Zacks Industry Outlook PDD Holdings and Federal Signal

The S&P 500 Index Friday closed up +0.38%, the Dow Jones Industrials Index closed up +0.59%, and the Nasdaq 100 Index closed up +0.07%.

Stocks on Friday extended this week’s rally, with the S&P 500, the Dow Jones Industrials, and the Nasdaq 100 posting new all-time highs. Stocks have rallied sharply this week on speculation President-elect Trump will boost corporate profits through tax cuts and reduced regulation. Also, bond yields on Friday moved lower and supported stocks on carryover support from Thursday when the FOMC cut the federal funds rate target by 25 bp. In addition, Axon Enterprise soared more than +28% after raising its full-year revenue outlook, and Fortinet rallied more than +9% after reporting better-than-expected Q3 adjusted EPS and forecasting full-year adjusted above consensus.

Friday’s US economic news bolsters the outlook for a soft landing and was supportive of stocks after the

University of Michigan US Nov consumer sentiment index rose +2.5 to a 7-month high of 73.0, stronger than expectations of 71.0.

The University of Michigan US Nov inflation expectations report was mixed. The Nov 1-year inflation expectations eased to a 3-3/4 year low of 2.6% from 2.7% in Oct, better than expectations of no change at 2.7%. However, the Nov 5-10 year inflation expectations rose to 3.1% from 3.0% in Oct, stronger than expectations of no change at 3.0%.

Some negative corporate news limited the upside in stocks. Akamai Technologies closed down more than -14% after cutting its full-year adjusted EPS estimate. Arista Networks closed down more than -7% after forecasting fiscal 2025 revenue growth below consensus.

Of the companies in the S&P 500 that have released Q3 earnings so far, 78% surpassed estimates. According to Bloomberg Intelligence, companies in the S&P 500 are expected to report an average +4.3% y/y increase in quarterly earnings in Q3, down from the +7.9% y/y growth consensus seen in July.

The markets are discounting the chances at 65% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets Friday settled mixed. The Euro Stoxx 50 closed down -1.01%. China's Shanghai Composite Index fell back from a 1-month high and closed down -0.53%. Japan's Nikkei Stock 225 closed up +0.30%.

Interest Rates

December 10-year T-notes (ZNZ24) Friday closed up by +3 ticks. The 10-year T-note yield fell -1.2 bp to 4.314%. Dec T-notes Friday posted modest gains on carryover support from a rally in European government bonds. T-notes also have carryover support from Thursday when the FOMC cut the federal funds target range by -25 bp. In addition, Friday’s -2% decline in WTI crude oil prices has dampened inflation expectations, a bullish factor for T-notes.

T-notes fell back from their best levels Friday after the University of Michigan US Nov consumer sentiment index rose more than expected to a 7-month high. Also, Friday’s rally in the S&P 500 to a new record high curbed safe-haven demand for T-notes.

European government bond yields Friday moved lower. The 10-year German bund yield fell -7.8 bp to 2.367%. The 10-year UK gilt yield fell to a 1-week low of 4.415% and finished down -6.3 bp to 4.435%.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 17% for a -50 bp rate cut at the same meeting.

US Stock Movers

Axon Enterprise closed up more than +28% to lead gainers in the S&P 50 after raising its full-year revenue outlook to +$2.07 billion from a previous estimate of +$2.00 billion-$2.05 billion, better than the consensus of $2.04 billion.

Insulet Corp closed up more than +9% after reporting Q3 adjusted EPS of 90 cents, well above the consensus of 71 cents.

Fortinet closed up more than +9% to lead gainers in the Nasdaq 100 after reporting Q3 adjusted EPS of 63 cents, better than the consensus of 52 cents, and forecast full-year adjusted EPS of $2.20-$2.28, well above the consensus of $2.06.

Molson Coors Beverage closed up more than +4% after Wells Fargo Securities double-upgraded the stock to overweight from underweight with a price target of $74.

