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Ultra Clean, Construction Partners, JP Morgan, Bank of America and Citigroup highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – January 10, 2020 – Zacks Equity Research Shares of Ultra Clean Holdings UCTT as the Bull of the Day, Construction Partners ROAD asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on JP Morgan JPM, Bank of America BAC and Citigroup C.

Here is a synopsis of all five stocks:

Bull of the Day:

Ultra Clean Holdings is a Zacks Rank #1 (Strong Buy) and is the Bull of the Day once again.  The last time the stock was the Bull of the Day was November 12 and the stock closed that day at $22.54.  There hasn't been that much movement in the stock since then, but 

Description

Ultra Clean Holdings is a developer and supplier of critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries. Ultra Clean offers its customers an integrated outsourced solution for gas delivery systems and other subassemblies, improved design-to-delivery cycle times, component neutral design and manufacturing and component testing capabilities. Ultra Clean's customers are primarily original equipment manufacturers for the semiconductor capital equipment, flat panel, solar and medical device industries. Ultra Clean is headquartered in Menlo Park, California.

Earnings History

As I look at the last four quarters I see a solid history with three straight beats coming after one miss.  The average positive earnings surprise over the last four quarters is 25%.

Earnings Estimate Movement

The Zacks Rank is an algo that looks for the best moves in earnings estimates. The consensus estimates for UCTT is doing just what investors want to see, its moving higher.

I see small increases for this quarter, next quarter, this year and next year.

The Zacks Rank cares the most about the full year number and for 2019 that number has moved from $0.87 to $0.95 over the last 60 days.

The 2020 number has moved from $1.29 to $1.40 over the same time period.

These are big moves... and investors that believe that fundamentals matter know that higher EPS results lead to higher stock prices.

Valuation

I see a 16x forward PE mulTiple and that is pretty good considering there is 8.6% topline growth on a year over year basis.  I see a price to book multiple that is just under 2x and a price to sales multiple of 0.86x.

Chips stocks in general have been very strong and this name should benefit from continued investor interest in the space.

Bear of the Day:

As the editor of the Home Run Investor portfolio, I have to say that I was long shares of Construction Partners from June 5, 2019 to September 11, 2019.  Over the course of those three months, the stock appreciated 9.8% but that gain could have been a lot better.

The stock traded over $20 in December and then there the recent earnings. Before I get into that, let's take a look at the basics in this Bear of the Day article.

Description

Construction Partners Inc. is an infrastructure and road construction company. It provides construction products and services to public and private sectors. The company's services include construction of highways, roads, bridges, airports and commercial and residential sites. Construction Partners Inc. is based in Alabama, United States.

Recent Earnings

On December 9, the company missed the Wall Street consensus estimate by two cents and also missed on top as well.  That caused the stock to fall 20% in short order.

Backlog came in at $531M, down from the $594M level it was at a year ago.

Guidance was inline with revenues expected to come in at $830M to $870M when the consensus was calling for $854M.

Estimates Fall

The primary driver of the Zacks Rank is earnings estimate revisions.

For ROAD, I see estimate falling for this quarter, next quarter, the full fiscal year 2020 and the full fiscal year 2021.

The Zacks Consensus Estimate for fiscal 2020 has fallen from $0.99 to $0.89.  The number for next year has slipped from $1.12 to $0.95

Valuation

At 19x forward earnings, the stock isn't exactly cheap.  I see 10% topline growth so that makes that multiple more manageable.  A 2.5x price to book multiple is still low enough to keep value investors interested and at 1.1x sales

So the question becomes, is this stock buyable down here?  I would want to see the Zacks Rank turn around first.  Earnings estimates that fall have a way of falling more, so when that downturn is over, the stock could be prime for a buyable dip.

Additional content:

Banks Rally into Earnings: What This Means

Banks have rallied hard over the past quarter as the majority of America’s largest banks gain over 20% in the past 3 months, substantially outpacing the market. These financial institutions are the first to report Q4 earnings beginning next week. What does this recent rally mean for Q4 earnings expectations?

These stocks had traded sideways for most of the year, with investors concerned about falling interest rates and a global economic slowdown. In the final 3 months of the year, investors and traders started to re-allocate assets into this under-assigned sector. Interest rates bottomed out in September and gained some upward momentum when the Federal Reserve announced they would not be adjusting the Fed Funds rate, America’s interest rate benchmark, for the foreseeable future. Global economic pressures seem to be easing with a US-China trade conflict ostensibly coming closer to a resolution every day.

Investors revived confidence in financials is going to be tested next week, with the major banks reporting their Q4 results. The financial rally coming into earnings is setting the bar high, and an earning beat may not be enough to keep this rally going.

JP Morgan

JPM has risen 20% over the past 3 months as traders and investors put their bets on the US’s largest bank. Analysts have increased expectations for its Q4 earnings following a big top and bottom-line beat in its latest quarterly results in October.

JPM is reporting its December quarter earnings Tuesday, the 14th of January. Zacks Consensus estimates demonstrate an EPS of $2.30 on sales of $27.3 billion, representing year-over-year growth of 16% and 4.4%, respectively.

JPM typically is not a big mover on earnings, but this may change with the stock’s massive Q4 rally coming into earnings. JPM has missed its topline estimate every December quarter for as far back as I can see (2013). This could spell trouble for JP Morgan next week.

Bank of America

BAC’s shares gained more than 23% over the past 3 months, illustrating one of the most robust Q4 rally in the financial sector. BAC also beat its Q3 estimates by a sizable amount, and analysts’ full-year expectations rose for the next couple of years, pushing this stock into a Zacks Rank #2 (Buy). I personally think that this 25% appreciation since its last earnings has more than priced in the rise in future earnings.

Bank of America is reporting its earnings on Wednesday the 15th of January before the bell. Once again, the bar is set high for BAC, though they are expecting a marginal year-over-year decline in EPS and revenue. Zacks consensus estimates demonstrate an EPS of $0.68 on revenues of $22 billion.

BAC is typically not a big mover on earnings and has historically been conservative and had a positive price action.

Citigroup

Citi shares have grown by just over 16% in the past 3 months, which is a softer rally than the broader space due to its industry outperformance throughout 2019. C returned investors over 45% (including dividends) in the past 52-weeks compared to the industry’s 32% returns.

Citigroup is reporting its December quarter earnings before market open on Tuesday the 14th of January. According to Zacks Consensus estimates, Citi is expected to report a Q4 EPS of $1.82 on revenues of $17.7, representing year-over-year growth of 13% and 3.4%, respectively.

If I had to choose a bank to invest in, it would be Citi due to its cheap valuation and long-term growth outlook. C is trading a P/B of below 1, which is a sizable discount to its closest competitors. 12 out of 13 sell-side analysts are calling these shares a buy with an average price target that represents a 13.5% share appreciation.

Take Away

Next week is going to dictate whether banks' current rally has legs or not. Look for these three critical earnings I discussed for a directional move in the banking sector.

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JPMorgan Chase & Co. (JPM): Free Stock Analysis Report
 
Citigroup Inc. (C): Free Stock Analysis Report
 
Bank of America Corporation (BAC): Free Stock Analysis Report
 
Ultra Clean Holdings, Inc. (UCTT): Free Stock Analysis Report
 
Construction Partners, Inc. (ROAD): Free Stock Analysis Report
 
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