For Immediate Release

Chicago, IL – August 19, 2024 – Zacks Equity Research shares Spotify Technology S.A. (SPOT Quick QuoteSPOT - Free Report) as the Bull of the Day and H&E Equipment Services, Inc. (HEES Quick QuoteHEES - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on The Williams Companies (WMB Quick QuoteWMB - Free Report) , Chevron (CVX Quick QuoteCVX - Free Report) and Canadian Natural Resources (CNQ Quick QuoteCNQ - Free Report) .

Here is a synopsis of all five stocks.

Bull of the Day:

Spotify Technology S.A. stock has soared 150% during the last year to crush Meta, Amazon, Apple, and tons of other tech standouts. Spotify stock looks ready to break out to new all-time highs, even as SPOT’s valuation improves immensely.

Spotify’s commitment to efficiency and profits, mixed with a string of price hikes and strong user growth are leading to booming earnings expansion and impressive revenue growth.

The streaming music powerhouse posted another blowout beat-and-raise quarter in late July that sent Spotify’s earnings outlook soaring even higher.

Spotify Stock’s Bull Case

Spotify was one of the pioneers of paid streaming music. The company forever altered the music industry the way Netflix changed TV and movies. Like Netflix (NFLX), Spotify’s success inspired challengers such as Apple, Amazon, and Alphabet to enter the streaming music space.

Despite competition from the giants of tech, Spotify remains the king of streaming music. Spotify reportedly held 32% of the global streaming music market share in 2023, blowing away No. 2 Apple Music’s 15%, as well as YouTube’s 14% and Amazon’s 13%.

Spotify is thriving as users flock to the service for music, podcasts, and more recently, audiobooks. SPOT nearly doubled its revenue between 2019 and 2023. Spotify grew its Premium Subscribers by 80% between Q2 FY20 and Q2 FY24, while monthly active users surged 110%.

Spotify is projected to grow its monthly active users by roughly 45% to 900 million by 2028, based on some Wall Street estimates. Spotify’s user growth expansion is key to helping it continue to negotiate favorable rights deals with artists.

Spotify’s streaming service often becomes an essential aspect of its users’ daily lives, helping SPOT successfully raise its prices in back-to-back summers. Spotify in the summer of 2023 hiked its monthly prices for its ad-free Premium plans to match competitors such as Apple and Amazon. Fast forward to June 2024, and SPOT upped its prices again to help keep up with inflation and boost profits.

Higher interest rates sparked Spotify to focus on efficiency and the bottom line, much like Amazon and other former sales and user growth-over-everything-else tech firms. Spotify has cut down its workforce and rolled out other streamlining efforts.

Spotify appears to have reached an inflection point on profits and cash flow growth.

Spotify’s Recent Quarter and Growth Outlook

Spotify boosted its gross margin by 510 bps to a record high of 29.2% in the second quarter. SPOT expanded its free cash flow to €490 million in Q2, up from €207 in the first quarter of 2024 and just €9 million in the year-ago period.

Spotify grew its monthly active users by 14% YoY in the second quarter to 626 million, expanding its paid Premium Subscribers by 12% to 246 million. Spotify grew its revenue by 18% last quarter and swung from an adjusted loss of -$1.69 a share in the year-ago period to +$1.43, crushing our EPS estimate by 32%.

Spotify boosted its outlook once again as its combination of price hikes, efficiency, and user growth led to soaring earnings expansion. SPOT’s FY24 EPS estimate has surged 27% since its Q2 release, with its FY25 figure 21% higher.

SPOT’s recent bottom-line revisions are part of an impressive trend that’s seen its FY24 EPS estimate skyrocket 940% over the last 12 months from $0.61 a share to its current $6.32, while its FY25 figure soared 280%. Spotify’s improving EPS estimates help SPOT stock land a Zacks Rank #1 (Strong Buy).

Spotify is projected to swing from an adjusted loss of -$2.95 a share last year to +$6.32 per share in 2024 and then surge 38% next year to $8.70 a share. Meanwhile, Zacks estimates call for SPOT to grow its revenue by 19% in 2024 and another 15% next year to climb from $14.33 billion in 2023 to $20 billion in FY25—doubling revenue between FY20 and FY25.

Spotify expects to end the third quarter with 639 million monthly active users, marking 11% YoY growth.

Breaking Down SPOT’s Performance, Technical Levels, and Valuation

Spotify stock has soared 350% off its 2022 lows (around the stock market’s 2022 bottom), including an 80% YTD climb. SPOT crushed Apple, Amazon, and Alphabet during both of those periods. Despite its impressive run, Spotify trades around 8% below its 2021 peaks and 9% under its average Zacks price target.

Spotify stock might be ready to finally break out to new all-time highs if it can build on its first-half momentum in terms of earnings expansion and beyond.

SPOT’s 21-day moving average has provided rather bullish support since the start of 2023. Spotify stock is also far from overheated, with it sitting at neutral levels in terms of the Relative Strength Index (RSI) (bottom part of the nearby chart)—RSI is used to help determine if a stock or index is too expensive or too cheap based on its recent performance.

Spotify trades at a 75% discount to its 12-month highs at 42.9X forward 12-month earnings. SPOT’s PEG ratio, which factors in the company’s long-term earnings growth outlook, marks a 60% discount to the Tech sector. In terms of forward sales, Spotify stock trades at a 43% discount to the Zacks Tech sector and 41% vs. SPOT’s highs.

