Essential Utilities’ (WTRG – Free Report) strategic acquisitions, organic ventures and systematic capital expenditures will collectively expand and strengthen its water, wastewater and natural gas infrastructures.
WTRG – which currently has a Zacks Rank #4 (Sell) – is subject to unfavorable weather conditions and interest rate hikes.
Tailwinds
Massive infrastructural investments are required to upgrade and maintain the water utilities, as old and soiled water pipelines are quickly nearing their effective service life. Essential Utilities plans to invest $3.3 billion from 2023 through 2025. It is committed to lowering emissions and aims to reduce annual emissions by 60% by 2035. Rate hike application and approval from the commission will further help the company to recoup expenditures and fund future capital projects.
The highly fragmented U.S. water utility space requires consolidation. Essential Utilities is actively exploring opportunities to expand utility operations by acquiring municipal assets. In 2022, WTRG completed three acquisitions, which added 23,175 customers. It expects the water and wastewater customer base to increase 2-3% year over year in 2023 through acquisitions and organic means.
Essential Utilities continues to increase shareholders’ value through annual dividend increases. The company has been paying dividends for the past 78 years. Its dividend rate hike, approved in February 2023, marked the 32nd consecutive year of dividend increases. The June 2023 raise represents a 7% year-over-year increase.
Headwinds
The water utility business is capital-intensive and requires steady capital investments. Any disruption in capital markets and the ongoing interest rate hike might make it difficult for Essential Utilities to raise funds at a favorable rate.
Other major factors affecting the company’s business and financial conditions are the risk of water contamination, stringent government regulations and fluctuating weather conditions.
The Zacks Consensus Estimate for Veolia Environnement, Global Water Resources and NewJersey Resources’ 2023 earnings per share indicates year-over-year growth of 11.7%, 29.2% and 6%, respectively.
Long-term (three- to five-year) earnings growth Veolia Environnement, Global Water Resources and NewJersey Resources is pegged at 206.8%, 15% and 5.6%, respectively.
Salesforce (CRM – Free Report) is scheduled to report first-quarter fiscal 2024 results on May 31. The cloud-based software maker’s first-quarter performance is likely to have benefited from the robust demand environment as customers are undergoing a major digital transformation.
Click here to know how CRM’s overall fiscal first-quarter results are likely to be.
Cloud Adoption to Boost Q1 Revenues
The rapid adoption of software-as-a-service-based platforms amid the ongoing hybrid working trend is expected to have spurred the demand for Salesforce’s cloud-based solutions. Salesforce’s diverse cloud offerings are likely to have helped expand its clientele, fueling the top line.
Salesforce’s initiatives to capitalize on the overseas demand for cloud-based applications are anticipated to have bolstered the top line during the period in discussion. Further, the improved customer experience is anticipated to have aided the cloud segment.
Salesforce’s ability to provide an integrated solution for customers’ business problems is expected to have been the key driver. CRM’s Customer 360 Truth platform, which helps connect the data from sales, service, marketing and commerce and build a single Salesforce ID for each customer, is likely to have boosted its performance. Also, its focus on AI and the substantial progress in its Einstein Analytics platform make it optimistic about the upcoming quarterly results.
However, a decline in software spending by small and medium businesses amid ongoing macroeconomic headwinds and geopolitical issues might have affected Salesforce’s fiscal first-quarter performance. Further, stiff competition from Oracle and Microsoft is a concern, along with forex headwinds.
Zacks Rank & Stocks to Consider
Salesforce currently carries a Zacks Rank #3 (Hold). Shares of CRM have soared 62.5% year to date (YTD).
The Zacks Consensus Estimate for Meta’s second-quarter 2023 earnings has been revised 27 cents northward to $2.87 per share in the past 30 days. For 2023, earnings estimates have been revised 9.9% upward to $12.04 per share in the past 30 days.
Meta’s earnings beat the Zacks Consensus Estimate twice in the preceding four quarters while missing the same on two occasions, the average surprise being 15.5%. Shares of META have surged 117.7% YTD.
The Zacks Consensus Estimate for Manhattan Associates’ second-quarter 2023 earnings has been revised upward by a couple of cents to 72 cents per share for the past 60 days. For 2023, earnings estimates have moved upward by 17 cents to $2.87 per share in the past 60 days.
Manhattan Associates’ earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 33.6%. Shares of MANH have soared 47.6% YTD.
