Cyclical stocks are making waves, driven by the fast-paced economic recovery. Robust consumer spending and job growth have been driving cyclical industries, such as retail and transportation, which have been seeing solid demand lately. And as the economy continues to recover, we think companies operating in cyclical industries should witness further growth.
The AtlantaFed expects real U.S. GDP growth to range from 8.3% to 13.7% in the second quarter, which should bode well for cyclical industries.
Given this backdrop, we think fundamentally sound cyclical names The Gap, Inc. (GPS), Danaos Corporation (DAC), and CONSOL Energy Inc. (CEIX) could deliver solid returns in the coming months. Also, these stocks have been recently upgraded to Buy in our proprietary POWR Ratings system.
The Gap, Inc. (GPS)
GPS is a San Francisco-based international apparel retail company that offers casual apparel, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Athleta, and Intermix brands. The company offers its products through company-operated stores, franchise stores, websites, third-party arrangements, and catalogs. As of March 04, 2021, the company had 3,100 company-operated stores and 615 franchise stores.
On May 26, GPS and Walmart Inc. (WMT) announced a strategic partnership to introduce Gap Home, a new brand of home essentials available exclusively at WMT. WMT’s scale and GPS’ brand heritage, brought together through this launch, should encourage customers to shop for quality designs and timeless home essentials for their everyday lives. The partnership is expected to generate good sales in the near-term because it allows GPS to introduce this new home brand category in a smart, scalable way.
GPS entered a new, long-term credit card program agreements with Barclays and Mastercard on April 13. Barclays will become the exclusive issuer of GPS’ co-branded and private label credit card program in the U.S. beginning in May 2022, and Mastercard will be the exclusive payment network across GPS’ brands. Through these partnerships, GPS’ iconic brands will continue to offer a suite of industry-leading credit card products, anchored in a digital and physical shopping experience, as part of a reimagined rewards program.
During its fiscal first quarter, ended May 1, 2021, GPS’ net sales increased 89.4% year-over-year to $3.99 billion. The company’s gross profit came in at $1.63 billion, up 508.2% from the prior-year period. Its operating income is reported at $240 million, compared to a $1.24 billion loss in the prior-year period. GPS’ net income came in at $166 million for the quarter, compared to a $932 million loss in the year-ago period. Its EPS is reported at $0.43, compared to a $2.51 loss per share in the prior-year period. The company had cash, cash equivalents and restricted cash of $2.10 billion as of May 31, 2021.
A $0.43 consensus EPS estimate for the next quarter, ending October 31, 2021, represents a 72.2% improvement from the prior-year period. GPS surpassed the Street’s EPS estimates in three of the trailing four quarters. The $4.19 billion consensus revenue estimate for the next quarter represents a 4.9% rise from the prior-year period. The stock’s EPS is expected to grow at a 4.9% rate over the next five years. GPS has climbed 234.6% over the past year and 108.7% over the past nine months. It closed yesterday’s trading session at $32.66.
GPS’ strong fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, with the weighting of each optimized to improve overall performance. The stock has an overall A rating, which translates to Strong Buy in our proprietary ratings system. The stock was upgraded from Buy to Strong Buy on June 25, 2021.
The stock has an A grade for Momentum, and a B grade for Growth, Value, Sentiment, and Quality. To see more of GPS’ component grades, click here. GPS is ranked #11 of 65 stocks in the A-rated Fashion & Luxury industry.
Click here to checkout our Retail Industry Report for 2021
Danaos Corporation (DAC)
Headquartered in Greece, DAC provides marine and seaborne transportation services internationally. The company owns and operates containerships and charters its vessels to liner companies. As of February 28, 2021, it had a fleet of 65 containerships aggregating 403,793 twenty-foot equivalent units in capacity.
On May 11, 2021, DAC announced the implementation of a dividend reinvestment plan that offers its stockholders the opportunity to purchase additional shares by having their cash dividends automatically reinvested in DAC common stock. Initiating a regular quarterly payment of $0.50 per share for its fiscal first quarter, this dividend reinvestment plan is likely to create more capital for the company to use.
DAC’s operating revenues came in at $132.12 million for its fiscal first quarter, ended March 31, 2021, which represents a 24.4% year-over-year rise. The company’s income from operations is reported at $57.61 million, up 32.7% from the prior-year period. While its adjusted net income increased 74.3% year-over-year to $58.01 million, its adjusted EPS increased 111.2% year-over-year to $2.83. As of March 31, 2021, the company had $362.51 million in cash, cash equivalents and restricted cash.
Analysts expect DAC’s EPS to improve 78.4% year-over-year to $3.05 for the current quarter, ending June 30, 2021. The stock surpassed consensus EPS estimates in three of the trailing four quarters. Its revenue is expected to improve 21.8% year-over-year for the current quarter to $142.30 million. Analysts expect the stock’s EPS to grow at 3% per annum over the next five years.
DAC has gained 1956.1% over the past year and 1184.7% over the past nine months. It closed yesterday’s trading session at $76.65.
It’s no surprise that DAC has an overall B rating, which translates to Buy in our POWR Ratings system. It was upgraded from Neutral to Buy on June 25, 2021.
The stock has a B grade for Quality and Momentum. In addition to the POWR Ratings grades we’ve just highlighted, we also provide Growth, Value, Stability, and Sentiment grades for DAC, which you can find here. DAC is ranked #8 of 48 stocks in the Shipping industry.
CONSOL Energy Inc. (CEIX)
CEIX produces and exports bituminous coal. It operates through the Pennsylvania Mining Complex segment, which consists of the mining, preparation, and marketing of thermal coal, sold primarily to power generators. It focuses on the extraction and preparation of coal in the Appalachian basin. As of December 31, 2020, the company had 657.90 million tons of proven and probable coal reserves at PAMC.
On March 31, 2021, CEIX priced $75 million of tax-exempt solid waste disposal revenue bonds to be issued through the Pennsylvania Economic Development Financing Authority (PEDFA). The bond proceeds will be used to finance the expansion of the coal refuse disposal areas at the company’s Bailey Preparation Plant in Pennsylvania, which will support current and future mining at the Pennsylvania Mining Complex. The project also highlights its continued environmental commitments.
For its fiscal quarter, ended March 31, 2021, CEIX’s revenues were $342.15 million, which represents a 17.5% improvement year-over-year. The company’s pre-tax earnings have been reported at $31.59 million, up 620.7% from the prior-year period. Its comprehensive income increased 807.3% year-over-year to $30.18 million. Its EPS increased 733.3% year-over-year to $0.75. The company had cash, cash equivalents and restricted cash of $91.48 million, as of March 31, 2021.
Analysts expect CEIX’s EPS to improve 143.5% year-over-year for the current quarter, ending June 30, 2021, to $0.30. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The $290.15 million consensus revenue estimate for the current quarter represents a 92.5% rise from the prior-year period. CEIX has gained 238% over the past year and 269% over the past nine months. It closed yesterday’s trading session at $17.27.
CEIX’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which translates to Strong Buy in our proprietary ratings system. The stock was upgraded from Buy to Strong Buy on June 25, 2021.
The stock has an A grade for Momentum, and a B grade for Growth, Value, Sentiment, and Quality. We have also graded CEIX for Stability. Click here to access all CEIX’s ratings. CEIX is ranked #3 of 94 stocks in the Energy – Oil & Gas industry.
Note that CEIX is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
GPS shares were trading at $32.77 per share on Tuesday afternoon, up $0.11 (+0.34%). Year-to-date, GPS has gained 63.62%, versus a 15.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More…
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