Ticker Reports for October 12th
AZZ Stock Gains Momentum: Analysts Forecast 25% Upside From Here
Small-cap industrial services company AZZ Inc. (NYSE: AZZ) stock rose more than 100% between 2023 and 2024 and can rise another 25% or more over the next year. The rise in share prices is driven by improving business, cash flow, debt reduction, and capital return, which are expected to continue.
The results from Q2 were stronger than expected, including improved guidance for revenue and earnings and an accelerated outlook for debt reduction. Regarding the business, AZZ Inc. provides metal coatings services for various end markets and is critical to industries across verticals. Its services extend the lifespan of metal components, helping to control replacement costs and downtime.
Diversified Business and Improved Demand Drive Results for AZZ Inc.
AZZ Inc. did not grow robustly in FQ2 but sustained growth in the low single digits above the consensus forecast reported by MarketBeat.com. The $409.01 million reported is up 2.6%, edging past the consensus by a narrow margin on strengths in construction, transportation, and utilities end markets offset by industrial, consumer, and “other” end markets. Demand is cited as the #1 growth driver, with prices holding steady in the quarter. Segmentally, Metal Coatings grew by 1% and Precoat Metals by 3.8%.
Margin news is good at all levels. The gross margin expanded by 90 basis points, and SG&A costs declined, leaving the operating margin up 120 basis points to 16.5%, which is expected to remain strong in the current quarter. The net result is a net margin gain of 230 basis points, including the impact of debt reduction and a 28% increase in net income. The bottom line is that GAAP EPS is up 21.6% to $1.18, including the impact of dilution, which is the only negative in the report.
Guidance is favorable, including improved expectations for revenue and earnings. The new target ranges have midpoints above the consensus and, given the trends, may be increased later in the year. The company expects pricing to remain stable. Demand is strong, and strength in the precoat segment suggests sustained growth for the metal coating segment lies ahead.
AZZ Dilutes Stock, Pays Down Debt, and Increases Shareholder Equity
AZZ diluted its value with share sales in Q2, but the funds used favor shareholders. The funds, including cash on hand, were used to redeem the preferred stock and reduce the company’s debt load. The net result is that this positive cash flow company reported a negative cash flow quarter, leaving its cash balance down. Still, assets were up, debt and liability down, and equity improved by double digits, which is a critical factor.
Among the details in the earnings report is an acceleration of debt reduction with a target of 30% higher than the previous, accelerating the outlook for equity gains and the resumption of share repurchases.
Analysts and institutions support AZZ Inc. stock price action. The analysts tracked by MarketBeat peg the industrial stock at a Moderate Buy and view it as a deep value, trading more than 15% below their lowest price target. Institutional activity echoes the sentiment, with institutions owning more than 90% of the company, buying on balance for five of the last six quarters, and activity spiking in Q3.
AZZ Dips: Investors Are Seizing the Opportunity
AZZ Inc. stock price action dipped following the Q2 release, falling to the long-term 150-day EMA where support was shown. The action aligns with a trend-following entry signal and will likely result in a rebound soon. The question is if the market will take the price above critical resistance at the top of the seven-month range. If so, this market can continue rising and easily reenter the analysts' target range. The 15% low-end is the minimum target in that scenario; there is potential for a 25% gain at the consensus and 35% at the high-end range.
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Volatility in Applied Digital May Create an Entry Opportunity
Applied Digital Corp. (NASDAQ: APLD) stock has been volatile since it reported earnings after the market closed on October 9. After gaining 4% in after-hours trading, APLD stock moved sharply lower by 12.8% in pre-market trading. However, as of this writing, the stock is up about 6%, but that’s still about 4% below its October 9 closing price.
That may lead you to believe the company delivered a disappointing report. But that’s not the case. The company posted a 67% increase in revenue to $60.7 million. This comes after the prior quarter, in which the company posted a year-over-year revenue increase of nearly 100% from $22 million to $43.7 million. And, while not profitable, Applied Digital’s loss of 15 cents per share was much lower than the 29 cents per share loss expected by analysts.
More than likely, the extreme price action is due to high-speed trading programs reacting to the earnings report as well as the latest reading on the Consumer Price Index (CPI), which came in slightly hotter than expected.
There could also be an element of profit-taking. APLD stock is up 147% in the last six months and over 14% in the month before earnings.
Much of that move came after the announcement that Applied Digital received $160 million in financing from multiple companies, including NVIDIA Corp. (NASDAQ: NVDA). That could also introduce a sell-the-news element to the price action.
And adding complexity to an investor’s desire for simple answers, it’s important to note that short interest in APLD stock was up 9.4% in the month prior to earnings.
To assess whether this is a buying opportunity, it’s a good idea to take a step back and examine what the report says or doesn’t say about Applied Digital.
Applied Digital Is About the Future of AI
Applied Digital designs, develops and operates data centers in North America. The company was formerly known as Applied Blockchain but has changed its name to reflect its focus on the data center space.
Data centers became important with the rise of cloud computing. The demand for data storage created by generative AI is driving exponential growth in the sector.
According to IndustryARC, the data center market size is expected to reach $418 billion by 2030. If those growth estimates are correct, that would be a compound annual growth rate (CAGR) of 9.6%.
When you consider that kind of growth potential and combine it with the millions being invested in Applied Digital, the company would seem to be a clear-cut winner among technology stocks. But that’s where some investors have concerns.
Is Hyperscale Just Hype?