Doximity closed up more than +34% after reporting Q2 revenue of $136.8 million, above the consensus of $127.1 million, and raising its 2025 revenue forecast to $535 million-$540 million from $514 million-$523 million, well above the consensus of $520.3 million.

Five9 Inc closed up more than +12% after reporting Q3 adjusted EPS of 67 cents, stronger than the consensus of 59 cents, and raising its full-year adjusted EPS forecast to $2.36-$2.38 from a prior view of $2.25-$2.29, better than the consensus of $2.27.

Upstart closed up more than +46% after reporting Q3 adjusted loss per share of -6 cents, a smaller loss than the consensus of -14 cents.

BILL Holdings closed up more than +17% after reporting Q1 adjusted EPS of 63 cents, better than the consensus of 50 cents, and raising its 2025 adjusted EPS forecast to $1.65-$1.83 from a previous forecast of $1.36-$1.61, stronger than the consensus of $1.55.

Expedia Group closed up more than +3% after reporting Q3 adjusted EPS of $6.13, stronger than the consensus of $6.10.

Akamai Technologies closed down more than -14% to lead losers in the S&P 500 after cutting its full-year adjusted EPS estimate to $6.31-$6.38 from a previous estimate of $6.34-$6.47.

Airbnb closed down more than -8% to lead losers in the Nadaq 100 after reporting Q3 EPS of $2.13, weaker than the consensus of $2.15.

Mettler-Toledo International closed down more than -7% after forecasting Q4 adjusted EPS of $11.63-$11.78, weaker than the consensus of $11.88.

Arista Networks closed down more than -7% after forecasting fiscal 2025 revenue growth of 15% to 17%, weaker than the consensus of 18%.

Baxter International closed down more than -3% after cutting its full-year sales estimate to up +1% to +2% from a previous estimate of up +3%.

Pinterest closed down more than -13% after forecasting Q4 revenue of $1.13 billion-$1.15 billion, the midpoint below the consensus of $1.15 billion.

Cloudflare closed down more than -4% after forecasting Q4 revenue of $451 million-$452 million, below the consensus of $455.6 million.

US-listed Chinese stocks were under pressure Friday after the Chinese government announced a plan to refinance local government debt but stopped short of announcing other measures to boost housing and consumption. As a result, Alibaba Group Holding , JD.com , Baidu , PDD Holdings , and NetEase closed down more than -3%.

Earnings Reports (11/11/2024)

Aramark (ARMK), Assured Guaranty Ltd (AGO), IAC Inc (IAC), Live Nation Entertainment Inc (LYV).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.

The S&P 500 Index today is up +0.32%, the Dow Jones Industrials Index is up +0.62%, and the Nasdaq 100 Index is down -0.11%.

Stocks today are mostly higher, with the S&P 500 and the Dow Jones Industrials posting new all-time highs. Stocks have rallied sharply this week on speculation President-elect Trump will boost corporate profits through tax cuts and reduced regulation. Also, bond yields are moving lower today and supporting stocks on carryover support from Thursday when the FOMC cut the federal funds rate target by 25 bp. In addition, Axon Enterprise is up more than +16% after raising its full-year revenue outlook, and Expedia Group is up more than +7% after reporting Q3 adjusted EPS above consensus.

Today’s US economic news bolsters the outlook for a soft landing and is supportive of stocks after the

University of Michigan US Nov consumer sentiment index rose +2.5 to a 7-month high of 73.0, stronger than expectations of 71.0.

The University of Michigan US Nov inflation expectations report was mixed. The Nov 1-year inflation expectations eased to a 3-3/4 year low of 2.6% from 2.7% in Oct, better than expectations of no change at 2.7%. However, the Nov 5-10 year inflation expectations rose to 3.1% from 3.0% in Oct, stronger than expectations of no change at 3.0%.

Some negative corporate news limited the upside in stocks. Akamai Technologies down more than -11% after cutting its full-year adjusted EPS estimate. Arista Networks down more than -6% after forecasting fiscal 2025 revenue growth below consensus.

