The last week of April marks one of the most important stretches of the first quarter earnings season, with results from nearly every giant name in technology from Apple
AAPL
and Microsoft
MSFT
to Tesla
TSLA
and Facebook
FB
. The positivity heading into the busy stretch of corporate earnings, which follows a strong early showing from the big Wall Street banks, helped the Nasdaq post its first record since mid-February on Monday.
The benchmark S&P 500 also set its 24
th
record of the year to start the week, with Dow hovering just off its recent highs. There could be some selling pressure amid the deluge of results this week given how far the market has come and how quickly the tech-heavy Nasdaq recovered from its correction.
That said, investors with longer-term horizons might want to consider adding to their portfolios given the broad-based positivity in the economy amid the largely successful U.S. vaccine distribution. The possibility of 6% or stronger U.S. GDP expansion this year, coupled with historically low interest rates and perhaps even more government stimulus, creates a bullish tailwind.
Let’s dive into two top-ranked Zacks stocks that already reported strong quarterly results and are trading from under $30 a share despite big runs…
TRI Pointe Homes
TPH
Prior Close: $23.51 USD
(Monday, April 27)
TRI Pointe Homes is one of the largest public homebuilders in the U.S. The firm designs, constructs, and sells single-family homes and communities across 10 states, including key hubs within California, Texas, Colorado, Arizona, Virginia, and many other locations. TRI Pointe’s revenue climbed by over 16% in both FY17 and FY18, before it slipped by 5% in 2019. The company then bounced back with roughly 6% sales growth in 2020 and its backlog soared as the coronavirus sparked a massive real estate boom.
The coronavirus helped drive U.S. home sales to their highest level in 14 years, as people searched for more space and capitalized on low interest rates. Furthermore, millennials are finally driving the home-buying market, which could give the current run even more legs. The tight market has spurred new home construction, but there is still a need for millions of more homes. In fact, the U.S. housing market is
nearly 4 million single-family homes short
of what is needed to meet demand, according to a Freddie Mac report released in mid-April.
Given this backdrop, Tri Pointe topped Q1 estimates on April 22, with revenue up 21% and backlog units 56% higher. The company also beat our adjusted EPS estimate by 28% to extend its string of impressive earnings beats. Tri Pointe’s strong guidance pushed its FY21 and FY22 consensus EPS estimates up by roughly 20%.
The bottom-line strength helps the stock land a Zacks Rank #1 (Strong Buy) right now, alongside its “B” grade for Momentum in our Style Scores system. Zacks estimates call for TPH’s FY21 sales to jump 20% to $3.88 billion to help lift its adjusted ESP by 45%, with more growth expected in 2022.
Tri Pointe is part of the Building Products-Home Builders space that sits in the top 12% of our over 250 Zacks industries. The firm also announced last November a new stock repurchase program of up to $250 million. And the stock lands an “A” grade for Value, while trading at a solid discount to its industry in terms of both forward earnings and sales.
TPH’s value compared to its peers comes despite the fact that TPH stock has outpaced its industry in the last year, up 112% vs. 90%. This run includes a 20% jump in the last month alone that helped it hit another record high on Tuesday.
Levi Strauss & Co.
LEVI
Prior Close: $28.95 USD
(Monday, April 27)
Levi Strauss, like Tri Pointe, beat our first quarter earnings estimates earlier this month and investors helped push the stock to yet another high Tuesday. Before we get into its recent performances and outlook, let’s quickly review the historic clothing maker. Levi’s denim brand has been an industry leader for decades and today it sells various offerings for men, women, and kids around the world, under its namesake brand, as well as Dockers, and others.
Levi returned to the public markets in 2019 and it has spent much of the last year improving its digital businesses, which helped during coronavirus-based setbacks. The company has also focused on diversifying beyond denim bottoms to adapt to changing fashion habits that includes the rise of Lululemon
LULU
and athleisure. “In 2015, our tops business represented 11% of our total business. In 2020, it was 21% of revenues,” CEO Chip Bergh said on its Q4 earnings call.
The company’s chief executive went on to say that Levi expects half of its revenues will come from “products that are not denim bottoms” over the next decade. Levi beat our adjusted earnings estimate by 41% in Q1 to boost its average beat to 54% in the trailing four periods. The company’s revenue did still slip by 13%, but its outlook finally shows a return to growth.
Zacks estimates call for Levi’s Q2 revenue to skyrocket 144% from last year’s easy to compare period. This top-line positivity is projected to help the company swing from an adjusted loss of -$0.48 a share in the year-ago period to +$0.08. Longer-term, the clothing company’s fiscal 2021 sales are projected to climb by over 24% to $5.5 billion, with another 10% growth expected in FY22 to see it reach $6.1 billion—to come in well above its pre-pandemic levels of $5.8 billion.
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At the bottom-end, its adjusted earnings are projected to soar by 430% this year to reach $1.11 a share, with FY22 set to pop 20% higher. On top of that, Levi’s consensus earnings outlook has improved since its April 8 report to help it land a Zacks Rank #1 (Strong Buy), alongside a “B” grade for Growth in our Style Scores system.
On top of bolstering its non-denim business, the company is expanding partnerships with retail titans such as Target
TGT
. This partnership features its recently-launched lifestyle collection that ranges from home goods to and pet supplies.
Wall Street is also rather bullish about the likelihood people will revamp their wardrobes from more comfortable clothes to denim and more as the economy reopens. And pent-up demand has already started to show up in consumer spending.
As we touched on, Levi stock jumped again Tuesday to reach another record. LEVI shares have now soared nearly 30% in the past month and 50% in 2021 to crush its highly-ranked Retail-Apparel and Shoes industry’s 28% climb. The stock has now climbed 130% in the last year and it broke above its post-IPO highs in February.
The recent run has stretched its valuation and lifted it slightly above overbought RSI levels. Therefore, a bit of a pullback could be in order, but Levi might be a long-term reopening play that’s due for a boost in the ever-changing world of fashion. And the company raised its dividend for the second quarter.
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