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E.l.f. Beauty and Target have been highlighted as Zacks Bull and Bear of the Day
Read MoreHide Full Article
For Immediate Release
Chicago, IL – January 6, 2023 – Zacks Equity Research shares E.l.f. Beauty (ELF - Free Report) as the Bull of the Day and Target (TGT - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Diamondback Energy, Inc. (FANG - Free Report) , Pioneer Natural Resources Co. and Matador Resources Company’s (MTDR - Free Report) .
E.l.f. Beauty stock soared in 2022 as the low-priced makeup seller attracts more customers than ever amid 40-year high inflation. E.l.f. Beauty has crushed quarterly earnings estimates and continued to raise its outlook, which is no easy task amid the current economic environment.
E.l.f. Beauty is also standing out in the wider cosmetics industry that is benefiting from a return to normal life and a well-established trend known as the lipstick effect during economic downturns.
Beauty Is Booming
E.l.f. Beauty started in 2004. The firm quickly began to shake up the industry by selling premium cosmetics for $1 over the internet. A lot has changed since then and the brand caught on as the digital economy boomed. Many consumers are also always looking for high quality at a lower cost in an industry full of huge markups and sky-high costs. ELF then went public in 2016.
E.l.f. Beauty, which stands for eyes, lips and face, stands out in a crowded space by selling its cosmetic offerings for much lower prices than high-end competitors. The company’s brands include e.l.f., e.l.f. Skin, Well People, and Keys Soulcare.
E.l.f. Beauty’s revenue climbed 6% during the heart of the pandemic in its fiscal year 2020 and began to really climb during the last several years as people returned to their normal lives.
E.l.f. Beauty’s executive team has navigated inflation better than most. The firm has kept some of its price points nearly unchanged, while raising its prices on many items and introducing higher-end products to help margins as companies around the economy saw their profits crunched. E.l.f. Beauty’s quality-meets-low-cost approach is now more attractive than ever.
Recent Strength & Outlook
The firm destroyed our adjusted Q2 FY23 earnings estimates on November 2 by 125%, for its seventh straight beat. E.l.f. Beauty posted its 15th straight quarter of revenue growth as well, and, most importantly, it raised its guidance for its fiscal 2023 as the overall outlook for S&P 500 earnings fades.
The firm also said that it gained 115 basis points of market share during the period. On top of that, e.l.f. Beauty’s gross margin increased by 1.9% to 65% last quarter. The boosted margins were primarily driven by “price increases, cost savings and product mix, partially offset by inventory adjustments and higher transportation costs.”
ELF’s adjusted earnings outlook has skyrocketed for FY23 and FY24, as the nearby chart showcases. Zacks estimates call for e.l.f. Beauty’s fiscal 2023 revenue to climb 25% to $488.9 million and then jump another 12% in FY24 to $544.9 million. This growth would come on top of 23% sales expansion in ELF’s FY22 and 13% in FY21.
E.l.f. Beauty’s adjusted earnings are projected to climb by 33% in its fiscal 2023 to $1.12 per share and then pop by an additional 11% in FY24. Plus, ELF has topped our EPS estimates by an average of 93% in the trailing four periods and its most recent EPS estimate for FY24 comes in 9% higher than the current consensus.
Other Fundamentals
E.l.f. Beauty is part of the Cosmetics industry that currently ranks in the top 14% of over 250 Zacks industries. The group includes Coty (COTY), L'Oréal S.A. (LRLCY), and others. It is worth noting that studies have shown that 50% of a stock's price movement can be attributed to its industry. The Zacks Cosmetics industry has climbed 11% in the last three months, with ELF shares up 45%.
ELF’s recent run is part of a 78% climb over the last 12 months vs. the S&P 500’s 19% fall. The stock has also soared 260% in the last three years vs. the larger Zacks Consumer Staples Market’s 1% and the S&P 500’s 19%.
E.l.f. Beauty hit fresh highs of $57 per share on January 4. Some investors might be nervous about buying at new highs. But ELF’s ability to climb as large swaths of the market continue to tumble is highly impressive. And sticking with what has already worked during the economic uncertainty could serve investors well in 2023.
