Fabrinet, and Advance Auto Parts have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL –August 27, 2024 – Zacks Equity Research shares Fabrinet FN as the Bull of the Day and Advance Auto Parts, Inc. AAP, as the Bear of the Day. In addition, Zacks Equity Research provides analysis on NVIDIA Corp. NVDA, Coinbase Global, Inc. COIN and Block, Inc. SQ.
Here is a synopsis of all five stocks:
Bull of the Day:
Fabrinet is a global manufacturing services company that specializes in precision optical, electronic, and electromechanical components. It serves industries such as telecommunications, automotive, and medical devices. Known for its expertise in high-complexity manufacturing, Fabrinet operates facilities primarily in Thailand and the U.S., offering end-to-end manufacturing and supply chain solutions.
At its most recent earnings meeting Fabrinet delivered strong financial results, exceeding market expectations in both revenue and earnings. The company achieved record revenue for the fourth consecutive quarter, totaling $753.3 million, a 15% increase year-over-year, while earnings per share (EPS) also reached a new high, coming in at $2.41. Fabrinet also announced that its Board of Directors has approved an expansion of its share repurchase program, authorizing the repurchase of up to an additional $139.5 million of Fabrinet’s ordinary shares.
Fabrinet stock has been a powerful performer over the last decade, demonstrating its secure position in the industry and its successful business execution. Over the last ten years the stock has compounded at an annual rate of 31.7%, nearly triple that of the broad market.
Analysts Raise Fabrinet Earnings Estimates
Possibly reflecting such a positive quarterly report, analysts have upgraded earnings estimates for Fabrinet, giving it a Zacks Rank #1 (Strong Buy) rating.
Excluding next year’s estimates, earnings have been revised higher unanimously and across timeframes. Current quarter earnings estimates have been boosted by 7.2% and are expected to grow 19.5% year-over-year (YoY), while FY25 earnings estimates have climbed by 5.7% and are forecast to grow 11.6% YoY.
Revenue is expected to grow 11.3% this year to $3.2 billion, while next year is expected to increase 9.6% to $3.5 billion.
Fabrinet Shares Trade at a Historical Premium
As the quality of Fabrinet’s business has become more recognized by market participants its valuation has steadily climbed over the last 10 years. Today, FN is trading at a one year forward earnings multiple of 29.3x, which is well above its 10-year median of 16.6x and above the broad market average.
It is worth noting that as a company grows larger and demonstrates consistent profit growth such as Fabrinet has done it brings in a new class of investors who seek such a well-guarded business model. Because of this the appropriate earnings multiple can creep up as seen in FN. Nonetheless, its strong position was only further confirmed by the recent quarterly report. FN’s five-year median valuation was 20.1x, more closely reflecting this position of quality.
Should Investors Buy Fabrinet Stock?
Fabrinet's strong performance, both in terms of financial results and stock appreciation, reflects the company’s solid execution and leadership in the high-tech manufacturing sector. With record revenue growth, consistent earnings beats, and an expanding share repurchase program, Fabrinet is well-positioned for continued success.
However, investors should be aware of the stock's elevated valuation. Trading at a forward earnings multiple is above its historical median—Fabrinet is priced at a premium. This premium may be justified by its consistent performance and strong industry positioning, but it also suggests that future returns may be more dependent on continued execution and growth.
For long-term investors looking for exposure to a high-quality company with a proven track record in precision manufacturing and growth potential in key sectors like telecommunications, automotive, and medical devices, Fabrinet could still be a strong buy. However, new investors should consider the current valuation and potentially look for pullbacks to optimize entry points.
Overall, Fabrinet represents a compelling investment opportunity, particularly for those focused on long-term growth in the technology and manufacturing sectors.
Bear of the Day:
Advance Auto Parts, Inc. is struggling in a challenging retail environment. This Zacks Rank #5 (Strong Sell) recently missed on earnings for the 6th quarter in a row.
Advance Auto Parks is an automotive aftermarket parts providers that serves both professional installers and do-it-yourself (DIY) customers.
As of July 13, 2024, Advance Auto Parks operated 4,776 stores and 321 Worldpac branches mostly in the United States but with additional locations in Canada, Puerto Rico, and the US Virgin Islands. It also sells online at its website of AdvanceAutoParts.com.
Another Miss in the Second Quarter of 2024
On Aug 22, 2024, Advance Auto Parts reported its second quarter 2024 results and missed again on earnings. It reported $0.75 versus the Zacks Consensus of $0.97, or a miss of $0.22.
Sales were flat compared to the year ago quarter, at $2.7 billion.
Comparable store sales, a key metric for retailers, was up, but just 0.4%. But the company saw this as a win due to the “challenging demand environment” during the quarter.
Selling Worldpac for $1.5 Billion
On Aug 22, 2024, Advance Auto Parts also announced it was selling its wholesale distribution business, Worldpac, to Carlyle for $1.5 billion in cash.
This will allow Advance Auto Parts to focus on the big box retail component of the business and will free up some ready cash.