The Zacks Consensus Estimate for CrowdStrike’s first-quarter fiscal 2024 earnings has been revised a penny northward to 50 cents per share in the past 60 days. For fiscal 2024, earnings estimates have been increased to $2.30 per share from $2.26 60 days ago.
CrowdStrike’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 24.4%. Shares of CRWD have rallied 46.4% YTD.
Live Nation Entertainment, Inc. (LYV – Free Report) is benefiting from pent-up demand for live events and robust ticket sales, reflecting strong contributions from all its operational segments. Also, the performance growth of Ticketmaster added to its uptrend.
Recently, LYV reported impressive first-quarter 2023 results, with earnings and revenues beating the Zacks Consensus Estimate by 44.4% and 39.6%, respectively. Also, the top and bottom lines grew year over year by 73% and 35.9%, respectively. The upside was attributable to the robust performance of Ticketmaster and an increase in fan spending. In first-quarter 2023, 19 million fans attended shows across 45 countries and more than 145 million tickets were sold.
LYV has a trailing four-quarter earnings surprise of 21%, on average. Moreover, the company has a strong VGM Score of A, backed by a Value Score of B and a Growth Score of A.
However, this live entertainment company is facing headwinds in the form of high costs and expenses.
Earnings estimates for 2023 have moved south to 40 cents per share from 59 cents per share over the past 30 days. This depicts analysts’ concern over the company’s growth prospects.
Let’s discuss the factors broadly.
Tailwinds
Live Nation is witnessing growth thanks to pent-up demand for live events and robust ticket sales. The company said that after the pandemic, demand for concerts remains high. Year to date, the company has already sold more than 90 million tickets, which rose more than 20% from the same period in 2022.
In the first quarter of 2023, the Concert segment’s revenues totaled $2,281.2 million, up 89% year over year. Also, total estimated events increased to 19,509, up from the prior year’s 10,898 events. In the quarter, the Ticketing segment’s revenues amounted to $677.7 million, up 41% from the prior-year quarter, and the total estimated tickets sold rose to 145,779,000.
LYV witnessed increased demand for digital ticketing post-pandemic, reflecting the robust performance of Ticketmaster. In first-quarter 2023, Ticketmaster sold 15,000 tickets per minute in North America, with more than 20 million fee-bearing tickets sold each month globally.
In the first quarter, more than 99.9% of transactions on Ticketmaster were processed without any technical issues. Ticketmaster expects to benefit in the remaining 2023 from increased Live Nation concert ticket sales and additional sales from new clients.
LYV’s sponsorship continues to witness robust growth. In the first quarter of 2023, the company added partners for 2023 and beyond, including Google Pixel, PayPal and Levi’s, and is witnessing solid contributions from them. In the same quarter, total revenues from Sponsorship & Advertising business came in at $170.1 million, up 47% from $115.7 million reported in the previous year.
Image Source: Zacks Investment Research
Shares of Live Nation have soared 17% in the past six months compared with the Zacks Leisure and Recreation Services industry’s growth of 8.4%.
Headwinds
Live Nation witnesses cost increases due to increased labor-hiring costs, artist activation costs and other operational expenses. In first-quarter 2023, total direct operating expenses were $2,115.6 million compared with $1,071 million reported in the prior-year quarter. Selling, general and administrative expenses in the same quarter were $690.3 million compared with $570.2 million reported in the prior-year period.
The company is cautious of cost overruns related to the development and expansion of live music venues. An increase in costs is likely to affect the company’s bottom line.
Zacks Rank & Key Picks
Live Nation currently carries a Zacks Rank #3 (Hold).
Royal Caribbean Cruises Ltd. (RCL – Free Report) presently sports a Zacks Rank #1 (Strong Buy). RCL has a trailing four-quarter earnings surprise of 26.4%, on average. The stock has increased 31.8% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for RCL’s 2023 sales and earnings per share (EPS) indicates a rise of 48.3% and 160.5%, respectively, from the year-ago period’s levels.
MGM Resorts International (MGM – Free Report) currently sports a Zacks Rank #1. MGM delivered a trailing four-quarter earnings surprise of 81%, on average. Shares of the company have increased 12.6% in the past six months.
The Zacks Consensus Estimate for MGM’s 2023 sales indicates a rise of 15.4%, while the same for EPS indicates a decline of 45.9% from the year-ago period’s levels.
