Ticker Reports for August 28th
BHP Stock: The Under-the-Radar Growth Story in Commodities
When investors think of commodities and their long-term demand cycles, gold and silver often come to mind as investments that can take advantage of the market's long-term upside. However, the answer to aligning a portfolio with a long-term winning commodity involves figuring out which leading economy relies on which commodity and how steady the demand could be.
Nations like China and the United States rely on commodities like iron ore to construct steel. As long as the real estate sector (residential and commercial) stays healthy in the U.S., there is a guaranteed buyer for this commodity. Looking at China, however, is where the real growth cycle could last for a decade or longer, as the country is still being built outside of real estate, infrastructure, and other foundational buildings.
Due to logistical ease and trade history, China imports a lot of these metals from Australia, so identifying an Australian exporter stock could place investors on the winning side of history. Stocks like Hecla Mining (NYSE: HL) and Royal Gold Inc. (NASDAQ: RGLD) have lots of upside behind them as oil and silver miners, but the real growth story is in Australian copper and iron ore exporter BHP Group Ltd. (NYSE: BHP). Here's why.
BHP Stock's Recent Quarter Proves Why It Deserves Bullish Ratings
Shares of BHP are little changed after the company reported its second quarter 2024 earnings results, an activity which doesn't truly reflect all the benefits that investors are now facing as the company's financials expand before the final bottoming of the iron ore and copper demand cycle.
Revenues were up only 3% over the year, which isn't much to get excited about. Net income, however, could have been enough to drive the stock lower, as it contracted by 39% on the year, showing how the business is being affected by the slowing cycle today.
Noticing that the stock didn't sell off on the net income decline is enough to get investors looking deeper into the numbers to justify the price strength. They would find that the operating cash flows rose by 11% on the year to reach $20.7 billion.
Even as management decided to reinvest up to $9.3 billion into further growth and capacity initiatives, preparing for the upcycle that could be coming next, BHP's free cash flow came in at $11.9 billion, a massive jump of 111% over the year.
Any business able to expand free cash flow in this fashion has the chance to reinvest this leftover capital into growth and investor benefits like buybacks and dividends, which should command bullish ratings from Wall Street analysts. However, that's not the case for BHP stock, as analysts forecast another 4.5% decline in earnings per share (EPS) for the next 12 months.
Institutions Catch onto the Bullish Tailwinds Driving BHP Stock
While analysts may be asleep at the wheel or unwilling to risk their careers and reputations by recommending BHP stock, others on Wall Street were willing to make their bullish views on BHP stock public. Up to $955.4 million of institutional capital made its way into the company over the past 12 months.
Included in this near-billion investment flow, those at the Bank of Montreal decided to boost their stake in BHP stock by as much as 532.2% as of August 2024. This new allocation would place the bank’s net investment at $134.4 million today to deliver another vote of confidence on the company’s future.
This view may be backed by the same trends that BHP management mentioned in the company’s earnings press release. Economies like India and China are posing significant demand tailwinds in the coming quarters as their business activity and trade orders start to come back online.
Looking at China, earnings from consumer discretionary companies like Alibaba Group (NYSE: BABA) and PDD Holdings Inc. (NASDAQ: PDD) have proved that the consumer is gaining strength despite the overall economy still battling an overall downcycle. Other indicators suggest China has potentially found a bottom, such as inflation and PMI indexes.
Inflation in China has been positive for every month in 2024, which is much better than the negative inflation reported throughout 2023. More than that, the manufacturing PMI index has been expanding every month since the fourth quarter of 2023. A similar conclusion can be made in India’s economy.
Inflation has been positive and healthy throughout 2024, and the manufacturing PMI index has been running hot since January 2024. Management mentions that both India and China could represent significant demand in the coming quarters, driving the optimistic guidance that should eventually be picked up through Wall Street analyst ratings.