The transaction is expected to close by the end of the year.
Analysts are Bearish as They Cut Earnings Estimates
Analysts are bearish on Advance Auto Parts. 3 estimates have been cut for both 2024 and 2025 over the last month.
The 2024 Zacks Consensus has fallen to $3.61 from $3.94 over the last 90 days. But that is still earnings growth of 622% as the company only made $0.50 last year.
3 estimates have also been cut for 2025 over the last month as well. That has pushed the Zacks Consensus down to $4.25 from $4.46 over the last 90 days. That’s further earnings growth of 17.9%.
However, for 2024, the company’s comparable store sales guidance remained weak at a range of a decline of 1.0% on the low end and flat, or 0.0%, on the high end.
Shares of Advance Auto Parts Near New 5-Year Lows
Once a pandemic winner, shares of Advance Auto Parts have now sunk to new 5-year lows. It is going the opposite direction from the S&P 500 over that period.
Is it cheap?
Advance Auto Parts trades with a forward P/E of 13.6.
It is also paying a dividend, currently yielding 2%.
But with the analysts so pessimistic, investors may want to wait on the sidelines for a turnaround in comp sales. That's when you'll know the business is turning ti around.
Additional content:
BTC Rallies as Fed Signals Rate Cuts: NVDA, COIN, SQ to Gain
The price of Bitcoin (BTC) scaled upward recently after the Federal Reserve’s Chair Jerome Powell said at the Jackson Hole Symposium that “time has come” to trim interest rates soon.
Rate cuts, by the way, are bullish for cryptocurrencies like BTC, and stocks such as NVIDIA Corp., Coinbase Global, Inc. and Block, Inc. are well-poised to gain from the digital coins’ present upsurge.
BTC Bull Run Is Here
Despite a rollercoaster ride, BTC has been able to lure investors repeatedly since its inception in 2009. It witnessed modest gains in 2012 but surged substantially in 2017, and the momentum carried into 2021.
BTC’s meteoric rise, however, was disrupted in 2022, yet the flagship cryptocurrency bounced back in 2023 to end at $42,258. In 2024, the approval of spot Bitcoin ETFs fueled another rally, with BTC’s price climbing above $70,000 by March.
BTC’s price, nevertheless, has been struggling to hold above its key support level of $58,000 in recent times as investors remained cautious ahead of the Fed’s monetary policy decision.
Things improved as BTC’s price scaled upward in the last couple of trading sessions to trade around $64,000 following the Fed’s assurance that the time has come for an interest rate cut soon. BTC’s price has jumped 9.2% in the last seven trading days raising speculation of a forthcoming upswing.
What’s Propelling BTC Price Higher?
Powell recently said that time has arrived to cut interest rates as inflationary pressures have begun to subside. The minutes from the Fed’s latest policy meeting also indicated that an interest rate cut in September is highly likely.
Per the CME FedWatch Tool, 61.5% of market participants expect the Fed to trim interest rates by a quarter-point in the September meeting, with many estimating at least two rate cuts this year.
Liquidity increases amid a lower interest rate scenario. Thus, spending on riskier assets such as cryptocurrencies and stocks typically rises. At the same time, a significant downward selling pressure on BTC has waned. After all, the German government has concluded BTC liquidations and Bitcoin whales have started to acquire additional BTC.
3 Stocks to Make the Most of BTC’s Upward Trajectory
With the price of BTC set to scale northward, things are hunky dory for NVIDIA, Coinbase Global and Block, which can take advantage of the world’s numero uno cryptocurrency’s bullish momentum. These stocks currently have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
NVIDIA
NVIDIA has entered the cryptocurrency space by developing graphic processing units for mining cryptos like BTC.
Nvidia’s expected earnings growth rate for the current and next year is 106.9% and 26.1%, respectively. Its estimated revenue growth rate for the current and next year is 93.9% and 30.9%, respectively (read more: The Better AI Stock to Buy Now: NVDA or SMCI)
Coinbase Global
Coinbase Global is one of the biggest cryptocurrency exchanges in the United States. BTC is traded in its crypto-trading platform.
Coinbase Global’s expected earnings growth rate for the current quarter and year is 6,000% and 1,435.1%, respectively. Its estimated revenue growth rate for the current quarter and year is 93.1% and 84.8%, respectively.
Block
Digital payment company Block generates revenues from products such as Cash App, where BTC is traded.
Block’s expected earnings growth rate for the current and next year is 98.9% and 27%, respectively. Its estimated revenue growth rate for the current and next year is 11.9% and 9.6%, respectively.
Shares of NVIDIA, Coinbase Global and Block have gained 176.2%, 186.8% and 17%, respectively, over the past year.
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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Advance Auto Parts, Inc. (AAP) : Free Stock Analysis Report
Fabrinet (FN) : Free Stock Analysis Report
Block, Inc. (SQ) : Free Stock Analysis Report
Coinbase Global, Inc. (COIN) : Free Stock Analysis Report