For Immediate Release
Chicago, IL – February 14, 2023 – Zacks Equity Research shares Weatherford International WFRD as the Bull of the Day and Chesapeake Energy CHK as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Cisco Systems CSCO, Salesforce CRM and Airbnb ABNB.
Here is a synopsis of all five stocks:
Bull of the Day:
Oil field services and equipment provider Weatherford International is standing out among a dominant industry sporting a Zacks Rank #1 (Strong Buy).
While the Zacks Oils & Energy Sector is currently ranked 14th out of 16 industries, Weatherford International's Oil and Gas – Field Services Industry is currently in the top 22% of over 250 Zacks Industries.
Studies show that much of a stock's future appreciation is attributed to the company's ability to benefit from a booming business industry, which should benefit Weatherford International. This also helps investors differentiate and select sound investments among oil and energy stocks after many of these equities have outperformed the broader market over the last few years.
Still, with oil prices remaining high relative to historical levels (currently at $79 a barrel) there is an abundance of upside remaining for select companies and industries. Weatherford International, for example, is showing continued momentum after securing over $6.5 billion worth of contracts in 2022.
Furthermore, past performance is not always an indicator of future success, and after being delisted from the New York Stock Exchange in 2019 and trading on the OTC Pink Market, Weatherford International was added to the Nasdaq in 2021 and is now up over 400%.
Weatherford is carving a unique niche in the industry with its drilling solutions, gas well unloading, and restoration among other services.
Redemption & Operational Highlights
Weatherford blasted Q4 bottom-line expectations last week by 33% with earnings at $1.12 per share compared to -$0.63 in Q4 2021. Fourth quarter revenue was $1.20 billion up 24% year over year. Operating Income was at $169 million, up 6% from the third quarter and 290% YoY.
Overall, Weatherford posted many significant milestones in 2022:
It was the first time in over three decades that positive free cash flow was generated for three consecutive years. Weatherford achieved its lowest net leverage ratio in more than 15 years. It also grew its revenue year-over-year by 19% for the highest growth rate in over 10 years And it generated a positive net income of $26 million, a first in 10 years.
After capping off fiscal 2022 with a strong fourth quarter, Weatherford highlighted the diverse regions in which it has secured operational services. This included a five-year contract with Kuwait Oil company to provide directional drilling and logging while drilling services, providing fit-for-purpose solutions.
Weatherford anonymously announced another major integrated oil company (IOC) in the middle east awarded the company with a five-year contract to provide "fishing" equipment and services.
Also, the company inked a two-year, sole-provider contract with Petrobras for the provision of Weatherford's newly enhanced chemical injection system to help solve some of the drilling issues Petrobras is facing in Brazil.
In addition to this, Weatherford stated it was awarded three other contracts in Latin America to deliver integrated drilling and completing services in onshore and offshore operations, including shallow water developments and exploration wells.
Earnings Estimate Revisions
For Weatherford, a booming business environment leads to lucrative contracts, and this correlates with rising earnings estimate revisions which is another significant catalyst in the upward movement of a stock.
On that note, Weatherford's fiscal 2023 earnings estimates have gone up 44% to $3.99 per share in the last week following its fourth-quarter report. Fiscal 2024 earnings estimates have gone up 40% to $5.59 per share over the last seven days.
Weatherford International's Growth and Momentum are very intriguing at the moment, scoring an "A" Zacks Style Scores grade in both of these complementary stock trading indicators alongside its impressive Zacks Rank #1 (Strong Buy).
Also, with WFRD stock trading at 16.7X forward earnings and estimates on the rise, this is getting the company closer to the industry average of 13.6X. This is also well below its high of 169.7X since being publicly traded again along with its stock performance topping most of its peers.
Management is effectively deploying its turnaround initiatives, and showing the ability to secure meaningful contracts that can boost the company's top and bottom lines which could certainly lead to more upside in Weatherford International's stock.
Bear of the Day:
Chesapeake Energy currently lands a Zacks Rank #5 (Strong Sell) with its Oil and Gas - Exploration and Production - United States Industry currently in the bottom 3% of over 250 Zacks Industries.
Although many stocks in the broader Zacks Oils & Energy sector have largely outperformed the S&P 500 benchmark in recent years, some of these equities may be due for a pullback. Investors will want to be cautious of companies that may not be able to continue benefiting even as oil prices have remained high.
