Monday April 24, 2017
The Zacks Research Daily features the best research output of our analyst team. In today’s write-up, we are featuring analyst reports on 17 major stocks, including reports on General Electric (GE), Bank of America (BAC), UnitedHealth (UNH) and Phillip Morris (PM). These reports have been hand-picked from amongst the 70 or so stock research reports published by our analyst team today. You can see all of today’s research reports here >>
In addition to these stock research reports, we are also giving you a real-time scorecard of the ongoing Q1 earnings season whose reporting pace ramps up in a big way this week with almost 800 companies coming out with quarterly results, including 191 S&P 500 members. By the end of this week, we will have crossed the halfway mark in the Q1 reporting cycle.
You can read more about our views about this earnings season in the weekly Earnings Trends report >>> Earnings Growth Accelerates in Q1
Q1Earnings Scorecard (as of Monday, April 24th)
Including all of this morning’s releases, we now have Q1 results from 100 S&P 500 members that combined account for 25.6% of the index's total market capitalization. Total earnings for these 100 index members are up +14.1% on +4.6% higher revenues, with 74% beating EPS estimates and 62% beating revenue estimates.
This is better earnings and revenue growth performance than we have seen from this group of 100 S&P 500 members in other recent periods, even after adjusting for the strong growth from the Finance sector.
For the Finance sector, we now have Q1 results from 48.9% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Finance companies are up +23% from the same period last year on +7.7% higher revenues, with 71.4% beating EPS estimates and 60.7% beating revenue estimates. This is better earnings and revenue growth rate for the Finance sector than we have seen in other recent periods.
Excluding the Finance sector, total earnings for the rest of the S&P 500 companies that have reported would be up +8% on +3.5% higher revenues from the year-earlier level.
Looking at Q1 as a whole, combining the actual results from the 100 index members with estimates from the still-to-come 400 companies, total earnings are expected to be up +9% from the same period last year on +6.6% higher revenues, the best earnings and revenue growth pace in more than two years. Excluding the Finance sector, total Q1 earnings would be up only +1% on +6.6% higher revenues.
Today’s Featured Research Reports
GE shares have struggled over the past year on concerns about the conglomerate's long-term earnings power and the issues aren't going away in response to Friday's seemingly better than expected quarterly report. The company beat EPS and revenue estimates and came out with improved industrial margins and backlog. But cash flow measures were on the weak side, highlighting once again issues of earnings quality. On the positive side, management reiterated guidance for 2017 and expects a steady rise in operating profits with a healthy ROI from the Alstom (PA:ALSO) deal and the accretive Baker Hughes transaction. General Electric further aims to grow its 3D manufacturing business to $1 billion by 2020 through opportune acquisitions. To that end, it is enjoying strong momentum in the power and aviation end markets, partly offset by continued weakness in the energy space. (You can read the full research report on General Electric here >>>)
Bank of America shares have lost ground since the market's March 1st peak on policy uncertainty and downtrend in treasury yields. But the stock has turned around in recent days, with the strong Q1 earnings report helping sentiment as well. The stock is down -7.9% since March 1st vs. -1.9% decline for the S&P 500, but is still up +6.3% in the year-to-date period vs. +5% for the index. The company's efforts to streamline and simplify operations continue to enhance efficiency, narrowing the gap with its peers. But the stock's near-term performance will likely continue to reflect macro developments on the interest rate and fiscal policy fronts. (You can read the full research report on Bank of America here >>>)
UnitedHealth shares were up big on last week's strong quarterly report when it beat on the top- and bottom-lines and guided higher on the back of positive momentum in its Health Care and Optum segments. This Buy-rated stock was lagging the S&P 500 index prior to the earnings release, but has clearly broken out to the upside since then - it is up now +7.5% in the year-to-date period vs. +4.9% gain for the index. The Zacks analyst likes that fact that the company is consistently gaining from the Medicaid and Medicare businesses. Continued growth at Optum is also creating a diversified revenue source. Also, UnitedHealth should benefit from its capital strength and niche market position. But losses on public exchange business and higher operating costs are some of the headwinds. (You can read the full research report on UnitedHealth here >>>)
Philip Morris International's Q1 results lagged estimates on a bigger than expected volume drop, particularly at the low end of the market. Many analysts see the market share loss in Q1 as in-line with management's 'premium-ization' strategy and don't see it as cause for concern, but it nevertheless merits monitoring over the next few quarters, particularly given the stock's recent outperformance (PM is up +20.2% in the year-to-date period vs. +13% for the industry and +4.1% for the S&P 500 index). The stock has historically been a defensive dividend play (current yield an attractive 3.8%), but its recent performance puts it in an altogether category. Driving this momentum has been the company's improved operating outlook and expectations of greater consolidation in the space. Market participants likely need to be mindful of valuation questions as well given the stock's impressive run up, particularly in a backdrop of unfavorable currencies (all of PM's revenues come from beyond the U.S.) and market share concerns following the Q1 shortfall. (You can read the full research report on Philip Morris here >>>)
Other noteworthy reports we are featuring today include Morgan Stanley (NYSE:MS), Qualcomm (QCOM) and Kinder Morgan (NYSE:KMI).