Of the companies in the S&P 500 that have released Q3 earnings so far, 78% surpassed estimates. According to Bloomberg Intelligence, companies in the S&P 500 are expected to report an average +4.3% y/y increase in quarterly earnings in Q3, down from the +7.9% y/y growth consensus seen in July.

The markets are discounting the chances at 68% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets today are mixed. The Euro Stoxx 50 is down -1.02%. China's Shanghai Composite Index fell back from a 1-month high and closed down -0.53%. Japan's Nikkei Stock 225 closed up +0.30%.

Interest Rates

December 10-year T-notes (ZNZ24) today are up by +13 ticks. The 10-year T-note yield is down -4.7 bp at 4.279%. Dec T-notes today are moderately higher on carryover support from a rally in European government bonds. T-notes also have carryover support from Thursday when the FOMC cut the federal funds target range by -25 bp. In addition, today’s -2% decline in WTI crude oil prices has dampened inflation expectations, a bullish factor for T-notes.

European government bond yields today are moving lower. The 10-year German bund yield is down -8.1 bp at 2.364%. The 10-year UK gilt yield fell to a 1-week low of 4.415% and is down -7.4 bp at 4.425%.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 16% for a -50 bp rate cut at the same meeting.

US Stock Movers

Axon Enterprise is up more than +16% to lead gainers in the S&P 50 after raising its full-year revenue outlook to +$2.07 billion from a previous estimate of +$2.00 billion-$2.05 billion, better than the consensus of $2.04 billion.

Insulet Corp is up more than +9% after reporting Q3 adjusted EPS of 90 cents, well above the consensus of 71 cents.

Expedia Group is up more than +7% after reporting Q3 adjusted EPS of $6.13, stronger than the consensus of $6.10.

Molson Coors Beverage is up more than +5% after Wells Fargo Securities double-upgraded the stock to overweight from underweight with a price target of $74.

Doximity is up more than +35% after reporting Q2 revenue of $136.8 million, above the consensus of $127.1 million, and raising its 2025 revenue forecast to $535 million-$540 million from $514 million-$523 million, well above the consensus of $520.3 million.

Five9 Inc is up more than +13% after reporting Q3 adjusted EPS of 67 cents, stronger than the consensus of 59 cents, and raising its full-year adjusted EPS forecast to $2.36-$2.38 from a prior view of $2.25-$2.29, better than the consensus of $2.27.

Upstart is up more than +41% after reporting Q3 adjusted loss per share of -6 cents, a smaller loss than the consensus of -14 cents.

BILL Holdings is up more than +12% after reporting Q1 adjusted EPS of 63 cents, better than the consensus of 50 cents, and raising its 2025 adjusted EPS forecast to $1.65-$1.83 from a previous forecast of $1.36-$1.61, stronger than the consensus of $1.55.

Home Depot and Lowe’s are up more than +1% after Telsey Advisory Group upgraded the stocks to outperform from market perform, with a price target of $455 for Home Depot and $305 for Lowe’s.

Akamai Technologies is down more than -12% to lead losers in the S&P 500 after cutting its full-year adjusted EPS estimate to $6.31-$6.38 from a previous estimate of $6.34-$6.47.

Airbnb is down more than -9% to lead losers in the Nadaq 100 after reporting Q3 EPS of $2.13, weaker than the consensus of $2.15.

Mettler-Toledo International is down more than -6% after forecasting Q4 adjusted EPS of $11.63-$11.78, weaker than the consensus of $11.88.

Arista Networks is down more than -6% after forecasting fiscal 2025 revenue growth of 15% to 17%, weaker than the consensus of 18%.

Baxter International is down more than -4% after cutting its full-year sales estimate to up +1% to +2% from a previous estimate of up +3%.

Pinterest is down more than -14% after forecasting Q4 revenue of $1.13 billion-$1.15 billion, the midpoint below the consensus of $1.15 billion.

Cloudflare is down more than -7% after forecasting Q4 revenue of $451 million-$452 million, below the consensus of $455.6 million.

US-listed Chinese stocks are under pressure today after the Chinese government announced a plan to refinance local government debt but stopped short of announcing other measures to boost housing and consumption. As a result, Alibaba Group Holding , JD.com , Baidu , PDD Holdings , and NetEase are down more than -5%.

