For Immediate Release

Chicago, IL – March 1, 2023 – Zacks Equity Research shares Encore Wire as the Bull of the Day and Brookfield Renewable Partners (BEP Quick QuoteBEP - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Target (TGT Quick QuoteTGT - Free Report) .

Here is a synopsis of all three stocks.

Bull of the Day:

Encore Wire stock looks very attractive sporting a Zacks Rank #1 (Strong Buy) and an overall “A” VGM Style Scores grade for the combination of Value, Growth, and Momentum.

The Industrial Products stock is part of the Wire and Cable Products Industry which is currently in the top 1% of over 250 Zacks Industries. Encore is a low-cost manufacturer of copper and aluminum electrical building wire and cable for the interior wiring in homes, apartments, manufactured housing, and commercial and industrial buildings.

Encore has been a primary beneficiary of what the company stated is a continued tightness in raw materials and the general inability of the sector to meet demand for the timely delivery of finished goods which has kept its bookings strong.

Style Scores

The recent pullback from its 52-week highs could certainly be a buying opportunity and Encore stock checks all the boxes for a buy-the-dip prospect as it relates to the Zacks Style Scores which serve as a complementary set of indicators to use alongside the Zacks Rank.

“A” Momentum Grade

The mild pullback over the last week may be healthy regarding more sustained upside as WIRE stock has soared following its fourth-quarter report on February 14. Encore impressively surpassed Q4 bottom-line expectations by 79% on EPS of $8.28 compared to estimates of $4.61.

Encore stock was up +19% in February with the S&P 500 down -2% and the Wire & Cable Products Market up +10%. Even better, WIRE stock is up more than 30% in the last three months to easily top the benchmark and its Zacks Subindustry’s +19%.

“A” Growth Grade

Among Encore’s stellar growth, the story here is also the earnings estimate revisions which attribute to the stock sporting a Zacks Rank #1 (Strong Buy).

Encore’s fiscal 2023 earnings estimates have gone up 28% to $19.76 per share over the last 30 days. This is a great sign as FY23 earnings are expected to drop -46% after a very exceptional year that saw EPS of $36.91 in 2022.

On that note, Encore’s bottom line growth has been remarkable, increasing 886% over the last five years with 2018 EPS at $3.74. On the top line, sales of $3.01 billion in 2022 represented 135% growth over the last five years with 2018 sales at $1.28 billion.

“A” Value Grade

In regards to valuation fundamentals, WIRE trades at $193 per share and just 9.6X forward earnings which is on par with the industry average and well below the S&P 500’s 18.4X. Encore stock also trades 74% below its decade-long high of 37.3X and at a 45% discount to the median of 17.4X.

Balance Sheet & Cash

Piggybacking off of Encore’s valuation, its management team boasted that its impressive balance sheet has no long-term debt and its revolving credit line is untapped. Encore had $730.6 million in cash at the end of 2022 compared to $439 million at year-end 2021.

To the delight of investors, Encore announced it will increase its share repurchase plan from 1 million to 2 million shares to enhance value and capital return for shareholders. Notably, Encore’s low Price/Cash Flow ratio is very attractive for investors at 5.15 compared to the industry average of 7.20 and the S&P 500’s 15.68.

Takeaway

Now may be a great time to buy Encore stock as its historical performance further supports the company’s current momentum, valuation, and growth. Shares of WIRE are now up +489% over the last decade to largely outperform the S&P 500’s +160% with Encore’s strong management, low debt, and cash on hand during economic uncertainty in the broader economy very reassuring.

Bear of the Day:

Brookfield Renewable Partners currently lands a Zacks Rank #5 (Strong Sell) with its Utility-Electric Power Industry currently in the bottom 36% of over 250 Zacks Industries.

The broader Utility sector is down -6% year to date. While there will be winners in the space, a mild winter has led to lower energy usage which is affecting many utility companies. Brookfield is focused on alternative energy sources but will certainly feel some of the brunt of this as well in a developing market.

Declining Earnings Estimates

Through its renewable energy platform, Brookfield operates a portfolio of assets that include hydroelectric generating, wind facilities, and natural gas-fired plants. The future of many alternative energy sources is still in the beginning stages of growth and the broader clean energy concept has immense long-term potential, but the bottom line of companies like Brookfield and others still matters now.

To that note, Brookfield is on the cusp of posting positive adjusted earnings this year with EPS projected at $0.12 a share in fiscal 2023 compared to EPS of -$0.60 in 2022. However, earnings estimates are notably declining after the company widely missed Q4 top and bottom line expectations in early February along with its underwhelming guidance.

Wall Street was looking for more positivity regarding the company’s bottom line as Brookfield has now missed earnings expectations for eight consecutive quarters leaving many concerned about the company’s profitability hopes.

