Today's Must Read
Pricing Aids Phillip Morris (PM), Travel Restrictions Hurt
Square (SQ) Banks on Solid Cash App Adoption, Bitcoin Growth
Wednesday, September 23, 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 AT&T (T), Philip Morris International (PM) and Square (SQ). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
AT&T shares' underperformance of the Zacks Wireless National industry in the year-to-date period (-27% vs. -3.5%) reflects the market's negative outlook for the business given competitive challenges on the wireless side and secular issues on the wirlines/Time Warner side, in addition to a debt-heavy balance sheet. But the Zacks analyst believes that AT&T is well placed to benefit from the streaming services of its newly launched HBO Max.
The company is committed to a three-year financial framework with sustained investments and debt-reduction efforts. However, AT&T is witnessing a steady decline in linear TV subscribers, legacy services and wireline division.
Continued cord-cutting remains a perennial challenge as consumers increasingly cancel pay TV packages for cheaper streaming options. As it tries to woo customers with discounts, freebies and cash credits, margins tend to fall. Spectrum crunch in a saturated wireless market is another operational headwind.
AT&T intends to deploy a standards-based, nationwide mobile 5G network to spur growth. The company expects to gain a competitive edge through edge computing services that offer the flexibility to better manage data traffic.
Shares of Philip Morris have gained +7.6% over the past year against the Zacks Tobacco industry’s rise of +0.5%. The Zacks analyst believes that the company has been benefiting from its pricing power, which also aided its second-quarter 2020 results. During the quarter, both top and bottom lines beat the consensus mark.
Notably, favorable pricing variance was an upside, though it was countered by adverse volume/mix, mainly stemming from low cigarette volumes. The company has been battling soft cigarette volumes for a while due to rising health consciousness and stern regulations.
Apart from this, management does not expect a near-term recovery in the duty-free business due to travel-related uncertainties amid the pandemic. Also, a delay in minimum price enforcement in Indonesia is a concern. All said, revenues are likely to decline in 2020. Nonetheless, strength in RRPs, especially IQOS, is expected to offer respite.
Square shares have gained +236% over the past six months against the Zacks Internet Software industry’s rise of +93.6% on the back of gains from strong Cash App engagement and its growing active customer base.
Further, growing bitcoin revenues owing to robust Cash App are contributing well to the top-line. Furthermore, strong adoption of Cash Card is a major positive. Additionally, the company’s strengthening momentum in online channels and growing card-not-present GPV are expected to remain tailwinds. Moreover, robust online products, such as Square Online Store, Invoices, Virtual Terminal and eCommerce API are expected to accelerate the GPV growth in the near term.
However, weak momentum across seller ecosystem owing to COVID-19 led shelter-in-place restrictions is a major concern. Further, declining unit sales of hardware devices is an overhang. Also, rising product development expenses are risks.
Other noteworthy reports we are featuring today include Zoom Video Communications (ZM), Royal Dutch Shell (RDS.A) and Vale (VALE).
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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>>>