Bear of the Day:

H&E Equipment Services, Inc. is a U.S. rental equipment giant that’s experiencing a wave of negative earnings revision as the economic environment changes.

H&E Equipment missed our Q2 EPS estimate on July 30. H&E Equipment’s earnings estimates for 2024 and 2025 have tumbled since its report, extending its recent string of downward revisions, which help it earn a Zacks Rank #5 (Strong Sell) right now.

H&E Equipment Overview

H&E Equipment rents, sells, and provides parts and services across a range of rental equipment of all shapes that are utilized throughout the entire construction sector. HEES has expanded within a critical part of the wider construction sector through organic growth and acquisitions.

H&E Equipment grew its sales by roughly 18% in the last two years, driven by a wave of residential building, commercial construction, and infrastructure spending.

The company is still projected to post 4% sales growth in 2024 and 2025. But H&E Equipment’s outlook has faded as “higher project financing costs and more stringent lending standards have led to curtailed spending, especially among smaller contractors.”

H&E Equipment’s FY24 and FY25 earnings estimates have fallen by roughly 13% and 17%, respectively since its July 30 report, helping it land a Zacks Rank #5 (Strong Sell).

H&E Equipment’s recent downward revisions extend a rough stretch for the company. H&E Equipment’s earnings outlook began to tumble in early 2024.

Bottom Line

H&E Equipment’s adjusted 2024 earnings are projected to fall 26% YoY. HEES shares have been volatile during the past 12 months and the last 10 years. HEES is still up 14% in the trailing decade and 1% in the last 12 months. But those performances significantly lag the Zacks Industrial sector.

HEES remains “encouraged by the continued growth in mega projects and increased infrastructure project funding.” Still, investors might want to look to other companies in the broader industrial sector until H&E Equipment proves that its earnings outlook isn’t going to deteriorate further.

Additional content:

Don't Ignore These 3 Large Caps Yielding Over 4%

Pulled down by multiple factors, U.S. oil prices have been struggling to get past the $80-a-barrel level. The EIA's revised forecast of global crude consumption at 104.5 million barrels per day for 2025, down 200,000 barrels from prior estimates, reflects concerns over a potential U.S. recession and a decelerating Chinese economy.

With a reduced demand growth rate of 1.6%, these factors have been exerting downward pressure on oil prices, highlighting vulnerabilities in global oil demand driven by economic uncertainties in major markets. Meanwhile, natural gas is currently trading around the lowly $2 level in the face of certain headwinds, including strong production and elevated stockpiles.

Given the current state of affairs in the energy sector, it seems a wise investment strategy to search for stocks that provide a solid level of defense and often come with dividend payouts. A group of stocks that fulfill these criteria are the large caps — defined as companies with a market capitalization of $10 billion or more.

The Williams Companies, Chevron and Canadian Natural Resources stand out as compelling choices for investors seeking large-cap energy exposure.

Why Large Caps?

These companies possess strong financial positions and established reputations, and enjoy extensive analyst coverage. Moreover, their consistent dividend payments make them popular among income-oriented investors. Investors seeking reliability and a solid track record will find these large-cap companies appealing.

While large-cap companies may offer less growth potential compared to their smaller counterparts, they compensate with a lower level of price volatility. This characteristic makes them an excellent choice for investors who prefer a steadier investment approach, free from drastic commodity price swings.

Our Choices

Williams Companies: Founded in 1908, Oklahoma-based The Williams Companies is a premier energy infrastructure provider in North America. The company’s core operations include finding, producing, gathering, processing, and transporting natural gas and natural gas liquids.

The Tulsa, OK-based WMB beat the Zacks Consensus Estimate for earnings in each of the last four quarters, the average being 11.3%. Williams has a market capitalization of roughly $52.9 billion.

A major incentive for holding the WMB stock is dividend. With a quarterly payout of 47.50 cents, shares currently yielding 4.3% annually, well above the Zacks Oil/Energy sector average of 3.8%. Reflecting a shareholder-friendly nature, the Zacks Rank #2 (Buy) company has grown its payout by more than 4% over the last five years.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chevron: Based in San Ramon, CA, Chevron is one of the largest publicly traded oil and gas companies in the world, which participates in every aspect related to energy — from oil production to refining and marketing.

The Zacks Consensus Estimate for September-quarter earnings of Chevron indicates 3.6% growth. The Zacks Rank #3 (Hold) company has a market capitalization of roughly $264.6 billion.

With a quarterly payout of $1.63 per share, the CVX stock has a 4.4% dividend yield, above the generous sector average and significantly over the S&P 500’s 1.3% average.

Canadian Natural Resources: Established in 1973, Calgary-based Canadian Natural Resources is one of the largest independent energy companies in Canada. The #3 Ranked company boasts a diversified portfolio of crude oil (heavy as well as light), natural gas, bitumen and synthetic crude oil.

CNQ is valued at some $76.9 billion. The Canadian energy behemoth has a trailing four-quarter earnings surprise of roughly 7.2%, on average.

CNQ pays out a quarterly dividend of C$52.50, which gives it a 4.2% yield at the current stock price.

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