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Just released, today's 220 Zacks Rank #5 Strong Sells demand urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. These sinister companies because many appear to be sound investments. However, from 1988 through 2016, stocks from our Strong Sell list have actually performed 6X worse than the S&P 500.
See today's Zacks "Strong Sells" absolutely free >>.
Sheraz Mian
Director of Research
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
Featured Reports
Kinder Morgan (KMI) Q1 Earnings Miss, Increases Y/Y
The covering analyst believes that the surge in CO2 volumes led Kinder Morgan to report year-over-year increase in Q1 earnings. However, the company missed the Zacks Consensus Estimate in the quarter.
Qualcomm (QCOM) Q2 Earnings Beats Estimates, Revenues Miss
The Zacks analyst thinks intense competition may have driven down Qualcomm's revenues in the second quarter 2017. Amid losses, Qualcomm shipped 398???402 million 3G/4G handsets in the reported quarter.
Lincoln Electric (LECO) Q1 Earnings Beat, Prospects Bright
The Zacks analyst expects Lincoln Electric to gain from the execution of its 2020 vision. Focus on cost reduction, acquisitions, solid product pipeline and strong cash flow generation will aid growth.
Textron (NYSE:TXT) Reports In-Line Q1 Earnings, Misses Sales Estimate
The covering analyst thinks poor performance at the Bell unit primarily hurt Textron's Q1 revenue and no improvement can be expected in the near term.
NVR, Inc. (NVR) Tops Q1 Earnings, Rising Cost Concerns
NVR's earnings beat analysts' expectation by 27.3% and rose 59% due to reduction in the company's effective tax rate. Per the Zacks analyst, higher construction related costs raise concern.
CSX Corporation (NASDAQ:CSX) Beats on Q1 Earnings and Revenues
The covering analyst is pleased by the company's outperformance in Q1. Improvement in the coal revenues is also very encouraging.
D.R. Horton (DHI) Tops Q2 Earnings, Rate Hikes Raise Concern
High mortgage rates may act as a dampener, per the Zacks analyst.
New Upgrades
Morgan Stanley (MS) Q1 Results Show Improvement in Revenues
The Zacks analyst thinks Morgan Stanley's strategic initiatives to improve revenue are commendable. Also, the company remains on track to achieve its cost savings target by the end of this year.
Torchmark's (NYSE:TMK) Q1 Earnings Beat, Revenues Improve Y/Y
Torchmark's first-quarter 2017 earnings beat expectations and improved year over year on higher premiums at Life and Health segments, in turn fueling revenues. Share buyback too added to the earnings.
Maxim (MXIM) Beats Q3 Earnings and Revenues
With Maxim delivering strong Q3 results, the covering analyst believes the strong growth in automotive market and diversification strategy will help to improve the company's business going forward.
New Downgrades
Plexus (PLXS) Q2 Earnings Beat, Revenues Miss Estimates
Plexus Q2 revenues were marred by weakness in Communications segment. But the covering analyst thinks that program wins, cash flows and streamlining of operations should boost performance going ahead.
Fortune Brands (FBHS) Downgraded to Sell on Near-Term Headwinds
Fortune Brands' exposure to risks arising from international operations, stiff competition, uncertain economic conditions and high debt levels might hurt its financials in the quarters ahead.
eBay (EBAY) Beats Q1 Earnings and Revenue Estimates
eBay's Q1 results were driven by replatforming and brand enhancement efforts. However, the Zacks analyst opines that weak global economy, slow e-commerce growth and stiff competition remain overhangs.
UnitedHealth Group Incorporated (NYSE:UNH
QUALCOMM Incorporated (NASDAQ:QCOM
Philip Morris International Inc (NYSE:PM
Morgan Stanley (MS): Free Stock Analysis Report
Kinder Morgan, Inc. (KMI): Free Stock Analysis Report
General Electric Company (NYSE:GE
Bank of America Corporation (NYSE:BAC
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Zacks Investment Research