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Analysts Upgrade These 3 Hot Buy-and-Hold Stocks
Earnings results from the Q2 reporting cycle are mixed. Some are good, and some are bad. The takeaway is that some are good, and the analysts reward those companies with upgrades and price target revisions to increase their share prices. That is the focus of this article: the three stocks the most analysts love coming out of the Q2 earnings reporting cycle that aren’t NVIDIA. The single unifying factor aside from analysts' attention is their buy-and-hold quality. Palo Alto Networks (NASDAQ: PANW), Meta Platforms (NASDAQ: META), and Walmart (NYSE: WMT) are all industry leaders producing solid cash flows with an outlook for growth, building value for their shareholders today and over the long term.
Palo Alto Cements Leadership Position With Platformization
Palo Alto’s story for the last year has been about its shift to platformization. The near-term impact was reduced earnings power, but the long-term benefits outweighed it. Platformization means unifying and simplifying the offerings to resonate with clients and drive growth. The result is better than expected, with FQ4 results outpacing the consensus at the top and bottom line, compounded by favorable guidance. The guidance calls for sustained growth at a low-teen pace, improved profitability, and balance sheet strength.
The analysts' response was robust, with MarketBeat tracking 27 revisions within days of the report, 93% of which included price target increases. Analysts view the results as strong and aligning with the outlook for sequential acceleration and point to the rise of cyber attacks as supportive of growth. Cyber attacks are increasing in volume and impact, driving demand for cybersecurity services.
The activity lifted consensus by $40 or more than 12% in under a week, suggesting a move into the $375 to $415 range is likely. A move to $375 is worth 7% and aligns with the all-time high; a move to $415 is worth 18% and would set a new all-time high. A move to new all-time highs is significant because it aligns with the technical outlook, suggesting a move to $450 could come before year’s end.
Meta Platforms: Using AI to Make Money
The critical takeaway from Meta Platform’s Q2 report is that it spends a lot of money on AI, and investors don't mind. AI is driving results and should continue to do so long into the future.
Highlights from the report include 22% revenue growth that outpaced by 200 bps, wider margins, and robust cash flow. Margin and cash flow were driven by increased user count, increased ad delivery, and higher revenue per ad aided by AI across the family of apps. The net income grew more than 70% regarding margin and cash flow, securing the dividend outlook and paving the way to distribution increases and other forms of capital return.
Since the release date, 25 of the 39 analysts tracked by MarketBeat have revised their price targets, with about 92% raising their target. Their activity shows a high conviction the stock price will continue to advance and could gain at least 10% over the next year. However, consensus is up 80% in the last year and rising, with most fresh targets ranging above consensus suggesting 15% to 25% upside is more likely.
Walmart Beats-and-Raises: Analysts Raise Targets
Walmart’s Q2 results were solid, with top and bottom line strengths compounded by favorable guidance. Details include stronger-than-expected comps, increased market share, strength in the ad business, and results underpinned by transaction volume, not price increases.
Other notable details include the strength of Sam’s Club, which is driven by membership growth and eCommerce. eCommerce contributed the bulk of strength to the systemwide comp-store increase.
Following the release, 18 of 28 analysts tracked by MarketBeat issued revisions, with 95% including a price target increase. They see this stock advancing into the low $80s, an 8% to 10% increase from the current action. Most fresh revisions have this stock trading between $82 and $85, worth a 12% upside at the high end.
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Kohl's Charts a Resilient Path in a Challenging Retail Landscape
Kohl's Corporation (NYSE: KSS) finds itself navigating choppy waters in the turbulent sea of the retail sector. The renowned omnichannel retailer, known for its value-driven offerings and loyal customer base, recently released its second-quarter fiscal year 2024 earnings report. Kohl’s earnings report release provided a picture of resilience despite the challenging retail environment.
Kohl's Q2 2024 Performance: Weathering the Storm
Kohl’s financial report release for the second quarter of fiscal year 2024 (Q2 FY2024) has revealed the impact of the current economic climate on the company. Net sales declined by 4.2% year-over-year, settling at $3.5 billion, while comparable store sales, a crucial metric for gauging a retailer's health, contracted by 5.1%. These declines can be attributed to multiple factors, including persistent inflation that has tempered consumer discretionary spending and heightened competition within the retail sector.
