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Expedia and United Parcel Service have been highlighted as Zacks Bull and Bear of the Day

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For Immediate Release

Chicago, IL – July 29, 2024 – Zacks Equity Research shares Expedia (EXPE - Free Report) as the Bull of the Day and United Parcel Service (UPS - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Arista Networks, Inc. (ANET - Free Report) , Qualcomm Inc. (QCOM - Free Report) and Micron Technology, Inc. (MU - Free Report) .

Here is a synopsis of all five stocks.

Bull of the Day:

Expedia is a Zacks Rank #1 (Strong Buy) that operates as an online travel agency (OTA). For travelers, the company is a household name that allows easy access to flight and lodging options.

The stock has had a bumpy ride since the pandemic but remains stuck at pre-COVID trading levels. A recent pullback might be providing investors with both short and long-term opportunities before the company reports earnings in early August.

About the Company

Expedia was founded in 1996 and is headquartered in Seattle, WA. The company operates through three segments: B2C, B2B, and trivago.

The B2C segment includes Brand Expedia, which offers a range of travel products and services, Hotels.com for lodging, and Vrbo for alternative accommodations. It also encompasses Orbitz, Travelocity, Wotif Group, ebookers, CheapTickets, Hotwire.com, and CarRentals.com.

The B2B segment caters to travel and non-travel companies, including airlines, offline travel agents, online retailers, corporate travel management, and financial institutions. These partners use the company's travel technology to enhance their offerings and market Expedia Group rates and availability.

The trivago segment is a hotel metasearch website that sends referrals to online travel companies and travel service providers.

The stock has Zacks Style Scores of “A” in Value, but “D” in Momentum. The company has a market cap of $17 billion and a Forward PE of 10. The stock pays no dividend.

Q1 Earnings Beat

In early May, Expedia reported earnings of $0.21 per share, surpassing expectations of -$0.37 per share, and revenue of $2.89 billion, exceeding the anticipated $2.81 billion.

Booked room night growth was 7% year-over-year, while gross bookings reached $30.1 billion, a 3% increase.

Adjusted EBITDA rose by 38% to $255 million, with a margin of 8.8%, up from 6.9% the previous year.

The company highlighted that the results met their guidance, with strong performance in the B2B segment, Brand Expedia, and Advertising. However, Vrbo's recovery after re-platforming was slower than expected, impacting gross bookings.

Looking ahead to the second quarter, the company anticipates continued acceleration in the rest of its B2C business but has lowered its full-year guidance due to the slower-than-expected recovery of Vrbo and the current rate of B2C acceleration. They now expect mid to high single-digit top-line growth with margins remaining relatively stable compared to last year.

Investors reacted to the quarter very negatively, taking the stock from $135 to $115 in a day. This drop of 15% was an overreaction, which proved to be a great buying opportunity.

Since the post earnings low under $108, the stock has rallied over 30% to $142, before recently pulling back to $125.

Expedia Group, Inc. price-eps-surprise | Expedia Group, Inc. Quote

Upcoming Earnings

Expedia is set to report Q2 EPS on August 8th. This report is a catalyst for the stock into the end of the year and if the company can show positive momentum the bulls could challenge the recent highs.

After the prior quarter, earnings estimates dropped aggressively, but they have since stabilized. Expectations for the current quarter are $3.18, but the most accurate estimate is at $3.23, giving an Earning ESP of 1.45%.

Oppenheimer recently had a note on Expedia, maintaining an "Outperform" with a price target of $155. The firm highlighted that low B2C expectations seem to be already factored in. Oppenheimer sees potential in leveraging the new CEO's background by focusing more on the growing B2B segment, which saw a 25% year-over-year increase in Q1 despite tough comparisons.

Additionally, the company’s retail media segment, which grew by 46%, benefits from Expedia’s extensive transactional database. Oppenheimer anticipates no changes to the full-year guidance, even with a Q2 beat, and expects Vrbo nights to improve as industry comparisons ease.

