For Immediate Release
Chicago, IL – December 1, 2023 – Zacks Equity Research shares CommVault Systems CVLT as the Bull of the Day and Landstar System LSTR as the Bear of the Day. In addition, Zacks Equity Research provides analysis on JPMorgan JPM, Bank of America BAC and Citigroup C.
Here is a synopsis of all five stocks.
Bull of the Day:
CommVault Systems is a Zacks Rank #1 (Strong Buy) that has an D for Value and an A for Growth. CommVault Systems is a data management company that provides data protection, universal availability, and a simplified management of data on complex storage networks. The company recently beat the Zacks Consensus Estimate as has posted a solid post earnings drift higher. Let’s explore more about this company in this Bull of The Day article.
Description
CommVault provides Unified Data Management solutions for high-performance data protection, universal availability and simplified management of data on complex storage networks. The CommVault QiNetix platform, based on CommVault's Common Technology Engine, integrates Galaxy backup and recovery, snapshot management and recovery, remote replication, active data migration and archiving, e-mail compliance, enterprise service level management and reporting and storage resource management software solutions. The QiNetix unified approach is designed to allow customers to add integrate QiNetix components, at a fraction of the time, effort and money required by separate point products.
Earnings History
When I look at a stock, the first thing I do is look to see if the company is beating the number. This tells me right away where the market’s expectations have been for the company and how management has communicated to the market. A stock that consistently beats has management communicating expectations to Wall Street that can be achieved. That is what you want to see.
For CommVault Systems, I see three straight beats of the Zacks Consensus Estimate. The company did report an earnings miss four quarters ago. The average positive earnings surprise over the last year has been a +6.4%.
Earnings Estimates Revisions
Earnings estimates revisions is what the Zacks Rank is all about.
For CVLT estimates are moving higher.
This quarter has CVLT expected to earn 73 cents and that estimate has not changed over the last 90 days.
Next quarter saw a bump lower following the earnings report and is down a penny to 74 cents.
The full year 2023 has seen estimates move from $2.85to $2.89 over the last 730 days.
Next fiscal year has seen a move higher from $3.06 to $3.12 over the same period.
Valuation
The valuation is pretty reasonable given the higher estimates and the tendency to beat the number. The forward PE is 25.3x which is well below the nifty fifty multipkes that a lot of tech companies have. The difference here is that CVLT has a relatively low growth rate of mid single digits but is very consistent. The price to book multiple of 17x is a little high, but again this is a consistent grower. Price to sales of only at 4x and that is due to the slow growth nature of the business.
Operating Margins have increased from 4.2% to 4.9% and were most recently at 6%. Slow and steady growth on the topline coupled with consistent improvements in margins means that earnings per share will continue to move higher.
Bear of the Day:
Landstar System is a Zacks Rank #5 (Strong Sell) and has seen earnings estimates slide lower recently despite a good history of beating Zacks Consensus Estimate. This article will look at why this stock is a Zacks Rank #5 (Strong Sell) as it is the Bear of the Day.
Description
Landstar System, Inc. is an asset-light provider of integrated transportation management solutions, incorporated in 1991. Based in Jacksonville, FL, the company provides services throughout the United States, Canada, Mexico as well as other countries in North America.
Earnings History
When I look at a stock, the first thing I do is look to see if the company is beating the number. This tells me right away where the market’s expectations have been for the company and how management has communicated to the market. A stock that consistently beats has management communicating expectations to Wall Street that can be achieved. That is what you want to see.
In the case of LSTR, I see three straight beats of the Zacks Consensus Estimate. This alone does not make the stock a Zacks Rank #1 (Strong Buy) and it doesn’t make it a Zacks Rank #5 (Strong Sell) either.
The Zacks Rank does care about the earnings history, but it is much more heavily influenced by the movement of earnings estimates.
Earnings Estimates
The Zacks Rank tells us which stocks are seeing earnings estimates move higher or in this case lower. For LSTR I see annual estimates moving lower of late.
The current fiscal year consensus number moved lower from $7.65 to $7.39 over the last 60 days.
The next year moved from $8.79 to $7.88 over the last 60 days.
Negative movement in earnings estimates like that is why this stock is a Zacks Rank #5 (Strong Sell).
It should be noted that a lot of stocks in the Zacks universe are seeing negative earnings estimate revisions. That means that the stocks that are seeing small but negative earnings estimate revisions are falling to a Zacks Rank #5 (Strong Sell).