Earnings Reports (11/8/2024)

Advanced Drainage Systems Inc (WMS), Baxter International Inc (BAX), CNH Industrial NV (CNH), Dillard's Inc (DDS), Flowers Foods Inc (FLO), Fortrea Holdings Inc (FTRE), Lamar Advertising Co (LAMR), NRG Energy Inc (NRG), Paramount Global (PARA), RB Global Inc (RBA).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.

The S&P 500 Index today is up +0.17%, the Dow Jones Industrials Index is up +0.19%, and the Nasdaq 100 Index is down -0.05%.

Stocks today are mostly higher, with the S&P 500 and the Dow Jones Industrials posting new all-time highs. Stocks have rallied sharply this week on speculation President-elect Trump will boost corporate profits through tax cuts and reduced regulation. Also, bond yields are moving lower today and supporting stocks on carryover support from Thursday when the FOMC cut the federal funds rate target by 25 bp. In addition, Axon Enterprise is up more than +10% after raising its full-year revenue outlook, and Expedia Group is up more than +6% after reporting Q3 adjusted EPS above consensus.

Some negative corporate news limited the upside in stocks, with Akamai Technologies down more than -10% after cutting its full-year adjusted EPS estimate and Arista Networks down more than -6% after forecasting fiscal 2025 revenue growth below consensus.

Of the companies in the S&P 500 that have released Q3 earnings so far, 78% surpassed estimates. According to Bloomberg Intelligence, companies in the S&P 500 are expected to report an average +4.3% y/y increase in quarterly earnings in Q3, down from the +7.9% y/y growth consensus seen in July.

The markets are discounting the chances at 71% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets today are mixed. The Euro Stoxx 50 is down -0.82%. China's Shanghai Composite Index fell back from a 1-month high and closed down -0.53%. Japan's Nikkei Stock 225 closed up +0.30%.

Interest Rates

December 10-year T-notes (ZNZ24) today are up by +4 ticks. The 10-year T-note yield is down -2.3 bp at 4.302%. Dec T-notes today are moderately higher on carryover support from a rally in European government bonds. T-notes also have carryover support from Thursday when the FOMC cut the federal funds target range by -25 bp. The weakness in stocks today has also prompted some mild short covering in T-notes.

European government bond yields today are moving lower. The 10-year German bund yield is down -5.0 bp at 2.395%. The 10-year UK gilt yield is down -4.7 bp at 4.452%.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 13% for a -50 bp rate cut at the same meeting.

US Stock Movers

Axon Enterprise is up more than +10% to lead gainers in the S&P 50 after raising its full-year revenue outlook to +$2.07 billion from a previous estimate of +$2.00 billion-$2.05 billion, better than the consensus of $2.04 billion.

Insulet Corp is up more than +10% after reporting Q3 adjusted EPS of 90 cents, well above the consensus of 71 cents.

Expedia Group is up more than +5% after reporting Q3 adjusted EPS of $6.13, stronger than the consensus of $6.10.

Molson Coors Beverage is up more than +4% after Wells Fargo Securities double-upgraded the stock to overweight from underweight with a price target of $74.

Doximity is up more than +38% after reporting Q2 revenue of $136.8 million, above the consensus of $127.1 million, and raising its 2025 revenue forecast to $535 million-$540 million from $514 million-$523 million, well above the consensus of $520.3 million.

Five9 Inc is up more than +16% after reporting Q3 adjusted EPS of 67 cents, stronger than the consensus of 59 cents, and raising its full-year adjusted EPS forecast to $2.36-$2.38 from a prior view of $2.25-$2.29, better than the consensus of $2.27.

Upstart is up more than +37% after reporting Q3 adjusted loss per share of -6 cents, a smaller loss than the consensus of -14 cents.

BILL Holdings is up more than +16% after reporting Q1 adjusted EPS of 63 cents, better than the consensus of 50 cents, and raising its 2025 adjusted EPS forecast to $1.65-$1.83 from a previous forecast of $1.36-$1.61, stronger than the consensus of $1.55.

