Chicago, IL – November 4, 2024 – Zacks Equity Research shares Leidos Holdings LDOS as the Bull of the Day and Leggett & Platt LEG a sthe Bear of the Day. In addition, Zacks Equity Research provides analysis on NVIDIA Corporation's NVDA, Advanced Micro Devices, Inc.AMD and Micron Technology, Inc. MU.
Here is a synopsis of all five stocks:
Leidos Holdings, a Zacks Rank #1 (Strong Buy), provides services and solutions in the defense, intelligence, civil, and health markets. Renewed strength in the aerospace sector provides a durable backing for this industry leader. Leidos shares have begun to display relative strength, recently surging to all-time highs. Increasing volume has attracted investor attention as buying pressure accumulates in this top-ranked stock.
Leidos is part of the Zacks Aerospace – Defense industry group, which currently ranks in the top 24% out of more than 250 Zacks Ranked Industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.
Quantitative research studies suggest that approximately half of a stock's price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It's no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Leidos Holdings offers national security solutions and systems for air, land, sea, space, and cyberspace for the U.S. Intelligence Community, the Department of Defense, the National Aeronautics and Space Administration, as well as other government agencies and military services. The company is a technology leader in areas such as cybersecurity, data analytics, and logistics.
In addition, Leidos Holdings provides IT solutions in cloud computing, mobility, data center management, and help desk operations. The company boasts a wide array of customers including foreign governments and their agencies, which are primarily located in the United Kingdom, the Middle East, and Australia.
Increased contract wins for Leidos from the Pentagon and other U.S. allies have been a primary growth driver for the company. In the third quarter, Leidos recorded net bookings worth $8.1 billion. This led to an impressive backlog of $40.56 billion, a solid increase relative to the $36.49 billion from the prior quarter.
The diversified defense provider has put together an impressive earnings history, surpassing earnings estimates in each of the last four quarters. Just last week, the company reported third-quarter earnings of $2.93/share, a 49.5% surprise over the $1.96/share consensus estimate. Leidos Holdings has delivered a trailing four-quarter average earnings surprise of 29.9%.
LDOS stock received a boost as analysts covering the company have been increasing their earnings estimates lately. For the current quarter, earnings estimates have risen 4.37% in the past 60 days. The Q4 Zacks Consensus EPS Estimate now stands at $2.15/share, reflecting a potential growth rate of 8.04% relative to the year-ago period. Revenues are projected to climb 3.4% to $4.12 billion.
This market leader has seen its stock advance more than 70% in 2024 alone. Only stocks that are in extremely powerful uptrends are able to experience this type of outperformance. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping up. The stock has been making a series of 52-week (and all-time) highs, widely outperforming the major indices. With positive fundamental and technical indicators, LDOS stock is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Leidos Holdings has recently witnessed positive revisions. As long as this trend remains intact (and LDOS continues to deliver earnings beats), the stock will likely continue its bullish run this year.
Leidos is ranked favorably by our Zacks Style Scores, with a best-in-class 'A' rating in our Momentum category and a second-best 'B' rating in our Growth category. This indicates that LDOS stock is likely to continue its strong momentum based on a favorable combination of earnings and sales growth.
Backed by a top industry group and impressive history of earnings beats, it's not difficult to see why this company is a compelling investment. Robust fundamentals combined with an appealing technical trend certainly justify adding shares to the mix. The future looks bright for this highly-ranked, leading stock.
Leggett & Platt designs, manufactures, and sells engineered components and products used in a wide variety of settings including automobiles, offices, and homes. The company's product lines include bedding, automotive seating, lumber systems, flooring, and office furniture.
The company's diverse offering includes items such as steel rods, drawn wires, specialty foam chemicals, and structural fabrics. Its products are targeted toward bedding and mattress retailers, e-commerce retailers, department stores, construction companies, government agencies, and home improvement centers.
Amid an intensifying and competitive environment, Leggett has reduced its sales expectation for the current fiscal year, recently indicating a 7%-9% decline in year-over-year revenues. The downgrade is primarily due to weaker industry demand across various markets including flooring, textile products, and specialized furniture.
Leggett & Platt, a Zacks Rank #5 (Strong Sell) stock, is a component of the Zacks Furniture industry group, which currently ranks in the bottom 24% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has over the past month:
Stocks in the bottom tiers of industries can often be intriguing short candidates. While individual stocks have the ability to outperform even when they're part of a lagging industry, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
Along with many other consumer discretionary stocks, LEG shares have been underperforming this year while the general market returned to new heights. The stock is hitting a series of lower lows and represents a compelling short opportunity as we head deeper into the fourth quarter.
Under its restructuring plan, Leggett dismissed its total shareholder return goal and other financial targets. The company cut its quarterly dividend back in the second quarter, reducing it to 5 cents from 44 cents a year earlier. A reduction in its dividend raises concerns for shareholders as the move signifies underlying financial instability.
Leggett & Platt has fallen short of earnings estimates in two of the past four quarters. Just last week, the company reported third-quarter earnings of $0.32/share, missing the $0.33/share Zacks Consensus Estimate by -3.03%. Consistently falling short of earnings estimates is a recipe for underperformance, and LEG is no exception.
