For Immediate Release
Chicago, IL – February 25, 2025 – Zacks Equity Research shares Affirm Holdings AFRM as the Bull of the Day and PPG Industries PPG as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Vistra Corp. VST, DTE Energy Co. DTE and Ameren Corp. AEE.
Here is a synopsis of all five stocks.
Bull of the Day:
Affirm Holdings, a Zacks Rank #1 (Strong Buy), is a financial technology company specializing in payment solutions that provide consumers with flexible, transparent installment loans. By partnering with a diverse range of merchants, Affirm enables customers to pay for purchases over time.
The stock is displaying relative strength and has been making a series of 52-week highs. The price movement is a sign of strength as we head further into the new year. Increasing volume has attracted investor attention as buying pressure accumulates in this top-ranked stock.
Affirm is part of the Zacks Financial Transaction Services industry group, which currently ranks in the top 33% out of more than 250 industries. Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next 3 to 6 months, just as it has so far this year.
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.
It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top industries, we can dramatically improve our stock-picking success.
Company Description
Affirm Holdings operates a payment network in the United States, Canada, and internationally. Its platform includes point-of-sale payment solutions for consumers and merchants along with a consumer-focused app.
The company boasts over 337,000 active merchants covering small businesses, large enterprises, direct-to-consumer brands, and brick-and-mortar stores. Its tools help merchants to boost sales and enhance customer engagement.
Affirm recently renewed a multi-year partnership with Shopify, a global provider of internet infrastructure for commerce. The partnership helps cement Affirm’s position as the exclusive buy now, pay later provider for Shop Pay Installments in the US and Canada, with plans to enter the United Kingdom and other markets worldwide.
Earnings Trends and Future Estimates
Affirm (AFRM) has built up an impressive reporting history, surpassing earnings estimates in seven of the past eight quarters. The company delivered a trailing four-quarter average surprise of 84.1%.
Earlier in February, Affirm reported fiscal second-quarter earnings of $0.23 per share, a 215% surprise over the -$0.20/share consensus estimate. Revenues of $866.38 million exceeded projections by 7.7%. Higher transactions, robust repeat customer engagement and a successful holiday shopping season also boosted performance.
Analysts are bullish on the stock and have raised current-quarter earnings estimates by 30.77% in the past 60 days. The fiscal Q3 Zacks Consensus Estimate now stands at -$0.09 per share, reflecting growth of 79.1% relative to the year-ago period.
Let’s Get Technical
This market leader has seen its stock advance more than 80% over the past year. Only stocks that are in extremely powerful uptrends are able to experience this type of outperformance. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Notice how the 200-day (red line) moving average is sloping up. The stock has been making a series of higher highs throughout the past year. With both strong fundamental and technical indicators, AFRM stock is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Affirm has recently witnessed positive revisions. As long as this trend remains intact (and AFRM continues to deliver earnings beats), the stock will likely continue its bullish run.
Bottom Line
Backed by a leading industry group and history of earnings beats, it’s not difficult to see why AFRM stock is a compelling investment. Robust fundamentals combined with an appealing technical trend certainly justify adding shares to the mix.
Affirm has achieved strong revenue growth through diverse income streams including merchant network fees, interest from loans, and virtual card revenues. Advanced machine learning and predictive models power the company’s cloud-based, data-driven platform.
Recent positive earnings estimate revisions should also serve to create a ‘floor’ in terms of any sudden or unexpected downside moves. If you haven’t already done so, be sure to put AFRM on your shortlist.
Bear of the Day:
PPG Industries is a global supplier and distributor of paints, coatings, chemicals, and specialty materials. The company offers sealants and industrial coatings used in a variety of applications such as packaging material, aircraft and marine equipment, and automotive parts.
Headquartered in Pittsburgh, PPG manufactures adhesives and metal pretreatments for appliances, agricultural and construction equipment, kitchenware, and consumer electronics. The company also provides advanced technologies for pavement marking for government, commercial infrastructure, and maintenance contractors.
PPG faces several challenges including reduced demand for its products, particularly in the United States and Europe. The ongoing Russia-Ukraine conflict and weak consumer confidence are negatively impacting demand in Europe. Weaker industrial production is weighing on sales and volumes. Lower automotive build rates are impacting the company’s Industrial Coatings segment.
The company’s high debt level is also a concern. As of the end of last year, PPG’s long-term debt was valued at roughly $5.8 billion. A high debt level reduces its financial flexibility.
The Zacks Rundown
A Zacks Rank #5 (Strong Sell) stock, PPG Industries (PPG) is a component of the Zacks Chemical - Specialty industry group, which currently ranks in the bottom 19% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has over the past year.
Stocks in the bottom tiers of industries can often be intriguing short candidates. While individual stocks have the ability to outperform even when they’re part of a lagging industry, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
Along with many other specialty chemical stocks, PPG shares have been underperforming over the past year while the general market returned to new heights. The stock is hitting a series of lower lows and represents a compelling short opportunity as we head further into the new year.
