For Immediate Release
Chicago, IL –December 31, 2024 – Zacks Equity Research shares American Airlines AAL, as the Bull of the Day and Lamb Weston LW, as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Allstate ALL, Vistra VST and Carvana CVNA.
Here is a synopsis of all five stocks:
Bull of the Day:
American Airlines, a Zacks Rank #1 (Strong Buy), is the largest airline internationally. Operating as a network air carrier, the company provides scheduled air transportation services for passengers and cargo.
The stock has begun to display relative strength, breaking out to the upside amid a bullish move that recently pushed shares to new 52-week highs. The price movement is a sign of strength as we approach the New Year. Increasing volume has attracted investor attention as buying pressure accumulates in this top-ranked stock.
American Airlines is part of the Zacks Transportation – Airline industry group, which currently ranks in the top 10% 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.
Note the favorable valuation metrics for this industry group below:
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
American Airlines operates a mainline fleet of 965 aircraft. The company conducts business through a network of major hubs such as Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, and Philadelphia, as well was through partner gateways in London, Madrid, Sydney, and Tokyo.
Improved air travel demand is aiding the company’s top line. Passenger revenues have been very strong with both leisure and business consumers taking to the skies again. American Airlines is constantly looking to add routes and broaden its network.
President Trump’s re-election is a positive for the airliner. The anticipation of a more relaxed regulatory environment under Trump’s leadership will likely lead to lesser scrutiny, which is expected to boost mergers and acquisitions across the industry.
Earnings Trends and Future Estimates
American Airlines has built up an impressive reporting history, surpassing earnings estimates in 8 out of the past 9 quarters. Most recently, the company posted third-quarter earnings of 30 cents per share, a 130.8% surprise versus the $0.13/share consensus estimate.
The network air carrier has delivered a trailing four-quarter average earnings beat of 124.8%. Consistently beating earnings estimates should help the stock mitigate turbulence moving forward.
Analysts are bullish on the stock and are in agreement in terms of earnings estimate revisions, raising estimates across the board. The fourth-quarter consensus EPS estimate has been revised upward in the past 60 days by 42.5% to $0.57/share. If the company is able to achieve this, it would translate to a 96.6% growth rate versus the same quarter last year.
Let’s Get Technical
This market leader has seen its stock advance more than 70% in just the past 4 months alone. 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 both the 50-day (blue line) and 200-day (red line) moving averages are sloping up. The stock has been making a series of higher highs into the end of the year. With both strong fundamental and technical indicators, AAL stock is poised to continue its outperformance.
The stock was able to power through a recent technical issue over the holidays. A one-hour halt on Christmas Eve due to a vendor disruption affecting the company’s dispatch and coordination system caused widespread delays. But shares ending up closing in the green as holiday travel is expected to witness record volumes this year.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, American Airlines has recently witnessed positive revisions. As long as this trend remains intact (and AAL 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 American Airlines stock is a compelling investment. Robust fundamentals combined with an appealing technical trend certainly justify adding shares to the mix.
Recent positive earnings estimate revisions should also serve to create a ‘floor’ in terms of any sudden or unexpected downside moves, helping smooth out the ride for investors. If you haven’t already done so, be sure to put AAL on your shortlist.
Bear of the Day:
Lamb Weston is a global producer, marketer, and distributor of frozen potato products. The company offers frozen potatoes, commercial ingredients, and appetizers under the Lamb Weston brand, in addition to other licensed brands and various customer labels.
Lamb Weston is also engaged in the vegetable and dairy business. It serves retail and foodservice customers, specialty retailers, convenience stores, and both independent and chain restaurants. Lamb Weston was founded in 1950 and is headquartered in Eagle, Idaho.
The stock was recently downgraded by analysts at Bank of America, who cited intensifying global competition and disappointing quarterly results. As we’ll see, the consensus trend for earnings estimates shows a clear negative tilt.
The Zacks Rundown
Lamb Weston, a Zacks Rank #5 (Strong Sell) stock, is a component of the Zacks Food – Miscellaneous industry group, which currently ranks in the bottom 37% 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 throughout 2024:
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.
Lamb Weston shares have been underperforming this year while the general market returned to new heights. The stock has experienced considerable volatility and represents a compelling short opportunity as we approach the New Year.
Undoubtedly a key player in the frozen potato market, the company has been grappling with several challenges in recent months. Critical factors include a decline in global restaurant traffic, rising competition, and a tough manufacturing environment.
Recent Earnings Misses & Deteriorating Outlook
Lamb Weston has fallen short of earnings estimates in three of the past four quarters. Earlier in December, the french-fry producer posted dismal results for its fiscal second quarter. Adjusted earnings came in at 66 cents per share, reflecting a -35% miss versus the consensus estimate. The metric also plunged -54% versus the year-ago period.
Net sales of $1.6 billion fell -8% year-over-year and also missed the Zacks Consensus Estimate. Lamb Weston continues to witness lower volumes and expects difficulties to linger throughout this year as well as fiscal 2026. Higher raw potato prices, inefficiencies, and increased transportation and warehousing costs are adding to company pressures.
The company has delivered a trailing four-quarter average earnings miss of -21.7%. Consistently falling short of earnings estimates is a recipe for underperformance, and LW is no exception.
Lamb Weston has been on the receiving end of negative earnings estimate revisions as of late. Looking at fiscal 2025, analysts have slashed estimates by a whopping -18.31% in the past 60 days. The Zacks Consensus EPS Estimate is now $3.48 per share, reflecting negative growth of -31.5% relative to the prior year.
