Barrick Gold and Airbus have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – July 3, 2024 – Zacks Equity Research shares Barrick Gold GOLD as the Bull of the Day and Airbus Group EADSY as the Bear of the Day. In addition, Zacks Equity Research provides analysis on SkyWest SKYW, United Airlines UAL and Alaska Air ALK.
Here is a synopsis of all five stocks:
Bull of the Day:
Zacks Rank #1 (Strong Buy) stock Barrick Gold is a Canadian gold mining company. Barrick is among the top gold producers globally, and the company has mining projects and exploration locations across five continents.
GOLD management is focused on maximizing the benefits of rising metal prices by meeting operations and financial targets. As you might expect, the stock is highly correlated to its underlying commodity, gold. As such, I will first cover the bullish thesis behind gold.
Gold Bull Thesis
Inflation Hedge
Investors see gold as a hedge against inflation. The U.S. faces a mindboggling deficit of $34 trillion and is proliferating each day. As the 2024 election approaches, investors must accept the fact that Biden and Trump, the two overwhelming frontrunners, are not known for their fiscal conservatism.
Furthermore, even if spending tapers, the Federal Reserve is expected to cut interest rates by year-end, and the budget deficit will remain at nosebleed levels. Interest payments are swelling, ranking fourth in spending (only behind Social Security, Medicare, & Defense). In other words, don't expect a budget surplus any time soon – the last surplus for the federal government was in 2001!
U.S. Sanctions & BRICS Demand
BRICS is an acronym for an association of five major emerging national economies- which stands for Brazil, Russia, India, China, and South Africa (Egypt, Ethiopia, Iran, & the UAE have been added to the original BRICS recently) – known for their significant influence on regional and global affairs. BRICS was formed to promote cooperation and collaboration among its member countries, which are major emerging economies, to address common challenges, foster economic development, and enhance their collective influence on the global stage. By working together, BRICS seeks to strengthen their positions in international institutions, promote inclusive development, and contribute to global economic governance reforms.
How does the BRICS impact the price of gold? The U.S. has levied severe sanctions on BRICS members such as Russia and newcomer Iran. With Russia locked in a multi-year conflict with Ukraine (with no end in sight) and Iranian leadership funding proxy wars on U.S. troops globally, the two countries are essentially barred from using the U.S. dollar and are forced to seek alternatives.
To "de-dollarize" and provide an alternative to the U.S. dollar (which is no longer backed by gold), the BRICS countries have been dramatically increasing their purchases of gold on the international market – a trend that should last for years to come and put a floor under gold and gold proxies like the Van Eck Gold Miners ETF.
Costco Sparks Retail Gold Demand
Costco Wholesale is one of the top discount retailers in the United States and worldwide. What makes Costco so unique? The company offers dirt cheap prices to those consumers who are willing to purchase a Costco membership and buy in bulk. By moving a lot of products, COST can keep prices low on everything from gasoline to televisions to furniture. Though COST is a discount retailer, it offers high-end products to its loyal customer base, such as expensive and difficult-to-source cognac, for example.
In the second half of 2023, Costco began to offer gold bullion bars at competitive price levels. The addition of gold bars to Costco Wholesale locations has been breathtaking. Because of its solid reputation and competitive pricing, COST reportedly rakes in ~$200 million a month in revenue from gold bullion alone. With such success, it is not out of the question that other retailers follow suit and the consumer gold market snowballs, driving gold prices higher.
Barrick Bull Thesis
M&A Sparks Growth
Barrick has been leveraging mergers and acquisitions to become an industry leading gold company. The company now owns five of the industry's top ten tier one gold assets. Furthermore, GOLD has the lowest total cash cost position among senior gold peers mixed with high-quality gold reserves. Barrick also has an extensive regional presence across many of the world's most prolific gold districts.
Robust EPS Estimates and the Tendency to Beat the Street
Zacks Consensus Estimates suggest that Barrick will grow EPS at a healthy double-digit rate over the next two years.
Meanwhile, the company has delivered positive EPS surprises for four straight quarters, with an average surprise of 18%.
Bullish Technical Set-Up
GOLD is forming a bullish monthly pennant. Investors should look for the stock to clear last month's doji (indecision) candle.
Bottom Line
Through its aggressive M&A strategy, Barrick Gold is well-positioned to take advantage of soaring gold demand and government spending.
Bear of the Day:
Zacks Rank #5 (Strong Sell) stock Airbus Group is a leading airplane manufacturer headquartered in the Netherlands. The massive multinational aerospace company focuses on designing and manufacturing commercial aircraft.
However, Airbus has smaller business divisions, which include segments such as defense, space, and a helicopter division. Airbus is the world's second largest commercial airplane manufacturer, only behind U.S. airplane manufacturing juggernaut Boeing, which Airbus enjoys a duopoly with.
