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Tri Pointe Homes and Bassett Furniture have been highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – May 4, 2023 – Zacks Equity Research shares Tri Pointe Homes, Inc. TPH as the Bull of the Day and Bassett Furniture Industries, Inc. BSET as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Morgan Stanley MS, Bank of America BAC and Citigroup Inc. C.

Here is a synopsis of all five stocks.

Bull of the Day:

Tri Pointe Homes, Inc. is bullish about housing this spring buying season. Analysts are raising full year earnings estimates on this Zacks Rank #1 (Strong Buy).

The housing bears got it wrong about the builders in 2023.

Tri Pointe Homes is a large national homebuilder which builds premium homes in 10 states and the District of Columbia.

Another Beat in Q1

On Apr 27, Tri Pointe Homes reported its first quarter results and beat again on the Zacks Consensus Estimate. It crushed it, reporting $0.73 versus the consensus of $0.42, for a 74% beat.

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Clearly the analysts were too pessimistic on the homebuilders to start the year.

It has now beat 16 quarters in a row, with just 1 miss in the last 5 years. That miss wasn't even during the pandemic, but happened prior to it, in 2019.

After a difficult fourth quarter of 2022 when new home sales were frozen as mortgage rates rose above 7%, lower mortgage rates in 2023 have allowed consumers to adjust to the new reality with rates over 6%.

The buyers are back and new home orders have rebounded while cancellation rates have fallen. However, net new home orders still fell 15% from last year's strong quarter to 1619.

The cancellation rate was 10%, up from 8%, but still not as bad as feared by the Street.

Through targeted pricing, incentives and product repositioning, the absorption rate rose to 4.0 per community, above pre-pandemic historical seasonal levels.

Tri Pointe Is Bullish

Tri Pointe is still seeing strong demand and believes the supply and demand dynamics are a strong tailwind for the homebuilding industry. There is a big contingent of Millennial buyers and little inventory either in new or existing homes.

Tri Pointe had gross margins of 23.5% in the first quarter and still sees healthy margins between 22% and 23% in Q2.

For the full year, it anticipates delivering between 4,500 and 5,000 homes at an average sales price between $690,000 and $700,000.

The analysts are equally as bullish. 2 estimates were raised for the full year since the earnings report, pushing the Zacks Consensus up to $3.07 from $2.82.

This is still an earnings decline of 44.6% as earnings were $5.54 last year. But 2022 was a record year that was unlikely to be repeated.

1 estimate was also raised for 2024, with the Zacks Consensus rising to $3.80 from $3.76. That's earnings growth of 24%.

Shares at 5-Year Highs: Should You Buy?

Tri Pointe has rallied over the last 3 months, adding 24.3% during that time. It's at 5-year highs.

But shares are still attractively priced with a forward P/E of 9.3 and a PEG ratio of 0.7. A PEG ratio under 1.0 indicates the company has both growth and value.

Tri Pointe does not pay a dividend but it is doing a share buyback. It bought $37.6 million worth of shares in the first quarter.

The momentum is with the homebuilders in 2023. Analysts and Wall Street got too bearish.

Those investors interested in the homebuilders might want to keep Tri Pointe on their short list.

Bear of the Day:

Bassett Furniture Industries, Inc. is expected to see falling earnings this year as the pandemic-fueled furniture boom ends. This Zacks Rank #5 (Strong Sell) is grappling with declining sales but rising costs.

Bassett Furniture makes home furnishings. It operates 92 company and licensee-owned stores in the United States. Bassett also had a traditional wholesale business with more than 700 accounts on the open market, across the United States and internationally.

Additionally, it operates a logistics business specializing in home furnishings.

First Earnings Miss Since 2020

On Mar 30, 2023, Bassett Furniture reported its fiscal first quarter results, which were those for the quarter ending Feb 25, 2023, and missed on the Zacks Consensus by $0.02. Earnings were $0.16 versus the Zacks Consensus of $0.18.

It was the first earnings miss since early 2020, just before the pandemic hit.

Bassett, and the furniture industry, are wrestling with "macroeconomic inconsistencies" even as furniture demand normalizes from the pandemic boom years. Early in the first quarter, Bassett fulfilled the remaining excess portion of the large pandemic backlog. It is now producing and shipping at a rate commensurate with its written business.