Recent Performance & Valuation

Year to date, BEP stock is up +3% to roughly match the S&P 500’s +4% and outpace the Utility – Electric Power Markets -6%. However, over the last three years, BEP is down -27% to largely trail the benchmark and its Zack Subindustry’s -10%.

Trading around $26 per share, investors can gauge Brookfield’s earnings on a forward-looking basis for the first time with the company edging toward profitability. While this is a start in the right direction if it comes to fruition, BEP does trade at 213.3X forward earnings, which is well above the industry average of 17.1X. And the declining earnings estimates offer no support for paying a premium for future growth right now.

Bottom Line

Investors and Wall Street may be losing patience with Brookfield Renewable Partners stock as a string of earnings misses has been deflating to the sentiment surrounding its growth prospects as an alternative energy player. The declining earnings estimates are starting to look more and more like a warning sign at the moment and for now, investors should approach BEP stock with caution.

Additional content:

What Do Target (TGT Quick QuoteTGT - Free Report) Earnings Tell Us About the U.S. Consumer?

Target delivered fiscal fourth-quarter earnings results before the market open on Tuesday, beating analysts’ estimates on both the top and bottom lines. The latest big-box retailer to report solid Q4 figures, Target benefited from strong consumer spending during the quarter on essentials like food and household staples.

The Minneapolis-based retailer reported adjusted earnings of $1.89/share, handily exceeding the Zacks Consensus Estimate of $1.39. The figure represented an earnings surprise of 35.97%. Revenues of $31.4 billion increased 1.3% year-over-year and also surpassed estimates. Target shares were up more than 3% in the early going Tuesday morning.

Despite a challenging environment late last year, same-store sales grew 0.7% against estimates of a -1.74% decline. Comparable same-store sales at brick-and-mortar locations shot up 1.9% versus a -2.8% anticipated drop.

Target management echoed similar sentiment to other large retailers during recent earnings calls. CEO Brian Cornell stated that while the team was pleased with the sales growth, the macroeconomic backdrop continues to be a “very challenging environment.” Companies are expecting consumer spending to soften and are preparing for a potential recession.

But the better-than-expected results from Target and other major retailers begs the question: are companies underestimating the strength of the U.S. consumer?

Consumer Spending is Strong – And Will Likely Remain That Way

Most consumers spend money out of their wages, so incorporating the employment picture gives us a good idea of what to expect in terms of spending. As more people become employed, overall income in the economy increases, driving more spending. Employment growth has been stellar as of late, with January delivering a 517,000 nonfarm payrolls boost.

In addition to employment, the National Bureau of Economic Research (NBER), the official arbiter of recessions and expansions here in the U.S., also likes to look at real personal income less transfers as a primary determinant. And as we can see below, real personal income remains quite strong:

Consumers also still have plenty of savings left over in the post-pandemic era. With inflation continuing to subside (particularly due to energy prices falling), the consumer looks to be in good shape in 2023.

And as consumption makes up about 70% of the U.S. economy, a strong consumer puts a dent into the recession headline we’ve all been hearing. The latest Q1 estimate via the Atlanta Fed’s GDPNow model forecasts a 2.8% GDP gain. This is very solid growth in a historically weak first quarter, and we have strong consumer spending and factory production to thank for it.

Are Retailers like Target a Buy?

It makes sense that management at these chain retailers are cautious, as mistakes were made in 2022 that they don’t want to repeat again. Retailers need just the right amount of merchandise or they risk losing sales. But it appears they are on the right trajectory. While Cornell is mindful of the short-term obstacles, he remains focused on Target’s long-term strategy.

“We’re planning our business cautiously in the near-term to ensure we remain agile and responsive to the current operating environment. As we plan for the year ahead, we will continue to make robust capital investments and pursue efficient opportunities in support of our long-term growth.”

Target is a member of the Zacks Retail – Discount Stores industry, which currently ranks in the top 44% out of approximately 250 industry groups. Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform over the next 3 to 6 months.

Quantitative research studies have shown that approximately half of a stock’s future price appreciation is due to its industry grouping. By focusing on top stocks within leading industries, we can dramatically improve our odds of success.

Target is a Zacks Rank #3 (Hold) and has outperformed this year with a greater than 15% gain. The company looks to put last year’s string of earnings misses in the past, and resume what was a long history of beats.

As we look ahead to the current fiscal year, analysts are expecting Target to achieve earnings growth of 66.8% to $9.21/share. Sales are projected to climb 2.55% to $111.18 billion.

While retail management remains cautious about the outlook this year, a strong consumer along with healthy economic activity bode well for the remainder of 2023.

Disclaimer: Target is a long-term holding in the Zacks Income Investor portfolio.

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