E.l.f. Beauty’s valuation levels might be a bit high for many investors, especially for a makeup company during a rising earnings environment. But ELF is still trading 25% below its own three-year highs and right at its median during this stretch. And it sits near neutral levels in terms of the relative strength index (RSI).
ELF also sports a strong balance sheet and 10 of the 13 brokerage recommendations Zacks has are “Strong Buys” or “Buys,” with no “Sells.” On top of that, there is an established phenomenon known as the lipstick effect that showcases a willingness for consumers to buy small, fun things when people can’t splurge on big-ticket items.
Bottom Line
E.l.f. Beauty’s strong earnings estimate revisions help it land a Zacks Rank #1 (Strong Buy) at the moment. Positive earnings revisions are always helpful indicators of companies heading in the right direction. The current economic and market environment makes ELF and other stocks with strong growth outlooks and improving earnings estimates even more attractive.
Target stock was a pandemic and post-covid superstar. Target, like many others, failed to adapt to quickly changing consumer shopping patterns that caused it to suffer a rough 2022, full of inventory issues, lagging sales, and more.
Target’s earnings outlook has continued to plummet for FY22, FY23, and FY24, with TGT shares tumbling alongside its fading EPS estimates.
Although Target’s long-term outlook remains intact, now might not be the best time to dive back into TGT, especially with the U.S. economy in the midst of a downturn.
Not Pandemic Shoppers Anymore
Investors first hammered Target stock after its Q1 FY22 earnings release for TGT’s inability to navigate rising freight costs and more. Alongside its bottom-line miss, Wall Street also hated Target’s initial decision to absorb higher costs instead of passing them on to consumers. Walmart got hit hard for a similar report at the time.
Target got stuck dealing with inventory issues because the firm simply had too much of the wrong stuff on hand. Consumers spent well over a year buying all of the furniture, appliances, TVs, and other big-ticket items that they needed.
Target was forced to discount items and take other measures to offload its access inventory. Fast forward to TGT’s third quarter release in November, and Wall Street got more bad news. TGT lowered its guidance once again as consumers continued to pull back on spending.
Target is continuing to offer discounts in an effort to attract shoppers to discretionary items. “We know they are spending more dollars on food and beverage and household essentials, and as they are shopping for discretionary categories they are looking for promotions,” CEO Brian Cornell said on TGT’s Q3 earnings call.
The inflationary crunch on shoppers is hitting Target harder than rival Walmart because TGT’s business is made up more heavily of these discretionary items that people have cut out of their budgets.
TGT’s consensus earnings estimate for FY22 is down 32% since its Q3 release alone and way more since the start of 2022. Plus, its outlook for fiscal 2023 is now 21% lower, with FY24 trending heavily in the wrong direction as well.
Bottom Line
Target’s downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now. And Zacks estimates call for its adjusted earnings to fall 59% YoY in fiscal 2022 and then come in well below its FY21 levels in fiscal 2023. And its most recent EPS estimates are coming in beneath the current consensus.
Target has also missed our adjusted earnings estimates by an average of 33% in the trailing three quarters. TGT is the Bear of the Day given its near-term outlook and the continued unknowns ahead on the consumer spending and inflation fronts.
Target does remain a possible long-term play given its overall standing and strength within a key segment of the consumer-driven U.S. economy. And Target stock is down about 40% from its highs. But TGT just surged off oversold RSI levels a few weeks ago and some investors might want to wait for a slightly better entry point.
Additional content:
3 Permian Explorers in Focus on Healthy Oil Prices
Since the beginning of this year, oil explorers and producers have focused their attention on shale resources following a favorable crude pricing environment. The count of rigs will likely keep increasing since oil price is expected to remain healthy. Thus, with rising drilling activities, production may increase, aiding upstream energy players' businesses.
Oil Price Still High
West Texas Intermediate crude price is trading at more than $70 per barrel, which is still highly favorable for exploration and production activities. Also, in its short-term energy outlook, the U.S. Energy Information Administration (“EIA”) projected the average spot price of West Texas Intermediate crude at $95.22 per barrel this year, significantly higher than $68.21 in 2021.
Shale Oil Production to Rise
In January, total oil production from shale resources in the United States will likely increase by 94,000 barrels per day to 9,319 thousand barrels per day (MBbl/D), per EIA. The shale resources comprise Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara and Permian.