Business & Industry Overview
Chesapeake Energy and others could continue to be affected by lower demand for drilling and discovery operations in regard to oil and natural gas. As a result of oil prices remaining high along with reserve supplies, the need for additional drilling is declining at the moment.
Overall, proved reserves of U.S. crude oil and lease condensate increased by 6.2 billion barrels at the end of 2022, up 16% from 38.2 billion barrels at year-end 2021 to 44.4 billion barrels. This comes after historical highs among oil reserves were seen in 2020 due to extremely low demand for oil and energy during the pandemic.
Additionally, the natural gas market has been very volatile as prices have unreliably fluctuated in recent weeks with reserves higher as well and demand lower from a mild winter.
Declining Earnings Estimates
In correlation with higher reserves leading to a dimmer outlook for Chesapeake and its business industry, CHK's earnings estimates have alarmingly gone down.
As Chesapeake wraps up fiscal 2022 with Q4 earnings on February 21, FY23 earnings estimates have plummeted 57% over the last quarter to $9.15 per share compared to $21.13 a share 90 days ago. This could continue to negatively impact CHK's stock performance and valuation.
Recent Performance & Valuation
Year to date, CHK stock is down -11% to lag the S&P 500's +6% and the broader Oils and Energy Market's +3% with the Nasdaq up +13%. More concerning, over the last three months, CHK stock is now down -16% to largely underperform the broader indexes and the Oils and Energy Market as the company continues to give back gains in recent years.
Trading around $83 per share, Chesapeake stock trades at 9.1X forward earnings but estimates are continuing to decline and CHK is at its P/E high following a 1 for 200 reverse stock split in April of 2020. Plus, Chesapeake stock currently trades 30% above its median of 6.9X during this period and 49% above the industry average of 6.1X forward earnings.
There is certainly short-term risk ahead for Chesapeake Energy stock with oil and natural gas reserves spiking. It is also important to note that investors will want to monitor management's adjustment to a potentially dimmer outlook as the investment value, market capitalization, and per-share price of CHK stock have been volatile in recent history as indicated in its 2020 reverse stock split.
Key Factors to Consider When Cisco (CSCO) Reports Earnings
Cisco Systems is set to release its second-quarter fiscal 2023 results on Feb 15.
The company anticipates second-quarter fiscal 2023 revenues to increase in the range of 4.5-6.5% on a year-over-year basis. Non-GAAP earnings are anticipated to be between 84 and 86 cents per share.
The Zacks Consensus Estimate for revenues is pegged at $13.43 billion, indicating an increase of 5.61% from the year-ago quarter's reported figure.
Our estimate is pegged at $13.30 billion, suggesting year-over-year growth of 4.5%.
The consensus mark for earnings has been stable in the past 30 days at 86 cents per share. The figure suggests an increase of 2.44% from the prior-year quarter's levels.
Our estimate for earnings stands at 85 cents per share, indicating 1.4% year-over-year growth.
Let's see how things have shaped up for Cisco prior to this announcement.
Factors Likely to Influence Q2 Results
Cisco's second-quarter fiscal 2023 results are expected to benefit from easing supply chain constraints. Its extensive product portfolio and varied end-user base are also expected to have contributed to its top-line growth.
The company's results in the to-be-reported quarter are expected to benefit from strong demand for the Catalyst 9000 family, Cisco 8000, Wireless, Meraki, ThousandEyes and Duo solutions.
Cisco has been witnessing robust demand for its 400-gig products and the trend is expected to have continued in the fiscal second quarter.
Moreover, the availability of Microsoft teams on Cisco meeting room devices is expected to have driven demand for these devices.
Nevertheless, the fiscal second-quarter results are expected to reflect the lingering effects of COVID-related lockdowns in China, challenging macroeconomic conditions and a strong U.S. dollar.
What Our Model Says
Per the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That's the case here.
Cisco has an Earnings ESP of +1.66% and currently carries a Zacks Rank #3. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
Other Stocks to Consider
Here are a couple other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat in their upcoming releases:
Salesforce has an Earnings ESP of +0.32% and a Zacks Rank of 2, at present. You can see the complete list of today's Zacks #1 Rank stocks here.
Salesforce shares have declined 19.1% in the past year. CRM is set to report its fourth-quarter fiscal 2023 results on Mar 1.
Airbnb has an Earnings ESP of +8.10% and a Zacks Rank #3.
ABNB shares have declined 35.9% in the past year. Airbnb is set to report its fourth-quarter 2022 results on Feb 14.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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