While retail sales rose 1.4% year-over-year, wholesale sales fell 16% compared to the prior year, but were 7.5% ahead of the last corresponding pre-pandemic quarter.

Given the slowdown, for two months, Bassett worked a reduced production schedule in its facilities. It also adjusted manufacturing employment levels by 11% this year, mostly through attrition.

The supply chain turmoil is now over. As the environment has normalized, certain manufacturing cost inputs have been reduced.

The company also instituted a new pricing strategy in its stores and to wholesale customers in April.

Fiscal 2023 Earnings to Fall

It shouldn't be a surprise that furniture remains subdued. Consumers are returning to experiences, like travel, instead of spending on the home. 1 analyst cut their fiscal 2023 earnings estimate in the last 60 days. That has pushed the Zacks Consensus down to $1.20 from $2.70 that it made last year.

That's a decline of 55.6%.

Are Shares Cheap?

Year-to-date Bassett Furniture shares have fallen 16.6%. Looking out over the prior 2 years, it's even worse, as the shares are down 58%.

But is it a cheap stock?

Bassett trades with a forward P/E of 12.2, even as earnings estimates are expected to decline. It does have a PEG ratio of just 0.8. A PEG under 1.0 usually indicates a company has both growth and value.

Bassett is shareholder friendly. It pays a dividend, yielding 4.4%. It also has a share buyback program as it believes the stock is undervalued. Bassett retired $1.8 million of its stock in the quarter and continues to actively acquire shares but it has reduced its purchases given the market conditions.

For those interested in the furniture industry, Bassett Furniture should be on the watch list but investors might want to wait until those earnings estimates start turning around.

Additional content:

Morgan Stanley to Cut Jobs in Investment Banking

The continued slowdown in the investment banking (IB) business has prompted Morgan Stanley to initiate another round of job cuts. The company has decided to cut 3,000 jobs in the second quarter of 2023, according to a source familiar with the matter.

Amid the tough economic environment, a slowdown in deal-making has prompted MS to consider its headcount.

Similar to the fourth quarter of 2022, the overall IB business performance was weak in first-quarter 2023. A host of factors, such as geopolitical tensions, inflation, rising interest rates and fears of a global recession, acted as headwinds for mergers and acquisitions.

Thus, deal volume and total deal value numbers crashed in the quarter. For the same reasons, IPOs and follow-up equity issuances dried up. Bond issuance volume witnessed a decline, too, as investors turned pessimistic.

Hence, Morgan Stanley’s equity underwriting fees decreased 22% from the prior-year quarter and fixed-income underwriting declined 6%. Advisory fees were down 32%. Therefore, total IB fees dipped 24% year over year.

Last month, Morgan Stanley’s chief finance officer, Sharon Yeshaya, said that “expense management” was a priority, given the broader market uncertainty and elevated inflation.

In December, Morgan Stanley’s CEO, James Gorman, said that the bank would make “modest” cuts worldwide, but he did not give an exact number.

Over the past six months, shares of MS have gained 1.7% against the industry’s decline of 13.9%.

Currently, Morgan Stanley carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Similar to Morgan Stanley, Wall Street firms, including Bank of America and Citigroup Inc., have been reducing workforce in their IB and wealth management divisions.

This March, Citigroup initiated a round of job cuts, cutting hundreds of jobs across the firm, which accounted for less than 1% of its total workforce. According to people familiar with the matter, who asked not to be identified, the company’s IB division, its operations and technology organization, and the U.S. mortgage-underwriting division were among those affected.

In its investment banking division, Citigroup was struggling because of the industry-wide slowdown in deal-making. Citigroup recorded a 53% decline in IB revenues in 2022, with additional declines in the first quarter of 2023.

In its mortgage division, the company was grappling with reduced mortgage demand because of rising prices and a rapid increase in mortgage rates.

Likewise, in February, it was reported that Bank of America was planning to cut jobs in its investment bank. The cuts are expected to have affected less than 200 bankers globally.

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Bank of America Corporation (BAC) : Free Stock Analysis Report

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Citigroup Inc. (C) : Free Stock Analysis Report

Tri Pointe Homes Inc. (TPH) : Free Stock Analysis Report

Bassett Furniture Industries, Incorporated (BSET) : Free Stock Analysis Report

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