Of all the resources, the Permian will witness the highest increase in daily oil production this month, according to the EIA’s drilling productivity report. In the Permian, the EIA projects oil production to rise by 37,000 barrels per day to 5,579 MBbls/D in January.
Permian Explorers in the Spotlight
It has been crystal clear that a favorable crude pricing scenario is backing higher production volumes. Improving Permian production amid healthy oil prices has raised the incentive to keep an eye on stocks of companies operating in the most prolific basin.
3 Stocks to Gain
Diamondback Energy, Inc. is a leading pure-play Permian operator. The firm, carrying a Zacks Rank #3 (Hold), will be expanding its footprint in the Midland basin since it recently signed a definitive purchase agreement for acquiring all leasehold interest and associated properties of Lario Permian, LLC – which is a wholly owned affiliate of Lario Oil & Gas Company. FANG also has an investment-grade balance sheet.
Pioneer Natural Resources Co. has a strong presence in the low-cost oil-rich Midland basin — a sub-basin of the broader Permian. The #3 Ranked upstream energy player has a massive inventory of premium wells that will likely generate significant returns for the company.
Pioneer Natural is focused on returning capital to shareholders. This includes a substantial variable dividend along with a strong base dividend. PXD is also employing opportunistic share repurchases to reward shareholders.
Pioneer Natural has considerably lower exposure to debt capital than the composite stocks belonging to the industry. This reflects PXD’s strong balance sheet on which the firm can rely to sail through the volatile energy businesses.
Solid oil prices are a boon for Matador Resources Company’s upstream operations. This is because MTDR has a strong presence in oil-rich core acres of the Wolfcamp and Bone Spring plays in the Delaware Basin. Favorable oil prices are likely to aid it in increasing production volumes. For 2022, the upstream energy player with a Zacks Rank of 3 expects total production of 37.7-38.3 million barrels of oil equivalent (MMBoE), higher than 31.5 MMBoE in 2021.
On another positive note, Matador plans to turn to sales a net of 71 wells this year, including operated and non-operated wells. The prime priorities that MTDR has set for this year are lowering debt levels, delivering free cashflows and maintaining or increasing dividends.
Why Haven’t You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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E.l.f. Beauty and Target have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – January 6, 2023 – Zacks Equity Research shares E.l.f. Beauty (ELF - Free Report) as the Bull of the Day and Target (TGT - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Diamondback Energy, Inc. (FANG - Free Report) , Pioneer Natural Resources Co. and Matador Resources Company’s (MTDR - Free Report) .
Here is a synopsis of all five stocks.
Bull of the Day:
E.l.f. Beauty stock soared in 2022 as the low-priced makeup seller attracts more customers than ever amid 40-year high inflation. E.l.f. Beauty has crushed quarterly earnings estimates and continued to raise its outlook, which is no easy task amid the current economic environment.
E.l.f. Beauty is also standing out in the wider cosmetics industry that is benefiting from a return to normal life and a well-established trend known as the lipstick effect during economic downturns.
Beauty Is Booming
E.l.f. Beauty started in 2004. The firm quickly began to shake up the industry by selling premium cosmetics for $1 over the internet. A lot has changed since then and the brand caught on as the digital economy boomed. Many consumers are also always looking for high quality at a lower cost in an industry full of huge markups and sky-high costs. ELF then went public in 2016.
E.l.f. Beauty, which stands for eyes, lips and face, stands out in a crowded space by selling its cosmetic offerings for much lower prices than high-end competitors. The company’s brands include e.l.f., e.l.f. Skin, Well People, and Keys Soulcare.
E.l.f. Beauty’s revenue climbed 6% during the heart of the pandemic in its fiscal year 2020 and began to really climb during the last several years as people returned to their normal lives.
E.l.f. Beauty’s executive team has navigated inflation better than most. The firm has kept some of its price points nearly unchanged, while raising its prices on many items and introducing higher-end products to help margins as companies around the economy saw their profits crunched. E.l.f. Beauty’s quality-meets-low-cost approach is now more attractive than ever.
Recent Strength & Outlook
The firm destroyed our adjusted Q2 FY23 earnings estimates on November 2 by 125%, for its seventh straight beat. E.l.f. Beauty posted its 15th straight quarter of revenue growth as well, and, most importantly, it raised its guidance for its fiscal 2023 as the overall outlook for S&P 500 earnings fades.