They forecast 7% revenue growth overall, with B2C revenue accelerating in the second half of 2024 and B2B revenue growing by 27% for the year. Despite concerns about Vrbo losing market share to Airbnb being structural, they see the stock performing well at 9x 2025 estimated EBITDA, with 2024 estimates showing Hotels and B2B growing by 12% and 25% respectively, along with significant buyback capacity.

Will AI Assistants Help?

OTA companies, such as Expedia and Booking.com, have built AI travel assistants using OpenAI's platform. While it is yet to be determined whether this will help the user experience or bottom line, investors will watch for comments on Expedia’s AI assistant “Romie.”

Expedia says the assistant is designed to “roam’ with travelers and can be invited to join group chats on SMS, iMessage, WhatsApp and then give travel advice and help perform relevant travel searches in the Expedia app.

Romie can also pull travel information from traveler emails and itineraries to suggest restaurants and activities, and monitor weather changes or last-minute disruptions, providing alerts and alternative suggestions.

The Technicals

Early in 2020, before the pandemic the stock was trading around the $120 level. Today are just a few points above that pre-COVID spot.

The stock hit a high of $217 in early 2022 and then fell to $80.

If you look at a chart since 2016, the stock has gone sideways if you take out the spikes higher and lower. Without those outliers, the stock has basically been in a trading range between $100-140. And we are smack dab in the middle of that range.

So, the next earnings report will be crucial for future prices. The bulls need a move over the $130 mark, which is the 200-day moving average. A move over $140 and the resistance from this year is broken and the stock can start trending to the 2022 highs.

Bottom Line

Expedia’s upcoming quarter will be a catalyst for price direction into the end of the year. While the estimates have yet to tick up, there are reasons for investors to believe the quarter will come in better than expected. Moreover, the recent sell-off is providing an entry point that has historically been attractive.

Bear of the Day:

United Parcel Service is a Zacks Rank #5 (Strong Sell) that is a global logistics and package delivery company that provides transportation, distribution, and supply chain management services

The stock recently hit 2024 lows after a big earnings miss and a cut in revenue guidance. Investors have had a difficult year, with the stock down almost 20%, with the overall market higher.

Despite the down move, there is still room lower as the stock threatens to erase all the post-Covid lows.

About the Company

UPS was founded in 1907 and is headquartered in Atlanta, Georgia. The company employs over 500,000 people and operates through two segments, U.S. Domestic Package and International Package.

UPS is valued at $108 billion and has a Forward PE of 16. The stock holds Zacks Style Scores of “B” in Growth, but “C” in Value. UPS pays a dividend of just over 5%.

Q2 Earnings

UPS was coming into the quarter on an EPS winning streak of 16 quarters. Despite that, the stock has been weak over the last year. So when the company reported a 10% EPS miss, the stock fell apart.

The company reported a significant drop in profits, with net income falling over 30% from the previous year. This decline was driven by a 1.1% decrease in consolidated revenue to $21.8 billion and a sharp drop in operating profit by 30.1%.

Additionally, UPS narrowed its revenue outlook for the full fiscal year and lowered its operating margin projections, reducing investor confidence. Despite some positive developments, such as a return to volume growth in the U.S. market and the restart of the share repurchase program, these were overshadowed by the disappointing financial results, leading to the stock's decline.

Earnings Estimates

After the earnings report, analysts quickly cut their estimates and price targets for UPS.

For the current quarter, the last seven days have seen estimates reduced from $2.05 to $1.72, or 16%.

Next quarter looks slightly better, with numbers falling from $2.67 to $2.59, or 3%.

However, the current year looks rough. Over the last 7 days, estimates have dropped 5%, going from $8.15 to $7.71.

Many firms lowered their price targets along with estimates. Barclays has one of the lower targets after maintaining its equal weight, but dropping its target to $120 from $145.

Technical Take

The stock hit 2024 lows after earnings and if it was under $120 it would erase all the post-Covid gains the stock saw after its 7/20 quarter that started a 100% rally in the name.

