Monday, February 04, 2019
The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features new research reports on 16 major stocks, including Microsoft (MSFT), Facebook (FB) and UnitedHealth (UNH). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
You can see all of today’s research reports here >>>
Microsoft’s shares have lost 5% in the past six months, underperforming the Zacks Computer Software industry’s decline of 1.7% during the same period. Microsoft reported modest second-quarter results. Notably, both top and bottom line increased year over year.
Robust execution and better-than-expected demand from customers for hybrid cloud offerings drove the quarterly results. The Zacks analyst thinks Microsoft is benefiting from growing user base of its different applications like Office 365 commercial, Dynamics, Outlook mobile and Teams.
Moreover, Azure’s expanding customer base is a key catalyst. Microsoft’s gaming segment is performing well, primarily driven by a combination of Xbox Live, Game Pass subscriptions and Mixer, which are driving user engagement. Further, acquisitions like PlayFab and GitHub expand Microsoft’s TAM and penetration.
However, projections of a moderating growth rate in commercial cloud gross margin, and OEM Pro and Windows commercial businesses is a headwind. Also, competition is stiff and its dominant position in the PC market continues to be challenged.
(You can read the full research report on Microsoft here >>>).
Shares of Buy-ranked Facebook have outperformed the S&P 500 index over the past three months, gaining +11.4% vs. -0.7%. Facebook reported impressive fourth-quarter 2018 results, driven by solid ad revenues that benefited from impression growth on both Instagram Stories and Feed.
But the Zacks analyst thinks only Instagram Stories is likely to be the key catalyst for impression growth in 2019. Facebook needs to improve ad pricing to drive top-line growth. Further, the company’s plan to introduce commerce in Instagram is expected to be a major growth driver. Additionally, the company’s plan to integrate messaging apps — WhatsApp, Instagram, and Messenger – is expected to take time (not before 2020).
Management believes that the integration will boost user experience by making the services more secure through end-to-end encryption. However, continued mix shift toward Stories is expected to hurt ARPU.
(You can read the full research report on Facebook here >>>).
Strong Buy-ranked UnitedHealth’s shares have performed nearly in-line with the Zacks Medical Insurance industry's rally in the past year (up +22.1% vs. +22.5%). UnitedHealth Group’s fourth-quarter 2018 earnings of $3.28 per share beat expectations by 2.5% and increased 27% year over year.
Higher revenues, strength in both segments — UnitedHealthcare and Optum — plus membership growth led to this outperformance. The Zacks analyst likes UnitedHealth’s balance sheet strength, strong operating performance, favorable business profile and solid enterprise risk management. Increased earnings from operations are being driven by higher revenues, appropriate pricing, good medical cost management and operational efficiencies.
The company also benefits from services, technology and innovations from its segment Optum. However, slowdown of growth in international operations, Commercial and Medicare, Part D stand-alone membership, increase in leverage and interest burden and medical care ratio are some headwinds.
(You can read the full research report on UnitedHealth here >>>).
Other noteworthy reports we are featuring today include AT&T (T), Mastercard (MA) and ExxonMobil (XOM).
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Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>
Today's Must Read
Adoption of Azure & Office 365 Strength Aids Microsoft (MSFT)
Mobile Ad Growth, Instagram Strength Benefits Facebook (FB)
Strong Service and Benefits Business Aids UnitedHealth (UNH)
Revenue Growth, Solid Balance Sheet Aid Mastercard (MA)
Per the Zacks analyst increase in transactions , new deals, renewed agreements, expansion of services, investments in technology, drives revenue. A strong balance sheet allows strategic investments.
AT&T (T) Rides on 5G Boom & LTE Coverage
Per the Zacks analyst, AT&T remains poised to benefit from the impending 5G boom and extended LTE coverage despite margin woes driven by steady decline in linear TV subscribers and legacy services.
Weak Chemical Margins Continue to Hurt ExxonMobil (XOM)
The Zacks analyst thinks persistent weakness in chemicals margins and decline in seasonal demand for gasoline are major headwinds for ExxonMobil.
Restructuring Actions to Aid General Electric (GE)
Per the Zacks analyst, General Electric stands to gain from its restructuring actions which seek to transform it into an industrial giant with focus on Aviation, Power and Renewable Energy.
Stryker (SYK) Gains Ground on Core MedSurg's Solid Prospects
Stryker continues to gain from its core MedSurg unit. The Zacks analyst is optimistic about strength in the company's flagship Mako platform.
Orla Plant Aids Enterprise (EPD), Turnaround Activities Ail
The Zacks analyst expects rising gas processing capacity in the Orla plant to fuel Enterprise's growth. However, Seminole fractionator's turnaround activities hurt the partnership.
Enterprise Strategy to Aid Illinois Tool (ITW), Costs Drags
Per a Zacks analyst, Illinois Tool Works' margins will gain from its Enterprise Strategy.
Long-Term Investments, Renewable Focus Aid Xcel Energy (XEL)
Per the Zacks analyst, disciplined investments in infrastructure projects and focus on renewable expansion will strengthen Xcel Energy's existing operations.
Double-Double Program Aids Royal Caribbean's (RCL) Earnings
The Zacks analyst believes that Royal Caribbean's Double-Double program, a profitability improvement initiative, is contributing significantly toward increasing EPS and revenue yields.
Pharmaceutical & Specialty Solutions Arm Aids McKesson (MCK)
McKesson continues to gain from strength in its core U.S. Pharmaceutical and Specialty Solutions unit. The Zacks analyst is optimistic about the 10-year partnership signed with Rite Aid.
Waning Vehicle Production & High Costs Hurt Gentex (GNTX)
Per the Zacks analyst, reduced light vehicle production across major markets hurt Gentex's unit shipments and revenues. Further, high tariff costs and operating expenses are pressurizing its margins.
Weak Cloud & Service Provider Businesses Impair Juniper (JNPR)
Per the Zacks analyst, soft demand within the cloud vertical due to slower-than-expected pace of deployment by customers alongside weak service provider business hinder Juniper's top-line growth.
First Horizon (FHN) Exposed to Rising Costs & Legal Issues
Per the Zacks analyst, higher compensation and employee benefit costs as well as acquisition-related costs are likely to weigh on First Horizon's expense base. Also, legal issues remain a concern.
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