Recent Earnings Misses & Deteriorating Outlook
PPG has fallen short of earnings estimates in two of the past three quarters. Just last month, the company reported fourth-quarter earnings of $1.61 per share, missing the Zacks Consensus Estimate by -2.42%. Revenues of $3.73 billion fell 14.3% year-over-year and also fell well short of analysts’ projections.
The paint and coatings provider has posted a negative trailing four-quarter earnings surprise of -0.64%. Consistently falling short of earnings estimates is a recipe for underperformance, and PPG is no exception.
The company has been on the receiving end of negative earnings estimate revisions as of late. Looking at the current quarter, analysts have slashed estimates by a whopping -14.51% in the past 60 days. The Q1 Zacks Consensus EPS Estimate is now $1.65/share, reflecting negative growth of -11.3% relative to the year-ago period.
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
Technical Outlook
PPG stock is in a sustained downtrend.
PPG stock has experienced what is known as a “death cross,” whereby the stock’s 50-day moving average crosses below its 200-day moving average. Shares would have to make an outsized move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. The stock has fallen nearly 18% over the past year alone.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to make its way to new highs anytime soon. The fact that PPG is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
PPG shows a worst-in-class ‘F’ rating in our Zacks Momentum Style Score category, indicating shares are likely to move lower based on unfavorable price and earnings momentum trends.
Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of PPG until the situation shows major signs of improvement.
Additional content:
Should You Buy Vistra Stock Ahead of Q4 Earnings?
Vistra Corp. is expected to deliver improvements in its top line and its earnings per share when it reports fourth-quarter 2024 results on Feb. 27, before market open.
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
The Zacks Consensus Estimate for VST’s fourth-quarter revenues is pegged at $4.38 billion, indicating an increase of 42.34% from the year-ago reported figure.
The Zacks Consensus Estimate for VST’s fourth-quarter earnings is pegged at $1.59 per share, indicating a whopping 431.25% increase from the year-ago reported figure.
Vistra’s Positive Earnings Surprise
Vistra surpassed earnings expectations in one of the last four quarters and missed three times, with the average surprise being 7.05%.
What the Zacks Model Unveils
Our model does not conclusively predict a likely earnings beat for Vistra this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here.
Vistra Corp. price-eps-surprise | Vistra Corp. Quote
You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Earnings ESP: Vistra has an Earnings ESP of 0.00%.
Zacks Rank: VST currently carries a Zacks Rank #2.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Utilities like Constellation also have nuclear power generation facilities and have surpassed the fourth-quarter Zacks Consensus Estimate by 11.4%.
The Zacks Consensus Estimate for 2025 earnings per share of Constellation Energy has moved up 1.85% in the past 60 days.
Factors Likely to Have Shaped VST’s Q4 Earnings
Vistra’s fourth-quarter earnings are likely to have benefited from the increasing demand for clean electricity in its service area. Increasing demand from the large U.S. data centers and Permian electrification is expected to have been primarily contributing to load growth. The retirement of traditional coal-fired units is creating a supply gap, and Vistra will benefit from the rising demand for clean energy.
VST benefits from the rising demand from the expanding customer base in its service areas. The company was able to increase its residential customer base organically in the third quarter, and it is expected that the company will add more customers in the fourth quarter, which will create fresh demand for its services.
The repurchase of shares has been increasing shareholders' value and boosting earnings per share of the company and is expected to have a positive impact on fourth-quarter earnings. The company executed $4.6 billion in share repurchases from November 2021 through Nov. 4, 2024, which lowered outstanding shares and boosted earnings per share. VST’s management expects to continue with the buyback of shares and aims to repurchase at least $3.25 billion worth of outstanding shares between 2024 and 2026.
Vistra utilizes a hedging program to reduce the impact of market changes and price fluctuations, and 100% of its 2024 generation volume is hedged. This extensive hedging has helped to secure its fourth-quarter generation volumes.
Vistra’s operating costs and selling, general and administrative expenses were up 36.4% and 19.3%, respectively, in the first nine months of 2024. The high expenses are expected to have continued in the fourth quarter of 2024 and adversely impacted earnings per share.
VST’s Price Performance
VST’s shares have gained 70% in the past six months compared with the industry’s rally of 2.1%.
VST Stock Trading at a Premium
Vistra is currently valued at a premium compared to its industry on a forward 12-month P/E basis.Other operators in the space, such as DTE Energy Co. and Ameren Corp., are currently trading at a premium compared with Vistra. The P/E F12 multiple of DTE and AEE is currently 18.19X and 19.76X, respectively.
Investment Thesis
Vistra is increasing its generation capabilities through organic and inorganic initiatives. The company’s integrated business model provides it with a core competitive advantage compared with its non-integrated competitors. The integration of Energy Harbor into VST’s existing operation will create synergies and boost the performance of the company.
Operation of nuclear power generation facilities involves significant risks that could have a material adverse effect on the company’s revenues and results of operations, and VST may not have adequate insurance to cover these risks and hazards.
Wrapping Up
Vistra operates in a region where demand for clean electricity is rising, and VST is increasing its clean energy generation capability through acquisition and organic means to serve customers and benefit from the same.
A stable hedging program and rising residential customer base add to VST’s benefit, given the positive factors investors can think to add this Zacks Rank #2 stock to their portfolio.
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