Crocs, Inc. (CROX – Free Report) currently carries a Zacks Rank #2 (Buy). CROX has a trailing four-quarter earnings surprise of 19.6%, on average. Shares of the company have increased 9.2% in the past six months.
The Zacks Consensus Estimate for CROX’s 2023 sales and EPS indicates a rise of 13.2% and 5.7%, respectively, from the year-ago period’s levels.
Tandem Diabetes Care, Inc. (TNDM – Free Report) is well-poised for growth in the coming quarters, backed by the strength of t:slim X2 based on Control-IQ technology and new product launches. In the first quarter, the top line met the high end of the company’s expectations. However, escalating operating costs and stiff rivalry are concerning.
In the past year, this Zacks Rank #3 (Hold) stock has decreased 62.5% compared with the 3.1% fall of the industry and a 1.7% rise of the S&P 500 composite.
The renowned medical device company has a market capitalization of $1.72 billion. Tandem Diabetes projects an estimated earnings growth rate of 36.9% for 2024 compared with 24.9% of the industry. In the trailing four quarters, TNDM has an average negative earnings surprise of 415.6%.
Let’s delve deeper.
Tailwinds
Q1 Upsides: Tandem Diabetes’ first-quarter revenues were in line with its expectations. The company continues to capture a competitive share in the insulin pump market on the strength of t:slim X2 with Control-IQ technology. Within supplies, TNDM witnessed an increase in cartridges and infusion set sales, with its in-warranty installed base growing to approximately 300,000 people at the end of the first quarter.
Image Source: Zacks Investment Research
The ongoing inventory transition to Tandem Diabetes’ European distribution center during the quarter witnessed a reduction in logistical supply chain challenges, strong international distributor relations and a closer correlation between pump shipments and pump placements on patients.
t:slim’s Strong Prospects Continue: TNDM’s flagship product, t:slim X2 with Control-IQ technology continues to make a positive clinical impact in terms of overall satisfaction and ease of use and reduces the burden of diabetes management. The company looks forward to making t:slim X2 the first FDA-cleared insulin pump integrated with multiple CGM sensors.
TNDM is working closely with Dexcom to finalize Control-IQ integration with G7 and coordinate its launch. The integration of Control-IQ technology with Abbott’s FreeStyle Libre 2 and Libre 3 sensors is also underway.
Product Innovation to Contribute: We are encouraged to see Tandem Diabetes’ pipeline of new products and services for the diabetes community, set to launch in 2023. Following the FDA clearance, the company is preparing to expand the diabetes solutions portfolio through the launch of the Tandem Mobi system. The Mobi pump is about half the size of t:slim and can be operated by a smartphone through a mobile application.
TNDM is also working on t:slim X3, which is a technology upgrade to t:slim X2.
Downsides
Mounting Expenses: In the first quarter, Tandem Diabetes came out with lower-than-expected revenues and earnings. The company registered a wider adjusted operating loss compared to the prior-year quarter on a year-over-year increase of 22.6% in SG&A expenses and 27.1% in R&D expenses.
Tough Competitive Pressure: Tandem Diabetes operates in a highly competitive environment dominated by firms ranging from large multinational corporations with significant resources to start-ups. Also, competitive and regulatory conditions in the markets where Tandem Diabetes operates limit the company’s ability to switch to strategies like price increases.
TNDM primarily competes with Medtronic’s market-leading MiniMed, a division of Medtronic. MiniMed boasts a major portion of the conventional insulin pump market share in the United States.
Estimate Trend
Tandem Diabetes has been witnessing a negative estimate revision trend for 2023. The Zacks Consensus Estimate for 2023 loss per share has moved from 94 cents to $1.03 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $885.5 million. This suggests a 10.5% rise from the year-ago reported number.
Zimmer Biomet has an earnings yield of 5.72% compared with the industry’s -2.31%. Zimmer Biomet’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.38%. Its shares have increased 6.5% against the industry’s 34% decline in the past year.
Penumbra, sporting a Zacks Rank #1 at present, has an estimated growth rate of 64.1% for 2024. Penumbra shares have risen 105.2% compared with the industry’s 3% decrease over the past year.
PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.
Hologic, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 4.84% compared to the industry’s -7.06%. Shares of HOLX have risen 2% compared with the industry’s 3% fall over the past year.
Hologic’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.