Home Depot and Lowe’s are up more than +1% after Telsey Advisory Group upgraded the stocks to outperform from market perform, with a price target of $455 for Home Depot and $305 for Lowe’s.

Airbnb is down more than -9% after reporting Q3 EPS of $2.13, weaker than the consensus of $2.15.

Akamai Technologies is down more than -10% to lead losers in the S&P 500 after cutting its full-year adjusted EPS estimate to $6.31-$6.38 from a previous estimate of $6.34-$6.47.

Mettler-Toledo International is down more than -7% after forecasting Q4 adjusted EPS of $11.63-$11.78, weaker than the consensus of $11.88.

Arista Networks is down more than 5% after forecasting fiscal 2025 revenue growth of 15% to 17%, weaker than the consensus of 18%.

Baxter International is down more than -5% after cutting its full-year sales estimate to up +1% to +2% from a previous estimate of up +3%.

Pinterest is down more than -12% after forecasting Q4 revenue of $1.13 billion-$1.15 billion, the midpoint below the consensus of $1.15 billion.

Cloudflare is down more than -7% after forecasting Q4 revenue of $451 million-$452 million, below the consensus of $455.6 million.

US-listed Chinese stocks are under pressure today after the Chinese government announced a plan to refinance local government debt but stopped short of announcing other measures to boost housing and consumption. As a result, Alibaba Group Holding , JD.com , Baidu , PDD Holdings , and NetEase are down more than -3%.

Earnings Reports (11/8/2024)

Advanced Drainage Systems Inc (WMS), Baxter International Inc (BAX), CNH Industrial NV (CNH), Dillard's Inc (DDS), Flowers Foods Inc (FLO), Fortrea Holdings Inc (FTRE), Lamar Advertising Co (LAMR), NRG Energy Inc (NRG), Paramount Global (PARA), RB Global Inc (RBA).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.

The Conglomerates group has plenty of great stocks, but investors should always be looking for companies that are outperforming their peers. Has Bunzl PLC (BZLFY) been one of those stocks this year? Let's take a closer look at the stock's year-to-date performance to find out.

Bunzl PLC is one of 24 individual stocks in the Conglomerates sector. Collectively, these companies sit at #1 in the Zacks Sector Rank. The Zacks Sector Rank gauges the strength of our 16 individual sector groups by measuring the average Zacks Rank of the individual stocks within the groups.

The Zacks Rank is a proven system that emphasizes earnings estimates and estimate revisions, highlighting a variety of stocks that are displaying the right characteristics to beat the market over the next one to three months. Bunzl PLC is currently sporting a Zacks Rank of #2 (Buy).

Within the past quarter, the Zacks Consensus Estimate for BZLFY's full-year earnings has moved 6.5% higher. This is a sign of improving analyst sentiment and a positive earnings outlook trend.

Based on the latest available data, BZLFY has gained about 10% so far this year. Meanwhile, stocks in the Conglomerates group have lost about 3.7% on average. This means that Bunzl PLC is outperforming the sector as a whole this year.

One other Conglomerates stock that has outperformed the sector so far this year is Federal Signal (FSS). The stock is up 15.5% year-to-date.

For Federal Signal, the consensus EPS estimate for the current year has increased 2.9% over the past three months. The stock currently has a Zacks Rank #2 (Buy).

Breaking things down more, Bunzl PLC is a member of the Diversified Operations industry, which includes 24 individual companies and currently sits at #61 in the Zacks Industry Rank. Stocks in this group have lost about 3.7% so far this year, so BZLFY is performing better this group in terms of year-to-date returns. Federal Signal is also part of the same industry.

Going forward, investors interested in Conglomerates stocks should continue to pay close attention to Bunzl PLC and Federal Signal as they could maintain their solid performance.

Zacks Investment Research

The Zacks Diversified Operations industry is poised to benefit from strength across aerospace, defense, and oil & gas industries. Growth in the commercial aviation sector and solid demand across medical and life science end markets have been driving the performances of the industry participants. Higher infrastructure development, product innovation efforts and technological advancements in business operations have been acting as other tailwinds.

