For Immediate Release
Chicago, IL – July 2, 2020 – Zacks Equity Research Shares of Sonic Automotive, Inc. SAH as the Bull of the Day, Nutrien Ltd. NTR asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Northern Dynasty Minerals, Ltd. NAK, DRDGOLD Limited DRD and Sandstorm Gold Ltd SAND.
Here is a synopsis of all five stocks:
Bull of the Day:
Sonic Automotive, Inc. is seeing car buyers return with a vengeance this summer. This Zacks Rank #1 (Strong Buy) saw used vehicle sales turn green in June.
Sonic is one of the largest auto retailers in the United States with 86 franchised dealerships and 10 EchoPark pre-owned dealerships in 12 states and 21 major metropolitan markets.
It carries 20 different automotive brands with the majority of its dealerships in the luxury and import brands.
Used Car Sales are Hot in the Summer of 2020
On June 16, Sonic updated its business guidance for April, May and June through June 16.
Volumes have been better each month during that time.
At the franchised dealerships, used vehicles unit sales volume was down 32% in April, down 8% in May but were up 7% in June.
EchoPark’s used vehicle unit sales volume also showed the same. April was down 36%, May was down 3% but June was up 18% through June 16.
It’s other segments also saw improving business with New Vehicle Unit Sales Volume at the franchised dealers declining 40% in April, 20% in May and just 10% in June.
Similarly, Parts and Service Gross Profit improved from a decline of 43% in April, to 27% in May and a decline of 10% in June.
“Both new and used vehicle unit sales volumes, as well as fixed operations revenues, continue to meet or exceed our forecast at the outset of the pandemic, with used vehicle sales actually higher than last year in both the franchise and EchoPark locations in June,” said David Smith, CEO of Sonic and EchoPark.
2020 Earnings Estimates Move Higher
Earnings estimates fell off a cliff several months ago when COVID-19 hit. The 2020 Zacks Consensus fell from $2.08 down to $0.96.
But analysts were too bearish. With the reopening of the economy continuing, and Sonic confirming that business is improving, the analysts have been raising their full year estimates.
3 estimates were raised in the last 60 days and 1 in the last month for 2020 which pushed the Zacks Consensus up to $1.40 from $0.96 just two months ago.
That is still an earnings decline of 47.2% as it made $2.65 a year ago.
But it’s moving in the right direction: up.
Shares Soared After the Coronavirus Sell-Off
Like most stocks, Sonic saw its shares take a huge hit in February and March during the coronavirus sell-off.
But they have also had a furious recovery rally, gaining 137.8% over the last 3 months.
Year-to-date they’re now up just 1.9%.
Competitors are also reporting improving business metrics with sales rising in May and June.
Sonic shares aren’t particularly cheap, thanks to the earnings slide. They trade with a forward P/E of 22.7.
But for investors looking for a recovery play, Sonic Automotive is one to keep on the short list.
Bear of the Day:
Nutrien Ltd. had to cut its full year guidance this spring even though there was strong spring demand for all crop inputs and services.
This Zacks Rank #5 (Strong Sell) is expected to see a double digit earnings decline this year even though it’s an essential business during COVID-19.
Nutrien is a Canadian-based provider of crop inputs and services. It distributes 25 million tonnes of potash, nitrogen and phosphate products world-wide. The company also runs an extensive agriculture retail network.
Another Earnings Miss in Q1
On May 6, Nutrien reported its first quarter results and missed for the fifth quarter in a row. Earnings were a loss of $0.12 versus the Zacks Consensus of a loss of $0.04.
One of the positives in the quarter was on-line sales which surpassed $170 million in the US in the quarter, up from just $3 million over the same period a year ago as its digital platform took off.
The company claims it’s the only national and full-service agriculture ecommerce platform in North America.
It accounted for 40% of Nutrien’s US sales of products that are currently available for purchase online.
Nutrien remained bullish in May as spring weather was cooperating for planting.
“The first quarter is typically a weaker earnings period for us, but we are seeing strong spring demand for all crop inputs and services, as North American farmers catch up after the extreme wet weather that impacted agricultural activities last year,” said Chuck Magro, Nutrien’s President and CEO.
“COVID-19 has had limited direct impact on our operations or crop input demand, and Nutrien remains in an excellent financial position with a strong balance sheet and free cash flow, a stable dividend and ample liquidity,” he added.
Outlook for Fertilizers
As of May, some of the fertilizer prices were under pressure, including potash prices.