Airbus Slashes Guidance
Late last month, Airbus unexpectedly cut 2024 guidance and lowered its financial targets for the year, blaming supply chain issues and increased costs. Earlier in the year, the company projected earnings before expenses like interest and taxes would be ~$7 billion. However, the company projects adjusted earnings will fall short of $6 billion, and it will deliver fewer commercial airplanes than expected.
The shot of lousy news adds to the company's already troubling earnings surprise trend. Airbus has missed Zacks Consensus Estimates for three of the past four quarters.
Faltering Despite Boeing Woes
Boeing, Airbus's largest competitor, has experienced a plethora of recent safety scares, including a tire that fell off a United Airlines plane during takeoff and two violent turbulence episodes that resulted in an unfortunate death. Nevertheless, despite a Department of Justice (DOJ) investigation and a tarnished reputation, Airbus has not been able to seize on the opportunity, a troubling sign.
China Competition Heating Up
As I mentioned previously, Boeing and Airbus are the two most prominent airline manufacturers worldwide. Until recently, breaking into the airline market was too difficult and had too many barriers of entry. However, the Commercial Aircraft Corporation of China (COMAC), a state-owned aerospace manufacturer, sees the crisis in Boeing and Airbus as an opportunity.
While Boeing and Airbus face supply chain issues and continue to have massive delays in meeting their backlog demands, COMAC is looking to vie for the single-aisle segment of the commercial airplane market. Though COMAC is unlikely to upstage the big two, its near-unlimited funding makes it a formidable competitor to at least put a dent in earnings.
Relative Weakness
EADSY is severely underperforming the S&P 500 Index and is red for the year while the S&P is up 25% - a sign of relative weakness.
Bottom Line
Airbus cannot gain traction in the airline industry even though Boeing, its main competitor, has suffered a string of safety issues and a tarnished reputation. Meanwhile, China's state-owned airplane manufacturer threatens to grab a slice of the market.
Additional content:
3 Airline Stocks to Keep an Eye On in 2H24
Airline stocks have been flying high, primarily owing to strong passenger revenues. Air travel demand has roared back from the pandemic lows and is particularly strong on the leisure front. Demand for business travel is also bouncing back nicely. Driven by upbeat passenger volumes, stocks in the airline industry have performed well in the first half of 2024.
With passenger traffic anticipated to remain high throughout the year, airline stocks are expected to perform strongly in the latter half of 2024 as well. Passenger volumes are likely to move further northward in the ongoing summer season. Per Airlines for America, U.S. airlines are anticipated to carry 271 million passengers from Jun 1 to Aug 31, 2024.
The projection marks an all-time high. Air travel is expected to soar over the Labor Day holiday period later this year as well. It is also anticipated to be high during winter, thereby keeping airlines in good shape. Moreover, efforts to reward shareholders by the industry players indicate financial strength.
This optimism regarding air travel is not limited to the United States only. In June, the International Air Transport Association, or IATA, increased its current-year global profitability (net) forecast for the industry to $30.5 billion from $25.7 billion estimated in December last year. Net profit in 2023 was $27.4 billion. The top line in 2024 is now anticipated to be $996 billion compared with the previous estimate of $964 billion. The revised revenue forecast, a record high, indicates a 9.7% increase from the 2023 actuals driven by upbeat passenger volumes.
Given this encouraging backdrop, we have highlighted three airline stocks that investors should keep a tab on as they are anticipated to perform well going forward. Additionally, the companies have witnessed favorable earnings estimate revisions for the current year.
Our Choices
SkyWest carries a Zacks Rank #2 (Buy) at present. The upbeat air travel demand bodes well for this St. George, UT-based regional carrier. SkyWest's fleet modernization efforts are commendable. The Zacks Consensus Estimate for SKYW's 2024 earnings has improved 6.9% over the past 90 days. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
SKYW has an expected earnings growth rate of more than 100% for 2024. The company delivered a trailing four-quarter earnings surprise of 128.09%, on average. The Zacks Consensus Estimate for SKYW's 2025 earnings has improved 7.4% over the past 90 days.
United Airlines is based in Chicago. The gradual increase in air travel demand (particularly for leisure) is aiding UAL. However, high operating costs are hurting the bottom line.
Over the past 60 days, the stock has seen the Zacks Consensus Estimate for 2024 earnings being revised 0.2% upward. The Zacks Consensus Estimate for 2025 earnings has been revised 0.4% upward over the past 60 days. UAL currently carries a Zacks Rank #3 (Hold).
Alaska Air The company, based in Seattle, WA, is being aided by the uptick in air travel demand. The carrier's shareholder-friendly attitude also bodes well.
Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has been revised 2% upward. The Zacks Consensus Estimate for 2025 earnings has been revised 5.1% upward over the past 60 days. ALK currently carries a Zacks Rank #3.
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United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
Barrick Gold Corporation (GOLD) : Free Stock Analysis Report
Airbus Group (EADSY) : Free Stock Analysis Report
SkyWest, Inc. (SKYW) : Free Stock Analysis Report