The firm also said that it gained 115 basis points of market share during the period. On top of that, e.l.f. Beauty’s gross margin increased by 1.9% to 65% last quarter. The boosted margins were primarily driven by “price increases, cost savings and product mix, partially offset by inventory adjustments and higher transportation costs.”
ELF’s adjusted earnings outlook has skyrocketed for FY23 and FY24, as the nearby chart showcases. Zacks estimates call for e.l.f. Beauty’s fiscal 2023 revenue to climb 25% to $488.9 million and then jump another 12% in FY24 to $544.9 million. This growth would come on top of 23% sales expansion in ELF’s FY22 and 13% in FY21.
E.l.f. Beauty’s adjusted earnings are projected to climb by 33% in its fiscal 2023 to $1.12 per share and then pop by an additional 11% in FY24. Plus, ELF has topped our EPS estimates by an average of 93% in the trailing four periods and its most recent EPS estimate for FY24 comes in 9% higher than the current consensus.
Other Fundamentals
E.l.f. Beauty is part of the Cosmetics industry that currently ranks in the top 14% of over 250 Zacks industries. The group includes Coty (COTY), L'Oréal S.A. (LRLCY), and others. It is worth noting that studies have shown that 50% of a stock's price movement can be attributed to its industry. The Zacks Cosmetics industry has climbed 11% in the last three months, with ELF shares up 45%.
ELF’s recent run is part of a 78% climb over the last 12 months vs. the S&P 500’s 19% fall. The stock has also soared 260% in the last three years vs. the larger Zacks Consumer Staples Market’s 1% and the S&P 500’s 19%.
E.l.f. Beauty hit fresh highs of $57 per share on January 4. Some investors might be nervous about buying at new highs. But ELF’s ability to climb as large swaths of the market continue to tumble is highly impressive. And sticking with what has already worked during the economic uncertainty could serve investors well in 2023.
E.l.f. Beauty’s valuation levels might be a bit high for many investors, especially for a makeup company during a rising earnings environment. But ELF is still trading 25% below its own three-year highs and right at its median during this stretch. And it sits near neutral levels in terms of the relative strength index (RSI).
ELF also sports a strong balance sheet and 10 of the 13 brokerage recommendations Zacks has are “Strong Buys” or “Buys,” with no “Sells.” On top of that, there is an established phenomenon known as the lipstick effect that showcases a willingness for consumers to buy small, fun things when people can’t splurge on big-ticket items.
Bottom Line
E.l.f. Beauty’s strong earnings estimate revisions help it land a Zacks Rank #1 (Strong Buy) at the moment. Positive earnings revisions are always helpful indicators of companies heading in the right direction. The current economic and market environment makes ELF and other stocks with strong growth outlooks and improving earnings estimates even more attractive.
Bear of the Day:
Target stock was a pandemic and post-covid superstar. Target, like many others, failed to adapt to quickly changing consumer shopping patterns that caused it to suffer a rough 2022, full of inventory issues, lagging sales, and more.
Target’s earnings outlook has continued to plummet for FY22, FY23, and FY24, with TGT shares tumbling alongside its fading EPS estimates.
Although Target’s long-term outlook remains intact, now might not be the best time to dive back into TGT, especially with the U.S. economy in the midst of a downturn.
Not Pandemic Shoppers Anymore
Investors first hammered Target stock after its Q1 FY22 earnings release for TGT’s inability to navigate rising freight costs and more. Alongside its bottom-line miss, Wall Street also hated Target’s initial decision to absorb higher costs instead of passing them on to consumers. Walmart got hit hard for a similar report at the time.
Target got stuck dealing with inventory issues because the firm simply had too much of the wrong stuff on hand. Consumers spent well over a year buying all of the furniture, appliances, TVs, and other big-ticket items that they needed.
Target was forced to discount items and take other measures to offload its access inventory. Fast forward to TGT’s third quarter release in November, and Wall Street got more bad news. TGT lowered its guidance once again as consumers continued to pull back on spending.
Target is continuing to offer discounts in an effort to attract shoppers to discretionary items. “We know they are spending more dollars on food and beverage and household essentials, and as they are shopping for discretionary categories they are looking for promotions,” CEO Brian Cornell said on TGT’s Q3 earnings call.