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
As illustrated below, LW stock is in a sustained downtrend. Notice how the stock has shown very little in the way of a trend, widely underperforming the major indices. Also note that shares are trading below a downward-sloping 200-day (blue line) moving average – another good sign for the bears.
The stock has had trouble putting together any sort of sustainable stretch above the 200-day average, frustrating investors. Shares would have to make an outsized move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. LW stock has fallen more than 35% this year alone.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock will likely stay frozen for the foreseeable future. The fact that LW is included in one of the worst-performing industry groups adds 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.
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 LW until the situation shows major signs of improvement.
Additional content:
Global Week Ahead: A New Year Rises
This is the last Global Week Ahead for 2024.
In light of that, it is worth considering both the S&P500 share returns on offer and the risks to those returns, across the New Year of 2025.
To begin, consider Wall Street sell-side strategist returns outlooks for 2025.
According to Investopedia, here are Wall Street S&P500 outlooks for 2025 --
After two years of double-digit stock returns, Wall Street thinks the S&P500 is capable of a threepeat.
The average analyst estimate points to the S&P500 finishing 2025 at just a bit over 6,679, suggesting that the index will rise about +10% in the next calendar year based on Thursday's close, according to a report from FactSet Research analyst John Butters.
Since its inception in 1957, the S&P500 index has returned +10.23% a year on average.
Butters also found that Wall Street analysts dramatically underestimated the market entering 2024. The consensus at the end of 2023 was that the S&P 500 would end this year at near 5,132, more than 15% below its current level. Analysts have underestimated stocks in four of the past five years.
However, over the long term, that streak of underestimation hasn't been the norm. Wall Street has overestimated the S&P 500's annual return in 13 of the last 20 years; on average, over the past two decades, the consensus has been too high by about 7%.
The report underscores the optimism on Wall Street about the strength of the U.S. economy and corporate profits. Morgan Stanley (MS) and Goldman Sachs (GS) have forecast the S&P 500 will rise to 6,500 next year as earnings growth accelerates for a broad swath of the index.
In a survey of financial advisors released last month, two-thirds said they expected the index to rise by at least +10% next year, but many warned that the market could experience some volatility.
The S&P 500 is on track to gain more than +20% for a second consecutive year, which hasn't happened since the 1990s.
Now, here are some risks to watch out for, considering both downside and upside surprises.
According to Capital Economics on Dec. 16th, 2024, here are the key risks in 2025:
What could go wrong (and right)?
Risk #1: Global trade war. Medium risk; medium-high impact...
Risk #2: Inflation flares up (again) Low-medium risk; high impact...
Risk #3: Fiscal missteps. High risk; medium impact...
Risk #4: Stock market bubble bursts...
Risk #5: An energy glut...
Risk #6: The growth stars align.
Zacks #1 Rank (STRONG BUY) Stocks
I present my final three top Zacks #1 rank stocks for the short-run, entering 2025.
These three large cap stocks also have top long-term Zacks Growth scores of A or B.
(1) Allstate: This is a $196 a share stock with a market cap of $51.8B. It is found in the U.S. insurance-property and casualty industry. I see a Zacks Value score of B, a Zacks Growth score of B, and a Zacks Momentum score of B.
(2) Vistra: This is a $144.50 a share stock with a market cap of $48.8B. It is found in the Utility-Electric Power industry. I see a Zacks Value score of D, a Zacks Growth score of A, and a Zacks Momentum score of F.
(3) Carvana: This is a $225 a share stock with a market cap of $46.5B. It is found in the Internet-Commerce industry. I see a Zacks Value score of F, a Zacks Growth score of A, and a Zacks Momentum score of C.
Key Global Macro Indicators and Events
There are many useful manufacturing PMIs out this week.
On Monday, the Chicago manufacturing PMI comes out for DEC. The prior month’s reading was 40.2.
Mainland China’s manufacturing PMI also comes out for DEC. The prior month’s reading was 50.2.
On Tuesday,is a New Year holiday in a number of countries (Germany, Switzerland, Italy, Norway, Brazil, Japan, South Korea, Singapore, U.K. & Australia) among them.
On Wednesday, is a New Year holiday in the United States, and many other countries.
On Thursday, the Euro Zone’s manufacturing PMI for DEC comes out. The prior month’s reading was 45.2.
On Friday, the U.S. ISM manufacturing PMI for DEC comes out. The prior month’s reading was 48.4.
Conclusion
On Dec. 18th, 2024, Zacks Research Director Sheraz Mian offered up his final key points on S&P500 earnings:
(1) For Q4-24, total S&P 500 earnings are currently expected to be up +7.4% from the same period last year on +4.8% higher revenues.
(2) Q4-24 earnings growth improves to +9.5% once the Energy sector’s drag is removed from the aggregate numbers, but the growth pace drops to +4.0% once the Tech sector’s substantial contribution is excluded.
(3) Earnings estimates for the Q4-24 period have steadily come down since the quarter got underway, with the current +7.4% growth rate down from +9.8% in early October.
(4) Q-24 earnings for the ‘Magnificent 7’ group of companies are expected to be up +20.7% from the same period last year on +12.3% higher revenues.
Excluding the ‘Mag 7’ contribution, Q4 earnings for the rest of the index would be up only +3.4% (vs. +7.4%).
That is a wrap.
Enjoy an excellent start to this New Year!
Warm Regards,
John Blank, PhD.
Zacks Chief Equity Strategist and Economist
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