a provider of a wide range of products from ventilation and expanded metal to mail storage and rain dispersion solutions.
Furthermore, Gibraltar's reach extends to various markets including wholesalers, retail home centers, residential, commercial, and transportation contractors among others with Home Depot HD being a notable customer.
Gibraltar's stock has now soared +53% this year correlating with the company's importance to the building products industry and construction-related activities.
Emphasizing this stellar performance, Gibraltar's stock has outperformed some of the top-performing homebuilders such as Lennar Corporation LEN and M.D.C. Holdings MDC while easily topping the broader indexes, the Zacks Building Products-Miscellaneous Market and Home Depot shares.
Plausibility of More Upside
Gravitating to the trend of earnings estimate revisions and Gibraltar's P/E valuation is a sound way to see if its market edge can continue.
Reassuringly, in the last 60 days fiscal 2023 and FY24 earnings estimates have risen 11% and 4% respectively.
Annual earnings are now forecasted to climb 17% this year and rise another 13% in FY24 to $4.51 per share. Fiscal 2024 EPS projections would represent 65% growth over the last five years with Gibraltar's earnings at $2.73 a share in 2020.
More importantly, Gibraltar's stock trades at $70 and 17.6X forward earnings which is not a stretched premium to its industry average of 14.6X. Despite Gibraltar's blazing stock performance shares of ROCK still trade at a 15% discount to the S&P 500's 20.9X.
It's also noteworthy that Gibraltar's stock trades 50% below its decade-long high of 35.2X forward earnings and offers a 14% discount to the median of 20.5X.
Investors looking for a company that is poised to have a defying edge in its industry have this opportunity with Gibraltar's stock shaping up to be a very viable investment for 2023 and beyond. At this point, it's not a surprise that Gibraltar Industries stock continues to rise and now looks like a good time to join in on the company's success or add to positions.
Bear of the Day:
Although the Zacks Manufacturing-General Industrial Industry is in the top 33 percentile of more than 250 Zacks industries, IDEX Corporation (IEX) appears to be losing some of its footing in the space.
Declining earnings estimates and cracks in the company's valuation land IDEX's stock a Zacks Rank #5 (Strong Sell) and the Bear of the Day.
This cautionary tale is mostly attributed to weakness in IDEX's Health and Sciences Technology segment, escalating cost of sales, and unfavorable movements in foreign currencies.
Various Valuation Concerns
IDEX's stock tends to be attractive as an applied solutions company that specializes in a diverse range of applications but several financial valuation metrics are concerning at the moment.
EV/EBITDA: In terms of enterprise value IDEX's EV/EBITDA of 18.01 is noticeably above its industry average of 9.79 with a lower number typically considered better.
Price/Cash Flow: In terms of cash flow, IDEX's P/CF of 24.4X is above the optimum level of less than 20X and uncomfortably above the industry average of 10.2X and the S&P 500's 17.1X.
Notably, IDEX has shown the ability to generate strong net cash flow from its operating activities but its cash & equivalents were cut in half at the end of 2022 at $430 million compared to $855 million in 2021 after acquiring wastewater solutions provider Nexsight LLC for $120 million among other expansion costs.
Declining Earnings Estimates
IDEX's annual earnings are now forecasted to dip -2% in fiscal 2023 but rebound and rise 8% in FY24 to $8.61 per share. However, in the last 60 days, FY23 and FY24 EPS estimates have dipped -6% and -5% respectively which can be an indication of more short-term volatility ahead.
Piggybacking off of valuation concerns, this also makes IDEX's 26.4X forward earnings multiple much less attractive as it is above the industry average of 19.4X and the S&P 500's 20.8X.
Considering investors are still paying a premium for IDEX's price to sales relative to its industry and the S&P 500 as well, investors may want to be cautious at the moment. IDEX's stock is down a lackluster -8% year to date and more short-term risks continue to mount in terms of valuation despite the company's long-term potential.
California Goes After Oil Supermajors in Climate Lawsuit
In a significant legal move, the state of California has filed a lawsuit against five energy supermajors, including Chevron, Shell and ExxonMobil, alleging that they systematically deceived the public and understated the risks associated with fossil fuels. The lawsuit, filed in state Superior Court in San Francisco, not only seeks accountability but also proposes funding by these energy giants to cover the costs associated with the health and environmental consequences of climate change.
Big Oil Accused of Concealing Climate Change Dangers
California's Governor Gavin Newsom and Attorney General Rob Bonta assert that these companies, collectively known as "Big Oil," have been aware for decades that the burning of fossil fuels contributes to climate change. However, they allege that these corporations spent billions to conceal these facts, downplaying or even challenging climate change-related hazards in their public statements and marketing materials. Consequently, California has incurred substantial expenses, amounting to billions, to address climate change-induced consequences like wildfires, hazardous smoke, lethal heatwaves and severe droughts.
Demand for Accountability and Redress
Governor Newsom demands that these major polluters take responsibility for their role in climate change's far-reaching consequences. The state seeks compensation for expenses related to climate change-induced superstorms and wildfires, protecting citizens from the health impacts of extreme heat, management of dwindling water supplies during severe droughts, and strengthening infrastructure and residences against sea-level rise and flooding. Additionally, the lawsuit asks the courts to compel the defendants to halt further pollution and impose penalties for their alleged disinformation campaigns.
The Industry's Response
The oil and gas industry's response to the lawsuit asserts that climate policy should be a subject of congressional debate, not legal action. The American Petroleum Institute, also named in the lawsuit, characterizes it as a baseless and politically motivated exercise that wastes California taxpayer resources. Instead, it emphasizes the industry's success in providing affordable energy to American citizens while substantially reducing emissions.
Chevron, another defendant, acknowledges the global nature of climate change but insists that addressing it requires a coordinated international policy response, not piecewise litigation that benefits lawyers and politicians. Chevron points out that California has historically been a champion of oil and gas development, and local courts should not craft global energy policy.
Shell, Europe's largest oil company, shares a similar sentiment, emphasizing that the courtroom is not the right venue for climate change discussions. The Zacks Rank #3 (Hold) firm advocates smart government policy and collective action across all sectors to drive sustainable progress. In this context, Shell highlights its commitment to achieving net-zero emissions by 2050.
You can see the complete list of today's Zacks #1 Rank stocks here.
ExxonMobil, although yet to respond publicly to the lawsuit, has previously expressed its commitment to reducing greenhouse gas emissions. However, it is the only major Western oil company without a 2030 target for reducing carbon emissions resulting from its products.
California's lawsuit against Big Oil for climate deception has garnered support from climate activists and leaders for its effort to hold these energy giants accountable for their role in climate change. Similar cases brought by states and municipalities in recent years have accused these firms of prioritizing profits over environmental responsibility, setting the stage for a legal battle that could reshape the energy industry's future.
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