The inflationary crunch on shoppers is hitting Target harder than rival Walmart because TGT’s business is made up more heavily of these discretionary items that people have cut out of their budgets.
TGT’s consensus earnings estimate for FY22 is down 32% since its Q3 release alone and way more since the start of 2022. Plus, its outlook for fiscal 2023 is now 21% lower, with FY24 trending heavily in the wrong direction as well.
Bottom Line
Target’s downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now. And Zacks estimates call for its adjusted earnings to fall 59% YoY in fiscal 2022 and then come in well below its FY21 levels in fiscal 2023. And its most recent EPS estimates are coming in beneath the current consensus.
Target has also missed our adjusted earnings estimates by an average of 33% in the trailing three quarters. TGT is the Bear of the Day given its near-term outlook and the continued unknowns ahead on the consumer spending and inflation fronts.
Target does remain a possible long-term play given its overall standing and strength within a key segment of the consumer-driven U.S. economy. And Target stock is down about 40% from its highs. But TGT just surged off oversold RSI levels a few weeks ago and some investors might want to wait for a slightly better entry point.
Additional content:
3 Permian Explorers in Focus on Healthy Oil Prices
Since the beginning of this year, oil explorers and producers have focused their attention on shale resources following a favorable crude pricing environment. The count of rigs will likely keep increasing since oil price is expected to remain healthy. Thus, with rising drilling activities, production may increase, aiding upstream energy players' businesses.
Oil Price Still High
West Texas Intermediate crude price is trading at more than $70 per barrel, which is still highly favorable for exploration and production activities. Also, in its short-term energy outlook, the U.S. Energy Information Administration (“EIA”) projected the average spot price of West Texas Intermediate crude at $95.22 per barrel this year, significantly higher than $68.21 in 2021.
Shale Oil Production to Rise
In January, total oil production from shale resources in the United States will likely increase by 94,000 barrels per day to 9,319 thousand barrels per day (MBbl/D), per EIA. The shale resources comprise Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara and Permian.
Of all the resources, the Permian will witness the highest increase in daily oil production this month, according to the EIA’s drilling productivity report. In the Permian, the EIA projects oil production to rise by 37,000 barrels per day to 5,579 MBbls/D in January.
Permian Explorers in the Spotlight
It has been crystal clear that a favorable crude pricing scenario is backing higher production volumes. Improving Permian production amid healthy oil prices has raised the incentive to keep an eye on stocks of companies operating in the most prolific basin.
3 Stocks to Gain
Diamondback Energy, Inc. is a leading pure-play Permian operator. The firm, carrying a Zacks Rank #3 (Hold), will be expanding its footprint in the Midland basin since it recently signed a definitive purchase agreement for acquiring all leasehold interest and associated properties of Lario Permian, LLC – which is a wholly owned affiliate of Lario Oil & Gas Company. FANG also has an investment-grade balance sheet.
Pioneer Natural Resources Co. has a strong presence in the low-cost oil-rich Midland basin — a sub-basin of the broader Permian. The #3 Ranked upstream energy player has a massive inventory of premium wells that will likely generate significant returns for the company.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Pioneer Natural is focused on returning capital to shareholders. This includes a substantial variable dividend along with a strong base dividend. PXD is also employing opportunistic share repurchases to reward shareholders.
Pioneer Natural has considerably lower exposure to debt capital than the composite stocks belonging to the industry. This reflects PXD’s strong balance sheet on which the firm can rely to sail through the volatile energy businesses.
Solid oil prices are a boon for Matador Resources Company’s upstream operations. This is because MTDR has a strong presence in oil-rich core acres of the Wolfcamp and Bone Spring plays in the Delaware Basin. Favorable oil prices are likely to aid it in increasing production volumes. For 2022, the upstream energy player with a Zacks Rank of 3 expects total production of 37.7-38.3 million barrels of oil equivalent (MMBoE), higher than 31.5 MMBoE in 2021.
On another positive note, Matador plans to turn to sales a net of 71 wells this year, including operated and non-operated wells. The prime priorities that MTDR has set for this year are lowering debt levels, delivering free cashflows and maintaining or increasing dividends.
Why Haven’t You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.