However, challenges in the manufacturing sector and supply-chain issues have been weighing on the performances of some industry players. PDD Holdings Inc. PDD and Federal Signal Corporation FSS are a couple of stocks poised to take advantage of the buoyancy in the industry.

About the Industry

The Zacks Diversified Operations industry includes companies that operate in various end markets, including oil and gas, industrial, electronics, power, aviation, technology, finance, healthcare, chemical, non-residential construction and transportation. Such companies manufacture and provide equipment and solutions, including bioprocessing products, molecular testing-related products, gas and steam turbines, generators, commercial jet engines and engineered fluid-process equipment. Industry players also provide related services to a large customer base. A few companies offer services in the agriculture, marine and telecommunications markets, and are engaged in providing environmental and safety solutions. The diversified market operators have a vast global presence, with exposure in the United States, Japan, India, China, Canada and other countries.

Major Trends Shaping the Future of the Diversified Operations Industry

Strength in Aerospace & Defense Markets: The prospects of multi-sector companies are closely linked to the operating conditions of end markets. Some factors that currently favor the industry are strong demand from the defense and governmental sectors, higher exploration activities in the oil and gas industry, and infrastructure development. Industry players with exposure in the commercial aviation markets are poised to gain from healthy growth in air transport flight hours. Also, solid demand for several products and equipment in the medical and life science markets bode well for some industry participants.

Investments in Innovation & Technological Advancements: The industry players’ constant focus on innovation, product upgrades and the development of products to stay competitive in the market should drive growth. With the gradual development of business models and cutting-edge technologies, several industry players have been banking on digitizing their business operations. Digitization enables industry participants to boost their competitiveness through enhanced operational productivity, product quality and better cost management.

Weakness in the Manufacturing Sector: Persistent weakness in the manufacturing sector has been denting demand in the industry. Per the Institute for Supply Management’s (“ISM”) report, the Manufacturing Purchasing Manager’s Index touched 46.5% in October, down from 47.2% in September and August. A figure less than 50% indicates a contraction in manufacturing activity. After breaking a contraction streak of 16 months by growing in March, the manufacturing sector contracted for the seventh consecutive month in October. Also, the New Orders Index remained in the contraction territory for the seventh consecutive month, registering 47.1% in October.

Supply-Chain Disruptions: Lately, supply-chain disruptions, especially related to the availability of electrical and electronic components, have been of concern to industry participants. This is evident from the latest ISM report’s Supplier Deliveries Index, which reflected slower deliveries for the fourth consecutive month in October. Supply-chain issues, if not controlled, might hinder growth of diversified operation companies, going forward.

Zacks Industry Rank Suggests Strong Prospects

The Zacks Diversified Operations industry, housed within the broader Zacks Conglomerates sector, currently carries a Zacks Industry Rank #61. This rank places it in the top 24% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates robust prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are keeping more faith in this group's earnings growth potential. The industry’s earnings estimates for the current year have increased 14.4% in the past year.

Given the bullish near-term prospects of the industry, we will present a couple of stocks that you may want to consider for your portfolio. However, it is worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Lags the S&P 500

Over the past year, the Zacks Diversified Operations industry has underperformed the S&P 500 composite. The industry has risen 13.7% compared with the S&P 500 Index’s 36.6% growth.

One-Year Price Performance

Industry's Current Valuation

On the basis of forward P/E (F12M), which is a commonly used multiple for valuing diversified operations stocks, the industry is currently trading at 15.42X compared with the S&P 500’s 22.43X.