However, there was positive news in the company's gross margin, which expanded by 59 basis points to reach 39.6% of net sales. This accomplishment signals the effectiveness of Kohl's strategic pricing strategies and disciplined inventory management, demonstrating the company's commitment to profitability despite shrinking revenues. The company’s earnings per share (EPS) growth further underscores this strategic focus on operational efficiency. Despite the revenue headwinds, Kohl's achieved diluted earnings per share of $0.59, surpassing the prior year's $0.52. This accomplishment can be attributed to a combination of cost-control measures and a focus on driving operational efficiencies throughout the business.
The 9% year-over-year decrease in inventory adds to the narrative of proactive management. This strategic reduction suggests that Kohl's is carefully aligning its inventory levels with current demand trends, mitigating the risk of carrying excess stock.
Kohl’s Strategic Shift Aims for Long-Term Growth
In response to persistent headwinds within the retail industry, Kohl's Corporation has adjusted its financial projections for the remainder of fiscal year 2024. The company now anticipates a net sales contraction of 4% to 6% compared to the previous year, reflecting the ongoing pressures on consumer spending and heightened competition. This downward revision is further evident in the projected decline of comparable sales, which are anticipated to decrease between 3% and 5%.
Despite these near-term challenges, Kohl's leadership maintains a cautiously optimistic outlook for the company's long-term trajectory. The company projects its operating margin to fall between 3.4% and 3.8% for the full year. This suggests that despite revenue headwinds, Kohl's anticipates maintaining a degree of profitability through a combination of strategic pricing, cost management, and operational efficiencies. Diluted earnings per share will range between $1.75 and $2.25 for the full year. This projection reflects the impact of the anticipated sales decline, partially offset by the company's efforts to manage expenses and improve profitability.
While the revised guidance reflects the challenging market dynamics, Kohl's management remains steadfast in its commitment to the strategic initiatives underway, believing these actions will ultimately position the company for sustained growth and value creation in the long term.
Kohl’s Strategic Focus on Sephora, Home Decor, and Gifting Drives Growth
The ongoing expansion of its partnership with Sephora, the beauty retailer, is central to Kohl's strategic roadmap. By introducing Sephora shops within its stores, Kohl's aims to attract a new generation of younger, beauty-conscious consumers, injecting fresh energy into its customer base and driving sales growth in a high-margin category.
In addition to the Sephora partnership, Kohl's strategically focuses on key growth areas within its merchandise assortment, including home decor, gifting, and impulse buys. These categories represent pockets of opportunity where the company sees potential for outperformance.
Underpinning these growth initiatives is a company-wide commitment to operational excellence. Kohl's is relentlessly pursuing efficiencies across its operations, from supply chain optimization to inventory management, aiming to streamline processes and control costs.
Kohl's: Strengths, Challenges, and the Path Forward
Kohl's possesses inherent strengths that position it well within the competitive retail landscape. The company enjoys widespread brand recognition, benefits from a large and loyal customer base, and operates a robust omnichannel presence that seamlessly blends physical stores with a thriving online platform. However, Kohl's also faces notable challenges, including its reliance on promotional activity to drive sales, which can impact profit margins.
Despite these challenges, Kohl's has opportunities to further enhance its position and capitalize on emerging trends. The company can leverage its digital channels more effectively, creating a more personalized and engaging online shopping experience. Enhancing its loyalty programs to drive repeat purchases and gather valuable customer data presents another avenue for growth. Additionally, Kohl's can harness the power of data analytics to better understand consumer preferences, tailor marketing efforts, and optimize its merchandise assortment.
Kohl’s Leverages Strengths to Navigate and Grow Through Uncertainty
Kohl's Q2 2024 earnings report reveals a company navigating a turbulent retail environment with a blend of resilience and strategic agility. While declining sales reflect the broader economic headwinds impacting consumer spending, the company's ability to expand gross margin and grow earnings per share underscores its operational discipline and commitment to profitability. Challenges undeniably mark the road ahead for Kohl's, yet the company's strategic initiatives and inherent strengths provide a foundation for navigating the uncertainties and emerging stronger on the other side.
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