Nitrogen prices, however, were relatively stable in 2020 and Nutrien expected that to continue.
North American phosphate prices were firm in the spring due to strong demand, but they remained well below previous year levels. Chinese DAP/MAP exports were down 10% year-over-year in the first quarter.
Lowered Full Year EPS Guidance
As a result of the price pressures and uncertainties surrounding COVID-19, even as farming remains an essential business, Nutrien lowered its earnings guidance to the range of $1.50 to $2.10 from $.190 to $2.60.
The analysts followed by cutting their full year estimates with 7 cutting in the last 2 months.
The 2020 Zacks Consensus fell to $1.63 from $2.09 over that time.
One analyst has gotten more bearish in the last week, with another estimate cut.
Shares Still Lagging the Market
Nutrien sold off in the coronavirus sell-off in March 2020 and then recovered.
Over the last 3 months it’s down just 5.2%.
But shares are still down 32.9% year-to-date.
But the fertilizer industry, overall, has been in a world of pain the last 5 years.
During that time, fertilizer stocks were down 35.7% compared to the iShares (IVV) up 62.6%.
Nutrien pays a dividend for your patience. It paid $0.45 in the first quarter and is yielding 5.6%.
But it’s difficult for all the fertilizer companies right now.
Gold Touches $1800 per Ounce on Spike in COVID Cases
Gold futures for August delivery rose 1.1% and closed at $1,800.50 an ounce on Jun 30 — the highest for a most-active contract since November 2011. With this the yellow metal has registered a gain of 12.6% in second-quarter 2020 — the best quarterly advance in four years.
Yielding a return of 17% so far this year, gold has outperformed all major asset classes. The coronavirus pandemic and its devastating impact on the global economy, and the unprecedented monetary and fiscal stimulus in response to the same have been the primary catalysts driving the gold prices. The low interest rates scenario make stocks, government bonds and other investments less appealing, making investors opt for gold. The civil unrest in the United States, geopolitical tensions and the U.S.-China trade spat have also significantly contributed to the price movement so far.
The coronavirus pandemic seems to be a long way from being over. Per the World Health Organization, the global death tally has crossed the 500,000 mark and confirmed cases have exceeded 10 million. The United States reported more than 48,000 new cases on Jun 30, with eight states announcing single-day highs. This is the highest one day spike since the pandemic struck.
Dr. Anthony S. Fauci, the director of the National Institute of Allergy and Infectious Diseases, cautioned that the United States could record as many as 100,000 new cases and the death toll “is going to be very disturbing” if the situation is managed properly. The current number of coronavirus case in the United States stands at 2.68 million with the death toll at 129,000.
Some states that had lifted restrictions and reopened businesses have witnessed surge in COVID-19 cases. Few states have been compelled to reconsider their reopening efforts or postponing next steps, stoking apprehensions that this is likely to put a brake on the much anticipated economic recovery.
Per the International Monetary Fund (IMF), the economic recovery is likely to be slow and it expects a contraction of 4.9% in global economy in 2020 — wider than the contraction of 3% estimated in April. The United States is expected to shrink 8% this year — its worst contraction since 1946. Thus, the uncertainty regarding the impact on the global economy will continue to trigger safe haven demand for gold. Meanwhile due to mine shutdowns on account of the pandemic, gold production is expected to be low this year. The demand-supply imbalance will drive gold prices this year.
The Gold Mining industry has gained 25.9% year to date, against the S&P 500’s decline of 5.2%. The industry falls under the broader Basic Material sector, which fell 9.8%. Northern Dynasty Minerals, Ltd. and DRDGOLD Limited have been the major gainers in the industry with a year-to-date price gain of 234% and 208%, respectively.
The gold mining industry currently carries a Zacks Industry Rank #76, which places it at the top 30% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Gold miners are poised for a strong performance in their upcoming second-quarter releases, as higher gold prices will boost top-line performance while lower oil prices (which is around 50% of their production costs) will aid margins. Sandstorm Gold Ltd is worth mentioning with their Zacks Consensus Estimate for second-quarter earnings indicate year-over-year growth of 200%.
These companies are also poised to carry the momentum in their full-year results as evident from the full-year projections. The fiscal year earnings estimates for Sandstorm Gold, Agnico Eagle Mines and Galiano Gold indicate year-over-year growth of 56%, 54% and 1200%, respectively.
While Galiano Gold sports a Zacks Rank #1 (Strong Buy), Agnico Eagle Mines and Sandstorm Gold carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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