Additional content:
FDIC-Insured Banks' Q3 Earnings Down on Higher Provisions
The Federal Deposit Insurance Corp. (“FDIC”)-insured commercial banks and savings institutions reported third-quarter 2023 earnings of $68.4 billion, declining 4.6% year over year.
Banks, with assets worth more than $10 billion, accounted for a major part of earnings in the September-ended quarter. Though such banks constitute only 3% of the total number of FDIC-insured institutes, these account for approximately 80% of the industry’s earnings. Some of the notable names in this space are JPMorgan, Bank of America and Citigroup.
At present, JPMorgan sports a Zacks Rank #1 (Strong Buy), while Bank of America, Citigroup and Wells Fargo carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Banks’ earnings were adversely impacted by higher provisions on expectations of a worsening operating backdrop. Also, non-interest income declined during the quarter. A rise in non-interest expenses, higher funding costs and lower deposit balance were the other headwinds.
Nonetheless, a rise in net operating revenues driven by growth in net interest income (NII) acted as a major tailwind. Higher interest rates and decent loan demand offered some support.
Community banks, constituting 91% of all FDIC-insured institutions, reported a net income of $6.7 billion, down 15% year over year. This was mainly due to an increase in non-interest expenses and lower non-interest income.
The return on average assets in third-quarter 2023 fell to 1.17% from 1.21% as of Sep 30, 2022.
Net Operating Revenues & Expenses Rise
Net operating revenues came in at $249.3 billion, up 1.6% year over year.
NII was $175.2 billion, increasing 3.9% year over year. Net interest margin (NIM) jumped 30 basis points (bps) to 3.30%, which is above the pre-pandemic average of 3.25%. JPMorgan, Bank of America, Citigroup and Wells Fargo also witnessed an increase in NIM.
Non-interest income declined 3.5% to $74.1 billion.
Total non-interest expenses were $140.9 billion, increasing 1.5%. The rise was mainly due to higher compensation expenses.
Credit Quality Deteriorating
Net charge-offs (NCOs) for loans and leases were $15.7 billion, surging substantially year over year. NCO rate was 0.51% in the third quarter, up 25 bps from the prior-year quarter on the back of a higher credit card charge-off balance. The NCO rate is now above its pre-pandemic average of 0.48%.
Provisions for credit losses were $19.5 billion during the third quarter, jumping 33.2% from the year-ago quarter. Several lenders, including Bank of America, Citigroup and Wells Fargo, reported higher provisions.
Loans Rise, Deposits Fall
As of Sep 30, 2023, total loans and leases were $12.3 trillion, which grew marginally from the prior quarter. The rise was majorly driven by higher credit card loan balances and one-to-four family residential mortgages.
Total deposits amounted to $18.6 trillion, down marginally sequentially, mainly due to a fall in non-interest-bearing deposits. This marked the sixth consecutive quarterly decline.
Unrealized losses on securities were $683.9 billion, jumping 22.5% from the prior quarter. The surge was largely due to an increase in mortgage rates that lowered the value of mortgage-backed securities.
As of Sep 30, 2023, the Deposit Insurance Fund (DIF) balance increased 2% from the June 2023 level to $119.3 billion. A rise in the DIF was largely driven by an assessment income of $3.2 billion.
One Bank Failure, Two New Banks
During the reported quarter, one bank failed. Further, two new banks were added, while 28 banks were absorbed following mergers.
As of Sep 30, 2023, the number of ‘problem’ banks was 44. Total assets of the ‘problem’ institutions increased to $53.5 billion from $46 billion reported in the second quarter of 2023.
Conclusion
The FDIC chairman, Martin Gruenberg, said, “The banking industry still faces significant downside risks from the continued effects of inflation, rising market interest rates, and geopolitical uncertainty. In addition, deterioration in the industry’s commercial real estate portfolio is beginning to materialize in office properties. These issues, together with funding and earnings pressures, will remain matters of ongoing supervisory attention by the FDIC.”
Though higher interest rates, decent loan demand and a changing revenue mix will offer much-needed support to banks’ top line, rising deposit costs will weigh substantially on it. This will likely lead to a contraction in net interest margins going forward. Also, a deteriorating macroeconomic environment is expected to hurt banks’ financials.
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