Shares of Chevron have underperformed the Zacks Oil and Gas – Integrated – International industry over the past year (-4.6% vs. +0.9%). The Zacks analyst believes based on a number of near-term challenges, Chevron appears to be a risky bet. Over the past year, the energy major has seen its stock price decline more than 10% compared with the S&P 500’s increase of 21%.
The supermajor – with 60% liquids-weighted production – is highly exposed to the perils of oil price fluctuations. The drop in downstream segment earnings as a fallout of lower margins is a concern too while reserve replacement ratio remains weak, indicating challenges in replenishing produced energy.
Moreover, it has been experiencing an increase in costs as a percentage of revenue. Finally, Chevron has been a laggard compared to its European peers to jump into the clean energy bandwagon. Considering these factors, the company is unlikely to return to favor anytime soon. This calls for a bearish stance on Chevron.
Verizon’s shares have outperformed the Zacks Wireless National industry over the past year (+13.3% vs. +7.5%). The company reported healthy fourth-quarter 2023 results, with the top and bottom line beating the respective Zacks Consensus Estimate, driven by significant 5G adoption and wireless traction.
It is offering various mix-and-match pricing in both wireless and home broadband plans, which has led to solid client additions. Focus on emerging growth services like cloud, security and professional services will likely reap long-term benefits. Its mmWave footprint delivers game-changing experiences for the densest parts of the network.
However, lower wireline and wireless equipment revenues are major concerns. Huge promotional expenses and lucrative discounts to expand its customer base are weighing on margins. High capital expenditures for network upgrade and deployment of fiber assets across the country are headwinds. Muted guidance for 2024 is somewhat worrisome.
Shares of Eaton have outperformed the Zacks Manufacturing – Electronics industry over the past year (+72.1% vs. +41.9%). The company’s ongoing research and development are allowing the company to develop new products to provide efficient power management solutions.
It will benefit from improving end-market conditions, increasing demand from the new AI data center and contributions from its organic assets. Eaton is expanding via acquisitions and its rising backlog shows demand for its products. Its strategy to manufacture in the region of its end market has helped it cut costs.
Yet, Eaton’s global operations expose it to unpredictable currency translation, cyber security threats, changes in tax rates and security breaches, which might impact operations. The shortage of raw materials and supplier insolvencies might impact production and operations.
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