Construction equipment manufacturer Caterpillar will extend its dividend growth streak to 30 years in June.
Wirestock
This is the latest in my series of articles where I provide predictions of annual dividend increases for a variety of long-term dividend growth companies. In the middle of May, I provided predictions for 12 dividend growth companies that have historically announced annual payout increases in the second half of May. In this article I’ll look at another 10 dividend growth companies that I expect will announce their annual dividend increases in June.
Before I get to that, dividend growth investors should know that cell tower REIT American Tower Corporation (AMT) announced a 0.6% dividend increase to an annualized $6.28. The company usually announces increases each quarter but skipped its boost last quarter. The payout bump, which extends the company’s dividend growth streak to 13 years, gives American Tower a forward yield of 3.45%.
Here are the results from my predictions from the second half of May (as always, the original predictions are available here), followed by my predictions for the dividend increases that I’m expecting to be announced in June:
(All yields are based on stock prices at the market close on Friday, May 26th.)
Results for Dividend Increase Announcements from the Second Half of May
Prediction: 23.8 – 28.6% increase to $5.20 – $5.40.
Actual: 4.8% increase to $4.40.
Forward yield: 2.13%.
This year’s dividend increase from Lowe’s is a big disappointment, as the company has traditionally boosted its payout by more than 20% annually. But with increasing interest rates and a potential recession in the housing market, Lowe’s is playing it safe while still growing its dividend.
As demand for its products slows, the chemical company’s dividend growth rate is falling. This year’s increase is below the 5-year average of 5.8% and last year’s 5.3% boost.
The railroad is deferring its next dividend increase to later in the year.
Predictions for Dividend Increases for June
There are 10 long-term dividend growth companies I expect to announce their annual increases in June. Here are my predictions for two featured companies:
Caterpillar Inc. (CAT) – 29 years of dividend growth
Heavy machinery company Caterpillar is continuing to fire on all cylinders. The company posted a 28% growth in its adjusted EPS last year and followed up on that with 70% year-over-year growth in the first quarter of 2023. This growth is being driven by double-digit sales growth across all of Caterpillar’s business segments – Construction Industries, Resource Industries, and Energy & Transportation – and is primarily due to the company’s ability to pass on the effects of inflation.
Caterpillar has a good dividend growth history, balancing longevity with decent-sized increases. The current annual payout of $4.80 has doubled since the end of 2013 and last year the company increased the dividend by 8%, outpacing inflation.
What will this year bring for income investors? The only potential headwind to continued dividend growth from Caterpillar is the relatively high debt-to-equity ratio, but the debt burden is easily managed with the company’s free cash flow. In fact, the company uses most of its free cash flow for share buybacks, having repurchased more than 12% of all outstanding shares since 2018. With the earnings growth, the only question is how much of the free cash flow will be used for share buybacks and how much for dividend growth. I expect Caterpillar to continue to boost its payout in the high single digits, with a chance of a 10% increase.
Prediction: 7.5 – 10.0% increase to $5.16 – $5.28.
After rewarding investors with a 20% dividend increase last year, Target is likely to disappoint this year. The company recently reported first quarter earnings announced that adjusted EPS had fallen more than 6% year-over-year due in large part to economic pressures on consumers. The company also announced that it expects theft and shoplifting to reduce profitability by more than $500 million in 2023.
This follows the 2022 annual earnings report, where the company announced that comparable sales and traffic growth had fallen from 12% in 2021 to less than 3% in 2022. This resulted in a 55% drop in adjusted EPS for the full year. With the drop in EPS, Target’s payout ratio jumped from 32% to more than 70%, which will limit the dividend growth this year.
Historically, Target has grown its dividend in the high single digit percentages. The headwinds of increased theft and a slowdown in the economy will make this scenario the best that can be expected. Investors will see a 56th year of dividend growth, but it’ll be in the range of mid-single digit percentages as the company hunkers down.
Prediction: 4.6 – 7.4% increase to $4.52 – $4.64.
Predicted Forward Yield: 3.25 – 3.34%.
Here are my predictions for the 8 other companies which should announce annual increases in the second half of the month:
Casey’s General Stores is a fast-growing convenience store chain operating nearly 2,500 stores across the United States. The company grew EPS by nearly 9% in fiscal 2022 and EPS is up a further 39% in the first 3 quarters of fiscal 2023. Casey’s consistently grows its dividend in the high single digits. I expect another boost in the same range with a chance of a double-digit increase. Predicted Forward Yield: 0.71 – 0.74%.