An important trend that will drive data center growth will be the increased demand for hyper-scalability. This means the ability for data centers to scale resources quickly and efficiently to accommodate expanding data volumes and advanced technical applications (e.g. generative AI).
Applied Digital was in the process of finalizing a lease with a U.S.-based hyperscaler. However, on the earnings call, the company announced that the exclusivity part of the lease would not be renewed.
That doesn’t mean much by itself. Applied Digital CEO Wesley Cummins confirmed that the lease, which will be for 100 megawatts, is in the final stages of approval. The company also said that the lease would include a reservation from the same company for an additional 300 megawatts. Applied Digital also said it is seeing growing demand from hyperscalers for capacity in 2025 and 2026.
Analysts Remain Bullish on Applied Digital
Taking a step back, it’s important for investors to remember that Applied Digital is still a small-cap company. It’s market capitalization as of this writing is $961.84 million. Small-caps continue to be under pressure. And that’s particularly true of companies that are not profitable like Applied Digital.
However, analysts remain bullish on the company. The Applied Digital analyst forecasts on MarketBeat show that three analysts have weighed in on the company post earnings. All three analysts reiterated a Buy rating on APLD stock with price targets between $10 and $12. The highest target came from Craig Hallum, which increased its price target to $12 from $10.
As for getting involved, the APLD stock price is showing solid support around $7 per share so traders hoping for a bigger dip may be disappointed. But there may still be an opportunity for investors willing to buy and hold the stock.
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Delta's Earnings Miss? Wall Street Calls It a Buy Opportunity
Airline and transportation stocks have been under pressure from weakening consumer discretionary trends lately, especially as inflation is now threatening to spike again after the – arguably premature – interest rate cuts coming from the Federal Reserve (the Fed), being the most aggressive policy shift since late 2007 in face of the financial crisis of 2008.
However, that could mean good news for investors who like to pick individual stocks since now every peer in the industry is suffering from the same issue, and not a single one is to blame. This is the same fact that helped analysts land higher price targets for shares of Delta Air Lines Inc. (NYSE: DAL) after the company announced its latest quarterly earnings results.
Others on Wall Street also expressed their bullish views for this stock, knowing that cyclically low oil prices and now interest rate cuts to help the consumer be more flexible and open to spending on items like travel and leisure could bring stocks like Delta Air Lines to a potential new 52-week high price to lead its peers. Price action is a good place to start a comparison for Delta Air Lines stock, so investors can start there, but there’s a lot more to look at.
Delta Air Lines Stock Maintains Leadership
Compared to its major competitors like United Airlines Holdings Inc. (NASDAQ: UAL) and American Airlines Group Inc. (NASDAQ: AAL), Delta Air Lines stock leads the way by trading at 96% of its 52-week high to show investors how bullish momentum now favors the company today.
United Airlines stock trades at a lower 94% of its 52-week high, while American Airlines has fallen behind to as much as 72% of its 52-week high. According to Delta Air Lines’ latest quarterly earnings press release, there is much more to boast about in terms of leadership.
Management quotes Delta delivered “Industry-leading” operational and financial performance, and here’s how investors can check whether that’s true or just window-dressing. Starting with operating cash flows, which often act as a proxy for a company’s earning power, investors will see Delta delivered up to $1.2 billion this quarter compared to $1 billion for the same quarter last year.
Even though this 20% boost is already attractive enough, investors need to keep in mind that the airline went through a major incident during the quarter, with regards to the CrowdStrike Holdings Inc. (NASDAQ: CRWD) outages that severely capped the company’s ability to generate cash flows.
Excluding this non-recurring event would have shown Delta to be in a much better position, and that’s why management has now guided Wall Street to expect a record December quarter and also why the stock’s balance sheet is now rated “investment grade” by those at Fitch. The optimism doesn’t stop there, however.
Wall Street's View on Delta Air Lines Stock: Why Investors Remain Optimistic
Even after the missed earnings, which now investors know are due to the CrowdStrike outages more than actual operating flaws at Delta Air Lines, markets, and Wall Street had many reasons to stay bullish on the stock moving forward into the rest of the year.
Starting with analysts, the consensus price target today is set at $64.3 today, which would call for a net 28.5% upside from where the stock trades today. Looking at the outliers is even more important than the consensus since that tells investors more about where Wall Street sees the stock headed.
Standing out are those analysts at Sanford C. Bernstein, reiterating a “Buy” rating for Delta Air Lines stock two days before the company reported its earnings results. This time, the rating came alongside a $ 65-a-share valuation, and to prove this view right, the stock would have to rally by as much as 28.7%, not to mention make a new 52-week high.
Institutional buyers entered Delta Air Lines stock ahead of earnings, anticipating a strong quarter. While results fell short, Delta's long-term potential remains appealing. SG Americas Securities increased holdings by 743.1%, netting their investment up to $14 million today.
They were followed by those at Kwmg with a 7.4% boost to end the quarter with a $4.5 million position. However, these are only drops in the bigger bucket of $654.4 million of institutional capital that made its way into Delta Air Lines stock over the past 12 months.
Finally, investors need to remember that some of the expectations placed on Delta Air Lines stock moving forward may be driven by the two-factor tailwinds coming from both low oil prices (which help to expand margins at airline stocks), as well as lower interest rates helping to keep the surge in travel numbers going.
As of the past quarter, the Transportation Security Administration (TSA) has reported a record-breaking number of daily travelers in the United States, showing resilience in the industry despite sticky inflation that remains above the 2% target set by the Fed.
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