Over the past five years, the industry has traded as high as 38.15X and as low as 15.42X, with a median of 20.62X, as the chart below shows:

Price-to-Earnings Ratio Versus S&P 500

2 Diversified Operations Stocks to Buy

PDD Holdings: Based in Dublin, Ireland, it is a multi-national commerce group that operates a portfolio of businesses. PDD Holdings’ strength in its e-commerce business model is a major positive. Solid momentum in the Pinduoduo platform on the back of a wide range of product offerings, which include agricultural produce, apparel, shoes, mother and childcare products, food and beverage, electronic appliances, furniture, and household goods, is primarily driving PDD Holdings’ e-commerce business growth. PDD’s strengthening Temu platform, which is an innovative online marketplace capitalizing on online ads, social media, coupon codes, and games to attract and retain users, is another positive.

Estimates for PDD’s 2024 earnings have improved 0.5% in the past 60 days. It surpassed earnings estimates in each of the last four quarters, delivering a surprise of 41.1%, on average. Shares of this Zacks Rank #2 (Buy) company have increased 16.2% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: PDD

Federal Signal: This Oak Brook, IL-based company provides a suite of products and integrated solutions for municipal, governmental and commercial customers. Federal Signal is well-poised to benefit from robust aftermarket demand and strong order intake, supported by effective pricing actions. Growth in demand for public safety equipment, road-marking and line-removal products and services has been driving its performance.

Shares of this Zacks Rank #2 company have jumped 38.9% over the past year. The Zacks Consensus Estimate for 2024 earnings has been revised 1.2% upward over the past 60 days. It beat estimates in each of the last four reported quarters, delivering an average earnings surprise of 11.8%.

Price and Consensus: FSS

Investors seek growth stocks to capitalize on above-average growth in financials that help these securities grab the market's attention and produce exceptional returns. But finding a great growth stock is not easy at all.

That's because, these stocks usually carry above-average risk and volatility. In fact, betting on a stock for which the growth story is actually over or nearing its end could lead to significant loss.

However, the Zacks Growth Style Score (part of the Zacks Style Scores system), which looks beyond the traditional growth attributes to analyze a company's real growth prospects, makes it pretty easy to find cutting-edge growth stocks.

Federal Signal (FSS) is on the list of such stocks currently recommended by our proprietary system. In addition to a favorable Growth Score, it carries a top Zacks Rank.

Research shows that stocks carrying the best growth features consistently beat the market. And for stocks that have a combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy), returns are even better.

While there are numerous reasons why the stock of this company that makes products ranging from street sweepers to toll booth technology for government, industrial and commercial customers is a great growth pick right now, we have highlighted three of the most important factors below:

Earnings Growth

Arguably nothing is more important than earnings growth, as surging profit levels is what most investors are after. For growth investors, double-digit earnings growth is highly preferable, as it is often perceived as an indication of strong prospects (and stock price gains) for the company under consideration.

While the historical EPS growth rate for Federal Signal is 12.7%, investors should actually focus on the projected growth. The company's EPS is expected to grow 26.1% this year, crushing the industry average, which calls for EPS growth of 11.1%.

Cash Flow Growth

While cash is the lifeblood of any business, higher-than-average cash flow growth is more important and beneficial for growth-oriented companies than for mature companies. That's because, growth in cash flow enables these companies to expand their businesses without depending on expensive outside funds.

Right now, year-over-year cash flow growth for Federal Signal is 24%, which is higher than many of its peers. In fact, the rate compares to the industry average of -7.7%.

While investors should actually consider the current cash flow growth, it's worth taking a look at the historical rate too for putting the current reading into proper perspective. The company's annualized cash flow growth rate has been 11.8% over the past 3-5 years versus the industry average of 9.7%.

Promising Earnings Estimate Revisions

Superiority of a stock in terms of the metrics outlined above can be further validated by looking at the trend in earnings estimate revisions. A positive trend is of course favorable here. Empirical research shows that there is a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

There have been upward revisions in current-year earnings estimates for Federal Signal. The Zacks Consensus Estimate for the current year has surged 3.5% over the past month.

Bottom Line

Federal Signal has not only earned a Growth Score of B based on a number of factors, including the ones discussed above, but it also carries a Zacks Rank #2 because of the positive earnings estimate revisions.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

This combination indicates that Federal Signal is a potential outperformer and a solid choice for growth investors.

Zacks Investment Research