The regional bank is making its way through the nationwide banking crisis in good stead, with earnings up 10% in 2022 and another 28% year-over-year in the first quarter of 2023. In addition to growing its dividend, Great Southern has also reduced its outstanding shares by nearly 14% since 2018. With the continuing earnings growth, the company has plenty of room to continue to do both. I expect a dividend boost in the 10% range, consistent with its 5-year average and last year’s 11% increase. Predicted Forward Yield: 3.49 – 3.57%.
Supermarket chain Kroger continues to generate massive free cash flow, through both growing sales and reducing costs. The company posted adjusted EPS growth of 15% in fiscal 2022, powered by $1B in cost savings. Kroger will be hard pressed to match last year’s 24% dividend increase, especially as it is guiding adjusted EPS growth to 7% in fiscal 2023. More than that, I expect the company to pull back on using free cash for dividend growth and share repurchases as it prepares to merge with Idaho-based supermarket chain Albertson’s Companies. This year’s payout boost will likely be around the 5-year growth average of 12%. Predicted Forward Yield: 2.45 – 2.54%.
Matson is a shipping company focused on transportation across the Pacific. The company is seeing container loads fall and income dropping, with first quarter EPS down nearly 90% year-over-year. Although Matson has a 5-year dividend growth average close to 10%, it’ll be another year of 4-cent annual dividend growth for investors. Predicted Forward Yield: 1.78%.
The natural gas utility has a history of very modest dividend growth: from 2012 – 2021, the National Fuel Gas’ annual dividend increase was 4 cents, and was surpassed only by last year’s 8-cent increase. Even with 37% adjusted EPS growth in 2022, investors will see another year of 4 or 8-cent dividend growth, especially since the company is expecting a 10% drop in adjusted EPS in 2023. Predicted Forward Yield: 3.79 – 3.87%.
Oil-Dri produces absorbent products from its mines distributed across the U. S. Since 2008, the company has boosted its annual dividend by 4 cents, giving it a 4.7% compounded growth rate over the last decade. Adjusted EPS fell 7% in 2022, but Oil-Dri is doing very well in 2023, with EPS in the first half of the year exceeding all of 2022. The company has bought back nearly 5% of its shares since 2018, so I think investors will see another year of 4-cent dividend growth, with the chance of a slightly bigger boost. Predicted Forward Yield: 3.03 – 3.14%
The healthcare insurer continues to grow its subscriber base, resulting in consistent double-digit EPS growth. 2022 EPS is up 17% year-over-year and the company is guiding to 11% EPS growth in 2023, as United Healthcare won Medicaid contracts in Indiana and Texas. Investors should be rewarded with a boost in the mid-teens, right around last year’s 14% increase. Predicted Forward Yield: 1.56 – 1.58%.
It’s shaping up to be a rough year for the publisher of academic journals. The academic market is facing severe headwinds and currency effects are hitting the company hard; Wiley reduced its full year guidance when it reported 3rd quarter results, and is guiding to a drop of 17% in adjusted EPS. Last year’s annual dividend increase was a single penny and it looks like investors can expect something similar this year. Predicted Forward Yield: 3.87 – 3.90%.
Summary
Dividend increases were disappointing in the latter half of May. Union Pacific, expected to announce its next annual increase, deferred its announcement while Lowe’s – which historically announces 20%+ increases – increased its dividend by a disappointing but still respectable 5%. Medical device company Medtronic announced a minimal 1.5% increase. And auto repair company Monro also decided to defer its dividend boost.
On the positive side, specialty chemical company Ashland announced a 15% boost while there were several high single-digit percentage increases from filtration company Donaldson, defense contractor Northrop Grumman, staffing company Insperity, and regional bank TowneBank. The other increases were all at or below 5%.
With the Memorial Day holiday and the summer slowdown in the United States, the number of dividend increase announcements will slow down. But investors should be able to look forward to double-digit percentage boosts from regional bank Great Southern Bancorp, supermarket chain Kroger, and healthcare insurer UnitedHealth in June. Widely held construction equipment manufacturer Caterpillar should announce a boost in the high single digits, while retailer Target – which is dealing with headwinds right now – will likely slow its dividend growth to the mid-single digit percentages.