Before that breakout, UPS traded in a range of $100-120. If the stock falls below $120 and back into that range look for some long-term consolidation in that area with the dividend and the $100 level being strong support. That area is still a long way down from current prices, so investors can be patient buying UPS.

In Summary

The trucking and logistics industry is going through some challenges. Two weeks ago we saw J.B. Hunt disappoint and now UPS. While a lot of this misery is priced-in, investors are better off in stocks trending in the right direction.

Additional content:

Goldilocks US Economy to Boost Stock Price of ANET, QCOM, MU

U.S. economic growth in the second quarter beat estimates on robust consumer outlays. All at once, receding inflationary pressure has paved the way for an interest rate cut as early as fall. This has opened the door to a Goldilocks economy, which bodes well for growth-oriented tech stocks.

Economic Growth Faster Than Expected

US GDP registered an annualized growth of 2.8% in the second quarter, per the advance estimate of the Bureau of Economic Analysis, which is above analysts’ expectations of 2%. The second quarter GDP reading was higher than the first quarter’s downwardly revised growth of 1.4%.

In the April to June quarter, economic growth was driven by an uptick in consumer outlays particularly in the housing, healthcare and recreational sectors. Improvement in the goods segment, which includes motor vehicles and parts, furnishing, gasoline, and energy, also boosted economic growth.

Inflationary Pressure Ebbing

Price pressures on goods and services have begun to subside. The Federal Reserve’s preferred core personal consumption expenditures index, which excludes volatile fuel and food categories, increased by 2.9% in the second quarter but is less than the 3.7% increase in the previous quarter, added the Bureau of Economic Analysis.

Meanwhile, the consumer price index (CPI) declined 0.1% in June after remaining unchanged in May, according to the Labor Department. It’s the first time that monthly consumer prices dipped since the pandemic in 2020. The CPI’s year-over-year rate of 3% was at its lowest in June since April 2021.

Goldilocks Scenario a Boon for ANET, QCOM, MU

With the economy growing steadily, and not strong enough to stoke inflation, things are hunky-dory for tech stocks. This is because the chances of an imminent recession have lessened, a good omen for tech players that are mostly perceived to be growth stocks.

At the same time, falling price pressures have increased the chances of a rate cut as soon as September. A low interest rate situation doesn’t impact tech stocks’ cash inflows, instead, their cost of borrowing gets reduced, eventually boosting profit margins.

Thus, a Goldilocks economic scenario is a blessing in disguise for tech stocks such as Arista Networks, Inc., Qualcomm Inc. and Micron Technology, Inc. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Growth Score of A or B, a combination that offers the best opportunities in the growth investing space. You can see the complete list of today’s Zacks Rank #1 stocks here.

Arista Networks

Arista Networks provides cloud networking solutions for data centers and cloud computing environments. Arista Networks’ data-centric approach is boosting its cloud networking business. Arista Networks, currently, has a Zacks Rank #1 and a Growth Score of B.

The Zacks Consensus Estimate for its current-year earnings has increased 0.1% over the past 60 days. ANET’s expected earnings growth rate for the current year is 14.3%.

Qualcomm

Qualcomm designs high-performance, low-power chip designs for mobile devices. The increase in demand for Android handsets and growth in the automotive business is helping Qualcomm. The company, currently, has a Zacks Rank #2 and a Growth Score of B.

The Zacks Consensus Estimate for its current-year earnings has increased 0.2% over the past 60 days. QCOM’s expected earnings growth rate for the current year is 17.3%.

Micron Technology

Micron Technology is one of the leading worldwide providers of semiconductor memory solutions. Improvement across multiple business units is benefiting Micron Technology. The company, currently, has a Zacks Rank #1 and a Growth Score of B.

The Zacks Consensus Estimate for its current-year earnings has increased 26.1% over the past 60 days. MU’s expected earnings growth rate for the current year is 126.1%.

Shares of Arista Networks, QUALCOMM and Micron Technology have gained 33.4%, 21.3%, and 25.9%, respectively, so far this year.

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