Today's Must Read
Digital Transformation and Acquisitions Aid salesforce (CRM)
Low Costs Help Union Pacific (UNP), Freight Revenues Hurt
Wednesday, August 19, 2020
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 Alphabet (GOOGL), salesforce.com (CRM) and Union Pacific (UNP). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Alphabet shares have underperformed the Zacks Internet Services industry in the year-to-date period (+16.2% vs. +20.7%), reflecting the cyclical exposure to advertising spending trends. The near-term headwinds notwithstanding, the Zacks analyst believes that expanding data centers will continue to bolster its presence in the cloud space. Further, major updates in the search segment are enhancing the search results, which is a major positive.
Alphabet reported strong second-quarter earnings. The cloud and YouTube businesses remained strong, while digital advertising growth slowed down in the quarter due to the pandemic. The company’s strengthening cloud unit aided substantial revenue growth.
Moreover, Google’s robust mobile search is gaining solid momentum. Additionally, strong focus on innovation of AI techniques and the home automation space should aid business growth in the long term. However, the company’s growing litigation issues and increasing expenses might hurt profitability.
Shares of salesforce have gained +5.8% over the past six months against the Zacks Tech sector's +11.9% gain over the same time period. The Zacks analyst believes that salesforce is benefiting from a robust demand environment as customers are undergoing a major digital transformation.
The rapid adoption of its cloud-based solutions is driving demand for its products. Salesforce’s sustained focus on introducing more aligned products as per customer needs is driving its top-line. Continued deal wins in the international market is another growth driver. Furthermore, the recent acquisition of Tableau positions the company to be a leader in business analytics for actionable results in everything from operations to HR.
However, stiff competition from Oracle and Microsoft is a concern. Besides, unfavorable currency fluctuations along with increasing investments in international expansions and data centers are an overhang on near-term profitability.
Union Pacific shares have gained +15.4% over the past three months against the Zacks Rail industry’s rise of +17.5%. The Zacks analyst is pleased by the company's efforts toward promoting safety and enhancing productivity.
Efforts to control costs, courtesy of the precision scheduled railroading model, are a positive, particularly, in the wake of revenue concerns. Mainly owing to cost-cutting efforts, operating ratio is predicted to improve in 2020. The company's ability to generate free cash flow (up 58.9% in first-half 2020) is also a boon. Uptick in the company's parcel business on buoyant e-commerce demand is another positive.
However, Union Pacific is suffering a dismal freight revenue scenario (down 14% in first-half 2020). Freight revenues are being hurt, mainly by coronavirus-induced depressed volumes (down 13% in first-half 2020). Weakness in the Bulk, Premium and Industrial units weighed on the overall volume picture. Overall volumes are likely to decline around 10% in the current year. Deterioration in the debt-to-EBITDA ratio is an added woe.
Other noteworthy reports we are featuring today include Netflix (NFLX), TC Energy (TRP) and Paychex (PAYX).
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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>>>