The company has been on the receiving end of negative earnings estimate revisions as of late. Looking at the current quarter, analysts have slashed estimates by a whopping -20.69% in the past 60 days. The Q4 Zacks Consensus EPS Estimate is now $0.23/share, reflecting negative growth of -11.5% relative to the year-ago period.
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
As illustrated below, LEG stock is in a sustained downtrend. Notice how the stock has made a series of lower lows, widely underperforming the major indices. Also note that shares are trading below a downward-sloping 200-day average (red line) moving average – another good sign for the bears.
LEG stock has experienced what is known as a "death cross," whereby the stock's 50-day moving average (blue line) crosses below its 200-day moving average. The stock would have to make an outsized move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. Shares have fallen more than 50% this year alone.
A deteriorating fundamental and technical backdrop show that this stock is not set to make its way to new highs anytime soon. The fact that LEG is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock's downtrend.
Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of LEG until the situation shows major signs of improvement.
NVIDIA Corporation's current valuation suggests that the stock is available at a discounted price compared with the industry average. NVDA stock currently trades at a trailing 12-month price-to-earnings (P/E) ratio of 63.28, which is significantly lower than the Zacks Semiconductor – General industry average of 72.04.
What makes the stock a more lucrative bargain at the moment is its fabulous year-to-date (YTD) performance. NVIDIA shares have skyrocketed 168.1% YTD, outperforming the industry's surge of 128.8%. This impressive rally has placed NVIDIA among the top performers in the semiconductor space, with Advanced Micro Devices, Inc. and Micron Technology, Inc. lagging way behind.
While shares of Micron have risen 16.8% YTD, AMD has declined 2.3%. Given this outperformance and attractive valuation, investors might be wondering if there is still an opportunity to buy NVDA stock.
NVIDIA's rapid rise is largely attributed to its pivotal role in the booming field of artificial intelligence (AI), especially in generative AI. The demand for generative AI applications, which enhance productivity across industries, is anticipated to skyrocket. According to Fortune Business Insights, the global generative AI market is expected to reach $967.6 billion by 2032, reflecting a compound annual growth rate (CAGR) of 39.6% from 2024 to 2032. This exponential market growth is expected to drive demand for NVIDIA's high-performance graphic processing units (GPUs), which are fundamental to AI advancements.
NVIDIA's cutting-edge GPUs deliver exceptional computational power, enabling AI models to scale effectively. These next-generation chips are fast becoming indispensable for businesses investing in AI. NVIDIA's superior technology offers unmatched processing capabilities vital for the complex computations AI requires. As businesses increasingly invest in AI infrastructure, NVIDIA stands to benefit as the dominant provider of the technology underpinning these applications.
NVIDIA's influence extends well beyond AI. The company's GPUs are integral to advancements in sectors like automotive, healthcare and manufacturing. In automotive, NVIDIA's solutions contribute to the development of autonomous vehicles, a market expected to experience rapid growth over the next decade. In healthcare, NVIDIA's GPUs are revolutionizing medical diagnostics, enhancing imaging processes and improving patient care. This broad, multi-industry applicability positions NVIDIA as a resilient and diverse growth engine in the tech landscape.
Moreover, NVIDIA's robust data center solutions are gaining traction. As companies invest in cloud and edge computing, demand for powerful data center infrastructure rises, making NVIDIA's data center business a critical growth driver. This sector alone is projected to significantly boost the company's revenues as businesses accelerate their digital transformation efforts, solidifying NVIDIA's long-term growth potential.
NVIDIA's financial performance has been outstanding. In its second-quarter fiscal 2025 report, the company posted a massive 122% year-over-year revenue increase, accompanied by a 152% jump in non-GAAP earnings per share (EPS). This financial strength highlights NVIDIA's ability to capitalize on strong demand while navigating market competition effectively.
For the upcoming third quarter, NVIDIA's revenues are expected to surge to $32.5 billion, up from $18.12 billion in the same quarter last year, underscoring its growth trajectory and position as a critical player in semiconductor technology for AI. Looking forward, the Zacks Consensus Estimate for NVIDIA's fiscal 2025 and 2026 revenues and earnings points to sustained growth, reflecting confidence in the company's market leadership across multiple sectors, including gaming, automotive and professional visualization.
NVIDIA's financial stability is a significant advantage. The company ended July 2024 with a cash reserve of $34.8 billion, up from $31.44 billion in April. This solid balance sheet enables NVIDIA to weather potential market fluctuations and supports continued investments in its growth initiatives. In a rapidly evolving tech landscape, this financial strength provides NVIDIA with a strategic advantage, positioning it to capitalize on future growth opportunities.
NVIDIA's dominant position in AI, coupled with its financial strength, broad market applications and attractive valuation, makes it a compelling buy. The company's strong financial results, impressive outlook and extensive cash reserves create a solid foundation for continued growth.
Given the surging demand for AI and the expanding applications of NVIDIA's technology across various industries, NVDA stock presents a strong opportunity for investors looking to benefit from the next wave of technological advancements. Now is the time to buy NVIDIA stock and capture its promising long-term potential.
NVIDIA currently carries a Zacks Rank #2 (Buy) and has a Growth Score of A. Our research shows that stocks with a Growth Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or #2, offer the best investment opportunities for investors. NVDA stock appears to be a compelling investment proposition at the moment. You can see the complete list of today's Zacks #1 Rank stocks here.
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